Good day, ladies and gentlemen, and welcome to the fourth 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. If at any time you require operator assistance, please key star zero and an operator will be happy to assist you. 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, Chief Operating Officer, Andrew Juster, Chief Financial Officer, and Steven 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 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 forward-looking statements. Please note that this call includes information that may be accurate only as of today's date.
Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included within the press release and the supplemental information in today's Form 8-K filing. Both the press release and the supplemental information are available on our IR website at investors.simon.com. For our prepared remarks, I'm pleased to introduce David Simon.
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 transactions, 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 $9.86, which beat our initial guidance range of $9.60-$9.70 a share, even with a net $0.11 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 from Washington Prime Group spin-off in the prior year and the net loss mentioned above, full year FFO increased 11.4% to $9.97 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 five years. For the fourth quarter, 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. 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 a lease-up of more than two million sq ft of new space we brought online this year from expansions and new developments, as well as replacing the 1.3 million sq ft of space lost 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 two 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 per foot, an increase of 18%, and the base minimum rent was $48.96, which was up more than 4% compared to last year, reflecting strong retailer demand for our locations. I mentioned, retailer demand for space remains strong. Retailers who want to grow their business are adding brand extensions and creating new brands, pure-play e-tailers want physical locations to increase their revenues. E-tailers who open bricks-and-mortar stores experience increased consumer awareness subsequently greater organic site traffic and lower customer acquisition costs. 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, likewise, if they close the store, they see their online sales in that market decline. Successful omni-channel retailers are increasing their buy online and pickup 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 sq ft for our mall and premium outlets were $620 a foot compared to $619. Comparable sales per sq ft for the malls increased 5.7%. We were up a greater amount at The Mills, we were down slightly at our tourist-oriented premium outlets up slightly at our non-tourist outlet centers. We have great centers in key tourist locations that generate incredible sales volume 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. I know you've all heard about mall traffic decreases. 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 1.5% for the year and more than 2% for the holidays. 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 fourth quarter of 2015. For the fourth quarter, overage rent declined $13 million 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 NOI number. Total NOI from our consolidated and unconsolidated properties increased more than 7% to $5.8 billion in 2015. That was on top of 6.7% growth in 2014. This includes any NOI contribution from Klépierre. Let me quickly talk, because we could spend hours on our redevelopment and expansion. At the end of the fourth quarter, I'll give you some highlights. At the end of the fourth quarter, redevelopment expansion projects were ongoing at 29 properties across all three of our platforms, with a total committed spend of $1.5 billion.
During the quarter, we opened two significant expansions and completed a number of other strategic redevelopments, including the new fashion wing at Del Amo, which includes a new Nordstrom and more than 100 exceptional brands, an expansion in the colonnade at Sawgrass, where we added 20 small shops, very high-end small shops, two restaurants, and a redevelopment at Phipps, Woodfield Mall, and Menlo Park Mall. 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 Shopping Center, King of Prussia, Woodbury Common Premium Outlets, The Galleria in Houston. Most of these projects will be completed in 2016. Houston Galleria will go into 2017 as well. Not to be ignored, we continue to be active on new development.
We opened two new outlets during the quarter in Tucson and Tampa, both off to very strong sales start. Construction continues on two 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 an upscale outlet center in southwest Seoul, Korea, scheduled to open in the spring of 2017. This will be our fourth there. We also recently announced a new partnership with Ivanhoé Cambridge to develop the premium outlet collection at Edmonton International Airport, which will be our fourth outlet in Canada. This is expected to open in the fall of 2017.
Two new full-price developments are ongoing, as you know, one in Miami at Brickell City Centre, 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 Gorge Premium Outlets. We also recently acquired, with our partner, McArthurGlen, the majority interest in a leading outlet center in Ochtrup, Germany, northwest Germany. This successful center is well positioned within the market and has significant value-added expansion opportunities. Let me run through the balance sheet. Two senior note offerings totaling $1.9 billion was done last year with an average weighted coupon of 2.34%, term of 7.5 years.
