西蒙地產 (SPG) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 2014 Simon Property Group earnings conference call. My name is Tawanda and I will be your coordinator for today. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Mr. Tom Ward, VP of Investor Relations. Please proceed, sir.

Thank you, Tawanda. Good morning and welcome to Simon Property Group's fourth-quarter and full-year 2014 earnings conference call. Presenting on today's call is David Simon, Chairman and Chief Executive Officer. Also on the call are Rick Sokolov, President and Chief Operating Officer; Andy Juster, Chief Financial Officer; and Steve Broadwater, Chief Accounting Officer.

Before we begin 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 to 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 forward-looking statements.

Please note that 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. For our prepared remarks I'm pleased to introduce David Simon.

Good morning. We had strong results to wrap up an exceptional 2014. We opened Premium Outlets Montreal. Started construction on two new Premium Outlets in strong and growing markets of Tampa and Tucson. We announced our first new full price development project in the last several years with The Shops at Clearfork in Fort Worth, Texas anchored by Neiman Marcus. And most importantly, we continue to produce strong operating and financial performance.

Results in the quarter were highlighted by FFO of $2.47 per share. On a comparable basis, excluding the operating results from WPG properties in the prior year period, our FFO per diluted share increased 12.3% for the quarter or $0.27 year over year.

As a reminder, our FFO per diluted share is calculated strictly in accordance with the NAREIT white paper. And we encourage the industry to acknowledge the importance of using this long-standing measure without modification.

Our fourth quarter FFO per diluted share was impacted by approximately $0.04 from our share of Klepierre's costs related to both their bond tender offer and their tender offer for Corio, as well as unfavorable effects of foreign currency devaluations.

For the year on a comparable basis, excluding the operating results from the WPG properties, the spinoff transactions and the debt extinguishment charge, FFO per diluted share increased 13.9%. After taking into account the spinoff and debt charge, we beat our initial guidance of 2014 that we provided to you by an impressive $0.40.

We continued to record strong key operating metrics and cash flow. Occupancy increased across the portfolio. At our Malls and Premium Outlets combined occupancy ended the year at record 97.1%. Leasing activity is healthy. The Malls and Premium Outlets recorded re-leasing spreads of $9.59 per square foot, an increase of 16.6%.

Comp NOI increased 4% in the fourth quarter 2014 compared to an increase of 6.1% in the fourth quarter of 2013 and an increase in total of 5.1%. So we had an increase of 4% over an increase of 6.1% last year. And as a reminder, approximately 95% of our domestic property NOI is included in our comp NOI calc.

Total sales in our portfolio increased 2.3% in the fourth quarter compared to last year even with major redevelopment occurring at several of our Premier properties. As I said, we opened Montreal October 30 to great excitement, we commenced construction in Tampa and Tucson, and the construction in New Jersey with the Gloucester Premium -- Philadelphia Premium Outlets continues to move forward.

All of those will open in 2015. And we are slated to begin construction of four new domestic Premium Outlets in 2015 which include Columbus, Ohio; Clarksburg, Maryland; Norfolk, Virginia; and Tulsa, Oklahoma.

Now during the quarter, even with all that new development, we completed several redevelopments including the addition of Nordstrom and small shop expansions at St. John's Town Center, the relocation of Bloomingdale's at Stanford Shopping Center, as well as the expansions at Premium Outlets in Mexico City and Toki Premium Outlets in Japan.

We started construction in King of Prussia; we are underway with the expansion to connect the plaza and the court that will add approximately 150,000 square feet to Pennsylvania's top retail destination and is expected to be completed in August of 2016. And at the Phipps Plaza we are adding an AC Hotel by Marriott, a luxury residence, both expected to be completed in 2016 as well.

Construction continues on major redevelopment expansion projects at some of our most productive mall properties including Roosevelt Field, Houston Galleria, Stanford and our Premium Outlets in Woodberry Common, Las Vegas North, Livermore San Francisco and Chicago. These major redevelopments are to be completed in late 2015 and 2016.

Redevelopment and expansion projects are ongoing, that is under construction across all three of our platforms in the US and Asia and have a total committed spend of $2.1 billion. So again, that is under construction.

Acquisitions, we closed on Jersey Gardens and University Park Village for $1.09 billion on January 15 and are excited to include these great properties in the portfolio. And both Jersey Gardens and UPV have sales per square foot of $850 -- per foot.

Let me turn to Klepierre, we are pleased with our investment in Klepierre. Our net equity investment is up $850 million even with the weaker euro. And as their largest shareholder we are excited for them as 94% of our Corio shares -- of all Corio shares were tendered in support of Klepierre's acquisition. And once the merger is completed, expected by the end of the first quarter, the integration of the two companies will begin.

Now let's talk about our balance sheet. We ended 2014 with a debt to market capitalization ratio of 29%, industry-leading. Our interest coverage was 3.8 times, industry-leading. Net to EBITDA of 5.4 times, industry-leading. Our long-term issuer rating of A and A2 continues to be industry-leading.

So let's not lose sight of the significant differentiating and positive attribute of our balance sheet as compared to our peer group. A few of the capital market activities; by the way this replaces Rick's listing of tenants.

