Good day, ladies and gentlemen, and welcome to the Simon Property Group’s Third Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions following at that time. [Operator Instructions] As a reminder, this conference call is being recorded. And now I’ll turn the conference over to your host, Tom Ward, Senior Vice President, Investor Relations. Please begin.

Thank you, Tyrone. Good morning, and welcome to Simon Property Group’s third quarter 2016 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 may be accurate only as of today’s date. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included within the press release and the supplemental information in today’s Form 8-K filing. Both the press release and the supplemental information are available on our IR website at investors.simon.com. For our prepared remarks, I’m pleased to introduce David Simon.

Okay. Good morning. We had a very productive quarter. We started, completed opened several significant redevelopment and transformation projects that will further enhance the value of our portfolio. And we continue to achieve strong financial results. Before I get to some of the highlights of the quarter, I would like to quickly highlight our outlook for the remainder of the year. Based on our performance year-to-date our current view of the quarter, we are once again increasing our full-year 2016 FFO per share guidance range to $10.85 to $10.87 which was higher than our original guidance of $10.70 to $10.80. Our increased range also reflects the potential charge of $0.08 per share with respect to our likely decision to postpone the construction of the Copley Residential Tower, due to the rapidly rising construction cost and our beginning concerns around supply and demand in the Boston residential market. Work will continue on redeveloping and modernizing the existing retail space at the center as well as the development of the Southwest Corridor, which will create a new entrance to Copley. We expect this work will enhance the shopping experience for our guests and retailers and further strengthen our position in the heart of Boston and will be completed by summer of ‘17. Assuming we make the decision to postpone, it does not foreclose the opportunity to build the tower in the future as market conditions warrant. Now let me turn to the quarter. FFO per share was $2.70, an increase of 6.3% compared to the prior year, for the first nine months our comparable FFO per diluted share is at 10.1% compared to the prior year period. We continue to see strong demand for space across our portfolio, combined occupancy for our mall and premium outlets, ended the quarter at 96.3%, an…

[Operator Instructions]. And our first question is from Caitlin Burrows of Goldman Sachs. Your line is open.

Hi, good morning. I just wanted to ask on the leasing spread topic. I know you touched on it and it’s been a popular point of conversation here. Since it’s a trailing 12-month number, are the results we’re seeing now in terms of lease spread just a pull forward and extension of something that happened to slow down in Q2 or did the third quarter slow too, realizing that it does include lease amendments?

Well, we have had, look, let’s just put this number in perspective number one. We do include lease amendments and that’s having the biggest impact of the growth slowing. Yet if you look at our average base rent, you can see we’re doing new initial terms where we’re doing very well. And some of the expiring leases also are a little bit expiring at a little bit higher level. Now, our investors know that over a long period of time, we’ve always felt like the $5 to $6 spread was kind of always part of our model. The fact is we’ve done a tremendous job of outperforming that. But the long-term we’ve always kind of felt that $5 to $6 spread it’s kind of where we think the market is. We had a couple of years of significant outperformance. But we’re not backing off our inherent value that we have in our leases as they roll-over. And we’re just getting back to kind of more of a normalized environment. But for us, I don’t know about our peers but for us, we include lease amendments. And the bottom line is that it’s having some impact on leasing spreads. But that $6 to $7 is maintaining itself and that’s kind of what we’ve told investors year after year after year. And we feel very good about that.

Okay. And then just also you mentioned that right now as you lease space, given the high occupancy, the remaining space might not be as well located. So I guess my question is since you have that high occupancy, what are kind of the thoughts behind making these, lease amendments and working with companies such as you pointed out PacSun?

Well, it’s literally a case-by-case analysis. I think we’re as sophisticated as anybody. I think when Aeropostale is a great example of our ability to analyze what the right trade is in these deals. And in some cases, we’re going to take the space back, in other cases we’re going to help the retailer go through the hard time. And it’s really a case-by-case - it’s a case-by-case analysis. But there is nobody I think in our industry that’s more sophisticated in our ability to kind of maneuver through those situations. So, its case-by-case, anything can happen. Well, sometimes we work sometimes we get the space back. And certain in the Aero case, we thought the opportunity was even more exciting to just buy the retailer and make a vertical investment that the entire S&P community is doing. Amazon makes vertical investments the cable industry makes vertical investments. And again I would encourage, we decided to make vertical investments, when we decided to franchise Starbuck locations two or three years ago, that’s the nature of our company is that we’re going to be nimble, we have the right judgment win to make a deal with its retailer, when not, when to make a vertical investments, when not, when to go to Europe, when not; when to pull the plug on Copley, and when not. And that’s why we’re in the position we’re already in today. And each and every case will be one-by-one. Now, I do appreciate and I hope I’m right with you, Caitlin. I do appreciate you waiting to write until we have our call. And I do think that’s important because the reason we have these calls is for not every - there is not every scenario where you can understand the nuances about what’s going on in our business. So I do appreciate the patience, to hear our story. And then obviously you write whatever you want to write.

