Good day, ladies and gentlemen, and welcome to the First Quarter 2018 Simon Property Group Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session; instructions will be given follow at that time. [Operator Instructions] As a reminder, this call is being recorded. I would like to introduce your host for today’s conference, Mr. Tom Ward, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you, Christy. Good morning, everyone. Thank you for joining us today. 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 the risk factors relating to those forward-looking statements. Please note that this call includes information that may be accurate only as of today’s date. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included within the press release and the supplemental information in today’s Form 8-K filing. Both the press release and the supplemental information are available on our IR website at investors.simon.com. For our prepared remarks, I’m pleased to introduce David Simon.

Good morning, everybody. We’re pleased to report a strong start to the year. Retailers are performing better following a strong holiday season and decent start to the year. Demand is picking up for our space and traffic and sales are up. We continue to invest in our product with a long-term view of creating compelling, integrated environments or consumers to live, work, stay, play, and of course shop. We completed several significant redevelopment projects, are under construction on others, and announced more activity that will further enhance the value of our real estate and grow our cash flow. And we continue to identify unique, strategic, new development opportunities globally, that will extend our reach and create world-class destinations. Before I turn to the results of the quarter, I would like to provide some perspective. First, we expect to generate in excess of $4 billion in earnings this year, that’s FFO. There are only 40 companies in the S&P 100 that are projected to generate over $4 billion in earnings this year and have an A rated balance sheet. Simon is one of them. Second, we expect to distribute approximately $3 billion in dividends this year, which would make us one of the top 40 dividend paying companies in the entire world and country and obviously, in the S&P 100. Finally, our stock is trading at a 12 times multiple, which is a 30% discount to our historical average multiple of approximately 18 times. This is the lowest multiple SPG has traded at over the last eight years, despite compound annual growth rate of more than 11% in earnings and 14% in dividends over that period of time. And as you know, our numbers speak for themselves. Results in the quarter were highlighted by FFO of $2.87 per share, an increase…

[Operator Instructions] Our first question comes from the line of Steve Sakwa of Evercore ISI. Your line is now open.

Hi. Just a couple of quick things here. So, it looks like a lot of the operating metrics have pointed up in the right direction, leasing spreads improving, sales improving. I know occupancy can bounce around and there has been some store closures and a few bankruptcies, but I also know that some of the new developments that are brought on line tend to kind of pull that number down. So, I was wondering if you or Rick could just first share, how much of the 100 basis-point occupancy decline was maybe development related and then, how much of it was natural store closings or bankruptcies.

Well, I would say, over the majority is related to bankruptcies. And remember, Steve, we are very focused on putting the right tenant in the right space. And when a -- we’re at the mercy of bankruptcy court. So, the reality is, you file Chapter 11, you can reject the lease at any time, and as you know, the build-out and getting the space leased takes some time. We do expect that we will get back to where we were last year, maybe a little bit better. But again, that will depend upon if there are a little bit more bankruptcies or not. So, it’s pretty much what we expected. Remember, as we gave guidance, we thought we would get back to where we are. We’re processing the bankruptcies. And then, I would say, I don’t know, 20, 30 basis points are probably just the new space that we’ve added on, so in that range of 70-30, somewhere in that range.

Okay, great. That’s helpful. Secondly, it’s a little more of a housekeeping item. But, we noticed on the other income that you had a large jump in interest dividend and distribution income. I think, the lease settlement income sort of speaks for itself. But, can you just provide any color on what the large jump was in the quarter and is that recurring or is that just a one-time number.

It is recurring. It’s just we don’t know when it recurs. So, that is basically the distribution we get from our interest in value retail. And so, it does manifest itself. Just so you know, I know a little bit about accounting. So, we cost account for that. We do not equity account. And so, when you cost account, you basically only record cash. That happens to be a cash distribution. And it does happen. It’s happened every year for the last several years. It is lumpy. And that’s what it was from. We’ve put that in that line item because it’s technically a distribution. Now, that’s a function of -- it’s cash flow, refinancing activity, I mean, it all goes into a pot there. But, we cost account for that. And then, we only book it when we receive the actual cash.

Thanks. And then, just last for me, just share repurchase. I know you didn’t do anything in the fourth quarter, but you obviously took advantage in the first quarter. How should we just think about your buyback activity over the course of the year?

I think, it’s going to continue at these levels. We are -- if you look at our balance sheet, you look at very little exposure to potential rising rates, the underperformance of our stock price, the kind of the mood is getting better, retail demand increasing. Market’s now recognizing it, why not buy stock back. So, I think, we will continue that. I think, just like anything else, like we typically do, we will be cautious about it. But, it’s certainly in our plans.

