Earnings Call Transcript
SIMON PROPERTY GROUP INC. (SPG)
Earnings Call Transcript - SPG Q1 2023
Operator, Operator
Greetings, and welcome to the Simon's First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Tom Ward, the SVP of Investor Relations. Thank you, and you may proceed, sir.
Tom Ward, SVP of Investor Relations
Thank you, Claudia, 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 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 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, CEO
Thank you. Good afternoon. I'm pleased to report our first quarter results. We are off to a good start with results that exceeded our plan. First quarter funds from operations were $1.03 billion or $2.74 per share. Let me walk through some variances for this quarter compared to Q1 of 2022. Domestic operations had a very good quarter and contributed $0.15 of growth, primarily driven by higher rental income. Our international operations also performed well and contributed $0.02 of growth. These positive contributions were partially offset by declines from the headwind of a strong U.S. dollar of $0.02, higher interest rate expense of $0.05, lower lease settlement income of $0.06 compared to Q1 of 2022, we had a mark-to-market gain on publicly-held securities of $0.06 for the quarter, and a $0.13 lower contribution from our other platform investments compared to Q1 2022. Let me remind everyone that for OPI results, we are generally on our plan. Please keep in mind OPI was up against very tough comparisons from last year's Q1. This quarter also includes one-time transaction costs from ABG's recent acquisition activity, JCPenney's deployment of their new beauty initiative, and investments related to physical stores, IT, and one-time reorganization expenses, all flowing through our FFO number. The retailer part of our OPI investments has seasonality associated with it generally with losses in the first quarter and the majority of our profit in the fourth quarter and should be modeled accordingly. Overall, we continue to expect OPI to meet our 2023 guidance provided at the beginning of the year, which will be a similar FFO contribution compared to 2022. Now, domestic property NOI increased 4% year-over-year for the quarter. Portfolio NOI, which includes our international properties at constant currency, grew 3.9% for the quarter. Our mills, malls, and outlets occupancy at the end of the first quarter was 94.4%, an increase of 110 basis points compared to the prior year. Mills was 97.3%, and TRG was 93.3%. Importantly, average base minimum rent was $55.84 per square foot, an increase of 3.1% year-over-year. Leasing momentum continued across the portfolio. We signed more than 1,200 leases for more than 5.9 million square feet in the quarter. We have an additional 1,500 deals in our pipeline, including renewals for approximately $570 million in gross occupancy cost. More than 25% of our leasing activity in the first quarter was new deal volume. We're seeing strong broad-based demand from the retail community, including continued strength for many categories. By the end of the second quarter, we expect to be approximately 75% complete with our 2023 expiration. Retail sales momentum continued. Reported retail sales per square foot reached another record in the first quarter at $759 per square foot for malls and premium outlets combined, an increase of 3.3%. All platforms achieved record sales levels, including the mills at $683 a foot, a 2.2% increase, and TRG was $1,100 per square foot, a 6% increase. Good news is, tourism is returning with our tourist-oriented centers outperforming the portfolio average in terms of sales. Our occupancy cost at the end of the first quarter was 12%. We opened our West Paris Designer Outlet in Normandy, France last week, our 35th international outlet center. During the quarter, construction restarted on our upscale outlet center in Tulsa, Oklahoma, which will now open in the fall of 2024. We have several densification projects under construction and a pipeline of identified projects that includes approximately 2,000 residential units and hotel rooms. Now, turning to the balance sheet. We completed a dual-tranche U.S. senior notes offering that totaled $1.3 billion at a combined average term of 20 years at an average coupon of 5.67%. We closed on our new $5 billion multi-currency revolving credit facility with a maturity in 2028. Importantly, the pricing is unchanged from our prior facility. The traditional secured mortgage markets continued to support the refinancing of our assets across geographies and property types. Our A-rated balance sheet is as strong as ever. We ended the quarter with $9.3 billion of liquidity. Today, we announced our dividend of $1.85 per share for the second quarter, a year-over-year increase of 9%. The dividend is payable on June 30 of this quarter. Given the results of this quarter and our current view of the remainder of the year, we are increasing our full year 2023 guidance range from $11.70 to $11.95 per share to $11.80 to $11.95 per share compared to last year of $11.87. This is an increase of $0.10 at the bottom end of the range and $0.05 at the midpoint. I'm pleased with our first quarter results. Tenant demand is excellent, and brick-and-mortar stores are where shoppers want to be. Even with the economic uncertainty, we are running ahead of our internal plan. I'm ready for questions.
