Apr 27, 2012
Executives
Shelly J. Doran - Vice President of Investor Relations David E.
Simon - Chairman, Chief Executive Officer and Chairman of Executive Committee Richard S. Sokolov - President, Chief Operating Officer, Director and Member of Executive Committee Stephen E.
Sterrett - Chief Financial Officer and Executive Vice President
Analysts
Christy McElroy - UBS Investment Bank, Research Division Jeffrey Spector - BofA Merrill Lynch, Research Division Michael Bilerman - Citigroup Inc, Research Division Quentin Velleley - Citigroup Inc, Research Division Cedrik Lachance - Green Street Advisors, Inc., Research Division Paul Morgan - Morgan Stanley, Research Division Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division Steve Sakwa - ISI Group Inc., Research Division Ki Bin Kim - Macquarie Research David Harris - Imperial Capital, LLC, Research Division Nathan Isbee - Stifel, Nicolaus & Co., Inc., Research Division Benjamin Yang - Keefe, Bruyette, & Woods, Inc., Research Division Richard C. Moore - RBC Capital Markets, LLC, Research Division Michael W.
Mueller - JP Morgan Chase & Co, Research Division Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division
Operator
Good day, ladies and gentlemen, and welcome to the First Quarter 2012 Simon Property Group Earnings Conference Call. My name is Derek, and I'll be your operator for today.
[Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Ms.
Shelly Doran, Vice President of Investor Relations. Please proceed.
Shelly J. Doran
Good morning, and welcome to Simon Property Group's First Quarter 2012 Earnings Conference Call. Please be aware that statements made during this call may be deemed forward-looking statements, and actual results may differ materially from those indicated by forward-looking statements due to a variety of risks, uncertainties and other factors.
Please refer to our filings with the SEC for a detailed discussion. Acknowledging the fact that this call may be webcast for some time to come, we believe it is important to note that our call includes time-sensitive information that may be accurate only as of today's date, April 27, 2012.
During today's call, we will discuss certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are included within the earnings release or the company's supplemental information package that was included in this morning's Form 8-K.
This package is also available on the Simon website, in the Investors section. Participating in today's call will be David Simon, Chairman and Chief Executive Officer; Rick Sokolov, President and Chief Operating Officer; and Steve Sterrett, Chief Financial Officer.
I will now turn the call over to Mr. Simon.
David E. Simon
Okay. Good morning.
Thank you for joining us today. The scope and breadth of our company can be best described by a high-level overview of our activities and accomplishments during the first few months of 2012.
First of all, financial and operationally, let me just state that FFO was $1.82 per share, up 13% from the first quarter 2011. We exceeded the First Call consensus by $0.14.
We have now met or exceeded expectations for 31 of the past 33 quarters. For our malls and Premium Outlets, comp NOI grew 5.7%, and you'll recall that our comp NOI for first quarter 2011 was up 2.3%.
Tenant sales were up 11.2%. Both individually the malls and the Outlet portfolio were up double digits.
Occupancy was up 60 basis points. Average rent per square foot was increased by 4.4%.
Releasing spread was a positive 9.7% or $4.74 per square foot. Now let me turn to transactions.
As you know, we invested $2 billion in purchasing shares of Klepierre, the second largest owner of retail real estate in Continental Europe. With assets valued at a portfolio EUR 16.2 billion, we now own nearly 29% of the company.
I'm Chairman of the Supervisory Board, and we control 3 of the 9 board seats. Our investment provides opportunity for significant value creation through exchanging operational best practices, creating synergy through our leasing and marketing efforts and the generation of ancillary revenues.
We'll be actively involved in the Klepierre capital allocation decisions, including allocation of capital amongst the various assets and the countries in which they do business and we'll be providing guidance on investment and divestiture decisions and balance sheet management. We view this investment as having significant optionality for us given the countries in which Klepierre operates, the large number of assets that it owns and manages and the successful operational platform that it possesses.
From a capital point of view, it essentially replaces our previous European investments, which were liquidated at a significant gain to our shareholders over the past couple of years. Now let me turn to Mills.
As you know, we acquired the interest of our joint venture partner in 26 of 36 assets of The Mills Limited Partnership for $1.5 billion. Transaction completed at a good cap rate for us and reinforce that this has been a good deal for us and our partner, Farralon.
We believe there is upside in the assets with growing NOI, and we'll continue to pursue many of the redevelopment opportunities in the portfolio. At the end of the day, both of these transactions will be immediately accretive to FFO.
To fund Klepierre and Mills transaction, we sold unsecured notes and issued common equity. We sold $1.75 billion of senior unsecured notes in 3 tranches.
Rates on the 3 tranches of notes were the lowest ever achieved by a REIT by an average of 76 basis points. We issued 9.1 million common shares at a price of $137 per share, and our rating of A-, A3 were affirmed by all 3 rating agencies.
In addition, we weren't done with that. We acquired another 25% ownership interest in Del Amo Fashion Center where our major redevelopment is in the planning stage, and we sold our interest in Gallerie Commerciali in Italy at a gain to our investment.
Development activity, if I may turn to. We successfully reopened the fully restored Opry Mills to a great public reception.
