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spk37: Greetings and welcome to the Simon Property Group fourth quarter and full year 2023 earnings conference call. With this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tom Ward, Senior Vice President, Investor Relations. Thank you, Tom. You may begin.
spk24: Thank you, Paul, and thank you, everyone, for joining us this evening. Presenting on today's call are David Simon, Chairman, Chief Executive Officer and President, and Brian McDade, Chief Financial Officer. A quick reminder that statements made during this call may be deemed forward-looking statements within the meaning of the safe harbor of the Private Securities Litigation Reform Act of 1995, and that's where results may differ materially due to a variety of risks, uncertainties, and other factors. We refer you to today's press release and our SEC filings for a detailed discussion of the risk factors relating to those forward-looking statements. Please note that this call includes information that may be accurate only as of today's date. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included within the press release and the supplemental information in today's form 8 filing. Both the press release and the supplemental information are available on our IR website at investors.simon.com. Our conference call this evening will be limited to one hour. For those who would like to participate in the question and answer session, we ask that you please respect our request to limit yourself to one question. I'm pleased to introduce David Simon.
spk43: Good evening. Thanks, Tom. Before turning to the results, I would like to provide some perspective on our company as we celebrated our 30th anniversary. as a public company mid-December of last year. We have grown our company into a global leader of premier shopping, dining, entertainment, and mixed-use destinations, managing through, and in some cases, very turbulent times. Over the last three decades, from our base of 115 properties in 1993 We have acquired approximately 300 properties, developed more than 50, and disposed of approximately 250, resulting in our current domestic portfolio of 215 assets. We expanded globally and today have 35 international outlets, including world-renowned outlets in Asia. And our portfolio is differentiated by product type, geography, enclosed and open-air centers located in large and dense catchment areas. Our portfolio is supported by the industry's strongest balance sheet and a top management team. We are the largest landlord to the world's most important retailers, and not by accident. Our diversified tenant base has solid credit, and our mix is always changing and adapting, best illustrated by the fact that compared to 30 years ago, only one retailer is still in our current top 10 tenants. Our team's hard work has resulted in industry-leading results, including some of the following. Our annual revenue increased 10%. 424 million to nearly 5.7 billion. Annual FFO generation increased 30 times from approximately 150 million to nearly 4.7 billion, a 12 percent CAGR. Total market capitalization has increased from 3 billion to 90 billion. We have paid over $42 billion in dividends to shareholders. We have assets in our portfolio that have been in business for more than 60 years. Those assets are still growing today, with many generating $100 million in NOI. These assets are in great locations, have a loyal and large customer base, and are where the retailers want to be. No other asset type has the longevity, including the NOI generation and embedded future growth that these assets have. Yes, they change. Yes, they evolve. Yes, they adapt. But yes, they also grow. Our collection of assets cannot be replicated. And there are hidden, always hidden opportunities within them. I want to thank the entire Simon team who have contributed to 30 years of success as a public company. And now let me turn to our fourth quarter, 23 results. We generated approximately $4.7 billion in funds from our operation in 2023, or $12.51 per share, and returned $2.9 billion to shareholders in dividends and share repurchases. For the quarter, FFO was $1.38 billion or $3.69 per share compared to $1.27 billion or $3.40 per share. Let me walk you through some of the highlights for this quarter compared to Q4. of 2022. Domestic operations had a terrific performance this quarter and contributed 28 cents of growth, primarily driven by higher rental income with lower operating expenses. Gains from investment activity in the fourth quarter were approximately 7 cents higher in a year-over-year comparison. Other platform investments at $0.03 lower contribution compared to last year. FFO from our real estate business was $3.23 per share in the fourth quarter compared to $2.97 from last year. That's 8.7% growth and $11.78 per share for 23 compared to $11.39 last year. Domestic property NOI increased 7.3 percent year-over-year for the quarter and 4.8 percent for the year. Continued leasing momentum, resilient consumer spending, operational excellence delivered results for the year exceeding our initial expectations. Our NOI ended the year higher than 2019 pre-pandemic levels. Portfolio NOI, which includes our international properties at constant currency, grew 7.2 percent for the quarter and 4.9 percent for the year. Ball and outlet occupancy at the end of the quarter, fourth quarter, was 95.8 percent, an increase of 90 basis points compared to last year. The mills occupancy was 97.8. Occupancy is above year-end 2019 levels for all of our platforms. Average base minimum rent for malls and outlets increased 3.1 percent year over year, and the mills rent increased 4.3 percent. We signed more than 960 leases for approximately 3.4 million square feet in the fourth quarter. For the year, we signed over 4,500 leases, representing more than 18 million square feet. Approximately 30 percent of our leasing activity for the year were new deals with going in rents of approximately $74 per square foot, and renewals had going in rents of approximately $65 per square foot. Leasing momentum for the last couple of years continues into 2024. Reported retailer sales per square foot per quarter was $743 for malls and outlets combined and $677 for the mills. During the quarter, we sold a portion of our interest in ABG for gross proceeds of $300 million. in cash and reported pre-tax and after-tax gains of $157 million and $118 million, respectively. We opened our 11th outlet in Europe last year. Construction continues on two outlets, yes, one in Tulsa, Oklahoma, and yes, one in Jakarta, Indonesia. We completed 13 significant redevelopments and will complete other major development projects this year. In addition, we expect to begin construction this year on five to six mixed-use projects representing around $800 million of spend from Orange County to Ann Arbor to Boston to Seattle to Roosevelt Field are some of the ones that are planning to start this year. And we expect to fund these redevelopments and mixed use projects with our internally generated cash flow of over $1.5 billion after dividend payments. During 2023, we completed $12 billion in financing activities, including three senior note offerings for approximately 3.1 billion, including the Clay Pierre exchangeable offering. We recast and upsized our primary revolver credit facility to $5 billion and completed $4 billion of secured loan refinances and extensions. Our A-rated balance sheet is as strong as ever. We have approximately $11 billion of liquidity. During 2023, we Paid, as I mentioned earlier, $2.8 billion in common stock dividends. We repurchased 1.3 million shares of our common stock at an average price of just over $110 per share in 2023. And today we announced our dividend of $1.95 per share for the first quarter, a year-over-year increase of 8.3%. The dividend is payable on March 29th of 2024. Now, moving on to 2024, our FFO guidance is $11.85 to $12.10 per share. Our guidance reflects the following assumptions. Domestic property NOI growth of at least 3%. Increased net interest expense compared to 2023. of approximately 25 to 30 cents per share, reflecting current market interest rates on both fixed and variable debt assumptions and cash balances, contribution from other property, other platform investments of approximately 10 to 15 cents per share, no significant acquisition or disposition activity, and our current diluted share count of approximately 374 million shares. So with that said, it's safe to say we're excited to enter year 31 as a public company. Thank you for your time, and we're ready for Q&A.
spk37: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is from Steve Sacla with Evercore ISI. Please proceed with your question.
spk56: Thanks. Good evening, David. I was just wondering if you could maybe talk a little bit about kind of the leasing pipeline and where things stand today versus maybe the year ago and, you know, what sort of conversations are you having with the tenants and maybe how has the pricing dynamic changed given that you're now kind of 95% leased and pretty full in the portfolio?
