Ladies and gentlemen, thank you for standing by. And welcome to the Simon Property Group Incorporated Fourth Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to turn the conference to your speaker today, Tom Ward, Senior Vice President, Investor Relations. Please go ahead, sir.

Thank you, Joel. Good morning and thank you for joining us today. Presenting on today's call is David Simon, Chairman, Chief Executive Officer and President. Also on the call are Rick Sokolov, Vice Chairman; Brian McDade, Chief Financial Officer; and Adam Reuille, 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, everyone. We had a very busy productive quarter to end another successful year for our company. Our full year 2019 funds from operation per diluted share was $12.04, which includes a $0.33 charge for the early redemption of our four series of senior notes. Adjusting for the debt charge, our full-year FFO was $12.37 per share, at the upper end of our initial 2019 guidance. Comparable FFO per share for the year increased 4.4%. It is a testament to our relentless focus on operations, cost structure, active portfolio management, commitment to our strategy that we achieved the upper end of our initial range, even with the number of headwinds we faced during the year, including retail bankruptcies, significant downtime due to major redevelopments at many of our properties and a reduced overage from tourism spending, including the negative impact from the continued U.S. strong dollar, as well as the continued trade tensions limiting visitors. For the fourth quarter reported FFO was $1.045 billion, or $2.96 per share. Comparable FFO was $3.29 per share, an increase of 2.8% year-over-year. We continue to grow our cash flow and report solid key operating metrics, including our comp NOI, which grew with – our international properties grew at 1.7%. Our comp NOI for domestic properties increased 1.4% for the year. Retailer bankruptcies impacted our comp NOI by roughly 120 basis points and lower overage rent, due to reduced international tourism I mentioned earlier, increased – impacted our comp NOI growth by 30 basis points to 40 basis points. We are pleased to report that retail sales momentum again accelerated in the fourth quarter, reported retail sales per square foot for our malls and premium outlets was $693 per foot, compared to $661 in the prior year period, an increase of 4.8%. Keep…

Thank you. [Operator Instructions] Our first question comes from Craig Schmidt with Bank of America. Your line is now open.

Thank you. I wonder if you could characterize the outlet results. Did -- they seemed obviously that to have an impact from the lower traffic, but it also seemed like there were a number of store closings that impact the outlet. If you could just tell us, where the outlet relates to the mall business?

Well the outlet business had a very good year. I mean the only -- I mean it was affected by certain bankruptcies, but we had significant comp NOI growth. It was higher than the mall business. And the only real shortfall occurred like I said in the overage rent and that was primarily at our bigger centers due to the strong dollar and tourism. So the outlet business we're projecting again for our comp NOI to be higher than the mall business. Again, Craig, don't get caught up in this narrative. We're seeing really good results in the outlet. We'd like a little weaker dollar more tourism. I believe that's temporary. It's good to see that -- obviously we've got a bigger picture going on with the coronavirus and tourism. I assume that will be temporary. However, it's great to see that China and the U.S. completed their trade discussions. And assuming we get through this coronavirus scenario. We expect our overage to continue to be dominant or at the growth in our outlet business. And we have no worries or concerns at all about our outlet business. Tulsa's leasing, Normandy is leasing, Bangkok is leasing, West Midlands and even with Brexit Mexit whatever you want it's leasing. Ashford's leasing. Vancouver is leasing. So I hope that gives you a flavor. So don't believe the narrative. You'll understand what we're doing.

Okay. And then on the 1% comparable NOI guidance is lower than you achieved in 2019. What would you say are the major drivers of that number?

Well if I would say primarily because of the downtime. If you -- again, we're a big company so it's a little harder for everybody to understand all that's going on. But if you see the significant redevelopment that we have, we have downtime. And the reality of that is we think in 2021 that we could sit here and we don't have throw away years. You know our philosophy, but we do have significant downtime. That NOI that we've got that takes a decrease. And these are big malls like at Burlington and North Shore and all that stuff. A lot of that stuff is coming on in late 2020. We expect $70 million as I mentioned just from those redevelopments to come on into 2021. Obviously, we're projecting a stronger dollar, so we're muted on our overage rent calculations with our outlet business. And those are the primary. And then obviously we've got some retailer restructurings that are occurring. Some of that's related to the newer rent and that's likely to occur with the F21 stabilization some other restructuring. So you put it all in and that's 1%. I'm not overly worried about that number. I'd like it to be higher, but we've got some things to deal with and we're dealing with them.

Okay. And then just -- do you have what the leasing spread was just for the fourth quarter in 2019? And was that result somewhat timing-related?

We don't. We just do it on a rolling 12.

Okay.

That's a number we post. It is what it is. We don't say too much grace over it. Just like sales. I mean we had this discussion on sales and it was the most important thing. Now I understand it's the least important thing. So again, you kind of know our view which is that sales are interesting. They're not determinative because again we can replace retailers that aren't performing. And then we do think our sales per foot are muted by the returns, okay?

Okay. Thank you.

Sure.

Thank you. Our next question comes from Christy McElroy with Citigroup. Your line is now open.

