Simon Property Group (SPG) Q3 2023 Earnings Call Transcript

Simon Property Group (SPG -0.26%)
Q3 2023 Earnings Call
Oct 30, 2023, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, welcome to Simon Property Group third-quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions] Please note, this conference is being recorded.

I will now turn the conference over to Tom Ward, senior vice president, investor relations. Thank you. You may begin.

Tom Ward -- Senior Vice President, Investor Relations

Thank you, Cherie, and thank you for joining us this evening. Presenting on today's call is David Simon, chairman, chief executive officer, and president. Also, on the call are Brian McDade, chief financial officer; and Adam Reuille, chief accounting 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 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 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, President, and Chief Executive Officer

Good evening, and I'm pleased to report our third-quarter results. Third-quarter funds from operations were $1.2 billion, or $3.20 per share. Let me walk you through some of the highlights for this quarter. Compared to the same quarter of 2022, domestic and international operations had a very good performance this quarter and contributed $0.17 of growth, primarily driven by higher rental income. Noncash after-tax gains of $0.32 in the third quarter were related to the partial sale of our ownership interest in SPARC and ABG as a result of ABG selling primary shares in the quarter.

Higher interest expense was a setback of $0.07 year over year. We had a $0.15 lower contribution from our other property investment platform compared to Q3 2022, and a $0.02 loss on mark-to-market of publicly traded securities. FFO from our real estate business was $2.91 per share in the third quarter, compared to $2.83 in the prior period last year. So far, our real estate has produced $8.55 per share for the first nine months, compared to $8.40 from last year. We are pleased with the transaction SPARC completed with Shein during the third quarter that demonstrated the value that we have created in that business. The transaction was significantly above our basis and, as a result, we recognize the gain in the corner.

We -- and the transaction ultimately reduced our ownership interest in SPARC from 50% to 33% as we admitted Shein as a partner. Given our lower ownership interest and the back-end weighting of profitability in the fourth quarter, we now expect $0.05 lower FFO contribution from SPARC in the fourth quarter of this year. During the third quarter, the Taubman family exercised their put-right on a portion of their interest in TRG. We exchanged 1.725 million partnership interest units for an additional 4% ownership interest. We now own 84% of TRG.

Domestic property NOI increased 4.2% year over year for the quarter and 3.8% for the first nine months. Portfolio NOI, which includes our international properties at constant currency, grew 4.3% for the quarter and 4% for the first nine months of the year. Mall and outlet occupancy at the end of the third quarter was 95.2%, an increase of 70 basis points compared to last year. Our third-quarter occupancy is higher than fourth quarter of last year, which has not occurred historically. The Mills occupancy was 97.4%. And occupancy is above all year-end 2019 levels for all of our platforms.

Average base minimum rent for malls and outlets increased 2.9% year over year, and the Mills was 3.6% year over year. Leasing momentum continues across our portfolio. We signed more than 970 leases for approximately 4.3 million square feet in the quarter. Through the first nine months of 2023, we signed more than 3,500 leases for 15 million square feet, which is expected to generate over $1 billion of revenue. We have an additional 1,100 deals in our pipeline, including renewals, for another 400 million in revenue.

We are seeing strong broad-based demand from retail community, including continued strength for many categories. Reported retail sales per square foot in the third quarter was $744 for the Mills and outlets combined and 676 for Mills. We continue to be active in redevelopment, new development. During the quarter, we started construction on a significant redevelopment at Brea Mall and a new upscale outlet center in Jakarta, our first premium outlet in Indonesia.

We completed the refinancing of 11 property mortgages during the first nine months of the year for a total of $960 million at an average rate of 6%. We have -- our balance sheet is strong with approximately $8.8 billion of liquidity. Today, we announced a dividend of $1.90 per share for the fourth quarter, which is a year-over-year increase of 5.6%. The dividend is payable on December 29th.

And we also purchased approximately 1.27 million shares of our common stock for $140 million. We are increasing our full-year 2023 guidance from $11.85 to $11.95, to $12.15 to $12.25 per share. This is an increase of $0.30 at the midpoint. So, to conclude, I'm pleased with our third-quarter results. Our business is performing well and is ahead of our plan.

Tenant demand is strong. Occupancy is increasing. Base minimum rent levels -- rent levels are at record levels, and we are very experienced at managing our business through volatile periods of time. And as you all know, this is when we do some of our best work.

So, we're now ready for your questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question is from Ron Kamden with Morgan Stanley. Please proceed.

Ronald Kamdem -- Morgan Stanley -- Analyst

Great, thanks so much. Just one on some of the guideposts you've given in the past. As we're flipping the calendar to 2024, you talked about sort of 3% organic growth as achievable. Just wondering how you're thinking about that and how we should think about potential interest cost headwinds as as that sort of rolls. Thanks.

