Good day, ladies and gentlemen, welcome to the fourth quarter 2012 Simon Property Group earnings conference call. My name is Chantelle, I will be your facilitator for today's call. At this time, all participants are in listen-only mode. We will conduct a question and answer session towards the end of this conference, at which time you may press star one to enter into the question queue. If at any time during the call you require assistance, please press star zero an operator will be happy to assist you. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to your host for today, Ms. Shelly Doran, Vice President of Investor Relations. Please proceed.
Good morning, welcome to Simon Property Group's fourth quarter 2012 earnings conference call. Please be aware that statements made during this call may be deemed forward-looking statements, actual results may differ materially from those indicated by forward-looking statements due to a variety of risks, uncertainties, and other factors. Please refer to our filings with the SEC for a detailed discussion. Acknowledging the fact that this call may be webcast for some time to come, we believe it is important to note that our call includes time-sensitive information that may be accurate only as of today's date, February fourth, 2013. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included within the earnings release or the company's supplemental information package that was included in this morning's Form 8-K. This package is available on the Simon website in the Investors section.
Participating in today's call will be David Simon, Chairman and Chief Executive Officer, Rick Sokolov, President and Chief Operating Officer, and Steve Sterrett, Chief Financial Officer. I will now turn the call over to Mr. Simon.
Good morning. Our results for the quarter were very strong. FFO was $2.29 per share, up 19.9% from the fourth quarter of 2011. Our FFO exceeded the first call consensus once again, this time by $0.12 per share. For our malls and Premium Outlets, tenant sales were up 6.6% to $568 per sq ft. Occupancy was up 70 basis points to 95.3%. Base minimum rent per sq ft increased by 3.4%, our re-leasing spread was a positive 10.8%, or $5.21 per sq ft. For the year, our 2012 FFO was $2.885 billion, an increase of $446 million from 2011. Growth in FFO per share was an exceptional 15.8% to $7.98 per share. We did achieve such growth through a number of ways. First of all, our comp property NOI growth in our mall and Premium Outlet platform was 4.8% per year.
We completed several acquisitions in 2012, which were done throughout the year, so we'll see more of their accretion into 2013 and beyond. Those include Mills, Klépierre, our investment, Silver Sands, Grand Prairie, Livermore. We also successfully reopened Opry Mills in Nashville, Tennessee, and we opened a new upscale premium outlet center in Merrimack, New Hampshire, and our Texas City, Texas, deal with our partner with Steve Tanger. Our significant redevelopment pipeline is also bearing fruit. Again, not much benefit in 2012 for these things, but we expect to see additional earnings accretion for 2013, 2014. They include King of Prussia Fashion Mall at Keystone, Pheasant Lane, Ontario Mills, Sawgrass Mills, and Southridge Mall. Again, investments made throughout 2012 and opening at the end of 2012. We continue to demonstrate our balance sheet leadership.
December, we did a bond offering of $500 million of 10-year notes at 2.75% interest rate and $750 million of five-year notes at 1.5%, the lowest coupons ever printed by a REIT. 2012, we issued a total of $3 billion in senior unsecured notes at a weighted average interest rate of 2.81% and a weighted average term of 11.6 years. We also were very active in the secured debt markets. We closed or locked rates on 30 new mortgages totaling $3.7 billion, of which our share is $2.3 billion. The average interest rate on those loans is 3.88% with a weighted average term of eight years. Let me turn to the dividend. Common stock dividend increased 17.1% in 2012 to a total of $4.10 per share for the year as compared to $3.50 paid in 2011.
This morning, we announced the sixth consecutive quarterly increase in our dividend from $1.10 to $1.15 per share. Our total stockholder return in 2012 was 26%. We've outperformed the MSCI US REIT Index and the S&P for the 11th time in the past 12 years. Our compound annual return for the last decade was 21.4%, and since our IPO in December of 1993 was 17.2%. Transactions in December, in the fourth quarter, we created a venture with CalPERS and Miller Capital Advisory to jointly own The Shops at Mission Viejo and Woodfield Mall, two of the best 100 malls in the U.S. Part of the transaction, as you know, we owned 100% of Mission and CalPERS owned 100% of Woodfield. We now own 51% of Mission and 50% of Woodfield, and we lease and manage both assets.
We have a very strong relationship with CalPERS and Miller, and we're excited to partner with them in Woodfield, where we think we'll have a good ability to increase that cash flow. Let me talk about the Paragon deal. We completed the acquisition of the remaining interest in these two newly developed centers. These centers have been rebranded as Livermore Premium Outlets and Grand Prairie Premium Outlets. They serve the greater San Francisco and Dallas-Fort Worth areas, respectively. Both are 100% leased. Traffic and sales continue to meet or exceed expectations, and with each center creating an excellent reputation in their respective trade areas. Our new development, redevelopment pipeline continues to move forward aggressively. We invested nearly $900 million in projects during 2012 and expect our share of capital spend in 2013 to be over $1 billion.
We have five premium outlets under construction, all scheduled to open in 2012. Two are in the U.S., Chandler, Arizona, a suburb of Phoenix, and Chesterfield, Missouri, a suburb of St. Louis. One in Japan, one in Canada, which is a suburb of Toronto. Our fifth is in Busan, Korea, which will be our third outlet center in Korea. We plan to start construction in the second quarter of a new upscale outlet center in Montreal. This will be our second premium outlet center in Canada. It will comprise approximately 390,000 square feet and is expected to open third quarter of 2014. Construction is also underway at 24 redevelopment expansion projects throughout our U.S. portfolio and at two premium outlets in Asia. All will open in 2013 and 2014.
Several are very significant in size and scope, including expansions at Seattle Premium Outlets, Walt Whitman Shops, Sawgrass Mills, and the redevelopment of a former enclosed mall into an open-air center at The Shops at Nanuet in Nyack, New York. Klépierre reported last Thursday, total rents for the year were up 4% on a current basis and 2.3% on a like-for-like basis. In 2012, they completed asset sales totaling EUR 700 million, reduced their LTV by 200 basis points, continue to perform ahead of our expectations as we continue to refine the strategy for the company. In conclusion, I am and we are very pleased with our 2012 accomplishments and results. We reported record FFO per share of $7.98 per share.
That is $0.71 higher than consensus at the beginning of 2012, $0.73 higher than the midpoint of our initial guidance range, $1.53 or 23.7% than our pre-Great Recession high FFO reported in 2008 of $6.45. We paid a record dividend of $4.10 per share. With our recent increase in dividend this quarter, we're on track to pay at least $4.60 per share in 2013. This is $1 higher or 27.8% higher than the dividends paid in 2008 at the Great Recession high. We look forward to another strong year in 2013. Based upon our core business, FFO guidance for 2013 is in a range of $8.40 to $8.50 per share. The midpoint of this range is $2 higher than our record FFO per share prior to the Great Recession, or roughly a 31% increase. With that, operator, we're ready for questions.
