Simon Property Group, Inc. (SPG) Q1 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q1 2015 Simon Property Group Inc. Earnings Conference Call. My name is Whitley, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] 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, Mr. Tom Ward, Vice President of Investor Relations. Please proceed, sir.

Thank you, Whitley. Good morning and 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; and 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, and actual results may differ materially due to a variety of risks, uncertainties and other factors. We refer you to today’s press release and our SEC filings for a detailed discussion of forward-looking statements. Please note that this call includes information that maybe 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 are excited to have in our portfolio. We created two joint ventures with two of our longstanding retail partners, one with Hudson's Bay Company and the other with Sears Holdings which will serve as additional avenues for growth. And 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. And 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. And 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 square foot, an increase of 18.9%. Now 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. And 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 retroactive billing within the mills in the first quarter of 2014 and 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%, and right on our budget. Total sales across our portfolio increased 2% in the first quarter, compared to the first quarter of last year and I will also point out there was a recent pitch affirming our A rating. They did a report that I would suggest at 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 in Philadelphia areas and new centers in Tampa and Tucson, as well as our designer outlet in Vancouver. All our 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 side work shortly at the shops at Clearfork, which as you know is our new full price development in Ft. 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 and on Oyster Bay, which we are renaming Syosset Park. We have began the approval process for what will be a unique mixed use life style 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 square foot expansion at Yeoju Premium Outlets in Seoul and recently completed a 136,000 square foot expansion of Shisui Premium Outlets in Tokyo, both off to great starts; and let’s not forget construction continues on major re-development 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 square footage 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. And 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 billion 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. And 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 has got our dividend growth. We will pay at least $5.90, an increase of nearly, as I said, 15% from last year. So 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.

[Operator Instructions] Your first question comes from the line Christy McElroy with Citi. Please proceed.

Hey, good morning. It’s Michael Bilerman here with Christy.

How are you doing?

Great. So, David, I was curious as to how you think about your stake in Macerich at this point. You sort of view it as a $470 million mall, that’s given you a 3% yield, you think it is potentially worth $570, or do you sort of view it as worth $470 million, you bought it for $370 million, you have a $100 million 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 a unbelievable hell of an offer on the table and I, 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. So at this point, I can’t really answer your question, but at some point, I will address it in the near future. But we had 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 figure 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 and you talked about the Klépierre Corio transaction and being instrumental in that deal, as you think about potentially putting additional to Europe when you originally made the state, the euro was about EUR 1.30, you are under EUR 1.10 today, you obviously have some hedge because you have some euro denominated debt. But I am just curious as you think about potentially taking your stake backup 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, that kind of opportunity is always on the table. I will say that, we are up a EUR 1.4 billion in our investment. Guys, right?

Yeah.

So that’s not too shabby of a trade if I can quote out on Sandler who is one of my heroes. I quoted him last year, not last year but in 2013 annual letter, but all you talk about is Steve Ross letter, he haven’t mentioned mine but I thought I had a pretty good line in there. I mentioned in our call I think people who site, we did helped engineer a $7.4 billion European merger. That again is not to – don’t underestimate the fact and the role that I played – we played in putting together those two companies that was a EUR7.4 billion investment. And as you know that 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. So I couldn’t be more pleased with my investment, but we will just see how that evolves. There were couple other large shareholders, they certainly haven’t indicated to me anytime that they’re going to – that they’re looking to get out. I think they are very pleased with what those transpired since our involvement over the last three years.

Hi, good morning, David. It’s Christy here. You’ve talked often about your larger regional model re-development and expansion projects, but I am wondering with the new Hudson's Bay and Sears JVs and this may be more or so with the Sears boxes. But is your new control over [indiscernible] boxes unlock any future potential major redevelopment projects in any of your centers or is it too early to tell? And maybe you could just provide some general comments on the future opportunities for investments that could arise from these JV?