Hey. It's Michael Bilerman here with Christy. David, I wanted to go through some of the investments you're making in retailers and other sort of tech platform initiatives. And the numbers you gave out on Aero surprised you didn't quote out Adam Sandler given we're not too shabby, right? A 15 times multiple on Aero is highly impressive. When you step back, how do you think about all these investments whether it was Aero and potentially Forever 21? And then Life Time, Pinstripes, Allied, PARM, Soho House. I know some of them may be varied. How do you think about the investment itself versus driving disproportionate leasing within Simon's assets relative to all the other retail landlords, right? So how much of it is a benefit not only potentially of turning these retailers around like you did with Aero versus how much of it's incremental leasing that you're going to get out of your assets or protection of stores relative to everybody else?

Well, first of all let me just talk about the retailer investments. We would not have done Aero and we're -- and we would not be attempting to do Forever 21 for the sole purpose of maintaining our rent. And that's the biggest misnomer out there when I read various publications and analyst notes and media notes. We do it -- we make these investments for the sole purpose of we think there's a return on investment. Now the fact of the matter is we did all this that Aero and the reality is they kept paying us rent. So that's like -- that's obviously beneficial and I don't want to understate that but that's not why we do it. At the same time with F21, we do think there is a business there, but it's got to be turned around. And I'm not going to project today to you what those numbers are, but we've got our work ahead of us. But if we are successful in turning around, we will make money at F21 and we'll get paid our rent. But again the sole purpose is to make investment in our -- for the benefit of our company. Now the rest of them we're creating a flywheel of unique entrepreneurs that understand the benefits of physical space, understand the benefits of the new consumer today. And whether it's Pinstripes or e-gaming or the deal that we did with RGG Rue and Gilt and what's going on with shop Premium Outlets and the deal we did with PARM and Nazarian at the SBE this is a flywheel that no other company in our industry can do. We expect to get the benefit of -- return on those investments. But additionally the ability to make us a better operator and also bring those kind of ideas to our portfolio. So we learn how to be a better operator, we make money on the investment and ultimately in some cases they bring their product to our -- to our physical portfolio. So I can't imagine a better scenario for us, but we're in early days on all of this stuff. But we expect to prosper from these kind of investments. Underlying though is we want them to add value to how we operate as well as to our portfolio and we're doing that. I mean, if you've seen as an example I mean go add chapter verse on this stuff but if you see what Life Time brings with their new concept to our portfolio, you'd say, I get it. Would I rather have that than a moderate underinvested department store and the answer is, come on. It's a no-brainer.

Right. Second question I had was if you think about where your NOI breakdown is today between the malls outlets mills and international, which is the pie chart you have on slide 17 and you sort of marry it up with the pie chart of where you're spending your capital, which is slide 28, and then you add in a lot of these other types of investments that you're making where does -- let's say three years out or maybe five years out, where does the composition of your income and asset base shift to from effectively non-retail uses, resi, hotels, office, the totality of all these investments that you're making and then the traditional retail business? What do you think the split would be?

I mean, it's really -- it's -- we benefit you could argue it either way, but we benefit from the -- I think we really benefit from being a large company. And it's obvious that we're able to make investments and pay our dividend without having to finance our dividend et cetera. So when I look at it we -- even when we look at just our nonretail real estate I mean to get to the NOI of over 5% is going to take a lot of work. But we do like the diversity of our geography, our product-type mills, outlets, malls, our mall business is under 50% of our NOI today. We love the international business. That's been highly profitable. And I think we've got a pretty interesting company because it's so diverse and so big and so well financed. Like I said at the end, I mean we can zig when others zag. Or is it zag with zig I always get confused…

Either way. Either way.

Oh, either way. So we can zig when others are zagging and we can zag when others are zigging. Maybe that's the answer. And then we have our whole additional portfolio of other investments that maybe one day we have a spin-off of that. Maybe one day we're not a REIT. Maybe one day, we're just this diversified, interesting company that people will finally think, hey it's not a bad company, not too shabby.

Hey, David. It's Christy.

We did -- we did have, not too shabby, in the conference. But we took it out, but if we can use...

Hey, David. It's Christy. If I could just add a follow-up on Craig's question on comp NOI. So realizing that you're now including international and I assume that's on a constant currency basis. I'm wondering if you could provide sort of an apples-to-apples comparison with the 1.4% growth in 2019 just for North America. And then just a clarification, your comp NOI growth excludes those larger redevelopment projects, is that correct?

Only a few of those. So not all of them. It depends on the size of a – we have a definition of that. We have a size of it. And so that's not all of them. It just depends on some of that. So it doesn't really – international marginally helped. It's not a big deal. I would suggest to you that the biggest thing affecting our comp, as I said to you earlier, is that we do have a lot of redevelopments that are affecting our cash flow. I don't – and that's when they come on, we'll be $70 million in 2021. There is downtime. I don't think people appreciate that because you're used to dealing with smaller companies, frankly. And you know if they are leasing it out to X, Y, Z, it moves the needle. We're a little bit different and what we – there is no denying, we've got some leasing to do. Our occupancy is down a little bit. By the way, if you believe the narrative, you think our occupancy year-over-year will be down 500 basis points. It's down 80. We've already leased 60% of it. So, I'm not – we look at ourselves a little bit different. We give you a year-by-year number. We don't have throwaway years. Our 1%, I think is going to be fine. And if we get a little uptick in overage rent, it will be better. If we don't, it won't and we'll – life will go on.

