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Edited Transcript of SPG earnings conference call or presentation 30-Apr-19 12:30pm GMT

Q1 2019 Simon Property Group Inc Earnings Call

INDIANAPOLIS May 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Simon Property Group Inc earnings conference call or presentation Tuesday, April 30, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David E. Simon

Simon Property Group, Inc. - Chairman, CEO & President

* Richard S. Sokolov

Simon Property Group, Inc. - Vice Chairman

* 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 & Senior REIT Analyst

* Caitlin Burrows

Goldman Sachs Group Inc., Research Division - Research Analyst

* Craig Richard Schmidt

BofA Merrill Lynch, Research Division - Director

* Hong Liang Zhang

JP Morgan Chase & Co, Research Division - Analyst

* James William Sullivan

BTIG, LLC, Research Division - MD

* Jeffrey John Donnelly

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Ki Bin Kim

SunTrust Robinson Humphrey, Inc., Research Division - MD

* Linda Tsai

Barclays Bank PLC, Research Division - VP & Research Analyst of Retail REITs

* 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 Philip Yulico

Scotiabank Global Banking and Markets, Research Division - Analyst

* Omotayo Tejamude Okusanya

Jefferies LLC, Research Division - MD and Senior Equity Research Analyst

* Richard Hill

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

* Robert Jeremy Metz

BMO Capital Markets Equity Research - Director & Analyst

* Stephen Thomas Sakwa

Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Equity Research Analyst

* Wesley Keith Golladay

RBC Capital Markets, LLC, Research Division - Associate

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the Simon Property Group First Quarter 2019 Earnings Conference Call. (Operator Instructions)

As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Mr. Tom Ward, Senior Vice President, 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, Bridgette. Good morning, everyone, and thank you for joining us today.

Presenting on today's call is David Simon, Chairman, Chief Executive Officer and President. Also on the call are Rick Sokolov, Vice Chairman; Brian McDade, Chief Financial Officer; and Adam Reuille, 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, CEO & President [3]

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Good morning.

We had a very productive quarter and are pleased with our financial results. The results in the quarter were highlighted by funds from operation of $3.04 per share, an increase of 5.9% compared to the prior year. Our reported FFO exceeded -- per share exceeded the First Call consensus at the end of the first quarter by $0.10. Adjusting the prior year for the $11.3 million impact of expensing internal leasing costs, our FFO per share growth was 7%.

We continue to grow our cash flow and report solid key operating metrics. Total portfolio net operating income increased 1.7% compared to prior year, and our comp NOI increased 1.6%. NOI growth was impacted by approximately 100 basis points due to the impact of retailer liquidations and bankruptcies resulting higher bad debt expense, unfavorable foreign exchange rates and slightly NOI -- slightly lower NOI from properties undergoing significant redevelopment.

Redevelopment activity is moving quickly and in some cases, it's moving quicker than we originally anticipated. For example, the transformation of Northgate in Seattle, which was originally budgeted to occur next year, will start this summer with the demolition of the mall. The NOI will be significantly reduced while we begin this massive redevelopment. These types of decisions are in the best long-term interest of the asset and our future growth, especially when you think about a property like Northgate where we are replacing a majority of the retail with the NHL Seattle corporate office, practice facility, ice-skating facilities for the public as well as significant residential hotel and office uses. Leasing activity remains solid. Average base minimum rent was $54.34.

The malls and outlets recorded leasing spreads of $14.17 per square foot, an increase of 27.3%. Reported retail sales per square foot for our malls and outlets was $6.60 per foot compared to $6.41 in the prior year period, an increase of 3.1%. Keep in mind, this growth is on top of the very strong growth throughout 2018 and reflects a late Easter and Passover as well as some recent lackluster tourism spending at some of our tourist-oriented centers due to the strengthening dollar. Our malls and outlets occupancy ended the quarter at 95.1%, an increase of 50 basis points compared to prior year.

On the outlet business, which we continue to drive corporately, we broke ground and it's interesting to note, we broke ground on Siam Premium Outlets in Bangkok, which is our first outlet in Thailand, the center is scheduled to open in the first quarter of 2020. We are also delighted to have received approval to begin construction on our luxury designer outlet in Western Paris located in the Normandy, the center's proximity to Paris, coupled with its affluent fashion-conscious local trade area, offers significant opportunity for tourists and locals. Construction -- actually, in May of this year -- Querétaro, Mexico in May. We'll open in Málaga's -- in Spain, we'll open in the fall. We will also open a new outlet in Cannock, England in the fall of 2020. So let me just restate this. You're talking Bangkok; you're talking Paris; you're talking Mexico; Málaga, Spain; and Cannock, England all because of our corporate resources dedicated to the outlet business. And all of these will be thoughtful investments, high return on investment and add to our overall franchise value.

Redevelopment activities are underway at more than 30 properties domestically and internationally across all of our platforms where we are creating modern innovative live, work, play, stay and shop communities. This includes 10 former department store space redevelopment projects that are ongoing, and we have more than 25 projects in various stages of predevelopment. We continue to densify our centers with the addition of mixed-use components, including hotels, multifamily, office and uses. As examples during this quarter, we started construction on a 430-unit multifamily residence at Round Rock Premium Outlets and construction began on AC Hotels by Marriott at Dadeland, 177 keys; Sawgrass Mills, 174 keys as well. Our extensive identified pipeline of more than $5 billion in new development and redevelopment opportunities across all of our platforms will fuel our future NOI and FFO growth and reinforce our well-located properties.

As many of you know, we're excited to have launched the beta version of Shop Premium Outlets and are encouraged by the feedback we have received thus far. This is a unique, long-term investment for us, which capitalizes on the power of the Premium Outlets brand, our large base of loyal and engaged shoppers and the strong relationships we have with our retail partners. This is an opportunity to extend our reach, enhancing and deepening our relationships directly with our shopper. We look forward to a full public launch. Ongoing costs in the platform will continue with these costs running through our income statement.

Balance sheet. Our liquidity at the end of the first quarter was $7 billion. We expect to generate approximately $1.5 billion in cash flow after dividend distributions, which we will use to fund the investment in our development and redevelopment opportunities. We continue to have the strongest credit profile in the industry, including net debt to NOI of 5.1x, fixed charge cover ratios of 5.1x. And approximately 95% of our indebtedness is fixed rate, long-term issue ratings of A/A2.