Operator, Operator
Thank you very much, sir. We will now be conducting a question-and-answer session. The first question comes from Caitlin Burrows from Goldman Sachs. Please proceed with your question, Caitlin.
Caitlin Burrows, Analyst
Hi, good evening, everyone. Maybe regarding upcoming lease maturities and what that means for potential cash flow changes going forward, the ABR for '23 maturities is around $62 versus the portfolio overall at $56. So, would you think it's fair to say that the rest of the '23 maturities may face a headwind on renewal, but then the '24 maturities, which are 12% of rents and have an ABR of $54, have significant opportunity? I'm guessing it's not that straightforward. So, wondering if you could discuss that rent maturity and mark-to-market outlook.
David Simon, CEO
Thank you, Caitlin, for the question. One of the figures I mentioned while I was speaking was that our renewals and new leases will generate $570 million in gross rental income. This includes some renewals, which relate to the numbers you cited. We are renewing at rates that exceed our current expiring rents. Therefore, we anticipate maintaining positive rental spreads for the remainder of this year and into 2024. The outlook in this regard remains very positive and unchanged from our previous comments at the start of this year and in the fourth quarter of last year.
Caitlin Burrows, Analyst
Okay. Thanks.
Operator, Operator
Thank you. The next question comes from Steve Sakwa from Evercore ISI. Please proceed with your question.
Steve Sakwa, Analyst
Yeah. Thanks, good evening, David.
David Simon, CEO
How are you, Steve?
Steve Sakwa, Analyst
Good. I was wondering if you could just maybe shed a little more light on the leasing demand that you're seeing. Is there anything that you could discuss with us on kind of price point either luxury versus more moderate tenants, anything by region, anything by product type, whether it's the mills, the outlets, or the traditional malls? Just looking for a little color given what we're going through and kind of what your tenants are telling you. Just kind of curious where the strongest demand is and maybe to the extent that there are any weak spots, what would you call out?
David Simon, CEO
Despite the economic uncertainty, demand remains steady. On the luxury side, brands are facing tough comparisons to Q1 of last year, but they maintain a long-term perspective. For instance, opening a Tiffany store on 57th Street requires a long-term outlook. Companies like LVMH, Kering, and Richemont are planning for 2023 through 2025 and continue to make commitments without any significant decline in demand. In the restaurant sector, there's strong demand with numerous new deals spanning various price points, from P.F. Chang's and Cheesecake Factory to chef-driven brands. There's also robust demand in retail, with new business from companies like Dick's and Life Time Fitness. Department store demand is active across various brands, and in athleisure, brands like Vuori, ALO, Lululemon, and Brooks Brothers are expanding with new stores. While comparisons to last year’s sales will be challenging, the leasing demand remains unchanged. Entertainment concepts are making a comeback, and the theater business is performing positively. While some areas have slowed down, overall demand appears strong and healthy with brands like VF, North Face, Timberland, and Cotton On showing growth.
Steve Sakwa, Analyst
Great. Thank you.
David Simon, CEO
Thank you.
Operator, Operator
Thank you. The next question comes from Ronald Kamdem from Morgan Stanley. Please proceed with your question, Ronald.
Ronald Kamdem, Analyst
Thank you. Last quarter, we discussed domestic property NOI growth of at least 2%. You're projecting 4% for the first quarter. Could you provide an update on your expectations for that figure for the remainder of the year? Also, regarding the guidance increase, how much of that is attributed to core property NOI compared to other factors? Thank you.
David Simon, CEO
Sure. We expect to reach 2% and hope to achieve at least 3% or more. The first half of the year will present challenges for retail comparisons, but we anticipate a more positive outlook for the second half despite ongoing economic uncertainties. If sales align with our initial budget, we should reach at least 3%. An increase in sales would lead to better results.
Ronald Kamdem, Analyst
Thank you.
David Simon, CEO
Thank you.
Operator, Operator
Thank you. The next question comes from Alexander Goldfarb from Piper Sandler. Please proceed with your question, Alexander.
Alexander Goldfarb, Analyst
Thanks, and good evening, David.
