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Edited Transcript of SPG earnings conference call or presentation 4-Feb-20 1:30pm GMT

Q4 2019 Simon Property Group Inc Earnings Call

INDIANAPOLIS Feb 13, 2020 (Thomson StreetEvents) -- Edited Transcript of Simon Property Group Inc earnings conference call or presentation Tuesday, February 4, 2020 at 1:30:00pm 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

* Thomas Ward

Simon Property Group, Inc. - SVP of IR

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Conference Call Participants

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* Alexander David Goldfarb

Piper Sandler & Co., Research Division - MD & Senior Research Analyst

* Christine Mary McElroy Tulloch

Citigroup Inc, Research Division - Director & Senior Analyst

* Craig Richard Schmidt

BofA Merrill Lynch, Research Division - Director

* Haendel Emmanuel St. Juste

Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Equity Research Analyst

* Ki Bin Kim

SunTrust Robinson Humphrey, Inc., Research Division - MD

* Linda Tsai

Jefferies LLC, Research Division - Equity Analyst

* 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

* 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

* Vince Tibone

Green Street Advisors, Inc. - Analyst of Retail

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Simon Property Group, Inc. Fourth Quarter 2019 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to turn the conference to speaker today, Tom Ward, Senior Vice President, Investor Relations. Please go ahead, sir.

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

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Thank you, Joelle. Good morning, 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 related 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, everyone. We had a very busy, productive quarter to end another successful year for our company. Our full year 2019 funds from operation per diluted share was $12.04, which includes a $0.33 charge for the early redemption of our 4 series of senior notes. Adjusting for the debt charge, our full year FFO was $12.37 per share, at the upper end of our initial 2019 guidance. Comparable FFO per share for the year increased 4.4%. It is a testament to our relentless focus on operations, cost structure, active portfolio management, commitment to our strategy that we achieve the upper end of our initial range even with the number of headwinds we faced during the year, including retail bankruptcies, significant downtime due to major redevelopments at many of our properties and the reduced overage from tourism spending, including the negative impact from the continued U.S. strong dollar as well as the continued trade tensions limiting visitors. For the fourth quarter, reported FFO was $1.45 billion -- $1.045 billion or $2.96 per share. Comparable FFO was $3.29 per share, an increase of 2.8% year-over-year. We continue to grow our cash flow and report solid key operating metrics, including our comp NOI, which grew -- with our international properties, grew at 1.7%. Our comp NOI for our domestic properties increased 1.4% for the year. Retailer bankruptcies impacted our comp NOI by roughly 120 basis points. And lower overage rent due to reduced international tourism I mentioned earlier increased -- impacted our comp NOI growth by 30 to 40 basis points. We are pleased to report that retail sales momentum, again, accelerated in the fourth quarter. Reported retail sales per square foot for our malls and premium outlets was $693 per foot compared to $661 in the prior year period, an increase of 4.8%. Keep in mind, this is on top of more than 5% increase for the prior year. We continue to believe reported retail sales are understated and are negatively impacted by Internet returns at retailers processed at our brick-and-mortar locations. For the recent holiday period, some media reports quoted in-store sales growth of less than 1.5%. That's contrary to our number, which was more than 3%, and again, impacted by the Internet returns that occurred at our stores. These sales results further reinforce the benefits retailers experience from opening -- operating in high-traffic, highly productive, well-located real estate. We generated a record of over $1 billion in gift card sales, which was an increase of more than 18% year-over-year. Leasing activity remains solid. Average base rent, minimum rent was $54.59. The malls and premium outlets recorded leasing spreads of $7.83, which was an increase of 14.4%. Our malls and premium outlet occupancy at the fourth quarter was 95.1%, which was an increase of 40 basis points compared to the occupancy at the end of the quarter, third quarter, down 80% -- 80 basis points compared to the prior year, which was impacted roughly by 200 basis points from the bankruptcies that we process through the year. We have successfully re-leased approximately 60% of those bankruptcies already.

On an NOI-weighted basis, our operating metrics were as follows: retail sales on an NOI-weighted basis is 8 -- $884 per foot compared to $693; occupancy would be 96% and average base minimum rent would be $73.

Now just to move to new developments. We opened 1 new development in 2019 in Mexico. Construction continues on 5 new outlet developments in leading markets, including 4 international destinations and 1 in the U.S., Malaga, Spain, which will open this month; Bangkok, Thailand; West Midlands, England; and in 2021, Normandy, France and Tulsa, Oklahoma. Very few companies that I know of could open in Thailand and in Tulsa and throw in France for fun. We completed a number of redevelopments and expansions across our portfolio in 2019, including 4 redevelopments of former department store spaces. We had a very busy year on the expansion of several high-performing international outlets, adding approximately 400,000 square feet in aggregate to centers in Seoul, Korea; Kent, England and Vancouver, Canada. We currently have 15 former department store redevelopment projects under construction. Our share of those costs are roughly $850 million. We have 20 more in our pipeline. And at the end of the fourth quarter, redevelopment expansion, densification projects were ongoing at more than 30 properties across all of our platforms in the U.S. and internationally, with our share of that net cost of approximately $1.3 billion. As a reminder, we fund these accretive projects through our internally generated cash flow. And just to give you a sense of the magnitude of some of the downtime we are dealing with respect to our redevelopment. The projects that we have under construction that will open in 2020 will contribute approximately $70 million of incremental NOI in 2021 as they are stabilized. So again, Thailand, France, Tulsa, 30 projects under development, $1.3 billion. $70 million of NOI that will be generated in 2021. Good comp NOI given a few headwinds. And just to put it in. I know it's a lot of numbers and a lot of going on, but it's important for everybody to understand it.

Now let's talk about Aeropostale and ABG because again, we see a lot of misinformation out there, and I just -- I think it's important just to give you a sense of our smart capital allocation decisions that continue to differentiate our company. We completed our third full year of owning Aeropostale, so I would like to take some perspective on that investment. I'm going to simplify this. I know it's a lot of information. I'm going to simplify this and focus on our cash investment, our cash investment in Aero OpCo was approximately $25 million. We have already received $13 million of distributions, so I have $12 million of cash invested in Aero OpCo. At the time we bought it, it was producing a negative EBITDA of $100 million and had over 500 stores. Today, we expect Aero OpCo to produce EBITDA, pre royalty from 575 stores, of approximately $80 million of EBITDA. We believe Aero is approximately, if you put a market multiple on it, $350 million today, and our ownership is 50%. [12] to 3 -- to 50% of $350 million. That's the math.