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

Hey, David. It’s Michael Bilerman here with Christy. Two questions. The first, in your shareholders letter, you talked about the fifth platform being focused on the consumer. And I was wondering if you can delve a little bit deeper into the resources that you’re committing to that. How you’re going to measure success? How much capital you want to put forth that I’m not sure if you’re thinking grander of like what Westfield did with Westfield Labs and OneMarket. And I know, there’s a lot of different things that you’ve done, whether it’s a Snapchat the Family app, the Facebook, Happy Returns, all these things that you’re trying to get together with the consumer but you can delve a little bit deeper into how you envision that going forward?

Well, at this point, given what’s going on, I really don’t have a lot for sure, other than we’re dedicating resources and efforts to it. I hope to have something to talk to the market about later in the year. I wouldn’t compare it to whatever it’s called one labs, Westfield Labs, I’m not sure what that’s all about. We’re actually working on this right now. We think about it all the time. We are a retail real estate company. But, we have the flexibility to think about other investments and other ways that technology can improve our consumer experience without jeopardizing basically the core business. And that’s a huge focus for the Company. As you know, our -- even though Tom wanted me to take it out of my letter, I did hit to the market kind of what are marketing connection to the consumer brings every year; it’s in the letter. Thank you for reading the letter, first of all. And I mean, it’s real money. You capitalize it. It’s a real business, depending on how you want to capitalize that. I think, we have this huge connection to the consumer, 100 million consumers, 2 billion visits a year. So, a lot’s going on there. But, I’m not really ready to get granular with you but I hope to do it by the end of this year.

But, is that something that you feel like you want to go and acquire something or is it all being built and investing in-house?

Right now, we’re building but I wouldn’t rule out strategic investment at all. We just -- right now, it’s tough for us to make any investment. So, you look at how those values are compared to our values. But there are -- we have a tremendous amount of optionality on how to continue to grow our business because of the position that we’re in. So, we’ll continue to look at everything under the hood. As you know, we make investments through our venture group. There could be larger; we’ve tended to make those kind of relatively small investments, but there could be larger investments. We’re building something right now that I think will be very interesting. And that’s the thing that I’m referring to that I hope to -- they view by at least by the end of this year, but as you know, when you’re building something, it’s always a little -- it’s not quite like building a mall but there a lot of analogies to it.

Hey, David. It’s Christy here, just a quick one for me. It seems like the property expense recovery rate was down in the quarter from recent trends. Just wondering if there was anything onetime in there and how we should be thinking about the property level expenses going forward.

Not really. First quarter had no -- had utility expenses, there were -- it was a little bit -- we had a little bit of spike up in those. We’re also adding some properties to it, so that those numbers tend to go, but basically, our utility expenses and snow expenses. As you know, the spring is not sprung yet. Maybe it’s springing right now as we speak. So it’s really more of that. I wouldn’t read anything else into that.

Thank you. Our next question is from Rich Hill of Morgan Stanley. Your line is open.

Hey. Good morning, David. Maybe a quick question for you. One of the things that we were looking at was maybe a little bit of increase in the month to month leases. It looks like they increased to around 3.5 million square feet versus around 1.6 million square feet. I recognize that’s still small overall. But, I’d be curious if you could give us any color as to whether that’s timing related, the change in strategy. How you’re thinking about that?

When you get bankrupt space back, you wait for the right tenant. It’s really just typically part of our strategy here that we are looking at the regional local markets a little bit more in detail. So, we tend to do those a little bit shorter-term sometimes. But, it’s really just a function of us recycling our portfolio through. Now, remember, in our occupancy, we only include leases that are over a year. So, the 94.6 just concludes; that doesn’t include like short-term leasing that is just three, six months. But, all of that is about a year.

The only thing I would add is that we’re maximizing our revenue. So, we go out of our way and try and make sure that we have as much space occupied for as long as we can. And we’re also able to incubate tenants out of that program. We got a number of tenants that have started with us temporary tenants which in fact end up going longer term leases because they find they can make money and like the experience.

And can you remind me, maybe going back to Christy’s comment here a little bit. Do those month-to-month leases pay reimbursements or is it just like typical lease…

Yes. And remember, a lot of those month to months are leases that we haven’t finalized the negotiation with. So, we tend to take a big retailer. Okay? Maybe they’re headquartered in San Francisco, and I won’t name names. Believe it or not, just because of the two organizations back and forth, we may not have those leases negotiated completely. So, they are not going to leave and then come back. So, those tend to go month-to-month. And what you’re looking at in the 8-K is essentially that backlog. So, you need to differentiate between short-term leasing and month-to-month. Month-to-month is basically our total book of business that we have many national retailers in ‘18 that are done. And those tend to be done throughout ‘18. Even though we try to get them all done, we may have a strategy not to get them all done for all sorts of reasons. So, I think you need to separate those two out. Those month-to-month are primarily national retailers that have just not been finalized and they go. And remember a lot of our leases expire at January 31. So, a lot of reasons don’t get -- believe it or not, don’t get done until May and June. And don’t ask me but that’s been year after year after year. So, I hope you understand the difference.