spk43: Well, I mean, Steve, we're always adjusting our mix. We're always trying to. So even though we're 96% lead thereabouts, we're always looking to improve our, you know, our retailer mix. And, you know, obviously that's beneficial to our NOI growth. I would say just generically, you know, and obviously I spent a lot of time myself on leasing and with my team on leasing, demand remains very strong and there is a real interest by all sorts of retailers and you know, people that populate our shopping centers to be part of what we're doing. So I think as you probably saw, our new deals are $74 a foot thereabouts. Our renewals are $65 a foot. Our expiring leases this year are the 56-7 range. So, you know, we're seeing generally positive spreads. Supply and demand is in our favor. Historically low supply in big properties across the country. I mean, there used to be 40 million square feet of retail real estate built every year. Now there's essentially less than a few million here and there, so... And then there's been obsolescence, too, which makes the supply shrink as well. And then there's just great new retailers that we're very excited to do business with. I was on the West Coast seeing some of them. The importance of bricks and mortar has never been higher. And all of the things that we said about, don't get me wrong, e-commerce is critically important, but all of the stuff about e-commerce, cost of customer acquisition, returns, stickiness, et cetera, all continues to be a challenge. If you've looked at the marketplaces, that Pure Online, they run into problems. So they really need to be connected to a bricks and mortar for survivability. So all of those things are pointing to a positive picture. It's a function of execution, a function of being first, a function of continuing to improve our properties. you know, which we're very focused about. But, you know, even though we've bounced back and had a couple really good years in terms of Lisa, you know, from the depths of the pandemic, we're not finished and retail demand, you know, continues and it's strong. And it's across the board. I mean, it's not one category, one retailer, but pretty much across the board.
spk62: Thanks, that's it.
spk37: Thank you, Steve. Thank you. Our next question is from Caitlin Burroughs with Goldman Sachs. Please proceed with your question.
spk23: Hi. Good evening, everyone. David, could you give some more detail on the ABG sale that you referenced, maybe how much you still own, how much you think your remaining OPI could be worth, and whether you plan to monetize more in 24, or maybe what could influence that decision?
spk43: Sure. Well, let me just – we sold about 2%. of our ABG stock. So we essentially went from just under 12 to just under 10. And, you know, we'll continue to look to monetize these investments. They've been, by and large, very good investments. across not just the big ones, but the smaller ones as well. Obviously, there's a number of them that are synergistic to us. But we have a strict adherence to creating value. and if we think we can deploy that capital into kind of what I'd call the mothership and get better growth from that, then that's where our number one priority will be. So it wouldn't surprise me, Caitlin, for us to continue to monetize. Obviously, some of these are bigger projects value of bigger investments so it's not easy to do it in one big swoop but we're very focused on portfolio management of those assets and if we can monetize them are we going to get a better return plowing it back into our core businesses
spk34: Got it, thanks.
spk37: Yeah, thank you. Our next question is from Jeff Spector with Bank of America. Please proceed with your question.
spk57: Great, thank you, and first, congratulations on the anniversary. David, there's a lot of initiatives, so as you think about the next five years, I know it's probably a difficult question, but is there one or two key initiatives that you're most excited about as you think about the next five years?
spk43: Well, you know, look, I'd say a couple of things. On the property level, there's no question that all of the mixed-use stuff that we're bringing in plus the redevelopment of our department store boxes are probably the most interesting and exciting things that we're doing on the ground level. And so that would certainly be number one. Number two is we're very excited about growing our outlet business in Southeast Asia. It's an incredibly it's an incredibly robust market, a young population and a growing, and when I say Southeast Asia, I'm not, you know, like in Jakarta, places like that where, you know, it's not China, it's places like that where we see kind of what we can do in Japan and in Korea on the outlet side Jeff, you probably know that better than anybody based on your previous history in terms of that. So that's very exciting. I'd also say we still are in the pursuit of bringing technology to our loyal consumers that allow them to enhance their shopping experience with us. So we've got a lot of initiatives on the marketing, loyalty. Assignment search is a great example where our consumer, either in property or pre-visit, can search our tenant base for what, if they're looking for a black dress, where in the center can I buy it, and what retailer, obviously that ties into the marketplace we're building with premium outlets. There'll be some news there this year on that front. So that whole, you know, that whole echo That whole system about customer interaction, reinforcing their shopping behavior, rewarding loyalty, expediting their trip and making it more useful is a big focus. And then as important, I think this is number four really, is just we've got to do a great job of continuing to evolve our retailer mix. The exciting thing is, you know, there are more and more entrepreneurs, there are more and more exciting retailers that are coming up with great concepts, proving them out, and then realizing that you know, our centers are a good place for them to do business. So those are the ones that come to mind, but I'm certain they'll be ones that I haven't even thought of. Very helpful. Thank you.
spk08: Thank you, Jeff.
spk37: Our next question is from Alexander Goldfarb with Piper Sandler. Please proceed with your question.
spk64: Hey, good evening. Good evening out there, David. So I think at the opening you mentioned that NOI is now exceeding pre-pandemic. The dividend is within less than 10% of pre-pandemic. And sort of thinking about Jeff's and Steve's questions on reinvestment, as you think about getting back to that pre-pandemic dividend level, given the investment opportunities, especially lack of supply, growing demand, you know, people are once again really engaged in physical retail. Does that change your trajectory as you think about getting the dividend back to pre-pandemic, meaning are there better investment opportunities with that capital or is the delta really a function of rising interest rates that's, you know, meaning that the surpassing pre-pandemic NOI versus the dividend is really just a function of the higher interest expense now?
spk43: Well, I mean, Alex, look, our yield is ridiculously hot, okay? So that's really – I mean, we could financially pay 210 tomorrow, right? So we have $1.5 billion of free cash flow after our dividend. So it has nothing to do with financial wherewithal. You know, I mean, we would like – you know, we don't like trading at this high a yield. So I think that's kind of how we look at it. We still think as we have these additional capital events, we still are anxious to continue to buy our stock back. And again, when I look at either the S&P 500, I look at the REIT peer group, I look at, you know, what the strip center rates, you know, our yield is plenty high for investors. So tell all of my investors I can pay 210 tomorrow evening, okay, per quarter without a blink, but our yield is too high. And, you know, it'll be there before you know it, but we would like to trade a little lower yield because, you know, we think – You know, certainly if you look at it on that basis, you know, our yield is higher than it should be. I mean, the S&P is under 2%. Our REIT strip centers, Tom, are in the fours. You know, we're close to seven, right, six and a half, seven. So, I mean, you know, Alex, you should be pounding the table.
spk64: Yes, unfortunately, I'm a non-paying customer. The real customers are the ones listening to the call. We're just asking the questions.
spk43: No, I'm kidding. By the way, just so you know, we like your welcome out there. We are west of the Hudson, but we're not going to tell you exactly where we are, okay?
spk42: We may not be in Indiana tonight, but we are west of the Hudson.
spk64: I assume you'll be in Las Vegas this Sunday.
spk42: Well, I can't tell you my schedule.
spk64: Thank you.
spk42: Sure.
spk37: Our next question is from Michael Goldsmith with UBS. Please proceed with your question.
spk10: Good afternoon. Thanks a lot for taking my question. David, base minimum rents are up healthily in the low single-digit range year over year, while your tenant sales per square foot are down slightly. So can you just talk a little bit about these dynamics? Is that a reflection of your rents kind of catching up to some of the strength the tenants have experienced before their sales have started to come down? And just how long are these dynamics kind of sustainable like this? Thank you.
spk43: Sure. Good question. So I will say this. I think the rent... the going in rents, renewals, or new leases are very much sustainable. If you look at our occupancy costs, they're still, you know, at the low end of our historical range, and we're at 12.6, and, you know, we have run up to 14-plus percent before. And I would also... I would also... These are the sales that our tenants are reporting to us, but they are somewhat affected by returns they get and so on. We actually think our sales per foot are higher than this. Some cases they have the ability to offset Returns, in most cases, they don't. So I just put that out there. So I wouldn't, you know, and I mentioned this maybe two, three years ago, probably certainly pre-pandemic, but we report it. I know the market likes it. We actually think our sales are higher. They come from our properties, and then they're somewhat affected by returns. And we think a lot of those returns are Internet sales returns. so they don't even come from our properties. And so, again, when we look at it, we feel like supply and demand, low occupancy cost, high retail sales, and just overall demand will be able to generate kind of the new leasing and renewal spreads that we've seen over the last couple of years.
spk09: Thank you very much.
