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Edited Transcript of SPG earnings conference call or presentation 27-Apr-17 2:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Simon Property Group Inc Earnings Call

INDIANAPOLIS May 15, 2017 (Thomson StreetEvents) -- Edited Transcript of Simon Property Group Inc earnings conference call or presentation Thursday, April 27, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David E. Simon

Simon Property Group, Inc. - Chairman and CEO

* Richard S. Sokolov

Simon Property Group, Inc. - President, COO and Director

* Thomas Ward

Simon Property Group, Inc. - SVP of IR

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Conference Call Participants

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* Alexander David Goldfarb

Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research and Senior REIT Analyst

* Caitlin Burrows

Goldman Sachs Group Inc., Research Division - Research Analyst

* Carol Lynn Kemple

Hilliard Lyons, Research Division - VP and Analyst for Real Estate Investment Trusts

* Craig Richard Schmidt

BofA Merrill Lynch, Research Division - Director

* David Harris

* Floris Gerbrand Hendrik van Dijkum

Boenning and Scattergood, Inc., Research Division - Senior Analyst of REIT

* Haendel Emmanuel St. Juste

Mizuho Securities USA Inc., Research Division - MD of Americas Research and Senior Equity Research Analyst

* Jeffrey Alan Spector

BofA Merrill Lynch, Research Division - MD and Head of United States REITs

* Jeffrey John Donnelly

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Ki Bin Kim

SunTrust Robinson Humphrey, Inc., Research Division - MD

* Michael Bilerman

Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research

* Michael William Mueller

JP Morgan Chase & Co, Research Division - Senior Analyst

* Nicholas Yulico

UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst- REIT's

* Paul Burton Morgan

Canaccord Genuity Limited, Research Division - MD and Senior Research Analyst

* Richard Hill

Morgan Stanley, Research Division - Head of U.S. REIT Equity and Commercial Real Estate Debt Research and Head of U.S. CMBS

* Stephen Thomas Sakwa

Evercore ISI, Research Division - Senior MD and Senior Equity Research Analyst

* Vincent Chao

Deutsche Bank AG, Research Division - VP

* Linda Tsai

Barclay PLC, Research Division - VP, Research Analyst, Retail REITs

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Presentation

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Operator [1]

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Good day, ladies and gentlemen and welcome to the Simon Property Group First Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would like to introduce your host for today's conference, Tom Ward, Senior Vice President of Investor Relations. Sir, you may begin.

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Thomas Ward, Simon Property Group, Inc. - SVP of IR [2]

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Thank you, Terrence. Good morning, everyone and thank you for joining us today. 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 may differ materially due to a variety of risks, uncertainties and other factors. We refer you to today's press release and our SEC filings for a detailed discussion of the risk factors relating to those forward-looking statements.

Please note that this call includes information that may be accurate only as of today's date. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included within the press release and the supplemental information in today's Form 8-K filing. Both the press release and the supplemental information are available on our IR website at investors.simon.com.

For our prepared remarks, I'm pleased to introduce, David Simon.

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [3]

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Thank you, Tom. Good morning. We had a great start to the year. We continue to achieve strong financial results that exceeded our expectations. We opened 2 new international outlets in April. We amended and extended our $4 billion revolving credit facility, further enhancing our strong financial flexibility.

Results in the quarter were highlighted by FFO of $2.74 per share, an increase of 4.2% compared to the prior year. As a reminder, the prior-year period included a net benefit of $0.08 and FFO per share from a gain on the sale of 2 residential assets.

Normalizing the FFO per share growth rate for the gain in the prior-year period, FFO per share increased approximately 7.5%. We believe the FFO per share consensus for the first quarter did not include an estimate of our share of the losses from A?ropostale, which is typical for a retailer in the first quarter.

Our share of those operating losses in the first quarter was $0.03 even though, on an annual basis, we measure our sales versus our plan and not first call estimates. Let's put in perspective that we have beaten first call estimates 42 out of the last 44 quarters. The only 2 misses where onetime write-offs in 2009, which was the year of the great recession. This is an unprecedented performance for the REIT industry in the S&P 500.

Now let's go to operating metrics and cash flow. We continue to see strong demand for our space across the portfolio, as evidenced by our mall and premium outlets occupancy ended the quarter at 95.6%, which was flat year-over-year. Leasing activity remains solid. Average base minimum rent was $51.87, up 4.4% compared to last year, reflecting strong retailer demand and pricing power for our locations.

The malls and the Premium Outlets recorded leasing spreads of $8.31 per square foot, an increase of 13%. Reported retailer sales per square foot for the malls and outlets was $615 per foot compared to $613 in the prior-year period, an increase of 30 basis points.

We are pleased to see retail sales increase from the prior year as well as the seasonally strong fourth quarter. Also, please keep in mind that Easter was in April this year compared to March of last year, which has a real impact on many leading tourist-oriented properties.

Total portfolio NOI increased a very strong 5.6% or over $80 million for the first quarter, and comp increased a strong 3.8% for the quarter. Our best properties are industry-leading assets in large markets that drive cash flow, growth and profitability of our business. We understand that many of you believe that standard operating metrics just mentioned are of most interest.

However, it's important to remember that each of those metrics reflect an equal weighting of each of the properties across our portfolio. We believe it is important to understand our operating metrics on an NOI weighted basis, which more truly reflects the performance of the portfolio.

With that said, if we had done that reported retailer sales on an NOI weighted basis would be $765 compared to the $615. Average base minimum rent would be $67.60 compared to $51.87. Leasing spreads would increase to 16.4% compared to the 13%.

We have the largest portfolio of the highest quality retail real estate in our industry. These high-quality properties drive the growth and cash flow of our business; and what -- and where retailers want to be located and consumers want to shop and create memorable experience. These weighted metrics clearly demonstrate the highly -- higher-quality nature and more accurately reflect the health of our portfolio.

At the end of the first quarter, redevelopment expansion projects were ongoing at 25 properties across all 3 platforms with our share of net cost of approximately $1.1 billion (sic) [$1.7 billion]. Construction continues on several major ones, which we've mentioned before, including The Galleria in Houston, La Plaza Mall Woodbury Common and Allen Premium Outlets. Most of these projects will be completed in the next 12 months.

Subsequent to the quarter end, we opened 2 new international outlets with our partner, Shinsegae Group. We opened Siheung Premium Outlets in Seoul, South Korea. This center is our fourth premium outlet and build upon its tremendous success we've enjoyed in the region. And with our partner, McArthurGlen, we opened Provence Designer Outlet, the first luxury designer outlet in the South of France. Construction continues on another full price development in Fort Worth, at The Shops at Clearfork. Neiman Marcus recently opened and the mall will open in the fall of this year.

And we have 3 new outlets under construction: 1 in Norfolk Virginia, 2 in international markets including Malaysia and Canada. Our share of those 4 is approximately $300 million.

Last week, with our partner McArthurGlen, we also acquired Rosada Designer Outlet, a leading outlet center in the Netherlands with significant growth opportunity.

Just turning quickly to our capital markets. We were very busy as usual. We refinanced or $4 billion revolving credit with a 2022 maturity date. Our fortress balance sheet, with access to many forms of capital, continues to differentiate us among our peer group.

Our liquidity stands at more than $7 billion. During the quarter, we also extended our $2 billion share repurchase and we repurchased 870,000 shares of our common stock and today, we announced a dividend of $1.75 for the quarter, which again, is an increase of 9.4% year-over-year.

Finally, we're reaffirming our 2017 guidance in the range of $11.45 to $11.55 per share, which is approximately 6% growth compared to our comparable FFO per share growth, which we believe will lead our retail real estate industry peers.