David Simon, CEO
How are you?
Alexander Goldfarb, Analyst
I’m doing well. First, thank you for the detailed information on the retailer platform and for highlighting the seasonality; that’s helpful. My question is broader. You appear to have many positive trends with the redevelopment program returning, healthy retailer demand, and it seems that some of your competitors are facing issues with capital, which enhances your portfolio. As you consider investing more capital over the next few years, is your primary focus still on achieving the best returns through internal improvements in your existing malls and increasing densification? Or are you beginning to identify some external opportunities where it might be beneficial to allocate capital, whether domestically or internationally? I’m curious about that.
David Simon, CEO
I believe that the most effective way to utilize our capital is by enhancing our existing portfolio. We have invested over $8 billion in recent years on upgrades and new developments, and we see that as our primary focus. We have a promising residential pipeline with attractive hotel projects generating significant value, totaling around 2,000 units. While this won’t materialize immediately, it represents a solid opportunity for the coming years. I don't anticipate using external capital for acquisitions internationally, but we will continue to expand our International Asia outlet portfolio through redevelopment and new projects, effectively recycling the cash flow we have there. Here domestically, we haven’t identified any opportunities that excite us enough to pursue external transactions. We will maintain our current strategy and keep moving forward. It’s essential to heed the guidance from the capital markets, which encourage companies to be more cautious and focus on accretive investments, and we are paying close attention to that.
Alexander Goldfarb, Analyst
Okay. Thank you.
David Simon, CEO
Thank you.
Operator, Operator
Thank you. The next question comes from Vince Tibone from Green Street. Please proceed with your question, Vince.
Vince Tibone, Analyst
Hi, good afternoon. I wanted to follow up on your comment regarding the 2,000 residential and hotel units in the upcoming pipeline. Just curious how quickly you could start these projects, how much spend this could potentially represent, and this is something that you're going to maybe do through joint ventures or will be wholly-owned on the balance sheet? Kind of any color on some of these points would be helpful.
David Simon, CEO
Sure. We plan to pursue selective joint ventures for certain residential developments, and there's also a possibility of bringing in third-party equity. We will evaluate each deal on a case-by-case basis. To achieve the goal of 2,000 units, we anticipate it will take approximately five years to complete the construction, and we expect to begin several projects this year. However, we are being somewhat cautious as we are still in the permitting phase for some projects in California and the Northwest. We are not in a hurry to make decisions but will carefully assess the situation. Regarding the financial aspect, while I can't provide an exact figure, my estimation is around $1.5 billion. Brian will likely offer a more precise number, but it should fall within that range. Our projects will be spread from Austin, Texas to Orange County, California to Seattle, including hotels and residential developments in Florida, focusing on areas where supply and demand favor us. We are also considering building a hotel in Cape Cod due to a favorable supply-demand imbalance. Overall, as we redevelop real estate, we are prioritizing mixed-use opportunities because we believe, similar to what we achieved in Buckhead, they significantly enhance the overall value of the properties. This approach not only improves returns on investment but also provides ongoing benefits.
Vince Tibone, Analyst
Got it. No, that's all super helpful. And then, somewhat related follow-up question. Just curious if you could share any updates on the Carson outlet project, and if you think you'd be moving forward there in the near term?
David Simon, CEO
That's a complicated matter, but we are making progress every day. It’s excellent real estate and a very intricate transaction, and we are continuing to move forward. However, no final decision has been made yet, but I expect one will be made in the next few months.
Vince Tibone, Analyst
Great. Thank you.
David Simon, CEO
Thank you.
Operator, Operator
Thank you. The next question comes from Craig Mailman from Citi. Please proceed with your question, Craig.
Nick Joseph, Analyst
Thanks. It's actually Nick Joseph here with Craig. David, regarding executive compensation and the $24 million one-time cash bonus related to OPI, I understand that at least one of the proxy analysis firms has expressed some concerns about it. Could you provide more details on the reasoning behind the amount and its structure before the vote later this week?