Thank you.

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

Thanks. Good morning. David, just one quick one. Go back on Forever 21, just given that, obviously, there is still a process being run here and there are some different outcomes that could come out of this. Just interested, is your current guide, is it built around all stores staying open and just operating at a reduced occupancy costs? Or was that the base that's built in here?

We don't – again, given our size and given our historical results, we don't get into specific retailer rents or restructurings. That's for other folks. That's not for us.

That's fair. And then we – as we think about sort of the add inflow of closings and bankruptcies we've seen, 2019, obviously a pretty big year. 2018 was down from 2017 though. So as you look at the landscape today, you look specifically at your outlet and mall portfolio. Obviously, what happened last year and what could be in the pipeline is sucked into the 1% comp outlook. But more high level, how do you feel about the landscape here today, given there is still, obviously, plenty of over-levered retailers out there?

Yeah, I think – look, I think we're projecting it to be lower than last year, for sure. But it's our – our point of view and there are no certainties. But I would certainly – my best judgment call would certainly be to be dramatically less than last year. Last year was a very difficult year when it came to that if you look at. Historically, 2017 was a high year. 2018 was a low year. 2019 was a high year. So, we're anticipating a lower – certainly a lower amount, but that's our best estimate of what we see today.

Okay. And last one for me. As we look at where the stock is, as you mentioned, the misperceptions out there, the big dividend yield spread to cash you've been able to generate. How are you thinking about further stock buybacks at this point, just given the redevelopment pipeline and opportunity there that you outlined?

Maybe we should go private. It's really what we should do. The reality is, look, it's in our – we do have the opportunity to do that. We're obviously waiting to see kind of what transpires in the global world right now, but it's something that we'll obviously continue. We do think our company is undervalued. And I would expect this to continue to play into that. It's not in our numbers and we'll see how the next – know how the next period of time evolves.

Thanks for the time.

Sure.

Thank you. Our next question comes from Alexander Goldfarb with Piper Sandler. Your line is now open.

Good morning.

Good morning.

Good morning. I'll change up the answer because you called me out on the – out there last time. But I will say to Bilerman's thing, he mentioned that you didn't do not too shabby. I would point out that you brought Mexit in which may be the first in REIT-land to mention Mexit.

That's why I keep saying we're a little bit different than the rest of the folks, okay? Mexit -- by the way, I think it will uptick sales in Vancouver though. So, there'll be a benefit from Mexit.

Okay. Well, if you could be a little less different if you go back to the 7 A.M. release time that would be appreciated.

No problem. We had a technical difficulty. So, it wasn't as bad as the Iowa Caucus, but it was a little bit of a technical difficulty.

Okay. So, two questions David. I appreciate that you're not going to comment specifically on individual tenants. But we did notice that Forever 21 dropped out of our top 10 in the fourth quarter. But third quarter obviously -- NOI in the fourth quarter was a lot weaker than previously. So maybe you can just in aggregate talk about what -- to the extent you could talk about the impact in the fourth quarter? And then what your bad debt credit is for 2020 and versus what the actual was in 2019 just to get a sense for how much the 1% is impacted by maybe a change in bad credit versus historical versus other things?

Well, look we are -- we certainly -- it's not surprising to you. And again I -- you're very kind and you're very smart and that's why you want me to answer these F21 questions. But -- and I don't really want to answer them but I will answer this. Our fourth quarter was clearly impacted by the reductions that us and others provided to F21 to help stabilize their business, okay? And that was -- and that is -- that new scenario is one of the reasons why they dropped out of our top 10. So, it wasn't like we wanted it to drop out of our top 10, but that's just the math. Two is and I -- again, I have to impress upon everyone out there. We do a -- overage rent is an art, not a complete science and it is back-end weighted for the fourth quarter in the outlet business. We actually -- we're way behind an overage rent and all the way up and we made some of it back, but we didn't make what we had originally budgeted. So, when you put the two together that's why we were a little short domestically to get to our 2% original budget. I mean there's no hiding that, there's no denying that, but that is an art and a science. Now, that's why we've been extra conservative I'd say on the overage and the outlet business. But there's a lot going on. I mean right now tourism is way down in the United States. I don't control that. Usually, we're a beneficiary of that, but sometimes we run into a headwind. But that has nothing to do with the long-term viability of this great real estate and these great properties and that's what we have to as investors and as you as analysts and us as operators all have to kind of overlook these temporary things. So, we did -- so in summary, I hope I answered the question. In summary, our fourth -- our Q4 was impacted by what we did with F21. It was impacted the shortfall in the overage rent with the outlets. We're projecting a similar scenario next year so hopefully we'll be conservative on that but time will tell. And obviously that does the restructure of F21 because it was a big, big retailer does have -- it does flow through 2020 as well. I hope that answers -- on the bad debt, it's basically pretty flat from 2019 which was a pretty decent-sized year. So, that -- but again, there's no longer bad debt. It's just you don't get the income you thought you'd do, okay? And from an accounting point of view being an old GAAP accountant I still scratch my head on that. But the reality is it's no longer a bad debt, you just don't get all the income you thought you were going to get revenue.