No, I believe.

Let me repeat. So, you see in the 8-K is mostly vast majority of national tenants that we have finalized our deals, they automatically go to month-to-month, in our 94.6 only leases that are a year older in that number.

Thank you our next question is from Craig Schmidt of Bank of America. Your line is open.

Thank you. We see that you’re continuing to ramp up your densification pipeline. I was just wondering, as you look out your portfolio, how many projects you think you could be pursuing a densification effort on? It seems primarily hotels have been your densification effort of choice. Do you see more office and resi efforts as you densify?

Yes. I would say to you that just off the top of my head, we have at least 20 major projects, one of which is under construction. Now, we have to move the fire station at Phipps. But Phipps is a great example where we’re building a hotel with Nobu and a restaurant and an office building. There is no residential there. But as you know, we already built residential in our development there. But, we have a lot of residential. So, like -- and Craig you know the portfolio. So, Stoneridge and the East Bay, significant amount of resi will be part of the Sears redevelopment; same thing with Brea in Orange County. So, I wouldn’t say it’s mostly hotel. The reality is I think, you’ll see more and more resi built. And just a gross number, at least 20 but we’re building a hotel and Sawgrass. I mean, it’s all over the board, it’s something that we’re excited about, and it’s something that we’re dedicating more obviously capital, but also human resources toward.

Great. And then, regarding Bon-Ton, maybe you could share some of your future plans for the repurposing efforts of those department stores.

I’ll let Rick speak, other than Bon-Ton is a nonmaterial event for us. We’ve already got users identified. Again, we don’t own all of the real estate. So, some of it will be out of our hands, at least for some period of time. But Rick, you can add to that.

We basically have already identified users for virtually every one of the stores. And as David said, there are some that we own that we’re moving aggressively on right now; there are some that Bon-Ton owns, some that are third-party owned. But, we have users. They have said yes, let’s make finalize economics. And we would hope to have information about that later in the year. The stores aren’t going to even come back till third quarter while they finish their process.

Thank you. Our next question is from Alexander Goldfarb of Sandler O’Neill. Your line is open.

Just two just questions from us. First, David, in your opening comments, you referenced internet returns and how you make sure that the tenants aren’t understating their sales. Could you just expand on that? As far -- it sounds like you guys get a full detailed P&L and somehow you’re able to double check to make sure that the retailers, the tenants are leaving off anything to further understate. But, maybe you could just elaborate a little bit more on that.

Well, there is not much to elaborate other than we actually don’t get P&Ls, we get -- we have audit rights. And in our normal procedure, we saw some anomalies about sales. And as we’ve gone through our audit rights despite the retailer has audit rights on us in some cases. Now, if you go back historically, it used to be all these CAM audits. But, since we all went to fix CAM, that’s less of an issue. We found out that there -- what’s fascinating to me about the internet and it’s never really discussed is everyone talks about the internet’s gross sales, they never talk about the net sales. And I think by and large, bricks and mortar are -- because as you know apparel 30% to 40% returns and I think most of those returns are occurring in a lot of cases in the physical world, which is good for the retailers because maybe they are giving them credits or maybe they exchange it. But, we’ve just found that we’re getting dinged by the internet return when fact they are not allowed to because the reality is the only thing they are allowed to offset in terms of sales is returns from the store. And in many cases, we limit the total returns they are allowed to net against us. So, this is an issue. I mean I don’t want to make a big deal about it. But, when the market is fascinated by sales per square foot, we just think we need to tell you the other side of the story. What happens here and how it gets dealt with is anybody’s guess. It’s surely part of our lease negotiation, but we just want to tell the market, we are giving you our reported sales and they are less than what’s going on in that market because of the internet sales returns. And I can’t quantify it but I do think I wouldn’t tell you if they weren’t material out that. How’s that?

That’s what I figured. The second question is, part of your redevelopment that you guys have been doing has also been upgrading the food courts, which I don’t think usually get much attention. So, whether it’s like Woodbury or Westchester, certainly it’s pretty dramatic from what it was. But, as far as measuring return, like it’s to say, hey, at a restaurant, we drive this much more NOI, this much traffic, you add new retailers, new hotel, you can judge that. How do you -- are the food courts really dramatically increasing sales in NOI or these are more just, hey, you got to upgrade it, make it look good, it’s probably got the same sales that it was doing before. But if we’re going to do with the center, we have to. So, is this more defensive spend or are you actually getting a good return when you’re doing those?