David Simon -- Chairman, President, and Chief Executive Officer

Sure. Look, I think we feel good about that kind of comparable NOI growth. You know, our debt is reasonably laddered. So, yes, we'll have some interest expense headwinds, but we still think we'll end up growing our business next year with that said.

Ronald Kamdem -- Morgan Stanley -- Analyst

Great. Thank you.

David Simon -- Chairman, President, and Chief Executive Officer

Go ahead, Ron.

Ronald Kamdem -- Morgan Stanley -- Analyst

I was just going to say if I can ask a follow-up. Just on the $0.30 guidance range, I think you talked about $0.32 gain and then $0.05 lower from the retailers. Just just wondering, is there any other sort of puts and takes that we should be mindful of? Thanks.

David Simon -- Chairman, President, and Chief Executive Officer

Sure. No, we're going to have $0.05 lower because of the SPARC-Shein deal. We lost a couple of cents from our mark to market on a couple of our public securities that we own last quarter. And essentially the -- you know, the -- the -- the real estate business is, you know, been very, you know, significant to our growth. And, you know, we'll -- we'll kind of see where the fourth quarter ends up, but I think it's, you know -- we'll -- we'll -- you know, our -- 97% of our business is going to outperform what we thought from originally -- originally what we had budgeted.

Ronald Kamdem -- Morgan Stanley -- Analyst

Thank you.

David Simon -- Chairman, President, and Chief Executive Officer

Sure.

Operator

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

Caitlin Burrows -- Goldman Sachs -- Analyst

Hi, good evening, everyone. David, I know you gave some numbers on recent leasing activity, which sounds really strong. I was wondering if you could give some additional context maybe to how that leasing activity compares to recent and pre-pandemic years, maybe what that means for pricing, and how that could impact permanent occupancy.

David Simon -- Chairman, President, and Chief Executive Officer

Well, thank you, Caitlin. So, I would say -- let me try and address your questions in no particular order, I think we'll be -- year-end occupancy will be, you know, obviously higher than it is today. I don't know that it'll be our highest ever, but it'll be, you know, within -- within distance pretty -- pretty close. Even with all the volatility in the world and the market, we still expect -- you know, we're still seeing demand very strong. I mean, you know, we're -- you know, frankly, we're cautious.

We're waiting for shoes to drop, but we haven't seen it on, you know, our new deals, whether it's F and B, entertainment, you know, high-end luxury tenants, athleisure, you know, just to name some categories. We're seeing -- you know, we're still seeing a lot of demand on that front. And I would say from a pricing element, you know, we feel -- you know, I would say we feel comparable to the way we felt in the, you know, '15, '16, '17 era in terms of era. I guess that was almost seven, eight years ago. But a lot's happened over those seven or eight years.

But, you know, we still feel like that's kind of -- you know, we're in that good shape where, you know, we're driving rents up and, you know, it's OK for the retailers. They're making deals and supply and demand's in our favor. You know, obviously, we cycle through a lot of poor-performing retailers due to COVID and the ones that we are doing new deals with or excited to do, you know, to do business with us. So, you know, pricing is, for sure, going in the right direction. Occupancy is going up, and tenant demand is pretty strong across the whole spectrum.

And even in certain categories, you know, just to take luxury, yes, there are some that are being more cautious, but there's plenty that -- you know, that are growing new stores. So, you know, it's really retail specific. Obviously, bricks and mortar, you know, through the pandemic to today has proven its value to retailers. I'm sure you hear that on the -- on the conference calls from retailers, so you know, in that sense, we're making a lot of good stuff happen. Brian, did you have something on the occupancy?

Brian McDade -- Chief Financial Officer

I was just going to say we continue to see about 30% of our deals being new deals in the quarter. So, that's consistent with the prior quarter as well. So, there is definitely lots of activity on a new-deal basis.

Caitlin Burrows -- Goldman Sachs -- Analyst

Great. Sounds encouraging. Thanks.

David Simon -- Chairman, President, and Chief Executive Officer

Thank you.

Operator

Our next question is from Samir Khanal with Evercore ISI. Please proceed.

Samir Khanal -- Evercore ISI -- Analyst

Good evening, everyone. David, maybe provide color on how your malls are performing versus outlets. You know, maybe from a regional standpoint, coastal non-coastal, Sun Belt, just trying to see what -- you know, if there's any differences from a leasing standpoint. Thanks.

David Simon -- Chairman, President, and Chief Executive Officer

Sure. You know, it's interesting. I would say we're seeing pretty good tenant sales growth on the tourism properties, whether they're outlet or malls. Now, the -- most of our pure tourist properties are really the outlet centers, and we're seeing good growth in that category.