spk37: Thank you. Our next question is from Flores Van Dijkum with Compass Point. Please proceed with your question. Flores, is your line on mute?
spk39: Flores? Looks like we lost Flores. Why don't we go on and we'll have a call.
spk37: Yeah, Q. Our next question is from Craig Mailman with Citigroup. Please proceed with your question.
spk30: Hey, guys. Just going back to maybe the reinvestment thing here. You know, you guys have plenty of cash after the dividend period. And I'm just kind of curious at this point, what is the level of AnchorBox reinvestment you guys think you need to do, just given what may be vacant today? And, you know, after you guys were spared kind of some of the recent Macy's closings, but just as you look at the portfolio today, kind of what do you think over the next two or three years you guys can ultimately get back after retirement and just You talked a lot about how the leasing environment is good. Just what's the outlook for re-tending those boxes today? What's the targeted kind of makeup there? And is luxury still doing enough to be able to be the primary kind of backfill option?
spk43: Well, Craig, on the department store boxes, I don't have it off the top of my head, but the ones that we own, we basically don't have a ton of work to do. We have a handful of boxes that we own that are in the process. Like, for instance, I mentioned Braeup just briefly on the call. That was a former Sears store. We tore it down. It's in development now. under construction now so the actual stores that we own are not many probably under 10 at this point that aren't either currently under construction or in process so um you know very small amount of um you know kind of uh you know less of an opportunity than you think the ones that we You know, Transformco still owns some boxes, and so does Ceratize. So, you know, wool in our property. So we'll see how that evolves. I mean, eventually some of those could be opportunities for us to buy and redevelop. We haven't made deals on those just because Bid and Ask has been – too great, but we find, and I don't think luxury is really going to be the dominant thing on a lot of these mixed use, or I'm sorry, on these boxes. I think a lot of it will be, continue to be the mixed use development that we're doing. And And obviously opening up, if it's an enclosed mall, opening the center up with restaurants and entertainment and so on has worked very well. So we have a number under construction or about to be under construction, but we don't really have that existing pipe until we make more deals to buy some of the boxes back. It's not as big as you might think. And it's only a handful. Now, Macy's, you know, as you're right, they announced some store closings, none of which are ours. So, you know, we're always very focused on knowing exactly where we might be at risk. And I would point out, very importantly, when Sears went out of business, the whole market said, how are you going to survive, you know, Sears going out of business? You know, there were 800 department stores at that time. I think, frankly, they're down to, believe it or not, operating maybe five, six, seven, eight. I think we actually have, you know, the most between us and the Italian portfolio. But how are you going to survive it? The fact of the matter is, it was a non-event. to the mall customer. And if anything, as we've gotten those boxes back, we've made the center better. So as we look, we don't look at box, you know, the changes in box as a concern. We view it really more aggressively and progressively. and something that will enhance the property's portfolio. And the assets that we were worried about that couldn't survive that basically don't exist in our portfolio anymore. So if you asked me that question 10 years ago, I might have a different answer.
spk52: Great, thank you.
spk43: Greg, I hope you get better prior to The city conference, I'm sure you will, but you sound like you've lost your voice.
spk31: Yeah, I'm hoping to be on the mend by then. Thanks, David.
spk43: All right.
spk37: Be well. Our next question is from Vince Cavoni with Green Street. Please proceed with your question.
spk20: Hi, good evening.
spk21: Could you help me better understand how much incremental FFO we should expect in 24 from development or redevelopment projects that stabilize either later in 23 or are slated to be finished in 24? Is there any color to help us better understand the timing of incremental NOI and FFO from all the development activities would be helpful?
spk43: Yeah, in fact, it's interesting. I think in 24 we're taking a step back. I'll just give you a trivial example. I mentioned Brea now for the third time. But we have a whole wing that's connected to the former Sears department store that we're redeveloping. We'll have some outdoor shops we're building You know, with Dick's Sporting Goods, we have a lifetime fitness resort, and then we'll do roughly 350 apartments or so. But that wing leading to Sears, we've had to de-lease it to ultimately put in, I'm sure I'm allowed to say it, but I'll say it anyway, Zara and Uniqlo. And they won't open until end of 24 best case. So that's, by and large, all of the stuff in the UK that we've listed, and I don't believe Ray is in there. If it is, it'll be in there shortly. None of that really gets in 24. We do have Tulsa opening in late summer. That'll have a marginal impact. Leasing there is going well. But with all the redeveloping, you know, this is really more of a 25.6 story. And, you know, the one that we'll see the benefit of this year, and I don't have a number handy, is Phipps, you know, which we opened, you know, in 23. you know, that's kind of the one that I would see most, you know, most meaningful of it. But most of the redevelopment is a 25, 26 story.
spk21: No, that's really helpful. I mean, is there any, like, for just in terms of, you know, I guess the $1.3 billion that's active today plus the $800 million you're going to start, I mean, what's a fair assumption for 25, 26 in terms of, level of maybe spend stabilizing? I mean, that's how we model it. Like, is 500 million stabilizing annually at, you know, let's call it a 7%, 8% yield a fair assumption? And that's something I'm trying to get at, like how quickly.
spk43: Yeah, no, I appreciate that. If you don't include what I saw ground up new development, I would say probably about between 600 and 800 million a year. And our goal would hopefully be to bring that in at north of 8. Obviously, if it is multifamily, you can still create value at a lower yield than that. And in some cases, we're building at a lower yield than that. Like, for instance, both Brea's apartments and the ones that we're building at the former Northgate Mall We're basically about to start construction there. You know, we'll be sub-8, so it may, you know, may round down that 8%, but if you're talking kind of everything else, we would hope to be north of that.
spk21: Thank you. That's all really helpful, Culler. Appreciate it. Sure.
spk37: Our next question is from Ron Camden. with Morgan Stanley. Please proceed with your question.
spk45: Great. Just a two-parter really quickly, starting with the core NOI. Just in 24, can you just touch on the tourist centers and how much recovery there is and how much upside for volume to 24, as well as the variable to fix conversion? Just trying to get a sense of how much of a tell when that is to the core. And then on the sort of other platform investments, Maybe could you just touch on what seasonality should we be thinking about between sort of the first part of the year and 4Q? Thanks so much.
spk40: Sure.
spk39: So, and Brian will chime in here.
spk43: I'll just give you some thoughts off the top of my head and then Brian hopefully will agree or correct me. So, I would say we saw in 23 a really decent bounce back from the tourist centers. Now, I give you a great example. So, and I was just having to look at this for no, I must have been probably doing my job, but I noticed in Q4, Q4 as an example of the bounce back, Woodbury Q4 sales were around $350 million. Okay. Which to me is a real good indicator of of bounce back and obviously the highest fourth quarter sales we've had there in quite some time. So I'd say generally, we're seeing a really good bounce back in the tourist centers. I don't think we're gonna, the one area that we're seeing You know, the U.S. overall, and obviously we'll, you know, we'll, you know, have an impact on us. I do not think we'll see the Chinese, we do not expect the Chinese to come back, you know, the way they had before pandemic. And just our tourist centers did outpace our sales, for the portfolio for 23 on average. So good bounce back across the board. And then I would say on your variable, Red, we continue to see that as a lower percent of revenues, the vast majority, I think we increased our, the way to think about it, That's interesting is, and again, hopefully Brian won't need to correct me, but Brian's available to correct me. Our domestic operations had 28 cents of improvement. Q over Q, that's 28 cents. And within that 28 cents, our variable income went down. So I think that gives you a, kind of a leading barometer, we're still working that way down, and we're getting that into kind of our base rent. And then your final on OPI, lost Q1, relatively flat Q2, Q3, and then most of it in Q4. Q2 is a little better than Q3 usually, but on the margin. And it's only, we're only projecting this year 10 to 15 cents. All right, how'd I do? You got it.
spk11: Thanks so much. Thanks, Rob.
