Good day, ladies and gentlemen, welcome to the Q1 2015 Simon Property Group, Inc. earnings conference call. My name is Whitley, I'll 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 during the call you require operator assistance, please press star followed by zero, and we will be happy to assist you. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to your host for today, Mr. Tom Ward, Vice President of Investor Relations. Please proceed, sir.
Thank you, Whitley. Good morning, welcome to Simon Property Group's first quarter 2015 earnings conference call. 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, Steve Broadwater, 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, 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.
Okay, good morning. We had a strong start to 2015. As you know, we closed on the acquisition of Jersey Gardens and University Park Village, two great properties that we're excited to have in our portfolio. We created two joint ventures with two of our long-standing retail partners, one with Hudson's Bay Company and the other with Sears Holdings, which will serve as additional avenues for growth. Of course, we continue to produce strong operating and financial performance. As you know, results in the quarter were highlighted by funds from operation of $2.28 per share, exceeding once again the First Call consensus by $0.03. That was achieved even though we had a decrease of approximately $0.03 for the quarter due to the strong dollar against the euro and the yen.
On a comparable basis, excluding the operating results from WPG properties in the prior year period, our FFO per share increased 6.5% or $0.14, even with the currency devaluation. Let me turn to our operating metrics. Cash flow occupancy was 95.8%. Leasing activity remains strong and healthy. The malls and Premium Outlets recorded leasing spreads of $11.19 per sq ft, an increase of 18.9%. Let's talk about Comp NOI. Comp NOI increased 3.5% in the first quarter of 2015 compared to an increase of 5.3% in the first quarter of 2014. As a reminder, approximately 95% of our domestic property NOI is included in our Comp NOI calculation.
Very importantly, with respect to this quarter, our Comp NOI in the first quarter was negatively impacted by about 50 basis points due to a significant overage rent retroactive billing within The Mills in the first quarter of 2014. If you remember, we put in The Mills in terms of our Comp NOI beginning last year. If you wanted to understand our Comp NOI on the outlets and the malls, it's approximately 4%. Right on our budget. Total sales across our portfolio increased 2% in the first quarter compared to the first quarter of last year. I will also point out there was a recent Fitch affirming our A rating. They did a report that I would suggest that the analytic community review.
Just to put in the back of your mind on our Comp NOI growth, we have exceeded our peers by an average of 240 basis points from the period of time of 2005 to 2014. I thought that was interesting reading. In any event, let's go to construction. We continue new Premium Outlets in Gloucester, which will serve the South Jersey and Philadelphia areas and new centers in Tampa and Tucson, as well as our designer outlet in Vancouver. All are great, high-quality major markets, and each is scheduled to open later this year. We are slated to begin construction on as many as three additional domestic Premium Outlets in 2015, as well as three international outlets in 2015 for a total of six. We are beginning site work shortly at The Shops at Clearfork, which as you know is our new full-price development in Fort Worth, anchored by Neiman.
We plan on opening that in early 2017. Yesterday, we were excited to announce our partnership with Swire and the Whitman family for the retail component of Brickell City Centre, which is anchored by Saks. We look forward to contributing our leasing and management expertise to this signature project, which includes a significant residential component, and that will open in the fall of 2016. On Oyster Bay, which we are renaming Syosset Park, we have begun the approval process for what will be a unique mixed-use lifestyle center with retail, office, hotel, park for the families of the Oyster Bay area and residential components. Initial feedback on our plan has been positive. We expect the process to go well.
On the redevelopment and expansion, we've got 24 properties across our three platforms in the U.S. and Asia, for a total commitment of $1.8 billion at the end of the first quarter. During the quarter, we completed a 265,000 sq ft expansion at Yeoju Premium Outlets in Seoul, and recently completed 136,000 sq ft expansion at Shisui Premium Outlets in Tokyo, both off to great starts. Let's not forget, construction continues on major redevelopment expansion projects at some of our most productive malls, all under construction, including, but not limited to Roosevelt Field, The Galleria in Houston, Stanford Shopping Center, King of Prussia, Del Amo, and our premium outlets in Woodbury, Las Vegas and San Francisco and Chicago, all under construction, all bringing significant amount of new sq ft for 2016, and over the next 18 months.
Klépierre, we were pleased to have played the key role in Klépierre's acquisition of Corio, which became effective at the end of March, creating the leading pure-play retail property company in continental Europe. We now have a €21 billion portfolio in 16 countries. To remind the investment community, this was a €7.4 billion M&A transaction. We are pleased to see the rebound in the European shopper. Klépierre will report the results next week, and we expect a higher and stronger growth portfolio given the acquisition. Capital markets, we expanded our $2 billion revolving credit facility to $2.75 and extended its maturity to 2020. Our current liquidity, including revolvers and cash on hands, is over $6 billion. Our industry-leading balance sheet continues to differentiate us from our peer group. As you know, we announced a $2 billion share repurchase program.
