Simon Property Group Management Discusses Q4 2012 Results - Earnings Call Transcript

Seeking Alpha (Transcripts)

Mon, Feb 4, 2013, 4:50 PM

Simon Property Group (SPG)

Q4 2012 Earnings Call

February 04, 2013 11:00 am ET

Executives

Shelly J. Doran - Vice President of Investor Relations

David E. Simon - Chairman, Chief Executive Officer and Chairman of Executive Committee

Stephen E. Sterrett - Chief Financial Officer and Senior Executive Vice President

Richard S. Sokolov - President, Chief Operating Officer, Director and Member of Executive Committee

Analysts

Christy McElroy - UBS Investment Bank, Research Division

Ross T. Nussbaum - UBS Investment Bank, Research Division

Steve Sakwa - ISI Group Inc., Research Division

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

Paul Morgan - Morgan Stanley, Research Division

Cedrik Lachance - Green Street Advisors, Inc., Research Division

David Harris - Imperial Capital, LLC, Research Division

Quentin Velleley - Citigroup Inc, Research Division

Michael Bilerman - Citigroup Inc, Research Division

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Carol L. Kemple - Hilliard Lyons, Research Division

Richard C. Moore - RBC Capital Markets, LLC, Research Division

Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division

Benjamin Yang - Evercore Partners Inc., Research Division

Michael Gorman - Cowen and Company, LLC, Research Division

Jeffrey Spector - BofA Merrill Lynch, Research Division

Craig R. Schmidt - BofA Merrill Lynch, Research Division

Andrew Leonard Rosivach - Goldman Sachs Group Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2012 Simon Property Group Earnings Conference Call. My name is Chantilly, and I will be your facilitator for today's call. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to your host for today, Ms. Shelly Doran, Vice President for Investor Relations. Please proceed.

Shelly J. Doran

Good morning, and welcome to Simon Property Group's Fourth Quarter 2012 Earnings Conference Call. Please be aware that statements made during this call may be deemed forward-looking statements, and actual results may differ materially from those indicated by forward-looking statements due to a variety of risks, uncertainties and other factors. Please refer to our filings with the SEC for a detailed discussion.

Acknowledging the fact that this call may be webcast for sometime to come, we believe it is important to note that our call includes time-sensitive information that may be accurate only as of today's date, February 4, 2013.

Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included within the earnings release or the company's supplemental information package that was included in this morning's Form 8-K. This package is available on the Simon website in the Investors section.

Participating in today's call will be David Simon, Chairman and Chief Executive Officer; Rick Sokolov, President and Chief Operating Officer; and Steve Sterrett, Chief Financial Officer.

I will now turn the call over to Mr. Simon.

David E. Simon

Good morning. Our results for the quarter were very strong. FFO was $2.29 per share, up 19.9% from the fourth quarter of 2011. Our FFO exceeded the first call consensus once again, this time by $0.12 per share.

For our Malls and Premium Outlets, tenant sales were up 6.6% to $568 per square foot, occupancy was up 70 basis points to 95.3%, base minimum rent per square foot increased by 3.4%, and our releasing spread was a positive 10.8% or $5.21 per square foot.

For the year, our 2012 FFO was $2,885,000,000, an increase of $446 million from 2011. Growth in FFO per share was an exceptional 15.8% to $7.98 per share, and we did achieve such growth through a number of ways: First of all, our comp property NOI growth in our Mall and Premium Outlet platform was 4.8% per year. We completed several acquisitions in 2012 which were done throughout the year, so we'll see more of their accretion into 2013 and beyond, but those include Mills, Klépierre, our investments, Silver Sands, Grand Prairie, Livermore.

We also successfully reopened Opry Mills in Nashville, Tennessee. And we opened a new upscale premium outlet center in Merrimack, New Hampshire, and our Texas City, Texas, deal with our partner in -- with Steve's Hangar.

Now our significant redevelopment pipeline is also bearing fruit. Again, not much benefit in '12 for these things, but we expect to see additional earnings accretion for '13, '14. But they include King of Prussia, Fashion Mall at Keystone, Pheasant Lane, Ontario Mills, Sawgrass Mills and Southridge Mall, again investments made throughout '12 and opening at the end of '12.

We continue to demonstrate our balance sheet leadership. In December, we did a bond offering of $500 million of 10-year notes at 2.75% interest rate and $750 million of 5-year notes at 1.5%, the lowest coupons ever printed by a REIT. 2012, we issued a total of $3 billion in senior unsecured notes with a weighted average interest rate of 2.81% and a weighted average term of 11.6 years.

Now we also were very active in the secured debt markets. We closed or locked rates on 30 new mortgages totaling $3.7 billion, of which our share is $2.3 billion. The average interest rate on those loans is 3.88% with a weighted average term of 8 years.

Let me turn to the dividend. Common stock dividend increased 17.1% in 2002 -- 2012 to a total of $4.10 per share for the year as compared to $3.50 paid in 2011. This morning, we announced the 6th consecutive quarterly increase in our dividend from $1.10 to $1.15 per share.

Our stockholder -- total stockholder return in '12 was 26%. We've outperformed the RMS and the S&P for the 11th time in the past 12 years. Our compound annual return for the last decade was 21.4%, and since our IPO in December of 1993 was 17.2%.

Transactions in December in the fourth quarter, we created a venture with CalPERS and Miller Capital Advisory to jointly own the shops in Mission Viejo and the Woodfield Mall, 2 of the best 100 malls in the U.S. Part of the transaction, as you know, we owned 100% of Mission and CalPERS own 100% of Woodfield. We now own 51% of Mission and 50% of Woodfield, and we lease and manage both assets. We have a very strong relationship with CalPERS and Miller, and we're excited to partner with them in Woodfield, where we think we'll have a good ability to increase that cash flow.

Now let me talk about the Paragon deal. We completed the acquisition of the remaining interest in these 2 newly developed centers. These centers have been re-branded as Livermore Premium Outlets and Grand Prairie Premium Outlets. They serve the Greater San Francisco and Dallas-Fort Worth areas, respectively. Both are 100% leased. Traffic and sales continue to meet or exceed expectations and with each center creating an excellent reputation in their respective trade areas.