Now with respect to ABG, we invested -- we made a recent investment in it. So we have a total of 600 -- or sorry, $67 million in ABG, Authentic Brands Group. At the time of our original investment, which was roughly $33 million, ABG produced EBITDA of approximately $150 million. Today, our value is worth $190 million of our $67 million, and ABG is expected to produce EBITDA well north of $350 million, and the value is growing every day.

Which leads me to Forever 21. As you've read recently, we have recently participated with Brookfield and Authentic Brands Group on behalf of the newco, [Spark Group F21 LLC] in a stocking horse bid for certain assets and liabilities in a going concern transaction under Section 363 of the Bankruptcy Code. Our group's successful turnaround of Aero after climbing out of bankruptcy in 2016 gives us confidence with our ability to do the same with Forever 21. Forever 21 is a storied and well -- widely recognized brand with over $2 billion in global sales. We believe F21, similar to Aero, presents a very interesting repositioning opportunity. If the transaction is consummated, the newco contemplates the continued operations of many of Forever 21 stores and e-commerce business and maintaining many jobs. Our interest in the new venture will be approximately 50%. The aggregate purchase price -- acquisition price is approximately $81 million plus the assumption of certain ongoing operating liabilities. The process is subject to a go-shop period. The auction is expected to be completed in mid-February, with closing shortly thereafter.

Now we're not done, sorry. We have balance sheet. So as you know, we were very active in 2019. We completed 3-tranche senior notes of $3.5 billion with an average weighted coupon of 2.61%, 15.9 years, we retired $2.6 billion of senior debt and our liquidity stands at $7.1 billion. We continue to have the strongest credit profile in the REIT industry. Our net debt-to-NOI is 5.2x, our interest coverage is 5.3x and our long-term issuer rating of A2 continues to be the highest in the REIT sector. We paid a record dividend in 2019 of $8.30, a 5.1% increase over 2018. We paid approximately $3 billion in dividends in 2019. And we have paid more than $31 billion in total dividends as a public company. We'll be well over $33 billion this year. And today, we announced a dividend of $2.10 per share for the quarter, a year-over-year increase of 2.4% for the first quarter.

Now let me turn to our outlook for 2020. Let me just briefly summarize 2019. We posted another record year of results. Revenues, cash flow, FFO per share, dividends, all records. We continue to strengthen our company through innovative, disciplined investment activities that will allow us to continue to deliver long-term cash flow growth, FFO and dividend growth. As a reminder, our 2019 results also included $0.19 per share in income related to insurance settlement at our Opry Mills.

Moving on to 2020. Our guidance range is $12.25 to $12.40 per share. This range represents approximately 1.7% to 3% compared to our FFO of $12.04. Our range is based on the following assumptions: major redevelopments occurring in many properties resulting in significant downtime; the impact from a continued strong U.S. dollar versus the euro and yen compared to 2019 levels; comparable NOI growth from our combined malls, outlets, mills and international platforms of 1% -- approximately 1%; no planned or acquisition -- no planned acquisition or disposition activity; and a diluted share count of 354 million shares.

To conclude, we had another very busy and successful year. Our company and portfolio is as well positioned as ever, and that will only improve with our ongoing investments. Given our track record of earnings growth, NOI and cash flow generation and increasing dividends, we continue to be curious to see the yield of our stock 500 basis points higher than the 10-year treasury. This is an ongoing overreaction to the negative sentiment.

However, regardless, we remain undaunted. Throughout our history, we have zigged when others have zagged, and those moves have served us well. I'm extremely confident of where our business is and about the growth prospects of our company ahead. And we're ready for 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 Craig Schmidt with Bank of America.

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

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I wonder if you could characterize the outlet results. Did -- they seemed, obviously, that to have an impact from the lower traffic, but it also seemed like there were a number of store closings that impact the outlet. If you could just tell us where the outlet relates to the mall business?

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

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Well, the outlet business had a very good year. I mean, the only -- I mean, it was affected by certain bankruptcies, but we had significant comp NOI growth. It was higher than the mall business. And the only real shortfall occurred, like I said, in the overage rent, and that was primarily at our bigger centers due to the strong dollar and tourism. So the outlet business, we're projecting, again, for our comp NOI, to be higher than the mall business. Again, Craig, don't get caught up in this narrative. We're seeing really good results in the outlet. We'd like a little weaker dollar, more tourism. I believe that it is temporary. It's good to see that -- obviously, we've got a bigger picture going on with the coronavirus and tourism. I assume that will be temporary. However, it's great to see that China and the U.S. completed their trade discussions. And assuming we get through this coronavirus scenario, we expect our overage to continue to be dominant or at the growth in our outlet business. And we have no worries or concerns at all about our outlet business. Tulsa's leasing, Normandy is leasing, Bangkok is leasing, West Midlands and even with Brexit, Mexit, whatever you want, it's leasing. Ashford's leasing. Vancouver is leasing. So I hope that gives you a flavor. So don't believe the narrative. You'll understand what we're doing.

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

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Okay. And then on the 1% comparable NOI guidance is lower than you achieved in 2019. What would you say are the major drivers of that number?

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

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Well, if I would say, primarily because of the downtime. If you -- again, we're a big company, so it's a little harder for everybody to understand all that's going on. But if you see the significant redevelopment that we have, we have downtime. And the reality of that is, we think in 2021, that we could sit here and we don't have to throw away years. You know our philosophy, but we do have significant downtime. That NOI that we've got, that takes a decrease. And these are big malls like at Burlington and North Shore and all that stuff. A lot of that stuff is coming on in late 2020. We expect $70 million, as I mentioned, just from those redevelopments to come on into 2021. Obviously, we're projecting a stronger dollar, so we're muted on our overage rent calculations with our outlet business. And those are the primary. And then obviously, we've got some retailer restructurings that are occurring. Some of that's related to the newer rent, and that's likely to occur with the F21 stabilization, some other restructuring. So you put it all in, and that's 1%. I'm not overly worried about that number. I'd like it to be higher, but we've got some things to deal with, and we're dealing with them.

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

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Okay. And then just -- do you have what the leasing spread was just for the fourth quarter in 2019? And was that result somewhat timing-related?

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

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We don't. We just do it on a rolling 12. That's a number we post. It is what it is. We don't say too much grace over it. Just like sales. I mean, we had this discussion on sales, and it was the most important thing. Now I understand it's the least important thing. So again, you kind of know our view, which is that sales are interesting. They're not determinative because, again, we can replace retailers that aren't performing. And then we do think our sales per foot are muted by the returns, okay?

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Operator [8]

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Our next question comes from Christy McElroy with Citigroup.