Well, I think the JV with Sears clearly is all about redeveloping those boxes with Sears potentially as taking some of that space and in some cases maybe not. And as also part of that deal, we bought the Plaza store which is a fantastic mall, does I don’t know 750 a day of food. It got a lot of demand. So that also gives us the ability to look at expanding that mall. So the answer, I don’t want to put a number on it Christy but I would definitely say that it’s all about retaining with Sears maybe downsizing their stores and then into Plaza certainly – there is a major expansion in the works there that we are going to move very, very fast on. And that will, the Plaza just is a general scope, will get couple of hundred million bucks at the end of the day. So all of that was part of about – all of that was done in the mind to faster redevelopment for sure.

Thank you.

Your next question comes from the line of Craig Schmidt with Bank of America. Please proceed.

Thank you. This is something related to Christy’s last question. There seems to be more churning in both the mall, especially in the mall anchor space. I am just wondering from Simon’s mall portfolio perspective, is that actually an opportunity for you, something you actually would welcome just given your dominant portfolio and opportunities at distance you from your peers?

I would say we have – we don’t use the word dominant here. We have a very high quality portfolio that’s produced outsize comp NOI growth with our peer over and I know we get focused on a quarter here, 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 is, there is not a lot of churning in the department store world, I think we have brick one, empty box out of how many Rick?

450 onwards.

It’s in [indiscernible].

Okay, yeah, yeah, yeah that’s a tough one. But in any event like in Riverside, we got the Saks building back we actually just approved internally yesterday a whole redevelopment of that Box, so we were down to one box, but clearly on the specialty side we did lose a handful of retailers and I think at the end of the day there will be an opportunity from it obviously we are focused on releasing it on that space, but we are going to put in better retailers and as you know, I mean the retail business like any business in today’s environment is Darwinian and the retailers that are going away are relatively weaker ones. There is 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 building. So, that’s the nature of our business. As you know Craig, we like showing the slide about the top 10 retailers at 93, we went public till today, it is a little more going on today then maybe it was a year or two ago, but nothing that we are overly concerned about and we are poised to do the work necessary to make these properties better and obviously having a high quality portfolio like we do will make it happen.

Okay and then just beside your significant redevelopment pipeline efforts. Are there any emerging areas or real estate formats that you are looking to down the road that could be in the area of growth for Simon?

Like other users or…?

I mean obviously you haven’t been that interested in highs steel, but is there, I mean just thinking you know the malls is mature business at some point the opportunities for premium outlet slow and then what are you seeing maybe five years down the road that might be an opportunity to grow?

Well, look we have always looked. I think the Hudson Bay joint venture is going to give us another avenue of gross in that whole single credit tenant kind of business, both internationally in the U.S. you know street retail potentially out of that I don’t know, you know the values there are pretty salty when the deals that we have seen. So, you know I think Craig, we’ve always been creative in trying to find other areas, it will focus around retail real estate, but we are not concerned not at all about not being able to find avenues of growth, but clearly we still got a big pipeline of redevelopment. The outlet business, our outlet business is very strong. So, we posted great comp NOI numbers this quarter. Sales were very strong. So, we see that growth continuing and then with the redevelopment that we are doing at some of our iconic mall properties, again these aren’t pipe dreams. They are – Houston Galleria, Roosevelt Field, Stanford Galleria, Del Amo, King of Prussia I mean this stuff is, maybe we should put on our website to show you the steel, but this stuff is all happening. So, 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 on – back on Macerich. What were the pursuit costs related there? And I guess where do they fall in your Q1 numbers?

It’s in other expense and they are done and we have no more.

Are you able to give an estimate or?

Immaterial. I mean, I don’t know – I don’t want to – it basic – immaterial. We do a lot of this in-house, you are looking at them.

Okay.

For better or worse, okay?

And you work cheaply. So…

Some may argue that. But the point is, for better or worse, you are looking at the M&A guide here, okay?

Okay. Maybe to switch gears, I’m 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, we clearly – normally, we are always going to close 60 bps to 80 bps from the seasonality part of our business, right? We had more than that this time and that’s all related to, I’d say, another 50 bps or so, all related to bankruptcies.

Okay.

And, again, we had planned that, that’s why we were cautious on our comp NOI growth, so there is no surprise there. Cautious being – I’d argue 4% is not – 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. But 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?

Okay.

They 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’re in the process of doing right now.

Yes, 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.