And during the quarter, our Board of Directors also authorized a new common stock repurchase program of $2 billion. Today, we announced our dividend of $2.05. This is an increase of 5.1% year-over-year. Including this dividend, we have now officially paid over $100 per share in dividends to our shareholders since becoming a public company, yet another accomplishment that separates us from others. We're also reaffirming our guidance this year in the range of $12.30 to $12.40 per share.

Just in concluding, we produced another quarter of impressive results and operating metrics. We continue to operate our business with a long-term view of focus on cash flow generation, managing each asset as if it's our only asset. Our track record speaks for itself, whether it's 1, 3, 5, 10, 7, 6, we have outperformed the industry in earnings, cash flow and dividend growth. Through the combination of our assets, people, hard work, we expect to continue our industry-leading track record.

And we're now ready for any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Craig Schmidt with Bank of America.

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Craig Richard Schmidt, BofA Merrill Lynch, Research Division - Director [2]

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Just to clarify, what's the Opry Mills settlement in your original guidance of 20 -- $12.30 to $12.40?

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

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Well, Craig, we don't give specific itemized guidance. As you know, we do give you comp NOI guidance. And I think it's important to remind folks that every year, we have a lot of ins and outs of our company because of our size. So this year, as an example, we expect to have lower lease settlement income from -- compared to last year. We budgeted a higher distribution income from our value retail investment, which we now expect to be lower. We have a stronger dollar than we anticipated. We're accelerating our vacant anchor and redevelopment program. As an example, Northgate, which does about $15 million of NOI, we're shutting that mall down essentially this year. So that's different than our budget. And then obviously, we have some unanticipated bad debt. It's now not called bad debt, but I'll call it bad debt for this quarter because of the bankruptcies that occurred in the first quarter. And then we have certain SPO costs. So as much as you would like us to itemize each and every aspect of our business, we will -- we don't do that. We're a big company. We've got roughly $5 billion of FFO. So again, put that in perspective, we are an earnings machine. That's how we think about ourselves. We obviously knew about the settlement when we gave you guidance. It was disclosed in our 10-K on February 22, but -- when we disclosed that. But we don't give itemized specific guidance because of the nature of our company is a little bit different than others. And I hope that addresses your question.

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Craig Richard Schmidt, BofA Merrill Lynch, Research Division - Director [4]

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Okay. Great. And then on the leasing spreads that are up 27.3%, was this impacted by anchor re-leasing? Or what drove that number higher?

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

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Yes. I think it's generally a mix. We are taking out some less-performing retailers, putting in better ones. We're not going to guide necessarily to that spread, but we're certainly proud of it. And our mix continues to change. We have felt confident we still have leases that are under market. And we expect to continue to post a positive leasing spread.

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Craig Richard Schmidt, BofA Merrill Lynch, Research Division - Director [6]

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And then just finally, the month-to-month leases increased. I noticed they did that last year as well. Is there anything that happened seasonally that increases month-to-month leases in the first quarter?

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

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Not really. I mean a lot of the bigger, larger accounts just take some time. And that's really all that's ongoing there.

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Operator [8]

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Our next question comes from the line of Jeremy Metz with BMO Capital Markets.

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Robert Jeremy Metz, BMO Capital Markets Equity Research - Director & Analyst [9]

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David, going back to last quarter, you were expressing some caution around the closing environment and the bankruptcy that you saw lingering out there. You seem to know that you thought they were going to pick up. We've seen a number of closing announcements since that last call. So just wondering, how you're feeling today, looking at what's out there and what still needs to possibly shutter here in 2019?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [10]

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Yes. Well, good question, Jeremy. I think it's safe to say that we did anticipate some bankruptcies. We are looking at a few others that we'll see how they -- how the rest of the year change up from -- we were a little bit -- a lot of cases, when we do run into a bankruptcy, you do see kind of the leeward opportunity (technical difficulty) bigger ones just liquidated that was different than our plan. But that's what makes our company unique is that we'll take that space back, and we'll lease it out. And I don't think it will affect the long-term prospect of our cash flow generation. But it's going to take some work this year to balance out, but I think most of the bad news is behind us, but I can't guarantee that.

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Robert Jeremy Metz, BMO Capital Markets Equity Research - Director & Analyst [11]

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Okay. Appreciate that color. And then just I was wondering in terms of your tenant sales, the 3% increase, is there any sort of additional detail or just color you can provide across some of your bigger categories here to understand kind of what's helping lift that? And on the other side, what's dragging on it right now?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [12]

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Yes. Look, I think -- but just to put it in perspective, there's lots of ways we can slice this (technical difficulty). The -- generally, the (technical difficulty) retailers have been (technical difficulty) We saw a little bit of slowdown in the (technical difficulty) athletic business. (technical difficulty) It's also a very late Easter, and I think we incurred a little bit of (technical difficulty) from moving that over to March and April. Those couple of months were not great though we're seeing rebound in that. So (technical difficulty). In summary, we're off to a slow start (technical difficulty) a little bit more impacted. Obviously, the 3% compared to last year is pretty good given the late Easter (technical difficulty) for the past several months. The stronger dollar (technical difficulty) towards (technical difficulty). And that (technical difficulty)

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Operator [13]

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Our next question comes from the line of Christine McElroy with Citi.

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Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [14]

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It's Michael Bilerman. David, I don't know if it's just our line, but your line, it sounds like you're at a bad McDonald's drive through.

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [15]

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Well, I don't -- maybe your line. I haven't heard that...

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Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [16]

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No. No, no. There you go. Now we can hear you. That's perfect.

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [17]

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Okay.

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Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [18]

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You talked in your opening comments about the impact to total NOI from the increased bad debt, the foreign exchange, what you're doing at Northgate, which sounds very exciting from an NHL perspective. How much of that impacted the same store, 1.6%, in terms of -- I know it wouldn't be the redevelopment, but I'm sure the store closures and the bad debt may have had an impact. And did that shift at all your view towards the 2% growth for the year?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [19]

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Yes. I think I said this. Obviously, if I was in the McDonald's drive up, you didn't hear it. But Northgate has no impact on that. That's in the portfolio NOI number because it was -- it's going through a redevelopment. The fact is, though, we had a budgeted a lot more NOI for that this year. That's now going to go offline. So it does affect our overall $12.30 to $12.40 estimate. And I will put that in mind. Remember, that's $12.30 and $12.40, which I do think is the leading REIT per share earnings, but you would know that better than I would.