Space at the center is approximately 90% leased and committed. In addition, we started construction on 4 new Premium Outlet Centers, all scheduled to open in 2013: Shisui in Japan, our ninth Premium Outlet in Japan; Phoenix, serving the greatest Phoenix and Scottsdale areas; Toronto, which actually the groundbreaking was this week, our first upscale Outlet Center in Canada; and Busan in Korea, our third Premium Outlet in Korea.
In addition, we signed agreements to develop Premium Outlet Centers in Brazil with the well-known and well-respected BR Malls, and in China, with the well-known and well-respected Bailian Group. And we're focused on a site adjacent to the Disney Shanghai.
Continued construction on 2 new Premium Outlets that will open in the U.S. this year, Merrimack, New Hampshire and south of Houston, Texas.
We continued construction on 25 renovation and expansion projects in the U.S. and in Japan with 2012 and 2013 completion dates, and we continue to expect our share of development spend to approximate $1 billion in 2012, '13 and '14, respectively.
Let me turn to the dividends. As you now know, we've announced our third consecutive increase in quarterly dividend from $0.95 to $1 per share.
Our dividend is now fully 25% higher than it was one year ago at this time. In addition, we are very pleased and honored to be added to the S&P 100 Index in the first quarter, joining the likes of Nike, Starbucks, Honeywell and DuPont, all well-known companies where equity market caps are comparable to ours.
Guidance. We increased the top end of our 2012 FFO guidance.
Initially, as you know, in February, we had guidance of $7.20 to $7.30. Our range now includes a range from $7.50 per share to $7.60 per share, so we increased both the top end and the bottom end of our guidance.
Factors contributing to this increase: essentially stronger operating performance and recent investment activity. Now let me just conclude, and we can talk about any questions you may have.
Our portfolio of high-quality irreplaceable assets continues to deliver strong results and is second to none in our industry. Just to illustrate that, I know the size sometimes of our portfolio is somewhat overwhelming, and all of our activity obviously is hard to appreciate sometimes.
But let me just put this in perspective. We have in our portfolio of assets 12 that generate over $1,000 per square foot.
Our top 30 U.S. average -- assets average over $1,000 per square foot in sales and provide 1/3 of our SPG NOI.
Our top 50 U.S. average $886 per square foot in sales and provide 1/2 of our SPG share of NOI.
And importantly, our top 100 assets average $700 per square foot and provide 3/4 of our NOI. Needless to say, we're off to a good start and active, and we're ready for your questions.
Operator
[Operator Instructions] Our first question is coming from the line of Christy McElroy from UBS.
Christy McElroy - UBS Investment Bank, Research Division
Given GGP's recent deal with Sears to buy back some boxes and leases, I'm wondering if you're having any discussions with the retailer to do the same? And of the 119 Sears boxes at your malls, are there any that you would specifically point to where you would say we could unlock pretty significant value at that mall if we got the box back?
David E. Simon
Well, look, we're not going to get into discussions that we have with our individual retailers. We have a good relationship with Sears.
We expect, over time, for a number of those properties to be reclaimed or redeveloped, but nothing really to report beyond that. And look, we do think there's value there.
We'll be conservative in how we value the real estate and how we look at it. But I think, over time, it will provide an opportunity for the company.
Christy McElroy - UBS Investment Bank, Research Division
We've heard recently from some specialty retailers that lease negotiations for Class B malls have started to move in favor of the landlords again. Can you discuss your ability to raise rents at B and B- types of assets?
And if I think about your rent spreads being 10% across the portfolio, how would that break out between sort of the Class A stuff and the Class B stuff?
David E. Simon
One thing we don't like to do is go through Class A and Class B. We're very focused on increasing the cash flow in all of our assets.
Obviously, the ones that have higher sales per square foot, we're able to drive a little bit better bargain. We look to win-win for the retailers.
We're doing a lot of business with retailers throughout the portfolio. Our rent spreads -- our averages mean a lot because they're not -- with a portfolio of our size, we can't have one particular center rollover or one center doing so much more business that it's driving the statistics of every other at the portfolio.
The business has firmed up, and we're pleased with where it's headed and where it's going. Retailers are looking for growth, so I'd say things are all pretty good.
Rick, you want to add anything?
Richard S. Sokolov
I would just underline David's point. If you look in our 8-K and see where our renovations are and where we're adding anchors and department stores, it's throughout the portfolio, and we're increasing market share across the board and that is enabling us to drive that pricing.
And to underline -- quantifying David's point on the square footage, when you look at our sales and our statistics, that's on the basis of almost 60 million square feet. So there is no way for outliers to influence that.
It's a broad operational trend that we're reflecting.
Christy McElroy - UBS Investment Bank, Research Division
And then just lastly, how much capital do you envision investing in outlets in China and Brazil over the next 5 years? And what kind of projected returns are you forecasting?
David E. Simon
Well, look, it's safe to say that we would -- every international development that we've done in the Outlet business has had double-digits return in the 15%-on-average range. We would expect that that's kind of the hurdle we're shooting for.
In any event, we would expect those to be at least double digits. Brazil, generally, we think the market can support in the 10 to 14 opportunities initially.