Now our new development -- redevelopment pipeline continues to move forward aggressively. We invested nearly $900 million in projects during 2012 and expect our share of capital spend in 2013 to be over $1 billion. We have 5 Premium Outlets under construction, all scheduled to open in 2012: 2 are in the U.S., Chandler, Arizona, a suburb of Phoenix, and Chesterfield, Missouri, a suburb of St. Louis; one in Japan; one in Canada, which is a suburb of Toronto; and our fifth is in Busan, Korea, which will be our third outlet center in Korea.

We plan to start construction in the second quarter of the new upscale outlet center in Montréal. This will be our second Premium Outlet Center in Canada. It will comprise approximately 390,000 square feet and is expected to open third quarter of '14. And construction is also under way at 24 redevelopment expansion projects throughout our U.S. portfolio and the 2 Premium Outlets in Asia. All will open in 2013 and '14. Several are very significant in size and scope, including expansions at Seattle Premium Outlets, Walt Whitman Shops, Sawgrass Mills and the redevelopment of an -- former enclosed mall into an open-air center at The Shops in Nanuet in Nyack, New York,

Klépierre reported last Thursday. Total rents for the year were up 4% on a current basis and 2.3% on a like-for-like basis. In 2012, they completed asset sales totaling EUR 700 million, reduced their LTV by 200 basis points, continue to perform ahead of our expert -- expectations as we continue to refine the strategy for the company.

In conclusion, I am and we are very pleased with our 2012 accomplishments and results. We reported record FFO per share of $7.98 per share. That is $0.71 higher than consensus at the beginning of 2012; $0.73 higher than the midpoint of our initial guidance range; $1.53, or 23.7%, than our high -- than our rate -- than our pre-Great Recession high FFO reported in 2008 of $6.45.

We paid a record dividends of $4.10 per share. And with our recent increase in dividend this quarter, we're on track to pay at least $4.60 per share in '13. And this is $1 higher or 27.8% higher than the dividends paid in 2008 at the -- at our great -- at the Great Recession high. We look forward to another strong year in '13. And based upon our core business, FFO guidance for 2013 is in a range of $8.40 to $8.50 per share. The midpoint of this range is $2 higher than our record FFO per share prior to the Great Recession, or roughly 31% increase.

With that, operator, we're ready for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Christy McElroy of UBS.

Christy McElroy - UBS Investment Bank, Research Division

I'm on the line with Ross as well. I was wondering if you could comment on the changing importance of outlets for retailers and then the differences in retailers' profitability across different platforms, especially in light of Mickey Drexler's comments at a forum a few weeks ago that the increasing importance of outlet sales versus full price to the bottom line isn't very widely discussed.

David E. Simon

Well, I don't think it's -- I don't think anything has really changed all that significantly. Over the years, it's been a very profitable distribution channel for the retailers. I expect it to continue. There are more retailers coming into the sector because of the fact that it is profitable for a number of the retailers. I also think what we've done, that is Simon, has increased the scale, the design elements, the layout for the outlet industry in total. We brought it to the front door as opposed to the backdoor of retailers. We brought new tenants in. And I think we've had an absolute direct impact on bringing new retailers into that sector and helping it take it out of the or less out of the -- more in the mainstream.

Mickey, I love Mickey. Mickey makes lots of comments to those things, some of which had been directed at me in good fun. But the fact of the matter is it's a profitable business. We've had a lot to do with taking it out of kind of the backdoor and the front door. We've had a lot to do with the design and enhancing the look and feel of the product and also moving the product in better locations and bringing more tenants into it.

Ross T. Nussbaum - UBS Investment Bank, Research Division

David, it's Ross Nussbaum. I had an off-topic question, which pertains to your presence as the largest REIT in the industry and whether you had any thoughts on the increasing number of C corps that are converting to REITs and/or restructuring into opco/propcos and what kind of implications you think this trend has on the REIT industry overall.

David E. Simon

Well, that's a good question. I mean, I am starting to get a little bit concerned, maybe too strong a word, but I am getting a little bit concerned that the basic fundamentals of why companies are REITs is because they're in the real estate business and they're focused on growing their cash flow from their business as opposed to the opco/propco. I think the opco/propco has not worked its financing vehicle. I'm sure the investors are sophisticated to know which ones are primarily used for that vehicle. And so I'm getting a little bit concerned. I haven't had a chance. I've been too busy, frankly, to talk to NAREIT about what their whole view on this is. But the basic fundamentals of real estate investing with a seasoned management team, with quality real estate that can invest and grow their business is there. It's stronger than ever. And the returns, the cash flow, dividend increase for a number of companies has been remarkable in terms of the face of capital coming and going into the industry. The history of results for our industry has been phenomenal. I'm proud of our industry. I do think, though, if we get a little bit -- if it turns into a financing vehicle, I don't think it'll have a taint on the existing successful companies like ours, but I do think there should be a caution thrown to the wind with some of those.

Operator

Your next question comes from the line of Steve Sakwa of ISI Group.

Steve Sakwa - ISI Group Inc., Research Division

David, I know you tend not to provide same-store NOI growth figures, but I was just wondering if you could sort of talk about what you did in 2012 successfully and maybe what may not repeat. Or are there some items that may be headwinds this year that we should be thinking about, so that 4.8% may or may not repeat? And I'll start there.

David E. Simon

Well, look, 4.8% is an unbelievable execution. And let me just say this: I've read some of this commentary on our fourth quarter. I mean, I find it humorous because we look at it -- we look at our comp NOI on a year basis, not on a quarterly basis. And the important number is 4.8%. If you go -- also go back last quarter -- last quarter in 2011, we had a 4.5% increase. Yet, our quarterly or annual 2011 was 3.5%. So occasionally quarters are going to have a little extra performance, either overperformance or underperformance or right on performance. But, my goodness, focus on the year. The year was 4.8%. The other thing to focus on is that our comp NOI is -- what is it, Steve? 99%?

Stephen E. Sterrett

Yes, $4.05 billion.