spk37: Thank you. Our next question is from Greg McGinnis with Scotiabank. Please proceed with your question.
spk05: Hey, good evening, David. I just want to dig into the guidance a bit and that OPI that you just cited in particular. Is it fair to assume that the 10 to 15 cents includes gains or monetization similar to last year or operations expected to improve from the minus two cent contribution to FFO in 2023?
spk43: Yeah, thank you for that question. And the answer, no, that's pure operations and no, you know, one time or, you know, sale gains or any of that are in there. And yeah, I mean, just, just by, I mean, we had a, You know, we had a tough 23 in OPI. You know, we saw that we didn't meet both our budgeted expectations and our, you know, our expectations kind of mid-year when we recalibrated it. The team in OPI, you know, again, we're partners with, so it's not just us, you know, we're partners. are making significant efforts within their own business to improve performance. And, again, the overriding theme was, you know, and, you know, we should be sensitive to this across the board. The overriding theme was the lower income consumer still You know, with inflation and embedded, even though inflation has subsided, they're still dealing with things that cost a lot more money than they used to. And the good news is their income is increasing, but it's still not in a position that they have the discretionary income that they need and they deserve. And, you know, we need to figure that out as a country. So just to clarify. So no, yeah, so hopefully I answered. So no one-time gains. Hopefully we're being conservative, and that's kind of where the numbers are. And, you know, just to take a step back, we're kind of getting OPI in this level where it was, Pre the extraordinary year of 21, 22, if you go back in time, this is kind of where the number was. Nobody cared. You know, we really outpaced ourselves at extraordinary 21 and 22, and I think now we're kind of getting back to more, you know, kind of a more stabilized number.
spk05: Mm-hmm. So just to clarify, so there's going to be some improvements in operations, I guess, that are going to be kind of driving this year-over-year growth. But what do you think that implies in terms of the operational standpoint and the customer for your other tenants in the portfolio? How are those retailers performing? And are they going to be able to make the same sort of operational changes to benefit income?
spk43: Well, you're just talking about our tenant base now? Is that the question? I guess it's JCPenney plus your tenants, yeah. Okay, well, like I said, the ones in, you know, the ones in Spark and Penny I really spoke to. I mean, I think, you know, generally the plan that they have in place, you know, we're You know, we think we're on the right track and we're, you know, all working very hard to produce these results and hopefully we'll do better than that. Again, I mentioned to you, we're kind of getting back to where we used to be. And if you looked at it in conjunction with pre-pandemic 18, 19, that's kind of where the number was. And, you know, we really outperformed in 21, 22. And we really underperformed in 23. Simple as that. Brands are good. Businesses have the right game plan and we're moving. So that's smart, Penny. Any questions on that? Then I'll move to your other questions. Retail is very specific. You know, I think our retailers, they're generally, the credit is in really good shape. There's always one or two or three tenants that we are somewhat nervous about. But, you know, they all understand the importance of bricks and mortar. They're reinvesting in their stores. They're spending less on, you know, technology, which is good for us, putting more money back in the stores. And they're open to buying, and their return on investment in stores is a proven financial model. They're doing that. So I'd say generally comfortable, very comfortable with all the retailers that we're doing business with. There will always be a couple here and there that have to sort through their financial issues.
spk04: Great. Thanks for the color, David.
spk37: Sure. Thank you. Our next question is from Hong Zhang with JP Morgan. Please proceed with your question.
spk12: Yeah. Hey, guys. I guess I was wondering if you could quantify the magnitude of the development drag this year. And also, it seems like you saw very strong rent and occupancy growth in the Talbot portfolio. in the fourth quarter. I was wondering what drove that and what your expectations for that portfolio this year as well.
spk43: Just on Talbot, I mean, our expectations on the comp NOI are roughly right on, you know, in excess of 3%. What drove both portfolios really is, you know, supply and demand, healthy retail sales, operational excellence, all the things that I mentioned earlier. So listen, we're a big company. We did have some drag from redevelopment, but it's not an excuse. We don't worry about it. And it's not so much big redevelopment. When you re-tenant a mall, you have downtime. And as I mentioned this before, the better the tenant, the better the build out. And in some cases, build out is six to nine months. And restaurants can be even close to a year. And as you know, we have our portfolio restaurant, new business is at least 100 new restaurants over the next year or so. So, you know, it is a long, arduous process getting permits. I mean, we had a crazy thing in the Bay Area where they couldn't hook up the gas for a while. I encourage you to read the Supreme Court overruling of an ordinance in Berkeley that affected Palo Alto. You know, if you're really bored, you can read it. We finally got gas back into the center. And, you know, as you know, chefs like to cook with gas. So it was, you know, it cost us six months. And the delay, I mean, that's normal. But I'd say the bigger issue on, you know, just... It's not so much redevelopment as really re-candidating. And I would say, by and large, if I had to make up a number, it costs us probably 10 to 20 cents a year of just downtime. But that's a guess.
spk07: Got it. Okay. Thank you. Thank you.
spk37: Thank you. Our next question is from Keven Kim with True Security. Please proceed with your question.
spk35: Thank you. Just a couple questions. First, your operating expenses were down in 4Q. I was just curious what drove that and if that's sustainable?
spk29: Yeah, Keven, it's Brian. Yeah, we did see some savings year over year. There was some seasonality to it. Weather was a little bit lighter. But yes, we do expect it's sustainable.
spk35: Okay, and on the ABG partial sale, was that a down round valuation versus the $18 billion mark previously?
spk40: No.
spk35: Okay, thank you.
spk43: Yeah, remember that was enterprise value. They have some debt, so it was an equity value. But it was a, so just when you say $18 billion, that's enterprise value. as opposed to equity value, okay?
spk33: Okay, thank you.
spk37: Sure, no problem. Our next question is from Handel Saint-Jacques with Mizuho Securities. Please proceed with your question.
spk59: Hey, good evening out there.
spk60: So... How are you? I'm doing great, sir. Hope you're well, too. The question I have is on your signed but not yet open pipeline. I think last quarter, or you previously outlined, there's about 200 basis points of embedded occupancy from that signed but not yet open pipeline. So maybe you can give us an update on where that stands today, and then also maybe what's embedded in the guide for bad debt and lease term fees this year. Thank you.
spk29: So, signs have not opened a little bit north of 200 basis points. We've been kind of holding that as we open stores and sign new leases. So, we're holding steady around 200 basis points. We are assuming a normal level of bad debt, which is about 25 basis points. Total revenue would be our expectation on that.
spk58: Please tell me fees.
spk29: Normal rate of lease term fees, I think the answer is the number for the year is about $30 million. The estimate.
spk50: Okay.
spk37: Thank you. Our next question is from Juan Sanabria with BMO Capital Markets. Please proceed with your question.
spk36: Hi, good evening. Just a quick one for me. Just curious on the current state of affairs with Jamestown and how that relationship is progressing. More talk about mixed use. So just curious if there's anything in the works or in the planning stages that you're doing with them and how you're thinking about that particular relationship.
spk32: Thank you.
spk43: Yes, thank you. So we're We haven't quite had a year under our belt, but we're very pleased with the relationship and the partnership, and we continue to look at opportunities both within our pipeline and obviously what they do on behalf of investors. A lot of good feedback going both ways. And we're working on one project. I mean, we have one development project we're working on together. But other than that, it's a lot of corporate. It's more strategic and more corporate. more of a corporate discussion than property level specifics other than one where we are partners on and going through a development process in that now in the southeast.
spk52: Thank you.
spk37: Sure. There are no further questions at this time. I'd like to hand the floor back over to the for Management for Clothing Commons.
spk43: Okay, thank you, and obviously Tom and Brian are available, and we really appreciate everybody's participation. Talk to you soon.
spk37: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. you Thank you.
spk61: Thank you.
spk37: Greetings and welcome to the Simon Property Group fourth quarter and full year 2023 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tom Ward, Senior Vice President, Investor Relations. Thank you, Tom. You may begin.