We retired $2.9 billion of senior notes at an average coupon, they were at 5.76%, we issued $2.5 billion of new notes with a weighted average term of 12 years and a weighted average coupon of 3.32%. We amended and extended our $4 billion revolver until 2019. We closed 16 new mortgages with a weighted average interest rate and term of 3.29% and 8.4 years. And we became the first US REIT to establish a global commercial paper growth program issuing $400 million of CP at a weighted average interest rate of 18 basis points.

So, let's turn to the dividend. We announced our dividend this quarter of $1.40 per share, an increase year over year of 12%. We will pay at least $5.60 in dividends in 2015, which is an increase of 8.7% compared to last year in totality. And if we include WP's dividend we have more than doubled our dividend since the Great Recession.

Now let's turn to guidance. Our guidance of FFO is $9.60 to $9.70 per share; this range represents 8% to 9% growth compared to our reported FFO per share of $8.90 for 2014. Our range is based on comparable NOI growth of approximately 4% for our Malls, Premium Outlets and Mills platforms.

It also assumes no additional acquisition or disposition activity beyond what we just completed with Jersey Gardens and UPV. And it also includes the unfavorable impact to recent currency devaluations which should approximate $0.10 compared to the currency levels that existed in 2014.

So let's conclude. We produced another exceptional year with our results for the fourth quarter and the full year 2014, beating guidance for an unprecedented 10 plus years in a row. We achieved record levels in occupancy, FFO per share and dividends despite the loss of approximately $1.00 per share of FFO from WP and the debt extinguishment charge. And we continue to improve our portfolio and consumer and customer services for the benefit of stakeholders and we are very excited about 2015. We are ready for any questions.

(Operator Instructions). Ross Nussbaum, UBS.

I guess since I'm first you know what is coming. I guess the honor of asking you what the heck is going on with [research].

Well, I thought we were going to talk about your headline that said mixed bag. So what was mixed bag? Our record revenue growth, our record comp NOI growth, our record balance sheet, our record occupancy, our record rental rate? I wanted to talk about your headline first. Can we do that?

We can -- yes, we can all read the note. But the guidance coming in below the Street is an offset to beating for the quarter. One would call that perhaps a mixed bag. But we can talk about that all off (multiple speakers).

I think on the guidance -- you know, look, first of all, those are your numbers, not ours. And obviously that is predominantly driven by the currency devaluation that's occurring both with respect to the yen and the euro.

The good news is even with that because of our -- at least our hedge in Europe, we are up $850 million in Klepierre. So, yes, we are going to have some volatility, it's about 1% of our -- where the rates are today versus where they are it is about 1% of our earnings, which to me is somewhat immaterial.

So I do think we need to put that in perspective. I am not sure that should have generated your headline. But, you know, you certainly understand our position, I understand yours.

Appreciate that. So, back to the elephant in the room.

Yes. What is your question?

A little California based mall Company called Macerich, can you -- what can you tell us about what is currently going on? What was going through your head a couple months ago when you put out the announcement that you did? What can you say about it?

Well, look, as much as we -- I'm sure you would love to talk about it, we disclosed our stake of -- it was 4.1% then got diluted down to 3.6% in Macerich. We still hold that position and at this point it is really not appropriate for me to add anything other than the fact that we still own it. And there is not a lot more I can say -- actually let me take away the clarifying statement, there is nothing more I can add to that.

You may not want to answer this, but I will ask it anyway. If there were nothing going on one might assume you would be happy to tell us that you own a position in another company, that you thought the stock was undervalued at the time. But if you can't comment on it it would suggest that there is something going on other than that.

Well, look, we never comment on M&A activity. And we still own the stake and, as you know, we are significantly in the money on the stake. There is no -- there has been no P&L impact on our stake, as I know some people have asked Tom that question. And it is what it is. There is nothing really I can add other than that. And I'm sorry I can't, but there is nothing more that I can add to that.

All right. I and my mixed bag will get back in the queue.

It's all right. Listen, it is a two-way street; you give us to me, we're going to give it back a little bit anyway. That is what you like about us.

Christy McElroy, Citi.

Yes it is Michael Bilerman with Christy. David, let me just try just a different angle. When you made the statement you said you may seek a waiver, and you put that out publicly. So at least can you comment on whether you've made the ask for the waiver and if there has been a response? And if you haven't made the ask why haven't you?

And then the second part is just the intent of taking the stake. And was it solely for the purpose of a passive investment just to you thought you had a lot of cash hanging around, so buy something that you think -- you can't buy assets in the private market, so buy something that you know really well that you think is trading at a discount, make money and go home? Or was it made for the purpose of moving forward with a non-passive agenda?

Well, I can't -- Ross asked the question, I can't add to that other than we have managed to find investments, as evidenced by the little over $1 billion that we just spent in January 2015, to buy two really good assets with really good growth potential that we think this year will yield terrific results.

I'm still an old-fashioned real estate guy, I like current yield going in. And the current yield going in is very attractive with once Rick and the Mills team, certainly with Jersey Gardens, works their magic I think we've got a lot of upside. And not to say that I think Michael Glimcher did a great job with that asset.