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Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [9]

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It's Michael Bilerman here with Christy. David, I wanted to go through some of the investments you're making in retailers and other sort of tech platform initiatives. And the numbers you gave out on Aero, surprised you didn't quote Adam Sandler given we're not too shabby, right? A 15x multiple on Aero is highly impressive. When you step back, how do you think about all these investments, whether it was Aero and potentially Forever 21? And then Life Time, Pinstripes, Allied, PARM, Soho House. I know some of them may be varied. How do you think about the investment itself versus driving disproportionate leasing within Simon's assets relative to all the other retail landlords, right? So how much of it is a benefit not only potentially of turning these retailers around, like you did with Aero, versus how much of it's incremental leasing that you're going to get out of your assets or protection of stores relative to everybody else?

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

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Well, first of all, let me just talk about the retailer investments. We would not have done Aero and we're -- and we would not be attempting to do Forever 21 for the sole purpose of maintaining our rent. And that's the biggest misnomer out there when I read various publications and analyst notes and media notes. We do it -- we make these investments for the sole purpose of we think there's a return on investment. Now the fact of the matter is we did all this that Aero, and the reality is they kept paying us rent. So that's like -- that's obviously beneficial, and I don't want to understate that, but that's not why we do it. At the same time, with F21, we do think there is a business there, but it's got to be turned around. And I'm not going to project today to you what those numbers are, but we've got our work ahead of us. But if we are successful in turning around, we will make money at F21, and we'll get paid our rent. But again, the sole purpose is to make investment in our -- for the benefit of our company.

Now the rest of them, we're creating a flywheel of unique entrepreneurs that understand the benefits of physical space, understand the benefits of the new consumer today. And whether it's Pinstripes or e-gaming or the deal that we did with RGG, Rue and Gilt and what's going on with shop Premium Outlets, and the deal we did with PARM and Nazarian at the sbe, this is a flywheel that no other company in our industry can do. We expect to get the benefit of -- return on those investments. But additionally, the ability to make us a better operator and also bring those kind of ideas to our portfolio. So we learn how to be a better operator, we make money on the investment and ultimately, in some cases, they bring their product to our physical portfolio. So I can't imagine a better scenario for us, but we're in early days on all of this stuff. But we expect -- we expect to prosper from these kind of investments. Underlying, though, is we want them to add value to how we operate as well as to our portfolio, and we're doing that. I mean, if you've seen as an example, I mean, go chapter and verse on this stuff, but if you see what Life Time brings with their new concept to our portfolio, you'd say, "I get it." Would I rather have that than a moderate underinvested department store and the answer is, "Come on. It's a no-brainer."

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Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [11]

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Right. Second question I had was if you think about where your NOI breakdown is today between the malls, outlets, mills and international, which is the pie chart you have on Slide 17, and you sort of marry it up with the pie chart of where you're spending your capital, which is Slide 28, and then you add in a lot of these other types of investments that you're making, where does -- let's say, 3 years out or maybe 5 years out, where does the composition of your income and asset base shift to from effectively non-retail uses, resi, hotels, office, the totality of all these sort of investments that you're making and then the traditional retail business? What do you think the split would be?

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

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I mean, it's really -- it's -- we benefit, you could argue it either way, but we benefit from the -- I think, we really benefit from being a large company. And it's obvious that we're able to make investments and pay our dividend without having to finance our dividend, et cetera. So when I look at it, we -- even when we look at just our nonretail real estate, I mean, to get to the NOI of over 5% is going to take a lot of work. But we do like the diversity of our geography, our product-type mills, outlets, malls, our mall business is under 50% of our NOI today. We love the international business. That's been highly profitable. And I think we've got a pretty interesting company because it's so diverse and so big and so well financed. Like I said at the end, I mean, we can zig when others zag. Or is it zag or zig, I always get confused...

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Unidentified Company Representative, [13]

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Either way. Either way.

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

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Oh, either way. So we can zig when others are zagging and we can zag when others are zigging. Maybe that's the answer.

And then we have our whole additional portfolio of other investments that maybe one day, we have a spin-off of that. Maybe one day, we're not a REIT. Maybe one day, we're just this diversified and interesting company that people will finally think, "Hey, it's not a bad company, not too shabby." We can have -- we did have not too shabby in this conference, but we took it out. But we can't be used.

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Christine Mary McElroy Tulloch, Citigroup Inc, Research Division - Director & Senior Analyst [15]

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David, it's Christy. If I could just add a follow-up on Craig's question on comp NOI. So realizing that you're now including international, and I assume that's on a constant currency basis, I'm wondering if you could provide sort of an apples-to-apples comparison with the 1.4% growth in 2019 just for North America?

And then just a clarification. Your comp NOI growth excludes those larger redevelopment projects, is that correct?

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

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Only a few of those, so not all of them. It depends on the size of -- we have a definition of that. We have a size of it. And so not all of them. It just depends on some of that. So it doesn't really -- international marginally helps it. It's not a big deal. What you -- I would suggest to you that the biggest thing affecting our comp, as I said to you earlier, is that we do have a lot of redevelopments that are affecting our cash flow. I don't -- and that when they come on, it will be $70 million in 2021. There is downtime. I don't think people appreciate that because we're -- you're used to dealing with smaller companies, frankly. And if they lease an [outlot] to XYZ, it moves the needle. We're a little bit different. And look, we -- there's no denying we've got some leasing to do, our occupancy is down a little bit. By the way, if you believe the narrative, do you think our occupancy year-over-year would be down 500 basis points. It's down 80%. We've already leased 60% of it.

So I'm not -- you have -- we look at ourselves a little bit different. We give you a year-by-year number. We don't have throwaway years. Our or 1%, I think, is going to be fine. And if we get a little uptick and over trend, it will be better. If we don't, it won't, and well, life will go on.

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Operator [17]

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

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Robert Jeremy Metz, BMO Capital Markets Equity Research - Director & Analyst [18]

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David, just one quick one to go back on Forever 21, just given that obviously, there's still a process being run here and there's some different outcomes that could come out of it just interested. Is your current guide, is it built around all stores staying open and just operating at a reduced occupancy cost, or was that the base that's built in here?

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

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We don't -- again, given our size and given our historical results, we don't get into specific retailer rents or restructurings. That's for other folks. That's not for us.

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Robert Jeremy Metz, BMO Capital Markets Equity Research - Director & Analyst [20]

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That's fair. And then we -- do you think about sort of the ebb and flow of closings and bankruptcies we've seen in 2019, obviously, a pretty big year. 2018 was down from 17% though. So as you look at the landscape today, you look specifically at your outlet and mall portfolio obviously, what happened last year and what could be in the pipeline is factored into the 1% comp outlook. But more high level, how do you feel about the landscape here today given there's still obviously plenty of over-levered retailers that's out there?