And then the second question goes to the dividend. You obviously highlighted where your yield is relative to the tenure. You guys always point out your sort of mid-single-digit dividend increases over the years. But maybe that mirrors your taxable dividend increase in which case it will -- it won't be lower. But just given it seems like your comments that the market is not appreciating your dividend and the guidance coming in a little short of where The Street is, should we brace ourselves that maybe you don't increase the dividend this year or maybe the increase is nominal maybe 1%? Or your view is to continue growing it in the sort of mid-single-digits even if the market doesn't appreciate it in the stock price?

Well, look, I think we'll continue to grow our dividend. We have earnings growth next year -- or this year I should say, 2020. We grew 2.4% Q-over-Q. So, that's certainly a signal to you that we are not backing off our dividend growth. I mean, will it be as high as 8% or 10%, like it's been over the last five years or six years? It may -- probably not. But again, I don't think -- I look at it -- I guess, if you were in my shoes, when I hear the word bracing, I just want to explain to you, we're not bracing here, my friend. We're on the offense. We actually feel good about our company. We feel great about our dividend. We feel great about our balance sheet. We feel great about these other investments we're going to make. We're going to hopefully turnaround F21 and make money. So the last thing -- the last word you will never see in our -- hopefully, I shouldn't say never, but we don't -- we're not bracing here. Okay. Yes, we have some leasing to do, given the high amount of bankruptcies. We've already leased 60%. Yes, I'd like to see tourism come in. Strong dollar does limit spend. I mean, you will see that from other retailers, the retailers that have an important exposure to tourism. We have all that redevelopment in 2020 that's ongoing, that takes properties down. I mean, at a mall, at Northgate that did $18 million of NOI, it does zero, zero today. I mean, zero. And we accelerated it and we have development rights that could make that property worth $1 billion. Again, we don't have throwaway years, Alex, as you know. And so, yes, this year will be not as robust growth as maybe some of the years in the past. That doesn't mean we're bracing, no bracing here, not in our vocabulary.

Okay. Okay. Thank you. Thank you, David.

Sure.

Thank you. Our next question comes from Rich Hill with Morgan Stanley. Your line is now open.

Hey, David. Good morning.

Good morning.

Just one quick clarification. I think what you said was F21 is still in the pool. It's just a lower tenant and therefore, should we assume F21 as a tenant, is included in the 2020 FFO guide?

Yes, yes. We and others adjusted the rent for the fourth quarter. And because of the base rent, it's number 11 or 12. What is it?

Number 12.

12. They're 12. Forever 21 is in our top 12. Okay.

Got it. That's helpful. That’s why I promised you that's the last question. I'm going to ask about Forever 21.

No problem. We have no problem with any questions anybody wants to ask.

Sure. And so, actually just staying along this line of your investments in retailers and I appreciate why they've been really attractive investments for you. So two questions. First of all, are these held in the TRS? I think they are. And then number two, do you have a sense for how high you could go with your retail investments before you got up your non-REIT limit in the TRS?

Yes, they are in our TRS. And there's a lot going on, technically, about this that the NAREIT's working on. And I'll just defer that, because it's a little arcane. But we've got plenty of room and given that it's in our TRS, we've got plenty of room that we're not going to -- there's no issue about maintaining REIT status about income or gross asset test and all this -- all of it, all of the various REIT tests that you have to meet. So, we've got plenty of room to run.

Yes. And I was really saying that not from -- are you hitting the limit, but it seems like this is an attractive investment pool that might warrant some further consideration in the future.

Yes, look, I think, we -- I guess, Rich, what I'd say to you, we're grounded in real estate, but we have over time found that we can do other things reasonably well and that is our goal to do that. We've had success, we haven't been perfect. And if we do end up buying with Brookfield and Authentic Brands Group, Forever 21, I mean, obviously, that's going to be a lot of work. That is a big restructure ahead of us and that we'll want to make sure that that's done right, and there are no guarantees on that. So don't expect another retailer that will pop up until we get that stabilized. But at the same time, we're always looking at additional investments. I mean, we're very excited about the long-term prospects that we have with our -- basically, our merger with RGG. And we're just starting that whole process and that's a whole another avenue for this company in terms of e-commerce and tenant relationships and retailer loyalty, and all the other stuff that comes with that. And we're just -- that we literally just closed in November. And we merged our operations into those and they're just starting to improve our shop premium marketplace. So, I mean, there is a lot of growth ahead of that as well. And then you've got all of the mixed-use stuff that we're doing, whether it's Northgate, whether it's Phipps. You go down the list. I mean, there is a lot going on and that's why we feel good about where we're positioned.

Got it. And just two final things for me on Forever 21. I know I told you I wouldn't ask about it again, but I can't help myself. Your 50% investment, should we think about that as 50% on top of your 25% investment and top of your 50% investment in ABG? Would that 50% include the look-through on ABG?

No, no, no. It's just – it's actually a little under 50% to be technical, it's approximately 50%. No, that's a separate standalone entity. It has nothing to do with our investment. And we – our – we only own around a little over 6% of ABG. Okay.

Okay. Got it. And then, you didn't buy back any shares this quarter, despite what the stock price has done. Is that just a simple capital allocation decision given your discussions you are having on F2021?

No. I just think, we got busy and no real good reason. Obviously – unfortunately, we made the right choice not to buy it back, right. But I just think we were busy in the fourth quarter and everything else.