This expected growth is a testament to the strength of our company and our ability to actively manage our portfolio to provide industry-leading returns to our shareholders, even in the current choppy retail environment. We now welcome your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Alexander Goldfarb from Sandler O'Neill.

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Alexander David Goldfarb, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research and Senior REIT Analyst [2]

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So quickly, David. First, yes, you guys have a long track record of beating and raising guidance, but you've equally been upfront about the challenges out there in the market. So just sort of curious, the no-raise in full-year guidance this year, is that because, yes, there's more Aeropostale losses that potentially come up this year as you run that business? Or is it just general caution? Or are you seeing some things out there as releasing folks come back or operations to people come back that give you a little bit of pause?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [3]

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Well, look, I think I would say the entire -- again, 42 out of 44 outlets, that's 11 years -- is that 11 years, guys?

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Richard S. Sokolov, Simon Property Group, Inc. - President, COO and Director [4]

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That's 11 years.

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [5]

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That's 11 years, okay? So the miss from first call consensus was entirely Arrow, which is very typical for a retailer to have operating losses in the first quarter. So I would -- in answer to your question simply, it's a little bit of both. I mean, Arrow is a fourth quarter business for -- like most retailers. And there is a range of outcomes there. We're still very comfortable with our investment, but there is a range of outcomes that's a little harder to predict, so we're being a little more cautious in that front. And then obviously, on the retail front, I mean, we've got some retailers that we're trying to navigate exactly what might happen and -- so we're being a little more cautious on that front. We're not backing off our comp NOI number even with that uncertainty in the retail world, and we'll see. I mean, we're not backing off on it and I'm optimistic that we'll continue to perform very well.

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Alexander David Goldfarb, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research and Senior REIT Analyst [6]

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Okay, and then the second question is yes, you guys made a LIFE TIME FITNESS announcement, but just curious, in general. Yes, you've spoken in the past about a lot of apparel brands in the malls that need to diversify, but at the same time there's also the consumer that's much more fickle. They don't -- yes, I mean there was a Neiman Marcus' article, but the shopper is much more conscientious about where they are. Overall, one, the ability for you guys to really diversify out of apparel into other uses at the mall, how's that going? And two, are you seeing the brands themselves get more serious about understanding that the consumer has changed, and therefore full price as full price may not just work anymore? They need to invest more. Are you seeing the retailers themselves do that?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [7]

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Well, I am hopeful that the retailers will focus on improving their in-store experience and that could be a lot of different ways. That could be through technology, that could be through a better look and feel, that could be through better merchandise, et cetera. Now I will tell you, I mean this is the great narrative that's -- that is being absolutely ignored by the national media. And we -- I continue to tour properties each and every week, as does Rick, as does our team. The traffic is there. It's so funny, when all the malls go out of business, what are these poor people going to do instead of going to the mall? I don't know. I mean, I just think the narrative is way ahead of itself. The traffic is strong. It was up throughout our portfolio where we measure it and -- but you know, at the end of the day, we've all got to have a better experience for the consumer because they are a tough nut to crack. We also need a growing economy. I mean, our GDP growth is going to be, anybody's guess? What's your guess, Alex?

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Alexander David Goldfarb, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research and Senior REIT Analyst [8]

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GDP? Something probably in the 2% -- a little over 2%?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [9]

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What is it for this first quarter?

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Alexander David Goldfarb, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research and Senior REIT Analyst [10]

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It's subdued. It's subdued. But if we get anything out of DC, it should be better.

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [11]

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I've been waiting a lot of stuff for DC, I'm still waiting for the Internet sales taxation, fairness to kick in. The reality is people are going to the good centers. Traffic is up. Our sales, even with Easter being in April, are up. Our NOI is up. Our comp NOI is 3.8%. We've certainly got some retailers that are -- that have not performed the way they wanted to, or should have. A lot of that was driven by the private equity leveraging up these businesses, more than just the common theme, which is the Internet. I am hopeful that they're going to reinvest in their stores, improve their inventory mix and service their customer better. And by the way, we've got to have the same pressure on us to do that. So it's a 2-way street. We're up for the challenge. We have the conviction in our business to do that. As you know, we go through our properties by and large, they look -- they feel great. We're going to redevelop a lot of opportunities. I think any department stores, if and when we get back, are a great opportunity for the company. King of Prussia is a great example. Penney has announced closing. We could've saved that deal, we decided absolutely unequivocally not. We're going to make that a mixed-use development. It won't be apparel-oriented. So again, it's just -- we're frustrated only by the narrative but not by what's happening in our business.

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Operator [12]

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And the next question comes from Jeff Spector from Bank of America.

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Jeffrey Alan Spector, BofA Merrill Lynch, Research Division - MD and Head of United States REITs [13]

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I'm here with Craig Schmidt. David, Rick, to be a little more specific on the retailers, there have been many more plans announced for spending in bricks and mortar for closings. I guess, can we be a little bit more specific and help us provide your latest view? Are you happy with the current announcements? Is it enough? Because the last couple of years, you have been asking for this.

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [14]

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Well, we don't -- we really do not comment, I'm not sure I understand your question. But we really don't. We don't think this a good forum to comment on retail-specific issues. As I said, there are things I'm happy to comment on like we are -- apparel has been in the doldrums. We are moving our mix away from that. I think we've done that already. We've lowered it, Rick, by?

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Richard S. Sokolov, Simon Property Group, Inc. - President, COO and Director [15]

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5% or 6%.

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [16]

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We've lower that already. We do think private equity has been more of a detriment to our -- and, by the way, most of these guys are my buddies, okay? But I mean, when you lever up any business, whether it's the mall business, the retail business and you can't invest in your product, you've got a problem. We've seen a lot of that. I'm happy to talk to you about that trend, but I'm not sure -- I'm not going to sit here and comment on specific retailers. I'm not really sure, Jeff, what you're after? Explain it to me.

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Jeffrey Alan Spector, BofA Merrill Lynch, Research Division - MD and Head of United States REITs [17]

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I guess, are you feeling better now that the retailers are finally talking about specific investments in the stores, pruning some of their portfolios. It feels like, finally, they're taking some action but from where Craig and I sit, it is a little confusing to figure out, are these winning formulas or not?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [18]

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Well, I think my concern about how they've overspent in the Internet versus the store fleet continues to be a concern for me. But I do think they're starting, given that the returns on online, between free shipping and free returns, is no man's land for them. I -- and the price transparency and no service add -- value add, I -- hopefully, they'll recognize that they should pivot toward the in-store experience. And I think that's beginning to happen. I also think, as I've mentioned to you in the past, that there's a number of Internet -- pure Internet retailers that will not be able to really sustain their business model, in my humble opinion, unless they have a physical presence. So there's still cleaning out to do and we will suffer from that like anybody else. But at the end of the day, if there's less retail space in the United States, and I expect there to be, so I'm not suggesting that there won't be, we will be the net beneficiary of that because of the vastness of our portfolio and scale helps and a big balance sheet helps. So we've got $7 billion of capital ready to go to work in whatever form we can do to increase our profitability. And so we'll weather the storm like we have in the past. We've done some of our best work when the -- when it's the most foggiest, and that's what we do. And that's why we're making $11.50. That's why that's the REIT's highest per share number, and that's why our dividend has grown more than anybody else. And you know, I don't know what else to tell you. That's what we do. I'm not -- we haven't backed off our comp NOI. Is it -- do we have to work to get to the 3%? You're darn right, but we put that pressure on us each and every year. And yes, sometimes you don't get to the finish line, but we get pretty damn close most of the time. So again, I have no idea if I'm answering your question, but that's what we do.