Great, thank you.

Sure.

Thank you. Our next question is from Steve Sakwa of Evercore ISI. Your line is open.

Thanks. Good morning, David.

Good morning.

I guess is there a way for you to try and help separate out for us the impact of these amendments on the numbers? Meaning if PacSun and Aero were having as big an impact as they are, is there a way to sort of strip them out and give us a sense for kind of what the remaining lease spreads look like? Because obviously this is kind of the biggest number that people are focusing on, and if these two leases or tenants are having a disproportionate impact, it might help to separate out those figures for us.

Well, I don’t, look, our business Steve, I hear you. If we need to, we might. But the fact is you got to look at our business in totality. You can’t look at it on one operating metric or not. Because what I would ask you to look at is, let’s talk about the - we have grown our portfolio NOI $300 million year-to-date. Let’s talk about that. Do you want to talk about that? That to me is more material than any one operating statistic quarter-by-quarter. So, yes, we can slice and dice this any way but if we can spend more time talking about how does a company grow its portfolio NOI, there are many REITs that don’t have $300 million of NOI yet we grew that in nine months. So, I would rather talk about that that’s more material than the fluctuations that have, that are occurring with operating metrics. We could talk about sales - sales are impacted by the fact that we have great properties in tourist markets and the strong dollar. That doesn’t mean that that’s going to last forever. And but again, there is this high desire to make that the be-all of all these metrics. And again, our number is clean, the results we can’t speak to anybody else how they do it. But I, as I said to you, if you want my opinion on what’s important, it’s the $300 million NOI growth. If you don’t want that I got it. But that’s what I focus on.

No, I get it and I don’t think people are dismissing your ability to deploy capital, whether it’s through developments or expansions. But clearly there has been more pressure on the mall business, so I just think anything that you can do to assuage the fears about the internal growth prospects going forward. And perhaps it’s just that a $6 to $7 spread on a roughly $60 or $61 expiring rent means that normalized leasing spreads should be 10%. And maybe that’s where we’re going to head to. There’s a new normal in the business. That’s okay; I think people are just trying to get comfort with that.

Well, look, I think that’s a good point, so let’s talk about that. And I mentioned that a little bit in the first question. I think if you asked our investor group, we would have told them for 15 to 20 years that our re-leasing spreads are $5 or $6 a foot, okay. We have had a long period of outperformance on that. We’ve gotten better at what we’ve done all sorts of reasons that we don’t have to bore you. And you are right we may be going back to kind of what we have promised our investor base for a long period of time. And the outperformance, I don’t think from our standpoint we ever guaranteed outperformance from how we looked at re-leasing spreads. We always said look, it’s $5 or $6, one year it might be $8, one year it might be $4 but that’s kind of what we see the long-term trend. And I still feel comfortable but that’s the basis. Now, it’s no surprise that retail generally has come under pressure, lots of different reasons which we could go into but let’s - unless you want to let’s not. But the fact is, and we are impacted as I said to you before by our general GDP growth. And to date, our retail generally is there is no inflation and our nominal GDP growth is 1.5%, yet we’re growing our comps timing. And if nominal GDP, there is some inflation. So maybe real GDP growth is I don’t know 50 basis points. We’re still growing our business with no inflation in our particular business at 3.5% comp NOI that’s not that. It’s not 4% plus that we did last year or the year before, but it’s still in the scheme of being able to grow our business, that’s not bad. And I’m not defensive about it. I mean, that’s kind of what I think we should expect when we have essentially a real GDP growth of 1%, maybe a little bit less, maybe a little bit more. And I think that’s what you got to put in perspective.

Okay, I appreciate it. Thanks for the time.

Sure.

Our next question is from Christy McElroy of Citi. Your line is open.