And I -- basically, the number between the stronger dollar and the extra bad debt expense is around 100 basis points. I did -- I think I said that in my commentary early, but you may not have heard that. So I -- and getting to your question, the 2%, if we felt we had to back off that, we would tell you today, listen, there are no guarantees. But we have a lot of levers in this company. And we're going to try to achieve that, to our best of our abilities. We felt it wasn't achievable, we would back off, but we are not backing of it. I would say, the biggest unknown is not necessarily future, unanticipated bankruptcies, but our average rent always is at the -- we're at the mercy of retail -- retailers. And that's a number that we do have a little bit of volatility in it because of our high-producing properties. So that's the one element that we watch every quarter, and we'll see how it shakes out. But the reality is if we wanted to back off the 2%, we would tell you today, but we're not at that point.

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Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [20]

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Right. Yes. No, what threw me off was when you talked about the 100 basis points. In the opening remarks, you talked about the impact of retailer liquidations and bankruptcies resulting in the higher bad debt, the FX and then the slightly lower NOI from properties going under redevelopment. And so I took the 100 basis points as being total, and I was trying to get the impact just at the same-store pool on that 1.6%.

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

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Yes. No, it covered a little bit of both. But the reality is the biggest comp NOI situation is because of the foreign exchange rates and the bad debt.

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Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [22]

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Right. And you talked a little bit about percentage rents and that having an impact as things go through the year. With all the accounting changes that got implemented this quarter, from a disclosure perspective, you've now rolled everything into the lease income line, right? So now, that has the minimum rent, the percentage rents, has the tenant reimbursements, it also has the bad debt.

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [23]

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Yes. You say we, we're -- it's not we. Talk to our folks at FASB.

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Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [24]

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No, no. I get that. What all the other companies have done is they've given us a supplemental disclosure the way it was before in a separate page so that we can still look at the trends of reimbursements. We can look at trends on percentage rents. We can look at what bad debt was. And so if it's possible, I think -- I know investors would and certainly, from an analytical community, we would really appreciate getting the same level of information knowing that your face of the income statement furnished to the SEC is going to be the way it is that you've presented it. But having a supplemental disclosure on each of the line items I think will be hopeful as we model the company given the various pieces that do have some seasonality and volatility in them.

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [25]

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Well, I appreciate the comment. I -- the reality is we don't want to necessarily do that until -- when the SEC says, you can't do that, then you're asking us to do it, I'm not sure what the right approach to do that is. We'll take your comments certainly under advisement. For us to say bad debt when there is no longer a bad debt is not something we necessarily want to do. But -- well, let's see how this year shakes out. And we're not -- we're certainly open to it, but we don't know what to call it if it's not allowed to be -- it's contra revenue as opposed to bad debt expense.

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Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [26]

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Correct.

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [27]

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We don't -- it's a little tricky, but we'll -- I do think generally, we disclose all the relevant facts of our company. We have an exhaustive 10-K. We have exhaustive 10-Q. We do an 8-K. I think our industry, the REIT industry does a tremendous amount in disclosure, much better than many other corporate America. So and again, I always -- maybe I fail at this, Michael, but our company is -- it's just a little different. It's a little bigger. There's more moving pieces. We're more international. We're -- we got more platforms. We have much lower overhead. So it's just -- we're a different -- a little different animal. And to get into the nitty gritty detail that you get from all these companies, we could argue whether it's really all that material and relevant. But we'll have that discussion for a later date.

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Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [28]

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Yes. No, it's just more so trying to be consistent with what you've provided before so that we can keep up with the trends that we've modeled the company for the last 20 years on. But happy to follow up offline and share some examples of -- with you as well.

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [29]

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Sure.

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Operator [30]

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Our next question is from Nick Yulico from Scotiabank.

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Nicholas Philip Yulico, Scotiabank Global Banking and Markets, Research Division - Analyst [31]

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Looking at the development, redevelopment pipeline, yes, you raised the expected yield on that 8%. It looks like it was -- the new development center getting higher yields now. Can you just talk about what's -- what drove that higher?

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

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Well, I mean it changes every -- it's just the mix a little bit. We do, as I mentioned to you -- as you know, we have driven -- through our corporate relationships have driven the outlet business internationally. We've got some really returns on that coming online and then some of these redevelopments where we're taking back anchor department stores are driving that. But it's a mixed number. It's subject to change quarter-to-quarter. But again, the general theme about our diluted is to have an accretive return on investment, hasn't changed.

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Nicholas Philip Yulico, Scotiabank Global Banking and Markets, Research Division - Analyst [33]

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Okay. And then just going back to the online platform, it sounded like -- for the Simon Premium Outlet business, I mean how is that -- how is sort of the early customer adoption looking there? And it sounds like you're spending money on that. But should we think about that as being additive to earnings this year in a positive way?

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

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No. I don't think it will generate -- we expect it to generate FFO losses. And I'm not -- as much as I know you want to know the number, I'm not going to necessarily give it to you. It's certainly -- and again, this is one of the things that when we budgeted our initial $12.30 to $12.40 that we reaffirmed, we weren't really sure whether or not we were going to get to beta or not. But we're able to withstand, reaffirm our guidance and withstand those losses even though we got the beta. So -- and we do expect to be full public some time in the next few months. So those losses will go through, I would think, in the scheme of our company, we can handle it. It's a long-term investment. And we continue to be excited about it and ultimately, be an important part of our company and our platforms. But it's early days there, so I can't necessarily make specific predictions other than to say we wouldn't be doing it unless we felt confident in it. But we'll see.

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Operator [35]

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Our next question comes from the line of Steve Sakwa with Evercore ISI.