spk24: Thank you, Paul, and thank you, everyone, for joining us this evening. Presenting on today's call are David Simon, Chairman, Chief Executive Officer, President, and Brian McDade, Chief Financial Officer. A quick reminder that statements made during this call may be deemed forward-looking statements within the meaning of the safe harbor of the Private Securities Litigation Reform Act of 1995, and that's where results may differ materially due to a variety of risks, uncertainties, and other factors. We refer you to today's press release and our SEC filings for a detailed discussion of the risk factors relating to those forward-looking statements. Please note that this call includes information that may be accurate only as of today's date. Reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures are included within the press release and the supplemental information in today's form 8 filing. Both the press release and the supplemental information are available on our IR website at investors.simon.com. Our conference call this evening will be limited to one hour. For those who would like to participate in the question and answer session, we ask that you please respect our request to limit yourself to one question. I'm pleased to introduce David Simon.
spk43: Good evening. Thanks, Tom. Before turning to the results, I would like to provide some perspective on our company as we celebrated our 30th anniversary. as a public company mid-December of last year. We have grown our company into a global leader of premier shopping, dining, entertainment, and mixed-use destinations, managing through, and in some cases, very turbulent times. Over the last three decades, from our base of 115 properties in 1993 We have acquired approximately 300 properties, developed more than 50, and disposed of approximately 250, resulting in our current domestic portfolio of 215 assets. We expanded globally and today have 35 international outlets, including world-renowned outlets in Asia. And our portfolio is differentiated by product type, geography, enclosed and open-air centers located in large and dense catchment areas. Our portfolio is supported by the industry's strongest balance sheet and a top management team. We are the largest landlord to the world's most important retailers, and not by accident. Our diversified tenant base has solid credit, and our mix is always changing and adapting, best illustrated by the fact that compared to 30 years ago, only one retailer is still in our current top ten tenants. Our team's hard work has resulted in industry-leading results, including some of the following. Our annual revenue increased 424 million to nearly 5.7 billion. Annual FFO generation increased 30 times from approximately 150 million to nearly 4.7 billion, a 12 percent CAGR. Total market capitalization has increased from 3 billion to 90 billion. We have paid over $42 billion in dividends to shareholders. We have assets in our portfolio that have been in business for more than 60 years. Those assets are still growing today, with many generating $100 million in NOI. These assets are in great locations, have a loyal and large customer base, and are where the retailers want to be. No other asset type has the longevity, including the NOI generation and embedded future growth that these assets have. Yes, they change. Yes, they evolve. Yes, they adapt. But yes, they also grow. Our collection of assets cannot be replicated, and there are hidden, always hidden opportunities within them. I want to thank the entire Simon team who have contributed to 30 years of success as a public company. And now let me turn to our fourth quarter, 23 results. We generated approximately $4.7 billion in funds from our operation in 2023, or $12.51 per share, and returned $2.9 billion to shareholders in dividends and share repurchases. For the quarter, FFO was $1.38 billion, or $3.69 per share, compared to $1.27 billion, or $3.40 per share. Let me walk you through some of the highlights for this quarter compared to Q4 of 2022. Domestic operations had a terrific performance this quarter and contributed 28 cents of growth, primarily driven by higher rental income with lower operating expenses. Gains from investment activity in the fourth quarter were approximately 7 cents higher in a year-over-year comparison. Other platform investments at $0.03 lower contribution compared to last year. FFO from our real estate business was $3.23 per share in the fourth quarter compared to $2.97 from last year. That's 8.7% growth and $11.78 per share for 23 compared to $11.39 last year Domestic property NOI increased 7.3 percent year-over-year for the quarter and 4.8 percent for the year. Continued leasing momentum, resilient consumer spending, operational excellence delivered results for the year exceeding our initial expectations. Our NOI ended the year higher than 2019 pre-pandemic levels. Portfolio NOI, which includes our international properties at constant currency, grew 7.2 percent for the quarter and 4.9 percent for the year. Ball and outlet occupancy at the end of the quarter, fourth quarter, was 95.8 percent, an increase of 90 basis points compared to last year. The mills occupancy was 97.8. Occupancy is above year-end 2019 levels for all of our platforms. Average base minimum rent for malls and outlets increased 3.1 percent year over year, and the mills rent increased 4.3 percent. We signed more than 960 leases for approximately 3.4 million square feet in the fourth quarter. For the year, we signed over 4,500 leases, representing more than 18 million square feet. Approximately 30 percent of our leasing activity for the year were new deals with going in rents of approximately $74 per square foot, and renewals had going in rents of approximately $65 per square foot. Leasing momentum for the last couple of years continues into 2024. Reported retailer sales per square foot per quarter was $743 for malls and outlets combined and $677 for the mills. During the quarter, we sold a portion of our interest in ABG for gross proceeds of $300 million. in cash and reported pre-tax and after-tax gains of $157 million and $118 million, respectively. We opened our 11th outlet in Europe last year. Construction continues on two outlets, yes, one in Tulsa, Oklahoma, and yes, one in Jakarta, Indonesia. We completed 13 significant redevelopments and will complete other major development projects this year. In addition, we expect to begin construction this year on five to six mixed-use projects representing around $800 million of spend from Orange County to Ann Arbor to Boston to Seattle to Roosevelt Field are some of the ones that are planning to start this year. And we expect to fund these redevelopments and mixed use projects with our internally generated cash flow of over $1.5 billion after dividend payments. During 2023, we completed $12 billion in financing activities, including three senior note offerings for approximately 3.1 billion, including the Clay Pierre exchangeable offering. We recast and upsized our primary revolver credit facility to $5 billion and completed $4 billion of secured loan refinances and extensions. Our A-rated balance sheet is as strong as ever. We have approximately $11 billion of liquidity. During 2023, we paid, as I mentioned earlier, $2.8 billion in common stock dividends. We repurchased 1.3 million shares of our common stock at an average price of just over $110 per share in 2023. And today we announced our dividend of $1.95 per share for the first quarter, a year-over-year increase of 8.3%. The dividend is payable on March 29th of 2024. Now, moving on to 2024, our FFO guidance is $11.85 to $12.10 per share. Our guidance reflects the following assumptions. Domestic property NOI growth of at least 3%. Increased net interest expense compared to 2023. of approximately 25 to 30 cents per share, reflecting current market interest rates on both fixed and variable debt assumptions and cash balances, contribution from other property, other platform investments of approximately 10 to 15 cents per share, no significant acquisition or disposition activity, and our current diluted share count of approximately 374 million shares. So with that said, it's safe to say we're excited to enter year 31 as a public company. Thank you for your time, and we're ready for Q&A.
spk37: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is from Steve Sacla with Evercore ISI. Please proceed with your question.
spk56: Thanks. Good evening, David. I was just wondering if you could maybe talk a little bit about kind of the leasing pipeline and where things stand today versus maybe the year ago and, you know, what sort of conversations are you having with the tenants and maybe how has the pricing dynamic changed given that you're now kind of 95% leased and pretty full in the portfolio?