Thanks, Michael Bilerman here with Christy. How are you?

Good, thanks.

So, David, I wonder if you can talk a little bit about putting capital into your stock. Last year you had bought I think it was like $350 million at about 180. Obviously the stock, with some of the sell-off as well as some of the retail headlines, has come off 20%. We spent a lot of time talking about something you spent $30 million on. I was wondering you got a $2 billion share repurchase program, how you feel about putting money into your stock?

Well, look, I think at the end of the day the best thing we can do is invest in our product, okay because the stock will go up and it’ll go down by investing in our product. And I think what unfortunately what I think a number of retailers, they’ve not invested in their product, okay. Or they’ve chased the holy-grail of internet sales to the determent of what they should be doing with the physical product, as still people want to go physical shopping. And when they go physical shopping, you’ve got to have a nice physical environment. So we have spent a lot of years wanting to invest in our physical product. And I think that’s our number one focus continues to be we’re well through that. The good news is we have been contrary in that and we started that in ‘10. And as you know we’re finishing projects, that’s not just talking about projects but finishing a lot of projects. So, I think if that wind down then the opportunity to buy stock back is always there. And I just don’t think it’s a high priority but that could change depending upon kind of where the world is and what the stock does. But I think my job is, the number one job I should be doing is, invest in making my product better. And that’s my number one focus.

And you talked in your opening comments about your deal-making over the years and always taking a proper risk-reward and thinking about the capital committed to whether it’s a project or whether it’s a venture investment. As you think about investing in Aero, putting $30 million in, is there sort of a house limit that you would want to have in those sorts of investments relative to the whole? And where would it sit within the Simon organization? Is it more within the venture side or is there another sort of area? I don’t know if it’s in the David Simon bucket. Where does it sit within the organization?

Well, look, even though I’m older I can always learn new things. And I’ve learned a lot actually going through the Aero-deal. We’re going to act as an investor we’re going to give strategic direction as a board member. Authentic brands, I’d encourage you to look at the brands in the history of that company, they’ve done a great job of, they are brand builders. They are entrepreneurs. So, we’re not going to be running the business, we’re going to help strategically like we did. It will be, but we’re - so I’ve got my IT guys helping with their IT Systems. We’ve got our lawyers helping with their license agreements. So we have a lot we can bring to the table. And that’s what makes us unique. And but it’s not going to overwhelm anybody’s particular time, they’ve got a good management team that with our strategic help I think will continue to make that profitable. And look, based on the numbers, I think it’s going to be a compelling investment. But it’s not without risk. I mean, it is, there is risk out there whenever you make a venture like investment but I can’t think of a better team between Gordon Brothers, Hilco, ABG, General Growth to all put a collective judgment to bear to make this a profitable investment. I don’t think going back to your first question I don’t think this is going to be the wave of the future. I mean, AT&T, I mentioned vertical because I just try to put certain things outside of real-estate in perspective, okay. So, AT&T was buying, going vertical. They’re spending a $100 billion, okay. I go vertical, I spend $33 million, okay, million not billion, $33 million. And again I’m not comparing, I’ll just try to put these…

Hi David, it’s Christy, sorry about the three questions. Just bigger picture, the consortium has talked about 300 to 400 store-based count for Aeropostale, there has been a lot of talk about store-count rationalization among national retailers generally in how many stores do they actually need to serve their customers in their market today. Why is that the right number of stores for a retailer like Aeropostale? And what does that imply for your view of the need for other retailers to close stores, especially now that you’re looking at this issue through that Aeropostale lens?

Well, look, and it’s very - I think you’ve pointed out something is very unique, is that we’re getting a lens at a much granular level on retail. So it’s very interesting. Sourcing, look, there are five or six things that really make a retailer click, sourcing, obviously rent expense, store expense, the merchandize all of it, packaging, all the stuff that I think at the end of the day we’re going to make us better real-estate owners. But that remains to be seen. Aero, look, I’m probably going to get in trouble for this but since I like you, I’m going to tell you. Right now, we’re looking at around 500 stores in the U.S., as kind of a model. And based upon we expect every one of those stores to be profitable. So, it’s a much bigger business than we initially went in, in the investment. We were thinking we could justify our investment at a much lower store-base the fact of the matter is we found out there is a lot more store profitability out there than we thought. So, it’s going to be around 500 give or take. But I think store closings, it is - the pressure for that retailers’ to invest in the internet to close stores from their investment community is great. I would question whether that’s the right strategy because some of these stores are very profitable. Yet, they feel like the headline closing stores, is the answer and then all of this investment into the internet is going to pay all these dividends. The fact of the matter is there is a really healthy physical store environment and mall environment. And I think all of us can’t lose sight of that. And that’s where we should be investing. So, I do…

Thanks so much for the color.