Got it. Touche. Thanks, guys. I appreciate it.

Thanks.

Thank you. Our next question comes from Nick Yulico with Scotiabank. Your line is now open.

Thanks. Just going back to the guidance. Can we get what the total NOI growth embedded is? And as well, are there any one-time charges that are dragging down the FFO number?

No, not that – nothing material, no.

And what about the total NOI growth number?

We – this is what we gave. It is consistent with our past practice.

Okay. I guess, I'm just wondering if there was anything else that's – if the number is going to be similar to your comp NOI number like it's been or?

Yeah. I mean, look, I think, on some of these that are in our non-comp pool, we have this downtime that I've alluded to. I mean, I – we can quantify it for you, but we all kind of put it in the blender. And that's where our guidance is. I mean, we had significant – put it this way, we expect in 2021 to generate around $70 million of additional NOI and most of that is still dealing with our downtime. Now, we've got expansions that are opening up worldwide, which usually come in. The strategy there is a little bit different. Lease-up is not 95%, tends to be a little bit lower. So, we just have one of these years that because of all the activity you're not – it's not manifesting itself in the growth, but we don't have a throwaway, yet we're still going to grow our earnings. We're still going to grow our dividend. We're still going to have the best balance sheet. We are still going to make these fund investments. We're still going to keep moving the portfolio. And it's just – I mean, the people do have a year that doesn't necessarily have terrific growth, because we're making all these investments. It's – you see it elsewhere. We were a static company, I get it, but we're not. We're really busy. Does that help?

Yeah. And then, David, it is helpful to get that $70 million benefit to NOI in 2021 from the redevelopments coming online later this year. I guess, what we don't know is what this ongoing drag from redevelopment could be? Meaning that, is that going to be purely a benefit in 2021, or are there still some of this redevelopment downtime to deal with? And I guess, I'm wondering at some point, would you think about maybe providing some sort of NOI bridge? I mean, it's something the office REITs have done to deal with lumpiness and tenant move-outs and tenants being refilled. And I think it would be pretty helpful to understand what that, how that plays out to get to the growth of the company over the next couple of years.

Yeah. I mean, it's possible. We don't we – like people just have seen, what we're doing and then the results of it manifests itself. But this is an active year of investment and redevelopment and the growth will have some impact to do that. We've also had a history of outperforming our guidance. And I mean, let's face it, we're being conservative. There is a lot of noise around the world from an economic. And obviously, it's an election year. We've got this terrible situation on the virus, and we don't know what that means. So, there is a lot – there is a lot going on. But I'll go back to – I think Alex had phrased. I mean, we're investing in the future and we feel really good about kind of all the stuff that we're doing and it will manifest itself in 2021 and beyond. But like Phipps – I mean, Phipps is a great example. I mean, the malls torn up and that stuff is going to come on late 2021. So that's not even in that number. So, but your point is valid. We've never wanted to do that because we've never wanted to have people think we're having a throwaway year, but this will be somewhat of a year of investment. And that happens with, I mean, it's happened with them, nothing compares to Amazon, but it's happened with the big companies that say, yeah, they are investment, I mean. So that's what we're doing. We'll see where it shakes out. Not unusual.

All right. Thanks, David.

Sure.

Thank you. Our next question comes from Michael Mueller with JPMorgan. Your line is now open.

Yeah. Hi. Just a quick one. Were the rent spread trends in the fourth quarter outside of Forever 21 stable? Would you characterizing this?

Yeah. We had a very -- we had a -- like I said, we underperformed in our overage all year with the outlet business and they had a really good fourth quarter. It just didn't -- if you understand how overage works, you've got to get over the break point and you've got to do it. So we caught up on that. We actually were underperforming all the way through the fourth quarter. They had a very good fourth quarter. We didn't see any real retailer changes too much, and I think sales were pretty good and we leased up space. We didn't think we would get to 95. We got a little over 95 once. So, I think we had a pretty good fourth quarter, all things considered. I mean, again, I don't do your models, but I look at -- I know my business pretty well. And the reality is that I think we had a pretty good fourth quarter.

Got it. And then I think you mentioned you could quantify the redevelopment drag on that 1% same-store outlook. Can you do that?

Yeah. We will do that at some point.

Got it. Okay. That was it. Thank you.

Thank you. Our next question comes from Linda Tsai with Jefferies. Your line is now open.

Hi. Could you share with us some very broad steps you took to get Aero EBITDA positive and how these processes might translate to getting Forever 21 in a similar place? I mean in your opinion, is retail distress somewhat formulaic and what's holding back retailers from fixing themselves?