We have not yet repurchased any shares as a result of our trading window blackout due to earnings and the timing of our buyback announcement. Proudly, we are proud to announce yet another dividend increase of $1.50, which is a year-over-year increase of 15% and a 7% increase from the first quarter of 2015. Again, nobody's got our dividend growth. We will pay at least $5.90, an increase of nearly, as I said, 15% from last year. Let me turn to guidance. We've increased our guidance based on our view of the year, again, from $9.65 to $9.75. Again, nobody in our peer group has the kind of growth that we have, and we continue to feel very comfortable, as I mentioned to you, on the Comp NOI growth of 4% for the year for malls, premium outlets, and mills, and we are ready for your questions.
Ladies and gentlemen, if you'd like to ask a question, please press star followed by one on your phone. Your first question comes from the line of Christy McElroy with Citi. Please proceed.
Hey, good morning. It's Michael Bilerman here with Christy.
How are you doing?
Great. David, I was curious as how you think about your stake in Macerich at this point. Do you sort of view it as a $470 million mall that's given you a 3% yield that you think is potentially worth $570 million? Or do you sort of view it as worth $470 million, you bought it for $370 million, you have $100 million profit and sort of take that money and go home?
Well, Michael, frankly, since we were not able to engage with Macerich, even though we tried very hard to, as you know, we put what I felt was an unbelievable hell of an offer on the table. Obviously tried very hard to engage. We have been so busy between the Sears and the HBC, finishing Brickell, doing Clearfork, making sure our redevelopment is on time and on budget, the three new deals that we have internationally. I have really not had the luxury of figuring out what I'm going to do with that stake. At this point, I can't really answer your question.
At some point, I'll address it in the near future, but we have just been too busy running the business, producing very good, strong results, raising the dividend, doing the buyback, doing all the redevelopment, all the new ventures that I haven't really sat down and figured out what to do next. I'm open to your ideas if you have any, though.
Yeah. I don't think I should publicly say that on a call. In terms of Europe, you talked about the Klépierre-Corio transaction and being instrumental in that deal. As you think about potentially putting additional capital into Europe, when you originally made the stake, the euro was about $1.30. You're under $1.10 today. You obviously have some hedge because you have some euro-denominated debt. I'm just curious as you think about potentially taking your stake back up to a 30% level, if that's in the cards and putting capital out, given where the euro is and how you sort of think about that.
Well, look, that kind of opportunity is always on the table. I will say this, look, we are up EUR 1.4 billion in our investment, guys, right?
Yep.
That's not too shabby of a trade, if I can quote Adam Sandler, who's one of my heroes. I quoted him last year Not last year, but 2013 annual letter. All you talk about is Steve Ross' letter. You never mention mine. I thought I had a pretty good line in there. I mentioned in our call, I think people lose sight. We did help engineer a EUR 7.4 billion European merger. Don't underestimate the fact and the role that I played, that we played in putting together those two companies. That was a EUR 7.4 billion investment. As you know, the capital going towards Europe and the timing of that deal, I think, is going to be very attractive for us in the long run. I couldn't be more pleased with my investment. We'll just see how that evolves.
There are a couple of other large shareholders. They certainly haven't indicated to me anytime that they're looking to get out. I think they're very pleased with what has transpired since our involvement over the last three years.
Hey, good morning, David. It's Christy here. You've talked often about your larger regional mall redevelopment and expansion projects. I'm wondering with the new Hudson's Bay and Sears JVs, and this may be more so with the Sears boxes, does your new control over any of these boxes unlock any future potential major redevelopment projects at any of your centers? Is it too early to tell? Maybe you could just provide some general comments on the future opportunities for investment that could arise from these JVs.
I think the JV with Sears clearly is all about redeveloping those boxes, with Sears potentially taking some of that space and in some cases, maybe not. As also part of that deal, we bought the La Plaza store, which is a fantastic mall. I don't know, $750 to $800 a foot. Got a lot of demand. That also gives us the ability to look at expanding that mall. The answer, I don't want to put a number on it, Christy, but I would definitely say that it's all about re-tenanting with Sears, maybe downsizing their stores. In La Plaza, certainly, there's a major expansion in the works there that we're going to move very fast on. La Plaza, just as its general scope, Rick, it's a couple hundred million dollars at the end of the day.
Yeah.
All of that was done in the mind to foster redevelopment for sure.
Thank you.
Sure.
Your next question comes from the line of Craig Schmidt with Bank of America. Please proceed.
Thank you. This somewhat is related to Christy's last question. There seems to be more churning in both the mall specialty and the mall anchor space. I'm just wondering from Simon's mall portfolio perspective, is that actually an opportunity for you? I mean, something you actually would welcome, just given your dominant portfolio and the opportunities to distance you from your peers?
Well, we don't use the word dominant here. We have a very high-quality portfolio that's produced outsized comp and a wide growth with our peer over I know we get focused on a quarter here, a quarter there, but if you look over any kind of extended period of time, we've clearly outperformed our peer group. I would say there's not a lot of churning in the department store world. I think we have, Rick, one empty box out of how many, Rick?
