Good day, ladies and gentlemen, and welcome to the 4th quarter Simon Property Group 2015 Earnings Call. My name is Lauren, and I will
be your operator for today.
At this time, all participants are in listen only mode. Later, we will conduct a question and answer session. I would now like to turn the conference over to Tom Ward, Vice President, Investor Relations. Please proceed.
Thank you, Lauren. Good morning, everyone. Presenting on today's call is David Simon, Chairman and Chief Executive Officer. Also on the call are Rick Sokolov, President and Chief Operating Officer Andy Juster, Chief Financial Officer and Steve Broadwater, our 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 1990 95, 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 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 ks filing. Both the press release and the supplemental information are available on our IR website at investors. Simon.com.
For prepared remarks, I'm pleased to introduce David Simon.
Good morning. We had strong results to wrap up a great year. We opened, started and completed several new development and redevelopment projects. We successfully executed several capital market transaction, extending our average term and reducing our weighted interest cost. We continued to achieve strong operating and financial results.
Our full year 2015 FFO per share was 9 point $8 dollars loss recorded during the year, which was derived from $0.33 loss on extinguishment of debt, partially offset by $0.22 gain upon the sale of marketable securities that occurred in the year as well as a $0.12 of negative impact from foreign currency devaluations. On a comparable basis, excluding the impact of from WPG spin off in the prior year and the net loss mentioned above, full year FFO increased 11.4% to 9.97 dollars per diluted share. We posted record FFO results once again and have achieved a compound annual FFO growth rate of more than 14% over the last 5 years. For the Q4, FFO of $2.40 per share included a $0.33 loss on extinguishment of debt and exceeded the consensus estimate by $0.02 On a comparable basis, excluding the loss on the extinguishment of debt in the quarter, FFO per diluted share increased 10.5% year over year. Now let me turn to operating metrics and cash flow.
Our malls and Premium Outlets occupancy ended the year at 96.1%. This was 100 basis points lower than year end 2014 due to the timing of 2 the 1,300,000 square feet of space loss due to tenant bankruptcies during the year. Importantly, we are more than 90% leased on the new space we brought online this year. The timing of the lease up on the remaining space to be leased impacted our year end occupancy by approximately 50 basis points. By the end of the year, we replaced more than 70% of the space lost to tenant bankruptcies, and the remaining space to be leased impacted occupancy by 50 basis points as well.
Put the 2 together, and that's the 100 basis point differential. Leasing activity remains healthy, as evidenced by the mall and premium outlets recorded leasing spreads of 10.62 dollars per foot, an increase of 18% and the base minimum rent was 48 point $9.6 which was up more than 4% compared to last year, reflecting strong retailer demand for our locations. As I mentioned, retailer demand for space remains strong. Retailers who want to grow their business are adding brand extensions and creating new brands and pure play e tailers want physical locations to increase their revenues. E tailers who opened bricks and mortar stores experienced increased consumer awareness and subsequently greater organic site traffic and lower customer acquisition cost.
We have repeatedly heard from retailers that online sales is directly influenced by the presence of a physical store in that market. When a retailer opens a physical store in a market, they see their online sales increase. And likewise, if they close the store, they see their online sales in that market decline. Successful omnichannel retailers are increasing their buy online and pick up in store. This functionality not only increases convenience for shoppers, but also facilitates incremental purchases and upsell opportunities when the shopper enters our retail environment.
For 2015, sales per square foot for our mall and premium outlets were 6 $20 a foot compared to $6.19 Comparable sales per square foot for the malls increased 5.7%. We were up a greater amount at the mills and we were down slightly at our tourist oriented premium outlets and up slightly at our nontourist outlet centers. We have great centers in key tourist locations that generate incredible sales volume and is the envy of the industry. The strong dollar, however, impacted tenant sales at these unique centers, which negatively affected our overage rent for the quarter. And I know you've all heard about mall traffic decreases.
Well, let me give you some facts based on our internal data across the largest retail portfolio in the U. S. And not just estimates derived from arbitrary algorithms. Traffic at our malls was flat for the year, including the holiday season. Traffic at our premium outlets increased 1 point 5% for the year and more than 2% for the holidays, and traffic at the mills increased slightly for the year as well.
Comp NOI increased 3.7% for the full year 2015 and increased 3.4% for the Q4 of 2015. For the Q4, overage rent declined $13,000,000 year over year due to the lower sales volumes that I mentioned already at our tourist oriented centers. The lower overage rent impacted our comp NOI for the quarter of approximately 100 basis points. I will strongly remind you, we do not include lease settlement income, new acquisitions or the impact of recently redeveloped or expanded centers in our comp NOIs in our comp NOI number. Total NOI from our consolidated and unconsolidated properties increased more than 7% to $5,800,000,000 in 2015.