Look, I think it’s all. It’s offense; it’s defense. The reality is, those numbers are all in our numbers, so, however you want to look at it. I don’t think it’s that critical to say it’s offense or defense. When we do make an investment in our food hall operations, that cost and that income that we get is all in the numbers that Tom provides in his 8-K. And just remember, and we don’t talk about this, we’ve been thinking about it, I’ve been think about it. The 8-K we have here is just the approved projects, ready to go that we -- our own capital committees approved. It does not include our soon to be approved deals like a Phipps or all of the Sears redevelopment that we have to deal with at the end of year. And that’s basically -- it’s more than a shadow pipeline but it is significant amount of investment that we think we’ll get accretive returns on. But, I would just say that simply, yes, it’s both; it’s offense, it’s defense. The cost and the income from that is certainly in our numbers. And the world wants newness, healthy food, community place to hang out, all of the stuff that’s really good. There’s a lot of great operators. We need to do more and more of it. We’re excited about it. Our peers have done it. They’ve done a nice job with it. And I think it will continue to continue to move forward. Now, on some cases, we may take it out because the reality is, there’s a better use for it. And each -- the thing about real estate is gather these trends, but the reality is it’s got -- it boils down to the location, demographics, and all that stuff that makes real estate unique.

Thank you. Our next question is from Ki Bin Kim of SunTrust. Your line is open.

This is Ki Bin. So, David, for a couple quarters, you’ve mentioned that you think the retail demand or environment is getting better. So, what is it that you’ve seen or you see it every day that that’s not parent in the supplemental snapshot every quarter?

Well, we talk to our sales folks and they tell us demand’s picking up. Now, leases take time. Bankruptcies don’t take any time. Okay? So, they have a lease, they reject it. And then, we don’t know if they are going to reject it or not; there’s lots of games of chicken. But, we’ve got one of the best leasing groups in the country. In the world, I look them in the eye; they tell me their demand is picking up. So, I talk to retailers, Rick talks to retailers. I mean, obviously, results are historical. They’re not future expectations. We feel better about the business than in ‘17. We gave your judgment that bankruptcies would be less than 18. So, far we’re right. We’re not perfect in our estimates and judgments, but we’ve been doing this a long time. And the guy that overseas leasing generally tells me green shoots. I don’t know. Sometimes I wonder whether -- but John and I’ve been working together a long time. I believe his judgment. Rick, you can comment on this. What do you think?

Interestingly, we have meetings every week with tenants where we’re in their offices and they are coming in the Indianapolis and we’re going over the portfolio. And that optimism is being generated out of those meetings where we are exposing opportunities to them. And where last year they would have said, we exposed 20 and they were interested in three and now they are interested in 12. So, there is definitely a more optimistic view; they more capital to spend and they are more focused on new opportunities than they were last year and that’s because of our optimism.

That’s helpful. Is that just broad-based or is there a certain segment, it’s a new type of tenants, is it the old guard? Just curious, how that looks like?

It’s a combination. I mean, look at -- each company is different, but look at just from the gap look at Old Navy. They are growing the Old Navy business. Now, maybe they weren’t two or three years ago. Obviously, the great thing about what’s been going on in our industry is there are more and more entrepreneurs in the food and obviously in the retail front. You don’t have to know -- I know, Rick -- this is usually where Rick updates his list. Let’s move to call along and we’ll avoid it. But, he’s happy to give it to you. There are more folks. I mean, our new business group is doing new and new deals, new ideas. Our business always recycles itself; it’s done it for so long. Our product has been around for 70 years. And despite -- and I don’t want to blame -- I don’t want to like being negative on the media. But, the media wants this one narrative, but it’s just not reality. And look at our numbers, okay? We’re going to make $4 billion this year. Okay? And that’s -- yes, I mean, it’s not perfect. I’d love for everybody -- I’d like not to have a slight decrease in occupancy and this, that and the other. But, it’s -- we’re in good shape. And I think the business generally is getting a little bit firmer. But, and again, and I go back and Tom might know it, but I wrote an article, my shareholder letter in ‘15 and I told you my concern about the leverage going into the system on retails. And the two big bankruptcies this year had basically -- Claire’s had nothing to do with its operation. It’s all about too much leverage. And Toys R Us, it was about the fact that it was so levered to begin with that they could never invest in the product, whether that’s online or in the stores or anything, and the natural media narrative as well as the mall, well, it’s not. Look at -- peel the onion, figure it out. And Tom, when did I write that in my letter, ‘15? Nobody reads my letter, but the reality is I told you about it in ‘15. So, that’s where we try to explain it to you methodically. We show it, we back it up with our numbers. And every retail is different. But the reality is we just feel a little bit better than -- now easier you feel better when you don’t have all these bankruptcies. But we’re going to have some more. And no, I’m not going to tell you which ones. And yes, some of it are because of operations or not -- the life has passed them by. But that’s been going on in our business forever. Traffic is up, sales up, demand is up, and our numbers are catching up.

Thank you. Our next question is from Jeremy Metz of BMO Capital Markets. Your line is open.

I just want to continue on your comments about getting better and retailer demand increasing. I’m wondering what you’re seeing from your tenants in terms of reinvesting in their existing stores. Are you seeing encouraging activity here relative to maybe a year ago?