David Simon, CEO
I believe this compensation was essentially awarded to the executives for 2023 and 2024 last February, approximately 15 months ago, and was fully disclosed in an 8-K filing. The rationale from the compensation committee was detailed in our proxy filing, along with a supplemental letter to our shareholders. When considering the overall performance of the company, it's important to look at the broader picture. While it's easy to focus on a specific metric that may raise concerns, if you examine the company's history, executive compensation, stock program, burn rate, and G&A as a function of our NOI or asset value, we are performing at a very low level. Anyone can highlight a particular figure they are unhappy with, but in general, we take pride in how we manage this business. For those seeking more information, I recommend reaching out to the Head of our Compensation Committee or Lead Independent Director, as any shareholder can do so. I encourage everyone to evaluate our complete history before forming their own conclusions, and we are more than willing to discuss this from a shareholder's perspective.
Nick Joseph, Analyst
Thank you.
David Simon, CEO
Thank you.
Operator, Operator
Thank you. The next question comes from Greg McGinnis from Scotiabank. Please proceed with your question, Greg.
Greg McGinnis, Analyst
Hey, good evening, David. I just want to make sure that I understand that $570 million gross rental income number that you mentioned. Is that new and renewal leases? Is it on a pro-rata basis inclusive of international and TRG? How much of that, I guess, is incremental to in-place rents? Or is all of it? And then what's the timeframe for contributing?
David Simon, CEO
Those are great questions. We mentioned this to highlight the scale of our operations. That figure is substantial; it's from a single lease and surpasses some existing companies. To clarify, it includes renewals and is solely from SPG and domestic operations. If you examine the renewals alongside new business, there is a notable increase compared to existing income. This growth will not fully materialize this year but will take shape in 2024 and 2025 as new stores open. This indicates the potential for future growth we foresee from our current portfolio. However, I can't specify the division between renewals and new business. You will notice the impact reflected in our NOI in the coming quarters.
Greg McGinnis, Analyst
Okay. So, it is both though, because you mentioned $100 million of new income last quarter of new NOI.
David Simon, CEO
Correct. Yeah, it includes both, correct.
Greg McGinnis, Analyst
Thank you.
David Simon, CEO
Thank you.
Operator, Operator
Thank you. The next question comes from Derek Johnston from Deutsche Bank. Please go ahead with your question, Derek.
Derek Johnston, Analyst
Hi, everyone. Good afternoon. Occupancy is now at 94.4% and that's just 70 basis points below pre-pandemic levels. Do you expect to surpass 4Q '19's 95.1% occupancy this year? And given the leasing demand we've discussed, how is the team weighing occupancy versus rates now that the gap is so narrow?
David Simon, CEO
Let me address that part first. The good news is that, although every lease and relationship is unique, we are generally seeing renewals that are above the expiring rents. This is largely due to supply and demand being in our favor. From the retailers' perspective, there is a real appreciation for brick-and-mortar stores. They know they can rely on us as landlords who will do the right thing to maintain and reinvest in these properties. Additionally, there is more demand now, and retailers, having survived COVID, are in a better position and looking to grow their businesses. Regarding your first point, will we surpass that this year? It will be close. I can't guarantee it, but I am hopeful we will exceed that figure within the next 12 months, assuming we can maintain reasonably good economic conditions.
Derek Johnston, Analyst
All right. Thank you.
David Simon, CEO
Thank you.
Operator, Operator
Thank you. The next question comes from Floris van Dijkum from Compass Point. Please proceed with your question, Floris.
Floris van Dijkum, Analyst
Thanks. Good evening, everyone. David, could you provide us with an update? Previously, you mentioned that your signed non-open pipeline was around 200 basis points. Your leased occupancy just rose by 110 basis points. Is the SNO pipeline relatively similar? Additionally, looking at the base rent increasing by approximately 3.1% and the possibility of reclaiming about 10% of your space, this suggests strong re-leasing spreads, if my calculations are correct. How should we interpret this? It seems that leasing spreads are actually accelerating in your core business.
David Simon, CEO
I think that's a fair statement. And I would say that the pipeline is similar to what it's been. Right, Brian?
Brian McDade, CFO
Yeah. Floris, we're still hanging right around 200 basis points at this point in the year.
David Simon, CEO
I believe that as we've mentioned in recent quarters, we have finally started to see positive changes in lease spreads, demand, and better properties. There are more commitments from retailers, and an increasing number of them want to open stores, all contributing to strong demand, which helps us achieve the lease spreads we are used to. Before COVID, we were at a standstill. We faced challenges during COVID, but we've managed to recover well. It's encouraging to observe this progress.