David E. Simon

So it's $4.05 billion, if you didn't hear that. 99% of our portfolio. We don't play games with it. It's in our 8-K. It's right there. So I felt like I had to mention that because I've seen some analyst comments on that. But put that as a side, look, we are -- in our plan for next year is not to achieve the 4.8%. I mean, that was a -- for the Outlets and the Mall business, that was an extraordinary year. It's not doable, frankly. Maybe we can execute that, but we'd like to be conservative and thoughtful. That's in our guidance. We certainly want to hit our numbers that we produce. We have an unbelievable track record of producing that, rivals any public company in the country. And so we'll see. There's always headwinds in our business. Tenants coming, tenants going, bankruptcies. What the guys are doing in Washington, are not executing the way we want. It's never perfect. It's never as good as we want it to be and never as bad as you think it's going to be. But in the meantime, we're $2 over our 2008 number per share. Our dividend is $1 higher and growing. We're doing lots of redevelopment and new development. So you know what? I think we'll just do fine.

Steve Sakwa - ISI Group Inc., Research Division

Okay. I guess we're coming up kind on the -- year anniversary of the Klépierre investment, and I know you've been a bit reticent to talk about at least some of the operational changes or impact that you might be having on the company. Is it still too early to talk about those? Or can you share some of your thoughts with us on that?

David E. Simon

Well, that the -- Steve, operations take time to manifest itself. And -- but we -- in conjunction with the management and the board -- we don't run the company, first of all. But in conjunction with the management and the board, and as Chairman, I mean, we give a lot of strategic advice. So what have we done? We've done asset sales to increase the financial performance or the -- to decrease the LTV and increase the financial firepower. We had EUR 2 billion of liquidity. We've re-branded the company from 2 brands to 1 brand and Segese [ph] to Klépierre, we're -- we've decided to get out of the office business to focus entirely on retail real estate. They did a great job of executing 3 terrific new developments and -- in Sweden and France that if you had a chance to visit, you'd be very proud of. We brought in a new COO that used to work for us at Simon Ivanhoe and worked at Unibuy. The company is rejuvenated in terms of marketing and operations. So I think we've done a lot. And the good news is, it's been a good investment. It will be, I think, a better investment. It has an element of risk. But the fact that they produce comp NOI growth with all the negative said about Europe is pretty damn good work. And we're proud of our association. We're proud of our investment. We're making big and good progress there that will again take time operationally. But we're also -- we brought -- are buying in Claymeres [ph], their other publicly traded vehicle, and we'll end up monetizing those assets over time. So I think there's been a tremendous amount of work. I'm surprised you don't see that.

Steve Sakwa - ISI Group Inc., Research Division

No, I was just trying to figure out if you thought that there were real sort of synergies on the leasing side or things that would maybe accelerate some of that growth. But let me just last question. Can you just talk sort of about Brazil and China? I know you've kind of been dipping your toe into those 2 markets. And you didn't really mention them, so I'm curious kind of what your thoughts are as we sit here today.

David E. Simon

Yes, turning to China, we continue to underwrite a couple of Premium Outlet deals. I continue to be very cautious about China, to build anything and including outlets. So there's really nothing new to say there other than it's taking longer to find the right deal to do, which is fine with me. We have plenty to do. I think the returns, the -- trying to get to the numbers, understanding tenant demand, understanding what's a great site, the ability to build expeditiously is very complicated in China. And we have on-ground experience, as you know, that wasn't a great experience for us. But nevertheless, we continue to see whether or not there's an outlet opportunity there. But it's slow going. And the fact of the matter is that's fine with us. In Brazil, we continue to work with BR Malls on one project. It's going through the permitting process there. It's taking some time. Assuming we get the permits, we would still have an interest in doing that. There's no certainty that, that will be accomplished, but a site's been identified. And we think we feel good about it if, in fact, we get the right to build stuff, satisfy it, and there's also a couple of others that we're looking at. But both of these markets are complicated. Both of these markets warrant a high level of due diligence, a high level of thoughtfulness. And we're exhibiting that by not just willy-nilly plowing capital in there but really waiting for the right opportunity that can justify the risk. And make sure the returns are there, which, Steve, frankly, is questionable on some of the ones that we've looked at and turned down.

Operator

Your next question comes from the line of Alexander Goldfarb of Sandler O'Neill.

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

David, maybe we'll give you a rest and ask Steve a question to start off. Steve, you guys obviously just did some recent debt financing. One of those was a 5-year issuance. And just looking at how the 10-year has backed up, in 2019, it's a little bit light. But given how the 10-year has backed up, if you guys were going to go on the market again, would you just issue 10 and maybe another 30 year? Or would you still look to sort of fill in some of the near term?

Stephen E. Sterrett

Alex, it's a good question. It's really a couple of things: We've been really focused in this period of historically low interest rates in extending duration wherever we can. And in fact, if you look at the 8-K, for a portfolio that's $28 billion of debt, we moved the needle and extended duration by almost half a year and lowered our average borrowing cost for -- by 23 basis points. So our primary focus is locking in rates and extending duration wherever we can. The December offering happened to be a specific interest or situation, where we have a hole in our maturity schedule that was shorter term, and this -- the 5-year demand was so good that we issued shorter paper. But the focus is going to be primarily on longer-duration stuff.

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

Okay. And then the second question is, just going to the Paragon. I mean, obviously, you guys have your own outlet program, but you've already done a few deals now with the Paragon guys. Is there sort of a relationship there where as they source deals, they know they sort of have an exit? If a deal fits a certain criteria, they know they can sell it to you? Or they -- were those 2 just sort of one-offs?

David E. Simon

Well, first of all, those deals, we were originally in as a partner in the deal during the development phase. So -- or construction phase. So I don't know if you know that, but that's the first point. But yes, we have a very good relationship with Paragon. I mean, there's no exclusivity on their behalf, on our behalf. We're talking to them on a couple of other deals. David Lichtenstein is a shareholder in the company, we've -- as part of the Prime transaction. So there's a good relationship. We continue to talk about new stuff. And -- but there's no requirement or exclusivity on either side.

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

But as they're talking to tenants about pre-leasing, can they talk about -- I mean, obviously, they do talk about the relationship and the fact that Simon the Premium Outlet brand, may be the one ending up managing these? I would imagine that, that would be helpful as they're trying to pre-lease. Can they say that or not the case?