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Stephen Thomas Sakwa, Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Equity Research Analyst [36]

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David and Rick, I guess I was wondering if you could just maybe talk a little bit about the leasing environment. Obviously, it was nice to see occupancy up 50 basis points here despite all of the closures and bankruptcies. So it's just -- what are -- if you sort of think about the pipeline and the activity level, how would you sort of maybe stack up the pipeline today versus, say, a year ago and kind of the mix of those tenants?

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Richard S. Sokolov, Simon Property Group, Inc. - Vice Chairman [37]

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It's Rick, Steve. Frankly, there are still a great many tenants that are happy to have the opportunity to get in, to take advantage of the inventory that we have now that we haven't had historically. And that leasing interest is frankly accelerating. And if you think about it, we've got new retail concepts. We still have a lot of retailers internationally that have been trying to come into this market that have significant space needs. We are growing the e-tailers because they all have made the decisions. They need to have a bricks-and-mortar presence. And we still have the brand extensions from our existing retailers. So there is a lot of activity from a lot of different sources. And I think that's reflecting itself in our occupancy and in our spreads.

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Stephen Thomas Sakwa, Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Equity Research Analyst [38]

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Okay. And I guess, David, to go back to your comment earlier and just to touch on a little bit about the accelerating sort of opportunities that you have on the redevelopment side, I know you sort of generally budgeted about $1 billion a year, plus or minus. Do you see that number dramatically changing just given the activity level that you've got? Or is it sort of on the margin?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [39]

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Yes. I do think it's going to increase. But some of the bigger ones that we have ready -- conceptually of what we want to do, we're still in the midst of planning an approval process. So we've got -- just to take two examples that are -- jumped out at the top of my head, Brea and Stoneridge, both in California, I mean are big, big developments -- redevelopments, I should say, with former Sears stores that we now control. Those are 300-plus a piece in that range. And that's not -- as you know, we don't put that in our profile until we get the approval on -- both internally and obviously with the municipalities there. So it is -- and we are -- I mean we are blowing and going on that front. So generally, across the company, we're really, really, I'd say, as active as we've ever been.

So the answer is I think it's going to go up. It's a little bit out of our control, in a sense, not that we don't want to do it, but we have some big ones that are going through the planning process. But -- because I don't think it will be $2 billion a year. It could average $1.4 billion, $1.5 billion just to give you kind of an order of magnitude. But it is active and it hasn't -- it's not slowing down any time soon.

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Operator [40]

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

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Alexander David Goldfarb, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research & Senior REIT Analyst [41]

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David. And -- yes, I'd echo Bilerman's comments on the disclosure. If you can get your accountants comfortable with it, to break out those line items that were compressed and aggregated it would be helpful. One of your hallmarks has been growing cash flow annually and not -- just presenting the numbers as is, you grow regardless. This quarter, it seems more like an anomaly as far as what was going on in the quarter between the outsized Opry Mills. In our numbers, it looked like NOI was light. I -- obviously, I can't speak for my peers. But as far as the NOI that's coming offline for the redevelopments, you mentioned that you're not going to guide line by line, but yet we're all looking at you guys making your number. Are there some points here that you can talk about maybe whether there was some onetime items that impacted NOI in the first quarter or maybe sort of quantify what the NOI impacts are from things coming offline that help us better model that?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [42]

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Yes. Look, I think I explained that to you, but I'll -- I'm happy to do it again. I mean we have -- we are -- let me just say this. I think we had a very strong quarter. And our numbers are pretty damn good, but I appreciate your comments. So let me give you a few things just comparing quarter-over-quarter. But also keep in mind, we did lose -- we did have a much -- and again, it's not called bad debt expense anymore. I know everybody knows that I know accounting. So it's not bad debt. It's contra revenue. But we had a much bigger bad debt expense than we did quarter-over-quarter. And that's what affected our comp NOI number. Now -- and I also want to make sure you understand that the Opry settlement is not in our net operating income. Are you clear on that? That's in our other income.

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Alexander David Goldfarb, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research & Senior REIT Analyst [43]

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Yes. Yes, of course.

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [44]

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Okay. So -- but we also had lower lease termination income from quarter-over-quarter. That was a material number, you can basically see that. That was around 7 -- I'll just give you a couple of things. And that's why I think you'd feel little bit better about what we produced this year. We had lower lease settlement income, $0.07. We -- again, we do only -- and I've made this perfectly clear. I made it perfectly clear last quarter. We -- as you know, we're an investor in value retail. We only book -- we do not book our pro-rata share of net operating income or FFO. We only book when we get cash receipts. So i.e., cost method of accounting. Are you familiar with that? I am. You are. That was not one of my favorite classes. The reality is we had $0.06 lower. And you can see that in our 8-K. Obviously, lease capitalization, foreign exchange. We did dispose of our HBS Europe operations. That's another $0.05, $0.06, you put it all together. So that gives you a sense and kind of what's moving around. And again, that's what we -- that's what happens with the size of this company. And again, I try to push people there because that's what happens. But we did have 7% growth when you take into account, just trying to normalize the new accounting for leasing cost, which is pretty good in a market that's dealing with a lot of bankruptcies. And then as my favorite would say and I wrote about him once. I don't want attribute to him, but I'll say not too shabby, okay? Not too shabby.

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Alexander David Goldfarb, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research & Senior REIT Analyst [45]

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And then can you just -- David, but can give us some context for the rest of the year, the NOI that maybe coming offline from the redevelopments?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [46]

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Well, it's all in our $12.30 to $12.40. And I -- again, what I was trying to explain on Northgate, we had budgeted -- the one thing we're not going to do is budget every mall and show you every mall NOI and -- it's just -- it's not what we're about. And again, remember, take 12 -- 35 x 363 shares outstanding, that's our total FFO. We work -- and I'll just give you a simple example, okay? We were budgeting Northgate Mall around $15 million of NOI because we thought the redevelopment of that was really going to start in earnest in 2020. That $15 million is going away, okay? That's just one example, but I'm not going to get in here about every up and down on our company because we've got -- that's not what people do when you run a big company, okay? If you have 10 assets or -- I don't know. I don't know who does that, but that's not what a public company should be talking about. I mean we will have -- we have ups and downs on assets every time. And the -- what you said earlier still holds true.

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Alexander David Goldfarb, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research & Senior REIT Analyst [47]

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You mean that you guys, you just grow year after year?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [48]

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We're going to grow year after year, and we have a $1.5 billion of cash flow after dividends. And let's keep that in mind as well.