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Jeffrey Alan Spector, BofA Merrill Lynch, Research Division - MD and Head of United States REITs [19]

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That helps. And Craig has just one quick question.

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Craig Richard Schmidt, BofA Merrill Lynch, Research Division - Director [20]

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Just given the strength and shift of some of the value in discount retailers, I'm wondering if we may see the introduction of more value off price like Marshall's at Del Amo and T.J. Home Goods at Prien Lake Mall.

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [21]

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I think there'll be a little bit more of that for sure. They do a great job, a lot of the discounters. And I think there's a great opportunity for us to bring them in into the mall environment. Not -- you wouldn't want to do it in every mall environment, but you'd certainly -- there's a handful of malls that make sense to do that and I do think that will continue. And the reality is, the mall -- and again, this is what frustrates us, is that the traffic that we see in the malls are -- is good. So yes, we can always point out to a mall that's gone out of business or the mall that's done -- that's got no traffic, like we can a hotel, like we can a movie company that makes movies and they have a flop. It doesn't mean all movies are flops, it just means the 1 movie they have is a flop. We can talk about network T.V. We can talk about the lineup and all they have, and they have a new show that's a flop. Well it's conceivable that in our portfolio, we have a couple of flops, but it's immaterial. That's why we gave you those weighted NOI statistics to reinforce that. But the reality is that we do think that in some of these properties, we will be able to bring in some of that -- because I think some of these centers that they're in, in the strip center will -- might suffer a little bit. And they're going to go where the traffic is and, in most cases, it's the mall environment. Not everyone, but in most cases.

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Operator [22]

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Our next question comes from Christy McElroy from Citi.

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Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [23]

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It's Michael Bilerman. The good news is Mall Cop wasn't a flop.

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [24]

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The Mall Cop -- that number 2 wasn't that great, but I think the first one was pretty good.

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Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [25]

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Yes. So David, strategically over the years, you've been able to adapt to different cycles. You're very early on in the consolidation wave, focusing on this big major market malls. You got into the outlet business when you bought Chelsea, you bought Mills, enhancing sort of all the value retail. You sold off or spun off sort of lower-quality weaker malls, lower productivity smaller assets. You expanded globally, and you've had a rock-solid balance sheet. So when we think about adapting to the cycle, where is your main focus? Is it adapting and putting more mixed-use at your properties? Is it may be going further global? Do you want to focus on other forms of retail and, I don't know, maybe go back to the strip center business? Is it really focusing on this whole mall of the future in the consumer experience and taking ownership of the consumer at your mall? I guess -- or is it something completely else? How should we be thinking about your next adaptation to the cycle?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [26]

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Well, it's a very, very good question. So the -- let's just talk about our businesses in those segments. Our European and Asian business is actually very strong. So that's good news. Our outlet business and Mills business continues to prosper, continues to have very good comp NOI growth. And the mall business, generally, is dealing with a lot of the retailers that we generally understand and know, they are out there in the public. However, the great opportunity, I think, in that business will continue to be reclaiming the department stores and our opportunity to redevelop them that will further expand the mix, whether it's a mixed-use, whether it's lifetime, whether it's some community-oriented activity. But I think that's going to be a big focus for us, is how do we take advantage of the department store. We do -- and I think [Shinsegae] has done a very good job explaining this. We do probably have too many department stores in each -- in the mall business, but instead of looking at it as a concern given that they pay no rent, we actually think that's a great opportunity for our redeveloping the mall to the next level. And again, I don't think there's any cookie-cutter answer, but since they don't provide any income, there is nothing but upside in how we redevelop those, assuming we get the appropriate return on costs. So I would certainly say that's a very important phase of what we've got to focus on. And I'd say the next very important phase is we do continue to bring technology into the mall environment, just like many retailers are bringing technology, hopefully, to their in-store environment. And I think what that will do is make the shopping trip more convenient, more productive and they'll gain more knowledge by going to the mall. And we've -- right now under development in a pretty significant way to deliver product, probably realistically a year from now, that might facilitate that, with also collecting the data that's important to be able to communicate directly with the consumer. So I would say those are 2 areas, and then obviously, we're going to be opportunistic. That's just the way we are. There are no current plans to be opportunistic, but that's just part of our core culture here is to try and be opportunistic when we can.

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Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [27]

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My second question is you've talked about the narrative that effectively every mall is dead, despite the traffic in sales that are going on in your assets. And I'm curious if you can share with us some of the tone of your leasing discussions with both the bricks-and-mortar retailers that are expanding and want to open stores and how those discussions and negotiations are going with the overarching negative narrative that's out there? But also discuss how those discussions are going with the pure e-tailers that are spending their bricks and mortar presence and whether there's a difference. Because clearly, the narrative is only on one side and with all these tenants that are shrinking in their store base or going bankrupt. Clearly, there has to be some positive to produce the sales and the traffic that you're talking about?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [28]

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Yes, I want Rick to answer that. But again, once that essentially, if you really cut through it all the ones that aren't surviving in a tough REIT apparel environment are the ones that were highly levered and had the imprint of private equity on it. Okay? And again, I'm going to get a lot of criticism from all my buddies, but that's the truth. So if you look at kind of where that pressure point has been, it's more than just apparel business is bad. It's because, well, they couldn't survive with leverage on it. They pay the special dividend, they bought stock back. They did some financial maneuvering that increased the pressure that wouldn't allow them to deal with a kind of nonrobust meddling environment. With that, said, I'd like Rick to comment on the rest of it.

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Richard S. Sokolov, Simon Property Group, Inc. - President, COO and Director [29]

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I will tell you, Michael, the key as in all of these things is the person with the most compelling properties is going to win and all you have to do is visit some of our properties like King of Prussia, like Galleria, like Sawgrass Mills, like Woodbury across the 4 platforms and you'll see new retailers, both the e-tailers and the international retailers and our existing brands and new designer brands that all want to take advantage of the space that is becoming available either because we created it, because we took back space from underproductive retailers, or we consolidated those unproductive retailers into more productive space to free up space. There is still very compelling demand out there across each of the ones that you talked about. Are we fighting about rent? Sure. But we've been fighting with our tenants about rent for 40 years. That doesn't change.

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Operator [30]

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And the next question comes from Steve Sakwa from Evercore ISI.

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Stephen Thomas Sakwa, Evercore ISI, Research Division - Senior MD and Senior Equity Research Analyst [31]

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So just a couple of questions. Maybe Rick and David, just to kind of follow that theme on leasing. I know occupancy was flat year-over-year, but you had a little bit of a bigger decline sequentially. I know that there is always a decline sequentially, but it seemed to be a little bit bigger, and probably stems from some of the bankruptcies. Can you maybe just talk or help quantify how much of that space has been re-leased? And do you have any kind of occupancy goals you can share with us for the end of the year?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [32]

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Steve, I would just simply say the metrics are the metrics. We focus more on comp NOI growth. And I mean, obviously, we -- if you go back in a little bit of '15, we had more bankruptcies than '16. But this year, we'll probably have more in '17 than certainly '16 and some of these are still in a state of flux. So I would not want to, like tell where our occupancy is other than to say we haven't backed off the comp NOI number of 3%. Like I said, we're -- we've got a lot of work to continue to do, but that comment, I would say, first quarter in '09, '10, '11, '12, '13, '14, '15, '16, '17, I mean, that's just the way we look at our business. So that's the number that we're more focused on than sales per square foot, rent spreads and occupancy. It's all manifest itself. You put it all in a blender and it all manifests itself into one number, and that's the number that I care about.

