Q4 2023 Simon Property Group Inc Earnings Call

Participants

Brian J. McDade; Executive VP & CFO; Simon Property Group, Inc.

David E. Simon; Chairman, CEO & President; Simon Property Group, Inc.

Thomas Ward; SVP of IR; Simon Property Group, Inc.

Alexander David Goldfarb; MD & Senior Research Analyst; Piper Sandler & Co., Research Division

Caitlin Burrows; Research Analyst; Goldman Sachs Group, Inc., Research Division

Craig Allen Mailman; Research Analyst; Citigroup Inc. Exchange Research

Greg Michael McGinniss; Analyst; Scotiabank Global Banking and Markets, Research Division

Haendel Emmanuel St. Juste; MD of Americas Research & Senior Equity Research Analyst; Mizuho Securities USA LLC, Research Division

Hongliang Zhang; Analyst; JPMorgan Chase & Co, Research Division

Jeffrey Alan Spector; MD and Head of United States REITs; BofA Securities, Research Division

Juan Carlos Sanabria; MD & Senior U.S. Real Estate Analyst; BMO Capital Markets Equity Research

Ki Bin Kim; MD; Truist Securities, Inc., Research Division

Michael Goldsmith; Associate Director and Associate Analyst; UBS Investment Bank, Research Division

Ronald Kamdem; Equity Analyst; Morgan Stanley, Research Division

Stephen Thomas Sakwa; Senior MD & Senior Equity Research Analyst; Evercore ISI Institutional Equities, Research Division

Vince James Tibone; MD of Retail & Industrial; Green Street Advisors, LLC, Research Division

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.

Thomas Ward

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 actual 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-K 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 1 hour. For those who would like to participate in the question-and-answer session, we ask you to please respect the request to limit yourself to one question.
I'm pleased to introduce David Simon.

David E. Simon

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 in premier shopping, dining, entertainment and mixed-use destinations managing through, and in some cases, very turbulent times.
Over the last 3 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 about -- 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 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 landlords, 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 1 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 generate -- our annual FFO generation increased 30x 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 $100 million in NOI. These assets are in great locations. The loyal and large customer base that 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 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 $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 and $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 or fourth quarter was 95.8%, 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% year-over-year, and the mills rent 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 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 at $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 pretax and after-tax gains of $157 million and $118 million, respectively.
We opened our 11th outlet in Europe last year. Construction continues on 2 outlets. Yes, in Tulsa, Oklahoma. And yes, one in Jakarta, Indonesia. We completed 13 significant redevelopments and we'll complete other major development projects this year. In addition, we expect to begin construction this year on 5 to 6 mixed-use projects representing around $800 million of spend from Orange County to Ann Arbor to Boston to Seattle to Rosebel Field. They're 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 3 senior note offerings for approximately $3.1 billion, including the Klépierre 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 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. 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 29 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 $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.

Question and Answer Session

Operator

(Operator Instructions) Our first question is from Steve Sakwa with Evercore ISI.

Stephen Thomas Sakwa

I was just wondering if you can 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 has the pricing dynamic changed given that you're now kind of 95% leased and pretty full in the portfolio?

David E. Simon

Well, I mean, Steve, we're always adjusting our mix. We're always trying to -- so even though we're 96% leased, they're vast. We're always looking to improve our retailer mix and often beneficial to our NOI growth. I would say just generically, 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 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 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 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. 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 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 the stuff about e-commerce, cost of customer acquisition, returns, stickiness, et cetera, all is -- continues to be a challenge. If you looked at the marketplaces that pure online, they run into problems. So you're 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 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's strong. And it's across the board. I mean it's not one category, one retailer, but pretty much across the board.

Operator

Our next question is from Caitlin Burrows with Goldman Sachs.

Caitlin Burrows

David, could you give us some more detail on the ABG sales that you referenced, maybe how much you still own? How much do 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 E. Simon

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 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 #1 priority will be. So it wouldn't surprise me, Caitlin, for us to continue to monetize. Obviously, some of these are bigger value -- bigger investments. 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 them, are we going to get a better return, plowing it back into our core business.

Operator

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

Jeffrey Alan Spector

First, congratulations on the anniversary. David, there's a lot of initiatives. So as you think about the next 5 years, I know it's probably a difficult question, but is there 1 or 2 key initiatives that you're most excited about as you think about the next 5 years?

David E. Simon

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. 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 incredible -- incredibly robust market, a 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'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 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 now enhance and -- their shopping experience with us. So we've got a lot of initiatives on the marketing, loyalty, sign and search is a great example where our consumer, either in property or previsit, can search our tenant base for what -- if they're looking for a black dress, where in this 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 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 4 really is just we've got to do a great job of continuing to evolve our retailer mix. The exciting thing is there are more and more entrepreneurs or 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, but I'm certain there'll be ones that I haven't even thought of.