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Operator [49]

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Our next question comes from the line of Caitlin Burrows with Goldman Sachs.

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Caitlin Burrows, Goldman Sachs Group Inc., Research Division - Research Analyst [50]

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I was just wondering if we could talk on leasing spreads. So this quarter, they were pretty high. And I guess that's understandable as department stores space gets converted to higher rent uses. But I was wondering if you could comment on in-line space in particular. How are rents trending there? How would you compare in-place rents versus market rents for that I guess subset but significant subset of your space?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [51]

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Well, again, if you look at our occupancy cost, we still feel like we have a -- certainly, opportunity to continue to drive spreads. And I think that hasn't changed. Then when you add the redevelopment opportunities of getting either the space back for the right price and/or leases terminating with these boxes like the penny box of King of Prussia where they were basically -- I don't remember. Rick, what were they paying a foot? $5, $6?

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Richard S. Sokolov, Simon Property Group, Inc. - Vice Chairman [52]

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$5.

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

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$5 a foot, and we haven't even started on that one. I think there's going to continue to be the rent spreads that we have historically achieved. The environments -- obviously, there's a little bit more supply due to the bankruptcies. On the other hand -- and I don't want to overemphasize this. But generally, the retail community really values physical retail on one hand. On the other hand, an additional hand, they are now valuing who the landlord is, who has the capital to continue to invest and involve the product, which was the mall business has been doing for year after year. It has been around 60 years, and it has always evolved during that period of time and will continue to evolve. We're in a good spot because one is, they want physical retail. It's profitable to them. Two is, the landlord today -- and I assure you this -- please talk to whomever you want. You guys have a great system of information at Goldman Sachs.

And if you get into the consumer business even more, you'll have even more information, is that the landlord is really, really important. It's always been. But now the ability to invest, the ability to make the products continue to evolve is really important. And we have those attributes. So we have to execute. But that's -- people are going to -- when they look to open the buys and they look to make a bet on it, we're going to be top of mind.

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

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Got it.

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Richard S. Sokolov, Simon Property Group, Inc. - Vice Chairman [55]

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And the only other thing just to add, David has been emphasizing the size of our enterprise when we have our -- that specific, that millions of square feet of openings. So that's not some -- that's not a number that gets influenced by just 1 or 2 transactions. That's a whole lot of transactions, and that's a very pronounced trend.

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [56]

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And I'm glad you said that, Rick. So what I would also say to you is that we don't feel like -- one of the reasons we've grown the way we've grown is because we've been really decent capital allocators. I think, Caitlin, you'd say that, right?

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Caitlin Burrows, Goldman Sachs Group Inc., Research Division - Research Analyst [57]

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Yes.

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [58]

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You don't have to answer it. It's not fair. I -- you don't have to say it. You can write whatever you want to write, so don't answer that. So -- and the reality is our size, as Rick mentioned, also allows us to say, "Hey, we'll just milk this asset because we don't believe in the long-term location." So we can actually be almost scientific. I mean it's -- our business is an art, not necessarily a science. But we can be scientific about where we want to put our capital because at the end of the day, not any one particular asset, obviously, some are more important than others, is not going to make or break our company. So that again gives us the ability to be -- it kind of feeds on itself in terms of why you're a decent capital allocator because you can be clinical in a sense about where you want to put some dollars. And I hope that makes sense to you

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Caitlin Burrows, Goldman Sachs Group Inc., Research Division - Research Analyst [59]

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It does. And then maybe also when we think about comps and our NOI says 1.6% in the quarter, I know when you guys were originally giving guidance, you had pointed out that in 2019 kind of the extra additions from development wouldn't be as significant this year, but now you have the growing pipeline. So I guess any commentary you could give on when we -- when you think that redevelopment activity will start to create a larger spread on the total portfolio NOI growth versus comp center? Could we see that in 2020? Or do you think it would take longer?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [60]

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No. I think 2020 is good because we have a lot of new develop coming online. And I do think you point out very good points in that we always thought this year was going to be a little muted because we really -- I mean the international outlets do take time. We have a couple opening this year, but most of that's opened in 2020.

And then we have a lot of redevelopment ongoing that's opening in 2020. So then you've got obviously the downtime. When you're restructuring a piece of real estate like Northgate, then you've got a lot of moving parts about that. And literally, we just made the decision. We were studying the last 2 or 3 months. And we felt like look, if we just go ahead and scrape the center, we're going to accelerate the development. That's not great for our earnings this year but in the long run, it's the right thing to do. So we have a number of those that we just -- we're just going to try to make the right real estate decisions as opposed to short-term earnings impact. But yet with all these moving parts, with all the volatility with certain retailers, we're still -- we've got growth, we're still -- got $1.5 billion of cash flow, we still have the best dividend coverage, we're still growing our dividend and we're still -- have growth in our earnings. With all that said -- and our new investments in SPO, I mean we're going to -- we're trying to land the plane at the $12.30 to $12.40 range, which as my friend -- not a friend. He's an advisor, he doesn't know me, but I feel like I'm a friend, not too shabby.

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Operator [61]

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Our next question comes from the line of Rich Hill with Morgan Stanley.

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Richard Hill, Morgan Stanley, Research Division - Head of U.S. REIT Equity & Commercial Real Estate Debt Research and Head of U.S. CMBS [62]

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I saw you bought some -- back some shares this quarter. So I was hoping you could maybe give us some color about how you think about that relative to the various different capital allocation choices, decisions that you've mentioned previously on the call.

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [63]

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Okay. I think we have that flexibility. If there's weakness in the stock, we'll get active. We've been -- we did this in '17 and '18. It's certainly a -- we feel like it's a good investment. And investing in our company through share buybacks is a real opportunity. And that's why we got -- we had run out of our authorization and that's why got reauthorized. So I expect it to be in our arsenal this year. And if there's weakness in the stock, we're going to be active.