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Stephen Thomas Sakwa, Evercore ISI, Research Division - Senior MD and Senior Equity Research Analyst [33]

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Right, I think -- no, I understand that. I think just to the extent that there was maybe a step or step and 1/2 back, and people just want to see the progress moving forward, which obviously will manifest itself in NOI growth. I think if there was just a way to help quantify how much of that's maybe already been put to better lease, might just give some clarity that leasing remains strong, but...

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [34]

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Well, look, we're making deals and we're moving the pile. If we weren't making deals given the bankruptcies and the store closures that we're dealing with, we couldn't produce the 3% comp NOI number. If we weren't doing new business. So that's how I would answer that. I mean, again, I don't -- we don't look at occupancy the way you might. And I'm not disrespecting how you might look at it, I'm just telling you, the way we run our business is for comp NOI or cash flow growth and we're not -- if we didn't have any new lease up given the bankruptcy and store closures that exist in our industry, we wouldn't be able to get to that 3%. So I hope that gives you at least some trend as to how we feel about leasing up some of that space.

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Stephen Thomas Sakwa, Evercore ISI, Research Division - Senior MD and Senior Equity Research Analyst [35]

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Yes. Okay, I guess, secondly, you mentioned traffic is strong and it's upward measured and you said it's good. Do you have any sort of stat you could share? And have you done than anything sort of technology-wise in the malls to help quantify this. And if you have, is that data that you will be sharing with us over time to perhaps, with the other things you said?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [36]

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You know how I feel. I think we have -- giving you plenty of data, okay? So the odds of us giving you more data are not great. But I will tell you that in the -- we don't have traffic counters in every mall, but we have in a good percentage of our malls and I standby that traffic comment. We have parking counters in our outlet business and when you factor in through April, and I had it somewhere but I can't find it. If you have it through April, our traffic overall in -- because it's important, remember, March we had Easter of last year. The traffic -- the parking counters in our outlet business is up in that 1 -- I'm sorry, Rick now has the number in front of me, 2%. So that gives you a barometer when you look at -- if it was through March in the outlet business, it would be essentially -- we look at it by region. It would be essentially flat, but it's up 2% given the -- if you go all the way through Easter in April.

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Stephen Thomas Sakwa, Evercore ISI, Research Division - Senior MD and Senior Equity Research Analyst [37]

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Okay. And I guess, just last question. If you think about sort of CapEx, and what you need to spend to maintain malls or to keep the cash flow growing, do you get a sense that there may be a higher level of CapEx that's needed to generate that 3% compounded CapEx? And do you sense that the return on the boxes that you may recapture might change possibly to the downside, as you take these stores back?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [38]

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I don't think so at all. Because we're up against very little income against those boxes. So it's a function of what you pay for them and what the income is, and the last thing we'll do is hope. I mean, that's not to say, we don't make silly decisions here but we know we can back into what the right number is to buy that box. Like King of Prussia, we get it for free. It's a lease. The lease ends, I think in 2020, and they're going to pay the rent all the way through it, which is great. We get to redo our plans, maybe we'll get them out early. But that's all -- given that lease payment, I mean, that's a lot of upside. So I think it's possible a deal here or there might be, but that's always been the case. And Steve, as you know, we spent a lot of capital in the portfolio to upgrade the look and feel. We're going to continue to do that. The worst thing that we can do, and this is a comment for everyone in the whole -- is not invest in our business. That's the worst thing you can do and I've seen it and I don't care if it's a hotel, an office building, movie business, the network business, the Internet business. If you don't invest in your product, you can't continue to produce returns. That's the nature of corporate America. And so we're going to continue to invest. I think the returns will be there, and I don't think the dynamics of today's current environment have changed that. So that's what we see. But again, if something changes, I think it's a fair question and if we feel a trend there, we'll start to set expectations differently.

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Operator [39]

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And our next question comes from Paul Morgan from Canaccord.

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Paul Burton Morgan, Canaccord Genuity Limited, Research Division - MD and Senior Research Analyst [40]

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Just one on the buyback. We've talked in the past about the role you see on stock buybacks and how you've used it in the past with -- around specific catalysts. Maybe you could just comment on the buyback in the first quarter and given where your valuation is, how you think about that? Is a use of your free cash flow, relative to redevelopment and other uses?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [41]

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Well, the good news is we will not crowd out our investment in our product. That's the most important thing you cannot do. And we've seen it, as an example, at the department store level where stock buybacks have crowded out store investment. We will not let that happen. On the other hand, we have spent a lot of capital on our portfolio. You know kind of what we expect there and other than -- I think the first quarter should continue to give you an expectation of what we'll continue to do. Obviously, the price is lower and you do come in to a blackout period that you're all familiar with. That has almost gone and we think, I mean, you can do the math. We believe in our business. We believe in our product, we can do both and we will do both.

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Paul Burton Morgan, Canaccord Genuity Limited, Research Division - MD and Senior Research Analyst [42]

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Okay. So this is sort of -- you see right now, at least at kind of these levels, there's sort of role -- kind of a recurring role play for the buyback alongside your other kind of CapEx initiatives? Is that fair?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [43]

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I think that's a fair assessment.

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Paul Burton Morgan, Canaccord Genuity Limited, Research Division - MD and Senior Research Analyst [44]

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Okay. And then just kind of secondly, a lot of people have kind of have concerns about kind of the outlet industry just because of what seems to be a disproportionate share of the apparel and accessories retailers, which has been a tough segment, more broadly. And I'm just wondering, because you lump them together broadly, although I appreciate the traffic comment, if you could talk about maybe -- whether there's much of a disparity in terms of the momentum there or from like a same-store NOI perspective and then maybe, I mean if Rick is able to provide some of the retailers who are sort of kind of taking space that might be coming back from [other chains] or liquidating or something like that?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [45]

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Yes. We -- I'm glad you brought that up because we've heard this like chatter. Absolutely, unequivocally, the business is strong, it's so far from the chatter. I don't really know how to react other than we can start breaking out statistics again, and my goodness, we'd like to be viewed in totality about our entity as opposed to a bunch of statistics, but the reality is absolutely not. That chatter is inaccurate. The only pressure that we've seen in the outlet business, which we've been consistent in describing is we have a number of tourist-oriented centers. And given the strong dollar, we continue to see muted spending because of the tourism and all of the psychology of coming to America is different than it was maybe a few months ago. We're dealing with that. But if you isolate those, it's absolutely au contraire. I wanted to show people that in all my years of going to Paris, I could speak French. And no, that chatter is just wildly false. So I don't know what else to tell you.

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Paul Burton Morgan, Canaccord Genuity Limited, Research Division - MD and Senior Research Analyst [46]

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I was just wondering if Rick could maybe talk about some things who are growing, in that segment in particular.

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [47]

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You garbled there. You garbled...

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Paul Burton Morgan, Canaccord Genuity Limited, Research Division - MD and Senior Research Analyst [48]

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I was just seeing if Rick could maybe talk about any of the retailers that are sort of taking space, like you've done in the past, particularly folks on the outlet side?

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Richard S. Sokolov, Simon Property Group, Inc. - President, COO and Director [49]

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The answers is I could. In fact, I have a list here of them. I could take up the rest of the call with the names, but because David always makes fun of me when I rattle off names, I'll be very limited. But things to bear in mind with our outlet business, we have some of the greatest outlet centers in the world. So literally, we're getting international designer tenants that are opening their first, second or third outlet store in the world at our properties. But we are having the more people that are involved, ASICS, Citizens, Scotch and Soda, Citizens, Marmot, I could go on and on. I literally have a paper in front of me of probably 150 names. And one of the reasons it's so strong is because the occupancy has been so high. This is the first time we've had even a little inventory that we can accommodate all the people that we want to grab. So it is just not an issue whatsoever with demand.