Yeah, look, could we be a few basis points below it? Sure. But, again, you also have to factor in we’ve got a lot of redevelopment going on. So our portfolio is in a pretty significant – undergoing a pretty significant activities going on. So it will 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, we don’t – in our occupancy, we only include folks that have a lease of a year in. So, now we do – sometimes we do year-to-year leases because we are looking for a better group, but that number has been – is high. The year-to-year guys have been as high as the mid-5%s, we are down about 4% now, Jeff, roughly, rough numbers, right, guys?

Yeah.

Getting close, we will get there.

And just the last question or two is on WP Glimcher. Is there a set date when you expect that arrangement on providing services to end?

May 16th is the end of that right, Rick?

May 2016

Yeah.

Okay. Then on Oyster Bay, how close are you guys –

Let me clarify May 2016, not May 16th. Okay?

Right, right. And 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 we have a lot – there is a lot to go through. So we are shooting the next six months or so are going to be very important but that’s how we are 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?

David, let me first ask in stock buyback. Do you intend to actually buyback any stock around the current levels or was it put in place as a placeholder or was it a statement to Macerich a little of everything.

Well, I mean I think the REIT market I would say this obviously I am not going to tell you when or how we’re going to buy stock back, but I would say we wouldn’t have announced it once we were serious about it. We couldn’t buy any stock back because we were in our blackout period when the announcement came. And as I look at other companies and their valuation and 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 and all that we’ve got going on, look at our valuation compared to our peer group and 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. So I think you will see us at the appropriate times of volatility and no statement had nothing to do with Macerich obviously had that deal gone forward maybe the capital would have been allotted differently, but 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 revaluations generally and I think I can’t pick a better investment than ours as we look forward. So we will take advantage of volatility. We’ll do this opportunistically and you will see us in the market at the appropriate times.

Okay. Appreciate that. Can you talk a little bit about what’s going on in the department store industry right now? And I know you’ve got different motivating factors behind what happened with Hudson’s Bay and with what is going on with Sears. I guess a couple of questions. One is, did you discuss with Sears or do they want to sell you more than what you actually bought? I am curious what you think of their, I’ll call it spin rights offering and do you see other department store companies also transacting with their real estate any time soon?

Well, look I would say that Sears and us got comfortable with the portfolio. It wasn’t dramatically different from the beginning to where we ended up. And I think it’s good to have that kind of relationship. I think it can grow overtime. I think they have valuable real estate and we see [indiscernible] has been able to know as a company we wouldn’t invest in it less we saw that going forward. And frankly, Hudson’s Bay I think they – 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, [indiscernible] and other avenue of growth. So I see that as another very good opportunity. Could other retailers take advantage of their inherent real estate value? Sure, but 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. But if they’re thoughtful about how they want to take advantage of the real estate, I am sure those value to be made for their shareholders. But that’s not necessarily a focus for us. We are 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 credit worthiness and operating stability of our department store companies I believe is greater than the analyst in the investment community has recognized before and when we’ve said all along we thought that they were in a stable position. I think that’s being worn-out by the ability to add financial stability by taking a focus on the real estate asset.

And David did you separate out the Hudson's Bay venture from SPG because you didn’t want a bunch of boring long terms net leases in SPG or was there something other than that?

Well I think it is part of SPG and first of all it hasn’t actually closed yet. We are closing when we announced that it should be closing in the next, by the end of the quarter probably, but we’ve always view that is ultimately a standalone business going forward. Now that will help grow faster, the credit, the net lease retailer, I mean we – they are great retailers. We are 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. So, ultimately that business could in fact end up separated from us, but we will want to add value to it through our deal making capabilities and yes it probably, if it ends up more focused on the credit, you know the credit lease business you know it’s – that probably is better separated from SPG in long run, but of that is to be determined whilst as we go forward.

Appreciate it. Thank you.

Your next question comes from the line of Alexander Goldfarb with Sandler ONeill. Please proceed.

Good morning. David just a few questions here, first you brought up the rating agencies in your comments. So, two questions on that, one is the 7% cap rate that they are using clearly we’ve had a number of demonstrable mall trades that show cap rates are well below, so curious if they are going to move away from the 7% and second on that is, as you guys entertain the Macerich to buy them, did the rating agencies do any push back 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 will speak to the last first, I mean, no they have all the confidence in the world in us when it comes to doing a transaction of that nature that we were – that we did not expect to be downgraded or notched at all, right Andy?