So -- but there is nothing, nothing I can add other than what I said to Ross just earlier, Michael. And I'm sorry, but, as you know, it is just inappropriate for me to comment further.

It is Christy McElroy here with Michael. Just following up on the currency and the impact to 2015. You mentioned a $0.10 impact embedded in your guidance. How you are thinking about hedging that exposure potentially? Would you expect to take on more debt to provide a natural hedge or maybe put in place any other foreign currency hedges? Just want to get a sense for how that is rolling through the numbers.

And then just related to that, I am wondering if you have seen any impact at all from the stronger dollar in terms of a change in traffic or sales at any of your centers that have a higher international tourism component to the customer base.

Sure, happy to answer those. So let's just talk about the net -- we are pretty well hedged on the Klepierre initial stake. So we are not as hedged with our McArthurGlen investment. The problem, as you know, to get the perfect hedge, and with rates as low as they are in the euro, you are never going to make up that.

But I would say generally we are reasonably hedged in the euro in kind of the 80%-90% range. But since rates -- with debt, but with rates are so low there it's -- the math is such that it is still going to have an impact on us.

So the good news that I see at least is that the business there is not necessarily reflecting the devaluation. So I think the consumer there is still shopping and doing that. And so, it's -- I think it is kind of more of a temporary thing. But it is going to impact us for next year. And it is what it is.

The same thing with the yen in a sense that from a book value point of view we are basically completely hedged. But again, the yen's rates are so low there is just no way to do it.

Now we have locked in some forwards on the dividend yields -- I'm sorry, on the dividend that we both get from Klepierre and from Japan. But as you know, we equity account for both. So that doesn't impact -- that is just cash flow which is important to be hedged on cash flow, don't get me wrong.

But still at the same time it does -- as we take our share of the equity income in those businesses we are going to have exposure. And it is what it is. So I hope -- I assume that answered your question on that front.

I mean from an investment point of view, book value we are essentially hedged, but it is not going to mean a lot. We are still going to have some volatility. Not from a cash flow point of view but from an earnings point of view. Does that answer your question on that front?

[Yes, it does.] Thanks, David.

Now on the sales, look, I think it is very interesting because -- some commentary around it. We did see a little bit of flattening out in the Florida area kind of first -- as one initial, as you know, in terms of devaluation the Latin American customer happened quicker than say the euro devaluation. We don't have any earnings impact on that; that just might impact sales.

We also, Christy, as you know, we are undergoing huge transformational redevelopment in King of Prussia, the Field, even the forum shops we are changing a lot of the tenant mix, changing the transition hall from Phase 1 to the Phase 3 that is out on the strip.

As well as we had this unusual anomaly that we had one retailer that is in a state that doesn't pay sales tax. They had an extraordinary amount of sales in 2013 that didn't repeat because of their own constraints that they posed for 2014 that also may have flattened sales in terms of how you were thinking about it.

But I would generally say you put all those things together, our portfolio does what, 620 a foot. Still industry-leading, given size and scale we are adding to the mix, we are doing a lot of great stuff.

So you know how generally I feel about retail sales, okay. And you have seen even with flat retail sales generally over the last two or three years you have seen our comp NOI increases, you know my argument on that. But at least I hope that gives you some color as to how you might think about our number compared to others out there. But the portfolio has never been stronger or better.

I appreciate the color. Thanks, David.

Craig Schmidt, Bank of America.

I was wondering if you could comment on the trend of the outlet sales.

Actually we are slightly better than the malls because the malls had this -- those kind of two or three things, Craig, that I just discussed. And our Premium Outlets from both a -- from a comp point of view had better results than the Mall business.

Okay, great. And then how far is the grown-up development Shops At Clearfork from the University Park Village that you just acquired?

How far along is it?

Well, how far are they from each other?

Oh, three miles or so -- three miles, Rick?

Yes, about three.

It is different trade areas, but I would say three because there is a river that runs through, it is one of those things.

Okay. And then is there any further things that you could do with Costco just given the size of their project beyond The Shops at Clearfork?

Hi, Craig, it's Rick. Right now we are obviously focused on the first phase. There are a number of elements to that phase. They do have some additional land and, depending on how this goes, we'd obviously be open to try and do some additional development. But right now the first phase has our attention.

Great. And then finally just -- maybe this is for Rick. Have you seen what you think might be a change in pace in either store openings or store closings in the Mall space for 2015?

Well, basically obviously we've had the announcement that everyone has seen. So there is a little more pressure on some closings. But conversely we are at record occupancy, we have just come out of our meetings in December and we got a lot of momentum in the business because there are a lot of people that are looking for space.

And we certainly anticipate we are going to be able to hold our market share and there is always going to be the churning that we've had historically, but we are going to basically be able to keep things pretty much where they are now in terms of occupancy. And everybody we replace is going to be replaced by someone who is more credit worthy and more productive on a sales per foot basis.

Yes, but, Craig, we clearly have -- at this point in time compared to last year, more retailers in bankruptcy. So as you know that -- we are not sure how many stores were going to get back, some have already announced it, so it is really closing stores, some in fact are even liquidating.