We redeemed four series of senior notes totaling $1.7 billion with a weighted average coupon of 6%. We closed 23 new mortgages with an average interest rate of 3.2% and 8.5 years. Our liquidity was $5.5 billion at the end of the quarter. Our fixed charge coverage is up to 4.5%. 4.5 times. Recently, we completed a very successful senior notes offering earlier this month, raising $1.35 billion at an average interest rate and term of 2.9% at 8.2 years in a very volatile capital market scenario. Dividends, we paid a record dividend in 2015 of $6.05 per share. This has achieved a compound annual growth rate of more than 18% over the last five 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.
Let me talk about our guidance for 2016. It's $10.70 to $10.80. This range represents growth compared to the FFO per share of $9.86 for 2015, 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. Importantly, we are not assuming any additional share count decrease, so an average diluted share count of 362 million. We are now looking forward to your questions. Operator, are you with us?
Ladies and gentlemen, if you would like to ask a question, please key star one on your phone. If your question has been answered, please key star two to remove your question.
Hello? Operator?
Yes, can you hear me?
We don't have any question, ma'am. Let's go to the next.
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 cost 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? To me, that seems like an important shift in the business going on.
Again, let's separate the media narrative to reality. We are including any sale that comes from their store, and it could be driven by the internet, is in our sales that come from that store. We're getting the benefit of that. 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 evaluate what their decrease in overall internet sales might be in that market. That is a benefit to us, not that we have a lot of stores that are at risk for closures other than through bankruptcies.
At 12.3%, given our productivity and given where our rents are and what you've seen from the history, we still have a very good runway to continue to increase our rents.
Okay. The 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? 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. I can say nothing really is happening that's material or meaningful other than our normal ongoing business. 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. If they've got ideas on how they want to look at their real estate, we're happy to do it, either as part of the HBC JV or on our own. Nothing really is happening other than day-to-day business.
The only thing I would add, in the course of that day-to-day business, we acquired a Bloomingdale's store at Stanford, demolished it, creating small shop. They built a new Bloomingdale's store. We combined three Macy's stores into two at Del Amo to facilitate our expansion. That day-to-day business does involve activities with respect to their existing stores.
Thanks, guys.
Look, I think it's very interesting that the market needs to understand all these retailers, a Macy's and a Penney and down the list. The vast majority of their stores have four-wall profits. Rick and I just did a tour in Texas this week, I'll let you guys figure out who the retailers are, of major note in Texas are, and we hear that repeatedly. Macy's, I'm sure, the vast majority of those stores that they have have four-wall profits. I don't anticipate there to be significant changes, we'll see. I think it'll give us the opportunity. I think Rick made a great point in that if we can pick off a 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.
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. A question about the balance sheet, as you think about your very conservative balance sheet with exceptional cost of capital and access to capital, I'm curious, as you think about maintaining that really strong balance sheet, how much of it is thinking about opportunities down the road, I don't know how quickly those opportunities will come into view, how much is it your concern, perhaps, about the macro environment? 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, you have a very large development and redevelopment pipeline, which is funded by free cash flow, your overall leverage metrics and access to capital are never been better in the company's history.
I'm just trying to think about what's driving that in your mind as you run the company.
I think it's a great point and it's ignored a lot in terms of how people look at our company. I love the fact that our interest coverage is four and a half times, given the size of our I should say fixed charge coverage, not just interest coverage. 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%. You can't put those kind of metrics against anybody, and you can't 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.
Yet, we're able to go, whether it's in the Euromarket or the U.S. fixed income market, but place that kind of paper and that kind of speed. It's undervalued by the equity markets. To me, that is sacrosanct. I have been very reluctant to enter the big deal business. I continue to be. We are so busy. As you know, I have a hard time Speaking generally, and when we write our script, I can barely get the words out because I didn't take elocution classes in high school. The fact of the matter is, we are extremely busy building and 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? Are conversions higher? Just with several retailers out there commenting that mall traffic is down and the impact that perception is share prices. Just any information that we can get from your data would be helpful.