450 almost.
Yeah. What is that one? I should know it, actually.
It's in Oxford.
Okay. Yeah. That's a tough one. In any event- Like in Riverside, we got the Saks building back. We actually just approved internally yesterday, a whole redevelopment of that box. We're down to one box. Clearly on the specialty side, we did lose a handful of retailers. I think at the end of the day, there will be an opportunity from it. Obviously, we're focused on releasing on that space, but we're going to put in better retailers. As you know, the retail business, like any business in today's environment, is Darwinian. The retailers that are going away are relatively weaker ones. There's a whole host of stronger ones in the pipeline that we would expect to be able to add excitement to our properties and ultimately increase our cash flow from their participation in our buildings. That's the nature of our business.
As you know, Craig, we love showing the slide about the top 10 retailers in 1993 when we went public to today. It's a little more going on today than maybe it was a year or two ago, but nothing that we're overly concerned about. We're poised to do the work necessary to make these properties better. Obviously, having a high-quality portfolio like we do will make it happen.
Okay, just besides your significant redevelopment pipeline efforts, are there any emerging areas or real estate formats that you're looking to down the road that could be an area for growth for Simon?
Like other uses or?
Obviously, you haven't been that interested in high street retail, is there?
Yeah.
Just thinking, the mall is a mature business. At some point, the opportunities for premium outlets slow, what are you seeing maybe five years down the road that might be an opportunity to grow?
Well, look, we have always looked at I think the Hudson's Bay joint venture is going to give us another avenue of growth in that whole, single credit tenant kind of business, both internationally and the U.S. Street retail, potentially out of that, I don't know. The values there are pretty salty when the deals that we've seen. I think, Craig, we've always been creative in trying to find other areas. It will focus around retail real estate. We're not concerned at all about not being able to find avenues of growth. Clearly, we still got a big pipeline of redevelopment. Our outlet business is very strong. We posted great Comp NOI numbers this quarter. Sales were very strong. We see that growth continuing, and with the redevelopment that we're doing at some of our iconic mall properties. Again, these aren't pipe dreams.
They're Houston Galleria, Roosevelt Field, Stanford Shopping Center, Del Amo, King of Prussia. Maybe we should put it on our website to show you the steel, this stuff is all happening. We got plenty to say grace over right now.
Okay. Thank you.
Sure.
Your next question comes from the line of Jeff Donnelly with Wells Fargo. Please proceed.
Good morning, guys. Just a first question back on Macerich. What were the pursuit costs related there? I guess, where do they fall in your Q1 numbers?
It's another expense, and they're done, and we have no more.
Are you able to give an estimate or?
Immaterial. I don't know. Immaterial. We do a lot of this in-house. You're looking at them.
Okay.
For better or worse, okay? For better or worse.
You work cheaply.
Some may argue that, but the point is, for better or worse, you're looking at the M&A guy here, okay?
Okay. Maybe to switch gears, I am just curious on occupancy. I think Q1 occupancy was down a little bit year-over-year, and maybe I missed it in your remarks, but is that just a return to a more normal, what I will call, sort of pullback post-holiday, or is there something else going on there?
Well, I would say, Jeff, normally we are always going to lose 60-80 basis points from the seasonality part of our business, right? We had more than that this time, and that is all related to another 50 basis points or so, all related to the bankruptcies.
Okay.
Again, we had planned that. That is why we were cautious on our Comp NOI growth. There is no surprise there. Cautious being, I would argue 4% is pretty significant when I look at other categories. I look at office, I look at industrial, I look at across the platform, 4% ain't too bad, nevertheless, it is a little bit lower, and it was all because we were planning the guys that were on the ropes, and the guys that were on the ropes ended up on the mat, so to speak. In the spirit of the upcoming Pacquiao-Mayweather fight, okay? Ended up on the mat.
The only thing I would say, Jeff, is we expect that occupancy to go up as we move through the year and get some of that space redeployed, which we are in the process of doing right now.
Yeah, because I think at the end of the fourth quarter, you guys were looking for sort of flat occupancy by year-end. I wasn't sure if that was still the case.
Yeah.
Look, could we be a few basis points below it? Sure. Again, you also have to factor in, we've got a lot of redevelopment going on. Our portfolio is undergoing pretty significant activities going on. It'll be very close to that number.
I saw that David Contis was working on converting temporary space to permanent space. How much do you guys have in the way of short-term tenancy today, and how does that compare to history?
It's been going down pretty significantly. I'm going to say, again, in our occupancy, we only include folks that have a lease of a year in. Sometimes we do year-to-year leases because we're looking for a better group. That number, the year-to-year guys have been as high as the mid-fives. We're down about 4% now. Jeff?
Rough numbers, right, guys?
Yeah. Close.
Yeah.
Just a last question or two is on WP Glimcher. Is there a set date when you expect that arrangement on providing services to end?