Well, every retailer has its own particular sort of issues. I think Forever 21, really the biggest issue that it had historically was that it took its eye off the ball, primarily because of the international growth. And then it created another brand that took its eye off the ball and then, obviously, the store size got too big. So, we are really good at sourcing and that's where Authentic Brands Group is fantastic at sourcing product. We think in Forever 21's case, it was fast-fashion and the time that we got for delivery of goods would shock you in terms of how long it took. So, we kind of took the fast-fashion out of fashion. And obviously, Forever 21 -- or I'm sorry, ABG's graded branding. I mean if you look at -- we're an investor in Sports Illustrated. They bought the Sports Illustrated IP. If you have seen kind of how they've already created all the buzz around Sports Illustrated, it's a great example of what they do. You look at how they branded Shaquille O'Neal as an example. That's what they do. So, they bring all that marketing and the brand awareness expertise to bear. We did the same thing with Aero. So each year -- you have to diagnose the problem. There is a lot to restructure at F21. On the other hand, it is a brand that does close to $2 billion of volume, even with the -- all that's going on. So, I mean that was what we looked at Aero. When Aero -- when we took it over $900 million, we are talking about $50 million business. So that gives us -- it gives us a comfort and it's sourcing, marketing, it's better efficient, more organizations, better technology. And it's just common sense being better operator and between the -- our and it's also being an owner that can withstand just -- withstand stock, right. So, you don't panic. And you just -- you keep your head down and you keep plowing. We did that with Aero. We told Aero we don't care about comp NOI, comp sales. What we care about is building the business for the future, focus on EBITDA margins, focus on gross margins, focus on increasing the quality of the product and we don't care about comp sales. Now, it's a little bit like our business. There is a too much of a focus on quarter-to-quarter comp NOI growth. We get it. We focus on it because we love cash flow. But at the same time, we've got to make investments for the future that will accelerate that comp. There is no difference. The only difference is that we don't panic and others do. And that's why we're here calm about it.

Do you think the timeframe for getting Forever 21 EBITDA positive will be similar to that of Aero?

I would say that -- it's a good question. And I would say, it's a little more complicated in a little bigger business. And it depends on whether one or two of my guys are going to spend all this time in Los Angeles. So, I'm negotiating it right now, Linda. Stay tuned.

Then just one other follow-up, given this environment of closures, how are you thinking about the credit worthiness of the new tenants you're signing on? What sort of process do you go through to get comfort around their brand relevance and stability and liquidity?

Well historically, we've been very focused on that. We're very – we are very -- look, that's not to say, we don't take flyers here and there. But we're probably -- if you asked around, we're probably as thoughtful on that as anybody in our industry. And it's very important to us, especially if we make any kind of tenant improvements. We're very focused on payback and credit worthiness. We don't bet a thousand there, but we are -- it's extremely important to us.

Thanks.

Sure.

Thank you. Our next question comes from Steve Sakwa with Evercore ISI. Your line is now open.

Hello? Okay. Let's go to next.

Thank you. Our next question comes from Haendel St. Juste with Mizuho. Your line is now open.

Hey. Good morning. Thanks for taking my questions. So first one is on redevelopment. Looking ahead to 2021, and what appears to be a positive inflection in your earnings growth, helped by the expansion of the redevelopment last year up to, I think was $1.8 billion well above the one point, the lower ones if you via graph couple of years. And hopefully, some of that incremental NOI growth can help change that narrative around the stock. So, I guess my question is on the sizing of the pipeline beyond this year. Your intention to keep the redevelopment pipeline size around where it is, you know that $1.8 billion where it's been over the past year. Are you more inclined on reducing that back to the level that you've run over the past few years in the low $1 billion and maybe preserving more cash flow for other uses and potentially unanticipated other tenant events or even opportunistic investments?

Well, again, a good question. I would say to you, just wonder because of our diversity in product type, geography, etcetera every incremental investment can and will stand on its own. So, we don't feel compelled to save an asset because we're worried about the -- hitting our numbers or anything else. So, we're making all of these investments with an eye toward incremental return. And we do expect, as we said, historically, yeah, we're going to be busy because we're going to get the ability to get a lot of great real estate back hopefully at reasonable prices that we can add accretive returns to. So, I don't view it as a zero-sum game. And I also don't think that it's -- that we don't have the -- firepower to make this additional investments outside of our, what I'd say, our core businesses. So -- but the important thing is, I don't feel compelled to say, oh, this small, if I don't do this, I got to do a low return deal. Just to say that, I mean the reality is, if it ain't worth, then we don't invest and it's not going to -- it's not going to -- it's not going to really cause too much of a debt from it. So -- and we are looking at other investments that are outside of kind of the traditional bricks and mortar and I think we'll continue to do that. But we'll also continue to make investments in brick and mortar because there's -- nothing has changed about it. It's a good business. It's just -- yeah, it's -- we are running through a cycle here that's not as robust as what it's been in the past. But you've got to remember, we've been doing this for a long time and we've weathered the different storms.

Got it. Got it. Thank you for that. Second question is on the 2020 guide. For another income, is there anything contemplated in the guide for other income, anything that could materially move that FFO guide this year one way or the other? And G&A, it looks like it was down $10 million last year. What's embedded in the guide for G&A this year? Thank you.

Sure. G&A is similar to what fourth quarter is. So right guidance, yeah. And I -- we don't have anything real extraordinary in other income in 2021 that's quite unusual. As you know, we had the big settlement from the insurance company of Opry in 2019 in the first quarter. So that will – our first quarter compare to first quarter of Q1, 2020, will look different than Q1 of 2019 because that's when we got the settlement from Opry Mills. It only took us seven years, eight years. Okay. That's another story.

All right. Thank you.

No worries.

Thank you. Our next question comes from Ki Bin Kim with SunTrust. Your line is now open.