Traffic, generally, is slightly above last year, still slightly below '19, but obviously conversions way up because our sales are -- on a per-square-foot basis are much higher than '19. I would say, generally, whether mall or outlet, the Sun Belt area has produced pretty good results in terms of sales year to date. We saw actually a decent pickup in California, which was encouraging, but really good growth in -- you know, in Woodbury Common that, you know, finally getting the tourism back to where it is. And, you know, apparel has been strong in the outlet business. There's no question people are looking for a little more value, or maybe they're looking for a lot more value given the higher inflation that the consumers had to deal with.

Not a huge bifurcation between, you know, malls and outlets. It's very property specific. You know the different -- you know, as you know, we reported flat sales basically quarter over quarter. And, you know, there's no real difference between outlets and -- and malls in that number. Luxury, probably -- well it didn't -- probably -- it did flatten out in the third quarter of this year for sure, but it wasn't across the board.

It was more a couple of specific retailers had a tough Q3; others were up. So, it was really retailer-specific. Jewelry, you know, malls may have a little more exposure to jewelry. So, that was a -- you know, that was a category that took a little more on the chin, yet, you know, some of our higher-end retailers in the jewelry category perform well. So, it was, you know, basically not a real trend.

I'd say the most important thing to come away with is that, you know, the Sun Belt continues to perform well, and we're seeing the tourist centers kind of make a -- make a nice comeback. They've been lagging a little bit more than the others over time, and a little bit of flatlining in -- you know, in the -- in the luxury category. Tom?

Tom Ward -- Senior Vice President, Investor Relations

Brian, anything you want to add?

Brian McDade -- Chief Financial Officer

No, I think you covered it, David.

David Simon -- Chairman, President, and Chief Executive Officer

OK.

Samir Khanal -- Evercore ISI -- Analyst

Thank you.

Operator

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

Alexander Goldfarb -- Piper Sandler -- Analyst

Hey, good evening. Good evening out there, David. So, I'll do one question, and I'll hold the follow-up. On -- as you guys gain leverage with the tenants, are you seeing tangible ability to, you know, get more favorable terms? One of the issues with retail over time has been, you know, the tenants, especially the larger tenants or the more anchor-ish or more, you know, you know, fashion, like the hot tenants of the day are -- are, you know, driving lease terms traditionally. Curious if you're seeing a change in that, which would translate to an ability to accelerate rent growth, NOI growth, etc.

David Simon -- Chairman, President, and Chief Executive Officer

Well, we don't -- we don't -- we don't have -- I mean, thank you for the question, Alex. We're not that far away. We always say out here, we're really not that far away. But -- but put that aside, we -- it's not a question of leverage over the retailers.

I think what we have going for us is a great diverse portfolio. It's the best in the industry, you know, from Mills to our outlets to our full-price malls. And, you know, that's unique; it's size, it's scale, it's quality, you know, that we've built up over many, many years. And as you remember, I don't think it was last quarter, maybe it was Tom, but when we went through the, you know, transformation of the portfolio, it was the last quarter. So, you know, we've done a lot to try to improve the quality of the portfolio. And I would say that, obviously, there's no -- not a lot of new retail being -- being built.

There's not a lot of retailers closing stores and -- or going bankrupt. And I think most retailers today know kind of the good malls and the good properties versus the not so good. And when you add that up, supply and demand is in our favor. And, you know, we're -- we're generating, you know, market rents. You know, it's neither here nor there.

But importantly -- importantly, and I think I'd like to address this with you, is that -- and again, I'm sure retailers have different point of view, but I think they -- the most interesting fact -- or the most interesting thing that we have going for is, in addition to the quality, diversity, etc., that I mentioned, they know we're going to be around, you know. So -- and -- and they know that, you know -- that, you know, we'll -- we'll stick to a deal, we'll make it happen. When we say we're going to redevelop something, we do it. And I think that, you know, when there are open to buys, we tend to get our fair share of those or more than because of some of the, you know -- the factors that I mentioned: quality, scale, but also the fact that they know, you know, we're going to get the job done. And obviously, you know, there's been a lot of changes in mall ownership over the years.

You know, balance sheet and quality of operations is a two-way street. It's both. As we look at retailers, we assess that; they certainly assess us; and and I think that gives us an advantage that we worked very hard, as you know, to achieve. And, you know -- I mean, how do I say this, I mean, we've really outpaced our peer group dramatically, dramatically.

And any measure you want, growth, earnings, dividend, quality of operations, scale, balance sheet, you know, the -- you know, I know we all focus quarter to quarter, and this and that. But, you know, if you take a step back and you go, what do you got going for yet -- and again, we don't -- this sounds a little braggadocious, I don't want it to, but I mean we've really outpaced, you know, if you look over the last 10 -- five, 10, 15, 20, 25 years, you know, we've -- we've dramatically outpaced our peer group.