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [50]

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Yes, and I think the important point is that the value-oriented -- you can get discounted goods a lot of places and it's certainly proliferated. But to the consumer, having them all together in a nice, pretty, coherent layout is why consumers will travel to our outlet centers and shop.

And I will tell you this, the comp NOI growth in our outlet business exceeded the mall business, okay? So I just -- I've heard this chatter, I don't know where it's coming from, but here it's officially refuted.

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Operator [51]

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And our next question comes from Caitlin Burrows from Goldman Sachs.

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Caitlin Burrows, Goldman Sachs Group Inc., Research Division - Research Analyst [52]

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You and your retail peers don't report same-store revenue and expense growth, just NOI. So I was wondering if you could comment on those 2 pieces, revenue versus expenses, how they've been trending. It seems like some of your NOI growth may be more attributable to the expense savings side versus revenue growth.

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [53]

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That's incorrect. You see our P&L, you can analyze it. I thought that's your job.

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Caitlin Burrows, Goldman Sachs Group Inc., Research Division - Research Analyst [54]

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Okay. Then, on the same-store NOI, you guys did have a strong first quarter, which is above your full year guidance of 3%. So I was just wondering if we should expect a slowdown later in the year, or if you're more just sticking to the previously laid out guidance of 3%.

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [55]

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I think I already answered that question a couple times. And we've reaffirmed our guidance. That's really all that I need to answer on that front.

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Caitlin Burrows, Goldman Sachs Group Inc., Research Division - Research Analyst [56]

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Okay. Then just last one, on the development pipeline. Mall redevelopments and the ground-up outlets have been a traditional good growth driver. So I was just wondering what your outlook is for new outlets supply and to what extent, also separate from your Seritage JV, you might be able to be proactive with some of your Sears stores?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [57]

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Well, we -- on the outlet side, we've got a very interesting pipe, I think, in Asia, and we've got a very interesting pipe with McArthurGlen. We're hopeful to start a new project in Spain here in the next couple of months. And I think the investment community should realize, we have a really strong business outside of the U.S., and it's worth much more than what it's on our books, okay? But put that aside, so there's a nice pipe through McArthurGlen -- and by the way, we just opened a new center in Provence, which is, which we own 90% of, and that's no small feat to accomplish in France, and we have our partner, McArthurGlen, to thank for that. We have a very nice pipe in Asia, very nice pipe in France. We will have one project that will probably start construction in the next couple of months in the U.S., which we'll announce shortly. And then, we've got a couple more that are in the works that will probably won't start until '17 -- or I'm sorry, '18 for '19 delivery. So we continue to look for opportunities on this. There's nothing more than what we do as planned for potential department store redevelopments, and we're working both on sourcing the demand and, then, ultimately, trying to get the boxes back, and that's an ongoing process. That will continue to be. But we think that will be beneficial for the company in the long run.

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Operator [58]

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And our next question comes from Ki Bin Kim from SunTrust.

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Ki Bin Kim, SunTrust Robinson Humphrey, Inc., Research Division - MD [59]

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So I wanted to go back to that CapEx question. And you have a lot of great information in your supplemental, but one thing that isn't very clear is how much CapEx, quarter-to-quarter, you're having to pay out to get that 3% or 3.8% same-store NOI, or those leasing spreads. So I was curious, how has that trended over time? And you've talked about retailers investing in their stores. But are you incrementally having to find that maybe you have to help them out with that part of the process?

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Richard S. Sokolov, Simon Property Group, Inc. - President, COO and Director [60]

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Yes, this is Rick. Frankly, the thing I think you're probably referring to is our tenant allowances, and if you look, they've been relatively consistent over a very long period of time. We give virtually no allowance on our renewals. We tell you, the allowances that we do on a per-square-foot basis for our new leases, and happily this quarter, it happened to be a little higher because we were able to do a lot of great leasing for some very high-impact tenants, and so there's a little more allowance. But as David has said consistently, all that is built into our NOI growth and it is consistent with where we've been over a long period of time.

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Ki Bin Kim, SunTrust Robinson Humphrey, Inc., Research Division - MD [61]

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Okay. So nothing on the margin that's changing at all?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [62]

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No. I mean, it moves quarter-to-quarter, but no. We don't -- you've got to put companies in -- you've got to think a little bit broader, Kim. If we were loosey-goosey with our capital, we wouldn't have the best balance sheet in the business with the most firepower. So we don't buy up rent, we don't throw capital after tenants that may fail. That doesn't mean we don't make mistakes. But we -- there's just no change in our approach to that, and it will never change. And that's why -- see, these things are related, right? That's why you have -- that's why we the balance sheet here is because, you're right, it is all about capital allocation. It is all about not putting good money in a rabbit hole. And we are not perfect there, we've made mistakes. We do take chances every once in a while. But there's just no trend there, it's just not what we do as a company, and I would've hoped that seeing us operate for this long period of time, you would understand that.

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Ki Bin Kim, SunTrust Robinson Humphrey, Inc., Research Division - MD [63]

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Okay. And just the second question, going back to your comments about technology. From a consumer standpoint, when going to a -- you might not like this, but when I go into the Westfield mall or a Simon mall, I think for a consumer's perspective it doesn't -- they can't really tell the difference, right? And why I say that is because some of the technology improvements you're trying to make, at the end of the day, do you think the mall companies have to be more collaborative to really make a big change in what they're offering at the malls?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [64]

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Well, first of all, I view that as a compliment. I think Westfield is a very good operator, so number that's #1. Number 2 is, look, we do -- with this potential, we could collaborate. We do that currently. For instance, Deliv is a consortium of 3 or 4 mall owners. We talk to -- the mall owners talk on the technology front all the time. We talk to Westfield, we talk to General Growth, we talk to Macerich, Taubman, et cetera. When there's a new product that we think that we can -- because at the end of the day, we really don't compete all that much locally. I mean, if you really -- the fascinating thing about our business, is yes, we have skirmishes here and there, but we don't have a lot of overlap with our top -- the top operators in markets of all that significance. So there is the potential to collaborate. We're more than happy to. And I do think there's potential to do that. And we have done it, and there'll certainly be more potential as we move forward.

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Operator [65]

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And our next question comes from Vincent Chao from Deutsche Bank.

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Vincent Chao, Deutsche Bank AG, Research Division - VP [66]

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I just wanted to ask a question. It seems like the bankruptcies that have been filed so far have come fairly late in the quarter. So I was just curious if you had, relative to the 120 or 130 basis points quarter-to-quarter decline in the ending occupancy, do you have a sense of what the average occupancy was for the first quarter?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [67]

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No.

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Vincent Chao, Deutsche Bank AG, Research Division - VP [68]

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No, okay. Is it fair to say that there would be some lingering impact from what's already happened, though, in the second quarter?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [69]

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Well, I mean, yes. I mean, we can -- again, we'll look at it, it's just not -- we're not obsessed with it, okay? We'll look at it. And maybe Tom will give you the number, maybe he won't, I don't know. Okay?

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Vincent Chao, Deutsche Bank AG, Research Division - VP [70]

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Okay. And then earlier, you had mentioned that department stores are a big opportunity that you're looking at. And just curious, in the near term, you've got 3 anchor expiries. I think they're all, just looking at the average size, looks like department stores. Curious if there's an opportunity with those 3 or how those discussions are going?

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Richard S. Sokolov, Simon Property Group, Inc. - President, COO and Director [71]

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Basically, those are all subject to options, and we expect them to be exercised.