I think, our tenants that are now recognized being that they are only going to and be able to increase their share by giving the consumer a better environment. And Dave has been taking about that for the last quarters, asking our retailers to invest in the store. And we’re seeing that more now. And that is in fact encouraging. One of the things that we’re very focused on is right sizing our tenants. So, where we have a tenant that we believe is got too much space, we will work with them and reallocate that space, get them to a smaller store, it’s more productive, we make money and we get back more space that we can lease to another productive tenant. And that’s just like manufacturing new space without having to build it. And so, we’re very focused on that. And the tenants are now more implying to work with us than they were in the last year or so.

Great, I appreciate that. And then, just switching gears in terms of those Sears boxes, the five redevelopments you recently announced the plans for, you mentioned earlier that those construction spend numbers aren’t in the pipeline yet. But, given it sounds like those can be some pretty significant projects here, adding additional uses, the hotels, office, resi. Just wondering if you can give us any sort of sense of how much capital those five could total here.

Well, let me answer it this way. We’ve made a deal with Sears to control 12 boxes. And when I say Sears, I should also mention Seritage. Our total investment in that -- now some of these are not this year, the five are this year because we’re getting those back this year. But, the 12 in total is about $1.2 billion and that will flex little bit up and down. So, you should look at the total amount as opposed to the five. But, you’ll see the five start coming into our 8-K. But, I would I say to you that you look at the 12 and it’s about $1.2 billion altogether.

Thank you. Our next question is from Caitlin Burrows of Goldman Sachs. Your line is open.

I guess, also just on those densification projects, in the supplement, and I know another example is Northgate Mall outside of Seattle, which was in the news. That one mentioned it could have housing and offices but reduced square footage of retail. So, just wondering to what extent the project you’re doing could involve a reduction of retail square footage so that even though the end result might be or should be an increase in NOI that there could be some decline in between?

Yes. There is no question that that will have a reduction in retail space. Because remember, we have Penny, Macy’s, Nordstrom, and it’s a tight size, but it’s a great piece of real estate. And ultimately, it will be a residential, office and still retail. But, I’d say, roughly retail would be cut in half, more or less, in that range. Obviously, this is a process over time. We’ve got to go through the approval process, but the retail there will be dramatically reduced.

I guess, when you think about the densification projects overall, is that normally the case, or more often is it like on a parking lot on the side that wouldn’t end up impacting the retail portion?

Well, look, I think a lot of this is happening with our Sears stuff. So, if you consider Sears a retailer, in theory, it’s taking that out. I mean all the 12 -- now, in a lot of cases we’re just changing the mix, but it’ll still be retail. So, I would say to you, a lot of it is reducing the department store, not so much the small shops, but really reducing the department store square footage and not the small shop. So, the income opportunity is really enhanced because as you know, either they pay very little rent or to buy the box on an accretive basis because getting small shop kind of rents or we’re having mixed-use development. So, in a lot of cases, the retail will be reduced in total, but it’ll be mostly department store reduction as opposed to what you and I would consider small shops.

And I would tell you that a great example of that focusing not just on the box, the land at King of Prussia, the Penny store is going to be demolished. That gives us 17 acres of land adjacent to King of Prussia mall and that is going to be a significant mixed-use project with hotel, office, residential, restaurants, retail, and amenities. And so, that’s a major opportunity for us to substantially upgrade what is already one of the best properties in the United States.

And then, just last one using Northgate or on this topic but just using Northgate as example, is the reason that’s not listed yet just because the decision-making process is pretty early stage?

It’s early. Listen, the critical path there’s approvals. And then, once the approvals come, we’ll start to build. So, it’s a -- Seattle is obviously a great market and a great city. And this is a great piece of real estate. The new metro line is -- it basically comes off in our parking lot. But it’s a multiyear process. I think, the most exciting that we’ve got that the market could focus on, if they want say okay, what are you doing now would be Phipps. I mean, Phipps’s Belk leaves August of this year. We demolish the store. It’s a little complicated because we got to demolish the party and then go up. But that’s going to happen. That’s basically -- we have this odd process here. I mean, it’s basically -- they’re finalizing all the numbers. But that will show up in either next quarter, closely thereafter. But it’s for all intents and purposes a go deal. And it’s roughly, if I remember right around, 350 million bucks. And it’ll be accretive. And it is going to make that real estate just tremendous, fantastic. The only thing that could flex there is the office. But we think a brand new building there in that area with that parking and those amenities will be exciting. And we will be doing a new food hall there as along with the Life Time Work and Fitness and Sport, Nobu hotel restaurant. That’s going to be the one you can say, well, this is great, you guys talk about this all but this is actually happening. Northgate’s a year or so process. But the other big ones to look for are Brea, Stoneridge and obviously KoP. I mean, those are the big, what I say to you are the big four that are all going to be programmed in here in the next year or so.