Cost of those will, on average, be in the $100-million-plus range. As you know, we are partners 50-50 with BR Malls.
That gives you the scope of the situation. In China, right now, our focus is on one particular development and that we're going through the numbers on that.
It's a little bit early to give you kind of the scope of magnitude of that, but we think it's a great site having visited it personally. It's a great opportunity for the company.
The demand from the retailers is very strong. China is -- you got to be extra cautious there.
We've had an experience where we learned a lot in China. But generally, I think it will be consistent with the build in what we've done in Korea and what we've done in Japan.
Cost of construction, land values are all kind of the same there, but I don't want to pin those numbers down just yet.
Operator
Your next question is coming from the line of Jeff Spector from Merrill Lynch.
Jeffrey Spector - BofA Merrill Lynch, Research Division
Just a couple of follow-up questions on Brazil. David, did I hear you say you had 10 to 14 potential sites?
David E. Simon
Over -- yes, over a period of time, correct.
Jeffrey Spector - BofA Merrill Lynch, Research Division
And I'm not as familiar with all of the different markets in Brazil. I mean, is there any change in the site criteria?
Or are you saying in your first analysis you feel that there are 10 to 14 sites that really fit that Premium Outlet-type criteria, density-wise?
David E. Simon
Correct, that's correct. And we've got currently -- so that's over an extended period of time.
We've got one site identified in São Paulo. We're not in the position to disclose that yet.
If all goes according to plan, we have the chance of opening that in late '13, but more likely early '14. And then we're currently evaluating another 4 additional sites.
So that 10 to 4 (sic) 14 is over an extended period of time, but we've got 1. We're very close to moving forward on and then another 4 of that are further along than that.
Jeffrey Spector - BofA Merrill Lynch, Research Division
And for now in Brazil, just sticking with the outlets or you're still looking at mall opportunities, full price?
David E. Simon
This is the primary focus right now.
Jeffrey Spector - BofA Merrill Lynch, Research Division
Okay. And then switching to your investment in Klepierre, you -- I think you carefully said that, right now, you're actively involved on the balance sheet divestitures.
You didn't talk about operations at all.
David E. Simon
Well, I did mention that. You may not have picked it up.
I mean, we've had some very good beginning discussions with the senior team there. We've owned the stock for 6 weeks, so you have to put it in perspective that their senior management team is actually coming here next week.
But we're going to coordinate certain retail leasing at the Shopping Center Convention coming up in May in the U.S. -- Shopping Center Convention.
So it's early days on that front, but it's safe to say that there are 3 or 4 areas of focus for us: operational synergies; leasing synergies; cash flow enhancement, all of that in one category; capital allocation in another category. Along with that is what assets should they be involved in?
Where should the focus be? What countries our long-term holds, then balance sheet management and then investment divestiture decision.
So all of those are kind of the 3 or 4 buckets that where we're focused on, both as directors and as shareholders, and the cooperation has been excellent. There's nothing so far that, in our short involvement, that has caused any concern for us.
Look, Europe has got some macro headwinds. We knew that going in.
The fact of the matter is, these opportunities surface when the going is tough, but we're in this for the long haul. And we think it's a very good platform that we can help continue to move in the right direction, and actually have bottom line impact improvement on.
But that's going to take time.
Jeffrey Spector - BofA Merrill Lynch, Research Division
And are you personally spending a lot of time on that investment?
David E. Simon
Yes.
Jeffrey Spector - BofA Merrill Lynch, Research Division
Going forward? Okay.
And then my last -- I'm sorry.
David E. Simon
No. Sure.
I mean, I'm Chairman of the Board. And like I said, yes, we're very involved, not just me, but my team as well.
Jeffrey Spector - BofA Merrill Lynch, Research Division
Okay. And then my last question on development.
Anything -- any new potential sites on the full-price side, mall side, the Lifestyle center side for you?
David E. Simon
No.
Jeffrey Spector - BofA Merrill Lynch, Research Division
U.S.
David E. Simon
I'm looking at Rick and the answer -- we're just making sure we're both saying no. The answer is no, not really.
We think the returns, in order to really induce the full-price guys with the cost of development, are just too skinny still. Demand is still not quite there.
And the fact of the matter is, with our redevelopment pipeline, we got great stuff going on, I mean, really good stuff going on. And with our development or our Premium Outlet development, we are under construction.
Let me just reinforce this. We are under construction in Phoenix.
We are under construction in Toronto. We are under construction in Korea and Japan.
We're looking at a couple other areas. We're busy, and these are all very good returns that we are building new too.
So at this point, why chase full-price retail at lower returns when we got our plate full of assets.
Operator
Your next question is coming from the line of Michael Bilerman from Citi.
Michael Bilerman - Citigroup Inc, Research Division
It's Michael. I'm here with Quentin Velleley.
David, I just wanted to start, you think about Klepierre, $2 billion, but you're an $80 billion enterprise today, so its 2.5% of your asset base, and it is taking up a lot of your time. You've been to Europe twice in the last month.
How do you sort of balance something that's a smaller part today of the enterprise and driving value for the other 97.5% of assets? And then taking it one step further, you own 30% of the entity today.