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Vincent Chao, Deutsche Bank AG, Research Division - VP [72]

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Got it. Okay. And then the last question, just in terms of the comments you've made today and in the past about retailers investing in their stores, more maybe than the omnichannel -- or the e-commerce side of their businesses. Can you just maybe share a little bit? I know we've asked this question in the past, too, but just in terms of the A?ropostale in-store investments, some of what you're doing on that front?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [73]

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Yes, they did a clean-up to restart the brand, during when it went from the liquidator to the new owners. It wasn't really material, but it was a good beginning to reintroduce the brand to the consumer. And there's -- essentially, most of the stores were touched, some more than others.

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Vincent Chao, Deutsche Bank AG, Research Division - VP [74]

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And I guess, is there -- are further plans for other in-store investments to sort of improve the environment?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [75]

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Yes, look, I think that's probably not this year, but we evaluate it all the time. We're not afraid to invest in it. But to go through bankruptcy is somewhat traumatic, okay? And again, we weren't in charge of liquidating it in the period. So again, I don't want to get into all the technicalities of it. But we just took it over January, I don't know, 1 or 2 or 6, whatever the date was. So this year is just to stabilize it. We did clean up to reintroduce it. We are sourcing new product. We are going through all that, but it's the first year.

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Operator [76]

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And our next question comes from Haendel St. Juste from Mizuho.

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Haendel Emmanuel St. Juste, Mizuho Securities USA Inc., Research Division - MD of Americas Research and Senior Equity Research Analyst [77]

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So first question, can you share what the average price of the stock you repurchased during first quarter was?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [78]

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It will be in our Q. But I think it was around $1.74.

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Haendel Emmanuel St. Juste, Mizuho Securities USA Inc., Research Division - MD of Americas Research and Senior Equity Research Analyst [79]

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Got it, okay. We've seen you do a few nonretail developments with some of your top urban properties, the hotel at Phipps Plaza, hotel and luxury tower at Galleria. So I guess, my question is what's your appetite for more of these office, apartment, hotel-type of projects? What role do you envision them playing in your platform going forward? And can give us a broad sense of what type of returns you look for?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [80]

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Well, I mean, we're going to do returns that create value for our shareholders, that's number one. Number two, I don't think we'll do much office, frankly, other than we have built office on top of a few of our new developments like at Domain and Clearfork, just to name a few. We think that's a nice mix, but I don't think -- I'd sell the land or do something probably before I built an office tower. And I think we have a very nice pipeline for hotels and multifamily throughout the portfolio. We're talking to a lot of people. We've got some great plans, and I think that will be a growth vehicle for the company going forward.

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Haendel Emmanuel St. Juste, Mizuho Securities USA Inc., Research Division - MD of Americas Research and Senior Equity Research Analyst [81]

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It sounds like you're bringing some partners in for that?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [82]

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Yes. I mean, yes and no we might. We'll certainly bring in operators but we could bring in other developers, it just depends on the market. And again, there's no one set answer, but the reality is we could do both and we have done both.

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Haendel Emmanuel St. Juste, Mizuho Securities USA Inc., Research Division - MD of Americas Research and Senior Equity Research Analyst [83]

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Okay. One or two more on re-dev, please. So first, can you talk about the lease-up in early field for some of your recent re-devs and expansions, like at Roosevelt Field, Del Amo, King of Prussia? I know it's a bit early on some of these cases and you have a strong track record. But I'm wondering how pleased are you with the early read and trends from these projects. And have your return expectations changed at all versus your underwriting?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [84]

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Not really. I mean, it is always -- it always takes time to lease up new expanded space. Most good developments do not have 100% leased to start. You always kind of want to calibrate or you want to wait for the retailer. I'd say were pretty much on plan on those.

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Haendel Emmanuel St. Juste, Mizuho Securities USA Inc., Research Division - MD of Americas Research and Senior Equity Research Analyst [85]

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Okay. And then your upcoming projects, Norfolk, some of the others. Any change in re-dev expectations there? Return expectations, are we still thinking, similarly, 7, 8%?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [86]

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Well, with Norfolk, we'll do better than that. But no, it's all in our 8-K, and you can see nothing really changed in terms of our returns.

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Operator [87]

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And the next question comes from Michael Mueller from JPMorgan.

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Michael William Mueller, JP Morgan Chase & Co, Research Division - Senior Analyst [88]

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I was wondering, could you talk a little bit about the 2017 leasing plan and how far through it you are? And also, on the development, redevelopment spend front, are you still expecting about $1 billion a year in '17 and '18?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [89]

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Yes, on the $1 billion a year. And Rick, you want to...

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Richard S. Sokolov, Simon Property Group, Inc. - President, COO and Director [90]

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Yes, on the renewals in '17, we're probably about 10 basis -- 100 basis points ahead of where we were last year at this time. And we're already starting on '18, and we're probably about 20% through our '18 renewals, which is ahead of where we were in '17 this time last year. So we're very focused on that and making good progress against it.

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Operator [91]

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And our next question comes from Carol Kemple from Hilliard Lyons.

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Carol Lynn Kemple, Hilliard Lyons, Research Division - VP and Analyst for Real Estate Investment Trusts [92]

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On the income statement, the income from unconsolidated entities, it was down compared to last year. What were the moving parts on that?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [93]

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Primarily, that's where you see the arrow, losses. Good question, though.

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Operator [94]

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And our next question comes from Jeff Donnelly from Wells Fargo.

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Jeffrey John Donnelly, Wells Fargo Securities, LLC, Research Division - Senior Analyst [95]

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Few questions. I guess, just first I was curious, earlier this month, David Contis announced that he has plans to leave. I was just curious how his departure affected succession planning for leadership roles at Simon? Does that cause you to rethink some things?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [96]

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No. I mean, David left for family reasons. He had -- there's no impact on succession planning there. It gives a -- we have a great strength in our bench, in our development team. Kathy Shields, John Phipps. We just hired a real quality veteran that was at Luxottica, running that real estate, Mike Nevins. So we have a very good bench. And so really not much to say beyond that. So no worries on that front.

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Jeffrey John Donnelly, Wells Fargo Securities, LLC, Research Division - Senior Analyst [97]

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And maybe for Rick, I recognize, maybe it's early for some of those, but in situations where you guys have either had anchor closures or even a competing mall in the market that you compete with that has closed, do you guys have any harder anecdotal data on, I guess, what I would call the sales transfer, that you might have picked up, either the other anchors on the same mall or your mall, relative to a closed competing mall? I'm just curious how that shift might have happened. Because usually, retail sales are destroyed. They sort of move elsewhere.

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Richard S. Sokolov, Simon Property Group, Inc. - President, COO and Director [98]

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Anecdotally, what we have heard from our department stores is that they do gain market share both when they close their stores in the market. And frankly, that was the point that David alluded to earlier, when he said in the long run, this retail consolidation is going to benefit us because those sales that are in the market, we're going to get our share of them. Also, we have heard from our department stores that when a store closes in the mall, those shoppers, for the most part, stay in the mall and those sales do get redistributed among the other department stores that are in the property.

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [99]

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The most interesting thing on that front is that when they -- if they do close a store or they leave a market, those Internet sales that are in that market go bye-bye. So that's really, just to broaden your question in terms of the answer, I mean, that's what's interesting, when they leave a market, those Internet sales in that market tend to go bye-bye.

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Jeffrey John Donnelly, Wells Fargo Securities, LLC, Research Division - Senior Analyst [100]

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And what's your take on the concept of grocers returning to the mall? One of your competitors just paid a little bit of lip service to that, I'm just curious if you guys think about that dynamic since it's been, frankly, a very long time since the mall industry has had grocers. I think I last saw them in like the Blues Brothers movie or something.

