Simon Property Group Q4 2023 Earnings Call Transcript

Participants

Corporate Executives

• Tom Ward, Senior Vice President, Investor Relations
• David Simon, Chairman, Chief Executive Officer & President
• Brian J. McDade, Executive Vice President & Chief Financial Officer

Analysts

• Steve Sakwa, Evercore ISI
• Caitlin Burrows, The Goldman Sachs Group, Inc.
• Jeff Spector, Bank of America Co.
• Alexander Goldfarb, Piper Sandler Companies
• Michael Goldsmith, UBS Group AG
• Craig Mailman, Smith Barney Citigroup
• Vince Tibone, Green Street
• Ron Kamdem, Morgan Stanley
• Greg McGinniss, Scotiabank
• Hong Zhang, JPMorgan Chase & Co.
• Ki Bin Kim, Truist Securities
• Haendel St. Juste, Mizuho Securities
• Juan Sanabria, BMO Capital Markets

Presentation

[Operator]

Greetings, and welcome to the Simon Property Group Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] 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.

[Tom Ward, Senior Vice President, Investor Relations at Simon Property Group]

Thank you, Paul, and thank you, everyone, for joining us this evening. Presenting on today's call are David Simon, Chairman and 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 with the meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995 and actual results may differ materially due to variety of risks, uncertainties, and other factors. We refer you to today's press release and SEC filings for a detailed discussion of the risk factors relating to these 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-K filing. Both the press release and the supplemental information are available on our IR site 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.

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

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 in 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 for then 50, and disposed of approximately 250 resulting in our current domestic portfolio of about 215 assets.

We expanded globally, and today have 35 international outlets, including world -- now world-renowned outlets in Asia, and our portfolio is differentiated by product by geography and closed 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, the world's most important retailers, and not by accident, our diversified tenant base has solid credit, 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 from $424 million to nearly $5.7 billion, annual FFO -- our annual FFO generation increased 30 times from approximately $150 million to nearly $4.7 billion, a 12% 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 a $100 million in NOI. These assets are in great locations, have a loyal and large customer base that is where the retailers want to be. No other asset type has 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 that. 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 operation in 2023 or $12.51 per share and returned $2.9 billion to shareholders in dividends and share repurchase. For the quarter, FFO was $1.38 billion or $3.69 per share compared to $1 billion -- $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 $0.28 of growth primarily driven by higher rental income with lower operating expenses.

Gains from investment activity in the fourth quarter were approximately $0.07 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% year-over-year for the quarter and 4.8% 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% for the quarter and 4.9% for the year. Mall and outlet occupancy at the end of the quarter, fourth quarter was 95.8%, an increase of 90 basis points compared to last year.

The Mills occupancy was 97.8%, and occupancy is above year-end 2019 levels for all of our platforms. Average base minimum rent for malls and outlets increased 3.1% year-over-year and The Mills rents increased 4.3%, 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% of our leasing activity for the year were new deals, we're going-in rents of approximately $74 per square foot and renewals had going-in rents of approximately $55 per square foot. Leasing momentum for the last couple of years continues Into 2024. Reported retailer sales per square foot in the quarter was $743 for malls and outlets combined and $677 through The Mills.

During the quarter, we sold a portion of our interest in ABG for gross proceeds of $300 million in cash and reported pretax and after-tax gains of $157 million and $118 million respectively. We opened our 11 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 re-developments. And we'll 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, they are some of the ones that are planning to start this year. And we expect to fund these redevelopments to 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 Klepierre exchangeable offering. We recast and upsized our primary revolver credit facility to $5 billion and completed $4 billion of secured loan refinancings and extensions, our rated -- 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 and year-over-year increase of 8.3%. The dividend is payable on March 29 of 2024.

Now 20 -- moving onto 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 $0.25 to $0.30 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 $0.10 to $0.15 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.

Questions and Answers

[Operator]

Thank you. [Operator Instructions] Our first question is from Steve Sakwa with Evercore ISI. Please proceed with your question.