David E. Simon

It's really -- it's a deal-by-deal basis, and it's really not the case necessarily. If we do something at the outset, that's a 50-50 partnership, and we're both leasing it. That's certainly the case. But Livermore and Grand Prairie, we did -- we were not involved in leasing or managing. We had nothing to do with it. They did an unbelievable job on their own. And when we got involved, it was essentially pre-let. If there's a couple of ground-up things that we come in at the beginning, we may lease jointly. But in Grand Prairie and Livermore, they did all the work themselves.

Operator

Your next question comes from the line of Paul Morgan of Morgan Stanley.

Paul Morgan - Morgan Stanley, Research Division

On the -- just on the core a little bit. Your occupancy at 95.3%, I mean, at what point are you getting -- I mean, it's a little bit different than what you reported prerecession because of the outlets that -- I mean, what point are you getting to where you think you're at a frictional minimum in terms of vacancy, and kind of what does that mean then for -- if so, what does that mean for your ability to push rents a little bit harder?

David E. Simon

Well, I'll just say this, in our plan for '13, we do have an increase in occupancy for the portfolio. It obviously is getting more challenging than it has as we've increased the occupancy. But we're also focused on improving the mix, and we have some deals that are shorter term, and we're trying to clean those out and go longer term. So there's a hell of a lot to do. And we'll -- and we're bound to get certain stores back because of either bankruptcy and/or the tenant is shrinking its store fleet because of their own issues. But we do have -- we do have a plan to increase our occupancy this year. But as important and more importantly is improving the mix and lengthening some of the shorter term leases into full 7-, 8-year leases as opposed to 1-, 2- or 3-year deals.

Paul Morgan - Morgan Stanley, Research Division

So -- I mean, if any -- if I think about it in terms of lease spread, your numbers have been around 10% for a while. Is there any reason to think they might change this year?

David E. Simon

Yes. Yes. In terms of our spread, no. We should be able to -- I mean, look, we're subject to -- as unfortunate as it might be, we're subject to the U.S. economy. I wish we could figure out the model where we weren't, but we are. So I mean, based on what we know today, I would think that we'd be able to achieve those kind of rental spreads.

Paul Morgan - Morgan Stanley, Research Division

Okay, great. And then just on the dividend. I mean, is there any -- first, '13, the dividend policy, you're going to keep doing what you've been doing over the past in terms of the quarterly adjustment?

David E. Simon

Well, we're getting -- it's safe to say we're getting closer to our taxable income. So I think the growth rate will -- at 4.60, we're getting much closer to our taxable income, and we'll have to see how that manages itself this year. But we'll be paying, as I said, at least 4.60, but we'll have to assess it every quarter. But we are getting closer to our taxable income.

Paul Morgan - Morgan Stanley, Research Division

Okay, great. And then just a last question on Woodfield. I mean, any -- as you look at it now, anything that you think could be done there interesting in the near term, or is it just more of a longer term?

Richard S. Sokolov

Paul, this is Rick. We are all over Woodfield, and frankly, we think there are a number of things we could do in both the operating expense category, the marketing category. It is a massive property. It's over 2.2 million square feet, almost 890,000 feet of center section. So we've got a lot of flexibility in how we can deal with that space to maximize the NOI and bring in different users and create incremental uses and drive the NOI there by making more efficient use of the existing space. David Contis and his team's been up there a number of times, and they're very focused on what we can do. And I think you'll be seeing a number of things implemented over the next few months.

Operator

Your next question comes from the line of Cedrik Lachance of Green Street Advisors.

Cedrik Lachance - Green Street Advisors, Inc., Research Division

Just on the topic of Woodfield, what led you to JV Mission Viejo with CalPERS? Was it in terms of accessing the deal for Woodfield or did you want to reduce your exposure to Southern California somewhat?

David E. Simon

No, Cedrik, actually they have had Miller and CalPERS as partners. And they're -- our partners have had a tremendous business in investing in top-quality regional malls. So they're -- they didn't want to reduce their overall exposure, and so it was one of those things where we talked about one other mall that was not in California. We really said, here are 2 malls that would meet their criteria. We obviously have a lot more but we just narrowed it down to 2. And we did that. In addition -- and Steve was intimately involved -- in addition, they actually wanted California exposure.

Stephen E. Sterrett

That's correct.

David E. Simon

So that's why they -- between the 2 that we discussed, they chose Mission because they did want to increase to their California exposure.

Cedrik Lachance - Green Street Advisors, Inc., Research Division

Okay. And are you able to share the cap rates that were used to value each property?

David E. Simon

They were exactly the same. So in other words, $1 of cash flow from Woodfield was valued at the same value, it was $1 of cash flow from Mission.

Cedrik Lachance - Green Street Advisors, Inc., Research Division

Okay. Just going back to the short-term deals or short-term tenants question from earlier, as you transitioned some of those short-term tenants, or that space as currently leased to short-term tenants, to something longer, do you need to find new tenants? And if so, what kind of retailers are primarily growing in those spaces?

Richard S. Sokolov

Well, one, if you keep track, we made substantial progress in the last quarter in reducing the amount of the specialty leasing agreements we have in excess of the 12 months. The -- what we're doing is we're bringing in a number of new tenants and for the most part, we're taking that space and incorporating it into existing spaces to create appropriate rooms. And I'm not going to give you the usual litany of new tenants that are coming to the mall spaces David always joked to me about, but we do have a number of tenants that are looking for larger footprints. And 3 that are particularly relevant, H&M, ZARA and UNIQLO, are looking to have footprints that are in the 20,000- to 25,000-foot range, and that requires significant reconfigurations of existing space, some pretty unique property solutions to satisfy those needs, and we want to do so because they're great retailers. And that's one of the real sources of incremental demand.

Cedrik Lachance - Green Street Advisors, Inc., Research Division

Okay. And then final question, perhaps, going back to the outlet business a little bit. What's the appetite on the part of potential institutional joint venture partners to take positions in some of the outlet properties?