Right. I mean they’ve done $40 billion of acquisition and they’ve been very pleased with the results.

So, and again as not that this is all that interesting anymore, but part of the reason we were selling assets to GGP was in fact, you know the primary reason was in fact to make sure that our A rating would stay in place. As far as the seven, yes they should update it, it’s silly. But you know…

It is a disastrous scenario…

But they are being conservative. It’s not market, I agree with you. I don’t know what to do about it.

I used to be eight and nine.

Okay. So, glacial compression there. Second question is, on the Hudson Bay can you just talk a little bit about the challenges of having real estate and other people centers and we’ve seen other companies in the past trying to do that hasn’t worked out, was 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 is no thinking that boy it’s great to have own real estate in other peoples centers. That’s really not – 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 of the plans to operate those stores, so there is nothing about in that sense. Obviously if for whatever reason they decide to not to operate the store, we would have that opportunity. So that’s really not anywhere near on the agenda. We value this at a pretty attractive cap rate 6% and 8% in really good mall. So we think it’s attractive accretive transaction for us from a value point of view, and it’s really about creating the entity to go do more stuff and seeding it with these stores as opposed to we’re going to go play. We have no intention at all to go play any kind of habit or anything in other people’s mall, so that’s not even on the agenda.

Okay. And then just finally, your presentation on Macerich you guys disclosed your top center productivity and some of your mall stats. If there is any way if that could be obviously quarterly would be great, but annually I mean it was tremendous retail candy for us and obviously helps in the analysis of you guys. So if there is a suggestion box, would love to see that on an annual basis.

Speaking of suggestion boxes, I better not say this because I might get criticized but I remember at a golf club that was built by Pete and Dye, a Crooked Stick here in Indianapolis. And the member’s suggestion box is in the middle of the pond, okay. But I will not, that will not be duly noted and I am not saying that but duly noted. And look I think we put that together because we felt it was important if there are 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, but duly noted express – everybody express 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 delivered via the white paper. Occasionally like with WP Spin we separate that out because it’s important to note a transaction of that nature but we give you WP first or we give you FFO first and then we show you whatever is important to change. So I feel like we necessarily are a little different in that area, but duly noted we won’t make [indiscernible] to the pond to put in your suggestion. We will take it up 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.

Hi.

Couple of questions, I don’t think you disclosed the percentage ownership in the Brickell transaction. Is that something you could provide and 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 see the manager of the retail portion of the project and we are going to be leaving the leasing effort along with Swire and Whitman Property.

Okay. So you will be the – I guess the leasing agent on this.

Yeah.

Okay. 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 there in the next month. We are hopeful to get approved and there will be a couple other hurdles after that, but that puts us on the path to start construction. So the next month or so we thought we were going to be able to do it. This month things got a little, couple of political things happened out of control, but we’ve been assured that we can get back on the agenda here in this upcoming month.

No, it sounds like maybe kind of June, July start.

Yes. I think we should, we feel comfortable by July. We will have all of the permits and all of the approvals done. You know it’s a fluid situation, but that’s correct.

And if that’s the case I guess when would the sales process, like just help us think through the timing if you start construction. When does a 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 you know the complexity of this build is significant. So we have to go down the turnpike support the foundation and then we got to go into Neiman Marcus store, relay that and then go up. So, there is no real need to rush that. I’d say roughly a year from now that would be the focus, a lots going on at the mall. We are going to start the renovation of the actual interior of it. We are going to do the south west portal entrance. So there is a lot – we are finishing the office reno, so it is a property that were a lot is going on, but I’d say the sales office would be probably roughly a year from now.

Okay and then last question, I mean you mentioned all of the major projects you’ve got going on in the U.S. here, I am just curious how do you feel about sort of the international investment opportunities versus domestic?