You're in this for the long haul. You obviously want to see a lot of improvements.
The price you're going to have to pay for the other 70% if you do want to consolidate could be meaningfully higher benefiting Klepierre shareholders rather than Simon shareholders. I'm just -- how do you sort of balance all this?
David E. Simon
Well, just on the first point, Michael, that's what I do, okay? So the one thing that I think amazes folks given the scope of this company is that, that's what we do.
Rick looks at whether we're getting market value on a new Gap lease. I mean, as weird as it sounds, that's just what we do.
So I still think a $2 billion investment ought to warrant my serious attention. So that's just what we do.
We've got -- we've added a few people to help. We added Contis.
We added Fivel so we could leverage a little bit, my time and Rick's time to do it. But that's what we do.
We sweat the details. That's all we know how to do, and we don't see changing from that.
And I view -- look, the thing about Klepierre, it's got a portfolio. Its share of this is not quite that.
It's about EUR 14 billion. But the portfolio that it overseas is EUR 16 billion.
That's a big opportunity for us. And Europe is in a state of flux, which is an even better opportunity for us ultimately to reinforce our company's position as a global brand, and there are great benefits to being global.
Many of our -- if you look at our peer group in the S&P 100, and I just read you a few names, they're all global. Our retailers are going global.
And I think it's great, great opportunity. It's a great potential platform for us to really have a significant presence there and create kind of a sister or fully integrated Simon company over there.
We've never had that opportunity. I don't know that this can be that, but it's certainly worth the opportunity.
And I think coming in at below NAV, even with all the macro headwinds, I don't see how we'd lose. But it's possible we do, but we don't.
But when I go through this list of companies in our similar cap range, News Corp, Nike, Colgate-Palmolive, Lilly, Starbucks, Ford, Disney, Union -- well, Union Pacific isn't because it's all railroad, Boeing, they're all international global companies. And I think it's important for us to be in that spot.
And so look, Flowers, one of the great value financial investors there is, is moving to London because of European opportunity. So this is a great platform.
We'll see where it develops. It potentially could go -- it could end here.
On the other hand, we could take this investment and make it something special. And I have no problem as long as our shareholders are rewarded along that process and sharing the wealth.
Quentin Velleley - Citigroup Inc, Research Division
It's Quentin here, just a question on the outlets in Brazil. With U.S.
fashion merchandiser sort of 3x to 5x more expensive in Brazil, how do you expect the international retailers that are going into your outlets, how do you expect them to, I guess, compete given the improved U.S. visa process and also the improvements in Brazilians' ability to purchase over the Internet?
David E. Simon
Well, look, there are more and more international retailers landing in Brazil and dealing with the tariffs. And certainly from a customer point of view, if we can land those tenants and deliver more value to the customer, then -- that's why I think we feel like these outlets will be very successful.
It will not have the percentage of international grounds like China, Japan or Korea will because of that particular issue. While we think there's enough there -- and with the Brazilian retailers as well to populate those centers.
And there's been one kind of outlet that's been built there and it was successful. I think you're going to have to go small, do this in phases.
But I think, over time, you'll have more international penetration.
Quentin Velleley - Citigroup Inc, Research Division
Okay. Just switching to Europe, maybe if you could just comment on the health of the hotter markets in Europe.
How do you think they're going to change their business models and evolve to some of the challenges they're facing?
David E. Simon
Well, I think that -- look, it depends on the retailer. I mean, we were, as you know, partners with Ocean and their business model has been very successful and they continue to do very good business.
Carrefour, as you know, is a big partner, so to speak, with Klepierre. And they've gone through some fits and starts in terms of where they want to go.
I think they've got new leadership. It sounds like they are back to focusing on being very price competitive and that, we think, will drive traffic, and we think ultimately will help us with the Galleries, which we own.
And it's very interesting, Quentin, just you know because you got a funny accent. But the hypermarkets there, they're disappointed when they do EUR 80 million to EUR 100 million, whereas if we have a department store or anybody that did EUR 80 million to EUR 100 million in our shopping center, we'd be very thrilled.
So it's all relative. I have all the confidence in the world with where Carrefour is going that they'll continue to be a very worldwide class retailer.
Operator
Your next question will be coming from the line of Cedrik Lachance from Green Street Advisors.
Cedrik Lachance - Green Street Advisors, Inc., Research Division
Yes. So just one follow-up with some funny accent.
Just maybe a quick one on The Mills. Just in terms of how you're organizing information right now.
A number of The Mills properties were moved into other operating properties. Is there anything we need to read into that?
David E. Simon
Well, I think what you would read into that is that we're probably not long-term owners of the 3 assets that are still owned by TMLP. One of those, actually we're evaluating that and that is we're hopeful that, over time, we can reposition that asset, but a couple of them were probably not long-term owners.
Cedrik Lachance - Green Street Advisors, Inc., Research Division
Okay. In regards to your ability to market to market those assets, is it a -- timing and ability to market those assets, what do you think that would be?
David E. Simon
I would think it would certainly be clarified in the not-too-distant future. About 12 months or so.
Cedrik Lachance - Green Street Advisors, Inc., Research Division
Okay, and thank you also for the sales disclosure. In regards to the decision there on the sales front, it includes the outlets, is that correct?