So we are -- I mean, it doesn't change the fundamentals of our business, but 2015 is going to be a lot of work in re-leasing those retailers. Because depending on when we get it and how much time we have to lease it up there could be a little gap there.

Okay, thank you.

Paul Morgan, MLV.

Your same-store numbers happen bouncing sort of in the 4% to 6% range over the past three years and your lease spread is kind of in the 15% to 20% range. I mean your guidance for same-store was 4%. How should I think about that in the context of the past few years where the average is sort of above that?

And then kind of related to that, where you're at in terms of occupancy. Is that what you think of as maybe approaching kind of a frictional ceiling and whether that could constrain your same-store growth at all?

Well, I think -- look, we have always tried to be realistic and conservative. I forget, Steve, what we announced last year, what our comp NOI was. But 4% maybe?

4%.

So we were fortunate to outperform that. So, Paul, we are taking into account, we do have more bankruptcies this year. So I think it is appropriate for us to be conservative because, as you know, we don't control -- we don't get the space back and then we can have downtime and so on.

So if there is a conservative element to what I would say, it is a little bit because of the -- just the bankruptcies that we are having to deal with in 2015 versus 2014.

Okay, thanks. And then just maybe as we think about investments, you have got $3 billion in developments -- redevelopments at what you target as a 9% yield. On acquisitions the cap rates for today are kind of half that for decent properties.

I mean how do think about that spread both in terms of kind of evaluating acquisitions? What makes an acquisition whether it is a single asset or a portfolio or an M&A deal at a much lower yield than you're getting on your redevelopments? I mean what makes it compelling from your perspective?

Well, look, there is nobody been more active in new development and redevelopment than we have been. But it is not -- it is not like, oh, let's just do a redevelopment. There is a lot of -- a lot that's required to get there. And the new development, we want to build stuff that is at the end of the day going to fit in the -- certainly in the top half of our portfolio over the long run.

So that's -- we have a hell of a portfolio so that is hard to achieve. And we are going reasonably quick when we get to new development and redevelopment. And so, at the same time we are not going to buy anything or anybody unless we feel like we can add significant value to it.

Now let's take a couple of recent examples. It is not bad for my net investment in Klepierre to be up 4X, okay, not bad. And we felt like we could add value to that business and thankfully we have. The same thing on the going in yield with the two deals we bought for Glimcher is around 5, and we think they're A assets, A+ assets and obviously we think we will be able to grow those.

So that is a great opportunity. And look at -- the one thing that I think the market has lost sight of is just everybody's balance sheet again. It's like, forget about it. Our balance sheet is -- it is 5.4 EBITDA multiple, it's 3.8% interest coverage despite having -- I still look at those 10.75% that I've got outstanding until 2019 -- right, Andy, 2019?

Right.

We still have room to -- depending on where rates are to roll that down and even to make a stronger coverage ratio and balance sheet. So I mean we have always looked at everything, we will look at everything; we are not going to chase deals. And when it comes to acquisitions, unless we feel like we can add value to that property with our -- either our infrastructure or our leasing know-how, development know-how, we just don't do it.

Does your leverage and your balance sheet advantages -- I mean, do you think of that as an important lever to pull when you are looking at bigger deals capitalizing on that?

Well, sure. I mean look, it led to -- let's just go back to 2009. I mean the fact of the matter is in the retail real estate sector there is nobody because they were so levered and we did some tough financings including equity. But there is nobody in our sector other than maybe say Taubman, that has outgrown whatever dilution. And not only have we outgrown it. we just blew it away.

Everybody else is still trying to get back to their record FFO per share that they had in 2006-2007 and their dividend. We are -- we have blown through those dramatically.

And that balance sheet that we had, even though we panicked like a few others, allowed us to be conservative yet signal the market that we were alive and well, blow through the growth that we had, we had a year or two of flatness or a step back where we were able to use that to find good investments that have fueled our growth.

So I would hope even in capital rich times we were able to do that as well. But it's -- we are pretty conservative, we don't want to blow the balance sheet. As you know, my background in the real estate world, besides being an M&A banker, which was outside of real estate and in all sorts of industries, was directly involved in restructuring real estate workouts.

And it ain't no fun and we are never going to get there. So we have a great asset, we've worked hard to achieve it. And it -- it's a great thing, but you can't take it for granted.

Great, thanks.

George Auerbach, Credit Suisse.

Just to follow up on Christy's question. David, have you quantified the impact of redevelopment at King of Prussia, Fields? And I forget the other asset you mentioned -- but just sort of what that has done to the overall sales growth. Trying to think about your portfolio on a more normalized level adjusting out some of the noise.

Look, yes, I am not making excuses and you know how we have all had this discussion about our tenant sales and how I think about it. But if you take these anomalies, I would say generally we would be around 4%ish. But again, our number is our number. And you know how management feels about it.

I appreciate you may have a different point of view. We have nothing to hide or -- we had a few anomalies, we are not making excuses, we will accept being dinged on it if you want. But there is a lot of transforming, we do have exposure to certain markets, Brazil takes a little breather and we had this strange thing in a state -- I mean I'm giving you enough. But we tend not to talk about specific retailers.