Ladies and gentlemen, at this time, if you would like to ask an audio question, please press star one. At this time, your first question comes from the line of Christy McElroy of UBS. Please proceed.
Hi, good morning, everyone. I'm on the line with Ross as well. I was wondering if you could comment on the changing importance of outlets for retailers and the differences in retailers' profitability across different platforms, especially in light of Mickey Drexler's comments at a forum a few weeks ago that the increasing importance of outlet sales versus full price to the bottom line isn't very widely discussed.
Well, I don't think anything's really changed all that significantly. Over the years, it's been a very profitable distribution channel for the retailers. I expect it to continue. There are more retailers coming into this sector because of the fact that it is profitable for a number of the retailers. I also think what we've done, that is Simon, has increased the scale, the design elements, the layout for the outlet industry in total. We've brought it to the front door as opposed to the back door in retailers. We've brought new tenants in, and I think we've had an absolute direct impact on bringing new retailers into that sector, and helping take it more in the mainstream. Mickey, I love Mickey. Mickey makes lots of comments to those things, some of which have been directed at me in good fun.
The fact of the matter is, it's a profitable business. We've had a lot to do with taking it out of the back door and the front door. We've had a lot to do with the design and enhancing the look and feel of the product and also moving the product in better locations, and bringing more tenants into it.
David, it's Ross Nussbaum. I had an off-topic question which pertains to your presence as the largest REIT in the industry, and whether you had any thoughts on the increasing number of C corps that are converting to REITs and/or restructuring into opco/propcos, and what kind of implications you think this trend has on the REIT industry overall.
Well, that's a good question. I am starting to get a little bit concerned. Maybe too strong a word, but I am getting a little bit concerned that the basic fundamentals of why companies are REITs is because they're in the real estate business and they're focused on growing their cash flow from their business, as opposed to the opco/propco. I think the opco/propco has not worked. It's a financing vehicle. I'm sure the investors are sophisticated to know which ones are primarily used for that vehicle. I'm getting a little bit concerned. I haven't had a chance, I've been too busy, frankly, to talk to NAREIT about what their whole view on this is. The basic fundamentals of real estate investing with the seasoned management team, with quality real estate that can invest and grow their business is there. It's stronger than ever.
The returns, the cash flow, dividend increase for a number of companies has been remarkable in terms of the face of capital coming and going in the industry. The history of results for our industry has been phenomenal. Proud of our industry. I do think, though, if it turns into a financing vehicle, I don't think it'll have a taint on the existing successful companies like ours. I do think there should be a caution thrown to the wind with some of those.
Appreciate the thoughts. Thank you.
Sure.
Your next question comes from the line of Steve Sakwa of ISI Group. Please proceed.
Thanks. Good morning. David, I know you tend not to provide same-store NOI growth figures. I was just wondering if you could sort of talk about what you did in 2012 successfully and maybe what may not repeat, or are there some items that may be headwinds this year that we should be thinking about, so that 4.8 may or may not repeat. I'll start there.
Well, look, 4.8 is an unbelievable execution. Let me just say this. I've read some of this commentary on our fourth quarter. I find it humorous because we look at our comp NOI on a year basis, not on a quarterly basis. The important number is 4.8%. If you also go back last quarter in 2011, we had a 4.5% increase, yet our annual 2011 was 3.5%. Occasionally, a quarter is going to have a little extra performance, either over performance or under performance, or right on performance. My goodness, focus on the year. The year was 4.8%. The other thing to focus on is that our comp NOI is, what is it, Steve? 99%?
Yes, it's $4.05 billion.
It's $4.05 billion, if you didn't hear that. 99% of our portfolio. We don't play games with it. It's in our Form 8-K. It's right there. I felt like I had to mention that because I've seen some analyst comments on it. Put that as a side. Look, in our plan for next year is not to achieve the 4.8%. For the outlets in the mall business, that was an extraordinary year. It's not doable, frankly. Maybe we can execute that, but we like to be conservative and thoughtful. That's in our guidance. We certainly want to hit our numbers that we produce. We have an unbelievable track record of producing that, rivals any public company in the country. We'll see. There's always headwinds in our business, tenants coming, tenants going, bankruptcies, what the guys are doing in Washington are not executing the way we want.
It's never perfect. It's never as good as we want it to be and never as bad as you think it's going to be. In the meantime, we're $2 over our 2008 number per share. Our dividend is $1 higher and growing. We're doing lots of redevelopment and new development. You know what? I think we'll just do fine.
Okay. I guess we're coming up on the year anniversary of the Klépierre investment. I know you've been a bit reticent to talk about at least some of the operational changes or impact that you might be having on the company. Is it still too early to talk about those, can you share some of your thoughts with us on that?
Well, Steve, operations take time to manifest itself. In conjunction with the management and the board, we don't run the company, first of all, in conjunction with the management and the board, and as Chairman, we give a lot of strategic advice. What have we done? We've done asset sales to decrease the LTV and increase the financial firepower. We have EUR 2 billion of liquidity. We've rebranded the company from two brands to one brand, in Ségécé to Klépierre, where we've decided to get out of the office business to focus entirely on retail real estate. They did a great job of executing three terrific new developments in Sweden and France, that if you had a chance to visit, you'd feel very proud of. We brought in a new COO that used to work for us at Simon Ivanhoe and worked at Unibail.
The company is rejuvenated in terms of marketing and operations. I think we've done a lot, and the good news is, it's been a good investment. It will be, I think, a better investment. It has an element of risk. The fact that they produce comp NOI growth with all the negatives said about Europe is pretty damn good work. We're proud of our association. We're proud of our investment. We're making big and good progress there that will again take time operationally. We brought our buying in Klépierre. There are other publicly traded vehicle, and we'll end up monetizing those assets over time. I think there's been a tremendous amount of work. I'm surprised you don't see that.
I was just trying to figure out if you thought that there were real sort of synergies on the leasing side or things that would maybe accelerate some of that growth. Let me just, last question. Can you just talk sort of about Brazil and China? I know you've kind of been dipping your toe into those two markets, and you didn't really mention them, so I'm just curious kind of what your thoughts are as we sit here today.
Turn to China. We continue to underwrite a couple of premium outlet deals. I continue to be very cautious about China to build anything and including outlets. There's really nothing new to say there other than it's taking longer to find the right deal to do, which is fine with me. We have plenty to do. I think, the returns, trying to get to the numbers, understanding tenant demand, understanding what's a great site, the ability to build expeditiously is very complicated in China, and we have on-ground experience, as you know, that wasn't a great experience for us, but nevertheless, we continue to see whether or not there's an outlet opportunity there, but it's slow going, and fact of the matter is that's fine with us. In Brazil, we continue to work with BR Malls on one project. It's going through the permitting process there.