That was on top of 6.7 percent growth in 2014, and this includes any NOI contribution from Klepierre. Now let me quickly talk because we could spend hours on our redevelopment and expansion. At the end of the Q4, but I'll give you some highlights. At the end of the Q4, redevelopment and expansion projects were ongoing at 29 properties across all three of our platforms, with a total committed spend of $1,500,000,000 During the quarter, we opened 2 significant expansions and completed a number of other strategic redevelopments, including the new fashion wing at Del Ama, which includes a new Nordstrom and more than 100 exceptional brands, the expansion of the Colonnade at Sawgrass, where we added 20 small shops, very high end small shops and 2 restaurants and the redevelopment at Phipps, Woodfield Mall and Menlo Park. We also started construction on several new projects during the quarter, including the shops at Riverside and Copley Place.
Construction continues on other major redevelopment and expansion projects at some of our most productive properties, including Roosevelt Field, Stanford, King of Prussia, Woodbury Commons, The Gallery in Houston. Most of these projects will be completed in 2016 and Houston Galleria will go into 2017 as well. Now on the not to be ignored, we continue to be active on new development. We opened 2 new outlets during the quarter in Tucson and Tampa, both off to very strong sales start. Construction continues on 2 new domestic outlets in Columbus and Clarksburg, both scheduled to open later this year as well as a designer outlet in Provence, France, which is scheduled to open in the spring of 2017.
We also started construction in in Upscale outlet center in Seoul Southwest Seoul, Korea, scheduled to open in the spring of 2017. This will be our 4th there. And we also recently announced a new partnership with Ivanhoe Cambridge to develop the premium outlet collection at Edmonton International Airport, which will be our 4th outlet in Canada. This is expected to open in the fall of 20 17. 2 new full price developments are ongoing.
As you know, 1 in Miami at Brickell Center opening this fall and Fort Worth at The Shops at Clearfork scheduled to open in early 2017. Leasing demand at both are great. Brickell will be anchored by Saks. Clearfork will be Open Air and anchored by Neiman Marcus. Portfolio changes.
We sold the shops at Sunset Place and we recently completed the sale of Columbia George outlet, and we also recently acquired with our partner, MacArthur Glen, the majority interest in a leading outlet center in Achtertrupp, Germany, Northwest Germany. This successful center is well positioned within the market and has significant value added expansion opportunities. Me run through the balance sheet. 2 senior note offerings totaling $1,900,000,000 was done last year with an average weighted coupon of 2.34 percent, term of 7.5%. We redeemed 4 series of senior notes, totaling 1.7% with an weighted average coupon of 6%.
We closed 23 new mortgages with an average interest rate of 3.2 percent in 8.5 years. Our liquidity was $5,500,000,000 at the end of the quarter. Our fixed charge coverage is up to 4.5% I'm sorry, 4.5x. And recently, we completed a very successful senior notes offering earlier this month, raising $1,350,000,000 at an average interest rate and term of 2.9 percent at 8.2 years and a very volatile capital market scenario. Dividends, we paid a record dividend in 2015 of 6 point $5 per share.
This has achieved a compound annual growth rate of more than 18% over the last 5 years. We announced our dividend today to be paid this quarter of $1.60 which is an increase of 14% year over year. Okay, that's pretty busy. Now let me talk about our guidance for 2016. It's 10.70 dollars to $10.80 This range represents growth compared to the FFO per share of 9.86 dollars for 2015 and again will be industry leading.
Our range is based on the following assumptions: comp NOI for our portfolio of malls, outlets and mills of at least 3.5% and total NOI growth of more than 6% for the portfolio. No additional planned acquisition or retail disposition activity than what we recently completed, continued unfavorable impacts related to foreign currency devaluations, which should affect us by approximately $0.05 compared to 2015. And importantly, we are not assuming any additional share count decrease. So an average diluted share count of 3 62,000,000. We are now looking forward to your questions.
Operator, are you with us? Hello? Operator?
Yes. Can you hear me?
We don't have any question, ma'am.
Your first question comes from the line of Ross Nussbaum, UBS. Please proceed.
David, you touched on the link between retailers having stores at your malls and Internet sales in that local market. One of the questions I get recently from investors is the concept of occupancy costs being measured as a percentage of sales just at that mall store. When you're talking to retailers now about the rent they should be paying, how is the conversation going such that you can capture some of those Internet sales in the rents that you're charging them at the physical mall? Because to me that seems like an important shift in the business going
on. Well, I don't again, I let's separate the media narrative to reality. But we're we are including anything any sale that comes from their store, and it could be driven by the Internet is in our sales that come from that store. So we're getting the benefit of that. And so I still think occupancy costs are still going to be very important to the overall negotiation of what the rent they're able to proceed.
However, it is important to note that stores for these retailers are part of their distribution network. And when they look at whether or not they're going to keep a store open, they're also going to affect evaluate what their decrease in overall Internet sales might be in that market. And that is a benefit to us, not that we have a lot of stores that are at risk for closures other than through bankruptcy. So and at 12.3%, given our productivity and given where our rents are and what you've seen from the history, I mean, we've got we still have a very good runway to continue to increase our rents.