Alexander Goldfarb -- Piper Sandler -- Analyst

Thank you. 

David Simon -- Chairman, President, and Chief Executive Officer

Thank you. No follow-up. I stumped you. I love it.

Operator

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

Jeff Spector -- Bank of America Merrill Lynch -- Analyst

Great, thank you. Good afternoon. David, just want to tie in some of the leasing comments, the momentum you're seeing, the deals in the pipeline, the high occupancy levels, to the redevelopment pipeline. And just, I guess, how are you thinking about that pipeline and the ability to increase that? Like, how are you going to satisfy some of the needs out there and continue to capture that market share maybe even more?

David Simon -- Chairman, President, and Chief Executive Officer

Thank you, Jeff. So, look, I think we had the ability, you know, to develop and redevelop because we're not essentially -- what I said earlier, we're not -- listen, we've got to be stewards of capital. We've got to be very focused. But, you know, we're not capital constrained the way some others might be.

And our ability to invest in our portfolio is unmatched, so we intend to do that. Now, at the same time, Jeff, you know, rates are up. We -- returns for us have to be up, and, you know -- so, you know, you haven't seen a really big change in our 8-K redevelopment. But that takes time because a lot of the stuff was put in place.

But, you know, when we built something new or we redevelop, we're going to have to do a better job of leasing and returns and, you know, to -- to warrant that capital because just about everything we do, you know, I mean, we still want to maintain our leadership position. But just about every amount of capital we spend, I have to measure it, in my own mind, against buying our stock back. And, you know, I mean our stock -- as you saw, we bought stock back, so our stock is pretty compelling. So, you know, we want to redevelop, we want to new develop, but, you know, we've got a high hurdle that we've got to jump over. So, like we've done historically, I expect us to find the right balance between continuing and to maintain our leadership position, investing in our properties for the benefit of shareholders, communities, retailers alike, but at the same time, we've got to be economic animals.

And, you know, that's -- that's what, you know -- everybody here understands that process, and that's what we're trying to achieve.

Operator

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

Michael Goldsmith -- UBS -- Analyst

Good evening. Thanks a lot for taking my question. David, you specifically mentioned the performance of the real estate business on this call several times, which has been strong. You know, at the same time, this quarter, you sold off some of SPARC.

So, how can you continue to refine some of the ancillary parts of the business so that the strength that we're seeing and that you're talking about on the core business can continue to shine through?

David Simon -- Chairman, President, and Chief Executive Officer

Well, listen, it's a very good question. And it's less and less of our business. As you know, it's under 5% of our earnings. You also have to understand that, you know, when we add to the -- you know, when we add it to our FFO, it's net income which, in many of these cases, you know, you don't add -- well, all of these cases, you don't add back depreciation. So, EBITDA and our FFO contribution are much different.

Importantly, you know, these have all been profitable endeavors, but we understand that even this small amount of earnings that we get in comparison to our total earnings power is volatile. People don't like the volatility. We'll -- like we did with SPARC earlier, we're going to continue to harvest our investments over time. And as we do that, you know, we're going to -- we're going to -- we're going to -- you know, if you ask me today, we'll monetize things over time, and we're going to buy our stock back because, you know, it's wildly accretive.

Because let's look at it, you know. What I trade at is a multiple of FFO, and you know, I have investment -- value in these investments, but they give us very little earnings because of GAAP. And if you do the math, you could see the accretion we would get on a buyback. So, they're basically -- you know, I get no earnings from them, but I've got value.

And it's our job to get the value into cash, take the cash, buy our stock back or invest in properties, and -- and have it a -- you know, a bygone era of -- of the time but with an asterisk that said, you know, attaboy, you made a lot of money. So, that's the strategy. I hope that answers your question.

Operator

Our next question is from Floris van Dijkum with Compass Point. Please proceed.

Floris van Dijkum -- Compass Point Research and Trading -- Analyst

Hey, David, thanks for taking my question. So, I was curious on -- on TRG. So, I noticed the occupancy dipped a little bit. You essentially you want to -- you know, increasing your ownership by 4% by issuing some OPUs.

What price was the stock issued at, and what yields are you buying? What's the implied cap rate on the TRG business, and how should we think about that, also as it relates to other potential opportunities in the market? And how much flexibility was there and then, maybe I guess, in terms of the timing of the next sort of puts or hurdles that you have for increasing your -- your interest in that business going forward?

David Simon -- Chairman, President, and Chief Executive Officer

Yeah, let me -- I'll just talk about the exchange a little bit and then Brian can give you an idea on -- the occupancy is no big deal, but I'll let Brian go through that. So, Taubman has the right to put their interest -- their 4% interest for the next five years, and it's basically at essentially appraised value. You know, it's either a negotiation or we get appraisal firms. And, you know, we -- we decided to negotiate in good faith. We made a deal and -- and then, we issued the stock.

