Ladies and gentlemen, thank you for standing by, and welcome to the Simon Property Group Incorporated 4th Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to turn the conference to your speaker today, Tom Ward, Senior Vice President, Investor Relations. Please go ahead, sir.
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 Sokoloff, Vice Chairman Brian McDade, Chief Financial Officer and Adam Roy, 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 the most directly comparable GAAP measures are included within the press release and the supplemental information in today's Form 8 ks filing. Both the press release and the supplemental information are available on our IR website at investors. Simon.com.
For our prepared remarks, I'm pleased to introduce David Simon.
Good morning, 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 achieved 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 Q4, reported FFO was 1.045 dollars 1,045,000,000 or $2.96 per share. Comparable FFO was 3 point $2.9 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 percent 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 4th quarter. Reported retail sales per square foot for our malls and premium outlets was $6.93 per foot compared to $6.61 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 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 $1,100,000,000 in gift card sales, which was an increase of more than 18% year over year. Leasing activity remained 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 4th quarter was 95.1%, which was an increase of 40 basis points compared to the occupancy at the end of the quarter, 3rd quarter, down 80 basis points compared to the prior year, which was impacted roughly by 200 basis points from the bankruptcies that we processed through the year. We have successfully released 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 $8.84 per foot compared to $693,000 occupancy would be 96% and average base minimum rent would be $73 Now just to move to new developments, we opened one 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 20 21 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 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 $850,000,000 We have 20 more in our pipeline. And at the end of the Q4, redevelopment expansions, densification projects were ongoing at more than 30 properties across all of
our platforms in the U.
S. And internationally with our share of dollars dollars As a reminder, we fund these accretive projects through our internally generated cash flow. And just to give you the projects that we have under construction that will open in 2020 will contribute approximately 70,000,000 dollars of incremental NOI in 2021 as they are stabilized. So again, Thailand, France, Tulsa, 30 projects under development, dollars 1,300,000,000 70,000,000 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 Aero, Costell 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 3rd 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 Arrow OpCo was approximately $25,000,000 We've already received $13,000,000 of distribution, so I have $12,000,000 of cash invested in AeroOpto. At the time, at the time we bought it, it was producing a negative EBITDA of $100,000,000 and had over 500 stores.
Today, today, we expect ARO OpCo to produce EBITDA, free royalty from 5.75 stores of approximately $80,000,000 of EBITDA. We believe Arrow is approximately, if you put a market multiple on it, dollars 350,000,000 today and our ownership is 50%, 12% to 50% of 350 percent. That's the math. Now with respect to AVG, we invested. We made a recent investment in it.
So we have a total of $67,000,000 in ABG, Authentic Brands Group. At the time of our original investment, which was roughly $33,000,000 ABG produced EBITDA of approximately $150,000,000 Today, our value is worth $190,000,000 of our $67,000,000 and ABG is expected to produce EBITDA well north of $350,000,000 and the value is growing every day, which leads me to Forever 21. As you've read recently, we have recently participated with Brook and Authentic Brands Group on behalf of Anewco, Spark Group F21 LLC and a stalking horse bid certain assets and liabilities in a going concern transaction under Section 363 of the bankruptcy code. Our group's successful turnaround of Arrow after acquiring it out of bankruptcy in 2016 gives us confidence with our ability to do the same with Forever 21. Forever 21 is a storied and widely recognized brand with over $2,000,000,000 in global sales.
We believe F21, similar to Aero, presents a very interesting repositioning opportunity. If the transaction is consummated, the new co. 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 $81,000,000 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're balance sheet. So as you know, we were very active in 2019.
We completed 3 tranche senior notes of $3,500,000,000 with an average weighted coupon of 2.61 percent, 15.9 years. We retired $2,600,000,000 of senior debt, and our liquidity stands at $7,100,000,000 We continue to have the strongest credit profile in the REIT industry. Our net debt our net debt to NOI is 5.2x. Our interest coverage is 5.3x. And our long term issuer ratings 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 $3,000,000,000 in dividends in 2019. We have paid more than $31,000,000,000 in total dividends as a public company. Will be well over $33 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 Q1.