May 16 is the end of that. Right, Rick? May 16.
May 16th. Yep.
All right. On Oyster Bay, how close are you guys?
Let me clarify. May of 2016, not May 16th.
Right.
Right. Just on Oyster Bay, how close are you guys to getting the necessary approvals to move ahead there?
Look, it is a process. I think by the end of this year, we will be in very good shape, but there's a lot to go through. The next six months or so are going to be very important. That's how we're thinking about the timing.
Okay. Thanks, guys.
Sure.
Your next question comes from the line of Ross Nussbaum with UBS. Please proceed.
Hey, guys. Good morning.
How are you?
I'm here with Amy Metz. David, let me first ask you on the stock buyback. Do you intend to actually buy back any stock around the current levels, or was it put in place as a placeholder, or was it a statement to Macerich, or a little of everything?
Well, no. Look, the REIT market, I would say this. Obviously, I'm not going to tell you when or how we're going to buy stock back. I would say we wouldn't have announced it unless we were serious about it. We couldn't buy any stock back because we were in our blackout period when the announcement came. As I look at other companies and their valuation, I look at ours and our growth prospects and our track record, I continue to think we are extremely well-positioned. As I look at history, year after year, quarter after quarter, all that we've got going on, I look at our valuation compared to our peer group, I feel very comfortable that we are a very strong and good investment.
Now, with the added volatility in the REIT sector, we want to be able to take advantage of that volatility. I think you'll see us at the appropriate times of volatility. No statement. It had nothing to do with Macerich. Obviously, had that deal gone forward, maybe the capital would've been allocated differently. I look at our growth profile, I look at the history of our results, I look at our balance sheet, I look at the peer group, I look at REIT valuations generally, I think I can't pick a better investment than ours as we look forward. We'll take advantage of volatility. We'll do this opportunistically, and you'll see us in the market at the appropriate times.
Okay. Appreciate that.
Sure.
Can you talk a little bit about what's going on in the department store industry right now? I know you've got different motivating factors behind what happened with Hudson's Bay and with what's going on with Sears. I guess a couple questions. One is, did you discuss with Sears, or did they want to sell you more than what you actually bought? I'm curious what you think of their, I'll call it spin rights offering. Do you see other department store companies also transacting with their real estate anytime soon?
Well, look, I would say Sears and us got comfortable with the portfolio. It wasn't dramatically different from the beginning to where we ended up. I think it's good to have that kind of relationship. I think it can grow over time. I think they have valuable real estate and we see Seritage. As a company, we wouldn't invest in it unless we saw that going forward. Frankly, Hudson's Bay, I think I really like their management team. I really like that real estate, being a partner with them and their real estate and looking for future growth opportunities gives us another avenue of growth. I see that as another very good opportunity. Could other retailers take advantage of their inherent real estate value? Sure.
If they do it to the extent or they've got a balloon, if they squeeze one end too high, you got to be very careful on how they do it. If they're thoughtful about how they want to take advantage of their real estate, I'm sure there's value to be made for their shareholders. That's not necessarily a focus for us. We're very pleased to have partnered with both these folks, and we expect them to grow. Rick?
The only other thing that I would add is that it does put a spotlight on the fact that the creditworthiness and operating stability of our department store companies, I believe, is greater than the analysts in the investment community has recognized before. When we've said all along we thought that they were in a stable position, I think that's being borne out by the ability to add financial stability by taking a focus on the real estate asset.
David, did you separate out the Hudson's Bay venture from SPG because you didn't want a bunch of boring long-term net leases in SPG, or was there something other than that?
Well, I think it's part of SPG. First of all, it hasn't actually closed yet. We're closing, when we announced it should be closing by the end of the quarter, probably. We've always viewed that as ultimately a standalone business going forward that will help grow, foster the credit, the net lease retail. They're great retailers. How we're going to run that joint venture, they've got great real estate entrepreneurs. We certainly can underwrite retail credit. We have ideas on how to grow that business. Ultimately, that business could, in fact, end up separated from us. We will want to add value to it through our deal-making capabilities. Yeah, if it ends up more focused on the credit lease business, that probably is better separated from SPG in the long run. All that's to be determined, Ross, as we go forward.
Appreciate it. Thanks.
Sure.
Your next question comes from the line of Alexander Goldfarb with Sandler O'Neill. Please proceed.
Good morning. David, just a few questions here. First, you brought up the rating agencies in your comments. Two questions on that. One is the 7% cap rate that they're using. Clearly, we've had a number of demonstrable mall trades that show cap rates are well below, so curious if they're going to move away from the 7%. Second on that is, as you guys entertained the Macerich to buy them, did the rating agencies do any pushback to you guys on your rating? Or their view is they know who you are, and even if anything was breached, they know that you would resolve that in due course, and therefore, a rating impact was unlikely.
Well, look, I'll speak to the last first. No, they have all the confidence in the world in us that when it comes to doing a transaction of that nature, that we did not expect to be downgraded or notched at all. Right, Andy?