I think it's a very important point to make the following distinction. Remember, we get the overall traffic number. Most of the folks that quote numbers are based on algorithms, so it's not real necessarily data like we have. Number two is, it is derived from certain stores. 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 is really important to make. I will tell you the trend, though, with 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.
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's going to a few less stores because they're doing less browsing because they're more informed prior to their visit. Overall, the mall traffic is what we say it is. Our Comp sales are what they are. It's so operator driven. You could be in a category where one retailer's excelling and another one's not, and it's not a tide that's lifting all boats, but it's really retail and operator driven. The good news is overall, and given the size of our portfolio, we have a pretty good handle on this. Overall, we're having pretty good Comp sales increases.
The bottom line is if the same number of people are coming 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, yeah, you're probably right. I probably could've shortened the explanation, that's the bottom line.
Thanks, David.
Sure.
Your next question comes from the line of Craig Schmidt, Bank of America. Please proceed.
Thank you. It's Craig Schmidt.
I hope that's Craig.
Yes, it is Craig.
All right.
No transformation. My question is really on the future role of anchors at regional malls. How is your view changing of the anchors? There seems to be a lot of repurposing going on, such as the JVs in Seritage. I'm also thinking about what you've done at Florida Mall and what you're going to be doing at The Shops at Riverside. It seems like you're taking a somewhat different view of what the anchor's role is.
Well, look, I'll let Rick weigh in here. It's such a real estate specific equation. In a lot of cases, the vendors that go into a department store, in certain cases, would rather have mall stores. When we feel as if that's the case, well, we'd rather just have the vendor as a retailer, and we don't necessarily want to rely on the department store to bring those vendors. Again, it's specific, it's all about creating the right environment and experience. 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 at all. 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. Florida Mall is a great example of just taking an underperforming Saks that was not attracting the consumer. We went from I think a $10 million Saks to $50 million of revenue generated after repurposing that box. That's what it's all about. Rick?
Yeah. The only thing I would add is that every mall has its own story. For frankly, at Roosevelt Field, the addition of Neiman Marcus is going to be a fundamental expansion of the market area that's a traditional fashion anchor. At Florida Mall, we added the Crayola Experience, that in that market is just doing great business and expands the trade area of that property. What we're all about is trying to put in the appropriate retailers to maximize the importance of our properties in the markets that they serve.
Okay. 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 four or five started this year. Rick, right?
Yeah.
That's the plan.
Yes. Literally, we've got pro formas, plans done. Frankly, the most interesting timeline is working with Sears as to how their store is going to be reconfigured, and that just takes some time. 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 we have in our joint venture this year.
Great. Thanks a lot.
Thanks, Craig.
Your next question comes from the line of Caitlin Burrows, Goldman Sachs. Please proceed.
Hi, good morning. 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. I was just wondering, is this something we should be concerned about? 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, at 12.3%, I would not worry at all. I think we have to put into perspective how much our growth is ahead of GDP growth. If you look at our results this year, what we did above and beyond our expectations, take out the extraordinary gain and loss that I mentioned. 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 increase in healthcare costs and taxes and general economic malaise. We overcame our foreign currency translation from outside of the U.S. here. Then, obviously, the strong dollar. If you look at our outlet business, traffic was up across the portfolio, yet sales were down there because the international tourists spent less. It's pretty good execution, with some of the headwinds that we've done.
The 12.3, 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. If it were up 15%-16%, maybe that's when we would raise the alarm. At 12.3, we've got great insurance to continue to grow the cash flow. If you look at our comp NOI, which is a real number, okay? Which is a real number of at least 3.5%. 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%? Well, tell me, what are they saying, Caitlin? Say 1.5. We're 2.5%
Yes
We're 200 basis points above that. 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. 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. 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 we've been able to grow our earnings 14% per annum, increase 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. It sounds like we shouldn't be concerned yet there.
I will let you know. Okay?