And then, just switching topics, the income and other taxes line item was historically an expense last year and the first quarter was positive, I think due to a loss from Aero this year, back to an expense. Just wondering if you could go through the impact Aeropostale had to your earnings this quarter and the outlook for that investment.

Well, last year -- I mean, this is the good news and the bad news. Last year -- as you know, the first quarter of retail operation usually loses, yes we had the tax benefit of that; this year, because of the lower tax and the operations are better, we had less of the tax benefit. And that’s really what it manifests itself. I think, Aero business generally is, they’re doing what they’re supposed to do. So, that’s a business that with a little elbow grease a less worry about comp sales and all this other stuff. I think we’re going to -- our operating business will -- should have an EBITDA -- and again, we only own 49%, but should have an EBITDA, I don’t know o $35 million. And we bought it basically one times EBITDA. So, I don’t know, people criticize me for it. But, somehow it’s working out. And as you know, they’re going to take on the Nautica operations. We think that’s another unique thing that can be done, the profitability of the Aero operating company. And then, our partner besides General Growth, Authentic Brands Group, continues to do an excellent job. And the brand development of both Aero and then ultimately all their brands, as well as Nautica, which we expect to close here in the next 30 days. So, it’s okay. We have a decent story to tell in our retail investments so far. So, it’s okay. It’s good.

Thank you. Our next question is from Nick Yulico of UBS. Your line is now open.

Good morning, everyone. Looking at the increase in tenant sale per square foot trying to figure out how much is attributed to turning out in weaker tenants from the portfolio versus sales growth. And so, could we get some perspective on what is the average sales per square foot for tenants that have thrown out of the portfolio through bankruptcy in the quarter and in the last year?

We don’t have those numbers there. But we have such huge portfolio we lost 1 million square feet in bankruptcies. Our small shops are 65 million. So, no matter how you want to do that Nick, it’s not going to be material. Okay? You can make up a number and do it yourself and you will see that’s not material. 65 million square feet is still 65 million square feet.

And then, on the development page, recognizing these numbers can fluctuate. But, the expected return is now 8%, it was 9% last quarter. What’s driving that? Is it tougher construction costs or some change in product mix, location?

Things come in, things go out; we round it. So, there is some rounding up and rounding down, but nothing out of the ordinary mix change. That’s it.

Thank you our next question is from Vincent Chao of Deutsche Bank. Your line is now open.

I just want to go back to the Aeropostale conversation little bit. Obviously, you’ve done a good job stabilizing it on a big basis. But I am just curious there were some special circumstances when you bought that. I guess, what’s the longer term plan there? It seems like not something you would necessarily keep long-term but just curious how you’re thinking about the long-term for that investment?

Well, again, it’s a -- it’s a small investment. We have basically less than $30 million in it. So, obviously, it’s a very good investment. It does -- we bought it really, really fortunately. The team has done very good job. But again, our investment in this is basically $30 million. So, it’s not like I obsess with. I do obsess with making sure the operations continue to move forward in the positive manner, which they have been. But, it’s not -- for $30 million, I am not going to -- it’s not like oh God, we got to do something with Aero. But I am open to any of your idea that you’d like.

Leverage buyout, okay?

That’s the one thing we’ll not do. Okay.

I guess, just another question maybe something you are obsessed a little bit more, just the big progress that you mentioned that are going to come into the pipeline. You saw the share of your net cost there -- the reporting numbers go up for the first time in a little while. I guess, after these are all in there, I guess, or maybe by the end of the year, what do you think the pipeline will be? Is it going to be over 1.5 billion at that point, just given some of the things that have been brought on? And then from a delivery perspective, is that more of a 2020 kind of NOI uplift?

Well, what I would say to you is the stuff that we’re working on now, again, part of the timing is -- the great thing about us is we’re not long development. So, we can turn it on and turn it off, just like our balance sheet. But, I would say to you the stuff that’s in the pipeline now is over $4 billion. And I would call that more than a shadow pipeline, I’d call the real pipeline. The difficulty in answering your question, which is not that it’s not an appropriate question, it’s just that it’s hard to tell you exactly when that will come on line. But, I would say to you, as Tom has described, it’s going to be about a 1 billion plus a year. I still feel like that’s the right number, because we’ve got this $4 billion pipe that I see and I can identify clearly whether it’s 2 billion one year, 1 billion another year, kind of it’s -- that’s harder to -- because a lot of these are little bit out of our control and that you just have to go through the approval process. But the real stuff is $4 billion. And all that’s like in works now. And so that’s why I still think that 1 billion plus a year is probably a pretty good number because it’ll take three, four years to get all basically done. And then, we’ll add to that as well because obviously even though we have 12 Sears stores, that’s not -- there is going to be more. That’s not the end.

Thank you. Our next question is from Michael Mueller of JP Morgan. Your line is open.

I appreciate the color on the development pipeline. I guess, the one question I have left is this first quarter lease term, how much of that was contemplated in guidance? And is there anything else material that you expect in the balance of the year.