David E. Simon

Well, we like owning generally 100% of an asset. So we've never really pursued it. But it would be -- the Woodfield mission is a great example of how we think about joint venturing. If it's a new opportunity that we couldn't otherwise access, it's great to partner with a highly respected group like Miller and CalPERS. But for us to bring in a JV partner in any of our outlet business, we -- first of all, we just don't see -- there's a lot of growth in that business, and we don't -- it's not like we can't access capital if we need it. We've got, obviously, a significant amount of retained earnings and cash flow that we plowed back into the business to accelerate our growth, as evidenced by our growth over the last 2 or 3 years. But there's no doubt in my mind that if, in fact, we desire that the institutional investors would certainly have a high degree of interest. We get solicited all the time and we kind of just poo-poo it. And Mills is a great example where we decided to go ahead and buy that deal as opposed to bring in another highly thought of institutional investors because we thought there were still significant growth there, and we wanted to own 100% of the assets that we ended up buying.

Operator

Your next question comes from the line of David Harris of Imperial Capital.

David Harris - Imperial Capital, LLC, Research Division

Could I just expand that question on CalPERS JV. We've talked about this in the past, about Simon's ability to generate higher returns out of assets than perhaps properties that come from other ownerships. Is this going to be an example you might be able to look to, David?

David E. Simon

I think so. I will say this, there is a significant demand, David, from institutional -- highly capitalized, highly thoughtful, highly experienced, big-time institutional investors, including sovereign wealth funds, to invest in retail real estate. And I just had a recent meeting that -- and that's worldwide. It's not just U.S. There's a high demand to invest in Europe. There's a high demand to find opportunities in Asia, where we can certainly parlay that interest in our corporate success into creating new opportunities for the company.

David Harris - Imperial Capital, LLC, Research Division

Okay. Can I stay abroad for a minute. And Japan seems to have adopted a leaf out of the Bernanke book on currency debasement. It looks like we're looking at substantial reduction in the yen-dollar rate?

David E. Simon

Yes. Yes.

David Harris - Imperial Capital, LLC, Research Division

You have fairly substantial high net asset exposure with minimal Japanese yen. I'm just wondering how you're thinking about that whether it might reverse then an opportunity for a dollar buyer? And also whether you might be thinking of putting some more hedge in place on your existing assets?

David E. Simon

Well, were currently underhedged in terms of our -- the value that we have. And we do have a hedge of roughly $200 million and --

Stephen E. Sterrett

$250 million.

David E. Simon

$250 million, roughly. So we do have a hedge. But our asset value is much greater than that. And we also hedge -- we get cash flow repatriated through our management and development fees, advisory fees that we do hedge, and we've hedged those over a long period of time. But what we don't hedge, though, is the cash flow that's generated from the business because it's harder to hedge given a lot of that capital goes back into the business to grow, either to build something new or expand. It's something we're seriously thinking about. We are underhedged. We do -- we will suffer a little bit this year, a couple of cents if the yen stays higher than where it is, given our plan. But I think it's -- we -- I'd say we'll develop a plan here over the next month or so. But it is something we're very focused on.

David Harris - Imperial Capital, LLC, Research Division

Obviously, as the company gets bigger and expose -- gets higher exposure to international, I mean, you're going to have to lead the way in the sector in terms of your sophistication around this?

David E. Simon

Yes.

David Harris - Imperial Capital, LLC, Research Division

I mean, there are some other leading companies that fall a long way short on what's needed here. Can I just -- another point of detail, on page 14 of the 8-K, your international NOI is listed at 6.3%, that's inclusive of the Klepierre, I'm assuming?

Stephen E. Sterrett

Yes, David. This is Steve. It does include our share of the Klepierre NOI from the date of the investment on.

Operator

Your next question comes from the line of Quentin Velleley of Citigroup.

Quentin Velleley - Citigroup Inc, Research Division

Maybe just a first question for Rick. Just in terms of leasing in 2013 and some of the, I guess, opportunities, what's sort of the incremental leasing opportunities to push occupancy up above 95% this year that you're looking at?

Stephen E. Sterrett

Well David touched on, I think, the most important one, which is what we're doing is spending a great deal of time making more efficient use of the space that we have by trying to downsize underproductive tenants. And that is a way to generate a lot more NOI out of the existing space. But the other opportunities, as I mentioned, the 3 significant international users are all fairly aggressively looking for space now. And that is a major source of demand in the properties. And we've got a number of other tenants that are having brand extensions and new international tenants that are seeking space. So it's a matter, really, of coming up with ways to create space that will be appropriate for their needs. And for the most part, at this occupancy level, it involves downsizing existing underproductive tenants or trying to create incremental space. And a great example of that is Walt Whitman, where we are literally adding significant square footage across the entire front of the property by expanding it, and that's enabling us to bring in a significant number of new impact retailers.

Quentin Velleley - Citigroup Inc, Research Division

Great. And I guess that feeds into the second question I had. Just in terms of the development pipeline in the U.S., which is about $1 billion, if you include all of the re-anchoring that you're doing. Could you maybe just talk about what the shadow pipeline is, if you would, to look forward over the next sort of 3 or 4 years? What's the kind of volume of capital you're looking at putting back into the U.S? And how are you thinking about returns and construction costs and some of the trends in that development pipeline?

Richard S. Sokolov

Well, we have said previously, and we think this is going to be the case, that we can foresee spending at pretty much that same $1 billion rate over the next couple of years. And that's the combination of the announced projects that are already underway. We're working on some new premium outlet deals. We're working on several significant redevelopment opportunities in the mall portfolio that David has talked about in the past. We've announced Nordstrom at Del Amo, Bloomingdale's at Stamford. And we still have a significant pipeline of opportunities in this portfolio that's going to enable us to deploy that level of capital at our historic returns.

David E. Simon

If you were to use the -- and the euros actually do a pretty good job in terms of how they look at the -- their pipeline. But we -- I'd say our controlled pipeline is at least $5 billion, as Rick mentioned, between the redevelopments, the field -- Roosevelt Fields, included in that field [ph], and the Copleys, and the Alamos of the world, and including the new development. So I'd say our controlled pipe is around $5 billion, and that's over a 3-, 4-year period of time. And that will give you a sense -- I mean, projects come in and projects go out, but that's kind of the order of magnitude that we see.

Michael Bilerman - Citigroup Inc, Research Division

David, it's Michael Bilerman speaking. Just had a question on Klepierre. Given that -- in fact, that this is the 10-year anniversary of the tax, there certainly is an element that, at some point, perhaps you can take this thing private over the course of this year or next. I guess, where do you sort of stand in terms of the desire to sort of increase your ownership? What is your relationship with BNP Paribas and their desire to sell stake and sort of how are your thoughts evolving on that?