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

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Yes. I think -- look, I think we're projecting it to be lower than last year for sure. But it's our point of view, and there are no certainties. But I would certainly -- my best judgment call would certainly be to be dramatically less than last year. Last year was a very difficult year when it came to that. If you look at historically, '17 was a high year, '18 was a low year, '19 was a high year, so I'm -- we're anticipating the lower -- certainly a lower amount, but that's our best estimate of what we see today.

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Robert Jeremy Metz, BMO Capital Markets Equity Research - Director & Analyst [22]

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Okay. Last one for me. Just as we look at where the stock is, as you mentioned, the misperceptions out there, the big dividend yield spread the cash flow you've been able to generate, how are you thinking about further stock buybacks at this point just given the redevelopment pipeline and opportunities there that you outlined?

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

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Maybe we should go private is really what we should do. The reality is, look, it's in our -- we do have the opportunity to do that. We're obviously waiting to see kind of what transpires in the global world right now. But it's something that will obviously continue. We do think our company is undervalued, and I would expect it to continue to play into that. It's not in our numbers, and we'll see how the next period of time evolves.

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Operator [24]

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Our next question comes from Alexander Goldfarb with Piper Sandler.

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Alexander David Goldfarb, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [25]

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I'll change up the intro because you called me out there last time. But I will say, to Bilerman's thing, he mentioned that you didn't do not too shabby. I would point out that you brought Mexit in, which may be the first in REIT-land to mention Mexit.

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

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That's why I keep saying we're a little bit different than the rest of the folks, okay? Mexit -- by the way, I think it will uptick sales in Vancouver, though. So there'll be a benefit from Mexit.

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Alexander David Goldfarb, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [27]

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Okay. Well, if you could be a little less different, if you go back to the 7 a.m. release time, that would be appreciated.

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

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No problem. We had a technical difficulty. So it wasn't as bad as the Iowa Caucus, but it was a little bit of a technical difficulty.

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Alexander David Goldfarb, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [29]

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Okay. So two questions, David. I appreciate that you're not going to comment specifically on individual tenants. But we did notice that Forever 21 dropped out of our top 10 in the fourth quarter. But third quarter, obviously -- NOI in the fourth quarter was a lot weaker than previously. So maybe you can just, in aggregate, talk about what -- to the extent you could talk about the impact in the fourth quarter? And then what your bad debt credit is for 2020 and versus what the actual was in 2019, just to get a sense for how much the 1% is impacted by maybe a change in bad credit versus historical versus other things?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [30]

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Well, look, we are -- we certainly -- it's not surprising to you. And again, I -- you're very kind and you're very smart, and that's why you want me to answer these F21 questions. But -- and I don't really want to answer them, but I will answer this. Our fourth quarter was clearly impacted by the reductions that us and others provided to F21 to help stabilize their business, okay? And that was -- and that is -- that new scenario is one of the reasons why they dropped out of our top 10, so it wasn't like we wanted it to drop out of our top 10, but that's just the math. Two is, and I -- again, I have to impress upon everyone out there. We do a -- overage rent is an art, not a complete science, and it is back-end weighted for the fourth quarter in the outlet business. We actually -- we're way behind in overage rent and all the way up, and we made some of it back, but we didn't make what we had originally budgeted. So when you put the two together, that's why we were a little short, domestically, to get to our 2% original budget. I mean, there's no hiding that, there's no denying that, but that is an art and a science. Now that's why we've been extra conservative, I'd say, on the overage in the outlet business. But there's a lot going on. I mean, right now, tourism is way down in the United States. I don't control that. Usually, we're a beneficiary of that, but sometimes, we run into a headwind. But that has nothing to do with the long-term viability of this great real estate and these great properties, and that's what we have to, as investors, and as you, as analysts, and us, as operators, all have to kind of overlook these temporary things. So we did -- so in summary, I hope I answered the question. In summary, our fourth -- our Q4 was impacted by what we did with F21. It was impacted the shortfall in the overage rent with the outlets. We're projecting a similar scenario next year, so hopefully, we'll be conservative on that, but time will tell. And obviously, that does the restructure of F 21 because it was a big, big retailer does have -- it does flow through 2020 as well. I hope that answers -- on the bad debt, it's basically pretty flat from '19, which was a pretty decent-sized year. So that -- but again, there's no longer bad debt. It's just you don't get the income you thought you'd do, okay?

And from an accounting point of view, being an old GAAP accountant, I still scratch my head on that. But the reality is, it's no longer a bad debt. You just don't get all the income you thought you were going to get revenue. Contrary.

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Alexander David Goldfarb, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [31]

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And then the second question goes to the dividend. You obviously highlighted where your yield is relative to the 10-year. You guys always point out your sort of mid-single-digit dividend increases over the years. But maybe that mirrors your taxable dividend increase, in which case, it will -- it won't be lower. But just given it seems like your comments that the market is not appreciating your dividend and the guidance coming in a little short of where the street is, should we brace ourselves that maybe you don't increase the dividend this year? Or maybe the increase is nominal, maybe 1%? Or your view is to continue growing it in the sort of mid-single digits even if the market doesn't appreciate it in the stock price?

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

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Well, look, I think we'll continue to grow our dividend. We have earnings growth next year -- or this year, I should say, 2020. We grew it 2.4% Q-over-Q, so that's certainly a signal to you that we're not backing off our dividend growth. I mean will it be as high as 8% or 10% like it's been over the last 5 or 6 years? Probably not. But again, I don't think -- I look at it -- I guess if you were in my shoes, when I hear the word bracing, I just want to explain to you, we're not bracing here, my friend. We're on the offense. We actually feel good about our company. We feel great about our dividend. We feel great about our balance sheet. We feel great about these other investments. We're going to make -- we're going to hopefully turn around F21 and make money.

So the last thing -- the last word you will never see in our -- hopefully, I shouldn't say never, but we don't -- we're not bracing here, okay? Yes, we have some leasing to do given the high amount of bankruptcies. We've already leased 60%. Yes, I'd like to see tourism come in. Strong dollar does limit spend. I mean you'll see that from other retailers, the retailers that are -- that have an important exposure to tourism. We have all that redevelopment in 2020 that's ongoing. That takes properties down. I mean I had a mall at Northgate that did $18 million of NOI does zero, zero today. Zero. And we accelerated it and we had development rights that could make that property worth $1 billion. Again, we don't have throwaway years, Alex, as you know. And so, yes, this year will be not as robust growth as maybe some of the years in the past. That doesn't mean we're bracing. No bracing here, not in our vocabulary.