Yes. It was all pretty much in our initial guidance because it was unique situation that was -- that we had anticipated that was going to be resolved.

And for the balance of the year, anything else material in there?

On lease term, not really. And again, I just -- it’s always been part of our business, it’s an okay part of our business. Because if you can get the present value of lease obligation and then you get the space back, it’s not too shabby as my hero would say. But, I don’t sense that there’s anything really that’s going to be that extraordinary. And again, remember, Michael, it’s not in our comp NOI.

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

Question on -- David, you’ve built a reputation as being a pretty astute capital allocator. And as you look at the various platforms that you’re allocating capital to, whether you’re your U.S. mall business, your outlet business or your international business or for that matter, buying back your own stock, can you maybe talk about the attractiveness, as you sit right now, for each of those uses of capital? Clearly you continue to invest and plow money back into your U.S. mall portfolio, but maybe if you can talk about relative attractiveness, particularly regarding your stock as well.

Well, I mean, right now, it’s basically 12 times. It’s highly attractive. And the only hypothetical constrain in that is that we just think having -- it’s never really manifested itself in our multiples. The optionality of having this powerful balance sheet is something that I never want to get rid of. So, we could buy a ton of stock back but we always are going to be conservative on that front only because we want this powerful balance sheet for optionality reasons, optionality to do something external, optionality to weather any storm, make additional investments, make our properties better and never. And so, we’re never going -- remember, Rick and I workout dudes. Okay? Rick, I mean, when I got back to the real estate business in 1990, I spent from ‘90, to ‘93 doing workouts; Rick did it as well, right, Rick?

Yes.

So, Andy is here, he is conservative. So, that’s -- we’ll never jeopardize the balance sheet. Now, I don’t think we get rewarded for it as much as we probably should. But that’s fine. It is what it is. I don’t think the rating agencies appreciated it as much as they should. But that’s fine. It is what it is. And so for us -- I just think, we’re never going to be wildly aggressive on buying our stock back just because we want that ultimate flexibility. But the priorities are we’ll continue to buy stock back, the biggest priority we have obviously is we’re really excited about all this mixed use stuff that we’re doing and some of these big projects. That’s going to be the future of a lot of investment and growth. And then, we may take the Company in the different direction. Michael Bilerman mentioned the consumer. I mean, I wouldn’t rule out some interesting things from us down the road, because I think -- I just think we have the ability to do stuff like that that we should rule out. So, I hope that answers your question. And thankfully, we have a $1.5 billion cash flow after dividend that we can put back into the business. And we’re not over our skis. So, if we end up in a really tough recessionary environment, we’re not going to -- and I wrote this in my letter. We are not -- again, we are not going to -- the development community historically leverage-leverage, increase rates of return, blah, blah, blah. We are never going to push that to the limit even though it makes your return on investment that much better and all the other metrics associated with it. It’s just not who we are. So, I mean, I -- it’s a long winded answer. But, I mean -- so, we’ll continue to kind of -- what we’re doing I think right now is what we’ll continue to do. But, I want the option that if obviously if it gets different, I am going to step one thing up or decrease one thing up. That allows us. We have the optionality to do that.

One other question, David, I’d love to get your color on what you think the Unibail entry into the U.S. by Westfield means for the global retail dynamics and also for the U.S. mall dynamics?

Well, first of all I would say, one or two points. One is, people that are looking for a mark on values, it’s a very, very healthy mark; and two is operationally, I don’t see -- we’ll wait to see. I mean, I’ll reserve judgment there but I don’t see a big significant change. I mean Westfield did a good job before. I am sure they’ll do a good job after. But, I think the most important thing is that there is a very healthy mark-out there if you are interested in those marks. I think from our standpoint, we will little to no impact.

Thank you. Our next question is from Linda Tsai of Barclays. Your line is open.

Do you have any comments on 1Q traffic across the different property types? What kind of uptick are you seeing, given improve trends coming out of the better holiday season?

I’d say, generally, it was -- I mean, wasn’t like up 5%, it was up around 1 across the board and it didn’t really matter if there were outlets or malls; it was kind of across the board. The outlets tend to get a little bit more to hit because of the weather. But, even though -- even they were up.

Are you seeing tourism come back to the outlet?

Yes, we are, even though it’s not as robust as it has been. It continues to move. Outlet sales were really, really nice in the first quarter. So, a lot more retailers are doing better. So, we were very pleased generally with the outlet results.

Great. And then, can you offer some insights on Klépierre walking away from its bid of Hammerson. What might have been the thinking behind that?

Well, it’s really -- even though lots of discussion on this. Klépierre, there’s a supervisor board and executive board. We’re on the supervisory board but the executive Board really runs the company and makes those decisions. So, it’s really more important to hear from them. That was a Klépierre led efforts in transaction. Obviously, they didn’t do it without the supervisory board giving them the green light to do yes or no. But it’s really that’s question is really much better directed toward them.