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Richard S. Sokolov, Simon Property Group, Inc. - President, COO and Director [101]

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Well, you hit -- like anything else, there are certainly opportunities, and when there are opportunities, we take advantage of them. We added Whitman to the Montgomery Mall. We've added Fresh Market at The Falls. We're literally in the process of adding a supermarket right now at College Mall, where we demolished the Sears. So where it fits the market, there's certainly a great use. You've got to be able to accommodate their physical constraints, and it also has to make sense economically. But we're actively talking to them and, hopefully, we'll have others that are going to find their way into our properties, as we get space available.

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [102]

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Yes, I think it's a good move and we'll certainly pursue it. So we think it's interesting. And we have done it in the past, and we'll continue to do it.

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Jeffrey John Donnelly, Wells Fargo Securities, LLC, Research Division - Senior Analyst [103]

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Just a last question, maybe a little involved as it relates to occupancy costs. The last several years, Apple has been -- and other retailers, have been really a pronounced influence on mall sales. Some people have estimated that adding an Apple to the mall or a Tesla, for example, can boost overall sales, on average, about $100 a square foot. But that 10%, 15%, 20% increase in mall sales sort of implies that the typical in-line retailers' occupancy costs might actually be 15% to 20% higher than the mall average, that we can kind of see. And I guess my concern is, just -- is it the occupancy cost for a typical retailer might be at a big premium, but at a time when their margins are under a lot of pressure, I guess, the question here is, do you really think occupancy costs in the next few years can continue to hold steady? Or do you think we're going to see some need for them to roll-down just because maybe they've risen to a point where it's just very difficult for them to afford it, given where their profits are?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [104]

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Well, I think it's a retailer-by-retailer case. That's certainly the case for some retailers, without question. So it's a case-by-case. The one thing I would -- with respect to your question, remember, our sales, we have all the outlets in it, so the dramatic impact is, from a highly productive tenant, is not dramatic, okay? That's not to say, though, there aren't -- certainly, there are some retailers that because their productivity is so low, that they have too high of -- they can't afford the rent. That's what makes our business -- that's what's moved our numbers. When those guys go out, we find somebody else to replace them. If we could not replace retailers, then it would be an issue. But we can and we have, and that's what we do. In Europe, as another example, I mean, the occupancy costs there are much greater for in-line tenants, yet they all find the ability to become more profitable. So again, I think, certainly, that's the case for some retailers. When that happens, we tend to replace them. And again, when you think about the impact on some of those higher productivity tenants, just put us in perspective because we meld in the outlet business, so that doesn't make it as -- not that it doesn't have an impact, but it's not dramatic.

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Operator [105]

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And the next question comes from Nick Yulico from UBS.

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Nicholas Yulico, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst- REIT's [106]

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I just want to go back to the redevelopment issue, in particular when you're redeveloping an anchor box. Can you give us some of the math behind your 7% target return? For example, is there a good rule of thumb on the cost to reposition the space on a per square foot basis?

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Richard S. Sokolov, Simon Property Group, Inc. - President, COO and Director [107]

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There's really no rule of thumb. Every one of these development opportunities is evaluated on its own, and the returns are going to be a function of how you redeploy the space. If it's all small shop, the returns can be considerably higher. If you're substituting a single user into the existing box, the returns could be a little lower, but the capital expenditure will be lower. It's a case-by-case situation, and frankly, as you can see, when you look at our reporting, we've been very active in bringing anchors to our property, and that's been going on for years. And it's going to, hopefully, only accelerate as we get control of more of the space.

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Nicholas Yulico, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst- REIT's [108]

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I guess, if you are replacing an anchor with like a Dick's, for example, I mean, is there a, on a per square foot build, is it $200 a foot, is it $300 a foot? I mean, any perspective you could give us on that?

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Richard S. Sokolov, Simon Property Group, Inc. - President, COO and Director [109]

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No, we don't go into the specifics. I mean, that's something -- we disclose our capital in our schedules, but we're not going to be going into specifics of an individual redevelopment project.

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Nicholas Yulico, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst- REIT's [110]

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Okay. I guess, I mean, the reason I asked is because there's obviously a lot of questions about where rent is going, where is occupancy going. I think there one of the other concerns from investors is the amount of capital going into malls and how much of it is really a return on investment or rather just maintenance capital?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [111]

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Look, I encourage those investors to look at our financial statements, okay? I mean, that's what -- instead of the rhetoric, instead of the narrative, just look at our financial statements, okay? Look at our return on equity. I don't know what else to tell you there. I know you're trying to get ahead of a trend, but we disclosed a tremendous amount of information, and I would just encourage you to look at our financial statements.

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Operator [112]

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And our next question comes from Rich Hill from Morgan Stanley.

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Richard Hill, Morgan Stanley, Research Division - Head of U.S. REIT Equity and Commercial Real Estate Debt Research and Head of U.S. CMBS [113]

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I just had a quick question about A?ropostale and sort of going back to the operating losses. Appreciate why 1Q is seasonally a low-income quarter. But just thinking about A?ropostale, specifically, the last time they publicly reported, it looks like they posted opening losses in every quarter, with first quarter and the second quarter, obviously, being the worst. So just in terms of modeling purposes, I was wondering if you could maybe give any sort of framed reference for how much the operating losses compare to 2015, and if we should think about that $0.03 as consistent for 2Q and then coming back down? How should we think about from a modeling perspective?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [114]

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We don't give quarterly guidance, number one. We think that's a waste of everybody's intellectual curiosity. There's just no way to compare it to '15 and '16 because the fleet was 1,000 stores, and now it's 500 stores. We've been a dramatic job on sourcing. We've done a dramatic job on overhead, and again, we're just building the inventory back up because of the liquidations. So it's really an apple and an orange. And the reality is, just to put it, in perspective, $0.03 on $2.74 is -- what percent is that? Somebody do it. 1%. So it's not like -- it is what it is. And our cash investment between outgo and [it go], was in the $33 million. So again, let's just put all of this stuff in perspective. And again, it'll probably continue to have -- generally, it will probably continue to have operating losses through -- until the fourth quarter, but I'm not going to give you a per-share stuff because we just don't do that -- per quarter stuff, I should say.

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Richard Hill, Morgan Stanley, Research Division - Head of U.S. REIT Equity and Commercial Real Estate Debt Research and Head of U.S. CMBS [115]

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Got it. And I wasn't looking for you to give guidance there. I appreciate you don't give quarterly guidance. I was just looking for some frame of reference for that operating losses, 50%.

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [116]

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Rich, I know you're smart, but you can't go back to '15 and '16 because that company is completely different than it is today.

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Richard Hill, Morgan Stanley, Research Division - Head of U.S. REIT Equity and Commercial Real Estate Debt Research and Head of U.S. CMBS [117]

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Exactly. And that was sort of -- I guess, the point of my question is it 50% of losses that it was in 2015, or not. But okay.

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [118]

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And fact of the matter is we're not -- I don't even look at '15 or '16, I'm looking at what they're doing going forward.

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Operator [119]

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And our next question comes from Linda Tsai from Barclays.

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Linda Tsai, Barclay PLC, Research Division - VP, Research Analyst, Retail REITs [120]

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Maybe to alleviate some of the fears here in terms of the store closures that have occurred since the 4Q call, can you just give us a sense of percentage of ABR those stores would represent collectively in your portfolio?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [121]

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Let me -- I don't understand it. Can you restate the question, please?