David E. Simon
Yes.
Cedrik Lachance - Green Street Advisors, Inc., Research Division
Okay. if we were to exclude outlets from, let's say, the top 100 category, what would happen to the sales productivity there?
David E. Simon
It probably wouldn't matter all that much, but I don't have that in front of me. But I'd give you a sense of this.
It's probably a 75 to 25 split, roughly, to give you a sense of order of magnitude, out of 100. Next call, we can get really specific, but I don't have it entirely in front of me.
But I think that gives you the general nature of it.
Operator
Your next question is coming from the line of Paul Morgan from Morgan Stanley.
Paul Morgan - Morgan Stanley, Research Division
So just sticking with that top 100 is 75% of your NOI. Any thoughts given the B mall sales that have taken place by some of your peers that you might be interested in culling the, kind of the other 120 there or 25% of the NOI making any efforts beyond kind of the -- kind of single-asset-type brokers?
David E. Simon
Well, I think the good news is that, that market seems to be firming up. There's more players in it.
And so I think, historically, Paul, we've always wanted to call the portfolio. As you know, that's been a relatively tough exercise.
But with now Starwood hasn't closed yet, but assuming it closes, you've got a couple other players out there that are looking to invest. I would expect us to continue to play in that game.
We did sell one mall at the end of -- it really actually closed at the very beginning of this year, Gwinnett Mall in Atlanta. So we are -- we would expect to do that.
I think there are more players there and that's the good news. We're trying to understand what their strategy is going forward, and I'm sure we'll, over time, continue to cull the portfolio to some extent.
Paul Morgan - Morgan Stanley, Research Division
Okay. And if I can just go back to Klepierre.
As you look at kind of the leasing platforms and you mentioned some kind of the global element to the retailers, I mean, do you think, having the time you had spent with them and then looking at their portfolio of tenants, do you think there's more opportunity to bring their tenants here and your tenants there? Or given your express[ph] strength in Europe, you think you've kind of already been well on top of that and it's not that incremental from here?
David E. Simon
I actually -- I think that probably the more likely opportunity is to bring U.S. retailers there.
And as you walk the malls in Continental Europe, they're not -- they're okay. They're not greatly merchandised.
I think it possesses a great opportunity for a number of our retailers. Again, that takes time, and there are some that are making inroads there.
But generally, I would think the opportunity will be more U.S. to Europe.
But, and Rick can comment on that, but there are also opportunities, as you know, for retailers there to come here. And they're actually making progress to get U.K.
retailers. As an example, Primark, which is a well-known, very good U.K.
retailer to add to the European retail mix there. So I think it will be a little bit of everything.
But I do feel that our U.S. retailers do think Europe is an opportunity for them.
Rick, you want to?
Richard S. Sokolov
And I would say to you just on the other way, if you like, there's no doubt that the relationships that we've created in dealing with the H&Ms and the ZARAs and the Legos are going to stand up some very good stead because we're just now an incrementally more important part of their global footprint, which is what we have always aspired to be.
Paul Morgan - Morgan Stanley, Research Division
And just lastly, sticking with the Europe. I mean, how do you think about other opportunities for investment now on the continent given you have a minority stake and you might have a different capital position, but how would you handle the kind of the conflicts with looking at outlets or looking at other opportunities that come up via Klepierre or independently?
David E. Simon
Well, look, the outlet business, Klepierre has no involvement in. So I don't view that as any particular conflict.
I think it gives us a great opportunity. There are so many options on the table for us now that we've got -- have an investment in a very fine company like Klepierre.
Other way, they're very good developers. They build great product.
I encourage you to look at some of the stuff that they've built. I mean they're a first-class organization.
We think we can respectfully add to that, but they're not -- they're damn good on their own. And I think as we look at opportunities, we'll sit with them and say, okay, what makes sense.
So it could be within Klepierre. It could be in a joint venture with Klepierre or it could be completely on our own.
But we certainly want to see Klepierre, our investment in Klepierre appreciate. I mean that's the #1 goal.
And I just will say, on the outlet side, that we -- they have no presence in that. That's really not something that they're really going to do, and I would view that as kind of a separate path for us to look at what our opportunities there are in that sector.
Operator
Your next question is coming from the line of Alex Goldfarb from Sandler O'Neill.
Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division
It is pretty telling of a French organization to appoint an American to be chairman, so that's a pretty strong statement in and of itself. Question on -- you guys took a major stake in Klepierre and yet when you went to Brazil, you just did a JV with BR Malls.
Can you just speak about the opportunity or your thoughts on taking a stake in BR Malls? I mean, speaking to people, there's a lot of respect for BR Malls that the Brazilian market seems to still attract a lot of long-term interest.
So sort of curious why you opted for just a more of an asset JV rather than more of a corporate JV the way you did with Klepierre?
David E. Simon
Well, we really didn't talk about that too much, and Brazil is -- I think we want to get our feet wet in Brazil, do it a little bit more methodically. The values there, calling up a tremendous amount, and BR Malls is a big company, okay.
And then you get into the currency risk, though it seems that their currency seems to only appreciate versus the dollar, but put that aside. So there's lots of issues there, but we really never got into that kind of dialogue.