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

Hey. David, it’s Michael Bilerman with two quick follow-ups. Is there anything with all the things going on with all of your competitors, whether it is the Westfield-Unibail merger, the GGP-Brookfield deal, clearly you’ve had management changes that may assert in financial activism, the activism [indiscernible]. Does this allow Simon at all to take advantage of all those things going on for shareholders at all, in terms of just operations and dealing with things and there is just more on uncertainty at all your competitors, not from an M&A perspective.

I don’t think so. I mean, I think they are all running their business I think very effectively. So, I don’t see that at all. They all have the good -- the ones you mentioned all have good properties, good management teams. I would imagine all of that’s business as usual, regardless of whatever corporate activities going on. So, I don’t think so.

You’re not hearing that from me retailers that just may like loves drama going on in C suite or corporate at all?

Not at all.

And then just going back to this whole thing there, returns and the leases and you’re comment about the CAM audits and the movement towards fixed CAM and how that changed. Is there any change in the way you’re doing new lease agreements to address this for you to make sure that you’re getting your fair share, percentage rents and the right rent at the end of the day for a space?

Well, I mean that’s a really good question and it’s a big question. And every retailer is different. It’s just - -I mean, believe it or not Rick, me, John Rulli and his team, I mean we’re -- every retail is different. We’re very focused on it. There’s not a standard response yet, but it’s -- it needs to be addressed in the future leases. Because we all -- we don’t mind internet sales. I mean, because we do think there’s a lot of returns associated with it. We obviously want those returns in the store because that facilitates a trip and it helps the retailer. And it’s all just a function of making sure it’s appropriately dealt with. So, it’s not -- it’s not an adversarial scenario but it just needs to be appropriately addressed. And we’re in the midst of trying to figure out what’s the right approach. And unfortunately, there’s not a cookie-cutter answer because every retailer does a little bit different. But it’s not -- we want the returns in the store. We want the trip in the store. But it -- as you know, I have been like, don’t worry too much about sales and I’ve been too prudent [ph] on that. And I understand why the market doesn’t like my view of that. But the reality, it’s becoming even -- there’s even a bigger gap on the focus on this because there’s more -- certainly more business being done online but that also means more returns. And the consumer likes to do the returns in the store. And the reality is this whole green effort, we wrote a white paper three-four years ago about the fact that we all want higher levels of sustainability from an energy point of view. And the reality is the internet and the constant packaging and the constant state of returns is really a lot less green than doing your trip in total. So, there’s a lot of stuff on this but I don’t want to bore you. But point is, I don’t have a good answer for you yet other than we’re working cooperatively with our clients to find out what the right answer is. And it’s not a fair share thing, it’s just -- as long as we have to report that number, I want -- we need to somehow -- the market needs to understand there’s this issue that’s out there.

And I wanted to congratulate Andy on his retirement, next to go out with a $30 billion balance sheet at under 3.5% rate with a seven-year average maturity, certainly calling it probably the peak from that perspective. But, is there any comments in terms of CFO process? What you’re go through internal versus external and how you think that’s going to be, timing wise?

So, first of all, Andy, we’ll say goodbye to Andy, not till the end of this year. But, Andy has done a fantastic job as we all know. And when I wrote the comments about his retirement, I really, really meant them and not that I don’t mean what I write. But the fact of the matter is that I felt a -- in my heart how I felt about Andy. He’s done a tremendous job. He has done such a good job that there is no financing that we need to do. Okay? So, that’s kind of ironic, right? So this is a CFO that’s done such a great job, the reality is there’s nothing to do. I’m kidding. There is always something to do. But currently, the simple answer is, we -- looking more internally. We have some really good internal candidates. And I’m thinking more of that as opposed to external. But, I haven’t put a pin in it yet. But Andy’s done a unbelievable job with the balance sheet. He and I have worked together 25 years. He’s got the best relationships in the industry, banking industry. And we will certainly miss him but the reality is he’s done such a good job, there is nothing to do.

16 billion in the last three years, plus to revolvers that you got a great internal group that can step up into your commence, we always set a great infrastructure here with very, very strong candidate and the team environment in the finance department.

$16 billion in the last three years, plus two revolvers. But, you’ve got a great internal group that can step up in an year’s time. We’ve always had a great infrastructure here with very, very candidates. And it’s a team environment in the finance department.

So, the answer is I’m thinking about it. I’m getting closer and closer. But Andy is right, it’s a team effort. But, it’ll develop this year.

David, it’s Christy, just one more quick one for me. You suggested buybacks are likely to continue. To what extent are assumptions for additional buybacks from here contemplated in the current FFO guidance range?

They really aren’t other than what we’ve already done.

And that concludes our Q&A session for today. I would like to turn the call back over to Mr.David Simon for any further remarks.

All right. Thank you everyone. I appreciate your questions and your comments.