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 yen compared to 2019 levels, comparable NOI growth from our combined malls, outlets, mills and international platforms of 1%, approximately 1%. Or no planned acquisition or disposition activity and a diluted share count of 354,000,000 shares.
To conclude, we had another very busy and successful year. Our company and portfolio is 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.
Thank you. Our first question comes from Craig Schmidt with Bank of America. Your line is now open.
Thank you. I wondered if you could characterize the outlet results. They seemed obviously 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 relays to the mall business?
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 in tourism. So the outlet business, we're projecting again for our cap NOI to be higher than the mall business.
Again, Craig, don't get caught up in this narrative. We're seeing really good results at the outlet. We'd like a little weaker dollar, more tourism. I believe that's 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. Have completed their trade discussions. And assuming we get through this coronavirus scenario, we expect our overage to continue to be dominant at growth in our outlet business, and we have no worries or concerns at all about our outlet business. Tulsa's leasing, Normandy's leasing, Bangkok's leasing, West Midlands and even with Brexit and exit, whatever you want, it's leasing, Ashford's leasing, you get Vancouver's leasing.
So I hope that gives you a flavor. So don't believe the narrative. You'll understand what we're doing.
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?
Well, 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 throwaway 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 Northshore and all that stuff. A lot of that stuff is coming on in late 2020. We expect $70,000,000 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 in that's likely to occur with the F-twenty one 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 it. Okay.
And then just do you have what the leasing spread was just for the Q4 in 2019? And was that result somewhat timing related?
We don't. We just do it on a rolling 12. Okay. 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 quarter muted by the returns. Okay?
Okay. Thank you. Sure.
Thank you. Our next question comes from Christy McElroy with Citigroup. Your line is now open.
Hey, 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, again, were not too shabby, right? A 15 times multiple on Arrow is highly impressive. When you step back, how do you think about all these investments, whether it was Arrow and potentially Forever 21 and then Lifetime, 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 Arrow 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?
Well, first of all, let me just talk about the retailer investments. We would not have done Arrow or we would not 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, we did all this at Arrow, 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 F 'twenty 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 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 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. Portfolio. And we're doing that. I mean, if you've seen an example, I mean, go at chapter and verse on this stuff, but if you see what Lifetime brings with their new concept, if you see what Lifetime 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.
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 that split would be?
I mean, it's really it's we benefit you could argue it either way, but we benefit from being 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, etcetera. So when I look at it, we even when we look at just our non retail real estate, I mean, to get to the NOI of over 5%, it's 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 with zig? I always get confused. 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 interesting company that people will finally think, hey, it's not a bad company, not too shabby. We did have not too shabby in this conference, but we took it out. But we can't keep using it.
Hey, 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?
Only a few of those. So not all of them. It depends on the size of 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. Look, you I would suggest to you that the biggest thing affecting our 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 $70,000,000 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, there is no denying We've got some leasing to do with our occupancy down a little bit. By the way, if you believe the narrative, you think our occupancy year over year would be down 500 basis points.
It's down 80 basis points. We've already leased 60 percent of it. So I'm not you have we look at ourselves a little bit different. We give you year by year number. Don't have throwaway years.
Our 1% I think is going to be fine. And if we get a little uptick in over trend, it will be better. If we don't, it won't. And life will go on.
Thank you. Thank you. Our next question comes from Jeremy Metz with BMO Capital Markets. Your line is now open.
Thanks. Good morning. 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 this. Just interested is your current guide, is it built around all stores staying open and just operating at a reduced occupancy cost level? Is that the base that's built in here?
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.
All right. That's fair. And then we as you think about sort of the ebb and flow of closings and bankruptcies we've seen, 2019, obviously, a pretty big year. 2018 was down from 2017, 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 out there?
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, 2017 was a high year, 2018 was a low year, 2019 was a high year.
So we're anticipating the lower certainly a lower amount, but that's our best estimate of what we see today.
Okay. Last one for me. Just as we look at where the stock is, 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?
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 this to continue to play into that. It's not in our numbers, and we'll see how the next period of time evolves.
Thanks for the time. Sure.
Thank you. Our next question comes from Alexander Goldfarb with Piper Sandler. Your line is now open.