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Operator [33]

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Our next question comes from 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 [34]

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Just a quick clarification. I think what you said was F21 is still in the pool, it's just a lower tenant. And therefore, should we assume F21 as a tenant is included in the '20 FFO guide?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [35]

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Oh, yes. Yes, yes. It's just -- we and others adjusted their rent for the fourth quarter. And because of the base rent, it's just -- it's #11 or 12. What is it?

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Unidentified Company Representative, [36]

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They're 12.

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [37]

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12. They're 12. Forever 21 is in our top 12, okay?

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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 [38]

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Got it. That's helpful. That's -- I promise you that's the last question I'm going to ask about Forever 21.

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

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No problem. We have no problem with any question anybody wants to ask.

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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 [40]

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Sure. And so, actually, it's just -- staying along this line of your investments in the retailers, and I appreciate why they've been really attractive investments for you. So 2 questions. First of all, are these held in the TRS? I think they are. And then number two, do you have a sense for how high you could go with your retail investments before you got up your non-REIT limit in the TRS?

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

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Yes, they are in our TRS. And there's a lot going on technically about this that NAREIT's working on, and I'll just defer that because it's a little arcane. But we've got plenty of room. And given that it's in our TRS, we've got plenty of room that we're not going to -- there's no issue about maintaining REIT status or a bad income or a gross asset test and all of the various REIT tests that you have to meet. So we've got plenty of room to run.

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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 [42]

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Yes. And I was really saying that not from are you hitting the limit, but it seems like this is an attractive investment pool that might warrant some further consideration in the future.

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

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Yes. Look, I think we -- look, we're -- I guess, Rich, what I'd say to you we're grounded in real estate, but we have, over time, found that we can do other things reasonably well, and that is our goal to do that. We've had success, we haven't been perfect. And if we are -- if we do end up buying with Brookfield and Authentic Brands Group Forever 21, I mean, obviously, that's going to be a lot of work. That is a big restructure ahead of us and that -- we'll want to make sure that, that's done right. And there are no guarantees on that.

So I don't expect another retailer that will pop up until we get that stabilized. But at the same time, we're always looking at additional investments. I mean we're very excited about the long-term prospects that we have with our -- basically our merger with RGG, and we're just starting that whole process. And that's a whole another avenue for this company in terms of e-commerce and tenant relationships and retailer loyalty and all the other stuff that comes with that. And we're just -- that'd be literally disclosed in November. So -- and we've merged our operations into those, and they're just starting to improve our shop premium marketplace. So I mean there's a lot of growth ahead of that as well. And then you've got all of the mixed use stuff that we're doing, whether it's Northgate, whether it's Phipps, you go down the list. I mean there's a lot going on, and that's why we feel good about where we're positioned.

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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 [44]

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Got it. And just 2 final things for me. On Forever 21, I know I told you I wouldn't ask about it again, but I can't help myself. Your 50% investment, should we think about that at 50% on top of your 25% investment -- or on top of your 50% investment in ABG? Or does that 50% include the look-through on ABG?

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

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No, no, no. It's just -- it's actually a little under 50% to be technical, it's approximately 50%. No, that's a separate stand-alone entity. It has nothing to do with our investment. And we -- our -- we only own around a little over 6% of ABG, okay?

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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 [46]

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Okay. Got it. And then you didn't buy back any shares this quarter despite what the stock price has done. Is that just a simple capital allocation decision given your discussions you were having on F21?

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

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No. I just think we got busy and no real good reason. Obviously -- unfortunately, we made the right choice not to buy it back, right? But I just think we were busy in the fourth quarter and everything else.

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Operator [48]

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Our next question comes from Nick Yulico with Scotiabank.

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Nicholas Philip Yulico, Scotiabank Global Banking and Markets, Research Division - Analyst [49]

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Just going back to the guidance, can we get what the total NOI growth embedded is? And as well, are there any onetime charges that are dragging down the FFO number?

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

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No. Nothing material, no.

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Nicholas Philip Yulico, Scotiabank Global Banking and Markets, Research Division - Analyst [51]

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And what about the total NOI growth number?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [52]

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We -- this is what we give, it's consistent with our past practices.

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Nicholas Philip Yulico, Scotiabank Global Banking and Markets, Research Division - Analyst [53]

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Okay. I guess I'm just wondering if there's anything else that's -- if the number is going to be similar to your comp NOI number like it's been, or...

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [54]

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Yes. I mean, look, I think on some of these that are in our non-comp pool, we have this downtime that I've alluded to. I mean we can quantify it for you, but we all kind of put it in a blender. And that's where our guidance is. I mean we have significant -- put it this way, we expect in 2021 to generate around $70 million of additional NOI, and most of that is dealing with our downtime. Then we've got expansions that are opening up worldwide, which usually come in -- the strategy there is a little bit different. Lease up is not -- 95% tends to be a little bit lower.

So we just have one of these years, Nick, that because of all the activity, you're not -- it's not manifesting itself in the growth, but we don't have a throwaway. Yet we're still going to grow our earnings. We're still going to grow our dividend. We're still going to have the best balance sheet. We're still going to make these fund investments. We're still going to keep moving the portfolio. And it's just -- I mean the people do have a year that doesn't necessarily have terrific growth because we're making all these investments. It's -- you see it elsewhere. If we were a static company, I get it, but we're not. We're really busy. Does that help?

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Nicholas Philip Yulico, Scotiabank Global Banking and Markets, Research Division - Analyst [55]

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Yes. And then, David, it is helpful to get that $70 million benefit to NOI in 2021 from the redevelopments coming online later this year. I guess what we don't know is what this ongoing drag from redevelopment could be. Meaning that, is that going to be purely a benefit in 2021? Or are there still some of this redevelopment downtime to deal with?

And I guess, I'm wondering, at some point, would you think about maybe providing some sort of NOI bridge? I mean it's something the office REITs have done to deal with lumpiness in tenant move-outs and tenants being refilled. And I think it would be pretty helpful to understand what that -- how that plays out to get to the growth of the company over the next couple of years.

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

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Yes. I mean it's possible. We don't -- we like people just to see what we're doing and then the results of it manifests itself. But this is an active year of investment and redevelopment, and the growth will have some impact to do that. But we've also had a history of outperforming our guidance. And I mean, let's face it, we're being conservative. There's a lot of noise around the world from an economic -- and obviously, it's an election year. We've got this terrible situation on the virus, and we don't know what that means. So there's a lot going on, but I go back to -- I think Alex said grace. I mean we're investing in the future, and we feel really good about kind of all the stuff that we're doing, and it will manifest itself in 2021 and beyond. But like Phipps, I mean, Phipps is a great example. I mean the mall is torn up, and that stuff is going to come on late '21. So that's not even in that number.