Okay. And then second question, can you touch on your interest in Macy's Real Estate now that they're clear that they may want to do something there? And in particular, I guess, in theory, it would be with your Hudson's Bay joint venture, but maybe just touch on your interest level there. Thanks.
Well, look, they've been a very important partner of ours. And obviously, they have very good real estate. So I can say nothing really is happening that's material or meaningful other than our normal ongoing business. And that's been very productive. And we have an excellent relationship with Macy's, both from a real estate and a corporate point of view.
They've been very supportive in our efforts to enhance the quality of our real estate through our expansion and redevelopment activity. And if they've got ideas on how they want to look at the real estate, we're happy to do it either as part of the HPC JV or on our own. But nothing really is happening other than day to day business.
And the only thing I would add in the course of that day to day business, we acquired a Bloomingdale store at Stanford, demolished it, creating small shop. They built a new Bloomingdale store. We combined 3 Macy's stores into 2 with Del Amo to facilitate our expansion. So that day to day business does involve activities with respect to their existing stores.
And look, I think it's very interesting that the market needs to understand on these retailers, a Macy's and a penny and down the list. I mean the vast, vast, vast, vast majority of their stores have 4 wall profits. Retailers are of major note in Texas are and we hear that repeatedly. So Macy's, I'm sure the vast, vast, vast, vast majority of those stores that they have are have four wall profits. So I don't anticipate there to be significant changes, but we'll see.
And I think it will give us the opportunity. I think Rick made a great point in that if we can pick off Bloomingdale's at Stanford in the middle of the mall and re lease it to high end shops and they can build a new store, that's a win win for everybody involved. So I think there'll be a few of those as well.
Thanks. Sure.
Operator?
Your next question comes from the line of Christy McElroy, Citi. Please proceed.
Hey, David. It's Michael Bilerman with Christy. Just a question about the balance sheet. And as you think about your very conservative balance sheet with exceptional cost of capital and access to capital. And I'm curious as you think about maintaining that really strong balance sheet, how much of it is thinking about opportunities down the road?
And I don't know how quickly those opportunities will come in to view. And how much is it your concern perhaps about the macro environment? And I recognize as a use of capital, you can buy back stock, which you haven't really done in the back half of the year. And you have a very large development and redevelopment pipeline, which is funded by free cash flow, but your overall leverage metrics and access to capital are never been better in the company's history. And I'm just trying to think about what's driving that in your mind as you run the company.
Well, I think it's a great point and it's ignored a lot in terms of how people look at our company. But I love the fact that our interest coverage is 4.5x given the size of our I should say fixed charge coverage, not just interest coverage. And I love the fact that we can fund our development and new development from our free cash flow and yet at the same time, have a compound annual growth rate dividend increase of 18%. I mean you can't put those kind of metrics against anybody. And you can issue in a day paper at under 3% when the CMBS market is cracking and the life company market is cracking and the high yield market is cracking.
And yet, we're able to go, whether it's in the euro market or the U. S. Fixed income market, but place that kind of paper in that kind of speed and it's undervalued by the equity markets. To me, that is that gross synced. And I have been very reluctant to enter the big deal business.
I continue to be. And we are so busy. I mean, I as you know, I have a hard time speaking generally. And when they get when we write our script, I can barely get the words out because I didn't take elocution classes in high school. But the fact of the matter is we are extremely busy building adding value to the portfolio using our external free cash flow, that remains the focus.
I think we'll be very conservative on buying our stock back in today's market. And my view on the big deal business really hasn't changed.
Hi, David. It's Christy here. Just following up on some of the stats that you mentioned earlier, with traffic in the malls flat, but sales up 5.7%, which is encouraging. I'm wondering if you have a sense for what's driving that differential. Are people staying in the mall longer, visiting fewer stores, or conversions higher?
Just with several retailers out there commenting that mall traffic is down and the impact that that perception is share prices, just any information that we can get from your data.
Yes. I think it's a very important point to make the following distinction. So remember, we get the overall traffic number. And yet, most of the folks that quote numbers are based on algorithms. So it's not real necessarily data like we have.
And number 2 is it is derived from certain stores. So it doesn't necessarily equate to mall traffic and it gives you store data but not mall traffic data and that's the distinction that I really mobile technology is that the consumer today, mobile technology is that the consumer today clearly is going to the physical environment more educated. They're doing less browsing and they're going to less stores. So we think that the store data that you get is in fact maybe it's a little bit not that far off, but it doesn't represent mall traffic. And I just think the consumer is going to a few less stores because they're doing less browsing because they're more informed prior to their visit.
But overall, the mall traffic is what we say it is. Our comp sales are what they are. And it's so operator driven. You could be in a category where one retailer is excelling and another one is not. And it is it's not a tide that's lifting all boats, but it's really retail and operator driven.
And the good news is overall, and given the size of our
to the mall, but sales are up 5.7%, they're just spending more while they're there?
That's the bottom line. And they may be going to a few less stores. I think yes, you're probably right. I probably could have shortened the explanation, but that's the bottom line.