But you could figure it out with a state that doesn't have sales tax. And it is what it is. Same time we do FFO pursuant to the white paper the number is the number. We pointed out the $0.04 only because we thought maybe the market didn't know that we had to pick up our share of Klepierre's transaction costs associated with both tenders as well as the currency dropped pretty precipitously quarter over quarter of last year. So we thought it was important to do it. But the number is the number.

Well, no, I was asking because in the Macerich Analyst Day they mentioned that I think there were three big redevelopments they had that lowered their same-store growth on that whole portfolio by 100 basis points. So I know one or two assets can really move the number. That is why I was asking.

Yes. No, no, it is a legitimate question. I was talking more about tenant sales. On our comp NOI they are all in our number. So all of those that I have talked about are in it, even though we are taking some immediate step backs as we redevelop it. So those really aren't affecting our comp NOI, at least those assets that I talked to you about.

Right. And I guess just the last one for me. You and the Board have increased the dividend pretty meaningfully over the last couple quarters at a pace above FFO growth. I guess as the redevelopment spend maybe tapers off into 2015 and 2016 should we anticipate that the dividend growth will continue to outpace FFO or AFFO growth for the foreseeable future?

Yes. Look, our taxable income has got a lot of variability. We are -- as you know, we paid out 100% of our taxable income last year. And we -- I did underline -- I hope you saw, that at least [560] -- I will underline that, that is at least 560 or so. The answer is our taxable income is growing significantly as our earnings are. And so, it is very conceivable that that could be an outcome of that.

Great, thank you.

Steve Sakwa, Evercore ISI. We'll move to the next question. Alexander Goldfarb, Sandler O'Neill.

And it is -- I know you are not commenting on the Macerich, but it is interesting. The market is cheering you guys and your stock's outperformance. So clearly the market seems to be suggesting that it wants something to happen.

Just as far as Macerich in the guidance, Andy, are you saying there is no impact -- the way you are accounting for it there is no impact to the 2015 numbers or we should be picking up something?

No impact.

Okay. Okay. And then, David --.

Let me do clarify that. We -- let me just clarify that, they do pay us a dividend. So we do have the dividend income in our numbers, okay.

Okay.

But obviously it's -- the movement up and down goes into comprehensive income or loss, in this case it's income because it is up. But that is not an FFO number. So, and the only thing in our FFO guidance is their dividend income. Okay, Alex?

Yes, that is right. I Just wanted to make sure that that's the way you are accounting for it.

The next thing, David, is right after the world woke up to lower oil after Thanksgiving you announced two projects down in oil country. So just sort of curious what you guys have -- obviously tenant demand was unaffected by it.

So should we just take away from this that the retailers are unfazed by the drop in oil and they just see continued strong sales down in those markets? Or is your view that maybe some of the tenants who initially indicated that they would be interested in both of these projects may start to have second thoughts?

Well, the Houston Galleria has been under construction for quite some time -- well over a year. So, but Texas itself is so diversified that it used to be 20 plus years ago -- 20 plus years ago it was oil and basically real estate.

Today it is tech, it's Houston is very diversified, obviously oil and gas is important. But it's got the medical -- it's got medical, the medical focus, all the universities. And Dallas-Fort Worth -- that's less and less or link ask completely, that is more --.

So the answer is we don't think it will have any impact. Fort Worth we are excited about because Neiman Marcus is obviously huge in that area. They are relocating from one mall to this to be their flagship store in Fort Worth. And we think the demand for that is great, no issues in Houston, Galleria which is one of the top five centers in the country. And so when you put it all together it is really -- long run there is no issue at all.

Okay, and I guess same applies to Tulsa?

True.

Okay. And then final question is, as you guys start to do more of these mix use or at added density to some of the projects, some of your malls, how do you underwrite the projects as, yes, there is a return from obviously adding apartments or adding hotels and then there is hopefully the additional return of just added traffic to the mall that allows you to drive higher NOI and cash flows.

So if we think about the returns as you guys pencil out densifying some of the sites, how should we think about the incremental return from just boosting NOI versus just adding an additional use to a center?

Hi, this is Rick. Basically when we add an apartment or a hotel, those stand on their own. It is a separate analysis. If there is some incremental benefit, great. But we do not theoretically create any kind of incremental return based on adding more mass or densifying an asset.

Okay. So, Rick, is there like an incremental that we can expect or you guys expect or you don't underwrite but any way, shape or form?

We do not underwrite that.

None. Zero. Don't give my guys any ideas.

To sandbag the numbers? Never would cross our minds.

No, no, no, don't give my development guys -- you know, when they come in and they want a project to prove, don't assume -- they will come in and say, it is going to do this to the mall, we should improve -- no, forget it, it doesn't happen that way.

Okay, thanks a lot.

Carol Kemple, Hilliard Lyons.

Have you all noticed any change within the last three months in your conversations with Sears and JCPenney's about buying some of the boxes back?

No.

Okay. And then are there any new concepts that are coming into your malls or outlet centers that you are excited about that you can share?

Well, here we go again. All right, so, Rick, this is Rick's -- he loves this part. So, Rick, let her go, okay, here we go. Here is the list.