At this point, we're focused just on building out the outlet, the platform with them.
Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division
So it sounds like it's more of a learning curve whereas you've had many years of European experience, you want to build that experience in Brazil? Is that...
David E. Simon
And I think so, and look, remember we had exposure in Europe. And I almost view this as kind of replacing what we had.
Yes, we put a little bit more money in it, but with a better company with better growth, long-term growth prospects even though the world is a little wacky there, a proven organization, lots of optionality on where to take that organization, a way to hedge our currency investment because we can borrow in euros. So there's all sorts of math associated with it that works a little bit easier than in Brazil.
Just a quick response. I mean, it's a very complicated question, but just a quick response to your question.
Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division
Okay. And then separate, and along the same lines, your comments, David, were about China were rather tempered about just focusing on one site.
Just sort of curious, especially given the recent political scandal over there. Has that made you any more cautious or what is driving your hesitancy about China?
David E. Simon
Well, it's obviously just a big, big market and a very complicated market, but what's driving us, it's very simple. The international brands are just -- they're kicking ass there.
And just -- if we can get an outlet built in the right location, we're very confident we can lease it up. And we have, we think, partnered with a good person to partner with.
But we still have to prove the math, prove the ability to make the numbers work and all that. And it's just a big complicated market.
And they take -- when they like something, they just build it, as you know, right? So supply and demand sometimes is not as thoughtful there as it might be in other more mature markets.
So we just got to make sure that we can make money doing these things. So I think doing 1 or 2, thereabouts, is probably the right way to go for us right now.
Operator
Your next question is coming from the line of Steve Sakwa from ISI Group.
Steve Sakwa - ISI Group Inc., Research Division
Rick, I guess, just first question, as you're talking to kind of the larger tenants, the Targets, the Costcos and the like, I know you guys have done a lot. You've replaced a lot of department stores and anchors and added.
I'm just wondering how much more activity do you think there is from them and, I guess, as you look through kind of the top 100, how many more assets can you sort of touch, meaning, how much more sort of inventory do you think you can sort of touch and put -- and are these tenants also looking at kind of the bottom 100 properties or are they really focused on sort of the top 100?
Richard S. Sokolov
In fact, it's throughout the portfolio. And if you just keep track of what we've done in the 8-K, this quarter, we've got 51 anchors that are being added throughout the various platforms, and that's up from the 30 that we've listed in the fourth quarter '11.
And on top of that, we're on another 38 anchors. Target is still looking for opportunities.
We're adding them at Coddingtown. We're adding them at South Hills in Pittsburgh.
And we have a number of other opportunities that we're discussing with them, but also with a whole range of other potential users. We've added Arhaus Furniture.
We opened a new Lord & Taylor. We're opening Macy's at Gurnee.
We're opening Last Call Neiman Marcus at Ontario. So it's across the board.
And we're working with supermarkets. We're opening Fresh Market at The Falls.
We're opening Wegmans in Montgomery Mall in Montgomery County in Philadelphia, Earth Fare in Hamilton. So we're across the board and there's still a great deal of interest and we have opportunities because in a lot of instances, we're moving out weaker anchors and replacing them with stronger ones.
Steve Sakwa - ISI Group Inc., Research Division
Okay. So it does seem like it's kind of permeating down into kind of the B mall product as well?
Richard S. Sokolov
Well, it's throughout the portfolio. Again, we don't like to categorize A, Bs and Cs.
It's throughout the portfolio. When you look at the scope of what we've been doing and just we've identified every one, you can see it's throughout across the quality spectrum.
Steve Sakwa - ISI Group Inc., Research Division
Okay. And then, Dave, I guess I'll bring up the question because I asked Bobby as well.
But just in St. Louis, I mean, I realize the outlet business has been fairly competitive.
You've certainly won your fair share of battles in different markets. I'm just wondering kind of what your thoughts are in St.
Louis. And is that a situation where only one project gets built, and is it just kind of a race to the -- just kind of the start line here?
David E. Simon
Well, I'm surprised it took that long to bring up. But look, St.
Louis is a good opportunity to build an outlet center. I'll just say this, when we get approvals, we will build an outlet center in St.
Louis. We don't have approvals yet.
We expect them in the near future, but we will build there. And we're very confident in our ability to lease it and provide a very good return for our shareholders.
So we've got to get approvals. That's the only road block that I see in terms of our building the center.
Steve Sakwa - ISI Group Inc., Research Division
And if I'm not mistaken, I believe there's something on May 9. Is that correct, when you're supposed to get some final approvals, or is it further out than that?
David E. Simon
Yes, let me -- I'll turn that to Rick. He can briefly give you, but we've got -- we're very confident we're going to get approvals, but we still have to finalize that.
And then when we do, we're building. So go ahead, Rick, you want to?
Richard S. Sokolov
So there is the hearing on the 9th and the final hearing is on May 21. And then we can start the development at the site.
Steve Sakwa - ISI Group Inc., Research Division
Okay. And then I guess, David, just lastly, on just kind of other outlets within the U.S.
market. I mean, kind of what does the shadow inventory look like or pipeline or potential deals that you might be looking at?