Well, with the outlet business, you know we’ve got, I mentioned in my call we have three that we think we’re going to start this year. We have great outlet in Provence partnering with MGE, McArthurGlen. We’ve got a new site with fantastic developer in Mexico [indiscernible] which has built some of the best malls who is our partner in Mexico City. We expect that to start this year and then we’ve got with Genting Group, we are very close to finalizing the deal to start our second outlet in Malaysia and I mentioned to you we just finished Yeoju and Shisui expansion. So that’s a lot of activity internationally. We are also working on a couple of other opportunities in the outlet with some new joint ventures and then we have got another site, two sites in Canada. So, internationally on the development front with the outlet, premium outlet product we are busy. And then again, with Klépierre we help do this huge deal that here domestically people don’t think about, but it was a 7.4 billion euro deal. They just closed March 31. They also bought a great asset in Spain shortly thereafter, you know there is tremendous amount going on with the integration and the portfolio review of the long terms assets. There is a lot of development work going on as well within the total combined portfolio. So, that to us is kind of we view that as our full price retail entity going forward in continental Europe and I expect that company to continue to grow. So, we are active internationally. I don’t see us buying full price retail in Asia or other parts, I mean I think right now it is kind of finding new markets for our premium outlook 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. Can you guys – I guess first question just on the factors behind your higher FFO guidance, curious if there is any changes to your FX outlook and the middle guidance. And if there is any level of perhaps share repurchase baked into the full year with outlook?

The answer is no on the share buyback and no – we’ve factored in the currency where it is today. So we have a few cents. Last quarter, quarter one of ’14 the Euro was $1.37 average, this year it was $1.13 so that’s a pretty big gap, now it’s $1.08.

41%, right.

We are pretty proud that we took a $0.03 hit in our Q1 ’15 and still beat consensus pretty good within our numbers. It’s clearly going to affect our total. We have $0.10 roughly year-over-year that was in that range. We have a little bit exposure, but drops further but nothing that we can’t deal with.

Okay, fair enough. And following up on the Miami project with Swire, just want to clarify first. The 25% ownership, that’s just on the retail or is that the entire project?

Just the retail.

Okay. And then the strategic decision involved with the project now. Why now did you approach them, did they approach you and then how should we think about the project in terms of merchandising mix? It looks like GDP their nearby design district has a bit of stranglehold on luxury. How much of a challenge do you think that might present your ability to track a higher tier tenant retailers?

Well, they approached us and look we have been involved in this for a while. We feel unbelievably confident we are going to deliver obviously they designed it and they’ve done the most of the work, but we feel together we’re going to deliver a great product that I think is going to the marketplace. There is no question that this is going to be a unique terrific long term mixed use retail asset. I think it will blow – I think it’s going to blow people’s minds away and the leasing. We’ve made a lot of progress on leasing and we are very, very confident about our ability to deliver a very, very compelling mix.

The only thing I would add is that this project in and of itself as a hotel to condo towers and to office towers and surrounding it, there is another eight or nine residential office and hotel projects going on in the hotter brick haul. So it’s a very young, very sophisticated and very well paced submarket inside of the State County overall market we are 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 out of respect for partners, but we think it’s an attractive investment and we wouldn’t make it otherwise. And as I said, this will be produced in a very high level. Swire and the Whitman family are first-class operators you couldn’t pick that of partners and we all know Bell Harbor for sure and we all know what Swire has done in China and Hong Kong. It built some of the most amazing stuff. So to be associated with those kind of folks on a long term basis, we couldn’t be more pleased and we will make money in this investment, otherwise we wouldn’t do it.

Could there be more or you contemplating additional investments with Swire or is it again too early to talk about that?

We are not in Hong Kong and this is their big investment in the U.S. which certainly have a lot of respect for that organization.

Okay but just to be clear at this point there is nothing talked about perhaps overseas with them in Asia, Hong Kong or China.

No.

Alright thank you guys.

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 it was running away, but really quick, you guys have listed amazing metrics, specially relative basis, especially when you are taking to account leverage and unfortunately you can go through quarters where that actually doesn’t influence your share price and I am just curious just in terms of, unfortunately my clients have tried to get rate and discussions over the last couple of quarters, you know when you bid for another company that your shareholder don’t own you can actually harm the relative performance of your supporters and I’m just wondering like is that part of the decision making process you kind of know it will hurt and you make the call that the long term gain actually offsets a certain pain or is it not in the calculus?