It's taking some time. Assuming we get the permits, we would still have an interest in doing that. There's no certainty that that will be accomplished, a site's been identified and we feel good about it if, in fact, we get the right to build stuff satisfied, and there's also a couple of others that we're looking at. Both of these markets are complicated. Both of these markets warrant a high level of due diligence, a high level of thoughtfulness. We're exhibiting that by not just willy-nilly plowing capital in there, but really waiting for the right opportunity that can justify the risk and make sure the returns are there, which, Steve, frankly, is questionable on some of the ones that we've looked at and turned down.
Thanks. That's all I have.
Thank you.
Your next question comes from the line of Alexander Goldfarb of Sandler O'Neill. Please proceed.
Morning. David, maybe we'll give you a rest and ask Steve a question to start off. Steve, you guys obviously just did some recent debt financing. One of those was a five-year issuance. Just looking at how the tenor is backed up, in 2019, it's a little bit light, but given how the tenor is backed up, if you guys were going to go to the market again, would you just issue 10 and maybe another 30 year? Would you still look to sort of fill in some of the near term?
Alex, it's a good question. It's really a couple of things. We've been really focused, in this period of historically low interest rates, in extending duration wherever we can. In fact, if you look at the 8-K, for a portfolio that's $28 billion of debt, we moved the needle and extended duration by almost half a year and lowered our average borrowing cost by 23 basis points. Our primary focus is locking in rates and extending duration wherever we can. The December offering happened to be a specific interest or situation where we had a hole in our maturity schedule that was shorter term, and the five-year demand was so good that we issued shorter paper. The focus is going to be primarily on longer duration stuff.
Okay. The second question is, just going to Paragon. Obviously, you guys have your own outlet program, but you've already done a few deals now with Paragon. Is there sort of a relationship there where as they source deals, they know they sort of have an exit if a deal fits a certain criteria, they know they can sell it to you? Or were those two just sort of one-offs?
Well, first of all, those deals, we were originally in as a partner in the deal during the development phase or construction phase. I don't know if you know that, but that's the first point. Yes, we have a very good relationship with Paragon. There's no exclusivity on their behalf, on our behalf. We're talking to them on a couple of other deals. David Lichtenstein is a shareholder in the company as part of the Prime transaction. There's a good relationship. We continue to talk about new stuff. There's no requirement or exclusivity on either side.
As they're talking to tenants about pre-leasing, can they talk about obviously, they do talk about the relationship and the fact that Simon, the Premium Outlets brand, may be the one ending up managing these. I would imagine that that would be helpful as they're trying to pre-lease. Can they say that or not the case?
It's a deal-by-deal basis, it's really not the case necessarily. If we do something at the outset that's a 50/50 partnership and we're both leasing it, that's certainly the case. Livermore and Grand Prairie, we were not involved in leasing or managing. We had nothing to do with it. They did an unbelievable job on their own. When we got involved, it was essentially pre-let. If there's a couple of ground-up things that we come in at the beginning, we may lease jointly. In Grand Prairie and Livermore, they did all the work themselves.
Okay. Thank you.
Thank you.
Your next question comes from the line of Paul Morgan of Morgan Stanley. Please proceed.
Hi, good morning.
How are you?
Good, thanks. Just on the core a little bit, your occupancy at 95.3%. At what point are you getting to where you think you're at a frictional minimum in terms of vacancy, and kind of what does that mean for if so, what does that mean for your ability to push rent a little bit harder?
Well, I'll just say this. In our plan for 2013, we do have an increase in occupancy for the portfolio. It obviously is getting more challenging than it has as we've increased the occupancy. We're also focused on improving the mix, and we have some deals that are shorter term, and we're trying to clean those out and go longer term. There's a hell of a lot to do. We're bound to get certain stores back because of either bankruptcy and/or the tenant is shrinking its store fleet because of their own issues. We do have a plan to increase our occupancy this year. As important, and more importantly, is improving the mix and lengthening some of the shorter term leases into full seven, eight-year leases as opposed to one, two, or three-year deals.
If I think about in terms of lease spreads, your numbers have been around 10% for a while. Is there any reason to think they might change this year?
No. In terms of our spread, no.
No. Okay.
We should be able to Look, as unfortunate as it might be, we're subject to the U.S. economy. I wish we could figure out the model where we weren't, but we are. Based on what we know today, I would think that we'd be able to achieve those kind of rental spreads.
Okay, great. Just on the dividend, for 2013, the dividend policy, are you going to keep doing what you've been doing over the past in terms of the quarterly adjustment?
Well, it's safe to say we're getting closer to our taxable income. At $460, we're getting much closer to our taxable income. We'll have to see how that manages itself this year. We'll be paying, as I said, at least $460, but we'll have to assess it every quarter. We are getting closer to our taxable income.
Okay, great. Just last question on Woodfield. As you look at it now, anything that you think could be done there, interesting in the near term, or is it more of a longer term?
Hi, boys. This is Rick. We are all over Woodfield, and frankly, we think there are a number of things we can do in both the operating expense category, the marketing category. It is a massive property. It's over 2.2 million sq ft, almost 890,000 feet of center section. We've got a lot of flexibility in how we can deal with that space to maximize the NOI and bring in different users and create incremental uses and drive the NOI there by making more efficient use of the existing space. David Contis and his team's been up there a number of times, and they're very focused on what we can do, and I think you'll be seeing a number of things implemented over the next few months.
Great, thanks.
Thank you.
Your next question comes from the line of Cedrik Lachance of Green Street Advisors. Please proceed.
Thanks. Just to stay on the topic of Woodfield, what led you to JV Mission Viejo, with CalPERS? Was it in terms of accessing the deal for Woodfield, or did you want to reduce your exposure to Southern California somewhat?
No, Cedrik. Actually, they have had Miller and CalPERS as partners, and our partners have had a tremendous business in investing in top-quality regional malls. They didn't want to reduce their overall exposure. It was one of those things where we talked about one other mall that was not in California. We really said, "Here are two malls that would meet their criteria." We obviously have a lot more, but we just narrowed it down to two. We did that. In addition, and Steve was intimately involved, in addition, they actually wanted California exposure.
That's correct.
That's why between the two that we discussed, they chose Mission because they did want to increase their California exposure.
Are you able to share the cap rates that were used to value each property?
They were exactly the same. In other words, a dollar of cash flow from Woodfield was valued at the same value as a dollar of cash flow from Mission.
Okay. Just going back to the short-term deals or short-term tenants question from earlier. As you transition some of those shorter tenants or that space that's currently leased to short-term tenants to something longer, do you need to find new tenants? If so, what kind of retailers are primarily growing in those spaces?