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Linda Tsai, Barclay PLC, Research Division - VP, Research Analyst, Retail REITs [122]

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Sure. In terms of the store closures that have occurred since the 4Q call, the incremental ones, what percent of ABR does that represent in your portfolio?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [123]

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That's not how we would look at it. So what percent of the average base rent would we -- I don't -- the answer is I don't know.

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Linda Tsai, Barclay PLC, Research Division - VP, Research Analyst, Retail REITs [124]

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Like annualized rent?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [125]

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Oh, we put in -- the way we look at it is we've got our total revenues for our properties, not our share, but our total is over $6 billion, right? So it's very -- it's immaterial when you look at it on that perspective.

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Linda Tsai, Barclay PLC, Research Division - VP, Research Analyst, Retail REITs [126]

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Okay. And then you touched on this topic already, but maybe just to ask it a little differently. When an anchor goes dark, what's you're thought process that it goes on to decide the best and highest use of that space, to the extent that you're getting these anchors back faster and sooner than you expected? Are you thinking about these redevelopments differently, in aggregate, maybe from a merchandising perspective, than when there were fewer happening across the retail landscape?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [127]

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Well, we're always thinking about things differently, I would say. In this case, the reality is we don't have any empty boxes. I guess King of Prussia is going to be empty, and that will be our one and only empty box. And I guess, it's fair to say that we are thinking about that a little bit differently, in that given the dramatic changes that the malls had in that particular area of the wing, with Sears going out and Primark and Dick's taking that over, and the interest in mixed use, we'll probably go more mixed use, more big buck, and since we added all these small shops connecting the 2 malls. Yes, you could say maybe our thinking is different. But I would tell you that, hopefully, it evolves every day, so maybe on the margin.

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Richard S. Sokolov, Simon Property Group, Inc. - President, COO and Director [128]

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But I would also say to you that we are analyzing virtually every box that we have and we keep a running strategic assessment of who is not in each of our properties that would be appropriate to be added to that property, including the other mixed use potential because it's a market-specific analysis. So we are anticipating potential opportunities to recover these boxes, and so we are not going to be caught flat-footed when the opportunity presents itself.

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Operator [129]

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And our next question comes from Floris van Dijkum from Boenning.

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Floris Gerbrand Hendrik van Dijkum, Boenning and Scattergood, Inc., Research Division - Senior Analyst of REIT [130]

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I have a question, and David, this sort of relates to your comments about your private equity friends employing leverage. What are your plans for your Hudson Bay joint venture? And what do you -- how do you see that business evolving?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [131]

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Well, I don't know. Of course, I don't know why you would relate those 2. I mean, those guys are real operators. I think they're going to -- they're evolving to be best-in-breed in the department store area. So look, I think that we've got so much optionality with that joint venture. Right now, it's business-as-usual, but there's optionality to take it to another level as the landscape changes. But right now, it's business-as-usual. We're looking at selective boxes to redevelop within the existing portfolio. They continue to improve upon their fleet, putting money back into the physical real estate and I continue to be impressed with how they operate through stores.

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Floris Gerbrand Hendrik van Dijkum, Boenning and Scattergood, Inc., Research Division - Senior Analyst of REIT [132]

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Okay. And then a question, I guess, on your international properties. I know when you talk to your leasing spreads, you usually cite they're for the U.S. But I'm just curious, with the 99.8% occupancy in your international portfolio, what kind of leasing spreads are you getting there? Are you really able to push rents?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [133]

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Yes, very much so. A lot of it is new so we don't have a lot of rollover yet. But the answer is yes. It's a good question. Again, we kind of look at the cash flow growth, but maybe there's some numbers there that we can give to you next time.

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Operator [134]

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And our next question comes from David Harris from Uniplan.

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David Harris, [135]

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I'm just 20-years plus working on my American, but hopefully, you can understand my question, David.

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [136]

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Only if you loudly and clearly, okay? We understand everything you said.

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David Harris, [137]

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Okay. So yesterday, the Administration put forward plans to reduce the corporate taxes down to 15%. Now this is not a new idea, and who knows whether it would end up at that number. It does look, though, that it's a move to lower corporate taxes. Have you given any thought to a level at which it might make sense to become C corp.?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [138]

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Again, a very good question. I thought you were going to bring up the game yesterday. We're on a good streak until yesterday.

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David Harris, [139]

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Yes, I know, well, yes. I think you'll make it, so that's aside.

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [140]

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All right. So you were sounding a little depressed on the call. But anyway, it's a good question. The reality is it's where the -- that, we would change, but let's see what the number is. I mean, we do have a lot of depreciation in our business, so...

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David Harris, [141]

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But that might go away.

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [142]

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Well, I don't think so. I mean, what I understand is bonus depreciation is part of the things to go back and forth. I mean, there's no reason to model it right now because God knows what's going to happen. But it's interesting. Our taxable income is $7, thereabouts. So at 15%, without accelerating depreciation, I'm not sure why I would suddenly want to pay that to Uncle Sam. But if they change something with the depreciation rules, maybe it's of interest. But I would rather give that 15% -- I'd rather give that money to our shareholders as opposed to the government.

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David Harris, [143]

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I guess, the flexibility that would come from being a C corp. would be the potential, setting aside what rate it is and the [math], flexibility would be bonus -- the goal here.

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [144]

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I agree, other than we do have taxable income of $7, so -- which -- again our FFO per share is $11.50 in the mid-range $7, that's not too shabby. So maybe. They would have to change the depreciation rules to really get us to think about it, I think.

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Operator [145]

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And we have a question from Christy McElroy from Citi.

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Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [146]

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It's Michael Bilerman again. David, I'm curious, you've talked a lot about the narrative in the negative rhetoric that's out there on the popular press. I'm just curious if you've open -- if you have an open invite to these journalists to come to something like King of Prussia, or Del Amo or Aventura, where, I don't know if they can find a parking spot at 2:00 on a Saturday, but bring them to those assets?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [147]

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Well, I don't know. I mean, I'd rather bring my shareholders there. So I mean, I think some have tried to paint the other side of the picture, and it just doesn't seem to be working. So I'd rather -- I think our -- I'd rather bring shareholders. Wherever they'd like to go, we're happy to tour them, explain the business. We'll certainly do it with the sell side and so on. We're certainly -- we communicate all the time with our investors and shareholders. I think that's time better spent, and time is better spent running our business than trying to get the narrative changed. It's just -- I'm only expressing that point of view to try to -- anybody that's concerned about the narrative sees -- that's on this call at least sees the other side of the story, that's all I'm interested in expressing on this call. And most importantly, that's evidenced by our numbers. But I'd rather spend more time with our shareholders and our teams. There's just -- I just don't see us being successful in changing it right now.

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Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [148]

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One of the things you talked about in your shareholders letter was that we have too much retail per capita in the U.S., some has become obsolete, and that we have little exposure to this industry to fuel the pain, and this feeds the overall narrative. I guess, what is your expectation of retail that needs to come out? I mean, is that shifting at all?

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David E. Simon, Simon Property Group, Inc. - Chairman and CEO [149]

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Well, you know it's interesting. Look, I can't sit here and predict what per capita we should have. That's way above my ability to forecast or even have an opinion on. I will tell you this, certain malls are actually -- that maybe shouldn't have been built or maybe in the right trade area, are actually, they last a lot longer than people think. And so I don't know, I have no idea. All I worry about is what our portfolio can produce in terms of cash flow, and I don't really have an opinion on kind of what the right U.S. numbers should be. I just don't have an opinion.

All right, thanks. Sorry this ran a little longer, and I appreciate all your questions. We do like giving everybody a chance that's interested to ask questions. And given that there's no more, we can go on to the rest of our day. Take care.

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Operator [150]

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Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone, have a great day.