Floris van Dijkum, Analyst
Can you elaborate on the Jamestown acquisition and how it is integrating? Is it a potential source of external capital for your apartment or hotel investments? Additionally, how are the synergies between those two businesses developing, particularly regarding the street retail in Atlanta near your two major malls?
David Simon, CEO
We entered the asset management business through a partnership with Jamestown for several reasons. Firstly, they are exceptional asset managers. Secondly, they possess a compelling development capability and maintain excellent relationships with institutional investors. We believe that together, we can expand this business. Aside from our direct partnership on a significant future development in Charleston, we did not purchase any existing real estate owned by their various funds, such as the German funds or the premier fund. Jamestown is currently raising their 32nd German fund and has considerable interest from separate accounts. This situation benefits us as it allows us to better understand those institutional investors. We are still in the early stages, but our initial thesis remains strong. I anticipate that this long-term partnership will grow, eventually involving institutional funds managed by Jamestown to collaborate with us on projects like building or acquiring developments in Charleston or North Charleston. We see substantial growth potential with Jamestown and appreciate the asset management business as a platform. We've just begun our involvement, but considering the landscape of real estate owners and managers, similar to Blackstone and Brookfield, having a role in this space will ultimately enhance the value of Simon Property Group, which is our goal.
Floris van Dijkum, Analyst
Thanks, David.
David Simon, CEO
Thank you.
Operator, Operator
Thank you. The next question comes from Craig Schmidt from Bank of America. Please proceed with your question, Craig.
Craig Schmidt, Analyst
Thank you. Given the seasonality of the OPI business, which quarter do you expect that number to turn positive?
David Simon, CEO
I think it’s important to emphasize the retail aspect of the OPI. The majority of the OPI value lies in our ABG stock, but we also have a very profitable operation with both Penny and SPARC, along with other investments like RGG. It's crucial to keep this in perspective. The retail component, particularly Penny and SPARC, is seasonal. Last quarter, Q1 of '22, was a challenging comparison for the retail segment of OPI due to stimulus effects. However, we anticipate profitability in Q2 and Q3. Most of the profits will occur in Q4, following the trend seen with other retailers. When you observe public retailers reporting this quarter, they will likely face tough comparisons to Q1 of last year. The comparisons will improve going forward. It's worth noting that we have no cash investment in this business, which adds some volatility to our earnings. In this quarter, the results are not as favorable, but we expect the fourth quarter to show significant improvement, with losses in Q1, followed by profitability in Q2 and Q3, and then around 65% to 70% of the profits in Q4.
Craig Schmidt, Analyst
Thank you.
David Simon, CEO
Thank you.
Operator, Operator
The next question comes from Juan Sanabria with BMO Capital Markets. Please proceed with your question, Juan.
Juan Sanabria, Analyst
Hi, good afternoon. Just hoping to get a little color on the month-to-month leases, they ticked up from about 4.5% to 7.5% sequentially in the first quarter while you did a fantastic job chopping wood and reducing the rest of the '23 expiration. But just curious on why the increase in the month-to-month basis and what's going on behind that?
David Simon, CEO
Yes. One of my earlier comments was that we expect to reach approximately 75% by the end of Q2. It's a process; we are negotiating, the retailers are negotiating, and the stores are open and operating. It's a typical drawn-out process that involves the art of negotiation, but much of it is already informally agreed upon, and we are currently working through it.
Brian McDade, CFO
If you look historically, Juan, it's normal seasonality of that line item at this point in time of the year.
Juan Sanabria, Analyst
Great, that was my follow-up. Thank you.
Operator, Operator
Thank you. The next question comes from Mike Mueller from J.P. Morgan. Please proceed with your question, Mike.
Mike Mueller, Analyst
Thanks. I was wondering, has there been any notable change in lease duration for what you're signing so far in 2023 compared to last year?
David Simon, CEO
Not really. Not at all.
Mike Mueller, Analyst
Okay. That was it. Thank you.
David Simon, CEO
Thank you.
Operator, Operator
Thank you. The next question comes from Haendel Juste from Mizuho. Please proceed with your question.
Haendel Juste, Analyst
Good evening. David, earlier you mentioned that new leases accounted for 25% of deal volume in the first quarter. I'm curious if that's why CapEx increased by 8% during the quarter. Should we expect this to be a new norm in terms of new versus renewal leasing in the near term? Thanks.