Thank you. Your next question comes from the line of Carly Schmidt, Bank of America. Please proceed.
Thank you. It's Craig Schmidt.
I hope that's Craig. I hope that's Craig.
Yes, it is Craig. It's no transformation. My question is really on the future role of anchors at Regional Walls. How is your view changing of the anchors? I mean, there seems to be a lot of repurposing going on such as the JVs in Seritage.
And I'm also thinking about what you've done at Florida Mall and what you're going to be doing at CHOPS at Riverside. It seems like you're taking a somewhat different view of what the anchor's role is.
Well, look, I think it's such a and I'll let Rick weigh in here. I mean it's such a real estate specific equation. But in a lot of cases, the vendors that go into a department store, in certain cases, would rather have mall stores. And when we feel as if that's the case, well, we'd rather just have the mall we'd just rather have the vendor as a retailer, and we don't necessarily want to rely on the department store to bring those vendors. So again, it's specific, and it's all about creating the right environment and experience.
And in some cases, having this department store as part of that is vital, I. E, take Del Amo with Nordstrom. They built a fantastic store. It is so complementary to what we've done. We couldn't be prouder of that redevelopment and that Nordstrom store and the environment it's helping us create.
In other cases, the vendor we had a Saks store at Riverside. They don't do well in New Jersey all at all. And we feel like those vendors that were in that store actually would have a better experience in our redone environment than they would in the Saks box. So it's and Florida Mall is a great example of just taking underperforming Saks that was not attracting the consumer. We went from, I think, a $10,000,000 SAC to $50,000,000 of revenue generated after repurposing that box.
And that's what it's all about. Rick?
Yes. Well, the only thing I would add is that area. That's a traditional fashion anchor. At Florida Mall, we added the Crayola experience that in that market put in the appropriate retailers to maximize the importance of our properties in the markets that they serve.
Okay. And how is some of the progress on your JVs with Seritage?
Pretty good. I just had breakfast with Ben. I think hopefully we'll get 4 or 5 started this year, Rick, right? That's the plan?
Yes. Yes. We literally we've got pro formas, plans done. Frankly, the most interesting time line is working with Sears as to how their store is going to be reconfigured and that just takes some time. But we've identified the replacement tenants, We've identified the pro formas.
And as David said, we anticipate having developments underway in at least half the properties
Just on the topic of occupancy cost, it has been steadily increasing over the past few years as you've done a good job of really being able to push the rents despite slower sales growth. But I was just wondering, is this something we should be concerned about? And to what extent are retailers pushing back or are the higher occupancy costs just a part of doing business in a strong mall now?
Well, look, I mean, at 12.3%, I would not worry at all. And I think we have to put in perspective how much our growth is ahead of GDP growth. I mean, we are in a I mean, if you look at our results this year and what we did above and beyond our expectations, but take out the extraordinary gain and loss that I mentioned. But if you just look at our numbers and the fact that we overcame relatively softer retail environment, a lot of things going into that move toward durable goods and increased in health care costs and taxes and general economic Malaysia. We overcame our foreign currency translation from outside of the U.
S. Here. And then obviously, the strong dollar, if you look at our outlet business, I mean, less. It's not it's pretty good execution with some of the headwinds that we've done. The $12,300,000 the way I look at it is an insurance policy against a slow growth U.
S. Economy that we continue to well outperform GDP growth. And if it were up 15%, 16%, maybe that's when we would raise the alarm. But at 12.3%, we've got great insurance to continue to grow the cash flow. And if you look at our comp NOI, which is a real number, okay, which is a real number of at least 3.5%.
And what's the Goldman tell me what the Goldman today's Goldman get the conservative economist at Goldman, not the bullish one, get the one that you've got in the closet. What's their GDP growth? What are they saying? 2%, 1.5? Percent?
Well, tell me, what are they saying, Caitlin? Say 1.5 percent. I mean, we're 2.5 percent. Yes. We're 200 basis points above that.
And part of that is because we do have leases that are under market, and we'll be able to continue to push that. At the same time, our business is all about repeat business. We've got to find a win win with our retailers. We try to do the best we can, meeting the expectations of our growth for us, for our investors. At the same time, we want our retailers as strong as possible.
That's a very it's challenging to find that equilibrium. We do a pretty good job of it, and I'm confident we can continue to do it, not completely. Sometimes we screw up at all the various ends there. But at the end of the day, we try to find that equilibrium that will satisfy our retailer partner, satisfy our own internal expectations, satisfy our investors. That's why I've been able to we've been able to grow our earnings 14% per annum, increased the dividend 18% per annum over a long period of time, industry leading.
We try to find that equilibrium. We have an insurance policy.
Got it. Okay. So it sounds like we shouldn't be concerned yet there. And then just
I will let you know, okay?
Okay. And then just regarding your current share price, the market appears to be supporting other mall REITs that might have some takeout potential while perhaps punishing you as a potential buyer. So the stock is down today. Can you comment on basically turning this argument over and by buying yourself and repurchasing shares? I know you mentioned before that you'd be very conservative with doing that in the future.