David E. Simon

Well, these also are very simple, straightforward questions that I'm really not going to answer other than -- I will say this, we have an excellent relationship with BNP. They've been very supportive from the get-go, once we got the deal negotiated. And they make valuable contributions at the Supervisory Board level. But the rest, Michael, I'm really not going to comment on. We are pleased with our investment. It's going to take time, but I still think there's a unique opportunity here to turn Klepierre into a really premier retail real estate company in Continental Europe. It's going to take time. I'm very patient on this. "Reasonably," I should say. I hope the market here is reasonably patient. But the fact of the matter is for the last -- shoot, the deal closed in late March, early April, I mean, we've done a lot of good stuff in a very short period of time, getting the company rejuvenated toward what we think is the -- allows them -- again, subject to a lot more improvement, but at least gives them the path toward preeminence in Continental European retail real estate.

Michael Bilerman - Citigroup Inc, Research Division

And then you had mentioned Copley, which I don't think yet is in the 8-K in terms of schedule. I guess when are you thinking about breaking ground, and are you thinking rental or condo? And I guess both would have a difference in terms of capital deployment or net capital invested at the end of the day.

David E. Simon

Yes, the vast -- we're still designing the building. And we may need -- because of that design, we may need to go back through some administrative approvals that we don't think will be a big deal. But the idea that we're circling right now is to do mostly rentals, though there will be some condo element to it. And so you'd have essentially a hybrid building.

Michael Bilerman - Citigroup Inc, Research Division

Okay. And then just last question, just Sears and JCPenney. Obviously, you had some changes at Sears at the helm this quarter, I'm just curious how you sort of think about how that evolves. And then in terms of the JCPenney sort of rebranded stores, and any within your portfolio about, I guess, how you're sort of viewing those performing relative to the others within the portfolio.

David E. Simon

Well, Sears, I -- it's -- I really can't comment all that much on the management changes. I don't sense it's a huge deal there. So I'm not -- I don't think that's any major, major move on their front. And Penney, I like the new stores. Rick and I visited the new complete prototype, but we've also seen some of the new shops within the shops at some of our malls. We don't have all the data yet. It's -- I'm really not in the position to comment on how successful it is. They are -- I like what I see, and they're making progress. But the financial implications of that change is really best left for them to describe. And I assume they're coming out with their earnings here shortly, I would imagine. So we'll look forward to hearing more in terms of the progress. But just from a mall owner's point of view, rejuvenating that brand, Penney, that is, is welcome. And we're working with them to be supportive of their efforts in rejuvenating the brand.

Operator

Your next question comes from the line of Jeff Donnelly of Wells Fargo.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

I think this one is for Rick on leasing spreads. I'm curious about market rents, in particular, because if I look at your -- I guess, it's the closing rate on leases, it's been moving lower over the last year, but the opening rate has been relatively flattish. Can you speak to the trends in market rents here in the U.S.? Because I'm wondering if the growth has been obscured a little bit, maybe by a mix issue in the leases that you're signing.

Richard S. Sokolov

Well, frankly, we continue to see our average base rent go up quarter-over-quarter, and it has been consistently. So I would tell you that we still have pricing power. If you look at our occupancy cost percentage, it's still relatively low. We have significant demand and we're able to continue to grow, I think, to grow those rents.

David E. Simon

I think you really got to look at the spread, and that's the more driving -- I mean, mix always is moving around, what's expiring, what's coming up. But if look at kind of what the expiration schedule is and the incoming rents, I mean, you'll see the spread is there to be had if we execute.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

I guess in that regard, right now, and thinking about the spreads down the road. I mean, specific to anchor expirations, I think in 2014, the expiring anchor rent just sort of north of $5. In most of recent years, that's been sort of between $2 and $4. Is that something that leads you to think that leasing spreads could decelerate a little bit in 2014, or is that just something unique there?

David E. Simon

The anchors invariably have options, so I wouldn't -- that really has very little drive in our income.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

Okay. And then a question, David, I guess for you, in the -- on asset pricing because a few of your competitors have put out portfolios in malls, in the market, that are generally kind of in the $300 square foot range for sales productivity. What's your sense in where assets like those are pricing today in this capital market, given your experience with recent mall sales?

David E. Simon

Well, I mean, I -- it's really better left for them to explain what their pricing expectations are. The latest data that we have seen is what Westfield sold to Starwood. There's not much new beyond that. But I will tell you that some of the assets that are being sold, I find very aggressive pricing. I mean, there was this auction in Kansas City, kind of -- really not sure what it is. It used to be a lifestyle center, turned outlet, turned -- just a place where -- line [ph] center, but just a place where -- it's big, so you'd lease it to whomever you can lease it to. That pricing was pretty aggressive. So I mean, I -- I'm really -- it's really -- they're really better in a position to tell you what they want to see from pricing than we are.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

Okay. And just one last question, I guess, on outlet development because -- I guess, Christy touched on it earlier, but you are seeing outlet development activity kick up, or at least certainly interest in it, has it gotten to a point where you guys are seeing maybe pressure on development yields because retailers feel that they have more options for who they can align with?

David E. Simon

Well, I think that there's certainly going to be pressure on development yields for risky or ill-conceived projects. But they always are, right? I mean, that's the case in malls, outlet centers, power centers, lifestyle centers. The minute you have to beg a tenant to go into is the minute your yield goes down to unacceptable levels. I don't think it's going to change all that much for what we're trying to accomplish. I don't -- we're not going to get every deal. We're not going to win every deal. But I think the stuff that we're looking to build, I feel very good that we'll continue to generate the returns that you've grown accustomed to. By the way, it takes a lot of work to generate those yields, but -- so I'm sure there's going to be some yields that are going to, really, be way too low because, I mean, the nature of the business is people push projects and retailers sometimes don't pass up deals that are too good to be true. So as long as it's not our own mistake, it doesn't matter to us. It doesn't impact our business. And that's what you have to understand. I mean, too many people extrapolate, well, there's going to be 4 or 5 bad outlets. It's going to have some impact on you. It's going to have no impact on us, none. And there were 100 bad lifestyle deals, it didn't really have an impact on us. We're $2 higher this year than we were in the Great Recession. That says a lot about the company's ability to withstand the -- whatever the trend is out there. So it's -- the yield compression is not an issue for SPG. It might be for others. And so there'll be some bad deals done and we'll say, "We knew it. We told you." But what can we say? What can we do? We just have to do what we do.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

Actually, just a follow-up, you mentioned before that you prefer to own, particularly, your JV outlet developments, 100%. But I'm curious because return interest is very strong, or interest is very strong from institutional investors out there. If there was an opportunity for you to raise capital from there, what sort of terms or return split or valuation would lead you to maybe rethink that and take on a partner?