Well we always want feedback from our shareholders and we always take that into account, but hopefully they have confidence in us, but we are making right decisions that will add to the value of their investment and we are always confronted whether it is a M&A deal or new development or redevelopment to weigh short-term paying for long term gain. We thankfully, hopefully will continue, but certainly historically we’ve made pretty good decisions on that front. We’ve certainly have embedded a 1000 of where we’ve been made risky investments. We’ve done it on a low key basis and small basis compared to the enterprise and I go back to two to jump out of me, you know one was the one in China. The other was in, I call my blue period where we are doing all the technology, you know in the late, whenever I was – I try to forget about it. Late 90s early 2000, so you know I would say to with this last situation, I mean the shareholders that we spoke to at least what they told me they were supportive of what we were trying to accomplish and that’s what they told me and again, I mean we never got to the point where we were able to lay out all that we could do there, but we certainly always factor that in. We do know that sometimes doing these things is not the easy road. You know the easy road is to just do what a lot of other folks do, which is not a lot, okay. But this company is all about not doing what is easy. And then it’s easy just to you know I don’t know redevelop a thing here, build something there, but that’s not what we are about, we are about and are trying to make this company unique and when you do that you sometimes you do create short-term confusion and/or short term underperformance. We hope, all we can do we hope is that people look at the track record and look at dividend growth. I mean 15% dividend growth at a company our size …

There is not push back on that. There is no push back that you are actually great at doing M&A, it just when it goes on for a quarter and most of my clients are based on one of your performance on a relative basis that after a while it starts to hurt and I even got the impression you know when you wrote your March 20 final offer, I got a sense when you were saying not to go through multi-year proxy, I think you were starting to notice the pain it was creating with your share price.

Well look that is a whole different subject that is probably better off, I am happy to have you with or anybody else, but it is probably better off to have that not necessarily on – in this kind of format, but we – look short term, we are all about short term gain if there is a long term play there but it’s important to have support from our shareholders. And I can say to you that they were the ones that I talk to or relatively support of what we try to accomplish, but on the other hand going through a multiyear proxy fight et cetera. If we had done that, that’s when we might have lost support. That’s a judgment call I have to make and I made the judgment call and I did. I think the support would have been there had we on the deal, rather the support would have been there on a long drawn out battle, I don’t know. But I decide to not to ask for.

Thanks for your commentary. Appreciate it.

Sure. No problem.

Your next question comes from the line of Vincent Chao with Deutsche Bank. Please proceed.

Hi, good morning everyone. Just wanted to go back to the FX question a little bit, I appreciate the comments on the earnings side of things. Just curious last quarter we talked a little about the impact on some of the tourism driven markets. Just wondering if you could give I guess an update on what you’re seeing in those markets as it pertains to FX impacts?

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 is a good month, a good week, and then there is a bad month and a bad week. So it kind of balances out, but 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 but nothing that’s going to change our financial profile or earnings or any of that. But it is a lot more volatile, you hear occasionally in South Florida a little bit, you hear – we haven’t seen anything at Woodbury but I’ve heard a lot in New York, now we have no exposure there but you hear and then when I say hear, I’m hearing from the retailers, but with something to pay attention to it.

Okay, thanks. And then just more domestically just given the drop in oil prices, it seems like there was expectations that would flow into the economy, but seems like it’s being saved. Just curious if you are seeing anything different from that in your own mall traffic and that kind of that.

I’d still say generally we are still dealing with a cautious consumer, it’s safe to say and it’s volatile. So the comment I heard about the tourism also applies to just the domestic consumer as well. The patterns of the consumer are tougher to predict right now. I still think there is – confidence is getting better, but there is still a lot of debt being reduced and it’s still there is a good month, good week, and then a bad month, a bad week and the pattern is sloppy enough but it’s certainly not getting busters. And look we had 2% total sales increase from quarter-over-quarter ’14 to ’15. That’s the kind of world we are in right now. We did get unbelievably so we did not mention this, Nova [ph] mentioned in 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 in northeast. Believe it or not, our snow expense was higher this year than last year across the portfolio. So we still had to deal with a little bit of the weather, but we are dealing with a cautious consumer and we are delivering – the good news is, we are 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. We are going through – the industry is going through a little bit of a growth spurt. But, Carol, I would say, 20 would be a stretch. I’m going to – 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. But from our standpoint, I would see under 10 over the next three to five years, domestic starts within our portfolio.