Well, look, I think what Billerman said earlier or asked earlier, I mean, we are out of the big deal business. So people can speculate all they want. And I do think the market should understand and as our plan that we will be conservative on buybacks. As some of the higher I understand, Tom, that some of the higher estimates out there on first buyback numbers. So that's part of the issue there.
We're going to be conservative there. I love having a great balance sheet. This is not a short term game here. This is long term. But I'm out of the big deal business.
Somebody wants to call me up and talk to me and show me how to make money, I'm happy to have that conversation. But my opinion hasn't changed since really last spring. So I don't really know what else I can tell you on that front. And we won't be afraid to buy back stock. It's just we're not planning right now.
We have the authorization to do it. People are betting against us for whatever reason. That's the markets. But we have a growing dividend and growing earnings and that's usually a bad thing to bet against.
I agree. Thank you.
Thank you.
Ladies and gentlemen, your
Doing well, doing well. So just quickly, I'll go to the second question first and then I'll go to my first question second because you mentioned dividend. Last year you guys raised the dividend quarterly. Obviously, it was up almost 20% for the year. This year, should the expectation you didn't raise it from Q4.
So should we think about just more normalized sort of annual increase? Or do you think that we'll see a steady state of increases throughout the year? And part of that is just trying to read into cash flow use, maybe with what's going on, you guys are trying to husband more cash? Or maybe it was just that, hey, you raised it a lot last year and now you want to go back to an annual increase?
Yes. I think, look, we were we've always we've been chasing our taxable income, as you know. And there's a lot that goes into that equation. If we kept it at 160, that would be 6 percent growth year over year. I would think that, that would be at the bare minimum of what happens.
But I would start to like to get into a normalized once a year raise. So we don't do it sequentially like we've been doing it quarter after quarter. And I think that should be your expectation going forward. And we'll probably assess that at near the end of each year now as we had in the past. But that's subject to change, obviously, with the input of our taxable income calculation as well as obviously our Board's input.
But it's at the very, very least 6% growth, over 6% growth. I would like it for it to be annualized and or I'm sorry, once a year when we evaluate it, which would probably most likely be in the back half, so we can position it for the preceding or the subsequent year. But as you know, with our NOI growth of at least over 6 plus percent, our taxable income is going to
second question is on I think it was in your response to Christy's question, if shoppers are getting more selective and visiting fewer stores, one, it sounds like a merchandising issue from retailers. And then 2, does that mean that we should expect higher retailer turnover like we should see more stores closing if they can't get their merchandising right? Or your view was the retailers that had trouble attracting shoppers last year are quickly addressing their merchandising issues?
Well, look, I think the retailers clearly are in that boat and they're not as look, there's we did experience in 2015 a number of bankruptcies of kind of the really poor performing retailers, there was clearly a slowdown in retail sales in the back half of the year. And then when you couple that with the tourism issue, you couple that with the warmer weather, I mean, it was, so to speak, a perfect storm. And it took a lot of retailers out. I mean, we've seen this movie. I don't know if it's Rocky 7.
I'm ready for Creed, okay? So we don't have to keep seeing this movie over again. I think our retailers are pretty sophisticated, adapting very aggressive. And I think part of the responsibility of driving traffic to create an environment which does and is able to communicate to the consumer what's going on in the malls so that they can visit kind of more stores than they have and that they leased it in 15 and take advantage of them when they're in our store. And I think clearly, as our retailers sync up their information, drive traffic to the stores, fulfill out of the stores, return out of the stores.
I mean, all that's going to be incremental as their systems get sophisticated that I think hopefully will extend stays and allow people to visit more stores. So it's all a work in progress. We've got to do some of that ourselves. And as you know, we're doing a lot of that. We're at the forefront of a lot of that activity to try and figure out how the best way to communicate to the consumer.
So they go see 8 or 10 stores as opposed to 4 or 5 or 6.
Okay. And then just for your I know how much you love your Crooked Stick suggestion box. But as you guys do a lot of the development and redevelopment, it would just be helpful from our end to have a table in the sup that just sort of quantifies the amount and quarter that developments and redevelopments will come online just from a modeling perspective?
Yes. We're happy I think I'm happy to do that. Now I will say this. I know there was a comment or 2 that said about our returns going down. Absolutely not.
Our mix changes every quarter, which we probably Tom could be do a better job of pointing that out. And I assure you that if we are going to deliver, I mean, we do have to have a materiality threshold for the size of our company, but I assure you in the market that if we have a major development or a major redevelopment where we're going to lay an egg, we'll let you know. That's not what happened in today's supplement. We had some things come off and we had some things come on just like we do every quarter. And Tom is happy to walk you through what went in and what went out.
But I assure the market, if we're going to lay an egg on anything that's new or whether it's new or redevelopment, we'll let you know with some materiality threshold, obviously. But that's not the case with the changes in our development pipeline and redevelopment pipeline.