David E. Simon
Yes. Well, look, just briefly Phoenix, as you know, is under construction where, Rick?
60...
Richard S. Sokolov
60% committed.
David E. Simon
60% committed, so that's all systems go. Toronto, there's been a lot of discussion.
We're wildly excited about that. That's under construction.
Richard S. Sokolov
60%.
David E. Simon
60% committed.
Richard S. Sokolov
And announced The Bay.
David E. Simon
And announced The Bay, which is a well-known department store there. We think that's important because that will facilitate a lot of the wholesale accounts, so it's all kind of going according to plan.
St. Louis and Phoenix both announced a Saks' Off 5th as part of our new development there.
We have one site in Florida, which we're finishing approvals there. I'm afraid to didn't mention the city because there'll be 6 guys on sites, so I've got to refrain to do that.
But needless to say, we are really excited about that. And that could actually start, Rick, don't you think this year, maybe?
Richard S. Sokolov
Yes, yes. That could start in late this year.
And we also have Merrimack Middle East over by Dubai. It's opening on June 14 and it's 100% leased.
And we have Texas City that's opening in October. And that's substantially leased and what gets lost...
David E. Simon
Yes, go ahead, that's where I was going.
Richard S. Sokolov
In all the expansions that we're doing in some of the -- that's outlet centers in the world. The outlet -- Premium Outlets is under construction, opening in June of next year.
Chicago Premium Outlets, we're expanding. Desert Hills Premium Outlets is starting next month.
We are expanding Orlando Premium Outlets, down by Disney to third quarter this year. We're expanding Woodbury.
And we're expanding Las Vegas - North Downtown, and that's starting in October of this year. Well, those 6 expansions combined, there are probably 2 or 3 additional new products adding square footage as the most productive outlet centers pretty much in the world.
David E. Simon
We've got -- we're working closely with the town, but Woodbury is really -- could be really exciting. It's the best outlet in the world.
And what we're thinking about doing there working, obviously, closely with the town. But assuming we make progress and get some approvals there, I think we take that asset up to yet another level.
Operator
Your next question is coming from the line of Ki Bin Kim from Macquarie.
Ki Bin Kim - Macquarie Research
This is Ki Bin. Just going back to your acquisition of Klepierre and going back to your comments about corporate level synergies -- not synergies, but sharing best practices and of that sort.
I'm guessing the brainpower would shift more from you to them in terms of expertise and best practices. So how do you get compensated for that given that they still technically owning an equity investment and not close to any kind merger [ph]?
David E. Simon
Well, let me say this, we are never too proud to learn from anyone. And in fact, they're a very accomplished company, so I would expect us to learn a lot from them.
And I think that's absolutely part of the order. I mean, part of our investment philosophy is we're going to learn a lot from them in terms of how they run the business and operate.
And it's all part of being a global company in that you take a little bit of everything that you learn across the world and you make everything you have across the world a little bit better, and that can drive the needle. So I would hope, and I would expect that they could actually show us a few things here.
So that's very important that I say that. And at the end of the day, if we can add value there, that's fine too because our shareholders will benefit from our investment.
And I mean, that's just part of -- it is a little bit risky to go into Europe right now, so we had to weigh that in a sense against taking on the whole enchilada and what's the best way for us from a capital allocation point of view. So those are the trade-offs.
And I think we're satisfied today kind of where we're at.
Ki Bin Kim - Macquarie Research
I know at a 30% stake, you're still far from an M&A, but is there any sharing of personnel?
David E. Simon
At this point, no, but we do have the ability to add a senior management person to the management board there. And I think that, over time, as we assess what the areas where we could be most beneficial, we'll figure out what that -- who that person might be.
And I think that will develop over the next few months. So I do think there will be the opportunity there.
We do have our Vice President of International Operations basically coordinating and liaising, I think is the word, right, our activities there. He'll be in the office there, so we would hope to have some input on that kind of basis.
Ki Bin Kim - Macquarie Research
And just to -- if you clarify one point, I know it's a $2 billion equity investment, but the overall size of the investment is closer to over $4 billion on Klepierre. So could you actually comment on the FFO yield on investment?
David E. Simon
I don't know where you get the -- we look at it as a $2 billion investment.
Ki Bin Kim - Macquarie Research
Oh, I'm saying if you include the leverage of the company.
David E. Simon
Well, we don't look at it that way. When we're an equity investor, we have $2 billion at risk.
We don't have $4 billion at risk, so I'd argue that completely with you. But let's put that aside.
Your question, again, I lost it.
Ki Bin Kim - Macquarie Research
It's back to the FFO yield accretion.
David E. Simon
Well, look, you can do the math. I mean, it's a public company.
But it is accretive, certainly, to lower yield given where we -- what the multiple we bought it at versus our multiple and where our cost of funding was for the deal.
Operator
Your next question is coming from the line of David Harris from Imperial Capital.
David Harris - Imperial Capital, LLC, Research Division
Are you hedging this in anyway, this investment?
David E. Simon
Yes, we have hedged. Steve, how much have we hedged?
Stephen E. Sterrett
David, we left $1 billion U.S. out on our line dominated in euros, so we're 50% hedged on our equity investment.