And, you know, I mean the reality is, you know, we're -- we're -- we're trading -- you know, Simon Property Group, unequivocally, is trading below appraised value. So, one of the reasons we bought our stock back was -- you know, I'm not a big fan of issuing stock at this -- at this moment in time. So, you know, we'll use our capital that, you know, basically get rid of the dilution that we did issue. Now, Taubman had that right, they exercise it appropriately. We had a good faith negotiation, made a deal, and it was more or less at their appraised value. And to put it in perspective, for today's value, it's probably pretty close to where we, you know, negotiated our deal with Taubman pre-COVID.

And then, obviously, you know, we got the COVID adjustment But, you know, was in that range kind of where the deal was announced publicly. And so, we're going to cauterize that dilution by buying our stock back. We started that once we made the deal. And I think the family's pretty smart. They said, you know, Simon Property Group stock's undervalued, and I like -- I like the dividend, and, you know, why not? So, I think, you know, the -- I don't know what'll happen next year.

Could be the same thing, but at this point, they have 16% left in TRG. We're at -- we're happy to own 100% of TRG. I think they're happy, you know, to do what they're doing. And -- and, you know, we'll -- we'll deal with it, you know, as -- as time goes on, but nothing can happen the rest of this year, and it's sometime next year that this all recycles. So, with that said, I hope that answers that, but I'll -- Brian, if you want to add anything to that, please.

Brian McDade -- Chief Financial Officer

No, nothing on that. But, Floris, on your question about their occupancy, it is back 110 basis points. There are really two major spaces that they had to take out of commission that they come back online in the fourth quarter. So, you will see that come back on and then some in the fourth quarter.

It's just simply timing.

Floris van Dijkum -- Compass Point Research and Trading -- Analyst

Got it. And if I may -- if you don't mind the -- if I recall correctly, I have to look at my notes, but the -- the cap rate at the time that you did the deal was, you know, had a six handle on it. Is that -- is that the right way to think about the, you know, appraised value for TRG?

David Simon -- Chairman, President, and Chief Executive Officer

Well, again, this was a negotiated deal. Their -- you know, their -- their view of appraised value started much higher than that, Floris, you know, with all due respect for us, which you might imagine. But we settled on a deal that, today, you know, if you go back in time to, you know, Taubman pre-COVID, would have attributed Taubman's, you know, per share number in the $51 range, so somewhere in that range. We ended up, if you remember, during COVID at $43 a share.

I will tell you that the NOI today is higher than it was in '19. Portfolios change here and there, so it's really hard to do an apple and apple. But at the end of the day, that gives you the -- you know, the -- the sense of things, but you're not that far off. I think that's a reasonable estimate, but that kind of puts all the metrics out there, you know. And again, not -- not a huge deal in the scheme of things, you know -- you know, under a couple hundred million today.

So -- but it gives you a perspective of kind of that. I think they would argue the appraised value is much higher than what they exchange at, but, you know -- but we -- we -- we ultimately did not go through the appraisal process.

Floris van Dijkum -- Compass Point Research and Trading -- Analyst

Thanks, David. 

David Simon -- Chairman, President, and Chief Executive Officer

Thank you.

Operator

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

Vince Tibone -- Green Street Advisors -- Analyst

Hi, good afternoon. So, minimum base rents were about 3% year over year, which is about the same level as contractual bumps. So, I'm just trying to get a sense of, you know, leasing spread economics here. Like, does that mean leasing spreads are also in the low single-digit range, or are there, you know, other factors influencing this metric one way or another?

David Simon -- Chairman, President, and Chief Executive Officer

Well, I mean, I'll see if Brian will add too. And just, you know, remember this is the total portfolio, so to move this thing up takes a lot, right? And spreads are just, you know, a moment, you know, leases that come in and go out. So -- so, you can't really look at it that way. So, for us, to move the entire portfolio gives you a sense of leasing spreads. Now, if you look at whatever -- what pages on the 8-K -- the -- you know, the new -- the new -- you know, we added some new information there on the --

Brian McDade -- Chief Financial Officer

Twenty-one.

David Simon -- Chairman, President, and Chief Executive Officer

Twenty-nine -- 21 that, you know, you'll see some of that. You know, some of these that are going in there now are driving the rent -- you know, the rent. You know, those numbers now include our new leases that are driving that base minimum rent up.

Brian McDade -- Chief Financial Officer

Yes, I mean, we typically only touch about 10% of our leases a year, Vince, so you got to factor that in as well. So, renewals are about 10%, but the balance is our new leases which, as David said, are really driving the higher -- or contributing to the higher average base minimum rents.

Vince Tibone -- Green Street Advisors -- Analyst

David, as my -- my statement there, though, that contractual bump for -- for base rent's still around 3%, or are they lower than the overall portfolio?