So -- but your point is valid. We've never wanted to do that because we've never wanted to have people think we're having a throwaway year. But this will be somewhat of a year of investment. And that happens with -- I mean it's happened with -- not to compare us to Amazon, but it's happened with the big companies that say, yes, they're investment. I mean -- so that's what we're doing. We'll see where it shakes out. Not unusual.

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Operator [57]

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Our next question comes from Michael Mueller with JPMorgan.

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Michael William Mueller, JP Morgan Chase & Co, Research Division - Senior Analyst [58]

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Just a quick one. Were the rent spread trends in the fourth quarter outside of Forever 21 stable? Would you characterize them as?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [59]

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Yes. We had a very -- we had -- like I said, we underperformed in our overage all year with the outlet business. And they had a really good fourth quarter. It just didn't -- because if you understand how overage works, you've got to get over the breakpoint and you got to do it. So we caught up on that. We actually were underperforming all the way through the fourth quarter. They had a very good fourth quarter. We didn't see any real retailer changes too much. And what I'd say, sales were pretty good, and we leased up space. We didn't think we would get to 95%. We got a little over 95.1%. So I think we had a pretty good fourth quarter all things considered. I mean, again, I don't do your models, but I look at -- I know my business pretty well, and the reality is that I think we had a pretty good fourth quarter.

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Michael William Mueller, JP Morgan Chase & Co, Research Division - Senior Analyst [60]

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Got it. And then I think you mentioned you could quantify the redevelopment drag on that 1% same-store outlook. Can you do that?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [61]

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Yes. We'll do that at some point.

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Operator [62]

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Our next question comes from Linda Tsai with Jefferies.

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Linda Tsai, Jefferies LLC, Research Division - Equity Analyst [63]

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Could you share with us in very broad stroke steps you took to get Aero EBITDA positive and how these processes might translate to getting Forever 21 in a similar place? I mean, in your opinion, is retail distress somewhat formulaic? And what's holding back retailers from fixing themselves?

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

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Well, every retailer has its own particular set of issues. I think Forever 21, really the biggest issue that it had historically was that it took its eye off the ball primarily because of its international growth. And then it created another brand that took its eye off the ball. And then, obviously, the store size got too big. So we're really good at sourcing, and that's where Authentic Brands Group is fantastic, it's sourcing product. We think in Forever 21 case, it was fast fashion. And the time that it got for delivery of goods would shock you in terms of how long it took, so it kind of took the fast fashion out of fashion. And obviously, Forever 21 -- or I'm sorry, ABG is great at branding. I mean if you look at -- we're an investor in Sports Illustrated. They bought the Sports Illustrated IP. If you've seen kind of how they've already created all the buzz around Sports Illustrated is a great example of what they do. You look at how they branded Shaquille O'Neal as an example. That's what they do. So they bring all that marketing and brand awareness expertise to bear. We did the same thing with Aero.

So each -- you have to diagnose the problem. There's a lot to restructure at F21. On the other hand, it is a brand that does close to $2 billion of volume, even with all that's going on. So I mean that was what we looked at Aero. When Aero -- when we took it over, it did $900 million. These aren't like $50 million businesses. So that gives us comfort. And it's sourcing, marketing, it's better, efficient, more organizations, it's better technology. And it's just common sense being a better operator in between the -- our -- and it's also been an owner that can withstand -- just withstand stuff, right? So you don't panic and you just -- you keep your head down and you keep plowing. We did that with Aero. We told Aero, we don't care about top NOI comp sales. What we care about is building the business for the future, focus on EBITDA margins, focus on gross margins, focus on increasing the quality of the product, and we don't care about comp sales. Now it's a little bit like our business. There's too much of a focus on quarter-to-quarter comp NOI growth. We get it. We focus on it because we love cash flow. At the same time, you've got to make investments for the future that will accelerate that comp. There's no difference. The only difference is that we don't panic and others do, and that's why we're here telling about it.

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Linda Tsai, Jefferies LLC, Research Division - Equity Analyst [65]

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Do you think the time frame for getting Forever 21 EBITDA positive will be similar to that of Aero?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [66]

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It's -- I would say that -- it's a good question, and I would say it's a little more complicated and a little bigger business. And it depends on whether one or two of my guys are going to spend all this time in Los Angeles. So I'm negotiating that right now, Linda. Stay tuned.

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Linda Tsai, Jefferies LLC, Research Division - Equity Analyst [67]

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Then just one other follow-up. Given this environment of closures, how are you thinking about the creditworthiness of the new tenants you're signing on? What sort of process do you go through to get comfort around their brand relevance and stability and liquidity?

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

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Well, historically, we've been very focused on that. We're very -- look, that's not to say we don't take flyers here and there, but we're probably -- if you ask around, we're probably as thoughtful on that as anybody in our industry. And it's very important to us, especially if we make any kind of tenant improvements. We're very focused on payback and creditworthiness. We don't bat 1,000 there, but we are -- it's extremely important to us.

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Operator [69]

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Our next question comes from Steve Sakwa with Evercore ISI.

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

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Hello? Okay, let's go to the next.

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Operator [71]

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Our next question comes from Haendel St. Juste with Mizuho.

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Haendel Emmanuel St. Juste, Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Equity Research Analyst [72]

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So first one's on redevelopment. Looking ahead to 2021 in what appears to be a positive inflection in your earnings growth, helped by the expansion of the redevelopment last year up to, I think, it was $1.8 billion, well above the 1 point -- the lower ones you've been running the last couple of years. And hopefully, some of that incremental NOI growth can help change the narrative around stock. So I guess, my question's on the sizing of the pipeline beyond this year. Is your intention to keep the redevelopment pipeline sized around where it is, that $1.8 billion, where it's been over the past year? Or are you more inclined on reducing that back to the level that it ran over the past few years, at a low $1 billions, and maybe preserving more cash flow for other uses and potentially unanticipated other tenant events or even opportunistic investments?