Okay.

The one thing I would say to you Carol is when you think about growth, please don’t forget about the expansions that David mentioned earlier. They are almost the equivalent in terms of productivity of a new outlet. We are adding a lot of square footage at Chicago and at Woodbury and at San Francisco. And all of that is adding mass, and that’s absorbing demand in the most productive way that could possibly happen. And I encourage all of you to go out and see what we just opened at Desert Hills, and if you are out in Las Vegas, what we are opening in Las Vegas North the week of the ICSC convention. These things are dramatic expansions with great retailers that are highly, highly productive.

Okay, thanks. And then this question is for Rick. We’ve heard a lot about store closings. I know you love to give your list of who wants the space. Do you have any new names for us?

I can’t wait.

Well, you have to relax and stretch. But I think one thing that I would like to point out to everybody is we talk about all this, the tenant that has the broadest footprint in our portfolio is L Brands, with Victoria’s Secret and they are doing great results, and they are growing and they are expanding and they are adding things to the Victoria's Secret stores. But we are doing with a lot of international retailers that people haven’t -- DAVIDsTEA has come down, we are growing UNIQLO, we are growing H&M, we are growing Sephora, and we are growing Altar’d State, which is a great retailer that has got a significant growth platform. And frankly, as David said, the ones that left are low productivity, oversized. So 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 Mueller with JPMorgan. Please proceed.

Yes, hi. Just a quick one. It sounds like a lot could be going on at Syosset. So 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. We probably – when it gets to the office, we will probably sell the office. We might partner on the residential, but – again, there is roughly 400,000 of retail, so that we will do with our partner. The other hotel we may or may not do. So my guess is at the end of the day, we’d probably look to either sell or joint venture. We probably won’t do the office; we might sell or joint venture 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 Capital. Please proceed.

Hi. When people talk about omni-channel, my sense is that they think of traditional mall-based or full-priced stores. To what extent are you seeing omni-channel 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 omni-channel world to their physical stores will certainly apply to the outlet world as well. And again, they are all at different degrees of that integration. But I don’t think outlets would be ignored on that front at all. So 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 and Buildings and Orange Capital’s proxy campaign post them rebuffing your offer. And at least in Jon’s letter he references a conversation that he had with you and, 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. So I’m just curious how you think about that as well as their campaign.

Well, look, I’m not – put it this way, I’m not surprised by Land and Buildings’ and Orange’s – that they might pursue something like this, or others. But as you can see from their proxy materials, we are not participating or providing any financial support in their proxy. But I’m not surprised that someone like them would take up this particular issue. But, again, we are not—this is not us, this is them. And I said to you, you can see it from their preliminary proxy stuff that we’re not supporting or involved in that at all. And then, as a shareholder, we will wait and see what happens.

Right. I guess as a shareholder, when they came out after rebuffing your offer for the final time, then 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? And I guess did that surprise you that that wasn’t in there?

Well, look, that’s up for Macerich to respond to. I mean I can only tell you what I told you earlier, which is I think we put a hell of a deal on the table and I was looking to engage with Art. I consider Art a peer. We’ve had a good relationship. People say hostile offer. I don’t – let me give you my thinking on this. Any time somebody offers a lot of money to somebody, I never consider that hostile, okay? Now, it may not be – it maybe unsolicited, but it ain’t hostile…

At a 30% premium, no less.

Okay. It ain’t hostile. So I hope Art and the board realizes that I didn’t view it as hostile. I view it – 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 and I will leave it at that. It’s yesterday’s news, but I will leave it at that. But it was not hostile. Unsolicited, absolutely. But, again, anytime 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.

Yes, okay. Thanks, David.

All right. No worries.

There are no further questions in queue. I will now turn the call over to David for closing remarks.

All right. Thank you, everyone, and take care and we will talk to you soon.