Sure.

Our next question is from Jeff Spector of Bank of America. Your line is open.

Great, thank you. Good morning. I’m also here with Craig Schmidt. I guess, David, if we could just talk a little bit more about the current environment. Let’s say it continues; it persists through ‘17, even ‘18. How should we think about these rent amendments? How are you thinking about it when you’re laying out your budget for next year? Is this just something that we should get used to as we transition here as the retailers invest more money in their stores, we see more store closings? How should we think about that?

Well, look, I think again, it’s a retail-by-retail perspective. We’re seeing stabilization in our sales business, if you want to go focus on retail sales Q2-over-Q3 is basically flat. And if you take out tourism, you take out one retailer that’s had decreases in sales, that’s actually up. So, we’re not like - there is no huge concern here. But we just, we’re a product of the overall U.S. economy. Jeff, what’s the real GDP growth, you tell me. So, in that environment what do you think it is the real one? Real GDP growth, what would, Merrill’s got a bunch of smart people, what would they say of this?

I think we’re saying around that 1%, 1.5%.

So, I mean, we’re good, I’m not that good but I got a lot of people around me that are good. That’s a constraint. So but it is what it is. We’ll sort it through and I do think in that kind of environment, we’re going to have certain deals where we will go back and then we’re going to have a lot of other deals, frankly, we’re going to take the space back. And my moods changing a little bit that maybe we’re better off taking the space back. I think we did play ball a little bit more with the bankruptcies in ‘15 and the early ‘16. And that’s showing up in the lease spreads. And I’m thinking sales are okay, stabilizing, maybe the world gets over all of this stuff that’s going on out there maybe we stabilize. A lot of people feel like we’re headed for growth. So maybe we take more space back. But we’ve kept the buildings full, as evidenced by the occupancy, there is a trade-off. We’re on our target for top-of-the-line increase. So, it’s not all that bad. So, just put in perspective, ‘17 will transpire and will do a combination, sometimes will play ball, other times we’re going to take the space back. And it’s all a function of retail-by-retail decisions, space-by-space, retailer-by-retailer.

Okay, thanks. And I think Craig has one question.

Great, thanks. Maybe I could do a little bit of a pivot here. Looking at your new developments for the outlets, four of the five projects are international. Can we expect to see continued good growth in new projects on international scale? And then maybe more specifically with your longer-term plans are with McArthurGlen?

Well, we just had a meeting with - I had a meeting with our partner last Friday. Their business is very good, very solid. Provence is opening in spring of next year which will be fantastic. We’re very close on getting the potential to build Normandie, which we think will be a great, which will basically cover the Western Parisian market. That could be fantastic. We’ve got a couple of acquisitions that we’re working on, extensions that we’re working on. So it’s all good there, it’s been, the team are working well together. I couldn’t be more pleased with the investment. And I think it’s Craig it’s just kind of business as usual. We’re still seeing new development growth, very pleased just that we’ve been able to create that partnership and create that relationship going forward. In Asia, the team is working in a couple of other markets that I’m hopeful over time that we’ll be able to build the premium outlet product there. We’ve got couple of big expansions in the works Gotemba is an example that could be a landmark extension. So that business is, we’re not slowing by any stretch of imagination internationally in our outlet business either with McArthurGlen or with our Asian partners.

Thank you.

Sure.

Next question is from Alexander Goldfarb of Sandler O’Neill. Your line is open.

Good morning, David.

How are you doing?

Just fabulous; it’s earnings season, life is great. So, just a few questions here, let me start with an easier one before I ask one on the favorite same-store topic. Here in New York, obviously, a lot of - sorry, the demand for street retail has gone down a lot, so a lot of vacant spaces; articles about global brands rethinking their street retail needs, especially with where rents are and store profitability. Have you seen as those brands have dialed back, have you seen them, I don’t want to say shift back, but have you seen more interest in going in malls where they are profitable? Or from your perspective, they’ve always been running street retail, their investment there, separate from their decision to open up in malls?