Unleashing the fury. In the Outlet sector every -- literally every month we are finding more and more retailers that understand that this is a very valuable and profitable distribution channel. And so Jeff, Allison Olivia, Citizens Watch, Jonathan Adler, Helzberg -- literally we could go on. But the answer is there is a great deal of new entrants into the Outlet sector.

Into the Mall sector we are doing stuff with (inaudible), [David T.], we are doing NYX is a new concept from L'Oreal. UNIQLO is very actively looking. And interestingly, it is lost in the sauce, but L Brands is dramatically growing Pink and Victoria's Secret. So there is a lot of very good dynamic demand for our properties.

Okay, thank you.

Tayo Okusanya, Jefferies.

I would like to kind of go back to the 2015 guidance and, again, the point of guidance relative to where consensus is. It sounds, based on your comments, it's about 1% of earnings which is about $0.09 to $0.10 that is FX related.

But I am wondering what else is in guidance that maybe we are not -- maybe the Street is not fully appreciating which is why our numbers seem a little bit high? Is it, again, some of the working through of some of the retail bankruptcies that have happened that may --?

Yes, I think -- I don't know what your comp NOI is. And I also think a lot of it has to do with maybe how you are factoring in our development spend. Because most of 2015 and a lot of 2016 is back end weighted. So you have got -- we have got our share around 2.1. So that would really be the -- that would be our only other guess, but I'm sure Tom can walk you through how you do it.

But maybe you have a little bit higher comp NOI. I mentioned we are conservative on that number because we are looking at a little bit higher bankruptcies than we looked at last year. We obviously always try to do better. But our development spend tends to be back end weighted. So depending on how you factor that in. And then obviously the currency delta from the yen and the euro is around $0.10 from 2014 to 2015. So you add it up and it is what it is.

Got it. And could you just talk about in 2015 guidance what average occupancy is baked into those numbers?

Pretty consistent with what 2014 showed.

Great, okay, that's helpful. And then in the supplemental when we just take a look at the development page, the Outlet -- the yield on the Outlet business, on the Outlet development is up to 11% versus 9% previously. Is that just a mix change?

Yes, Montreal was a little lower yield and Tampa is much higher. Tampa we think will be a great outlet center, one of the -- at the end of the day one of the leading outlet centers in the country. And absolutely is that mix change.

Great. And then lastly with Jersey Gardens, just curious what your thoughts are in regards to what NOI growth could look like once rents start to reset for a lot of the tenants?

Look, we have -- this is Rick, we have already set the baseline overall on our NOI growth and Jersey Gardens should be in excess of that once we start doing what we think can be done there. And as David said, they did a great job before; we are just now taking it to the next level and allocating space and bringing in incremental more productive tenants that's going to drive rent and sales.

That is very helpful. Thank you, gentlemen.

Vincent Chao, Deutsche Bank.

Just maybe thinking about the comp NOI guidance slightly differently. Just as we think about the 4% versus the 5.1% and also in light of the comments about higher levels of bankruptcies. I guess what would -- and how much of the higher level of bankruptcies is sort of the difference between the 5.1% and the 4%?

Well look, again, we are factoring that in. And like I said, last year we had -- our business has a certain level of volatility to it. Not a lot, because we don't have to go sell all our product at the start of every year like a lot of other companies.

So because we have mostly contractual rents the big variability is unanticipated bankruptcy, the timing of which that occurs, when we get it and then how long it takes us to lease it up. So I said last year, Steve Broadwater, we projected, what was our NOI projection?

4%.

4%, we got 5.1%. So again we are factoring that in. We will see. Obviously we have got variability to some extent marginally on expenses and we have certain variability on overage rent. And we have a long history of kind of modeling that, but it does create some variability.

We also have a lot of redevelopment work where we are not necessarily taking out a comp. The take projects like Roosevelt Field and King of Prussia and those -- we are moving a lot of tenants around in the Forum shops, we have got Copley. I think Copley if I remember from our budget sessions is going down $2 million this year, really pissed me off in our budget meetings because we are retenanting to a better group.

But that is the nature. You got to retenant, you got to improve the mix. When you are bringing in a better tenant they have a longer build out, all of that takes time. So we hope to do better, it is not too shabby. We move on.

Okay, thanks. And then just one other question on the FX, I apologize if I missed it. The $0.10 headwind, what euro rate and yen rate is that based on?

You know, it is based upon our view of it over a period of time. So, but this is really in comparison to 2014.

Okay, thank you.

Haendel St. Juste, Morgan Stanley.

So a few questions for you. First, David, on Klepierre, I was curious if you could help give us a broad sense of the magnitude of upside you think you might have there perhaps in terms of percentage of G&A expense, portfolio upgrading, closing evaluation gap with [Univie], just curious for your thoughts there.

Well, it is better that management team there does that. But I will say generally just from my perspective we are -- they have done a really good job over the last couple years with our strategic help to continue to move in the right direction, smaller -- reduce the smaller assets, focus more on the bigger ones, upgrade the marketing tenant mix, etc.

I think Corio has got a better portfolio than a lot of people think. The integration there is a little more complicated than it is say in the US when it comes to integration because of the rules out there and I won't bore you with all the technicalities about it.