Okay. 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. The stock's 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 Bilerman asked earlier, we are out of the big deal business. People can speculate all they want. I do think the market should understand and as our plan, that we will be conservative on buybacks. I understand, Tom, that some of the higher estimates out there on First Call were due to the buyback numbers. 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. I'm out of the big deal business. If somebody wants to call me up and talk to me and show me how to make money, I'm happy to have that conversation. My opinion hasn't changed since really last spring. I don't really know what else I can tell you on that front.
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. 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 next question comes from the line of Alexander Goldfarb, Sandler O'Neill.
Good morning, David.
How are you today?
Doing well. Just quickly, I'll go to the second question first, 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, you didn't raise it from fourth quarter, 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? 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.
Yeah, I think, look, 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 $1.60, that would be 6% growth year-over-year. I would think that that would be at the bare minimum of what happens. 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. I think that should be your expectation going forward. We'll probably assess that at near the end of each year now, as we had in the past. That's subject to change, obviously, with the input of our taxable income calculation as well as obviously our board's input. It's at the very least 6% growth, over 6% growth. I would like for it to be annualized.
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. As you know, with our NOI growth of at least over 6%+, our taxable income's going to be increasing, that'll be driving our dividend increase up as well.
Okay. The 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, 1, it sounds like a merchandising issue from retailers. 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? Your view was the retailers that had trouble attracting shoppers last year are quickly addressing their merchandising issues?
I think the retailers clearly are in that boat. 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. When you couple that with the tourism issue, you couple that with the warmer weather. It was, so to speak, a perfect storm. It took a lot of retailers out. We've seen this movie, and I don't know if it's "Rocky VII." I'm ready for "Creed," okay? 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 more stores is, the onus is on us.
Meaning, we've got to create an environment which does, and is able to communicate to the consumer what's going on in the mall so that they can visit more stores than they have, and that they at least did in 2015, and take advantage of them when they're in our store. 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, all that's going to be incremental as their systems get more sophisticated, that I think hopefully will extend stays and allow people to visit more stores. It's all a work in progress. We've got to do some of that ourselves. 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 the best way to communicate to the consumer so they go see eight or 10 stores as opposed to four or five or six.
Okay. Then, just for your, I know how much you love your Crooked Stick suggestion box. 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 quantifies the amount and quarter that developments and redevelopments will come online just from a modeling perspective.
Yeah. I think I'm happy to do that. Now, I will say this, I know there was a comment or two that said about our returns going down. Absolutely not. Our mix changes every quarter, which we probably, Tom could do a better job of pointing that out. I assure you that if we are going to deliver, we do have to have a materiality threshold for the size of our company. 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, Tom is happy to walk you through what went in and what went out.
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. 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. I realize that 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. That's not the case. That's number 1 and number 2, we did have slippage in our tourist-oriented centers. Not just the outlets, but in a number of the malls, that we had to deal with. Again, it wasn't a traffic issue. It's not anything other than, I know we've seen it from the retailers, the tourism that is important to the economic growth of the United States of America may have come, but they spent less. We have unbelievable, great properties that in the long run are fantastic. The sales that come out, we have small shops and medium-sized shops that do $30, $40 million of volume in some of these places. The tourism affected that.
As you know, we've got a lot going on in some of our major properties, moving tenants in and out. You put it all together and 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 number? Is it two-thirds of the bucket, three-quarters, a half?
70%.
I guess as it comes to or in terms of bankruptcies this year, I realize you guys got hit pretty hard last year. You're working through. What is your expectation for bankruptcies this year, and how is that impacting that sort of 3.5% NOI number that you're giving us?
Well, look, it is. We still have lease up from last year. We have budgeted in some of the weaker tenants, whether they go bankrupt or we renegotiate short-term deals while we replace them with stronger tenants. That's all factored in there. We've been conservative on overage rent. We are not a perfect science model, nor is the U.S. economy. 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. As you know, overage rent, we hit break points, or if you're over the break points, there's a lot of volatility. The fourth quarter is important in total sales.
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. Importantly, Steve, and this is the true distinction, our 3.5% is different than most people's. Okay? You have to put that into perspective.