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

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Well, again, a good question. I would say to you this one. Because of our diversity in product type, geography, et cetera, every incremental investment can and will stand on its own. So we don't feel compelled to save an asset because we're worried about the -- are hitting our numbers or anything else. So we're making all of these investments with an eye toward incremental return. And we do expect, as we said historically, yes, we're going to be busy in -- because we're going to get the ability to get a lot of great real estate back, hopefully, at reasonable prices, that we can add accretive returns to it. So I don't view it as a zero-sum game, and I also don't think that it's -- that we don't have the fire power to make additional investments outside of our, what I'd say, our core businesses. So -- but the important thing is, I don't feel compelled to say, "Oh, this mall, if I don't do this, I got to do a low-return deal just to save it." I mean, the reality is if it ain't worth it, we don't invest in it, it's not going to really cause too much of a detriment. So and we are looking at other investments that are outside of kind of the traditional bricks and mortar, and I think we'll continue to do that. But we'll also continue to make investments in brick-and-mortar because there's nothing to be ashamed about it. It's a good business. It's just yet, yes. We're running through a cycle here that's not as robust as what it's been in the past. But you got to remember, we've been doing this for a long time, and we weathered different storms.

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Haendel Emmanuel St. Juste, Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Equity Research Analyst [74]

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Got it. Got it. Second question's on the 2020 guide. First, on other income, is there anything contemplated in the guide for other income? Anything that could materially move that FFO guide this year, one way or the other?

And G&A, it looks like it was down $10 million last year. What's embedded in the guide for G&A this year?

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

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Sure. G&A is similar to what fourth quarter is, so right, guys, yes. And I do -- we don't have anything real extraordinary in other income in 2021, that's like unusual. We -- as you know, we had the we had the big settlement from the insurance company in Opry in 2019 in the first quarter, so that will -- our first quarter compared -- first quarter of Q1 2020 will look different than Q1 of 2019 because that's when we got the settlement from Opry Mills. It only took us 7, 8 years, okay? That's another story.

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Operator [76]

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Our next question comes from Ki Bin Kim with SunTrust.

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Ki Bin Kim, SunTrust Robinson Humphrey, Inc., Research Division - MD [77]

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When you look -- when I look at your lease expirations for 2020, it doesn't seem like you made much headway. It's just one quarter from going from 3Q to 4Q, but it went down 30 basis points. When I look at last year, you made much more headwind -- or headway, closer to 100 basis points. Like I said, I know it's just one quarter, but I was just curious if there's anything to read into that? Or are you kind of just making decisions a little bit later?

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

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No, it's just process. There's not -- absolutely nothing to read into that. It's all process. No issue.

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Ki Bin Kim, SunTrust Robinson Humphrey, Inc., Research Division - MD [79]

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Okay. And just going back to Forever 21, you talked about a flywheel, and I think we all get it. But that flywheel is also very different for a Simon-owned store versus if it was owned by a different landlord. So how do you balance those things?

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

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We -- look, I think the only history we really have on that is Aero. And I think if you ask the other landlords, they said we were a great partner. So no issue there. Interesting question, but we really -- I mean, every store that Aero basically stood on its own, we were not really involved in it. We -- that was all delegated to the team -- the operating team at Aero, so we did not get involved in that. I think at the F21, to the extent that we get it, we'll adopt a similar thing. We -- in fact, at Forever 21, because of the need to move probably a little quicker than in Aero, and the case is moving a little bit quicker, we'll probably hire a third party just to go do it.

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Operator [81]

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Our next question comes from Vince Tibone with Green Street Advisors.

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Vince Tibone, Green Street Advisors, Inc. - Analyst of Retail [82]

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You mentioned earlier, you have 15 former department store redevelopment projects underway, with the total expected spend of about $850 million. That equates to about $55 million per box. When just thinking about longer-term CapEx need, is $55 million per department store box a fair assumption?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [83]

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No, and you can't -- that math, you really can't do. And I think that it's not -- Vince, I would say to you, it's not necessarily CapEx. It's incremental opportunity. So -- and I've said this before, but just to put it in perspective. If we don't own the department store, and that department store owns 10 acres, then we just now have 10 new acres that we can develop with. It's not like when we say CapEx, people think new roof, new tile, new this, new that. It's incremental opportunity because we don't necessarily control that space. And even if we're on a long-term lease, to the extent that we got that lease, we now control that space. So it's new incremental space that we didn't otherwise have.

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Vince Tibone, Green Street Advisors, Inc. - Analyst of Retail [84]

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Right. But I'm just trying to get a sense of -- so that includes probably a lot of other non-retail uses. So what would be a fair run rate of just trying to think about longer term, if we're expecting more department stores to close. I mean, just from a -- maybe not from a CapEx burden perspective, but just how much capital you're going to have to spend every year to keep -- to unlock these opportunities? That's what I'm trying to get at more than anything.

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [85]

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Well, look, I think what you should do, we could give you order of magnitude. I mean, I could do a chapter and verse now, but I might bore you. You can call up Tom, and we'll give you an order of magnitude. Like take an example at Phipps. Phipps is $300 million-plus, okay? Midland Park Texas was $5 million, so it's all over the place. But if you want -- the best thing for you to do, Vince, to get a handle on it is to -- Northgate, we could spend $600 million, $700 million at Northgate. So certain boxes are $10 million. Just take a box over, re-lease it, that kind of thing. So it really, really is real estate-specific. But maybe you go through our 8-K, and Tom can give you order of magnitude. But Phipps is a great example. It's a former belt department store that was a lease where we let them terminate the lease for a payment. And then we're spending literally 300 and -- a little over $300 million to build a hotel, office, a Life Time and additional retail, all in that same spot. And so that can skew numbers pretty significantly.

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Vince Tibone, Green Street Advisors, Inc. - Analyst of Retail [86]

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That makes sense. That's really helpful. Can you just discuss quickly how the overage rent thresholds are reset each year? Just trying to get a sense of like the lower percentage rents paid in 2019 creates an easier comp for '20? Or that's not the case. They kind of increase and by a fixed amount each year?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [87]

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It usually kind of balances out so there's not a lot of volatility. Other than the outlet business, a number of our bigger retailers there are basically on percentage rent with a very low base. So that's the one that tends to have a little more volatility.

In the mall business, we tend to mark the real estate. If they're in overage, we tend to get that as it renews. And then others come in, so it's relatively consistent. So you have overage, and then they go -- their leases expire. You go to basically overage plus the base rent to get to the total rent. And then a whole another slew of retailers will go into overage. The outlets tend to be a little longer leases, a little lower base, and therefore, they don't have as much turn. So therefore, the overage rent tends to be a little more volatile in terms of what the math ends up being.

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Operator [88]

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Our next question comes from Christine McElroy with Citigroup.