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Richard Hill, Morgan Stanley, Research Division - Head of U.S. REIT Equity & Commercial Real Estate Debt Research and Head of U.S. CMBS [64]

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Got it. And then one modeling question. It looks like in 1Q '18, in other income, you had some distribution, some other international investments, which maybe were not included in 1Q '19. Is that something that we should expect to come in, in 2Q or 3Q? Or was that a one-off event in 1Q '18?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [65]

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Yes. Look, this is associated with our investments in value retail. That's one of these things that we have. I said it earlier, but I'll just restate it more succinctly I hope. We caused the cash for that. So we only book cash income when we actually get the dividend or distribution, technically it's a distribution from the business. Last year, we -- it was all associated in the first quarter. We had budgeted our number this year. It looks like that number maybe -- we may have over budgeted. So -- but again, it's a little bit harder for us to budget. So we took our best estimate. Unfortunately, it's coming in lower not because the -- anything is going on with the business, it's just -- that's just -- we're not in control of that situation. So I don't -- we don't anticipate that coming in like you're going to see that in Q3 or 4 or 2. So -- and that's -- it's all associated. That distribution income is all associated with our interest in value retail.

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Operator [66]

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

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Jeffrey John Donnelly, Wells Fargo Securities, LLC, Research Division - Senior Analyst [67]

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David, just since you were talking about capital allocation, I'm curious, where is external investment, whether that's in other malls, platforms or even I guess financing other malls that you might not own? Following the spectrum of allocation, considering that your redevelopment pipeline is around a 7% to 8% return, do you give much consideration for that these days?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [68]

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That's a good question. The reality is nothing's piqued our fancy at this point. Yes. I wouldn't rule it out, but it's -- honestly, we've looked at a few things net-net -- again, quarterly. But just as a asset here or asset there, nothing's really piqued our interest. But that's still -- I mean we're still looking at individual assets here and there. And there could be 1 or 2 that we would add in the portfolio, Jeff. So it's still there. We were fortunate enough to be in a position where we could do that. We do have people that approach us to do stuff. And if it's really good, long-term real estate, fairly priced, I mean I think we would have an interest. But it's not -- we're not -- I'd say, we're not active -- that active. But it's -- I wouldn't not rule it out, but we're not that active.

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Jeffrey John Donnelly, Wells Fargo Securities, LLC, Research Division - Senior Analyst [69]

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Do you feel you're better served by waiting? You certainly have one of the better balance sheets, better liquidity of anyone out there in the public market or some probably private markets. And access to capital is certainly key right now. Do you think your value propositions get better the longer you wait?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [70]

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That's a good question. I don't -- I -- what do you think? Some days I wake up saying, I should wait; other days, not, I don't know. The answer is I don't really -- it's a tough one to say. I think we've been doing the right stuff, but we're happy to take input.

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Jeffrey John Donnelly, Wells Fargo Securities, LLC, Research Division - Senior Analyst [71]

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I'll hold off on that. If I could, maybe for old time's sake, direct one towards Rick. Is it -- some of the other retail REITs out there have been saying that the challenges in volume of tenants coming in the front door, it's the flow leaving out the back. I'm just curious with Sears, the Sears filing behind us, if you will, as an industry? Do you think Simon has seen the peak of unanticipated tenant loss? The one that surprises us all, whether you manage that as a square footage loss or rent loss? Is that all in the rearview mirror? Or do you think there's a sort of a plateau we're going to operate at it for a little while?

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Richard S. Sokolov, Simon Property Group, Inc. - Vice Chairman [72]

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David mentioned it earlier. We would hope that we have seen the vast majority of the fallout from the over-levered retailers that just liquidated. You can never say there isn't going to be somebody else out there that goes. But we're making very good progress in re-leasing the space we are getting back. And we still have very good demand than -- the bottom line is our properties are getting better and better. There's $1.5 billion that were talking about. We're adding great tenants. We're renovating properties. We're adding amenities. We are making this portfolio better and more attractive to retailers. So I think we benefit in the long run from what's going on because our properties are getting stronger and others, may be getting weaker.

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Jeffrey John Donnelly, Wells Fargo Securities, LLC, Research Division - Senior Analyst [73]

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And actually, the last question for you, David. Can you to talk about the costs you see with the shoppremiumoutlets.com website? And is that just merely a referral site to your retailers? Or are you guys engaging in fulfillment there?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [74]

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Well, it's early days. Ultimately, I can't predict exactly all the services that this business will provide. And no, unfortunately, I cannot give you the cost other than the cost of this is now -- again, another thing, when we budgeted our numbers, we weren't really sure whether we're going to get the beta or not. And ultimately, operating, we're now doing that. And it's in -- it's kind of been in our estimates. But I can't -- I'm not going to itemize it at this point. At some point, we anticipate we will but in the meantime, we're just going to accept the burden in our overall corporate numbers.

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Operator [75]

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Our next question is from the line of Michael Mueller with JPMorgan.

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Michael William Mueller, JP Morgan Chase & Co, Research Division - Senior Analyst [76]

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Just curious, how low is the bottom quartile of the portfolio holding up when you think of sales, spreads, NOI growth? Is it close to the average? Or is it a big gap?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [77]

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It's -- I think that's an asset-by-asset again. You've got to look at the asset in a trade area and what's going on with that trade area. I mean there are a couple of malls where we've had the department store closures. It's interesting, we've actually seen the small shops pick up from that. But it could put a -- maybe there were leases in those from the department stores so those no longer are generating income. So I would say, when we look at sales and everything else, there's no absolute trend that you can put a finger on. And they're still holding their own. We have a big portfolio. There's always going to be a couple of assets that put pressure on us. But we've been dealing with that for -- since I've been here. That's 30 -- let's see, what year is it?

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Richard S. Sokolov, Simon Property Group, Inc. - Vice Chairman [78]

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2019.

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [79]

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Okay. So that's only 29 years. Rick's been doing it for 63 years. I'd say, he started this when he was 5. So obviously, a lot more fun. So -- I mean we always have assets that put pressure on us, and we figure out how to deal with it. But a couple of them where you had a couple of department stores close at the same time, you have there a little bit more of a pain in the neck

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Michael William Mueller, JP Morgan Chase & Co, Research Division - Senior Analyst [80]

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Okay. But it doesn't sound like there's a broad-based large gap once you hit a certain sales level towards the bottom?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [81]

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No. It's really -- it really is asset by asset. And what -- is it the only mall in that trade area and all the typical real estate stuff.