Good morning. I'll change up the intro because you called me out on the out there last time. But I will say to Bilerman's thing, he mentioned that you didn't do not too shabby, would point out that you brought MEGSIT in, which may be the first in Reedland to mention MEGSIT.
That's why I keep saying we're a little bit different than the rest of the folks, okay? Dennis. Well, by the way, I think it will uptick sales in Vancouver, though. So there will be a benefit from NEXIT.
Okay. Well, if you could be a little less different, if you could go back to the 7 am release time, that would be appreciated.
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.
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 your top ten in the Q4 versus Q3. Obviously, NOI in the Q4 was a lot weaker than previously. So maybe you can just, in aggregate, talk about what to the extent you can talk about the impact in the Q4 and then what your bad debt credit is for 2020 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?
Well, look, we are we certainly it's not surprising to you. And again, 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 Q4 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 we it wasn't like we wanted it to drop out of our top 10, but that's just the math. 2 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 Q4 in the outlet business. We actually were 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 2 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. 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 Q4 was impacted by what we did with F21. It was impacted the shortfall in the over joint 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 F21 because it was a big retailer does have it it does flow through 2020 as well. I hope that answers on the bad debt. It's basically pretty flat from 2019, which was a pretty decent size year.
So that but again, there's no longer bad debt. It's just you don't get the income you thought you did, okay? 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 bad debt. You just don't get all the income you thought you were going to get, revenue.
Okay. Controversial revenue. Okay.
And then the second question goes to the dividend. You obviously highlighted where your yield is relative to the tenure. 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 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 digit even if the market doesn't appreciate it in the stock price?
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 breaking 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, at a mall at Northgate, they did $18,000,000 of NOI, that's 0, 0 today, 0. And we accelerated it and we had development rights that could make that property worth $1,000,000,000 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.
Okay. Okay. Thank you. Thank you, David. Sure.
Thank you. Our next question comes from Rich Hill with Morgan Stanley. Your line is now open.
Hey, David. Good morning.
Good morning.
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 2020 FFO guide?
Yes, yes, yes. It's just
we and others adjusted their rent for the Q4. And because of the base rent, it's number 11 or 12. What is it? They're 12. 12.
They're 12. Forever 21 is in our top 12, okay? Got it. That's helpful.
That's what I promise you, that's the last question I'm going to ask about Forever 21.
No problem. We have no problem with any question anybody wants to ask.
Sure. And so actually just staying along this line of your investments in retailers and I appreciate why they've been really attractive investments for you. So two questions. First of all, are these held in the TRS? I think they are.
And then number 2, do you have a sense for how high you could go with your retail investments before you got up here, your non REIT limit in the TRS?
Yes, they are in our TRS. And there's a lot going on technically about this that NAREIT is 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 gross asset test and all of the various REIT tests that you have to meet. So we've got plenty of room to run.
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.
Yes. Look, I think we look, 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's a that is a big restructure ahead of us. And that will we'll want to make sure that that's done right and there are no guarantees on that. So 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 deal literally just closed 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 is 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.
Got it. And just two 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 as 50% on top of your 25% investment on top of your 50% investment in ABG? Or does that 50% include the look through on ABG?
No, 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 standalone entity. It has nothing to do with our investment.
And we our we only own around a little over 6% of ABG, okay?
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?
No. I just think we got busy and no real good reason, obviously. Unfortunately, we made the right trade not to buy it back, right? But I just think we're busy in the Q4 and everything else.
Got it. Touche. Thanks, guys. I appreciate it.
Thank you. Our next question comes from Nick Yulico with Scotiabank. Your line is now open.
Thanks. Just going back to the guidance, can we get what the total NOI growth embedded is? And as well, are there any one time charges that are dragging down the FFO number?
No, nothing material, no.
And what about the total NOI growth number?
This is what we get. It's consistent with our past practice.
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?
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 could quantify it for you, but we all kind of put it in the blender. And that's where our guidance is. I mean, we have significant put it this way, we expect in 2021 to generate around $70,000,000 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. We were a static company. I get it, but we're not. We're really busy. Does that help?
Yes. And then David, it is helpful to get that $70,000,000 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 is 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 and 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.
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 manifest itself. But this is an active year of investment and redevelopment and 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, brace. I mean, we're invested 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 2021. 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. 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 shapes out, not unusual.