[Steve Sakwa, Analyst at Evercore ISI]

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 what sort of conversations are you having with the tenants and maybe how the pricing dynamic changed there, given that you're now kind of 95% leased and pretty full in the portfolio.

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

Well, I mean, Steve, we're always adjusting our mix. We're always trying to -- so even though we're 96% thereabouts, we're always looking to improve our retailer mix and obviously, that's been beneficial to NOI growth. I would say, just generically, obviously, I spend 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 people that calculate our shopping centers to be part of what we're doing it. 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 in the $56, $57 range. So we're seeing generally positive spreads supply-and-demand is in our favor. Historically low supply in big properties across the -- across the country, I mean, there used to be 40 million square feet of retail real estate built every year, now there is essentially less than a few million here and there.

So -- and then there's been obsolescence too which makes the supply shrink as well. So -- 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 the bricks and mortar has never been higher. And the cost of all of the things that we said about, don't get me wrong e-commerce is critically important, but all of this stuff about e-commerce, cost of customer acquisition, returns, stickiness, et cetera, all continues to be a challenge.

If you looked at the marketplaces, that pure online, they run into problems. So, you really -- 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, which we're very focused about, but now even though we've bounced back and had a couple of really good years in terms of lease-up from the depths of the pandemic, we're not finished and retail demand continues and it is strong and it's across the board. I mean, it's not one, category one retailer, but pretty much across-the-board.

[Steve Sakwa, Analyst at Evercore ISI]

Thanks, that's it.

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

Thank you, Steve.

[Operator]

Thank you. Our next question is from Caitlin Burrows with Goldman Sachs. Please proceed with your question.

[Caitlin Burrows, Analyst at The Goldman Sachs Group]

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?

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

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 we'll continue to look to monetize these investments, they've been by and large, very good investments. Of course, not just the big ones, but the smaller ones as well. Obviously, there's number of them that are synergistic to us. But, we have a strict adherence to creating value. And we think we can deploy that capital into kind of what I'd call the butter share and can get better growth from that and that's where our number one priority will be. So, it wouldn't surprise me, Caitlin, for us to continue to monetize, obviously, the -- some of these are bigger value -- bigger investment. So, it's not that easy to do it in one big swoop, but We're very focused on portfolio management of those assets and If we can monetize and are we going to get a better return plowing it back into our core business.

[Caitlin Burrows, Analyst at The Goldman Sachs Group]

Got it, thanks.

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

Yeah, thank you.

[Operator]

Our next question is from Jeff Spector with Bank of America. Please proceed with your question.

[Jeff Spector, Analyst at Bank of America]

Great. Thank you. And first, congratulations on the anniversary. David, there is a lot of initiatives. So as you think about the next five years, I know it's probably difficult question, but Is there one or two key initiatives that you're most excited about as you think about the next five years?

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

Well, 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, young population and a growing -- and I'm not, when I say Southeast Asia, I'm not like in Jakarta, places like that where it is not China, it is places like 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 with -- in terms of that. So we -- 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 handle enhance and 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 this center can I buy it, what retail are 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 -- that whole system about customer interaction, reinforcing their shopping behavior, rewarding loyalty, expediting their trip to make 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 retail mix. The exciting thing is, 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 our centers are a good place for them to do business. So, those are the ones that come to mind, and I'm certain, there'll be ones that I haven't even thought of.

[Jeff Spector, Analyst at Bank of America]

Very helpful. Thank you.

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

Thank you, Jeff.

[Operator]

Our next question is from Alexander Goldfarb with Piper Sandler. Please proceed with your question.

[Alexander Goldfarb, Analyst at Piper Sandler Companies]

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, 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, meaning that the surpassing pre-pandemic NOI versus the dividend is really just a function of the higher interest expense now.