Brian McDade -- Chief Financial Officer

No, they're right in that range, Vince.

Vince Tibone -- Green Street Advisors -- Analyst

And then, just is there any color you can share about renewal spreads? And I know it -- it's hard to move the overall portfolio with 10%, but this kind of conversation means they're not too far away from the average contractual bump because if they were plus-30%, to take an extreme example, like, we could see that in the metrics. So, I'm just trying to ultimately get some more color here on renewal bumps.

David Simon -- Chairman, President, and Chief Executive Officer

I mean, I guess, again, Vince, in order to have the average base minimum rent go up for 20,000 leases, OK, 3% versus, you know, 10% to 15% that calculates spread, you're going to be mathematically going to have rent spreads that are higher than the 3%. And we'll walk you through that later. But that -- just from a math point of view, there's just no way that that can drive that number up. But, you know, we'll walk you through that. So, when you say that we would say to you that's not -- that, you know, that's not the -- not reality because in order to drive up average base minimum rent for 20,000 leases or thereabouts, you're going to have to outperform much more than the 3% on just what's rolling over, no question.

Vince Tibone -- Green Street Advisors -- Analyst

Got it. So, we can take it offline. Appreciate the time.

David Simon -- Chairman, President, and Chief Executive Officer

Thank you.

Operator

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

Greg McGinniss -- Scotiabank -- Analyst

Hey, good evening, David and Brian. I'll keep this to 1.5 questions for you. So, last quarter, you spoke about potentially being more active with asset recycling or reallocating real estate capital. Have the challenges facing the financing market changed those expectations at all? Or how are you thinking about that today? And how are higher interest rates impacting your customers and tenants?

David Simon -- Chairman, President, and Chief Executive Officer

Well, it -- I'll take the last first. I would say higher interest rates/inflation clearly is affecting, you know, a good portion of the consumer out there. So, you know, their affordability for -- and -- and we're seeing this most on the consumer on what -- what I'd call the kind of the -- you know, the more -- the brands that are focused on, you know, the more moderate-income consumer. So, there's no question that that's having some impact, but the good news is you've got employment and you've got wage growth that is counterbalancing that. But they're -- they're definitely being more cautious.

So, that, you know -- that's not necessarily affecting, you know, that higher-income consumer to the extent that you might otherwise think. But it's clearly affecting the lower or more moderate income consumer that -- you know, that they're being -- they're being more cautious. And from our standpoint, from a retail point of view, you know, demand, like I said earlier, we haven't seen it, you know, affecting retailers too much in terms of their growth plans, but you know, we obviously monitor that every day. So, from our standpoint, you know, our cost of capital is up. So, you know, any investment we make, as I mentioned earlier, is in the -- is -- you know was measured against return we would get from buying our stock back, the return that we would get from redevelopment or development. And given that, that's why we haven't been active on the acquisition front.

And -- and I -- and I don't expect that to really change. In addition, you know -- you know, we're always looking at monetizing our assets, whether it's real estate or otherwise. And -- and to the extent that we can make the math work and we create liquidity through asset sales, you know, the math is very compelling for us to do that to buy our stock back. And so, you'll see more of that trend continue.

Greg McGinniss -- Scotiabank -- Analyst

Great. Thank you.

David Simon -- Chairman, President, and Chief Executive Officer

Thank you.

Operator

Our next question is from Mike Mueller with J.P. Morgan. Please proceed.

Mike Mueller -- JPMorgan Chase and Company -- Analyst

Yeah, hi, just a quick one here. I know this is a bit of a hypothetical, but do you think you would have bought stock back if you didn't issue the -- the shares to Taubman?

David Simon -- Chairman, President, and Chief Executive Officer

I think we would buy -- I'm sorry, the -- I think we're looking -- it's a -- it's a -- it's a good question, a fair question. And let me say this, the way I'm thinking about it. So, to the extent that we have additional liquidity events, or in the case of Taubman, you know, dealing with the dilution of issuing stock at this price, there's no question we're going to buy our stock back. To the extent that we don't -- I don't have an answer for you yet on, you know -- you know, whether we would have done it absent the TRG issuance or -- or a enhanced liquidity from asset sales. But like I said, you know, our development pipeline, redevelopment pipeline is very much, very much measured up against the -- the -- you know, the stock buyback.

And every asset I've got, I don't have to own anything. At this point, I'm happy to sell assets at the right price to buy our stock back, and I think you'll see more of that from us, you know, over time. And that could be real estate and/or other stuff.

Mike Mueller -- JPMorgan Chase and Company -- Analyst

Got it. OK, and real quick, just in case I missed this, was there any change to the OPI guidance that's embedded in your current FFO outlook?