No, I do. I appreciate that. I'm just trying to get a sense. Do you think the 1.3 million will go up or down in 2016? Do you think you have similar amounts, or?
I think it'll go down. 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.
Hey.
In terms of the impact you mentioned, if I understand correctly, in terms of occupancy from the space that was added and is leased, but wasn't occupied at year-end. Was that sort of part of the budget that maybe we just didn't fully understand going into the quarter, or was there any openings that maybe kind of slipped into the first quarter that were expected for the fourth quarter?
I think when you open a new project and you get to 90.7% or whatever it was. When you open a new project and you're at 90.7%, year one, that's pretty good. It's just not at 96% or 97%. That creates a little bit drag on the overall occupancy. That's just real estate development. I don't know of any project that opens 100% occupied. Maybe a few do. As I think we mentioned in the third quarter, 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. Again, it's not like we're delivering these things at 60% occupied or 50%. 90.7% at the end of year one is pretty good. I think that's pretty good execution.
Yeah. Okay. Then, you've got a lot of your kind of A plus assets that are under construction right now with expansions and redevelopments. Is there any dislocation that takes place rather in the numbers or just in terms of traffic? Some of the malls are kind of getting torn up in pretty major ways as you're doing the expansions. Does that trickle through to sales in your expectation or CAM or anything that's material?
We don't want excuses, yeah. We ripped up Roosevelt Field, we ripped up King of Prussia. We didn't take them out of our sales numbers and those things. You move tenants around. We had a number of those scenarios this year, which is investing in the future. It's not an immediate return. I would tell you that we had a setback in Copley because we're ripping Copley to shreds, moving tenants around, making room for the potential of the apartment/condo tower. That's clearly affecting us. At the end of the day, we're not going to use that as a basis to say, "Here's a little bit of a slippage." Yeah, it clearly affected 2015, both from a NOI point of view and a sales point of view.
A lot of these, we're moving traffic around, we're closing entrances. There's absolutely dislocation going on.
Thanks. Then just lastly, an update on your kind of current thoughts about mixed use. You've got, obviously, some of it in your redevelopment pipeline. As you think about your shadow pipeline, kind of both with your own properties and then specifically with some of the Seritage opportunities, how big a piece of your portfolio is residential or other mixed use, something we could see over the next decade?
I still think it's going to grow, selectively. I 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. 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. The only wrinkle in that is we lost $10 million in China. If you look at Klépierre, McArthurGlen, our own development in Japan, Korea, Canada, home run. We've also had great experience. I can't think of a problem we've had, Rick, in our mixed use development. As we gain more confidence in that business, I think we'll continue to do it.
As you know, that's so driven by supply and demand, and it's so specific to the real estate. 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.
Great. Thanks.
Sure.
Your next question comes from the line of Paul Adornato, BMO Capital Markets. Please proceed.
Hi, good morning. I was wondering if you could compare the performance of your top-tier properties, minus the noise of any redevelopments, versus the bottom tier. The market seems to dislike Class B properties, and I was wondering if your lower tier is subject to some of those same risks.
I think our results and our averages are indicative of what results were. I don't think there's any unusual trend. I think the market sometimes maybe overreacts to the only game in 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. Obviously, that happened at some of our most unique landmark properties. We can't hide from that fact. It's not a long-term issue, I hope. The tourists reigned in a little bit.
They reigned in in New York City, Madison Avenue, Fifth Avenue, down in Miami, north and south of the Canadian dollar, the Mexican peso. We have Mexican nationals that shop at some of our premier properties. We've got the Canadian snowbirds. 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, they continue to perform very well.
Thanks. As a follow-up, could you talk about rent growth at the luxury side of the retail business? What should we expect given the U.S. 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 one. Number two is they're still unique enough properties that when the opportunity presents itself, the demand is still there for that real estate. Very few people, I'd say very few retailers of that nature that we want in those properties don't look at the long-term opportunity. If there is a difference, it's on the margin. We're still pretty insulated from that. Demand is good, our leases are under market there.
Mm-hmm. Thank you.
Sure.