Thanks, David. Sure.
Your next question comes from the line of Steve Sakwa, Evercore. Please proceed.
Thanks. Good morning, David.
Hey, Steve.
Just I guess two quick questions. You mentioned that I guess comp sales were up, I think you said 5.7%. When I look in the supplemental and just look at total sales, it's basically flat December to December. And I realized the comp sales are only a piece of the overall sales, but as you replace weaker tenants with new ones, I would think there's an uplift. I guess I'm just trying to reconcile the strong comp sales.
Remember, our comp, you got to be in place for 24 months. So that's not the case. That's number 1. And number 2, I mean, we did have our we did have slippage in our tourist oriented centers, not just the outlets, but in a number of the malls that were I mean that we had to deal with. And again, it wasn't a traffic issue and it's not anything other than and I know we've seen it from the retailers, but the tourism that is important to the economic growth of the United States of America may have come, but they spent less.
And we have unbelievable great properties in the long are fantastic. And the sales that come out, I mean, we have small shops and medium sized shops that do $30,000,000 $40,000,000 of volume in some of these places, but the tourism affected that. And as you know, we've got a lot going on in some of our major properties moving tenants in and out. So you put it all together, total sales were relatively flat. We don't view that as a big deal.
Okay.
Any sense as to what of the overall sales comp sales make up what percentage of that total sales numbers? Is it 2 thirds of the bucket, 3 quarters, a half?
70%.
70%. Okay. And then I guess as it comes to or in terms of bankruptcies this year, I mean, I realize you guys got hit pretty hard last year. You're working through. What is your expectation for bankruptcies this year?
And how was that impact in that sort of 3.5 percent NOI number that you're giving us?
Well, look, it is. I mean, we still have lease up from last year. And we are we have budgeted in some of the weaker tenants, whether they go bankrupt or we do we renegotiate short term deals while we replace them with stronger tenants. I mean, that's all factored in there. So we've been conservative on overage rent.
I mean, these we are not a perfect science model. I mean, nor is the U. S. Economy. So we do the best that we can, budgeting the best that we can, being as conservative as we can.
We clearly thought in 2015, we would hit 4%. We didn't because of the overage rent thing that we did mention. And that was, as you know, overage rent, you hit breakpoints or if you're over the breakpoints, there's a lot of volatility. The 4th quarter is important in total sales. And I mean, that's hard to necessarily model, but we took a very conservative approach in how we looked at the books at year end.
And we're taking a reasonably conservative approach. We still have work to do. But conservative sales, conservative lease up, conservative restructurings of certain tenants, whether in or out of bankruptcy, is all factored into that number. But importantly, Steve, and this is the true distinction, I mean, our number is our 3.5% is different than most people, okay? So if you you have to put that into perspective.
No, no, I do. I appreciate that. I'm just trying to get a sense. Do you think the 1 point $3,000,000 will go up or down in 2016? Is that do you think you have similar amounts or
I think it will go down. I think it will go down. The 2015 was a big year.
Okay. Thank you.
Sure. Your next question comes from the line of Paul Morgan, Canaccord. Please proceed.
Hi, good morning. Just in terms of
the impact you mentioned, if I understand it correctly, in terms of occupancy from the space that was added, but wasn't at least, but wasn't occupied at year end. Was that I mean, was that sort of part of the budget that maybe we just didn't fully kind of slipped into the Q1 that were expected for the Q4?
I think when you open a new project, you get to 90, what was it, 90.7 or whatever it was. I mean, when you open a new project and you're at 90.7 year 1, that's pretty good. It's just not at 96 or 97. And that creates a little bit drag on the overall occupancy. So that's just real estate development.
I mean, I don't know of any project that opens 100% occupied. I mean, maybe a few do. And as I think we mentioned in the Q3, we did put a lot in the system last year. So our resources were maxed out between all the redevelopments and all the new stuff, I again, it's not like we're delivering these things at 60% occupied or 50%. I mean 90.7% after at the end of year 1 is pretty good.
So I think that's pretty good execution.
Yes. Okay. And then you've got a lot of your kind of A plus assets that are under construction right now with expansions and redevelopments. I mean, is there any dislocation, I mean, that takes place rather than the numbers or just in terms of traffic? I mean, some of the malls are kind of getting torn up in pretty major ways as you're doing the expansions.
I mean, does that trickle through to sales and your expectation or cam or anything that's material?
Well, I it look, I mean, I we don't want excuses. But yes, I mean, we ripped up Rosebel Field. We ripped up King of Prussia. And we those were in we didn't take them out of our sales numbers. And those things, you move tenants around.
We had a number of that of those scenarios this year, which is investing in the future, and it's not an immediate return. So I would tell you that all of those, we had a setback in Copley because we're ripping Copley to shreds, moving tenants around, making room for the potential of the apartmentcondo tower. So that's clearly affecting us. But at the end of the day, I mean, that's just we're just not going to we're not going to use that as a basis to say, here's a little bit of a slippage. But yes, it clearly is affecting it clearly affected 15, both from an NOI point of view and a sales point of view.