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Operator [82]

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Our next question comes from the line of Linda Tsai with Barclays.

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Linda Tsai, Barclays Bank PLC, Research Division - VP & Research Analyst of Retail REITs [83]

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The line item that you called bad debt expense that isn't really bad debt expense, you said it was up a bit quarter-over-quarter. Do you think 1Q is the higher, could 2Q be higher and when would it start to see improvements?

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

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Well, technically, it's now called a contra revenue number. So I'm not -- we don't -- we had an anomaly in Q1. We don't expect that to happen the rest of the year. So I don't know if that answered your question, but we did have a much bigger contra revenue hit to our revenue this year -- or this quarter versus certainly last quarter. And our expectations of that are to decrease.

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Linda Tsai, Barclays Bank PLC, Research Division - VP & Research Analyst of Retail REITs [85]

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Okay. And then when you look at some of the advances that Amazon is making, most recently, the availability of 1-day Prime shipping up from 2 days. Do you think -- do you see this as having a meaningful impact is driving more market share shift? Some analysts have discussed the idea of shipping elasticity, the faster you get something, the more you buy. I'm just wondering if you have thoughts about this.

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

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Well, I mean there's -- it's -- now listen, that's a big question and lots of -- lots -- I don't want to talk about 1 particular company. But that's a big question and probably, I'm happy to talk to you about it online. I do think from a society environmental point of view, we should be thoughtful of that, this drive towards what does it do to our environment, what does it do to our infrastructure to drive this 1-day shipping, whomever does it. And I don't know. We'll have to see what happens. I think our retailers do generally have a real significant advantage with the footprints that they have because the buy online, pick up in store doesn't cause extra transportation and environmental cost. It already exists. And it does -- the consumer does want convenience and speed, and it seems to satisfy that desire. So we'll see how that offsets against the 1-day shipping. But I don't really have any other comments on that.

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Linda Tsai, Barclays Bank PLC, Research Division - VP & Research Analyst of Retail REITs [87]

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And then final one. How do you feel about the retail environment in the U.K.? What are some of the similarities or just some similarities that you see with the U.S. right now?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [88]

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Well, in the U.K., we're only in the outlet business. And right now, it's -- with the pound, it's actually pretty decent. So we don't have any pull price in England. And with the pound a little bit weaker, tourism okay. And we're building a new center there that we think will be good. I mean there is some trepidation from retail commitments on the new stuff, but long term, we don't expect any real inability to lease the outlet up.

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Operator [89]

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And our next question comes from the line of Ki Bin Kim with SunTrust.

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Ki Bin Kim, SunTrust Robinson Humphrey, Inc., Research Division - MD [90]

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So talking about your Shop Premium Outlets platform, it's an interesting idea. There's probably a lot of upside from data analytics to the fees or just being more involved in the ecosystem. So a couple of questions. One, how is the demand pipeline looking from other retailers wanting to sign on? And second, while it's a kind of interesting single interface in the back-end piping, it's actually 9 different retailers that are funneling up their different systems and shipping methods to SPO. And for example, if I'm a customer that wanted to buy one thing from each retailer, I would get 9 different packages and pay potentially 9 different shipping fees. I realize this is just the beta version. But longer term, how do you think about that? And do you have to offer some kind of singular shipping to make it really work?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [91]

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I think -- listen, you can't -- when you build something -- it's like building a shopping mall, when you build something, what that mall is today, maybe something what it is, it's going to be different 5 years from now. So I think we -- that's how we're thinking about that. And I think all of the great Internet companies and startups and all of the new technology companies have all started with 1 product, 1 idea, then morphed into several. I mean we obviously -- you could look at Amazon, Google as prime examples about where they started and where they end up. You could look at WeWorks. They call themselves We Company now because they went in the -- they go in different directions. So I think you have to put that -- we're not even close to those companies. But you have to think about our product just along those lines and that we start somewhere. As we get traction, we add to it. So in direct response to your questions, I will say we're adding more retailers. We do have a universal shopping cart. And yes, you're right if -- we're not in the fulfillment business today but 1 day, we could be. One day, we could be doing it from the mall or the outlet. So we'll have to see how it transpires. But it's early days. And I think the retail receptivity has been rewarding otherwise, we wouldn't have started it. If the retailers hadn't expressed an interest in our product, we would have killed it a couple of years ago.

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Ki Bin Kim, SunTrust Robinson Humphrey, Inc., Research Division - MD [92]

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And you bring up an interesting point about the Internet companies. But they're also kind of bound by a different set of rules versus Simon. I mean -- I think we feel like the focus is a lot more on revenue than expenses, almost like 90-10. And -- but for your company, in a cash-flow-driven company, your -- the markets probably are a little bit more hesitant to allow you to express losses, right, for the sake of kind of longer-term revenue or potential. So how do you think about that dynamic?

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

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Well, I guess what I would say to you is there's nobody that loves cash flow more than me. And I think you know that now, right? So we're getting into this business, it's going to -- we're going to invest in it like we invest in our real estate product. If we thought -- and I -- there is no guarantees. You're right. It could -- maybe we don't find the secret sauce, maybe we don't get the consumer buy and maybe this, maybe that. But there is nobody that values cash flow more than me. And we've got enough of it, free cash flow, that is, to build this platform and see where it goes. And if we're not successful, then we're big people and we'll go on to the next thing. In the meantime, we're not going to risk the company. It's not make or break. It's -- I don t want to say it's on the margin, but this is what we do. We invest in our products. And this is just another product.

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Operator [94]

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Our next question comes from the line of Jim Sullivan with BTIG.

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James William Sullivan, BTIG, LLC, Research Division - MD [95]

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David, not to beat a dead horse, but I just want to be absolutely clear on this. The -- when you have the insurance recovery in all of the Opry Mills this quarter, I think you made it clear, but I just want to confirm that those recoveries are not in operating income, right?

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

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That's correct. It's -- you're absolutely correct. And by the way, it wasn't a recovery -- well, it was a recovery, but we had to actually litigate to get to recovery. So it was a settlement of the lawsuit. But that is not in our net operating income to be absolutely clear.