But I think net-net over a period of time there is great upside in running a better, more efficient Company with -- after the Corio merger is completed. And I would expect that that gap would continue to narrow, which it has dramatically, but will continue to narrow.

And like I said, I mean I am not -- the most important thing in all of this is great, but are you making money? Our net investment is up $850 million in 2 years, 2.5 years. Maybe is it 3 years -- maybe it is 3 years now, okay, so -- I'm sorry, it's 3 years now. So -- and I still think they have got upside to move forward.

Appreciate that. And following up on I guess some of the earlier stronger dollar questions, clearly makes your purchasing power better overseas. Wondering if that perhaps might make you more perhaps aggressively inclined on expanding your international portfolio.

We only want to do it if we think we can make money. So I have no desire to expand international unless we think it is a profit opportunity for us.

Fair enough. And then last one. Wondering how much of your energy costs are variable. Just trying to get a sense of if there could be a positive impact to margins.

Not really because we tend to charge that to the tenants. And so we just pass on that savings to them. To some extent the share that we pay for ourselves will have an added benefit. So it is not overly material.

Okay, thank you.

Ki Bin Kim, SunTrust Robinson Humphrey.

So just turning to your expenses, if I look at the trend just in operating expenses as a percent of your revenue has been trending down for a very long time which has helped obviously your expense recoveries and whatnot.

And just curious is this a trend -- I mean it is hard to imagine it going more favorable towards -- versus the perhaps run rate. But given like rising expenses and rising taxes do we -- where do you think this settles out? And how does that impact your expense recoveries going forward and maybe should we expect some kind of reversion to the mean at one point?

Well, I think we are always trying to improve our operating margins. So every once in a while there will be modest changes from year to year. Obviously in 2009 recession we took a very tough few of that. Now we are still getting the comp NOI like growth even though we are less focused on that like we were in 2009 -- I shouldn't say less focused, but we are not as -- we are not trying to wring every nickel out of it.

We also have marketing expenses, customer relations, consumer relations expenses that we are focused on doing. So there will be year-to-year variability to it, but we are still trying to improve it.

So, if I -- maybe I can ask it in a different way. For 2014 you ended with about 32%-33% operating expenses as a percent of rents. In your guidance are you implicitly modeling that stays flat or improves or reverts back?

Well, relatively -- relatively the same.

Okay.

Relatively flat.

And just last question. How do you compare the quality of -- and I know there is different regions, but Klepierre with Corio versus a Macerich? how would you describe the quality between those two portfolios?

Well, that's a good one. I would say it is hard to -- it is hard to necessarily compare one to the next. In Europe the supply and demand is reasonably favorable, but on the other hand the US is really caught up on that front because there has been -- as we all know no new really full price development for a number of years.

So the occupancy costs are a little higher in Europe than they are -- for a retailer than they are in the US. But I don't know, I would have to give that a little bit more thought. I don't necessarily -- I look at it more in that specific market as opposed to one country to another country. It is a little tougher comparison to do. But let me give it some thought.

Yes, I mean so the reason I ask that is when you have your choices of capital -- where to deploy capital and you have Macerich trading at 4.5%, and I know if you take it further there is probably some operating margin you can pull out of it if you did take down the whole portfolio.

And when I compare to maybe a Klepierre with Corio on quality, with that portfolio trading at maybe a 5% cap rate -- and this is just rough math, by the way -- or higher, how do you make that relative comparison in terms of where to deploy that capital?

Well you have got to -- I mean the most important thing is you've got to risk adjust. And you don't -- in the US you don't have currency risk. So as you can see, no one is really happy about our currency risk today. So I am not overly worried about it, but it is -- we do have a little bit of risk.

The US is a safer -- we should get a higher return when we go outside of our natural borders. It is slightly harder to underwrite, it is a little more complex, there are more rules and regulations to do what you want. And we -- even though we have had a profound impact on Klepierre, we know US investing better than we know outside US investing.

So you certainly would want a higher return anywhere outside the US for those and other reasons. So I don't -- so it gets kind of -- in your question, you've got to factor that into it. Now the rates there are -- the rates there are really, really attractive. So if you can take into account the higher risk adjusted rate of return you may have better investment opportunity.

But at this point we don't look at a mutually exclusive the US or Europe or Asia. We like to look at each individual idea or investment on its own and then stress test it with our corporate opportunities and our own internal opportunities and see what it means for our balance sheet and our management bandwidth.

Okay, thank you.

Michael Mueller, JPMorgan.

Just a quick one. What sort of yield are you looking at for the Clearfork development? And is there any update on any thoughts and plans for the Oyster Bay site?

Clearfork will be -- it is not yet -- it hasn't started construction, but we will outline that once we put it into service. So it is not in our 8-K yet because we haven't actually started construction. We are getting -- it's going to happen, but we are finalizing our cost numbers and the leasing plan and all that and it should start in the next two months or so.

So there is some grading going on on the site now but -- so we will let you know on that. But it will be attractive value enhancing return. And your Oyster Bay -- Oyster Bay I think will be a very active year. We have an unbelievable plan and vision of what we want to do with the properties.