Well, one, if you keep track, we made substantial progress in the last quarter in reducing the amount of the specialty leasing agreements we have in excess of the 12 months. What we're doing is we're bringing in a number of new tenants, and for the most part, we're taking that space and incorporating it into existing spaces to create appropriate rooms. I'm not going to give you the usual litany of new tenants that are coming into the mall space that David always jokes at me about. We do have a number of tenants that are looking for larger footprints, and three that are particularly relevant, H&M, Zara, and Uniqlo, are looking to have footprints that are in the 20,000-25,000-foot range. That requires significant reconfigurations of existing space and pretty unique property solutions to satisfy those needs.
We want to do so because they're great retailers. That's one of the real sources of incremental demand.
Okay. Final question, perhaps going back to the outlet business a little bit. What's the appetite on the part of potential institutional joint venture partners to take positions in some of the outlet properties?
We like owning generally 100% of an asset. We've never really pursued it, but the Woodfield/Mission is a great example of how we think about joint venturing. If it's a new opportunity that we couldn't otherwise access, it's great to partner with a highly respected group like Miller and CalPERS. For us to bring in a JV partner in any of our outlet business, first of all, we just don't see there's a lot of growth in that business. It's not like we can't access capital if we need it. We've got obviously a significant amount of retained earnings and cash flow that we plow back into the business to accelerate our growth, as evidenced by our growth over the last two or three years.
There's no doubt in my mind that if, in fact, we desired, that the institutional investors would certainly have a high degree of interest. We get solicited all the time. We kind of just pooh-pooh it. Mills is a great example where we decided to go ahead and buy that deal as opposed to bring in another highly thought of institutional investors because we thought there was still significant growth there, and we wanted to own 100% of the assets that we ended up buying.
Great. Thank you.
Sure.
Your next question comes from the line of David Harris of Imperial Capital. Please proceed.
Hey, good morning. Could I just extend that question on CalPERS JV? We've talked about this in the past about Simon's ability to generate higher returns out of assets and perhaps properties that come from other ownerships. Is this going to be an example you might be able to look to, David?
I think so. I will say this, there is a significant demand, David, from institutional, highly capitalized, highly thoughtful, highly experienced, big-time institutional investors, including sovereign wealth funds, to invest in retail real estate. I just had a recent meeting and that's worldwide. It's not just U.S. There's a high demand to invest in Europe. There's a high demand to find opportunities in Asia where we can certainly parlay that interest in our corporate success into creating new opportunities for the company.
Okay. Can I stay abroad for a minute? Japan seems to have adopted a leaf out of the Bernanke book on currency debasement. It looks like we're looking at a substantial reduction in the yen dollar rate.
Yes.
You have fairly substantial high net asset exposure with minimal Japanese yen. I'm just wondering how you're thinking about that, whether it might represent an opportunity for a dollar buyer, and also whether you might be thinking of putting some more hedge in place on your existing assets.
We're currently under-hedged in terms of the value that we have, and we do have a hedge of roughly $250 million.
Yeah.
We do have a hedge, but our asset value is much greater than that. We also hedge, we get cash flow repatriated through our management and development fees and advisory fees that we do hedge, and we've hedged those over a long period of time. What we don't hedge, though, is the cash flow that's generated from the business because it's harder to hedge given a lot of that capital goes back into the business to grow, either to build something new or expand. It's something we're seriously thinking about. We are under-hedged. We will suffer a little bit this year, $0.02 if the yen stays higher than where it is given our plan. I think I'd say we'll develop a plan here over the next month or so, it is something we're very focused on.
Obviously, as the company gets bigger and gets higher exposure to international, you're going to have to lead the way in the sector in terms of your sophistication around this.
Yep.
There are some other leading companies that fall a long way short of what's needed here. Could I just, another point of detail. On page 14 of the 8-K, your international NOI is listed at 6.3. That's inclusive of Klépierre, I'm assuming?
Yes, David, this is Steve. It does include our share of the Klépierre NOI from the date of the investment on.
Great. Terrific. That's all for me.
Okay. Thank you, David.
Your next question comes from the line of Quentin Velleley of Citigroup. Please proceed.
Hey, good morning.
Good morning.
Maybe just the first question for Rick. Just in terms of leasing in 2013, and some of the, I guess, opportunities. What's sort of the incremental leasing opportunities to push occupancy up above 95% this year that you're looking at?
Well, David touched on, I think, the most important one, which is what we're doing is spending a great deal of time making more efficient use of the space that we have by trying to downsize underproductive tenants. That is a way to generate a lot more NOI out of the existing space. The other opportunities, as I mentioned, the three significant international users are all fairly aggressively looking for space now, That is a major source of demand in the properties. We've got a number of other tenants that are having brand extensions, and new international tenants that are seeking space. It's a matter really of coming up with ways to create space that will be appropriate for their needs. For the most part, at this occupancy level, it involves downsizing existing underproductive tenants or trying to create incremental space.
A great example of that is Walt Whitman, where we are literally adding significant square footage across the entire front of the property by expanding it, that's enabling us to bring in a significant number of new impact retailers.
Great, I guess that feeds into the second question I had just in terms of the development pipeline in the U.S., which is about $1 billion if you include all the reanchoring that you're doing. Could you maybe just talk about what the shadow pipeline is if you were to look forward over the next sort of three or four years? What's the kind of volume of capital you're looking at putting back into the U.S., and how are you thinking about returns and construction costs and some of the trends in that development pipeline?
Well, we have said previously, we think this is going to be the case, that we can foresee spending at pretty much that same $1 billion rate over the next couple of years, that's a combination of the announced projects that are already underway. We're working on some new premium outlet deals. We're working on several significant redevelopment opportunities in the mall portfolio that David has talked about in the past. We've announced Nordstrom at Del Amo, Bloomingdale's at Stanford, we still have a significant pipeline of opportunities in this portfolio that's going to enable us to deploy that level of capital at our historic returns.
If you were to use the Euros actually do a pretty good job in terms of how they look at their pipeline. I'd say our controlled pipeline is at least $5 billion, as Rick mentioned, between the redevelopments, the Roosevelt Field, including that Fields and the Copleys and the Del Amos of the world, including the new developments. I'd say our controlled pipe is around $5 billion, that's over a three, four-year period of time. That'll give you a sense. Projects come in and projects go out, but that's kind of the order of magnitude that we see.
David, it's Michael Bilerman speaking. Just had a question on Klépierre. Given the fact that this is the 10-year anniversary of the tax, there certainly is an element that, at some point, perhaps you can take this thing private over the course of this year or next. I guess, where do you sort of stand in terms of the desire to sort of increase your ownership? What is your relationship with BNP Paribas and their desire to sell a stake, and sort of how are your thoughts evolving on that?