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Christine Mary McElroy Tulloch, Citigroup Inc, Research Division - Director & Senior Analyst [89]

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Just a follow-up on Forever 21, sorry. Just in terms of the approach to making these retailers profitable again and sort of solidifying the business as a going concern, you answered Linda's question, but how does your approach differ and is perhaps much healthier for retailing longer term than the traditional private equity approach to retailer turnarounds? And in addition to store closures and the efficiency and technology and marketing and operations that you discussed, do you look to convert rents to sort of percentage sales for a period of time to get landlords more in partnership with these retailers?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [90]

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I would say it depends on the scenario. I think at F21, to stabilize it, we might have to do that for a period of time. At Aero, we -- they did a lot of the work on the landlords during the bankruptcy process. Aero's a little quicker, so we don't have a lot of time to do it. They did the initial thing. So it depends on -- it really depends on the scenario. And it's certainly a tool that's available to us, and there's ways to handle it. I think the landlord community will support us to the extent that we're successful in the auction.

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Christine Mary McElroy Tulloch, Citigroup Inc, Research Division - Director & Senior Analyst [91]

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Okay. And then just to follow-up on Vince's CapEx question. So you had about $192 million of TIs at share in 2019, close to $1 billion of redevelopment and development spend. How should we think about that capital outlay in 2020 as we look at use of free cash flow, especially as the turnover is elevated and could push up TIs, and with everything that you have in the value creation pipeline coming on later this year and into 2021?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [92]

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Yes. I mean, look, I think that TI went up like $20 million, so.

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Unidentified Company Representative, [93]

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(inaudible)

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [94]

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Yes. So to me, that's not going to really change. We're doing more restaurants, a little more entertainment, so you see. The other thing that really spiked that number was we did a number of kind of the best-of-brand's luxury retailers. And I don't want to name names, but they tend to have great build out. It's great for the properties. But kind of the uber-luxury folks, their investment in their stores tends to be a little bit higher. So I think you get a -- we did some great work last year on that, so we're seeing a little bit of a spike. But the TI is not really much of an issue.

And the development, again, I don't know what else to tell you other than we are going to have these opportunities from department stores. We think they are, net-net, going to be beneficial to our company and to the existing real estate. And the role that we play in the community is unbelievable.

So I'll give you an example. Between sales tax and real estate taxes, at a place like Roosevelt Field, we pay $135 million. And the warehouse down the street pays basically nothing. We did a study that said warehouse and distributions pays less than 1/10 of what we pay in real estate taxes. So that's what's interesting. We're making these places better for the community, better for the taxpayers. But we have a -- we're doing -- believe it or not, we're doing a civic duty that others aren't in terms of what. As you know, we do believe strongly and we refute others that suggest otherwise, but our -- we do think we provide a greener atmosphere for commerce. And there's just so much we're doing that is maybe not necessarily appreciated. But we know what we're doing for these communities. We know what we're doing for the taxes, for sales and real estate taxes. And we're also making our real estate better, and that's fine. We'll take that responsibility on.

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Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [95]

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David, it's Michael Bilerman speaking. Earlier in the call, you talked about buying real estate, that bricks-and-mortar, obviously, still has a great future, and that you're not going to deviate from that. And when buying makes sense, you would do it. Sort of paraphrasing a comment you made. There was a headline I came across on Bloomberg during the call that you potentially had merger talks with Taubman that eventually broke off given the market volatility. Can you comment on that, please?

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

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What would you -- you know we don't comment. But we don't comment on those market rumors. I haven't seen it. We've been busy on this call, so I'm not sure what you're referring to. But we'll check it out.

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Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [97]

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Okay. Yes. It's always just helpful to sort of get the views on whether something had happened or not. And I know the stock buyback wasn't happening during the fourth quarter, so I guess I didn't know whether there was something else going on that would have done that.

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

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No, other than we obviously made the right trade. The stock went down. So we can buy it cheaper now.

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Operator [99]

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Our next question comes from Steve Sakwa with Evercore ISI.

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Stephen Thomas Sakwa, Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Equity Research Analyst [100]

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Sorry about the earlier technical difficulties. I guess, David, just to maybe piggyback or ask Michael's question a little differently, just in terms of like acquisition opportunities. Obviously, there's really a lack of capital that's devoted to the mall space today. Everybody's kind of fled on the institutional side. Are there opportunities that you see to potentially deploy capital outside of your existing portfolio?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [101]

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Well, I would say to you, generally, yes. I mean, we've tended -- we would tend to -- I mean, I think they're worldwide. I mean, retail real estate is way out of favor worldwide, not just in the U.S. And as you know, we've built our company to do this. We don't have to do that. We've got lots of -- if anything on this call, and I know it's dragged on here. It's like a college football game. But we -- I feel really good about where we're at. So we don't have to. On the other hand, as I said earlier, we zig when others zag, or we zag when others zig. And sometimes, we usually land on our feet. Not always. But we are -- our industry is way out of favor worldwide. That's interesting to note. But we know what these properties generally mean to the community and to the consumer and to the retailer. Bricks-and-mortar are important. These real estate is greatly located, so -- and then we had kind of all the other stuff that we're doing in conjunction with our core business. And it's a unique time for us to think what we want to do in the future.

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Stephen Thomas Sakwa, Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Equity Research Analyst [102]

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Okay. And then not to beat the dead horse on the earnings guidance and on the lost income, but I do think it would be helpful. To the extent that you have intentionally taken properties offline, similar to what you did in Northgate last year, I think it would just be helpful to kind of know what that drag is within your guidance number this year. Is it a couple of pennies? Is it a nickel? Is it dime? I think just to kind of frame out kind of why, when you look at apples-to-apples, at the midpoint, guidance is down a little bit?

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [103]

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Yes. Look, I think that's a good point. And we tried to do that, maybe not as artfully as we should have, but we tried to do it by showing to you that we're going to have a $70 million pickup next year when the stuff comes online. But I guess, what we didn't do is give you a sense of the decrease that we have this year. But I'd just tell you that Northgate certainly is a good example. That was a property doing 15, 16, 17, 18, in that range, and it's basically going to be 0 for the next future. That won't pick up in 2021 because it's a long-term project, but will be great in the future. And it's also paid. So we've got a property here that we could add to the uses incrementally depending on demand. So it's not like we get over our skis, the best of all worlds.

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Operator [104]

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Our next question comes from Michael Mueller with JPMorgan.

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Michael William Mueller, JP Morgan Chase & Co, Research Division - Senior Analyst [105]

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I'm good. I tried to get out of the queue.

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [106]

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All right. No worries. Hopefully we didn't offend you.

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Operator [107]

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Our next question comes from Rich Hill of Morgan Stanley.

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David E. Simon, Simon Property Group, Inc. - Chairman, CEO & President [108]

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I think Rich dropped, too.

Okay. I think that's it. Thank you for your time and interest, and we'll talk to you soon.

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Operator [109]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.