Operator

Our next question is from Alexander Goldfarb with Piper Sandler.

Alexander David Goldfarb

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-endemic 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 E. Simon

Well, I mean, Alex, look, our yield is ridiculously hot, okay? So that's really -- and we could financially pay [2 10] tomorrow, right? So we have $1.5 billion of free cash flow after our dividend. So it has nothing to do with financial wherewithal. I mean, we would like -- we don't like trading at this high 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 what the strip center rates -- our yield is plenty high for investors. So tell all of my investors, I could pay 2 10 tomorrow evening, okay, per quarter without a blink, but our yield is too high. And it will be there before you know it, but we would like to trade a little 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 2% our REIT strip centers, Tom are in the 4s. We're close to 7%, right, 6.5%, 7%. So I mean, Alex, you should be pounding the table.

Alexander David Goldfarb

Yes. Unfortunately, I'm a nonpaying customer. The real customers are the ones listening to the call. We're just asking the questions.

David E. Simon

Absolutely. By the way, we are -- just so you know, we like your welcome out there. We are west of the Hudson, and we're not going to tell you exactly where we are, okay? We may not be in Indiana tonight, but we are west of the Hudson.

Alexander David Goldfarb

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

David E. Simon

Well, I can't tell you my schedule.

Operator

Our next question is from Michael Goldsmith with UBS.

Michael Goldsmith

David, base rents are up healthily in the low single-digit range year-over-year, while your tenant sales or 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?

David E. Simon

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 cost, they are still at the low end of our historical range, and we're at 12.6%. And we have run up to 14-plus percent 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 get and so on. We actually think our sales per foot are higher than this. In 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 -- and I mentioned this maybe 2, 3 years ago, probably certainly pre-pandemic, but we reported -- I know the market likes it, we actually think our sales were higher. They come from our properties and then they're somewhat affected by returns. And we think some -- 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, we'll be able to generate kind of the new leasing and renewal spreads that we've seen over the last couple of years.

Operator

Our next question is from Floris Van Dijkum with Compass Point.
Our next question is from Craig Mailman with Citi Group.

Craig Allen Mailman

Just going back to maybe the reinvestment theme here. You guys have plenty of cash after the dividend. And I'm just kind of curious, at this point, what is the level of anchor box reinvestment you actually need to do just given what maybe they give 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 2, 3 years? You guys could ultimately get back and have to retenant -- and just you talked a lot about how the leasing environment is good. Just what's the outlook for retenant 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?

David E. Simon

Well, on the -- Craig, on the department store boxes, I don't have it off the top of my head, but the ones we own, we basically don't have a ton of work to do. We have a handful of boxes that we own that -- that are in process like, for instance, and I mentioned just briefly on the call. We -- 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 manning probably under 10 at this point that are either currently under construction or in process. So very small amount of kind of less of an opportunity than you think. The ones that we -- Transformco still owns some boxes and so does Seritage. So we'll -- 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 the ask has been too great. But -- we find -- 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 the mixed-use development that we're doing. And obviously, opening up if it's in a closed mall opening et cetera with restaurants and entertainment and so on that's 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. It's only a handful.
Now Macy's, is you're right, 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. No. 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 the business? There's [800] good department stores at that time, frankly, they're down to, believe it or not, operating maybe 5, 6, 7, 8. I think we actually have the most between us and the [Taubman] portfolio. But how are you going to survive it? The fact of the matter is it was a nonevent 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 -- the changes in box as a concern. We view it really more aggressively and progressively as something that will enhance the properties portfolio. And the assets that we're worried about that couldn't survive that basically don't exist in our portfolio anymore. So if you ask me that question 10 years ago, I might have a different answer.
Craig, I hope you get better prior to the Sydney conference, I'm sure you will. But it sounds like you've lost your voice.

Craig Allen Mailman

Yes. Hope to be on the mend by then.

Operator

Our next question is from Vince Tibone with Green Street.

Vince James Tibone

Could you help me better understand how much incremental FFO we should expect in '24 from development or 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 E. Simon

Yes. 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. I mentioned Brian now for the third time, but we have a whole wing that's connected to the former Sears department store that we're redeveloping, plus an outdoor shop. We're building a 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 not 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 by and large, all of the stuff in the U.K. that we've listed, and I don't believe in the air, if it is, just it will be there shortly. None of that is really -- it really gets in '24. We do have Tulsa opening in the late summer. That will have a marginal impact leasing is going well. But with all the redeveloping, this is really more of a '25, '26 story. And the one that we'll see the benefit of this year, and I don't have a number handy is [fixed] which we opened in '23. That's kind of the one that I would say most meaningful, but most of the redevelopment is a '25, '26 story.