David E. Simon

If somebody wanted to come at a 2% yield on Woodberry -- I think Woodberry has got better risk-free credit than United States of America, and with growth potential. So 1 800 [ph], David, 2% yield at Woodberry, maybe I'd do it. I don't even know if I would do that, frankly. Rick, would you sell it in 2%? I don't know.

Richard S. Sokolov

There's a lot of growth left in Woodberry.

Operator

Your next question comes from the line of Mike Mueller of JPMorgan.

Michael W. Mueller - JP Morgan Chase & Co, Research Division

A quick question. If we're thinking about -- let me see, you've got a comparable outlet in a comparable mall, let's say they're doing -- good centers doing $600, $700 a foot, do you think there's a cap rate differential there, number one? And then if you lower it to, say, a $350 or $400 foot center, the same question, is there a cap rate differential there?

David E. Simon

Cap rates are so real estate-specific that we'd have to know where the leases are, what the competitive marketplace is, where is this mall or outlet center? There's so many other variables than one just simple number. The most important point that I'd like to make is -- with respect to your question, is that, go back to our involvement in the outlet business, we -- David Bloom and I did a joint venture in 1998 in the outlet business. We built Orlando and Las Vegas together. Now I was so stupid because I invested in some technology business that I had to show the market that I was maybe not great in technology, but pretty good in real estate that I -- we had $4 million in Orlando and I sold it out to him, 1 year after, it was built for $40 million, which is 10x on a real estate deal in a year, which, by the way, is -- rivals as any private equity deal done or any venture capital deal. So I thought maybe at least the market would say, "All right, so he screwed up in technology, but at least he knows what he's doing in real estate."

We've been at it a long time. We've had a dramatic impact on this industry. We've brought it out of the back room into the front room. We've brought new retailers into the business. We've redesigned it. We've brought it closer to marketplaces, like what we did in Orlando and Vegas, et cetera. So -- and because of all those efforts, at the end of the day, a great outlet is no different, I think, in the mind of the investor than a great mall. And I think you could say that a good outlet is probably not that much different than a good mall. And you could take that thinking all the way from high to the end. At the end of the day, a bad outlet and a bad mall, who the hell knows? I can't comment on that. But -- so I just think it's -- they're pretty much comparable at the end of the day. And then it gets to the specific real estate questions, like what's rent roll doing? What's sales doing? How can you expand it and all that kind of stuff that go into specific real estate questions. Now, in addition, look, we've been at it since '98, and then I think people said, "You know what, it's not a bad business. Let's get in it." So I don't know. I don't know. But that's the only way I can answer your question.

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Okay. Do you think you're going to see the pace of asset sales pick up this year for some of the secondary market stuff you're looking at?

David E. Simon

My instinct is to say yes, but it's still hard work. But my instinct is to say yes.

Operator

Your next question comes from the line of Carol

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Carol L. Kemple - Hilliard Lyons, Research Division

We saw you and Simon put together a great project in Houston. And then in October, you all both announced plans for Charlotte. And then in November, you all decided to work together. Is it safe to assume if you and Tanger are competing in the same market, there's a high likelihood that you all would work together in the future? Or would you both try to build your own centers? Or how is that decision made?

David E. Simon

Well, look, I -- we have a very good relationship with Tanger, where we have our 1 joint venture. We've got our 2 that are in predevelopment, development phase, Columbus, Charlotte. I would find it unlikely that at the end of the day, we would both be building in the same markets at the same time. You can never say never. But I'd find it unlikely given our good track record that we have with the Tanger guys. Now, look, we -- he just built in West Phoenix, and we're building in South Phoenix. There are some overlap in the trade area, but they're really 2 separate distinct outlets. I know his was well-leased at opening. Ours is going great. We open, don't forget, April 4. And -- but I would find it unlikely that we'd have a situation where we were both actually in 2 -- in 1 trade area where we're both building at the same time. And we may be competing and finding out who's going to win, but I would find it unusual we would both build at the same time.

Carol L. Kemple - Hilliard Lyons, Research Division

In the process of competition, do you think it's highly likely you all would join together or one would just

[Audio Gap]

on the vacant Nordstorm space at Circle Centre Mall in Indianapolis, have you all had any luck re-tenanting that space? Or how are the discussions going there?

David E. Simon

Well, we have a very nominal -- just, first of all, just so you know, we have a very nominal financial interest in it. But we're working -- I mean, the mall is doing reasonably well. We're working hard to re-tenant it, but we don't have any tenant to announce right now.

Richard S. Sokolov

I would just make the comment that we've got 635 department stores and there are 6 vacant. So less than 1%. So...

David E. Simon

And that happens to be one of them.

Richard S. Sokolov

Yes, that's one of them. So thanks for asking.

Carol L. Kemple - Hilliard Lyons, Research Division

So you sound like you're in good shape. That's just one close to me, so I notice it when I shop.

David E. Simon

It's closer to us.

Carol L. Kemple - Hilliard Lyons, Research Division

Yes, it's about 2 hours for me.

Operator

Your next question comes from the line of Rich Moore of RBC Capital Markets.

Richard C. Moore - RBC Capital Markets, LLC, Research Division

When I look at sales trends in January, especially the second half of January, it seems like they've been slowing, at least the research we do here. And I'm curious, have you seen January sales yet or have any indication what sales trends at your properties might look like for January?