David Simon -- Chairman, President, and Chief Executive Officer

Yes, we've lowered it -- we've lowered it other than -- you understand the $0.05 because we own less of SPARC. We have lowered it for the fourth quarter by roughly, guys...

Brian McDade -- Chief Financial Officer

$0.20. For the fourth quarter, it'd be about $0.20.

David Simon -- Chairman, President, and Chief Executive Officer

Yeah, yeah, roughly $0.20 in the fourth quarter.

Brian McDade -- Chief Financial Officer

Lower contribution.

David Simon -- Chairman, President, and Chief Executive Officer

Lower contribution. If you look in total for the year, and you know, our share of that is -- is roughly -- if you take out the $0.05, we've lowered it about $0.15.

Mike Mueller -- JPMorgan Chase and Company -- Analyst

Got it. OK. Thank you.

David Simon -- Chairman, President, and Chief Executive Officer

Thank you.

Operator

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

Nick Joseph -- Citi -- Analyst

Thanks. It's actually Nick Joseph here with Craig. David, you've talked a lot on the share buybacks. And it sounds like, in your answer to the last question, we're open to asset sales and other monetization opportunities.

What are you seeing in the transaction market today in terms of those asset sales? Where are cap rates? What's the buyer pool like? And are you seeing an opportunity to try to crystallize some of that disconnect between the stock price and where you would hope to sell an asset?

David Simon -- Chairman, President, and Chief Executive Officer

Well, look, I think domestic retail is, you know, not a lot of transactions, but we have assets throughout the world. That's one. Two is obviously we've got investments in our OPI category. But frankly, domestic assets other than maybe, you know, some of our residential stuff, hotel stuff, there's just not a lot happening. And, you know, we might see some stuff, but I think that won't be really driving kind of the activity that we would -- we would anticipate.

Nick Joseph -- Citi -- Analyst

Thanks.

David Simon -- Chairman, President, and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is from Linda Tsai with Jefferies. Please proceed.

Linda Tsai -- Jefferies -- Analyst

Hi, thanks for taking my question. About 6% of ADR is on month-to-month leasing and then 12% is expiring for '24. How much of the month to month is getting converted to permanent, or should that number grow? And then, in terms of the 12% expiring in '24, what's been addressed, from a renewal standpoint, from where you stand today?

David Simon -- Chairman, President, and Chief Executive Officer

Yeah, I know that the -- there's -- there's a number of leases in '23 that are basically agreed to. We're just finalizing the documentation. So, that's the first. And I would think that, generally, we're more than halfway through '24s right now on a kind of a negotiated-not-papered basis.

So, Brian, I don't know if you want to add anything to it, but that -- that would be -- you know, that's kind of kind of where we are generically.

Brian McDade -- Chief Financial Officer

Yeah. And, Linda, you can see the material change Q2 over to Q3. We've cleared about 2.2 million square feet out of that category. It's just a matter of processing.

We talked about it on our last call there's just a lag effect on the processing of those leases. So, we do expect that to continue.

Linda Tsai -- Jefferies -- Analyst

Thank you.

Brian McDade -- Chief Financial Officer

Sure.

Operator

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

Haendel St. Juste -- Mizuho Securities -- Analyst

Hey, good evening out there. I just had a quick follow-up on the consumer retail sales line of questioning from earlier. I think, you know, that your portfolio sales were flattish in the quarter. We've heard from other sectors, storage apartments, it seemed like the consumer hit a bit of a wall during the third quarter in September. I'm curious if you saw anything within the quarter, maybe in September, of that sort.

And then, perhaps what are your expectations in the near-term outlook for retail sales for your portfolio and the consumer as we head into the holiday season and next year? Thanks. 

David Simon -- Chairman, President, and Chief Executive Officer

Sure. Well, generally, as we said earlier in the year, we expect to be more or less flat. So, that's kind of what our expectations continue to be in terms of retail -- reported retail sales. Again, we feel pretty good about the higher income -- higher-income consumer.

We've also got a balancing act in terms of -- you know, some of our value-oriented centers -- centers will, you know, maybe play a more important role for our consumer today that they might not have otherwise played last couple of years. But, you know, it's -- it's unknown. I mean, I -- you know, we're being extra cautious because of, you know, the inflation is still a little bit there, still taking a bite out of the consumer. And obviously, you know, you've got rates that are beginning to filter through, you know, the economic system. So, cautious, flat.

We're not anticipating a downturn, but, you know, not a robust sales growth for the fourth quarter; relatively flat.

Haendel St. Juste -- Mizuho Securities -- Analyst

Thanks, guys, appreciate that. If I could squeeze in a follow-up.

David Simon -- Chairman, President, and Chief Executive Officer

Sure.