We are working now with the various -- the town and the various agencies about going through the approval process. I am sure you will see more of that this year as it comes out, but we have actually developed a plan, a very unique lifestyle mixed use center that we think will have great appeal to us financially as well as all of the community groups there.

Okay, great, thank you.

Linda Tsai, Barclays.

How would you characterize holiday sales overall? Does the outcome say much to you about the underlying strength of the economy? And then also in the context of recent store closure announcements, I realize a lot of these retailers were already struggling, but how much of an impact did the holiday season have or were they likely to close anyways in your view?

I think on the latter question, the [ark] of the retailers that have already announced bankruptcy or closings was really beyond a given quarter and a given result in the holiday. They have been struggling for an extended period of time.

In terms of the holiday sales, in some places they were stronger, some the stronger retailers reported better sales. But there were a larger percentage that were weaker. But overall is the economy stronger? It is. Is the lower oil and gas prices putting some incremental disposable money in the consumer's pocket, it is. Confidence is up. So overall the macro factors are encouraging.

Thanks.

Caitlin Burrows, Goldman Sachs.

If you could just comment on your capacity and interest in issuing more euro denominated debt given (inaudible) is at 0.3%.

Yes, good question. I think the answer is we are going to seriously consider it, right, Andy?

Yes, absolutely. We always look at both currencies. Right now we could issue 10-year euro debt at under 1.5%, significantly under. So that's something we will look at. And the basis play has become a lot more favorable in the last couple of months.

Okay, great, thanks. And then also just acknowledging that you have already spun off your lower tier (inaudible) within the portfolio you have now. Could you just describe any differences between tenant productivity and your top-tier versus lower-tier centers and also tenant interest?

Within our -- the existing SPG portfolio after spin?

That is correct.

I would say not dramatically different in terms of tenant demand. I mean, sure, the top 20 centers always are going to have somewhat more demand than the next 20. But generally nothing -- no great variation there.

Okay, great. Thanks.

Rich Moore, RBC Capital Markets.

I wanted to just make sure I understood -- the redevelopment pipeline you guys have right now is pretty much completed in 2015 and 2016. But then as you look forward what kind of annual spend in redevelopment do you think you will have as you go out to 2017, 2018, etc.?

Well, Rich, the 2.1 is directly from our 8-K. And that is only projects that are actually started and then corporately approved through our approval process. So, for instance, it doesn't include Clearfork yet, it doesn't include Oyster Bay, it doesn't include Copley, it doesn't include a whole host of other deals.

So the number that we have kind of said generally is around $1 billion a year for the foreseeable future. And I still, Rich, would generally say that is probably a pretty good number.

Okay, good. So you feel comfortable with that, that is great. Thank you. And then I also wanted to ask usually early in the year, maybe by the middle of the year, you've pretty much covered a lot of the leasing, Rick, that is going to happen for the year. So 2015 by middle of the year would pretty much be handled.

And I am curious with occupancy as high as it is, is that moving up? I mean are you done with more leasing at this point in the year for 2015 than you might normally be?

We are ahead this year over last year. We are about 65% through our renewals in 2015. And we have obviously made a major focus on getting as far out ahead of it as we can so we can be responsive. And because our occupancy is higher those tenants that are looking for space understand that if they don't commit someone else is going to get the space. So that obviously is also encouraging people to accelerate their decision-making as well.

Okay, good, got you. So normally this time of year you would be maybe half done, something like that or less?

Yes.

Okay. All right, good. Thank you, guys.

Scott O'Donnell, MetLife.

You guys have been a great steward of the balance sheet for bondholders. I guess I have to ask the question, why the commercial paper program? How does that make sense from a strategic standpoint? And can you explain the strategy around exposing yourself to the short-term money markets?

Well, Scott, it's Andy, we go back a long time, as you know. We have got a $70 billion equity market cap, it is less than 1% of our total market cap and it helps us -- one of the things we are looking at is as we significantly want to roll down our debt cost we have a huge opportunity over the next two years.

As our average interest rate is about 5.65% on the $5 billion of debt that comes due, it allows us to look at potentially, one, preparing some of our secure debt where we can borrow at was it 15 to 16 basis points and there is absolutely no risk.

It also diversifies our investor base, we have had significant strong investors and there is really no risk because it is like in the olden days, as you know, when we used to have the banks bid on a competitive bid line now we just replace that with, as you know, commercial paper.

And the regulations in the market is far, far different than it was 5, 10 years ago. So we had no problem. We started in October, there were some volatile markets. We had absolutely no problem rolling over any of our, if you would, euro paper or our USD paper and it's, again, something in a small way that we are going to continue to do and to be proactive and opportunistic.

So I get that. So you are viewing it more from a transactional flexibility standpoint rather than a strategic part of your capital structure because I think we have talked over the years about this. You guys have long-term assets and you tend to want to fund them long-term, right?

Yes, absolutely. And that is why we significantly increased our average weighted term as we reduced the rate and will continue to be the case.

Okay.

Thank you.

I think, any other questions operator?

At this time there are no further questions.

Thank you, ma'am. Thank you, everybody, have a healthy New Year, a Happy New Year and we will talk to you soon.

Thank you for joining today's conference. That concludes the presentation. You may now disconnect. And have a great day.