spk43: Well, I mean, Steve, we're always adjusting our mix. We're always trying to. So even though we're 96% lead thereabouts, we're always looking to improve our, you know, our retailer mix. And, you know, obviously that's beneficial to our NOI growth. I would say just generically, you know, and obviously I spent a lot of time myself on leasing and with my team on leasing, demand remains very strong. And there is a real interest by all sorts of retailers and, you know, you know, people that populate our shopping centers to be part of what we're doing. So I think, as you probably saw, our new deals are $74 a foot thereabouts. Our renewals are $65 a foot. Our expiring leases this year are the 56-7 range. So, you know, we're seeing generally positive spreads. Supply and demand is in our favor. Historically low supply in big properties across the country. I mean, there used to be 40 million square feet of retail real estate built every year. Now there's essentially less than a few million here and there. And then there's been obsolescence, too, which makes the supply shrink as well. And then there's just great new retailers that we're very excited to do business with. I was on the West Coast seeing some of them. The importance of bricks and mortar has never been higher. And all of the things that we said about, don't get me wrong, e-commerce is critically important, but all of the stuff about e-commerce, cost of customer acquisition, returns, stickiness, et cetera, all continues to be a challenge. If you've looked at the marketplaces, that Pure Online, they've run into problems. So they really need to be connected to a bricks and mortar for survivability. So all of those things are pointing to a positive picture. It's a function of execution, a function of being first, a function of continuing to improve our properties. Uh, you know, which we're very focused about, but, um, no, even though we've bounced back and had a couple of really good, um, years in terms of Lisa, uh, you know, from the depths of the pandemic, we're not finished and retail demand, um, you know, continues and it's strong and it's across the board. I mean, it's not one category, one retailer. but pretty much across the board.
spk62: Thanks, that's it.
spk37: Thank you, Steve. Thank you. Our next question is from Caitlin Burroughs with Goldman Sachs. Please proceed with your question.
spk23: Hi, good evening, everyone. David, could you give some more detail on the ABG sale that you referenced, maybe how much you still own, how much you think your remaining OPI could be worth, and whether you plan to monetize more in 24, or maybe what could influence that decision?
spk43: Sure. Well, let me just – we sold about 2%. of our ABG stock. So, we essentially went from just under 12 to just under 10. And, you know, we'll continue to look to monetize these investments. They've been, by and large, very good investments. across not just the big ones, but the smaller ones as well. Obviously, there's a number of them that are synergistic to us. But we have a strict adherence to creating value. And if we think we can deploy that capital into kind of what I'd call the mothership and get better growth from that, then that's where our number one priority will be. So it wouldn't surprise me, Caitlin, for us to continue to monetize. Obviously, some of these are bigger projects value of bigger investments, so it's not easy to do it in one big swoop, but we're very focused on portfolio management of those assets, and if we can monetize them, are we going to get a better return plowing it back into our core business?
spk34: Got it, thanks.
spk37: Yeah, thank you. Our next question is from Jeff Spector with Bank of America. Please proceed with your question.
spk57: Great, thank you, and first, congratulations on the anniversary. David, there's a lot of initiatives, so as you think about the next five years, I know it's probably a difficult question, but is there one or two key initiatives that you're most excited about as you think about the next five years?
spk43: Well, you know, look, I'd say a couple of things. On the property level, there's no question that all of the mixed-use stuff that we're bringing in, plus the redevelopment of our department store boxes are probably the most interesting and exciting things that we're doing on the ground. And so that would certainly be number one. Number two is we're very excited about growing our outlet business in Southeast Asia. It's an incredibly it's an incredibly robust market, a young population and a growing, and when I say Southeast Asia, I'm not, you know, like in Jakarta, places like that where, you know, it's not China, it's places like that where we see kind of what we can do in Japan and in Korea on the outlet side, Jeff, you probably know that better than anybody based on your previous history in terms of that. So that's very exciting. I'd also say we still are in the pursuit of bringing technology to our loyal consumers that allow them to enhance their shopping experience with us. So we've got a lot of initiatives on the marketing, loyalty. Assignment search is a great example where our consumer, either in property or pre-visit, can search our tenant base for what, if they're looking for a black dress, where in the center can I buy it? And what retailer, obviously that ties into the marketplace we're building with premium outlets. There'll be some news there this year on that front. So that whole, you know, that whole echo That whole system about customer interaction, reinforcing their shopping behavior, rewarding loyalty, expediting their trip and making it more useful is a big focus. And then as important, I think this is number four really, is just we've got to do a great job of continuing to evolve our retailer mix. The exciting thing is, you know, there are more and more entrepreneurs, there are more and more exciting retailers that are coming up with great concepts, proving them out, and then realizing that you know, our centers are a good place for them to do business. So those are the ones that come to mind, but I'm certain they'll be ones that I haven't even thought of. Very helpful. Thank you. Thank you, Jeff.
spk37: Our next question is from Alexander Goldfarb with Piper Sandler. Please proceed with your question.
spk64: Hey, good evening. Good evening out there, David. So I think at the opening you mentioned that NOI is now exceeding pre-pandemic. The dividend is within less than 10% of pre-pandemic. And sort of thinking about Jeff's and Steve's questions on reinvestment, as you think about getting back to that pre-pandemic dividend level, given the investment opportunities, especially lack of supply, growing demand, you know, people are once again really engaged in physical retail. Does that change your trajectory as you think about getting the dividend back to pre-pandemic, meaning are there better investment opportunities with that capital or is the delta really a function of rising interest rates that's, you know, meaning that the surpassing pre-pandemic NOI versus the dividend is really just a function of the higher interest expense now?
spk43: Well, I mean, Alex, look, our yield is ridiculously hot, okay? So that's really – I mean, we could financially pay 210 tomorrow, right? So we have $1.5 billion of free cash flow after our dividend. So it has nothing to do with financial wherewithal. You know, I mean, we would like – you know, we don't like trading at this high a yield. So I think that's kind of how we look at it. We still think as we have these additional capital events, we still are anxious to continue to buy our stock back. And again, when I look at either the S&P 500, I look at the REIT peer group, I look at, you know, with the strip center rates, you know, our yield is plenty high for investors. So tell all of my investors I can pay 210 tomorrow evening, okay, per quarter without a blink, but our yield is too high. And, you know, it'll be there before you know it, but we would like to trade a little lower yield because, you know, we think – You know, certainly if you look at it on that basis, you know, our yield is higher than it should be. I mean, the S&P is under 2%. Our REIT strip centers, Tom, are in the fours. You know, we're close to seven, right, six and a half, seven. So, I mean, you know, Alex, you should be pounding the table.
spk64: Yes, unfortunately, I'm a non-paying customer. The real customers are the ones listening to the call. We're just asking the questions.
spk43: No, I'm kidding. By the way, just so you know, we like your welcome out there. We are west of the Hudson, but we're not going to tell you exactly where we are, okay?
spk42: We may not be in Indiana tonight, but we are west of the Hudson.
spk64: I assume you'll be in Las Vegas this Sunday.
spk42: Well, I can't tell you my schedule.
spk64: Thank you.
spk37: Our next question is from Michael Goldsmith with UBS. Please proceed with your question.
spk10: Good afternoon. Thanks a lot for taking my question. David, base minimum rents are up healthily in the low single-digit range year over year, while your tenant sales per square foot are down slightly. So can you just talk a little bit about these dynamics? Is that a reflection of your rents kind of catching up to some of the strength the tenants have experienced before their sales have started to come down? And just how long are these dynamics kind of sustainable like this? Thank you.
spk43: Sure. Good question. So I will say this. I think the rent... the going in rents, renewals, or new leases are very much sustainable. If you look at our occupancy costs, they're still, you know, at the low end of our historical range, and we're at 12.6, and, you know, we have run up to 14-plus percent before. And I would also... I would also... caution, you know, report, you know, these are the sales that our tenants are reporting to us, but they are somewhat affected by, you know, returns they get and so on. We actually think our sales per foot are higher than this. Some cases they have the ability to offset returns, and most cases they don't. So I just put that out there. So I wouldn't, you know, and I mentioned this maybe two, three years ago, probably certainly pre-pandemic, but we report it. I know the market likes it. We actually think our sales are higher. They come from our properties, and then they're somewhat affected by returns. And we think a lot of those returns are Internet sales returns. So they don't even come from our properties. And so, again, when we look at it, we feel like supply and demand, low occupancy cost, high retail sales, and just overall demand will be able to generate kind of the new leasing and renewal spreads that we've seen over the last couple of years.
spk09: Thank you very much.
spk37: Thank you. Our next question is from Flores Van Dijkum with Compass Point. Please proceed with your question. Flores, is your line on mute?