And because a lot of these are we're moving traffic around, we're closing entrances and there's absolutely dislocation going on.
And then just lastly, I mean, any update on your kind of current thoughts about mixed use? You've got obviously some of it in your redevelopment pipeline. But as you think about your shadow pipeline, kind of both with your own properties and then with specifically with some of the Seritage opportunities. I mean, how big a piece of your portfolio is residential or other mixed use sort of something we could see over the next decade?
I still think it's going to grow, but selectively. I mean, I kind of view this as the good news in that, it's almost like our international investments. We've had such great results from our international investments. I mean if you looked at what's on our books and what the value of this real estate is, it's a home run, a home run. If you look at the yield on cash flow returns, a home run.
That gives us the only wrinkle in that is we lost $10,000,000 in China. But if you look at Klepierre, McArthur Glen, our own development in Japan, Korea, home run. We've also had great experience, and I can't think of a problem we've had, Rick, in our mixed use development. So as we gain more confidence in that business, I think we'll continue to do it. But as you know, that's so driven by supply and demand, and it's so specific to the real estate.
But we like it. We've had good success in it. We'll continue with it, assuming we can continue to produce the results that we've produced in that area.
Your next question comes from the line of Paul Arenato, BMO Capital Markets. Please proceed.
Hi, good morning. I was wondering if you could compare versus the bottom tier. The market seems to dislike Class B properties and was wondering if your lower tier is subject to some of those same risks?
Well, I think our portfolio is the our results and our averages kind of are indicative of kind of what results were. So I don't think there's any unusual town mall. We think that business is good and very viable. If that only game in town market has too much retail, it's going to be hurt, but that could be in an A market too. I don't think we had any real unpleasant surprises in the not exciting markets that we still own.
The only thing that was a little out of the ordinary from our results this year was the tourist spend that we've mentioned. And obviously, that happened at some of our most unique landmark properties. I mean, we can't hide from that fact. Not a long term issue, I hope. And but the tourists reigned in a little bit.
They reigned in, in New York City, Madison Avenue, 5th Avenue, down in Miami, north and south of the Canadian dollar, the Mexican peso. We have Mexican nationals that shop at our some of our premier properties. We've got the Canadian snowbirds. I mean, that happens. That's the only trend that I would say is a little bit different than what we've experienced, not the only game in town, which is we are in some of those markets, but side
of
the retail business? Which side of the retail business? What should we expect given the dollar?
I think it's good because as you know a lot of that even with the growth even with the tourism spending down, most of those leases are well below market, number 1. And number 2 is there's still unique enough properties that when the opportunity presents itself, that the demand is still there for that real estate. So very few people I'd say very few retailers don't that are of that nature that we want in those properties don't look at the long term opportunity. But if there is a difference, it's on the margin. But we're still pretty insulated from that.
Demand is good and our leases are under market there.
Your next question comes from the line of Ki Bin Kim, SunTrust.
So David, hypothetical question, given that we know a little bit more about the market and what the equity markets are doing versus last spring, All else equal, and I know Macerich has sold some assets, but in your mindset today and what you know about the world, would you still be a buyer of Macerich, all else equal, if it was back in the market today?
I'm not going to comment on that.
Okay.
All I'm going to comment on is where we are today and I've explained that a couple of different places. Okay?
Okay. And then the second question, on your outlet business, you've already talked about the traffic or tourists being down a little bit. But does that eventually translate into lease spreads where it's not just the overage rents that are taking a little bit of a hit, but if this continues, are your lease spreads that the tenants are willing to pay eventually become more at risk?
No. The reality is I wish they were at market because then the volatility, the volatility, Gerard, do I so just so you know, when we roll over a lease, we try to get effective rent, which is base rent plus overage rent. And the reason we have a little more volatility is because the lease hasn't expired. So the good news is as these leases expire, we're going to be able to get them at market rent. I mean, that's why we had a little exposure in the Q4 because we're not at market rent.
We're not at market rent. So even with today's decrease in tourism spend, the important point though also is that the traffic was up. And so that's an important point. I mean, the traffic was up. It was really just the spend was down.
And I think that's just going to be an adjustment until we get where the currencies are a little more stable and anniversary themselves. But the it's our intention to make that overage volatility go away, and that's marking the leases to market.
Okay. That's it for me. Thank you.
Your
next question comes from the line of Vincent Chow, Deutsche Bank. Please proceed.
Yes. Good morning or good afternoon. Just curious going back to the 1,300,000 square feet of bankruptcy space that was taken back. I thought I heard earlier that 70% had been re let as of the end of the year. And I apologize if I missed this, but I guess did that stack up relative to your expectations?
I mean would you expect it to have more of that release by now? And just
I'll leave it at that.
Hi, this is Rick. In fact, we were doing very well with that re leasing. What we are going to do is we're not to put our space on sale. We're holding our margins. In fact, the rents per foot of the space that has been leased are above the rents of the tenants that left because of bankruptcy.