Well, those are very simple, straightforward questions that I'm really not going to answer. Other than that, I will say this. We have an excellent relationship with BNP. They've been very supportive from the get-go. Once we got the deal negotiated, and they make valuable contributions at the supervisory board level. The rest, Michael, I'm really not going to comment on. We are pleased with our investment. It's going to take time. I still think there's a unique opportunity here to turn Klépierre into a really premier retail real estate company in continental Europe. It's going to take time. I'm very patient on this, reasonably, I should say, put in quotation marks. I hope the market here is reasonably patient. The fact of the matter is, for the last, shoot, the deal closed in late March, early April.
We've done a lot of good stuff in a very short period of time. Getting the company rejuvenated toward what we think allows them, again, subject to a lot more improvement, but at least gives them the path toward preeminence in continental European retail real estate.
Then you had mentioned Copley, which I don't think yet is in the 8-K in terms of schedule. I guess, when are you thinking about breaking ground, and are you thinking rental or condo? I guess both would have a difference in terms of capital deployment or net capital invested at the end of the day.
We're still designing the building, because of that design, we may need to go back through some administrative approvals that we don't think will be a big deal. The idea that we're circling right now is to do mostly rentals, though there will be some condo element to it. You'd have essentially a hybrid building.
Okay. Just last question, just Sears and JCPenney. Obviously, you had some changes at Sears at the helm this quarter. I'm just curious how you sort of think about how that evolves. In terms of the JCPenney sort of rebranded stores and any within your portfolio about, I guess, how you're sort of viewing those performing relative to the others within the portfolio.
Well, Sears, I really can't comment all that much on the management changes. I don't sense it's a huge deal there. I don't think that's any major move on their front. Penney, I like the new stores. Rick and I have visited the new complete prototype, we've also seen some of the new shops within the shops at some of our malls. We don't have all the data yet. I'm really not in a position to comment on how successful it is. They are. I like what I see. They're making progress, the financial implications of that change is really best left for them to describe, I assume they're coming out with their earnings here shortly, I would imagine. We'll look forward to hearing more in terms of the progress.
Just from a mall owner's point of view, rejuvenating that brand, Penney that is welcome. We're working with them to be supportive of their efforts in rejuvenating the brand.
Okay. Thank you.
Sure.
Your next question comes from the line of Jeff Donnelly of Wells Fargo. Please proceed.
Good morning, folks. I think this one's for Rick on leasing spreads. I'm curious about market rents in particular. If I look at your, I guess it's the closing rate on leases that's been moving lower over the last year, the opening rate has been relatively flattish. Can you speak to the trends in market rents here in the U.S.? I'm wondering if the growth has been obscured a little bit, maybe by a mix issue in the leases that you're signing.
Well, frankly, we continue to see our average base rent go up quarter-over-quarter, and it has been consistently. I would tell you that we still have pricing power. If you look at our occupancy cost percentage, it's still relatively low. We have significant demand, and we're able to continue to grow, I think, to grow those rents.
I think you really got to look at the spread, and that's the more driving.
Yeah.
The mix always is moving around, what's expiring, what's coming up. If you look at kind of what the expiration schedule is and the incoming rents, you'll see the spread is there to be had if we execute.
I guess in that regard, when I kind of think about the spreads down the road, specific to anchor expirations, I think in 2014, the expiring anchor rent is sort of north of $5. In most recent years, it's been sort of between $2 and $4. Is that something that leads you to think that leasing spreads could decelerate a little bit in 2014, or is that something unique there?
The anchors invariably have options, that really has very little in driving our income.
Okay, a question, David, I guess for you maybe on asset pricing, because a few of your competitors have put out portfolios and malls in the market that are generally kind of in the $300 a sq ft range for sales productivity. What's your sense on where assets like those are pricing today in this capital market, given your experience with recent mall sales?
Well, it's really better left for them to explain what their pricing expectations are. The latest data that we have seen is what Westfield sold to Starwood. There's not much new beyond that. I will tell you that some of the assets that are being sold, I find very aggressive pricing. There was this auction in Kansas City, really not sure what it is. It used to be a lifestyle center, turned outlet, turned to just a place where it's big, so you lease it to whomever you can lease it to. That pricing was pretty aggressive. They're really better in a position to tell you what they want to see from pricing than we are.
Okay. Just one last question, I guess, on outlet development, because I guess Christy touched on it earlier, you are seeing outlet development activity kick up or at least certainly interest in it. Has it gotten to a point where you guys are seeing maybe pressure on development yields because retailers feel that they have more options for who they can align with?
Well, I think that there's certainly going to be pressure on development yields for risky or ill-conceived projects. They always are, right? That's the case in malls, outlet centers, power centers, lifestyle centers. The minute you have to beg a tenant to go into is the minute your yield goes down to unacceptable levels. I don't think it's going to change all that much for what we're trying to accomplish. We're not going to get every deal. We're not going to win every deal. I think the stuff that we're looking to build, I feel very good that we'll continue to generate the returns that you've grown accustomed to. By the way, it takes a lot of work to generate those yields.
I'm sure there's going to be some yields that are going to really be way too low because the nature of the business is people push projects, and retailers sometimes don't pass up deals that are too good to be true. As long as it's not our mistake, it doesn't matter to us. It doesn't impact our business. That's what you have to understand. Too many people extrapolate, well, there's going to be four or five bad outlets. It's going to have some impact on you. It's going to have no impact on us. None. There were 100 bad lifestyle deals. It didn't really have an impact on us. We're $2 higher this year than we were in the Great Recession. That says a lot about the company's ability to withstand whatever the trend is out there.
The yield compression is not an issue for SPG. It might be for others. There'll be some bad deals done, and we'll say, "We knew it. We told you." What can we say? What can we do? We just have to do what we do.
Actually, just a follow-up. You mentioned before that you prefer to own, particularly your JV outlet developments, 100%. I'm curious because return interest is very strong, or interest is very strong from institutional investors out there. If there was an opportunity for you to raise capital from there, what sort of terms or return split or valuation would lead you to maybe rethink that and take on a partner?
If somebody wanted to come at a two yield on Woodbury
You're reasonable.
Look, I think Woodbury's got better risk-free credit than the United States of America, and with growth potential. 1-800-DAVID, 2% yield at Woodbury, maybe I'd do it. I don't even know if I would do that, frankly. Rick, would you sell it at a 2%? I don't know.
There's a lot of growth left in Woodbury.
I don't know.
You drive a hard bargain.
Yes.
Okay. That's it for me. Thank you.
All right. Thanks.
Your next question comes from the line of Mike Mueller of JPMorgan. Please proceed.
Yeah. Hi. Quick question. If we're thinking about, let me see, you got a comparable outlet and a comparable mall. Let's say they're doing good centers, doing $600, $700 a foot. Do you think there's a cap rate differential there, number one? If you lower it to, say, a $350 or $400 foot center, the same question, is there a cap rate differential there?