Thanks a lot. Good morning out there. When I look at your lease expirations for 2020, it doesn't seem like you made much headway. It's just one quarter from -- going from 3Q to 4Q. But it went down 30 basis points. When I look at last year, you made much more headwind or headway closer towards 100 basis points. Like I said, I know it's just one quarter, but I was just curious if there's anything to read into that or are you kind of just making decision a little bit later?

No, it's just process and there is absolutely nothing to read into that. It's all process, no issue.

Okay. And just going back to Forever 21. You talked about the flywheel and I think we all get it. But that's why it was also very different for a Simon owned store versus if it was owned by a different landlord. So, how do you balance those things?

We -- look, I think the only history we really have on that is Aero. And I think if you ask the other landlord, they said, we were great partners. So no issue there. Interesting question. But we really -- I mean, every store at Aero basically stood on its own. We were not really involved in it. That was all delegated to the team, the operating team at Aero. So, we did not get involved in that. I think at F21, to the extent that we get it, we'll adopt a similar thing. And we, in fact, at Aero -- at Forever 21 because of the need to move probably a little quicker than at Aero and the case is moving a little bit quicker. We'll probably hire a third-party just to go do it.

Okay. Thank you.

Thank you. Our next question comes from Vince Tibone with Green Street Advisors. Your line is now open.

Good morning. You mentioned earlier you have 15 former department store redevelopment projects underway with the total expected spend about $850 million, so that equates to about $55 million per box. I'm just thinking about longer term CapEx need, is $55 million per department store box a fair assumption?

No. And you can't get out of it. That math you really can't do. And I think that it's not -- Vince, I would say to you, it's not necessarily CapEx. It's incremental opportunity. So -- and I've said this before. But just to put it in perspective, if we don't own the department store and that department store owns 10 acres, then we just now have 10 new acres that we -- that we can develop. It's not like, when we take CapEx, people think new roof, new tile, new this, new that. It's incremental opportunity because we don't necessarily control that space. And even if we were on a long-term lease, to the extent that we've got that lease, we now control their space. So it's new incremental space that we did, in other words, so --

Right. But I'm just trying to get a sense of -- so that includes probably a lot of other non-retail uses. So, what would be a fair run rate of just trying to think about longer term if we're expecting more department stores to close? I mean just from a -- maybe not from a CapEx burden perspective, but just how much capital you're going to have to spend every year to keep -- to unlock these opportunities? That's what I'm trying to get at more than anything.

Well, look, I think what you should do, we can give you order of magnitude. I mean, I can do a check in personnel, but I might bore you. You can call up -- you can call up Tom. And yes, what would be in order of magnitude? Like, take an example of Phipps. Phipps is $300 plus million. Okay. Midland Park, Texas was $5 million. So it's all over the place. But if you want -- the best thing for you to do, Vince, to get a handle on it is that, Northgate, we could spend $600 million, $700 million at Northgate. So certain boxes are $10 million. Just take a box over, re-lease it, that kind of thing. So really, really is real estate specific. But maybe you go through our 8-K and Tom could give you order of magnitude. But Phipps is a great example. It's a former department store that was on lease, where we let them terminate the lease for payment and then we're spending literally $300 million in -- little over $300 million to build a hotel, office and Life Time and additional retail, all in that same spot. And so that can skew numbers pretty significantly.

No, that makes sense. That's really helpful. Can you just discuss quickly how the overage rent thresholds are reset each year? Just trying to get a sense of like the lower percentage rents paid in 2019, creates an easier comp for 2020 or that's not the case, they kind of increase by a fixed amount each year?

It usually kind of balances out. So, there's not a lot of volatility. Other than the outlet business, a number of our bigger retailers, they are basically on percentage rent with a very low base. So that's the one that tends to have a little more volatility. In the mall business, we tend to mark the real estate. If they're in overage, we tend to get that as it renews and then others come in. So it's relatively traffic consistent. So, you have overage and then they go -- their leases expire. You go to basically overage, plus the base rent to get to the total rent and then whole another slew of retailers will go into overage. The outlets tend to be a little longer leases, a little lower base. And therefore, they don't have as much turn. So therefore, the overage rent tends to be a little more volatile in terms of what the math ends up in.

Great. Thank you.

Yeah. No worries.

Thank you. Our next question comes from Christy McElroy with Citigroup. Your line is now open.

Hey. Thanks for the follow-up. Just a follow-up on Forever 21. Sorry. Just in terms of the approach to making these retailers profitable again and sort of solidifying the business, there's a going concern. You answered Linda's question. But how does your approach differ and is perhaps much healthier for retailing longer term than the traditional private equity approach to retailer turnarounds? And in addition to store closures and the efficiency, and technology, and marketing and operations that you discussed, do you look to convert rents to sort of percentage sales for a period of time to get landlords more in partnership with these retailers?

I would say it depends on the scenario. I think, F21, to stabilize it, we might have to do that for a period of time. At Aero, we -- they did a lot of the work on the landlords free during the bankruptcy process. Aero was a little quicker. So, we don't have a lot of time to do it. They did initial things. So it depends on -- it really depends on the scenario. And it's certainly a tool that's available to us. And there's ways to handle it, I think, the landlord community will support us to the extent that we're successful in the auction.