And we're making that we are getting in the right tenants at the right price at the right space. So we're on track with that and there will you'll continue to see the benefit of that coming into this year as more of those leases open.
Okay. Thanks. And on a slightly different topic, just going back to the sort of the changing profile of the mall and maybe the decreasing importance of the anchors, particularly as a traffic driver. Just curious if this or if you think about shortening lease terms from the traditional lease deals 5 years or so, just so you have more control over how to control and create that experience, given that tastes change pretty quickly and things like that?
When we do our leasing, every space and every tenant has their own situation and we are strategic about our terms. If we feel that it's a tenant that is underperforming the mall, maybe we'll do a shorter term. If it's a tenant that we're highly desirous of having in the mall, we want them to remodel, we may give them a longer term. So there's no overarching strategy on term. It's really a lease specific strategic decision.
Okay. Thank you. Sure.
Your next question comes from the line of George Hoglund, Jefferies. Please proceed. Yes.
Hi. I was wondering if you could give some additional color on the trends in asking rents because what we've been hearing is that asking rents are down year over year in the A malls as it's getting a little bit tougher to back fill space and the sort of balance of power maybe shifting a little bit towards the tenants. Just wondering if you could give some color on that?
May I ask where you hear that?
Hearing it from brokers out there.
And what cities are these brokers from? Are they talking about like city street space? Or are they I mean, is it mall space?
It's mall space.
Well, I think you could I would put more faith in what we're would tell you, and the answer is we don't see that.
Your next question comes from the line of Mike Mueller, JPMorgan. Please proceed.
Yes, hi. Just a couple of quick ones here. I guess first, where do you see occupancy ending at year end 2016?
We are projecting an increase from where we are this year. Okay.
Any shot at narrowing that down a little bit?
No, no. Because look, at the end of the day, we're listen, we made our FFO this year was $3,600,000,000 right? So we which happened to be more than certain technology companies. I won't name names, okay? And I mean, I know everybody wants all these metrics, but you've got to look at what we're all about, which is growing earnings, growing dividends, investing for the future.
And I do think there is this move on metrics that I just want to put it in overall perspective that it's not how we we don't stress over metrics the way others might. We're just focused on increasing our cash flow, investing for the future, making our properties the best they can be in a particular market for the benefit of shareholders, communities, retailers. And we will just tell you that we as we model all this, we're expecting an increase in occupancy. It takes a lot of work. How many leases did we sign this year, my friends?
Over 10,000,000
square feet.
10,000,000 square feet, right? So it's hard to model, but we've had a pretty good track record. But certain things are out of our control, bankruptcies, tourism spend and so on. So again, it's a slight uptick, and we hope to be able to achieve that.
Okay. And then maybe a quick Andy question. It looks like interest income tripled in the 4th quarter relative to the 3rd. Just wondering what's driving that?
No.
I know it's not a huge number in the grand scheme of things, but still
We can get back to you on that.
Okay, great. Thanks.
Your next question comes from the line of florist Van Dykem, Boeing. Please proceed.
David, it's Floris. Quick question on your NOI growth. You posted 7% this year. If you do that for 10 years, you've basically almost doubled your NOI. Is it reasonable to expect that kind of growth going forward, sort of the 3% on top of your same store numbers that you're expecting to post?
Well, it's a good question. I can't 10 years is a hard time for me to project. But look, I think the redevelopment, development pipeline that we've got, I mean, I think we've got a pretty decent shot at continuing that as we go forward. I mean, I think the fact is, Boris, as you know, a lot of people have doubted our ability to grow our earnings because of the size of the company. And obviously, math does make it a little bit harder.
But the fact is nobody in our industry, and when I say industry, I'm talking about retail real estate. Nobody in our sub sector of our industry, retail real estate, has been able to do that over a, sure, a quarter here, a quarter there a year there, a year there. But over the life of our company, nobody has been able to do this. I mean we started out with, I think, if I can remember the math, dollars 200,000,000 of earnings, we're at $3,600,000,000 okay? That's not too shabby, as I said in my annual report quoting and Adam Sandler, nobody liked, but I kind of thought it was funny.
But the point is, I don't know. Well, we got a good runway for the next few years.
One follow-up question maybe, David, on Aventura. I noticed there is it's not in your supplement, but there are potential plans for I guess an expansion that Cerrottage is suing Turnberry over. Can you make any comments on that?
We're not named in that lawsuit. So we have no and we haven't seen the complaints. So we've got nothing more to add. And the one question on the other income was the cash flow that we got from our investment in value retail, which tends to happen year after year. But since we only we cost account for it, for those of you old like me, you know what that means.
We don't equity account for it. So we only book the income upon receipt of cash and it happened to be in that quarter. But it tends to happen year after year. Operator?
I would now like to turn the conference over to David Simon.
Okay. Thank you. Very, very good questions. Appreciate staying with us, and we'll talk to you soon.
Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect and have a great day.