spk39: Flores? Looks like we lost Forrest. Why don't we go on and we'll have a call.
spk37: Yeah, Q. Our next question is from Craig Mailman with Citigroup. Please proceed with your question.
spk30: Hey, guys. Just going back to maybe the reinvestment thing here. You know, you guys have plenty of cash after the dividend period. And I'm just kind of curious at this point, what is the level of AnchorBox reinvestment you guys think you need to do, just given what may be vacant today? And, you know, after you guys were spared kind of some of the recent Macy's closings, but just as you look at the portfolio today, kind of what do you think over the next two or three years you guys can ultimately get back after a retenant? And just, you know, you talked a lot about how the leasing environment is good. just what's the outlook for weekend in those boxes today? What's the targeted kind of makeup there? And is luxury still doing enough to be able to be the primary kind of backfill option?
spk43: Well, on the department store boxes, I don't have it off the top of my head, but the ones that we own, we basically are, don't have a ton of work to do. We have a handful of boxes that we own that are in the process. Like, for instance, I mentioned Bray up just briefly on the call. That was a former Sears store. We tore it down. It's in development now, under construction now. So the actual... stores that we own are not many, probably under 10 at this point, that are either currently under construction or in process. So, you know, very small amount of, you know, kind of, you know, less of an opportunity than you think. The ones that we, you know, Transformco still owns some boxes, Um, and, and, uh, so, so does Sarah ties. So, you know, we'll in, in our property. So we'll see how that evolves. I mean, eventually some of those could be, um, uh, opportunities for us to, to buy and redevelop. Uh, we haven't made deals on those just because then the ask has been, um, you know, too great, but, um, we, we find, and I don't think luxury is really going to be the dominant thing on a lot of these mixed use, or I'm sorry, on these, you know, boxes. I think a lot of it will be, continue to be the mixed use development that we're doing. And, you know, and obviously Opening up, if it's an enclosed mall, opening the center up with restaurants and entertainment and so on has worked very well. So we have a number under construction or about to be under construction, but we don't really have that existing pipe until we make more deals to buy some of the boxes back. It's not as big as you might think. It's only a handful. Now, Macy's, you know, as you're right, they announce some store closings, none of which are ours. So, you know, we're always very focused on knowing exactly where we might be at risk. And I would point out, very importantly, when Sears went out of business, the whole market said, how are you going to survive, you know, Sears going out of business? You know, there were 800 department stores at that time. I think, frankly, they're down to, believe it or not, operating maybe five, six, seven, eight. I think we actually have, you know, the most between us and the Talbot portfolio. But how are you going to survive it? The fact of the matter is it was a non-event. to the mall customer. And if anything, as we've gotten those boxes back, we've made the center better. So as we look, we don't look at box, you know, the changes in box as a concern. We view it really more aggressively and progressively and something that will enhance the property's portfolio. And the assets that we were worried about that couldn't survive that, basically don't exist in our portfolio anymore. So if you asked me that question 10 years ago, I might have a different answer.
spk52: Great, thank you.
spk43: Greg, I hope you get better prior to The city conference, I'm sure you will, but you sound like you've lost your voice.
spk31: Yeah, I'm hoping to be on the mend by then. Thanks, David. All right.
spk37: Be well. Our next question is from Vince Cavone with Green Street. Please proceed with your question.
spk20: Hi, good evening.
spk21: Could you help me better understand how much incremental FFO we should expect in 24 from development or redevelopment projects that stabilize either later in 23 or are slated to be finished in 24? Is there any color to help us better understand the timing of incremental NOI and FFO from all the development activities would be helpful?
spk43: Yeah, in fact, it's interesting. You actually take a, I think in 24 we're taking a step back. I'll just give you a trivial example. I mentioned Brea now for the third time, but we have a whole wing that's connected to the former Sears department store that we're redeveloping. We'll have some outdoor shops we're building You know, with Dick's Sporting Goods, we have a Lifetime Fitness Resort, and then we'll do roughly 350 apartments or so. But that wing leading to Sears, we've had to de-lease it to ultimately put in, I'm sure I'm allowed to say it, but I'll say it anyway, Zara and Uniqlo. And they won't open until end of 24 best case. So that's, by and large, all of the stuff in the UK that we've listed, and I don't believe Ray is in there. If it is, it'll be in there shortly. None of that really gets in 24. We do have Tulsa opening in the late summer. That'll have a marginal impact. Leasing there is going well. But with all the redeveloping, you know, this is really more of a 25.6 story. And, you know, the one that we'll see the benefit of this year, and I don't have a number handy, is Phipps, you know, which we opened, you know, in 23. you know, that's kind of the one that I would see most, you know, most meaningful of it. But most of the redevelopment is a 25, 26 story.
spk21: No, that's really helpful. I mean, is there any, like, for just in terms of, you know, I guess the $1.3 billion that's active today plus the $800 million you're going to start, I mean, what's a fair assumption for 25, 26 in terms of, level of maybe spend stabilizing? I mean, that's how we model it. Like, is $500 million stabilizing annually at, you know, let's call it a 7%, 8% yield a fair assumption? And that's something I'm trying to get at, like how quickly does that come up?
spk43: Yeah, no, I appreciate that. If you don't include what I saw ground up new development, I would say probably about between $600 and $800 billion a year. And our goal would hopefully be to bring that in at north of 8. Obviously, if it is multifamily, you can still create value at a lower yield than that. And in some cases, we're building at a lower yield than that. Like, for instance, both Brea's apartments and the ones that we're building at the former Northgate Mall We're basically about to start construction there. You know, we'll be sub-8, so it may, you know, may round down that 8%, but if you're talking kind of everything else, we would hope to be north of that.
spk21: Thank you. That's all really helpful, Culler. Appreciate it. Sure.
spk37: Our next question is from Ron Camden. with Morgan Stanley. Please proceed with your question.
spk45: Great. Just a two-parter really quickly, starting with the core NOI. Just in 24, can you just touch on the tourist centers and how much recovery there is and how much upside for volume to 24, as well as the variable to fix conversion? Just trying to get a sense of how much of a tell when that is to the core. And then on the sort of other platform investment, Maybe could you just touch on what seasonality should we be thinking about between sort of the first part of the year and 4Q? Thanks so much.
spk40: Sure.
spk45: So, and Brian will chime in here.
spk43: I'll just give you some thoughts off the top of my head and then Brian hopefully will agree or correct me. So, I would say we saw in 23 a really decent bounce back from the tourist centers. Now, I give you a great example. So, and I was just having to look at this for no, I must have been probably doing my job, but I noticed in Q4, Q4 as an example of the bounce back, Woodbury Q4 sales were around $350 million. Okay. Which to me is a real good indicator of bounce back and obviously the highest fourth quarter sales we've had there and you know in quite some time so I say generally we're seeing a really good bounce back in the tourist centers you know I don't think we're getting you know the one area that You know, the U.S. overall, and obviously we'll, you know, we'll, you know, have an impact on us. I do not think we'll see the Chinese, we do not expect the Chinese to come back, you know, the way they had before pandemic. And just our tourist centers did outpace our sales, for the portfolio for 23 on average. So good bounce back across the board. And then I would say on your variable, Red, we continue to see that as a lower percent of revenues, the vast majority, I think we increased our, the way to think about it, That's interesting is, and again, hopefully Brian won't need to correct me, but Brian's available to correct me. Our domestic operations had 28 cents of improvement. Q over Q, that's 28 cents. And within that 28 cents, our variable income went down. So I think that gives you a, kind of a leading barometer. We're still working that way down, and we're getting that into kind of our base rep. And then your final on OPI, lost Q1, relatively flat Q2, Q3, and then most of it in Q4. Q2 is a little better than Q3 usually, but on the margin. And it's only, we're only projecting this year 10 to 15 cents. All right, how'd I do? You got it.