I don’t think there is a generic answer to that, I think its brand-by-brand. And generally on the luxury side of those brands, their business is actually, they’re starting to anniversary some of the strong dollar stuff. And obviously we are as well. And I meet with a lot of the folks, I mean, there are certainly some brands here and there that are pulling back but I’d say generally and you’re starting to see the numbers like from LVMH and Kering that have posted recently. Their business is good, pretty good. I think New York is - this is a novice because we have no street retail. But New York is a little confusing to them because you got 5th, you’ve got Madison, you’ve got Downtown, you’ve got different - you’ve got new developments, you got West 57th Street, so they’re all trying to sort that out. I think in our business, it hasn’t changed. And if anything I’d say the mood is generally better than it was six months ago, if you want a generic statement. And I think New York City itself is just different because they’re all trying to figure out where they need to be given what’s going on in New York. But we don’t have a dog in that hunt. And I think Brickell is going to be I mean, we have a little delay with the hurricane and I guess it really, technically wasn’t a hurricane or not, I’m not really sure. But Brickell I think is going to be lot of the retailers rope-in in the first quarter of next year. But I think that mix there is really going to be great, cool. I think the stack-store is going to be great. And the demand on that just continued to pick up, right Rick, over, month after month. And I think that’s a good indication that if you have a good product or you have a good scheme, retailers are coming. Rick, you want to comment on Brickell?

I think Brickell is certainly going to show that there is going to be a great mix of designers, food, international retailers and right now we’re 91% leased. And as David said, the opening is going to take place over. We’re going to have a big slug over the next few weeks and another big slug over the first quarter of next year. The only other thing I would say to you is that we are seeing the international retailers like Zara, like H&M accelerating their focus on our properties in the United States because there is demand to grow in this market. And we are seeing that.

And I would just say, we’ve got just to finish the whole thought and then you can ask me, if it’s on comp NOI, it’s not a tough question, it’s going to tell you exactly what I’m thinking.

You don’t know the question yet, David.

All right, all right, bring it on.

We don’t give our questions in advance.

All right, okay, good. Thank you. That’s what I like about you Alex. So, but just to finish the luxury, people that would populate street retail in New York, we say luxury, not that it’s easy but we’re making progress with Clearfork and that’s in Fort Worth, Texas. We’re going to have those kinds of brands, not a lot of them but the right ones. We opened King of Prussia with the connection and again, a lot of those are opening. But the results from those high-end brands have been fantastic. So, that part of our business is different, I think it’s interesting it’s actually starting to do better than maybe what you’re seeing and whatever is being talked about in New York street retail. But I really, I don’t know, I don’t really have a dog in that hunt.

Okay. Then the second question is it sounded like you said that bankruptcies and the issues really peaked last year and that you guys were more accommodative with retailers trying to restructure. And, therefore, it seems like this year we’re seeing the impact in the same-store metrics. At the same time, I think you said that the tourism impact strong dollar is also anniversarying. So it almost sounds like next year we should expect same-store metrics to get a positive bump as these trends sort of anniversary. Is that fair? Or as you guys look into your leasing for next year, we still should see some of this impact, whether it’s on re-leasing spreads or same-store NOI etcetera? Should we still see that in ‘17 or is ‘17 going to be a little better because this stuff anniversaries?

Look, I think the big unknown is just what’s going on, all you have to do and you’re smart financial guy, look at our P&L right. You could see, put the leasing spreads aside, put all those other stuff aside, I mean, the reality is, the comp NOI is really a function of our overage rent which is right there on the financial statement, okay, it’s down. Can’t help it, I mean, and it’s really a function of the fact that we got these great tourist centers we’re having, we’re suffering from that impact. But I don’t think that’s a long-term impact. But it’s starting to anniversary and it shouldn’t continue to get worse, okay. But Alex, it could get worse because no one knows what’s going to happen with the dollar. The international tourist market is volatile. At best, we live in an uncertain time. But I think we’re doing, to deliver this 3.5% and deliver over 6% portfolio growth is I think is reasonably good, it’s not great, but it’s reasonably good given some of the constraints that we’re dealing with that are a little bit out of our control, a little bit. We’re going to take responsibility for a lot of that stuff, but a little bit out of control. So, I think it’s too early to tell you on ‘17. Unfortunately I say this because it starts not next week, the week after, Rick, property budgets?