Right. We've done $40 billion of acquisitions. They've been very pleased with the results.
Again, not that this is all that interesting anymore, part of the reason we were selling assets to GGP was in fact, the primary reason was, in fact, to make sure that our A rating would stay in place. As far as the seven, yeah, they should update it. It's silly. I mean, but.
It's a disaster scenario when they.
They're being conservative.
Yeah.
It's not market. I agree with you, but I don't.
We agree.
I don't know what to do about it.
It used to be eight.
It used to be eight.
Nine.
Okay. Glacial compression there. Second question is, on the Hudson's Bay , can you just talk a little bit about the challenges of having real estate in other people's centers? We've seen, obviously, other companies in the past try and do that, it hasn't worked out. Is there a different perspective that you guys have on making that work? Or how should we think that this time it may work, versus what we've seen historically?
That's not really even. There's no thinking that, boy, it's great to own real estate in other people's centers. This is a growth vehicle to go find other opportunities in the credit world based on retail real estate. Right now, Hudson's Bay has all the plans to operate those stores, there's nothing about in that sense. Obviously, if for whatever reason they decided not to operate a store, we would have that opportunity. That's really not anywhere near on the agenda. We value this at a pretty attractive cap rate, 6% and 8%, in really good malls. We think it's attractive, accretive transaction for us from a value point of view.
It's really about creating the entity to go do more stuff and seeding it with these stores, as opposed to We have no intention at all to go play any kind of havoc or anything in other people's malls. That's not even on the agenda.
Okay. Just finally, your last presentation on Macerich where you guys disclosed your top center productivity and some of your mall stats. If there's any way, if that could be, obviously quarterly would be great, but annually. It was tremendous retail candy for us, and obviously helps in the analysis of you guys. If there's a suggestion box, would love to see that on the annual basis, at least.
Speaking of suggestion boxes, I better not say this because I might get criticized, but I'm a member at a golf club that was built by Pete Dye, okay? The Crooked Stick here in Indianapolis. The members' suggestion box is in the middle of the pond, okay? That will not be duly noted, and I'm not saying that, but duly noted. Look, I think we put that together because we felt it was important if there were any confusion about stuff that was said there, we wanted to clarify that. Frankly, Alex, we look at ourselves differently than a collection of assets. Duly noted. Everybody expressed their views on that to Tom. We have been, I think, as clear and as articulate in our financial presentations as anybody. We have never wavered from FFO. As an example, we deliver it via the white paper.
Occasionally, like with WPG, we separate that out because it's important to note a transaction of that nature. We give you FFO first, and then we show you whatever is important to change. I feel like we necessarily are a little different in that area. Duly noted. We won't make you canoe to the pond to put in your suggestion box. We'll take it up with Tom, and we'll see about it in the future.
Awesome. Thank you.
Sure.
Your next question comes from the line of Steve Sakwa with Evercore ISI. Please proceed.
Thanks. Good morning, David.
Hey.
A couple questions. I don't think you disclosed the percentage ownership in the Brickell transaction. Is that something you could provide? What role exactly is Simon playing in this development?
We're going to have a 25% interest in the retail, and we are going to be the manager of the retail portion of the project, and we are going to be leading the leasing effort along with Swire and Whitman Properties.
Okay. You'll be, I guess, the lead leasing agent on this?
Yeah.
Okay.
Yeah.
I guess, David, on Copley, I didn't hear any talk on that. Where do we stand on the residential project?
Well, we have an upcoming BRA meeting, which is the authority there, in the next month. We're hopeful to get approved, and there'll be a couple other hurdles after that, but that puts us on the path to start construction. The next month or so, we thought we were going to be able to do it this month. A couple of political things happened out of our control, but we've been assured that we can get back on the agenda here in this upcoming month.
It sounds like maybe a June, July start.
Yeah. I think we feel comfortable by July, we will have all of the permits and all the approvals done. It's a fluid situation, that's correct.
If that's the case, just help us think through the timing. If you start construction, when does the sales office start? Just how far after that, is that a year later?
That's not going to start for a year after that, only because the complexity of this build is significant. We have to go down the turnpike, support the foundation, we got to go into Neiman Marcus store, relay that, go up. There's no real need to rush that. I'd say roughly, a year from now, that would be the focus. A lot's going on at the mall. We're going to start the renovation of the actual interior of it. We're going to do the southwest corridor entrance. We're finishing the office reno. It is a property where a lot is going on. I'd say the sales office would be probably roughly a year from now.
Okay, last question. You mentioned all of the major projects you've got going on in the U.S. here. I'm just curious, how do you feel about sort of the international investment opportunities versus domestic?
With the outlet business, I mentioned in my call, we have three that we think we're going to start this year. We have a great outlet in Provence, partnering with MGE, McArthurGlen. We've got a new site with a fantastic developer in Mexico, Sordo, which built some of the best malls, who's our partner in Mexico City. We expect that to start this year. We've got, with Genting Group, we're very close to finalizing the deal to start our second outlet in Malaysia. I mentioned to you, we just finished Yeoju and Shisui expansion. That's a lot of activity internationally. We're also working on a couple of other opportunities in the outlet with some new joint ventures. We've got another two sites in Canada. Internationally on the development front with the premium outlet product, we are busy.