All right. Thanks, David.
Sure.
Thank you. Our next question comes from Michael Mueller with JPMorgan. Your line is now open. Yes.
Hi. Just a quick one. Were the rent spread trends in the Q4 outside of Forever 2021 stable, would you characterize them as?
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 Q4. It just didn't because if you understand how overage works, you got to get over the break point and you got to do it. So we caught up on that. We actually were underperforming all the way through the Q4.
They had a very good Q4. We didn't see any real retailer changes too much. And I think 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 4th 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 I think we had a pretty good 4th quarter.
Got it. And then, I think you mentioned you could quantify the redevelopment drag on that 1% same store outlook. Can you do that?
Yes. We'll do that at some point.
Got it. Okay. That was it. Thank you.
Thank you. Our next question comes from Linda Tsai with Jefferies. Your line is now open.
Hi. Could you share with us in very broad strokes steps you took to get aero EBITDA positive and how these processes might translate to getting Forever 21 in a similar place? Mean, in your opinion, is retail distressed somewhat formulaic? And what's holding back retailers from fixing themselves?
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 at sourcing products. We think in Forever 21's 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 have 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 it at 2021. On the other hand, it is a brand that does close to $2,000,000,000 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 $900,000,000 These aren't like $50,000,000 businesses. So that gives us a comfort and it's sourcing, marketing, it's better efficient, more organizations, better technology. And it's just common sense being better operator in between our and it's also being 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 Arrow. We told Arrow, we don't care about comp 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.
But at the same time,
you 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.
Do you
think the time frame for getting Forever 2021 EBITDA positive will be similar to that of Arrow?
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 1 or 2 of my guys are going to spend all this time in Los Angeles. So I'm negotiating that right now, Linda. Stay tuned.
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?
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 asked 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 add $1,000 there, but we are it's extremely important to us.
Thanks.
Sure.
Thank you. Our next question comes from Steve Sakwa with Evercore ISI. Your line is now open.
Hello. Okay, let's go to the next.
Thank you. Our next comes from Haendel St. Juste with Mizuho. Your line is now open.
Hey, good morning. Thanks for taking my questions. So first one is on redevelopment. Looking ahead to 2021 and 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 $1,800,000,000 well above the 1 point the lower one that you've been running the last couple of years. And hopefully, some of that incremental NOI growth can help change the narrative around the stock.
So I guess my question is on the sizing of the pipeline beyond this year. Is your intention to keep the redevelopment pipeline size around where it is, that $1,800,000,000 where it's been over the past year? Are you more inclined on reducing that at the level that it run over the past few years in the low $1,000,000,000 and maybe preserving more cash flow for other uses and potentially unanticipated other tenant events or even opportunistic investments?
Well, again, a good question. I would say to you this 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 and 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.
So I don't view it as a 0 sum game. And I also don't think that it's that we don't have the ability the firepower 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 small, 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 ashamed about it. It's a good business. It's just 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've weathered different storms.
Got it. Got it. Thank you for that. Second question is on the 2020 guide. First, on other income, 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 and A, it looks like it was down $10,000,000 last year. What's embedded in the guide for G and A this year? Thank you.
Sure. G and A is similar to what Q4 is. So right guys, yes. And we don't have anything real extraordinary in other income in 2021. That's quite unusual.
As you know, we had the big settlement from the insurance company in Opry in 2019 in the Q1. So that will our Q1 compared to 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.
All right. Thank you.
No worries.
Thank you. Our next question comes from Ki Bin Kim with SunTrust. Your line is now open.
Thanks, Hanh. Good morning out there. When I look at your lease expirations for 2020, it doesn't seem like you made much headway. It's just 1 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 1 quarter, but I was just curious if there's anything to read into that or are tenants just making decisions a little bit later?
No, it's just process. There's absolutely nothing to read into that. It's all process. No issue.
Okay. And just going back to Forever 21, you talked about the 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?
We look, I think the only history we really have on that is Arrow. And I think if you ask the other landlords, they said we were great partners. So no issue there. Interesting question, but we really I mean every store at Arrow basically stood on its own. We were not really involved in it.