Cap rates are so real estate specific that we'd have to know where the leases are, what the competitive marketplace is, where is this mall or outlet center. There's so many other variables than one just simple number. The most important point that I'd like to make with respect to your question is that, go back to our involvement in the outlet business. David Bloom and I did a joint venture in 1998 in the outlet business. We built Orlando and Las Vegas together. I was so stupid because I invested in some technology business that I had to show the market that I was maybe not great in technology, but pretty good in real estate.
We had $4 million in Orlando, and I sold it out to them a year after it was built for $40 million, which is 10x on a real estate deal in a year, which by the way, rivals any private equity deal done or any venture capital deal. I thought maybe at least the market would say, "All right, so he screwed up in technology, but at least he knows what he's doing in real estate." We've been at it a long time. We've had a dramatic impact on this industry. We've brought it out of the back room into the front room. We've brought new retailers into the business. We've redesigned it. We've brought it closer to marketplaces, like what we did in Orlando and Vegas, et cetera.
Because of all those efforts, at the end of the day, a great outlet is no different, I think, in the mind of the investor, than a great mall. I think you could say that a good outlet is probably not that much different than a good mall. You could take that thinking all the way from high to the end. At the end of the day, a bad outlet and a bad mall, who the hell knows? I can't comment on that, but I just think they're pretty much comparable at the end of the day. It gets to the specific real estate questions like what's rent roll doing, what's sales doing, how can you expand it, and all that kind of stuff that go into specific real estate questions.
Got it. Okay.
In addition, look, we've been at it since 1998, and then I think people said, "You know what? It's not a bad business. Let's get in it." I don't know.
Yeah.
I don't know. That's the only way I can answer your question.
Okay. Do you think you're going to see the pace of asset sales pick up this year for some of the secondary market stuff you're looking at?
My instinct is to say yes, but it's still hard work. My instinct is to say yes.
Okay. Okay, great. Thanks.
Thank you.
Your next question comes from the line of Carol.
Good morning.
Good morning.
We saw you and Simon put together a great project in Houston, in October, you all both announced plans for Charlotte. November, you all decided to work together. Is it safe to assume if you and Tanger are competing in the same market, there's a high likelihood that you all would work together in the future, or would you both try to build your own centers, or how's that decision made?
Well, look, we have a very good relationship with Tanger. We have our one joint venture. We've got our two that are in pre-development, development phase, Columbus, Charlotte. I would find it unlikely that at the end of the day, we would both be building in the same markets at the same time. You can never say never, but I'd find it unlikely given our good track record that we have with the Tanger guys. Now, look, he just built in West Phoenix, and we're building in South Phoenix. There's some overlap in the trade area, but they're really two separate, distinct outlets. I know his was well leased at opening. Ours is going great. We open, don't forget, April 4th. I would find it unlikely that we'd have a situation where we were both actually in one trade area where we're both building at the same time.
Okay.
Now, we may be competing and finding out who's going to win, but I would find it unusual we would both build at the same time.
In the process of competition, do you think it's highly likely you all would join together? On the vacant Nordstrom space at Circle Centre Mall in Indianapolis, have you all had any luck re-tenanting that space, or how are the discussions going there?
Well, first of all, just so you know, we have a very nominal financial interest in it. We're working. The mall is doing reasonably well. We're working hard to re-tenant it, we don't have any tenant to announce right now.
Okay.
I would just make the comment that we've got 635 department stores, there are six vacant, less than 1%.
That happens to be one of them.
Yeah, that's one of them. Thanks for asking.
You sound like you're in good shape. That's just one close to me, so I notice it when I shop.
It's closer to us.
Right.
Yeah. It's about two hours for me. Thank you.
Thank you.
Your next question comes from the line of Rich Moore of RBC Capital Markets. Please proceed.
Yeah. Hi, good morning, guys.
Good morning.
When I look at sales trends in January, especially the second half of January, it seems like they've been slowing, at least the research we do here. I'm curious, have you seen January sales yet or have any indication of what sales trends at your properties might look like for January?
Rich, we don't get our January sales until a month later. We won't get them till the end of February. Anecdotally, I've heard actually very good stuff. In fact, what was going on in Washington clearly had a reasonably down impact on the whole holiday season. Some of that picked up in January. I've actually heard the exact opposite of that. I haven't talked to every retailer, and I'm sure there'll be some winners and losers, but generally, Rick and I were at NRF a couple of weeks ago, and we were hearing January was okay. I don't know where you're getting that, but actually we heard the reverse. I'm not going to opine on that just because it's anecdotal.
Yeah, mine as well, David, same thing. Okay, good. Thank you. Steve, looking at the credit loss provision, it was unusually high, or at least certainly higher than it's been the last couple of years this quarter, and I realize it's been pretty low. Anything special going on with credit losses or your thoughts on that?
No, Rich. In fact, I'd look at it more on an annual basis and not worry so much about an individual quarter. No different than the comment David made earlier about NOI. If you look at it on an annual basis, it's still relatively below historical norms for us as a percentage of revenue.
Okay, no reason to think that goes higher substantially in 2013?
No, sir. In fact, I would tell you that the 2012 actual is probably a pretty decent run rate for the entire year of 2013.
Last thing, guys, back to Paragon for just a second. It seems, David, that you get into projects like this maybe a bit later in the process, and hence, if you did get into another one, it might be well along the way, so it would deliver much quicker, I guess, is one way to think about it. I noticed they had one in the Twin Cities, I think they were working on. They probably have others. Are there any other ones that you're kind of looking at with them at this point?
Look, as I said to you, they're competent developers. Each deal is going to be a little bit different. The good news is, given our own resources, we can't tackle every opportunity out there. We never have thought about our business that way, and it's good to have a good relationship with Paragon, just like it is with Tanger. At the end of the day, partnering on some of these, delivering good product to our retailers, making money for our shareholders is all in the same equation. It's a good, healthy relationship, and I would be disappointed if there weren't a couple more to do with both of them as we move forward.
Great. Thank you, guys.
Thanks.
Your next question comes from the line of Tayo Okusanya of Jefferies. Please proceed.
Hi. Yes, good afternoon. Just going back to 2013 guidance. You have provided a bit of a roadmap in regards to some of your underlying assumptions about where same-store NOI is going, where you expect occupancy to go on maintaining leasing spreads. Any other kind of tidbits you could give us in regards to what's underlying your 2013 guidance?
Look, we are a large company. We got $80 billion of assets. We're in Europe, we're in Japan, Korea. We're in the mall business, the outlet business. We've got development yields that we're trying to achieve, redevelopment. Much goes into how we do it. The most important is that we're dedicated to producing the results that we tell the market. We've done it for nine, 10 years. I don't even know, I lost track. We used to put that in, since no one cares, we decided to take it out. You know what? That's the number. We just don't think it's all that critical. Maybe we're wrong. We're happy to have our arm twisted to give you all the specific detail as to what we're trying to accomplish, given our track record. You know we're trying to grow our comp NOI.