David E. Simon

We don't -- Rich, we don't get our January sales until November -- oh, I'm sorry, the month later. So we won't get them until the end of February. But anecdotally, I've heard actually very good stuff. And, in fact, what was going on in Washington clearly had a reasonably down impact on the whole holiday season. Some of that picked up in January. So I've actually heard the exact opposite of that. But I haven't talked to every retailer, and I'm sure there will be some winners and losers. But generally, Rick and I were at NRF a couple of weeks ago, and we were hearing January was okay. So I don't know where you're getting that. But actually, we heard the reverse. But I'm not going to opine on that just because it's anecdotal.

Richard C. Moore - RBC Capital Markets, LLC, Research Division

Yes, mine as well, David, same thing. Okay, good. And then, Steve, looking at the credit loss provision, it was unusually high, at least certainly higher than it's been the last couple of years this quarter, and I realize it's been pretty low. But anything special going on with credit losses or your thoughts on that?

Stephen E. Sterrett

No, Rich. And, in fact, I'd look at it more on an annual basis and not worry so much about an individual quarter, no different than the comment David made earlier about NOI. And if you look at it on an annual basis, it's still relatively below kind of historical norms for us as a percentage of revenue.

Richard C. Moore - RBC Capital Markets, LLC, Research Division

Okay. So no reason to think that goes higher substantially in '13?

Stephen E. Sterrett

No, sir. In fact, I would tell you that the '12 actual is probably a pretty decent run rate for the entire year '13.

Richard C. Moore - RBC Capital Markets, LLC, Research Division

Okay, got it. And then last thing, guys, on -- back to Paragon for just a second. It seems, David, that you get in to projects like this maybe a bit later in the process. And hence, if you did get in to another one, it might be well along the way. So it would deliver much quicker, I guess, is one way to think about it. And I noticed they had one in the Twin Cities, I think, they were working on and probably have others. Are there any of the other ones that you're kind of looking at with them at this point?

David E. Simon

We're talking to them about 1 and perhaps 2 others. But look, they're -- as I said to you, they're competent developers. Each deal is going to be a little bit different. But the good news is we can't -- given our own resources, we can't tackle every opportunity out there. We never have thought about our business that way. And it's good to have a good relationship with Paragon, just like it is with Tanger, because at the end of the day, partnering on some of these, delivering good product to our retailers, making money for our shareholders is all in the same equation. So it's a good, healthy relationship, and I would be disappointed if there weren't a couple more to do with both of them as we move forward.

Operator

Your next question comes from the line of Tayo Okusanya of Jefferies.

Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division

Just going back to 2013 guidance. I mean, you have provided a bit of a road map in regards to some of your underlying assumptions about where it seems your NOI is going, where you expect occupancy to go and maintaining leasing spreads. Any other kind of tidbits you could give us in regards to what's underlying your 2013 guidance?

David E. Simon

Well, look, we go through -- we are a large company. We got $80 billion of assets. We're in Europe. We're in Japan, Korea. We're in the mall business, the outlet business. We -- we've got development yields that we're trying to achieve, redevelopment. So, so much goes into how we do it. The most important is that we're dedicated to producing the results that we tell the market. We've done it for 9, 10 years. I don't even know. I lost track. We used to put that in, but since no one cares, we decided to take it out. And you know what, that's the number. We just don't think it's all that critical. Maybe we're wrong. We're happy to be -- we're happy to have our arm twisted to give you all the specific detail as to what we're trying to accomplish given our track record. You know we're trying to grow our comp NOI. You know we're trying to lower the cost of our debt. You know were trying to do our development deals according to our plan that we've -- we outlined in the 8-K. You know we're trying to increase our operating margins. You know we're trying to keep our overhead reasonably sane as the company gets bigger and bigger. You know all that, and we're not going to change. We just don't think, given our track record, we need to give you each and every little detail. We're happy to get our arm twisted, yelled at. Complain to Steve, if we do. But since we're such a big, big company, but it does include comp NOI growth. That's our #1 priority. It will always be managing the overhead is critical. There's some things out of our control, interest rates, currency, execution by others that we've empowered. But you put it all in and we think it's reasonable guidance given our past history of performance.

Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division

That's fair. I guess the only reason why I asked is it sounds like a lot of things are still going to be going well in 2013. You have a fair amount of acquisitions that hit late in 2012. You have all these redevelopment and development efforts coming online in 2013. I was just kind of curious, is there any kind of number in there that weighs on 2013 earnings that we should be aware of?

David E. Simon

As a negative?

Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division

Yes.

David E. Simon

Well, look, we sold -- I mean, we have some things that are negative. For instance, I'll give you 2 or 3 that come -- pop in my mind. We sold our interest in Capital Shopping Centres. We no longer get that dividend. That was dilutive because we essentially paid down debt. We sold -- we no longer -- we have some mortgages that we owned on the hope that maybe the owners were going to default. Those got paid off. So we -- our investment income is way down. We had a couple land sales. That's a lumpy business. So there's always those kind of things that are a little bit negative that we have to earn our way back. And Steve can shed more light. I mean, those are 2 or 3 that jump to mind. We have higher -- now we don't have much floating rate debt, but we do put in higher interest rate on the short term. So we have some exposure on that. So I mentioned the currency. We're already behind our budget in currency, but that didn't change our guidance. We'll figure out hopefully how to make that up in some way, shape or fashion. But that's hurting us with the yen. Those are some of the items that jump out.

Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division

Okay. That's helpful. And then just a quick question on Grand Prairie and Livermore. With those assets being 100% occupied when you acquired them, how should we kind of think about growth within that portfolio and where you expect to get that from?

David E. Simon

Well, they were 100% leased prior to our 100% acquisition. And we like the real estate, so the growth will be there over time but nothing imminent. I mean, there could be based upon overage rental, I should say. So sales is still a little bit unknown because there's still some overage or percent rent deals with some of the anchors. So there may be growth because those projections may be less than what they produce. And then Livermore does have an expansion opportunity, so that's a couple of years away.

Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division

Great. And then just 1 last specific question for Steve. Just ad expense during the quarter went up quite a bit. Just wondering why that was so.

Stephen E. Sterrett

I'm sorry, Tayo, the advertising expense?

Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division

Yes, expense.

Stephen E. Sterrett

That would just be seasonal, but it nets out because most of that is reimbursed by the tenant. So that's the bottom line.

Operator

Your next question comes from the line of Ben Yang of Evercore.