Okay. And then, just a follow-up on Vince's CapEx question to you. You had about $192 million of TIs at share in 2019, close to $1 billion of redevelopment and development spend. How should we think about that capital outlay in 2020, as we look at use of free cash flow, especially as the turnover is elevated and could push up TIs, and with everything that you have in the value creation pipeline coming on later this year and into 2021?

Yeah. I mean, look, I think the TIs went up by $20 million. So, yes, to me that's not going to really change. We're doing more restaurants, a little more entertainment, so you see. The other thing that really spikes that number was we did a number of, kind of, best of brands luxury retailers and I don't want to name names. But they tend to have great build out. It's great for the properties, but you -- kind of the uber luxury folks, their investment in their stores tends to be a little bit higher. So, I think you get -- we did some great work last year on that. So, we're seeing a little bit of a spike, but the TIs not really much of an issue and the development, again I don't know what else to tell you other than that we are going to have these opportunities from department stores. We think they are, net-net, it's going to be beneficial to our company and to the existing real estate. And the role that we play in the community is unbelievable. So, give you an example, between sales tax and real estate taxes at a place like Roosevelt Field, we pay $135 million and the warehouse down the street pays basically nothing. We did a study that said warehouse and distributions pay less than one-tenth of what we pay in real estate taxes. So, that's what's interesting. We're making these places better for the community, better for the taxpayers. We have a -- we're doing -- believe it or not, we're doing specific duties that others aren't in terms of what -- as you know, we do believe strongly and we refute others that suggest otherwise. But we do think we provide a greener atmosphere for commerce and there's just so much we're doing that that it's maybe not necessarily appreciated. But we know what we're doing for these communities. We know what we're doing for the taxes for sales and real estate taxes. And we're also making our real estate better and that's fine. We'll take that responsibility on.

Hey, David. It's Michael Bilerman speaking. Earlier in the call, you talked about buying real estate that bricks and mortar, obviously, still has a great future. And that's -- you're not going to deviate from that. And when buying makes sense, you would do it, sort of paraphrasing a comment you made. There was a headline that came across on Bloomberg during the call that you potentially had merger talk with Taubman and that eventually broke off given the market volatility. Can you comment on that, please?

What would you -- you know we don't comment. But -- we don't comment on those market rumors. I haven't seen it. We've been busy on this call. So, I'm not sure what you're referring to but we'll check it out.

Okay. Yeah. It's always just helpful to get the views on whether something could happen or not. And I know the stock buyback wasn't happening during the fourth quarter. So, I assumed whether there were something else going on that would have done that.

No, we, obviously made the right trade. The stock went down. So, we can buy it cheaper now.

Thank you.

Sure.

Thank you. Our next question comes from Steve Sakwa with Evercore ISI. Your line is now open.

Thanks. Sorry about the earlier technical difficulties. I guess, David, just to maybe piggyback or ask Michael's question a little differently. Just in terms of like acquisition opportunities. Obviously, there is really a lack of capital that's devoted to the mall space today. Everybody is kind of fleet on the institutional side. Are there opportunities that you see to potentially deploy capital outside of your existing portfolio?

Well, I would say you, generally, yes. I mean, we've intended -- we would tend to -- I mean, I think they're worldwide. I mean retail real estate is way out of favor worldwide, not just in the U.S. And as you know, we've built our company to do this. We don't have to do that. We've got lots of -- if anything on this call, I know it's dragged on here; it's like a college football game. But we -- I feel really good about where we're at. So, we don't have to -- on the other hand, as I said earlier, we zig when others zag or we zag when others zig. And sometimes, we usually land on our feet, not always. But we -- our industry is way out of favor worldwide, that's interesting to note. But we know what these properties generally mean to the community, and to the consumer, and to the retailer. Bricks-and-mortar are important. This real estate is greatly located. So -- and then we have kind of all the other stuff that we're doing in conjunction with our core business and it's a unique time for us to think what we want to do in the future.

Okay. And then, not to beat the dead horse on the earnings guidance in the lost income. But I do think it would be helpful to the extent that you have intentionally take properties offline, similar to what you did in Northgate last year. I think it would just be helpful to kind of know what that drag is within your guidance number this year. Is it a couple of pennies? Is it a nickel? Is it a dime? I think, just kind of frame out kind of why -- when you look apples-to-apples at the midpoint, guidance is down a little bit.

Yeah. Look, I think that's a good point. We try to do that, maybe not as artfully as we should have, but we try to do it by showing to you that we're going to have a $70 million pick up next year when the stuff comes online. But I guess, what we didn't do is give you a sense of the decrease that we have this year. But I'd just tell you that Northgate certainly -- it's a good example. That was a property doing 15, 16, 17, 18 in that range and it's basically going to be zero for the next future. That won't pick up in 2021 because it's a long-term project, but will be great in the future. And it is also paid. So, we've got a property here that we could add to uses incrementally depending on demand. So it's not like, we did over our fees, the best of all worlds.

Okay. That's it for me. Thanks.

Thank you.

Thank you. Our next question comes from Michael Mueller with JPMorgan. Your line is now open.

Hey, I'm going to try to get out of the queue.

Hope, we didn't offend you. Take care.

That's okay.

Thank you. Our next question comes from Rich Hill with Morgan Stanley. You line is now open.

I think Rich stopped, too. Okay. I think that's it. Thank you for your time and interest. And we'll talk to you soon.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.