You know we're trying to lower the cost of our debt. You know we're trying to do our development deals according to our plan that we outlined in the 8-K. You know we're trying to increase our operating margins. You know we're trying to keep our overhead reasonably sane as the company gets bigger and bigger. You know all that. We're not going to change. We just don't think, given our track record, we need to give you each and every little detail. We're happy to get our arm twisted, yelled at, complain to Steve, if you do. Since we're such a big company. It does include comp and aligned growth. That's our number one priority. It will always be. Managing the overhead is critical. There's some things out of our control, interest rates, currency, execution by others that we've empowered.
You put it all in, we think it's reasonable guidance given our past history of performance.
Mm-hmm. About that, I guess the only reason why I ask is, it sounds like a lot of things are still going to be going well in 2013. You have a fair amount of acquisitions that hit late in 2012. You have all these redevelopment and development efforts coming online in 2013. I was just kind of curious, is there any kind of number in there that weighs on 2013 earnings that we should be aware of?
As a negative?
Yeah.
Well, look, we have some things that are negative. For instance, I'll give you two or three that pop in my mind. We sold our interest in Capital Shopping Centres. We no longer get that dividend. That was dilutive because we essentially paid down debt. We had some mortgages that we owned on the hope that maybe the owners were going to default. Those got paid off. Our investment income is way down. We had a couple land sales. That's a lumpy business. There's always those kind of things that are a little bit negative that we have to earn our way back.
Okay. That's helpful.
Steve can shed more light. Those are two or three that jump to mind.
Great.
We don't have much floating rate debt, but we do put in a higher interest rate on the short term, so we have some exposure on that. I mentioned the currency. We're already behind our budget and currency. That didn't change our guidance. We'll figure out, hopefully, how to make that up in some way, shape, or fashion. That's hurting us with the yen. Those are some of the items that jump out.
That's helpful. Just a quick question on Grand Prairie and on Livermore. With those assets being 100% occupied when you acquired them, how should we kind of think about growth within that portfolio and where you expect to get that from?
They were 100% leased prior to our 100% acquisition. We like the real estate, so the growth will be there over time, but nothing imminent.
Okay. Over time.
There could be based upon overage rental, I should say. Sales is still a little bit unknown.
Okay.
There's still some overage or percent rent deals with some of the anchors. There may be growth because those projections may be less than what they produce. Livermore does have an expansion opportunity. But that's a couple of years away.
Great. Just one last specific question for Steve. Just ad expense during the quarter went up quite a bit. Just wondering why that was so.
I'm sorry, Tayo, the advertising expense?
Yeah, expense.
That would just be seasonal, but it nets out because most of that is reimbursed by the tenant.
By the tenant. Okay.
It's bottom line.
Great. That's all I wanted to know. Thank you very much.
Thank you.
Your next question comes from the line of Benjamin Yang of Evercore. Please proceed.
Yeah. Hi, thanks. Maybe David, going back to the outlets, do you have any thoughts, maybe longer term, on existing outlets that get cut off by new development? Because when I look at my area in San Francisco, I would think the new Livermore Outlet will probably siphon off some sales from Gilroy. You look at what's happening in Ohio. It looks like Jeffersonville might get fewer shoppers from Columbus once the new outlet center opens up in that market. Are you worried about this at all, and maybe did this factor into your decision to sell Jeffersonville two years ago?
Jeffersonville was a requirement. I think it's a fine asset. I think it's a different trade area than what the Columbus deals are. Yeah, look, some of these may have some impact on some existing centers. I don't think there's enough to create an alarming concern. Gilroy, that's not an easy drive to go from there to Gilroy either way. Livermore essentially gets the east and Gilroy gets the south. All the stuff that we have in the Napa area are pretty focused on that Weekend consumer or whatever visitor, tourist visitor. There could be some of that, but nothing that I've seen that's been overly dramatic.
Okay. Too early to worry about that issue.
Too early, look, certain new deals are going to impact existing centers, whether they're outlets or malls. That's just the nature of the business.
Sure. You had talked about a Kansas City center earlier, I was wondering if you could tell us what center that was and maybe what the cap rate was on that sale.
I think, our read of it was around a six cap rate.
What was the asset exactly?
Go ahead.
It was an open-air project that had some community center, power center components, had some full-price components, had a lot of food. It was surrounded by a number of attractions in Kansas City, that made it a decent location. As David said, very big. We really analogized it to our Mills product because it could be all things to all people. At that cap rate, it was a very significant valuation.
Unanchored, six cap. Can you tell us what the name of that center was so that we can be more.
It was called The Legends in Kansas City.
Okay, thanks. Then.
On the west side, on the way to Topeka.
Got it. Thank you. Final question. David, you made some positive comments on B malls in the past, and I wonder if you could maybe provide your updated thoughts on this tier of your property portfolio.
Well, the demand, I think, is picking up in it. I think it's a lot of elbow grease, but generally, the demand is picking up in the B mall category. Sales are actually okay. One thing I love to look at is kind of sales year-over-year, if we had any that had the decrease, and we really didn't. I think business there is steady.
When you look at our anchor additions, they're being added throughout the portfolio. I'm not going to categorize the BCA, but throughout the portfolio, we're adding a lot of anchors, and that obviously only helps but increase market share.
Sure. Do you think there's any institutional interest in joint venturing some B malls currently, maybe something that does below 350 or something in that range?
Well, there's a lot of the private equity money doing it. Indirectly, that is institutional interest because all of their investors are institutional investors, generally, or some really rich people.
What about pension funds? Any pension funds that you think might want to take an interest in some of these B malls?
I think that is more going to be done through the private equity guys. I think there's going to be roll-up strategies generated out of those guys. The yields are good. The business is more stable. There's more players coming into that. That's where the interest is, and I think you'll see more transactions in that whole category.
Great. Thank you.
Thank you.
Your next question comes from the line of Michael Gorman of Cowen Group. Please proceed.
Thanks. Good afternoon. Just a couple of quick housekeeping questions for Steve. Steve, in the past couple of years, there's been sort of a ramp-up in the regional office costs from third quarter to fourth quarter that didn't really happen this year. I was just wondering why that was, and is the fourth quarter still a good run rate for 2013?
No, Mike, for 2013, I'd look at the annual number, and not necessarily the quarter number. That kind of $125 million-ish number in total is a good number. How it breaks out quarter to quarter can depend upon a lot of seasonal things like David mentioned with respect to the NOI. I'd really focus on the annual number.
Okay. Just one more clarification. When I was looking at the 8-K, there's a footnote that talks about land sale gains of just about $8 million, and that seems a little bit different from the breakout of $4.4 on the income statement. Is that just unconsolidated land sale gains that's the difference there or?
Yeah, we had one that flowed through our JV.