Vince James Tibone

No, that's really helpful. I mean, is there any like for -- just in terms of, I guess, the $1.3 billion that's acted 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 it's $500 million stabilizing annually, let's call it, 7%, 8% yield a fair assumption? Or -- and that's what I'm trying to get out, like how quickly...

David E. Simon

Yes. 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 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. We'll be subbing -- so it may round down that 8%. But if you're talking kind of everything else, we would hope to be north of that.

Operator

Our next question is from Ron Kamdem with Morgan Stanley.

Ronald Kamdem

Great. Just a 2-part 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 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?

David E. Simon

Sure. So -- and Brian will chime in here. I'll just give you some thoughts on 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 happy to look at this for -- I must have been probably doing my job, but I noticed in Q4, Q4 is an example of the bounce back with very -- Q4 sales were around $350 million, okay, which, to me, is a real good indicator 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 -- the one area that the U.S. overall, and obviously, will have an impact on us. I do not think we'll see the Chinese -- we do not expect the Chinese to come back the way they have had before pandemic.
And our -- 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 a lower percent of revenues both 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 is available to correct me. Our domestic operations had $0.28 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 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 margin. And it's only -- we're only projecting this year, $0.10 to $0.15.

Operator

Our next question is from Greg McGinniss with Scotiabank.

Greg Michael McGinniss

David, I just wanted to dig into the guidance a bit at OPI that you just cited 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 E. Simon

Yes. Thank you for that question. And the answer, no. That's pure operations. And no onetime or sale gains or any of that are in there. And yes, I mean just by -- I mean, we had a -- we had a tough '23 in OPI. We saw -- we didn't meet our -- both our budgeted expectations and our expectations is kind of big year when we recalibrated it. And the team in OPI, again, we're partners with. So it's not just us, we're partners, are making significant efforts within their own business to improve performance. And again, the overriding thing was -- and we should be sensitive to this across the board. The overriding theme was the lower-income consumer still 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 we need to figure that out as a country.

Greg Michael McGinniss

So just to clarify...

David E. Simon

So no. Yes. So hopefully, I answered. So no onetime gains. Hopefully, the -- we're being conservative, and that's kind of where the numbers are. And 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. We really outpaced ourselves and at extraordinary '21 and '22. And I think now we're kind of getting back to a kind of a more stabilized number.

Greg Michael McGinniss

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?

David E. Simon

Well, you're just talking about our tenant base now, is that the question? Or...

Greg Michael McGinniss

I guess (inaudible) plus your tenants, yes.

David E. Simon

Okay. Well, like I said, the ones in SPARC and Penny, I really spoke to. I mean, I think generally, the plan 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 look 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. As simple as that. Brands are good. Businesses are -- have the right game plan and we're moving. I would -- so that's SPARC, Penny, any questions on that, then I'll move to your other questions. I mean, retail is very specific. So I think our retailers, they're generally -- the credit is in really good shape. There's always 1 or 2 or 3 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 they're open to buying. The 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.

Operator

Our next question is from Hong Zhang with JPMorgan.

Hongliang Zhang

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. Wondering what drove that and what are your expectations for that portfolio this year as well?

David E. Simon

Just on Taubman, 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 onto 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 -- it's not an excuse. We don't worry about it. It -- and it's not so much big redevelopment. You -- when you retenant 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 6 to 9 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 it -- 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 overruling of an ordinance in Berkeley that affected Palo Alto. If you're really bored, you can read it. We finally got gas back into the center. And as you know, chefs like to cook with gas. So it was -- it cost us 6 months and the delay -- I mean, that's normal. But I'd say the bigger issue on -- just -- is not so much redevelopment and really retenanting. 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 just downtime. But that's a guess.

Operator

Our next question is from Ki Bin Kim with Truist Securities.

Ki Bin Kim

Just a couple of questions. First, your operating expenses were down in 4Q. Also just curious what drove that and if that's sustainable?

Brian J. McDade

Yes, Ki, it's Brian. Yes, 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.

Ki Bin Kim

Okay. And on the ABG partial sale, was that a down round valuation versus the $18 billion mark previously?

Brian J. McDade

No.

David E. Simon

Yes. Remember, that, that was the enterprise value. They have some debt. So that was an equity value. It was -- so just when you say $18 billion, that's enterprise value as opposed to equity value.

Operator

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

Haendel Emmanuel St. Juste

Question I have is on your signed but not yet open pipeline. I think last quarter or you previously outlined is 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?

David E. Simon

So signed but not opened is 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 of total revenue would be our expectation on that.

Haendel Emmanuel St. Juste

Lease term fees?

David E. Simon

Normal rate of lease term fees, I think the answer -- the number for the year is about $30 million, estimate.

Operator

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

Juan Carlos Sanabria

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?

David E. Simon

Yes. Thank you. So we're -- we haven't quite had a 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 haven't -- 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. There's -- 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.

Operator

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

David E. Simon

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

Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.