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

Well I mean, Alex, look, our yield is ridiculously hot, okay. So, that's really where we could financially pay $2.10 tomorrow, right. So, we have $1.5 billion of free cash flow after dividends. So, it has nothing to do with financial wherewithal. I mean we like our -- we would like -- we don't like trading at this high yield. So I think, 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, what the strip center REITs -- our yield is plenty high for investors. So tell all my investors, I could pay $2.10 tomorrow evening, okay, per quarter without a blink and our yield is too high. And, it will be there before you know it, but we would like to trade at a lower yield, because we think, certainly if you look at it on that basis, our yield is higher than it should be I mean, the S&P is under 102%, our REIT strip centers, Tom are in the 4s. We're close to s7, right -- 6.5, 7. So I mean Alex, you should be counting the table.

[Alexander Goldfarb, Analyst at Piper Sandler Companies]

Yeah, unfortunately, I'm a non-paying customer, the real customers are the ones listening to the call. We're just asking the questions.

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

No, I, I'm kidding. By the way, we're not -- just so you know, we like your -- you're welcome out there, we are west of the Hudson, but we're not going to tell you exactly where we are, okay? Somewhere in Indiana tonight, -- we may not be in Indiana tonight, but we are west of the Hudson.

[Alexander Goldfarb, Analyst at Piper Sandler Companies]

I assume you'll be in Las Vegas this Sunday.

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

Well, I can't tell you in my schedule.

[Alexander Goldfarb, Analyst at Piper Sandler Companies]

Thank you.

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

You're welcome.

[Operator]

Our next question is from Michael Goldsmith with UBS. Please proceed with your question.

[Michael Goldsmith, Analyst at UBS Group]

Good afternoon, and thanks a lot for taking my question. David, base minimum rents are up healthily in a 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 function of your range, kind of catching up to some of the street, 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.

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

Sure. Good question, so I will say this. I think the rent -- the going-in rents and renewals for new leases are very much sustainable. If you look at our occupancy costs, we are still at the low end of our historical range, and we're at 12.6% and we have run up to 14% plus before. And I would also, I would also caution report, these are the sales that our tenants are reporting to us, but they are somewhat affected by returns they it and so on. We actually think our sales per foot are higher than this. Some cases they have the ability to offset our returns in most cases, they don't.

So, I just put that out there, so I wouldn't -- 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 were higher that come from our properties and then they are somewhat affected by returns. And we think some of -- 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 renewal spreads that we've seen over the last couple of years.

[Michael Goldsmith, Analyst at UBS Group]

Thank you very much.

[Operator]

Thank you. Our next question is from Floris van Dijkum with Compass Point. Please proceed with your question. Floris, is your line on mute?

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

Floris? Looks like we lost for Floris. Why don't we go on, we got a queue.

[Operator]

Our next question is from Craig Mailman with Citigroup. Please proceed with your question.

[Craig Mailman, Analyst at Smith Barney Citigroup]

Hey guys. Just -- sorry. Just going back to maybe the reinvestments in here. You guys have plenty of cash after the dividend. And then just trying to curious at this point. What is the level of anchor box reinvestment you guys think you need to do just given what may be vacant today. And 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, three years, you guys could ultimately get back and have to re-tenant and just talked a lot about how the leasing environment is could. Just, what's the outlook for re-tenanting those boxes today? What's the targeted kind of make-up there and is luxury still doing enough to be able to be the primary kind of backfill option?

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

Well, on the -- Craig, on the department store boxes, I don't have it off the top of my head, but the launch we own basically don't have a ton of work to do. We have a handful of boxes that we own that are in process, like for instance, I've mentioned Brea, but just briefly on the call, we did -- that was a former Sears store we tore it down 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, very small amounts of, kind of a less of an opportunity than you think. The ones that we felt Transformco still owns some boxes. And so does Seritage, so role in our properties. 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 the ask has been too great, but we -- and I don't think luxury is really going to be the dominant theme on a lot of these mixed use -- I'm sorry, on these boxes. I think a lot of it will be -- continue to be a mixed-use development that we're doing. And obviously, opening up, if it's in a closed mall opening the center up with restaurants and entertainment and so on and it 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 that until we make more deals to buy some of the boxes back. It's not as big as you might think that it's only a handful. Now Macy's is right there, they announced some store closings none of which are ours. So, 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, Sears going out of business. They had 800 department stores at that time, frankly they're down, I believe they were operating five, six, seven, eight. I think we actually have the most between us and the Taubman portfolio, but how are you going to survive, the fact of the matter is, it was a non-event to the mall customer, and If anything is we've gotten those boxes back. We've made the center better. So, as we look, we don't look at box -- the changes in box as a concern, we view it really more aggressively and progressively. And that's something that will enhance the properties in the 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.