Your next question comes from the line of Ki Bin Kim, SunTrust. Please proceed.
Thank you. 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. I've explained that a couple different places. Okay?
Okay. The second question on your outlet business. You've already talked about the traffic or tourists being down a little bit. Does that eventually translate into lease spreads where it's not just the overage rents that are taking a little bit of a hit, 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 Just so you know, when we roll over a lease, we try to get effective rent, which is base rent plus overage rent. The reason we have a little more volatility is because the lease hasn't expired. The good news is, as these leases expire, we're going to be able to get them at market rent. That's why we had a little exposure in the fourth quarter, because we're not at market rent. Even with today's decrease in tourism spend, the important point, though, also is that the traffic was up. That's an important point. The traffic was up, it was really just the spend was down. I think that's just going to be an adjustment until we get where the currencies are a little more stable and anniversary themselves.
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.
Sure.
Your next question comes from the line of Vincent Chao, Deutsche Bank. Please proceed.
Yes, good morning or good afternoon. Just curious, going back to the 1.3 million square feet of bankruptcy space that was taken back, I thought I heard earlier that 70% had been relet as of the end of the year. Apologize if I'd missed this, but I guess, how did that stack up relative to your expectations? Would you have expected to have more of that re-leased by now? Just, yeah, I'll leave it at that.
Hi, this is Rick. In fact, we were doing very well with that re-leasing. What we're going to do is we're not going 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. We're making sure that we are getting in the right tenants at the right price, at the right space. We're on track with that. There, you'll continue to see the benefit of that coming into this year as more of those leases open.
Okay, thanks. 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 to 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, 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, and we want them to remodel, we may give them a longer term. 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.
Yeah, 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 backfill space, and that the sort of balance of power may be shifting a little bit towards the tenants. Wondering if you could give some color on that.
May I ask where you hear that?
Hearing it from brokers out there.
What cities are these brokers from? Are they talking about city street space, or is it mall space?
It's mall space.
Well, I think I would put more faith in what we would tell you, and the answer is, we don't see that.
Okay, thanks.
Sure.
Your next question comes from the line of Mike Mueller, JP Morgan. Please proceed.
Yeah, hi. Just a couple 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. Because look, at the end of the day, our FFO this year was $3.6 billion. Right?
Yep.
Which happened to be more than certain technology companies. I won't name names. Okay. 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. 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 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. We will just tell you that as we model all this, we're expecting an increase in occupancy. Takes a lot of work. How many leases did we sign this year, my friends?
Over 10 million square feet.
10 million square feet. It's hard to model. We've had a pretty good track record, but certain things are out of our control, bankruptcies, tourism spend, and so on. Again, it's a slight uptick, and we hope to be able to achieve that.
Okay. Maybe a quick Andy question. It looks like interest income tripled in the fourth quarter relative to the third. 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.
Sure.
Your next question comes from the line of Floris van Dijkum, Boenning. Please proceed.
David, 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. 10 years is a hard time for me to project. Look, I think, the redevelopment development pipeline that we've got, I think we've got a pretty decent shot at continuing that as we go forward. I think the fact is, Floris, 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. 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 quarter here, a quarter there, a year there. Over the life of our company, nobody's been able to do this.
We started out with, I think if I can remember the math, $200 million of earnings. We're at $3.6 billion. That's not too shabby. As I said in my annual report, quoting Adam Sandler, that nobody liked, but I kind of thought it was funny. Point is, I don't know. We got a good runway for the next few years, Floris.
One follow-up question maybe, David, on Aventura. I noticed there's, it's not in your supplement, but there are potential plans for, I guess an expansion that Seritage is suing Turnberry over. Can you make any comments on that?
We're not named in that lawsuit. We haven't seen the complaint, so we've got nothing more to add. 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. Since we cost account for it, for those of you old like me, you know what that means. We don't equity account for it. We only book the income upon receipt of cash, and it happened to be in that quarter. It tends to happen year after year. Operator?
I would now like to turn the conference over to David Simon.
Okay, thank you. 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.