That's correct.
Okay, great. Thank you.
Very good. Bonus points. Great.
Thank you. We love when people read our financial statements.
Thank you.
Especially when management does it.
Your next question comes from the line of Jeff Spector of Bank of America Merrill Lynch. Please proceed.
Great. Thank you. I'm here with Craig Schmidt. Just a few questions. I guess just thinking about, 2012 clearly was just a great year for the company. David, how are you feeling, I guess, the start of this year versus last year, and what's the message to the team, I guess, for this year?
Thank you for mentioning that. We did have a really, really good year. I'm frankly proud of the organization. On all fronts, financing, operations, leasing. Basically, we really executed well, and I appreciate those comments. I appreciate you pointing those out, because we worked our ass off in 2012 to deliver that. We had a lot of moving pieces, as we always do, and we did a lot of deals. People forget about all the deals that we did. Hopefully, the fruits of those investments did show to some extent in 2012, but they'll show more importantly in 2013 and 2014. Thank you for highlighting that. Look, we're the old Green Bay Packers, three yards and a cloud of dust. If we said anything different to our people, they'd be shocked. We're pleased with what we did in 2012.
We got a lot going on in 2013 already. I think, what we're doing at the property level in terms of our reinvestment is a huge focus, and delivering the redevelopment yields that we want is very important for both the consumer and the retailer. I just think it's more of the same of what we do. I would hope to be able to have another year like that in 2013. It takes a lot of work. There's always the unknown out there. We are spending a lot of capital, so we got to produce the returns that we want in that capital invested. We have a good track record that doesn't necessarily mean you can produce it. The mall teams are in good shape. Outlet team is in good shape. We're still working through our international how to beef that up.
The Mills team is in good shape. Generally, pleased, but as everybody knows around here, we don't rest. We fight, and we continue to work to have another good year.
Okay, I guess addressing maybe one of our concerns or question marks on the consumer, any particular area you're more worried about, whether it's luxury or at the aspirational shopper or the middle-income shopper?
Well, I think over a long period of time, the middle-income person has been squeezed. That always I don't want to get into this big macro discussion because people either disagree or are born to that. Look, that's a big focus. It's always been a big concern. We're in a good spot because we have that bifurcated product. We have the high-end, and that continues to do well. Look, it'll ebb and flow, but at the end of the day, the people there have purchasing power, and there may be a bad quarter or two of sales, but those assets are only going to get better. We're very well represented in the value side. We have that bifurcation like what the retailers are trying to accomplish. We have some stuff in the middle that gets squeezed. We have the ability to manage those reasonably well.
That does retard our growth rate to some extent because some of those assets, cash flow does go down. Generally, the bifurcation that is out there between looking for value or looking for the higher-end product is no better represented than what we do. We're the best representative of what's out there is what I really should say.
Okay, turning to the internet. I don't believe you guys really discussed that. Just coming to the holidays, it seems like more of the discussion from the retailers coming out of some of the latest conferences has been recognizing the importance of using the internet along with bricks and mortar. I don't know if there's anything new you've been talking to retailers about, any new thoughts on how to leverage your properties, any new initiatives.
Well, we could go through lots of what we're doing on the digital front and marketing and everything else. I would just say this. The good news of all of this is that, in my opinion, the retailers clearly need stores, clearly want to invest in stores. I think all the technology will enhance their ability to deliver better service to the stores that they have. As we will also. I think we'll be able to enhance our service levels through the use of technology, and I think that's critical in today's environment. I have yet to see Frankly, and it may come one day, but I've yet to see a retailer say they're not spending money opening new stores because they're reallocating capital more toward the internet. We may cross that fulcrum at some point, but I haven't seen it.
I think what it also means is they're going to be selective on where they go and what they want to do. I'm a strong believer that good real estate will get stronger and better. I've said to you for a number of years, the retail real estate, some of it will become obsolete. We've seen it in some of our assets. It's unfortunate, but that's reality. I think we'll more than make up for it as demand is more focused on the better real estate, which we own a vast preponderance of. I think technology's ultimately going to end up being useful to delivering a better product and service to our consumers, and make it a more enjoyable experience.
Okay, it's Craig here. My question focuses on the Mills. Could you talk a little bit about the redevelopment at Sawgrass and then maybe in general, the opportunities or direction, given, as you mentioned, the significant reinvestment in the Mills in 2012?
Well, there's a couple of things that are going on at Sawgrass, Craig. First, we took back the Wannado use. That was a children's interactive retailer. It's about 110,000 feet. That's been completely redivided now into new tenants, and they're all open, and that's doing very well. It's added a new entrance into the mall. We added a Calvin Klein, Tommy Hilfiger. That's doing well. We're opening later, I think in the early second quarter, an expansion of The Colonnade, which is our upscale outlet presentation at Sawgrass. That's going to have almost exclusively high-end designers with their only location in Southeast Florida. That's 100% leased and will be doing very well. We still have another 400,000 feet of FAR at Sawgrass. We're actively working on programs to further expand the square footage there and reconfigure it.
We're also working on a renovation of The Oasis, which is the open-air section of the property. We just added a California Pizza Kitchen, Cheesecake Factory, and bringing that up. A very powerful property, doing very well, and a major focus of redevelopment efforts and capital.
I just would add, this mall will do over $100 million of EBITDA, and in the next two to three years, it'll probably be over $120 without the big expansion that Rick just mentioned. It's a beast. Don't tell anybody, okay?
just one last que`stion for Steve. In Brazil, Steve, anything new on the financing front? Anything over the capital markets there? I'm not sure if there's any new opportunities for a U.S. real estate company there.
In Brazil?
Yes.
You mean in terms of raising dollars in Brazil?
In terms of tapping a line of credit there so you could have a natural hedge in anything you invest in.
No, not really, no. We really haven't made any investments yet. No.
Great. Thanks, guys.
Thank you.
Your next question comes from the line of Andrew Rosivach of Goldman Sachs. Please proceed.
Guys, I'm so sorry. I thought I was out of the queue, and you guys deserve to eat lunch. Really quick on Tayo's questions. When you guys give guidance, there's kind of two groups. There are companies that throw in spec acquisitions that they haven't made yet, and then you have guys like Boston Properties that just give a no acquisition guidance, and then to the extent you get stuff done later in the year, the numbers end up going up. Is that part of why you did so well in 2012 versus your initial guidance? For 2013, is that how you've set it up as well?
Well, certainly we did have some growth because of our investments that we hadn't planned on. Yeah, let me make it clear. In 2013, we have no spec acquisitions at all. Nothing along No spec investments.
That's very helpful. Thank you.
Sure.
At this time, there are no further questions in queue. I would like to turn the call back over to Mr. Simon for closing remarks.
Okay. Well, thank you so much for your participation, and we look forward to chatting in the near future.
Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.