Again, with Klépierre, we helped do this huge deal that, here domestically, people don't think about, but it was a €7.4 billion deal. They just closed March 31. They also bought a great asset in Spain shortly thereafter. There is a tremendous amount going on with the integration and the portfolio review of the long-term assets. There's a lot of development work going on as well within the total combined portfolio. We view that as our full price retail entity going forward in continental Europe. I expect that company to continue to grow. We're active internationally. I don't see us buying full price retail in Asia, or other parts. I think right now it's kind of finding new markets for our premium outlet product.
Okay, thanks.
Sure.
Your next question comes from the line of Haendel St. Juste with Morgan Stanley. Please proceed.
Hey, good morning. Thanks for taking my questions.
Sure.
First question, just the factors behind your higher FFO guidance. Curious if there's any changes to your FX outlook in the new guidance, and if there's any level of perhaps share repurchase baked into the full year revised outlook?
The answer is no on the share buyback. We've factored in the currency where it is today. We have a few cents. Last quarter one of 2014, the EUR was $1.37 average, right?
Yes.
This year was $1.13.
Thirteen.
That's a pretty big gap. Now it's at 108.
That's down 31%, right.
We're pretty proud that we took a $0.03 hit in our Q1 2015 and still beat consensus. It's pretty good. It's in our numbers. It's clearly going to affect our total. We had $0.10, roughly year-over-year. It's in that range. We have a little bit exposure if it drops further, but nothing that we can't deal with.
Okay, fair enough. Follow up on the Miami project with Swire. Just wanted to clarify first, the 25% ownership, that's just of the retail, or is that the entire project?
Just the retail.
Okay. The strategic decision to get involved with the project now. Why now? Did you approach them? Did they approach you? How should we think about the project in terms of merchandising mix? It looks like GGP, their nearby design district, has a bit of a stranglehold on luxury. How much of a challenge do you think that might present in your ability to attract higher-tier tenants, retailers?
Well, they approached us. We have been involved in this for a while. We feel unbelievably confident we're going to deliver. Obviously, they designed it, and they've done most of the work, but we feel together we're going to deliver a great product that I think is going to wow the marketplace. There's no question that this is going to be a unique, terrific, long-term, mixed-use retail asset. I think it's going to blow people's minds away. The leasing, we've made a lot of progress on leasing, and we're very confident about our ability to deliver a very compelling mix.
The only thing I would add is that this project in and of itself has a hotel, two condo towers, and two office towers. Surrounding it, there's another eight or nine residential, office, and hotel projects going on in the heart of Brickell. It's a very dense, very sophisticated, and very wealthy sub-market inside of the Dade County overall market. We're very excited about it.
Too early to talk about target yields?
Yeah, look, since we have partners in there, it will be put in our 8-K, but that kind of stuff is probably not going to be singled out of respect for our partners. We think it's an attractive investment. We wouldn't make it otherwise. As I said, this will be produced at a very high level. Swire and the Whitman family are first-class operators. You couldn't pick better partners. We all know Bal Harbour for sure, and we all know what Swire's done in China and Hong Kong. They've built some of the most amazing stuff. To be associated with those kind of folks on a long-term basis, we couldn't be more pleased. We will make money in this investment, otherwise we wouldn't do it.
Could there be more? Are you contemplating additional investments with Swire, or is it, again, too early to talk about that?
Well, I think we're not in Hong Kong, and this is their big investment in the U.S., but we certainly have a lot of respect for that organization.
Okay. Just to be clear, at this point, there's nothing talked about perhaps overseas with them in Asia, Hong Kong, or China?
No.
All right. Thank you, guys.
Sure.
Your next question comes from the line of Andrew Rosivach with Goldman Sachs. Please proceed.
Sorry, guys. I tried to get out of the queue because running late, really quick, you guys have listed amazing metrics, especially on a relative basis, especially when you take into account leverage. Unfortunately, you can go through quarters where that actually doesn't influence your share price. I'm just curious, just in terms of, unfortunately, what my clients have tried to get right and discussions over the last couple quarters. When you bid for another company that your shareholders don't own, you can actually harm the relative performance of your supporters. I'm just wondering, is that part of the decision-making process? Do you kind of know it'll hurt, and you make the call that the long-term gain actually offsets the short-term pain, or is it not in the calculus?
We always want feedback from our shareholders. We always take that into account, but hopefully, they have confidence in us that we are making right decisions that will add to the value of their investment. We are always confronted, whether it is an M&A deal or a new development or redevelopment to weigh short-term pain for long-term gain. We thankfully, hopefully, will continue, but certainly historically, we have made pretty good decisions on that front. We certainly have not batted 1,000, but where we have made risky investments, we have done it on a low-key basis, a small basis compared to the enterprise. I go back to two that jump out at me. One was in China, the other was in, I call it my blue period, when we were doing all the technology in the late, whenever it was.