David Simon, CEO
We have a tough connection. Did you guys hear that?
Brian McDade, CFO
Haendel, can you repeat your question, please? You kind of broke up a bit there.
Haendel Juste, Analyst
Sure. Sorry about that. So my question was on, David, I think you mentioned earlier in the call that new leases were 25% of the deal volume in the first quarter. So I'm curious if that's why CapEx was up I think 8% in the first quarter. And also if this level of new leases, 25% or so would be kind of the right way to think about new versus renewal leasing going forward? Thanks.
David Simon, CEO
I think there is definitely more TA because we are closing more deals. So I’m not sure if you’re referring to the CapEx line or the TA line. But generally, yes, we are engaging in significantly more new business, which sometimes requires a bit more TA. I had difficulty understanding the last part of your question. Did anyone catch that? Unfortunately, we didn't hear it, but feel free to call back with that question, and we’ll be glad to answer.
Operator, Operator
Thank you. Moving on to the next question. The next question comes from Ki Bin Kim with Truist. Please proceed with your question.
Ki Bin Kim, Analyst
Thanks, good afternoon. Going back to your comments on international tourism, David, can you remind us where international tourism levels are for your portfolio today versus, let's say, pre-COVID? And if it should return to that normal level, what does that mean for Simon's NOI or earnings, however, you want to look at it?
David Simon, CEO
I would say that our sales for tourist properties we identified were up 8% quarter-over-quarter. This indicates that we are likely to see increased overage rent from these properties, which have stabilized. This will become apparent once we hit the breakpoint later in the year. We are observing strong international tourism in locations like Las Vegas and our property in Florida. The New York area is also experiencing a rise in international visitors, particularly in Woodbury, although California has been a bit weaker. However, sales there are improving. Vegas is thriving, with significant exposure through our two outlet centers, Forum and Crystal. The developments in the city and the influx of tourists from California to Nevada, combined with various sporting events, make it a prime location for retail real estate, providing real benefits. We expect to see these results reflected in the fourth quarter as we reach the breakpoints. The return of international tourists to the U.S. is promising, aided by a weaker dollar and the removal of vaccination requirements for entry. Overall, we are starting to see a recovery reminiscent of pre-pandemic levels.
Ki Bin Kim, Analyst
Okay. And a quick question for Brian. You guys have a pretty healthy cash balance of over $1 billion, yet you still carry a balance in a revolver. I'm sure there is a pretty logical simple answer to this, but just curious.
Brian McDade, CFO
The outstandings on our revolver are in euros and act as a net investment hedge against our asset base in Europe. We have a significant cash balance because we conducted our offering earlier this year and pre-funded our unsecured maturities for this year. Therefore, we are holding cash and will pay off the June maturities at par when they come due.
Ki Bin Kim, Analyst
Okay. Thank you.
Brian McDade, CFO
Sure.
Operator, Operator
Thank you. The next question comes from Michael Goldsmith from UBS. Please proceed with your question, Michael.
Michael Goldsmith, Analyst
Good afternoon. Thanks a lot for taking my question. David, your base minimum rent growth is accelerating. You have a nice SNO pipeline. You're talking about blowing past your 2% NOI growth guidance for the year. All sounds great. I guess the question is, how sustainable is this algorithm? How long can it continue? What are the factors that are ultimately going to weigh on this momentum that you have?
David Simon, CEO
I believe this trend will continue. We are experiencing strong demand and while we are influenced by the overall economic conditions, supply and demand are in our favor. Our position in the industry is solid, and we have confidence in our retail partners. We have a clear strategy for our properties and while we may not be perfect, we know how we want to position them. However, the external environment could potentially hinder our progress, especially if we experience a recession. In my view, any recession may be more regional rather than widespread. I don't foresee major markets like Florida, Texas, Nevada, and Georgia slowing down or entering a recession. If we do encounter challenges, they will be region-specific. Additionally, we do face some headwinds due to higher interest rates and upcoming debt maturity at lower rates, which will affect our growth. We will manage through these challenges.
Michael Goldsmith, Analyst
Thank you very much.
David Simon, CEO
Thank you.
Operator, Operator
Thank you. The next question comes from Linda Tsai from Jefferies. Please proceed with your question, Linda.