Yes, week after.

Week after where we go one-by-one, space-by-space and we’ll report back early next year what our view of that is. And it’s a little, there is a little more volatility in being able, the standard deviations probably little bit higher than it used to be just because of the environment that we have that we’re operating in.

Okay. And just confirming you’re taking an, $0.08-charge, that’s in guidance for Copley?

I’m glad you asked that. And the answer is yes. That is in guidance. So if we had not taken that charge, our guidance would be up another $0.08.

Okay. Thanks, David.

No worries. Thank you.

Our next question is from Paul Morgan of Canaccord. Your line is open.

Hi, good morning. Just to follow-on on that, so that would be $0.13. I mean is there anything you could point to as a driver of that kind of guidance increase in late October?

Well, generally we’re producing the results we want to produce. So I know the operating metrics on that, perfect, we’re not going to deny that. I mean, but we told at the beginning of the year, this is the plan, 3.5%, 6%, and we’re producing a little bit better on that front overall. And that’s where it rolls up to. And so, we’re being very cautious on Copley, we have made the final decision on that. But I think it’s likely that we’re going to do that. But we’ve got, I’ve got to run it through the board and - but I want the market to know that that maybe off the table going forward at least for the time being. And we could - look we could have kept it on our books and waited but you know what, I think the right thing to do if we in fact decide to do it will be to pick that hit.

Okay. And then you mentioned in terms of the same-store number not just PacSun, but then also I think you said intentionally kind of reducing the specialty leasing program in the common area at some of your high-end malls. Is that a material impact? And kind of what’s sort of the thought process behind that? And kind of maybe - if you have a number, you’ve given us in the past kind of what that program is as a percent of NOI?

Well, I think it’s material and that it does affect the comp number. The comps would be higher had we not chosen. But look, part of what we have to do is, listen to our clients. Our clients to some degree especially in certain areas of the mall very concerned about that. So, we want to be receptive, we’ve got competition in some of these markets that we’ve got to be responsive to. And we just think it’s the right thing to do. We did a lot of research on the consumer. Consumer really doesn’t care but on the other hand, we have two - when it comes to the property business, we’ve got to listen to our clients i.e. the retailers, etcetera. And we obviously have to be listened to the consumers, they diverge here but in this case we want to be as sensitive to the clients as we can. And some are very sensitive to us and we don’t want to keep that from bringing the right mix into some of these centers. And that has hurt us over the years. We’ve thinned out in the very high-end properties. Yes, go ahead.

I was just going to say, has this strategy been kind of accelerating recently is why you mentioned it in terms of the same-store number this quarter or has it kind of been ongoing over the past period of time?

I think it’s been, look, we didn’t really do it last year because a lot of these projects were in the state of development. But it’s clearly been - it’s clearly been throughout ‘17.

Okay.

And remember, this stuff builds, it has more of a...

As you go later in the year it has more of a back-end impact, okay. So it kind of builds, it’s less important in Q1 and Q2 just because seasonality of our business.

Great. Then just last question; I appreciate all the color on the Aero-economics. And just wanted to ask, there’ve been dozens of similar bankruptcies over the years and you probably could’ve had opportunities to do something similar then. Maybe could you point to anything outside just the economics of it that makes you think differently about this? And then just going forward, I know you had the macro view about vertical integration, but anything more, kind of your narrow business driven where you didn’t do this for years and now it looks interesting?

Well, I think that’s a very good question. And I would say this, I think as we’ve gotten to know authentic brand group we now have, for us to have done this without their involvement on how to stabilize and then grow the brand, I mean, that would, I might have that expertise a couple of years from now, maybe, I mean, I’d say, we, I doubt it, but maybe, you never know. And I think having and we have talked, it’s very interesting. I’ve been talking to authentic brands over - for a year about another, brands that might fit into this model that we are creating. But they didn’t come to fruition for whatever reason. But I think we finally, we have, over this last year been able to develop kind of an operating model and platform. They’re great at brand building, having general growth as part of that. And their ability to bring their real-estate and their thoughtfulness to the table in terms of how you operate the business was very helpful. So having the liquidation angle solved with Hilco and Gordon Brothers was critical. So it was really the long - in a nutshell it was really, because the partners were able to do it. The partners brought so much to the table that this was the right deal. If it were just us on our own, I’d be the first to tell you I don’t know that we would do it, we’ve done Starbuck franchises but that’s we did by the way. And I encourage everybody that goes Del Amo, goes to Pink’s Hotdogs, that’s owned by your company, Simon Property Group. I’m so, excited about that franchise as we own. It’s great hotdogs. It’s an institution. That’s - we’ve got a small group that kind of runs that business, this is a little bit out of the ordinary. And I would say simply put, the fact that we had this partnership that was able to navigate all of the complexities of this. And so, I think that’s the important determinant of why we did this versus not doing others.