Late
I try to forget about it.
Late.
The late '90s, early 2000s. I would say to you with this last situation, the shareholders that we spoke to, at least what they told me, they were supportive of what we were trying to accomplish. That is what they told me. Again, we never got to the point where we were able to lay out all that we could do there. We certainly always factor that in. We do know that sometimes doing these things is not the easy road. The easy road is to just, I do not know, do what a lot of other folks do, which is not a lot. Okay? This company is all about not doing what is easy. It is easy just to, I do not know, redevelop a thing here, build something there. That is not what we are about. We are about trying to make this company unique.
When you do that, sometimes you do create short-term confusion and/or short-term underperformance. All we can do, we hope, is that people look at the track record and look at dividend growth. 15% dividend growth at a company our size.
David, no pushback on that. No pushback that you're actually great at doing M&A. It's just when it goes on for a quarter, most of my clients are based on one-year performance on a relative basis, after a while, it starts to hurt.
Yeah.
I even got the impression, when you wrote your March 20 final offer, I got a sense when you were saying not to go through a multi-year proxy battle, that I think you were starting to notice the pain it was creating with your share price.
Well, look, that's a whole different subject that's probably better off, I'm happy to have with you or anybody else, it's probably better off to have that not necessarily in this kind of format.
Sure
Look, we're all about short-term gain if there's a long-term play there. It's important to have support from our shareholders. I can say to you that the ones that I talked to were relatively supportive of what we tried to accomplish. On the other hand, going through a multi-year proxy fight, et cetera, if we had done that's when we might have lost support. That's a judgment call I have to make, and I made the judgment call that I did. I think the support would've been there had we, on the deal, whether the support would've been there on a long drawn-out battle, I don't know. I decided not to ask for it.
Thanks for your comments, sir. I appreciate it.
Sure. No problem.
Your next question comes from the line of Vincent Chow with Swiss Bank. Please proceed.
Hey, good morning, everyone. Just wanted to go back to the FX discussion a little bit. Appreciate the comments on the earnings side of things. Just curious, last quarter, we talked a little bit about the impact on some of the tourism-driven markets. Just wondering if you could give us an update on what you're seeing in those markets as it pertains to FX impact.
Yeah. In the U.S. side, with the strong dollar.
Right.
Yeah. Okay. Fair enough. We are seeing a little bit I would tell you that it's just really volatile right now on some of those tourist markets where there's a good month, a good week, and then there's a bad month and a bad week. It kind of balances out. I would say it's safe to say that the strong dollar is affecting, to some extent, sales in some of the really highly international assets that we have. Nothing that's gonna change our financial profile or earnings or any of that. It is a lot more volatile. You hear occasionally, in South Florida a little bit. We haven't seen anything at Woodbury, but I've heard a lot in New York City. We have no exposure there, but you hear, and then when I say hear, I'm hearing it from the retailers.
It's something to pay attention to.
Okay, thanks. Just more domestically, just given the drop in oil prices, it seems like there was expectations that that would flow into the economy, but it seems like it's being saved. Just curious if you're seeing anything different from that in your own mall traffic and that kind of thing?
I'd still say generally, we are still dealing with a cautious consumer. It's safe to say. It's volatile. The comment I had about the tourism also applies to just the domestic consumer as well, where the patterns of the consumer are tougher to predict right now. I still think confidence is getting better, but there's still a lot of debt being reduced, and there's a good month, a good week, and then a bad month, a bad week. The pattern is sloping up, but it's certainly not gangbusters. Look, we had 2% top or net total sales increase from quarter-over-quarter 2014 to 2015. That's the kind of world we're in right now. We did get, unbelievably so, we did not mention this. Now I'm mentioning it, so I probably shouldn't mention it, but we had another awful winter in Northeast.
For those of you in Boston only, we have a lot of exposure to the Northeast. Believe it or not, our snow expense was higher this year than last year across the portfolio. We still had to deal with a little bit of the weather, but we are dealing with a cautious consumer, and the good news is we're delivering results in that environment. That's all we can do.
Okay. Thank you very much.
Sure.
Your next question comes from the line of Carol Kemple with Hilliard Lyons. Please proceed.
Good morning. Thinking about the premium outlet pipeline out there, how much room do you think there is for premium outlets of Simon's quality to be built in the U.S.? Can you quantify a number? Are there 20 possible sites left in the U.S., or where do you think that number would be?
Well, I think that would be a real challenge of our kind of quality to produce right now, the way we look at it, 20 additional outlets. I still think it's a handful. The industry is going through a little bit of a growth spurt. Carol, I would say 20 would be a stretch. This is so hard to give you a real number, but I would say, as we look at the stuff that we might see building, we've got three now that will start maybe another two or three next year. From our standpoint, I would see under 10 over the next three to five years, domestic starts within our portfolio.