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James William Sullivan, BTIG, LLC, Research Division - MD [97]

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Okay. Good. Second question. You've talked and written for a couple of years about kind of the industry issue about over-levered private equity owned retailers and how they conduct their business and how it's really not been good for your business. It appears -- and I don't know, maybe Rick can chime on this, but the so-called digitally native retailers that in some quarters have written a lot about appear to be in the early stages of doing a series of IPOs. We'll see if they're successful. But a few of them, who I think are in your centers, are talking with underwriters. And we may be entering a phase where the next phase of capital formation in terms of who's coming in the front door as opposed to who's going out the back door, maybe a group of well-capitalized, maybe profitable, maybe not retailers who are going to raise a significant amount of capital in the public market. We'll see if that develops. But I'm just curious, from your standpoint, do you regard this new retail -- this new development of retailers as a material source of incremental demand or not?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [98]

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Well, I would generally say yes. But I think we're early days in it. And I don't expect suddenly a 60-store or 100-store expansion from the folks. But I do think -- and with all the -- with all of the changes that have occurred in our industry and with all the changes that have occurred in corporate America, I will say this. The entrepreneurialism, the idea, the ability to get something funded, the idea that created in concept has never been greater, that's terrific for us. We want to nurture those. In fact, we're not opposed to helping those folks grow their business. And in some cases, we'll invest in that. There is nothing -- I'm not saying that I -- it wouldn't be great not to -- people -- I don't necessarily love people shopping online, Jim, as you might imagine. But this technology has allowed just a lot more entrepreneurs to get started. And I think that's terrific, and we're embracing that and trying to help them in every way we can. And I think it's good. It's -- is it -- are they at the point now we're going to do 100 stores a year? No. But in some cases, 20, 30, 40 stores. Rick, I don't know if you want to add.

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Richard S. Sokolov, Simon Property Group, Inc. - Vice Chairman [99]

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Yes. The other thing that I would say and it's sort of related but different, there have been several announcements about companies spinning off various businesses. Historically, what we have found is when these new businesses are formed, their first call is to us to figure out how they can grow that business. Because now they have a dedicated management team and dedicated source to capital and a much more focused growth strategy because they're a stand-alone business. And now there's some of that going on right now, but I think it's going to all go well for us in the future as well.

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James William Sullivan, BTIG, LLC, Research Division - MD [100]

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So green shoots, but not maybe material elements at this point.

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Richard S. Sokolov, Simon Property Group, Inc. - Vice Chairman [101]

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There's activity and we're taking advantage of it. And it's more than isolated instances. I mean we're working with scores of these retailers online, and they all agree that having a bricks-and-mortar presence is an essential component of their overall offering. So that is a very good thing that we're taking advantage of because they're going to the better properties which we have.

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Operator [102]

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Our next question comes from the line of Wes Golladay with RBC Capital Markets.

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Wesley Keith Golladay, RBC Capital Markets, LLC, Research Division - Associate [103]

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I just had a quick follow-up on Jim's question and we talked about the digitally native tenants. But are international tenants come into the U.S. a bigger portion of the leasing versus the digitally native? And then who was driving a majority of the shop lease? And is it still the existing tenants?

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Richard S. Sokolov, Simon Property Group, Inc. - Vice Chairman [104]

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Well, international tenants, think about international, H&M is an international tenant. ZARA is an international tenant. UNIQLO is an international tenant. These all -- these tenants all have substantial space needs and are looking to have the United States become a major market as part of their global footprint. So they're a much more significant source of demand right now than the online retailers.

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Wesley Keith Golladay, RBC Capital Markets, LLC, Research Division - Associate [105]

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Okay. And then the existing -- I guess the leasing you're seeing right now, is there still more domestic tenants? Or is it the -- international tenants are actually exceeding those right now in the open to buys?

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Richard S. Sokolov, Simon Property Group, Inc. - Vice Chairman [106]

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It's hard to say in terms of comparing the two. They both have significant demand, and that's being reflected in our occupancy.

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Operator [107]

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Our next question comes from the line of Hong Zhang with JPMorgan.

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Hong Liang Zhang, JP Morgan Chase & Co, Research Division - Analyst [108]

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Two quick questions from me. I guess number one, are you still expecting any -- isn't there interruption insurance from Puerto Rico? And would you be able to provide what the sales per square foot number is on an NOI-weighted basis?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [109]

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Yes. On Puerto Rico, no. And then on the NOI weighted, the number is, sales, $8.42.

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Hong Liang Zhang, JP Morgan Chase & Co, Research Division - Analyst [110]

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Do you know what it was last year, 1Q '18?

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

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Wait. $4.0.

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Operator [112]

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Our next question comes from the line of Tayo Okusanya with Jefferies.

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Omotayo Tejamude Okusanya, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [113]

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Just along Ki Bin's line of questioning, I just wanted to focus on SPO a little bit. First of all, I wanted to -- if you could just remind us what economics of that business is in regards to what kind of deals you strike with the retailers when someone actually does buy a product through the site? And then second of all, I also wanted to understand the competitive advantages of the platform in regards to what stops one of your competitors from just doing a very similar thing?

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

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Well -- okay. No. The answer is we're -- we get a percent of revenue and other -- just like we get in our leases today. So it's very similar. We get very much what marketplace-driven Internet site would get, we get a percent of revenues. Our competitive advantage and I'm sorry, I kind of -- we have a great Premium Outlet portfolio where the consumer knows what we stand for in that business, both internationally and domestically.

We have terrific CEO relationships at the retailers across-the-board. We're known in the -- through our Simon venture group. And we're known in the technology space. We've got personal investor relationships throughout. We have the wherewithal to make the investment. And it's a little more complicated about why we chose initially outlets versus malls, I don't really want to go through that. But I do think we have competitive advantages that few have. But I guess somebody could try and do it, but we'll see.

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Omotayo Tejamude Okusanya, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [115]

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But there's nothing contractually that prevents a retailer from signing on to a similar platform if someone else try to do it?

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

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No. Not at all.

Okay. I think that is the last of the questions. So we appreciate all the comments, questions and input. And we'll talk to you soon. Thank you.

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Operator [117]

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Ladies and gentlemen, this does conclude the program. You may now disconnect. Everyone, have a great day. Speakers, please stand by.