[Craig Mailman, Analyst at Smith Barney Citigroup]

Great, thank you.

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

Craig, I hope you get better prior to the Citi Conference, I'm sure you will, but you sound like you've lost your voice.

[Craig Mailman, Analyst at Smith Barney Citigroup]

Yeah. Hoping to be on the men by then. Thanks, David.

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

Bye-bye. You will.

[Operator]

Our next question is from Vince Tibone with Green Street. Please proceed with your question.

[Vince Tibone, Analyst at Green Street]

Hi, good evening. Could you help me better understand, how much incremental FFO, we should expect in '24 from development and redevelopment projects that stabilized either later in '23 or slated to be finished in '24, just any color to help us better understand the timing of incremental NOI and FFO from all the development activities would be helpful?

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

Yeah, in fact, it's interesting you actually take us -- I think in '24 we're taking a step back. I'll just give you a trivial example. And 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 Dick's Sporting Goods. We have a Lifetime Fitness resorts 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 am not sure, I am allowed to say it, but I'll say it anyway, Zara, Uniqlo and they won't open until end of '24, best-case.

So this advanced, by and large, all of this stuff in the UK that we've listed and I don't believe Brea's in the year if it is, just it will be there shortly. None that is really -- affect that really gets in '24, we do have Tulsa opening in late-summer that will have a marginal impact leasing is going well. With all the redeveloping, this is really more of a '25, '26 story. And the one that will see the benefit of this year and I have a number handy is 6, which we opened in '23. That's kind of the one that would say most meaningful of it. But most of the redevelopment is of '25, '26 story.

[Vince Tibone, Analyst at Green Street]

No, that's really helpful. I mean, is there any like for just in terms of the get the $1.3 billion that's active today, plus $800 million you're going to start. I mean what's the fair assumption for '25, '26, in terms of level of maybe spend stabilizing, I mean I have to look at how we model it, like, is $500 million stabilizing annually at, we'll call it, 7%, 8% yield a fair assumption, or that's something I'm trying to get at like how quickly.

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

No. I appreciate that. If you don't include what I saw ground up, new development, I would say probably about between $600 million and $800 million a year and our goal would hopefully be to bring that in at north of eight. 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, where we're basically about to start construction there, will be sub-eight. So, it may being round down that 8%, but if you're targeting kind of everything else, we would hope to be north of that.

[Vince Tibone, Analyst at Green Street]

Thank you. That's all really helpful color. I appreciate it.

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

Thank you.

[Operator]

Our next question is from Ron Kamdem with Morgan Stanley. Please proceed with your question.

[Ron Kamdem, Analyst at Morgan Stanley]

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 fixed conversion, just trying to get a sense of how much of a tailwind 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.

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

Sure, so -- and Brian will chime in here. I will just give you some thoughts off my head and then Brian, hopefully, will agree or correct people. Three or correctly. So. I would say we saw in '23 really decent bounce-back from the tourist centers. I give you a great example. So, -- and. I was just happy to look at this having to look at this for now, I must have been probably doing my job. But, I noticed in Q4 as an example of the bounce back, the Woodbury Q4 sales were around $350 million. Sorry. Which to me is a real good indicator of bounce back and obviously, the highest fourth-quarter sales we've had zero in quite some time. So, I would say generally we're seeing a really good bounce-back in the tourist centers.

I don't think we're the one area that the US overall and world and then pass it on us. I do not think we'll see the Chinese. We do not expect the Chinese to come back the way they have beforehand before pandemic and they had -- 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 rent, we continue to see that as lower percent revenues, both the vast majority as we increased our, the way to think about it and it's interesting is and again, hopefully Brian will need to correct me, but Brian's available to correct me.