The one thing-
Okay
I would say to you, Carol, is when you think about growth, please don't forget about the expansions that David mentioned earlier. They're almost the equivalent, in terms of productivity, of a new outlet. We're adding a lot of square footage at Chicago and at Woodbury and at San Francisco, and all of that is adding math, and that's absorbing demand in the most productive way that could possibly happen. I encourage all of you to go out and see what we just opened at Desert Hills. If you're out in Las Vegas, what we're opening at Las Vegas North, the week of the ICSC convention, these things are dramatic expansions with great retailers that are highly productive.
Okay. Thanks. Then this question's for Rick. We've heard a lot about store closings. I know you love to give your list of who wants space. Do you have any new names for us?
I can't wait.
Well, you have to relax and stretch. I think one thing that I'd like to point out to everybody as we talk about all this, the tenant that has the broadest footprint in our portfolio is L Brands with Victoria's Secret, and they're doing great results, and they're growing, and they're expanding, and they're adding PINK to their Victoria's Secret stores. We're dealing with a lot of international retailers, the people haven't-- DAVIDsTEA has come down. We're growing Uniqlo. We're growing H&M. We're growing Sephora. We're growing Altar'd State, which is a great retailer that has got a significant growth platform. Frankly, as David said, the ones that left are low productivity, oversized, that gives us the opportunity to bring in higher productivity retailers that are just going to increase the market share of our properties.
Okay. Thank you.
Thank you.
Your next question comes from the line of Michael Muller with JPMorgan. Please proceed.
Yeah. Hi. Just a quick one. It sounds like a lot could be going on at Syosset. How much of that project would you actually do yourselves?
Yeah. In terms of the mixed use, we haven't gotten to that point, Michael. When it gets to the office, we'll probably sell the office. We might partner on the residential, but again, there is roughly 400,000 of retail, that we'll do with our partner. The other hotel, we may or may not do. My guess is the end of the day, we probably look to either sell or joint venture. We might sell our joint venture to the other uses.
Got it. Okay. That was pretty much it. Thanks.
Sure. No worries.
Your next question comes from the line of Linda Tsai with Barclays. Please proceed.
Hi. When people talk about omnichannel, my sense is that they think of traditional mall-based or full-price stores. To what extent are you seeing omnichannel capabilities incorporated into the premium outlet model? Do you think this is something that makes sense for you and the retailers?
Well, I think the retailers, as they bring in the omnichannel world to their physical stores, will certainly apply it to the outlet world as well. Again, they're all at different degrees of that integration. I don't think outlets would be ignored on that front at all. I would expect that to be part of it.
Thanks.
Sure.
Your next question, we have a follow-up from the line of Christy McElroy with Citi. Please proceed.
Hey, it's Michael Bilerman again. David, I'm just curious to get your thoughts a little bit on Land & Buildings and Orange Capital's proxy campaign, post them rebuffing your offer. At least in John's letter, he references a conversation that he had with you. Obviously, I don't know if that conversation is done verbatim, but it implied that what you had told him was based on where Simon's stock is currently, almost 200, that that would imply $100 for Macerich. I'm just curious how you think about that as well as their campaign.
Well, look, put it this way. I'm not surprised by Land & Buildings and Orange's That they might pursue something like this or others. As you can see from their proxy materials, we are not participating or providing any financial support in their proxy. I'm not surprised that someone like them would take up this particular issue. Again, this is not us. This is them. I said to you can see it from their preliminary proxy stuff that we're not supporting or involved in that at all. As a shareholder, we'll wait and see what happens.
Right. Well, I guess, as a shareholder, when they came out after rebuffing your offer for the final time, and they put out their presentation of the plan forward, I guess, as a shareholder, would you have wanted to know how they achieve a price equal to or greater than the offer that you had put on the table? I guess, did that surprise you that that wasn't in there?
Well, look, that's up for Macerich to respond to. I can only tell you what I told you earlier, which is, I think we put a hell of a deal on the table. I was looking to engage with Art. I consider Art a peer. We've had a good relationship. People say hostile offer. Let me give you my thinking on this. Anytime somebody offers a lot of money to somebody, I never consider that hostile. Okay? It may be unsolicited, but it ain't hostile.
30% premium, though,
Okay. It ain't hostile. I hope Art and the board realizes that I didn't view it as hostile. Sure, it was unsolicited, but it was a hell of an offer done in the spirit of trying to negotiate a deal at a big number. I'll leave it at that. It's yesterday's news, but I'll leave it at that. It was not hostile. Unsolicited, absolutely. Again, I think I'm a simpleton when it comes to this, but anytime you offer a big number to somebody, I don't view that as hostile. I just view that as of the way of the world, I guess.
Yep. Okay. Thanks, David.
All right. No worries.
There are no further questions in queue. I'll now turn the call over to David for closing remarks.
All right. Thank you, everyone, and take care, and we'll talk to you soon.
Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.