Haendel St. Juste -- Mizuho Securities -- Analyst

I think you mentioned earlier as well that you started -- I think it was 960 million of new redevelopments at 6% yields and you talked about a higher hurdle rate. Maybe some color on perhaps what that hurdle today is and where the next batch of redevelopment yields or projects would need to be, and where we continue to see them migrate to. Thank you.

David Simon -- Chairman, President, and Chief Executive Officer

Sure, yeah, I think the -- you know, it's a little bit dependent upon the real estate, so you know -- and what we're trying to accomplish and what the benefits of that real estate are and where the market is for that. So, for instance, you know, when we build a new residential apartment house, we look at kind of where the value and the cap rates for that are. They may be obviously lower than our -- than our own, but you know, to the extent that we feel like we might sell it and make the arbitrage, we'll do that. Again. if we're, you know, got an asset that's a six cap rate, we're building to an eight.

That's creating value. On the other hand, if we have an eight asset that -- we're building to a six, it ain't going to happen. So, you know, there's no -- there's -- there's -- you know, we have themes, we have points of view, but just like anything else, every transaction we do, every redevelopment we do really is grounded by what we're trying to accomplish with that real estate. So -- but overall, you know, again, like I said earlier, we've got to push it higher because, you know, our cost of capital, regardless, is up across the board. So, we don't have the luxury to -- you know, to build, you know, dilutive deals. And, you know, as you know, we've never really bought dilutive, we've never really built dilutive, and we certainly don't anticipating doing that today.

We've always had a spread to our financing and to the quality of what we built. We expect that to continue, but that -- obviously, those thresholds have been raised.

Haendel St. Juste -- Mizuho Securities -- Analyst

Thank you.

David Simon -- Chairman, President, and Chief Executive Officer

Thank you.

Operator

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

Juan Sanabria -- BMO Capital Markets -- Analyst

Saved the best for last. I love it. Thanks for the time. Just curious if you could comment kind of on the watch list you've commented about the consumer, but maybe what the bad debt has been year to date with the historical levels is in your perspective as you think about '24.

David Simon -- Chairman, President, and Chief Executive Officer

The watch list on retailers?

Juan Sanabria -- BMO Capital Markets -- Analyst

Yes, sir.

David Simon -- Chairman, President, and Chief Executive Officer

Yeah, you know, it's -- it's relatively low. There are -- there are a couple that were, you know, there today that probably weren't there last year. Obviously, I'm not going to name those. So, it certainly hasn't grown all that much.

But there are, you know, one or two retailers that we're paying close attention to, and I probably wouldn't have said that last year. So, I think that -- I mean it's not a very good answer, but it's probably the best way to -- to explain it, you know, without naming names. But, you know, there are a couple on that list today that didn't exist yesterday. But, you know, they're not 10 names; they're a couple.

Brian, you want to add anything?

Brian McDade -- Chief Financial Officer

No, I think that's right, David. We've certainly expanded it by only two or three names, and it's at a relatively low point relative to history.

David Simon -- Chairman, President, and Chief Executive Officer

Yeah, and I -- and I want to -- you know, just confirm with everyone that that is, you know, as you look at our -- what pages are our top 10 list on --

Brian McDade -- Chief Financial Officer

Twenty-two.

David Simon -- Chairman, President, and Chief Executive Officer

Twenty-two. You know, it's -- you know, it's certainly none of the category that is in our top 10 or top 20. So -- and as you know, our department stores don't pay -- you know, really don't pay all that much. You have the rent there in terms of what they pay.

Juan Sanabria -- BMO Capital Markets -- Analyst

Thank you.

David Simon -- Chairman, President, and Chief Executive Officer

Thank you.

Operator

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Mr. Simon for closing comments.

David Simon -- Chairman, President, and Chief Executive Officer

Well, thank you. And we finished a little bit earlier, so I think, you know, enjoy the rest of the evening.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Tom Ward -- Senior Vice President, Investor Relations

David Simon -- Chairman, President, and Chief Executive Officer

Ronald Kamdem -- Morgan Stanley -- Analyst

Caitlin Burrows -- Goldman Sachs -- Analyst

Brian McDade -- Chief Financial Officer

Samir Khanal -- Evercore ISI -- Analyst

Alexander Goldfarb -- Piper Sandler -- Analyst

Jeff Spector -- Bank of America Merrill Lynch -- Analyst

Michael Goldsmith -- UBS -- Analyst

Floris van Dijkum -- Compass Point Research and Trading -- Analyst

Vince Tibone -- Green Street Advisors -- Analyst

Greg McGinniss -- Scotiabank -- Analyst

Mike Mueller -- JPMorgan Chase and Company -- Analyst

Nick Joseph -- Citi -- Analyst

Linda Tsai -- Jefferies -- Analyst

Haendel St. Juste -- Mizuho Securities -- Analyst

Juan Sanabria -- BMO Capital Markets -- Analyst

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