We that was all delegated to the team the operating team at Arrow. So we did not get involved in that. I think at 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 an arrow and the case is moving a little bit quicker, we'll probably hire a third party just to go do it.
Okay. Thank you.
Thank you. Our next question comes from Vince Tibone with Green Street Advisors. Your line is now open.
Good morning. You mentioned earlier you have 15 former department store redevelopment projects underway with a total expected spend of about $850,000,000 That equates to about $55,000,000 per box. When just thinking about longer term CapEx needs, is $55,000,000 per department store box a fair assumption?
No. And you can't that math you really can't do. And I think that it's not this 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. It's not like when we take 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, if we said that we got that lease, we now control that space. So it's new incremental space that we didn't otherwise have.
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.
Well, look, I think what you should do, we can give you order of magnitude. I mean, I can do a chapter and verse now, but I might bore you. You can call up Tom and get we'll give you an order of magnitude. Like, take an example of FITS. Fitch is $300 plus 1,000,000 okay?
Midland Park, Texas was $5,000,000 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 $600,000,000 $700,000,000 at Northgate. So certain boxes are $10,000,000 just take a box over, release it, that kind of thing. So it really, really is real estate specific, but maybe you go through our 8 ks and Tom can give you order of magnitude. But Fitch a great example.
It's a former Belk department store that was a lease where we let them terminate the lease for payment. And then we're spending literally $300,000 a little over $300,000 to build a hotel office, lifetime and additional retail, all in that same spot. And so that can skew numbers pretty significantly. 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 2020 or that's not the case, they kind of increase by a fixed amount each year?
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 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 outlet 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.
Great. Thank you.
Yes. No worries.
Thank you. Our next question comes from Christy McElroy with Citigroup. Your line is now open.
Hey, thanks for the follow-up. 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?
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 Arrow, we they did a lot of the work on the landlords during the bankruptcy process. Arrow is 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.
Okay. And then just a follow-up on Vince's CapEx question. So you had about 190 $2,000,000 of TIs that share in 2019, close to $1,000,000,000 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? Yes.
I mean, look, I think
the TI went up, like, $20,000,000 So 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 spikes that number was we did a number of kind of the best of brands 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 you 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 TA is not really much of an issue. And the development, again, I don't know what else to tell you other than that we are going to have these opportunities from department stores. We think they're 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 Rosebel Field, we pay $135,000,000 and the warehouse down the street pays basically nothing. We did a study that said warehouse and distributions pay less than 1 tenth of what we pay in real estate taxes. So that's what's interesting.
We're making these places 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.
Hey, 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's 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 that 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?
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 not sure what you're referring to, but we'll check it out.
Okay. Yes. So it's 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 4th quarter. So I just didn't know whether there was something else going on that would have done that.
No. Other than we obviously made the right trade. The stock went down. So we can buy it cheaper now.
Thank you. Sure.
Thank you. Our next question comes from Steve Sakwa with Evercore ISI. Your line is now open.
Thanks. 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 fleet on the institutional side.
Are there opportunities that you see to potentially deploy capital outside of your existing portfolio?
Well, right, I would say to you generally, yes. I mean, we've tended we would tend to I mean, I think the worldwide I mean, retail real estate is way out of favor worldwide, not just in the U. S. And as you know, we 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 add 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.
Okay. And then not
to beat the dead horse on the earnings guidance and the lost income, but I do think it would be helpful to the extent that you have intentionally take the 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 and within your guidance number this year, is it a couple pennies? Is it a nickel? Is it a 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.
Yes. Look, I think that's a good point. And we try to do that maybe not as artfully as we should have, but we try to do it by showing to you that we're going to have a $70,000,000 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 just tell you that Northgate certainly is a good example.
There 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 we'll be great in the future. And it's also phased. So we've got a property here that we could add the uses incrementally depending on demand. So it's not like we get over our fees, the best of all worlds.
Okay. That's it for me. Thanks.
Thank you.
Thank you. Our next question comes from Michael Mueller with JPMorgan. Your line is now open.
Hey, I'm good. I tried to get out of the queue.
All right. No worries. Hopefully, we didn't offend you. Take care.
Thank you. Our next question comes from Rich Hill with Morgan Stanley. Your line is now open.
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.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.