Our domestic operations at $0.20 of improvement Q-over-Q, that's $0.28, and within that $0.28, our variable income went down. So I think that gives you kind of a of a leading barometer, we're still working that way down and we're getting that into kind of our base rent. So and then your final on OPI, loss Q1 relatively flat Q2, Q3 and then most of it in Q4. Q2 is a little better than Q3 usual, but on the margins. And it's only growing projecting this year $0.10 to $0.15.

[Brian J. McDade, Executive Vice President & Chief Financial Officer at Simon Property Group]

Alright. You got it.

[Ron Kamdem, Analyst at Morgan Stanley]

Thanks so much.

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

Thanks, Ron.

[Operator]

Thank you. Our next question is from Greg McGinniss with Scotiabank. Please proceed with your question.

[Greg McGinniss, Analyst at Scotiabank]

Hey, good evening, David. I just wanted to dig into the guidance a bit and that OPI that you just decided in particular. Is it fair to assume that the $0.10 to $0.15 includes gains or monetization similar to last year or operations expected to improve from the minus $0.02 contribution to FFO in 2023?

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

Yeah, thank you for that question and the answer is no, that's pure operations. And no one-timer or sale gains or any of that are in there. And yeah -- I mean -- just by -- I mean, we had a tough '23 in our OPI. We didn't meet our both our budgeted expectations and our expectations kind of mid-year when we re-calibrated it. The team in OPI, again we're partners with, so it's not just us, where partners are making significant efforts within their own business to improve performance. And again, the overriding theme was -- and we should be sensitive to this across the board, the overriding theme was the lower income consumers still, with inflation embedded even though inflation has subsided, they are 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, we need to figure that out as a country.

[Greg McGinniss, Analyst at Scotiabank]

So just to clarify...

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

So no -- yeah, so I hopefully I answered. So no one-time gains, hopefully, we're being conservative and that's kind of where the numbers are. And yeah, 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 already cleared. We had -- we really outpaced ourselves that extraordinary '21 and '22 and I think now we're kind of getting back to more of a more stabilized number.

[Greg McGinniss, Analyst at Scotiabank]

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. And how are those retailers performing and are they going to be able to make the same sort of operational changes to benefit income?

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

Well, you're just talking about our tenant base now. Is that the question or the ones that...

[Greg McGinniss, Analyst at Scotiabank]

I guess, with JCPenney plus your tenants, yeah.

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

Okay, well, like I said, the ones of SPARC and Penny I really spoke to. I mean, I think generally, the plan with that they have in place we think we're on the right track and we're 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 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. I would -- so that's for Penny, questions on that.

[Greg McGinniss, Analyst at Scotiabank]

No.

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

Then I'll move to your other questions. I mean. Here retail is very specific. So, I think our retailers generally and the credit is in really good shape. There's always one or two or three tenants that we are somewhat nervous about. But there -- they all understand the importance of bricks and mortar, they're reinvesting in their stores. They're spending less on technology, which is good for us, putting more money back in the stores. And there are open to buy and 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, but there will always be a couple of here and there that have to sort of through their financial issues.

[Greg McGinniss, Analyst at Scotiabank]

Great, thanks for the color, David.

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

Sure, thank you.

[Operator]

Our next question is from Hong Zhang with JPMorgan. Please proceed with your question.

[Hong Zhang, Analyst at JPMorgan Chase & Co.]

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 a very strong rent and occupancy growth in the Taubman portfolio in the fourth quarter, measuring what drove that and what are your expectations for that portfolio this year as well.