And the partners see it as not necessarily just a one-off, but something that could be replicated?

Yes, but we’ve got to walk, crawl before we run.

Great, thanks.

Sure.

Next question is from Rich Hill of Morgan Stanley. Your line is open.

Hi guys. Thanks for the time this morning; and I always appreciate the transparency. I wanted to just ask a quick question about the lease amendments, maybe in the context of your broader portfolio of malls. You have obviously the luxury of seeing across the productivity spectrum. So when we’re thinking about lease amendments in maybe your higher-quality malls, is it may be the case that some of these tenants are paying above-market rents to get into the best-quality malls and, therefore, you might still be incentivized to make a lease amendment? Maybe reduce their rent, but recognizing it’s still a pretty attractive rent overall? Is that the right way to think about it? Then maybe if you could provide some color, if any, about how you’re seeing lease amendments on malls doing $700 a square-foot versus maybe those doing $350. But I do appreciate that it’s mall-to-mall.

Well, I mean, that’s the bottom line. Certainly we have some of those cases. But it really is mall-by-mall, space-by-space. And what the retailer relationship is and what we think the retailer future is. I wish there were simple straightforward answer but there is not. We try to use our business judgment in figuring out what the right is. It’s also we want to be conservative or do we want to be aggressive what’s our mood of the future. As you know last year, we had a lot of bankruptcies. And we gave direction to like okay, we’re starting to change our attitude a little bit, I can’t tell you that it’s going to be a complete reversal. And we try the right we make the right judgment call. Now I will tell you lease amendments are like anything else. Once you do it for one retailer, don’t kid yourself, you hear about it, and it goes everywhere else. Part of our job is to contain that. And but we’ve experienced this before, we did do is in other economic times. And again, our business is fine but it’s not, it’s - we’re trying to be accommodating but we could shift our strategy pretty quickly. And we try to evaluate it one-by-one. Rick, do you want to add anything to it?

I would say to you the most important consideration to realize this - these are lease amendments that are not forever. One of our considerations is do we have a better replacement tenant but that tenant won’t be ready to open for a year or where it is in the project and what is the project. So all of those factors come into play as to how we want to deal with this specific room and how we price the room and how we interface with that tenant. And the only other point I would make is that, and it gets lost some times. But today our portfolio has never been stronger, never been better physical condition, never had a better mix of small-shot tenants, better mix of boxes, better mix of restaurants better set of amenities. So, we are on a continual basis taking share and that’s our focus to make our properties as compelling as they can be. And that helps us in dealing with all the things you’ve been talking about.

And again, the business we are 96.3% occupied. And as an example, Macy’s announced 100 store closing. Their closing, Macy’s is leaving one of our malls, they’re leaving one of our malls, we think. And a very small mall that has basically no financial impact to us at the end of the day. So, there is this narrative and the mood. But the fact of the matter is, go back to 7.3% NOI growth that’s $300 million. Let’s put it all in perspective, okay.

Okay, that’s very helpful. Thank you.

Thank you.

Our next question is from Floris van Dijkum of Boenning. Your line is open.

Great, thanks. Could you give a brief update on what’s happening with your Seritage JV?

We are basically in the same position that we articulated in our last earnings call. We have identified users for our boxes. We have plans for our boxes. We are not going to proceed with that redevelopment. And so we have a firm understanding of our returns and the costs of downsize from the Sear stores. There are conversations going on right now regarding those costs. And as soon as we have a clear understanding of that we’re in a position to proceed to try next year on some of those redevelopments.

And that would include the Primark at Burlington Mall?

That is independent. That is proceeding as is the addition of Primark at South Shore in a portion Sears which is not in Seritage. The Primark lease at Burlington was, existing at the time we did our joint venture. And that is proceeding.