Linda Tsai, Analyst
Hi. How do you think about the longer-term growth profile of the OPI business versus growth in overall portfolio NOI? Do you think the OPI business requires more consistent investment before it generates more stable returns?
David Simon, CEO
I think you need to consider the individual investments. For example, Authentic Brands Group is a significant growth driver, acquiring brands like Billabong and Vince, and they have a substantial pipeline ahead. I've observed considerable growth within that company. SPARC is expanding by opening new stores and improving its operations and ecommerce, and they added Reebok to its portfolio last year, which is still in the integration phase. I anticipate that EBITDA growth will pick up in the latter half of '23 and into '24. RGG, which comprises Rue La La and Gilt, along with Shop Premium Outlets—which we contributed to the joint venture—is thriving. Our GMV is growing considerably. This concept originated years ago, and while we might not have matched the largest players initially, we've made significant progress by merging it within RGG. We're consistently bringing on strong retailers, and it has a compelling narrative. We also have several smaller investments in this area. I see a definite growth trend across all these components. Penny is reinvesting and has rediscovered its edge by bringing in better brands and improving store aesthetics, with a notable boost in beauty investments. The retail aspect of OPI is somewhat more susceptible to economic changes, but each segment has its unique growth potential. We approach these investments methodically, ensuring fair value. We've identified numerous opportunities to further invest in our company or to engage in transactions that will enhance value. Our past investments have created significant value with minimal capital. It’s evident in our current earnings, which is encouraging as it indicates profitability. Evaluating our returns has shown exceptional results. I'm proud of our performance; while it's not our primary focus yet, the executive team has effectively utilized our resources and expertise to enhance those companies, achieving commendable results. We’ve teamed up with excellent partners and executed our strategy prudently, benefiting us greatly, leading me to expect continued growth. Although there will be fluctuations, I look forward to seeing growth from this category over the next five to ten years, even if we don’t end up owning any of these companies.
Linda Tsai, Analyst
Thanks for that. And then just a follow-up. Do you have a sense of how much mixed-use development could become as a percentage of portfolio NOI? And could you give us a sense of what that might represent today?
David Simon, CEO
It's not very big today, what is it like 3%, 4%?
Brian McDade, CFO
Yes, about 3%.
David Simon, CEO
We are a large company, and achieving an 8% to 10% growth target will take time, possibly a few years. However, I believe we should aim for that range if it can be done in an accretive manner, typically around 7% to 8%. This would represent around $500 million or more in net operating income. It's going to require time and effort.
Linda Tsai, Analyst
Thank you.
David Simon, CEO
Thank you.
Operator, Operator
Thank you. The next question comes from Haendel Juste from Mizuho. Please proceed with your question.
Haendel Juste, Analyst
Hey, there, thanks for letting me back in. I wanted to get to the second part of my question, and then I have one more. So the second part of my earlier question was, if you are expecting new lease volume to be about 25% of the overall leasing volume as it were in the first quarter over the near term?
David Simon, CEO
I believe that's a reasonable estimate, yes, within that range.
Haendel Juste, Analyst
Okay. And then the second question I have was on foot traffic. We saw some recent placer foot traffic data for March, indicating that year-over-year foot traffic at enclosed retail malls is down 8% year-over-year in March. I'm curious if you're seeing similar trends at your properties? And if you think that's a reflection of the consumer and that's coming up in lease negotiations in the current environment? Thanks.
David Simon, CEO
I'm glad you asked that because we keep track of foot traffic ourselves. In March compared to March last year, we are at 105.5% for malls, 105.6% for mills, and 120.2% for outlets, which is 108% above what we saw this time last year. In January and February, our month-over-month numbers were actually much higher. Overall, for our portfolio, foot traffic is above where it was last year, both year-to-date and month-on-month.
Haendel Juste, Analyst
Okay, thank you.
David Simon, CEO
Thank you.
Brian McDade, CFO
Thank you.
Operator, Operator
Thank you very much. There are no further questions at this time. I would like to turn the floor back over to David Simon for closing remarks. Thank you, sir.
David Simon, CEO
Okay, thank you and I appreciate the questions, and we'll talk soon. Thank you.
Operator, Operator
Thank you very much, sir. This does conclude today's teleconference. You may disconnect your lines at this time, and thank you very much for your participation.