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

Just on Taubman, and I mean, our expectations on the comp NOI are roughly right on in excess of 3%. What drove both portfolios really is supply and demand, multi-retail sales, operational excellence, all the things there I mentioned earlier. Listen, we're a big company, we did have some drag from redevelopment, but it's not, it's not an excuse. We don't worry about it, and it's not so much big redevelopment. You -- when you re-tenant a mall you have downtime and as I've 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 it 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 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. Encourage you to read the Supreme Court, over-ruling an ordinance in Berkeley, that affected Palo Alto. If you're really bored, you can read it. We finally got guests back into the year at center. And as you know, chefs like to cook with gas. So, it was -- it cost us six months and the delay. I mean that's normal. But I'd say the bigger issue on just is not so much redevelopment, it is really re-tenanting and I would say by and large, if I had to it make-up a number, it costs this probably $0.10 to $0.20 a year, just downtime, but that's a guess.

[Hong Zhang, Analyst at JPMorgan Chase & Co.]

Got it, thank you.

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

Thank you.

[Operator]

Thank you. Our next question is from Ki Bin Kim with Truist Securities. Please proceed with your question.

[Ki Bin Kim, Analyst at Truist Securities]

Thank you. Just a couple of questions, first, your operating expenses were down in 4Q. I just curious what drove that and if that's sustainable.

[Brian J. McDade, Executive Vice President & Chief Financial Officer at Simon Property Group]

Yeah, Jason, this is Brian. Yeah, we did see some savings on a year-over-year. There was some seasonality to it, whether with a little bit lighter. But yes, we do expect it's sustainable.

[Ki Bin Kim, Analyst at Truist Securities]

Okay, and on the ABG partial sale, was it down around valuation versus the $18 billion mark previously?

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

Down.

[Ki Bin Kim, Analyst at Truist Securities]

Okay, thank you.

[Brian J. McDade, Executive Vice President & Chief Financial Officer at Simon Property Group]

Yeah, remember that was the enterprise value, added some debt. So that was an equity value. But it was -- just when you say $18 billion that's enterprise value as opposed to equity because.

[Ki Bin Kim, Analyst at Truist Securities]

Okay, thank you.

[Brian J. McDade, Executive Vice President & Chief Financial Officer at Simon Property Group]

Sure, no problem.

[Operator]

Our next question is from Haendel St. Juste with Mizuho Securities. Please proceed with your question.

[Haendel St. Juste, Analyst at Mizuho Securities]

Hey, good evening out there.

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

How are you?

[Haendel St. Juste, Analyst at Mizuho Securities]

I'm doing great, sir. Hope you're well too. Question I have is on your side, but not yet opened pipeline. I think last quarter or you previously outlined is about 200 basis points of embedded occupancy from that side 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.

[Brian J. McDade, Executive Vice President & Chief Financial Officer at Simon Property Group]

So, signed but not opened is a little bit north of 200 basis points. We've been kind of holding that, we open stores and find 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 to total revenue would be our expectation on that.

[Haendel St. Juste, Analyst at Mizuho Securities]

Lease term fees.

[Brian J. McDade, Executive Vice President & Chief Financial Officer at Simon Property Group]

A normal rate of lease term fees. I think the answer -- the number for the year is about $30 million.

[Haendel St. Juste, Analyst at Mizuho Securities]

Thank you.

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

Okay, thank you. Operator?

[Operator]

Our next question is from Juan Sanabria with BMO Capital Markets. Please proceed with your question.

[Juan Sanabria, Analyst at BMO Capital Markets]

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 are thinking about that particular relationship. Thank you.

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

Yes, thank you. So, we haven't quite have the year under our belt, but 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. So, a lot of good feedback going both ways and We we're working on one project. I mean we have one development project where we're working on together, but other than that it's a lot of corporate. There is -- it Is more strategic and more of a corporate discussion than property-level specifics other than one where we are partners on and going through the development process in that now in the Southeast.

[Juan Sanabria, Analyst at BMO Capital Markets]

Thank you.

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

Sure.

[Operator]

There are no further questions at this time. I'd like to hand the floor back over to management for closing comments.

[David Simon, Chairman, Chief Executive Officer & President at Simon Property Group]

Okay, thank you and, obviously, Tom and Brian, are available. And we really appreciate everybody's participation. Talk to you soon.

[Operator]

[Operator Closing Remarks]