spk11: Thanks so much. Thanks, Rob.
spk37: Thank you. Our next question is from Greg McGinnis with Scotiabank. Please proceed with your question.
spk05: Hey, good evening, David. I just want to dig into the guidance a bit and that OPI that you just cited in particular. Is it fair to assume that the 10 to 15 cents includes gains or monetization similar to last year or operations expected to improve from the minus two cent contribution to FFO in 2023? Yeah.
spk43: Thank you for that question. And the answer, no, that's pure operations and no, you know, one time or, you know, sale gains or any of that are in there. And yeah, I mean, just, just by, I mean, we had a, You know, we had a tough 23 in OPI. You know, we saw we didn't meet both our budgeted expectations and our, you know, our expectations kind of mid-year when we recalibrated it. The team in OPI, you know, again, we're partners with, so it's not just us, you know, we're partners. are making significant efforts within their own business to improve performance. And again, the overriding theme was, you know, and we should be sensitive to this across the board. The overriding theme was the lower income consumer still You know, with inflation and embedded, even though inflation has subsided, they're still dealing with things that cost a lot more money than they used to. And the good news is their income is increasing, but it's still not in a position that they have the discretionary income that they need and they deserve. And, you know, we need to figure that out as a country. So just to clarify. So no, yeah, so hopefully I answered. So no one-time gains. Hopefully we're being conservative, and that's kind of where the numbers are. And, you know, just to take a step back, we're kind of getting OPI in this level where it was, Pre the extraordinary year of 21, 22, if you go back in time, this is kind of where the number was. Nobody cared. You know, we really outpaced ourselves at extraordinary 21 and 22, and I think now we're kind of getting back to more, you know, kind of a more stabilized number.
spk05: Mm-hmm. So just to clarify, so there's going to be some improvements in operations, I guess, that are going to be kind of driving this year-over-year growth. But what do you think that implies in terms of the operational standpoint and the customer for your other tenants in the portfolio? How are those retailers performing? And are they going to be able to make the same sort of operational changes to benefit income?
spk43: Well, you're just talking about our tenant base now? Is that the question?
spk05: I guess it's JCPenney plus your tenants, yeah.
spk43: Okay, well, like I said, the ones in, you know, the ones in Spark and Penny I really spoke to. I mean, I think, you know, generally the plan that they have in place, you know, where... You know, we think we're on the right track and we're, you know, all working very hard to produce these results and hopefully we'll do better than that. Again, I mentioned to you, we're kind of getting back to where we used to be. And if you looked at it in conjunction with pre-pandemic 18, 19, that's kind of where the number was. And, you know, we really outperformed in 21, 22. And we really underperformed in 23. Simple as that. Brands are good. Businesses have the right game plan and we're moving. So that's smart, Penny. Any questions on that? Then I'll move to your other questions. I mean, you know, retail is very specific. So... You know, I think our retailers, they're generally, the credit is in really good shape. There's always one or two or three tenants that we are somewhat nervous about. But, you know, they all understand the importance of bricks and mortar. They're reinvesting in their stores. They're spending less on, you know, technology, which is good for us, putting more money back in the stores. And they're open to buying, and their return on investment in stores is a proven financial model. They're doing that. So I'd say generally comfortable, very comfortable with all the retailers that we're doing business with. There will always be a couple here and there that have to sort through their financial issues. Great. Thanks for the color, David.
spk37: Sure.
spk04: Thank you.
spk37: Our next question is from Hong Zhang with JP Morgan. Please proceed with your question.
spk12: Yeah. Hey, guys. I guess I was wondering if you could quantify the magnitude of the development drag this year. And also, it seems like you saw very strong rent and occupancy growth in the Taliban portfolio in the fourth quarter. I was wondering what drove that and what your expectations for that portfolio this year as well.
spk43: Just on Talbot, I mean, our expectations on the Comp NOI are roughly right on, you know, in excess of 3%. What drove both portfolios really is, you know, supply and demand, healthy retail sales, operational excellence, all the things that I mentioned earlier. So, listen, we're a big company. We did have some drag from redevelopment, but, you know, it's not an excuse. We don't worry about it. You know, and it's not so much big redevelopment. You know, when you re-tenant a mall, you have downtime. And as I mentioned this before, the better the tenant, the better the build-out. And in some cases, build-out is six to nine months. And restaurants can be even close to a year. And as you know, we have our portfolio of restaurants, new business is at least 100 new restaurants over the next year or so. So, you know, it is a long, arduous process getting permits. I mean, we had a crazy thing in the Bay Area where they couldn't hook up the gas for a while. I encourage you to read the Supreme Court overruling of an ordinance in Berkeley that affected Palo Alto. You know, if you're really bored, you can read it. We finally got gas back into the center. And, you know, as you know, chefs like to cook with gas. So it was, you know, it cost us six months. And the delay, I mean, that's normal. But I'd say the bigger issue on, you know, just... It's not so much redevelopment as really re-candidating. And I would say, by and large, if I had to make up a number, it costs us probably $0.10 to $0.20 a year of just downtime. But that's a guess. Got it. Thank you. Thank you.
spk37: Thank you. Our next question is from Keven Kim with True Security. Please proceed with your question.
spk35: Thank you. Just a couple questions. First, your operating expenses were down in 4Q. I was just curious what drove that and if that's sustainable?
spk29: Yeah, Keven, it's Brian. Yeah, we did see some savings year over year. There was some seasonality to it. Weather was a little bit lighter. But yes, we do expect it's sustainable.
spk35: Okay, and on the ABG partial sale, was that a down round valuation versus the $18 billion mark previously?
spk40: No.
spk35: Okay, thank you.
spk43: Yeah, remember that was enterprise value. They have some debt, so that was an equity value. But it was at, so just when you say $18 billion, that's enterprise value. as opposed to equity value, okay?
spk33: Okay, thank you.
spk37: Sure, no problem. Our next question is from Handel Saint-Jacques with Mizuho Securities. Please proceed with your question.
spk59: Hey, good evening out there.
spk60: So... How are you? I'm doing great, sir. Hope you're well, too. The question I have is on your signed but not yet open pipeline. I think last quarter, or you previously outlined, there's about 200 basis points of embedded occupancy from that signed but not yet open pipeline. So maybe you can give us an update on where that stands today, and then also maybe what's embedded in the guide for bad debt and lease term fees this year. Thank you.
spk29: So signs might not open a little bit north of 200 basis points. We've been kind of holding that as we open stores and sign new leases. So we're holding steady around 200 basis points. We are assuming a normal level of bad debt, which is about 25 basis points. Total revenue would be our expectation on that.
spk58: Any surveys?
spk29: Normal rate of these term fees, I think the answer is the number for the year is about $30 million. The estimate.
spk50: Okay.
spk37: Thank you. Our next question is from Juan Sanabria with BMO Capital Markets. Please proceed with your question.
spk36: Hi, good evening. Just a quick one for me. Just curious on the current state of affairs with Jamestown and how that relationship is progressing. More talk about mixed use. So just curious if there's anything in the works or in the planning stages that you're doing with them and how you're thinking about that particular relationship.
spk32: Thank you.
spk43: Yes, thank you. So we're We haven't quite had a year under our belt, but we're very pleased with the relationship and the partnership. And we continue to look at opportunities both within our pipeline and obviously what they do on behalf of investors. a lot of good feedback going both ways. And we're working on one project. I mean, we have one development project we're working on together. But other than that, it's a lot of corporate. It's more strategic and more corporate. more of a corporate discussion than property level specifics other than one where we are partners on and going through a development process in that now in the southeast.
spk52: Thank you.
spk39: Sure.
spk37: There are no further questions at this time. I'd like to hand the floor back over to the for Management for Clothing Commons.
spk43: Okay, thank you, and obviously Tom and Brian are available, and we really appreciate everybody's participation. Talk to you soon.
spk37: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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