Great. Thanks, Rick. David, a question for you in terms of how sustainable do you - I mean, you’re talking about the 6.6% to 7% NOI growth, but if you put that in perspective, you do that for a decade you’ve doubled NOI. I mean is that realistic for a $100 billion company?

We’re working to achieve that, okay. I can’t, I’m not that clairvoyant to look out that far.

But do you see anything near term that’s going to break that streak?

Well, I think we’re going to lead our industry and portfolio NOI growth as we’ve done it for so long, I don’t see any reason why we can’t continue.

Great. Thanks, guys.

Sure. Thank you.

Next question is from Michael Mueller of JPMorgan. Your line is open.

Hi, I guess going back to Aero for a second; you discussed this as being more of an opportunistic investment. But out of curiosity, when you first thought about it and got into it was it more a defensive play to control store closings? How did you look at it initially?

Not at all, as I said in my opening comments, I mean, no one would put new money into a business that we didn’t think would have exciting future. And that’s evidenced by kind of the group that we have bought the companies. So we certainly get the benefit of Aero paying rent. But that’s not a reason to invest in a business. We could re-lease those spaces. And that’s not, that’s not a factor in putting new money into investment.

Got it, okay. On the outlet side, you talked about international expansion. Can you just talk about the U.S. and what the opportunities are that you see over the next 5 years, 10 years, just what does that pipeline look like?

In our outlet business?

Yes, outlets.

I think, the pace may not be as hectic as we’ve done over the last three or four years. But Norfolk we open next year, we’re going to actually start another outlet in the spring of this year, spring ‘17 in a very good growing market. We’ve got another one under serious examination. So I don’t think it will be as maybe as active as we’ve had over the last two or three years, but we’ll selectively do some stuff one, at least one a year on average, maybe two. We’ve got some I think some unique opportunities. We’re also very focused on expanding with the Allen deal. Adding 120,000-square-foot to a center that does, I don’t know $600 plus a foot, and the outlet business is very attractive. So there is a lot to do with domestic portfolio as well.

Got it, okay, that was it. Thank you.

Thanks.

Next question is from Ki Bin Kim of SunTrust. Your line is open.

Thank you. So David, I just wanted to go back to something you just said just a minute ago. As you deal with retailers like Aeropostale and PacSun and go through your lease negotiations, how do you really contain the risk that somehow leverage doesn’t move more towards retailers that might be in trouble, that might come back to you and try to do similar deals going forward?

Well, as I said when this happens, you get, you do get a - it does tend to spread. On the other hand it’s very simple, so we’re not going to do it. So that changes the dynamics pretty quickly. So, look, again, we don’t, this is a space-by-space, retail-by-retailer decision. It’s not pervasive throughout. But this and again I explained to you our rationale as to why we kind of did it ‘15, ‘16. But it’s something that we’ll reevaluate every day with every retailer. And my instinct is that we could be changing how we dealt with kind of the ‘15,’16 stuff already. But it will be a case-by-case basis.

Okay. And just going back to your development pipeline, you have about $3.5 billion worth of projects. Just given that some of those projects or a lot of them were probably started at time where maybe the view of the health of the retail environment might be a little bit different, how should we think about the overall arc of capital deployment? Is it reasonable to expect that number to come down going forward?

Look, there is nothing in our redevelopment that we’re not doing other than potentially Copley. And Copley was I mean I would encourage everybody to study what’s going in construction cost and what’s going on in supply and demand there. We did not want to be, unfortunately the build there is longer than it should be because of the nature of how we have to reinforce the structure. And we spent a lot on it because to get approvals and to make sure we had the engineering to do it. But the reality is, when we started seeing the construction cost, it just not the right time to do it with all the supply and the cost there. We don’t see that anywhere else in the portfolio. So, we’ve got a lot of very interesting stuff to do beyond what we’re doing now. And like I said we’ve done some really good work in the field and King of Prussia, being part of Brickell, Clearfork, we’ve got plans to expand Fashion Valley and I could go through the whole list. But that part of the business is unabated because we think investing in our great real-estate is what we should do for a living and that’s not changing. But we do have to worry about supply and demand. And I’m not worried about supply and demand in our retail portfolio. In the case of Copley I got nervous about it. Be the first to admit.

Okay, thank you.

Sure.

Thank you. This ends the Q&A portion of today’s conference. I’d like to turn the call over to Mr. David Simon for any closing remarks.

All right, thank you for your questions. And we’ll talk to you soon.