David Harris - Imperial Capital, LLC, Research Division
Okay. And does the prospect of President Hollande sit you [ph] with any terror?
I mean, you did make references to the uncertainty, but I think the prospect of a socialist President of France is perhaps a little larger in the...
David E. Simon
You know what, look, why is that different than the U.S., right? So...
David Harris - Imperial Capital, LLC, Research Division
Well, I have heard specifically, David, that there has been talk around the firm -- the French REIT structure coming under attack?
David E. Simon
No, absolutely not. Look, I don't think that, that -- when you look at the properties and how their merchandise is mixed, I'm not -- I don't think that changes the consumer behavior.
What's going to change consumer behavior is where the economy goes and whether that's better under Hollande or Sarkozy is up for debate. I'm certainly not in the position to say who's better at what.
But what fascinates me about Europe and what they're going through is the one thing that I will say is that with respect to Europe, at least they're tackling their deficit problems. David, you're very familiar with what's going on in the U.K.
You can certainly argue it's too much or too soon or however they're doing it, but we're in complete denial here.
David Harris - Imperial Capital, LLC, Research Division
We have the world-reserved currency, which allows politicians to behave as they do here.
David E. Simon
Sure. But at some point, that changes.
So look, I'm not losing sleep about the French elections, and in fact, nor the U.S. elections in a sense that I think the economies of both can overcome bad politics.
Look at the -- we could argue about the level of recovery, but the fact of the matter is you can't keep the American business environment and the American entrepreneur down. We want to grow, we will grow.
And look, I don't view that the French economy all that different.
David Harris - Imperial Capital, LLC, Research Division
Back on a more, perhaps, mundane, you've raised the dividend 3 consecutive quarters and that's obviously been pretty impressive. I know it's hard to pin down your tax liabilities and such like as we go forward.
Is it reasonable to think we're going to get this every quarter now?
David E. Simon
Well, at some point, not every quarter. We're still chasing our taxable income.
So the answer is, at some point, we'll catch up. But I shouldn't really say more than that, other than at some point it will -- we're still chasing it.
At some point, we'll catch up, but we're still chasing it.
David Harris - Imperial Capital, LLC, Research Division
I mean, is it any way possible to characterize the growth in the dividend relative to the FFO? I mean, I know it's probably too nefarious at this point to do that.
But if you would degrade your FFO by, say, 10%, growth in the dividend is going to be the order of 12% or 13% in the most general terms?
David E. Simon
I mean, there's a lot that goes into it, especially with asset composition changing. But put that aside, I mean the fact is, our earnings are really growing and our dividends really got to grow.
David Harris - Imperial Capital, LLC, Research Division
It's going to grow faster, okay.
Stephen E. Sterrett
It's Steve. There clearly is a correlation between your dividend growth and your FFO growth.
It's not a perfect correlation because, as an example, in an acquisition, we may get a step up in assets, which allows more depreciation expense. So you may not have as much taxable income growth as you do FFO growth, but there is a high correlation.
Operator
Your next question is coming from the line of Nathan Isbee from Stifel, Nicolaus.
Nathan Isbee - Stifel, Nicolaus & Co., Inc., Research Division
Just actually focusing on the core multiple portfolio. Your sales have been growing double digits quarter after quarter, yet the rent spreads, they're strong but still aren't back to where they were a few years ago.
And it's still an uncertain world and you have some tenants downsizing. But what point, given the sales productivity, can you say to the tenants, "Sorry, we're going to demand rents to reflect the sales progress," and see that acceleration in the rent spreads?
David E. Simon
Rick, you want to?
Richard S. Sokolov
Yes. There are a couple of things that are relevant in evaluating the spreads.
One, if you look at the growth in our average rent, it has been going up considerably every quarter. Secondly, we are building into our leases annual increases in rent.
If you go back historically, before we did that, when a lease expired, you had a much lower base rent because we weren't getting consistent guaranteed bumps in minimum rent over the term of the lease. And that has been a major advantage for us in order to take the risk of tenant performance out of our financial matrix.
And when you look at the spreads that we're having, build that in, it's been a considerable benefit.
David E. Simon
And I would -- look, Nate, I would also just add that, look, sales are important, but it -- there is also, I mean, let's face it, everything is going well, we're running the business better. You can always get better, but there's still a number of retailers that are having margin pressure or comp sales pressures.
And that puts pressure on our business and so that's why the spreads aren't -- not everybody in the retail world is hitting on all cylinders. And they may have margin pressures which puts pressure.
We want them in the center or we don't have backups right away. So there's still -- obviously, our average is really important because of the size and they give you a real good indication.
But the reason it's not $8 or $10 is because there is a handful of retailers that are important in the portfolio that are under margin pressures or sales pressures. And instead of just telling them, "Get lost," we're still working with them as they try to improve their business.
Nathan Isbee - Stifel, Nicolaus & Co., Inc., Research Division
All right. And then just quickly on the Halton Hills.
You've only announced one tenant. Can you give us maybe a little more detail on it?
David E. Simon
Sure. Rick will list you some tenants.
Richard S. Sokolov
Yes. We're basically 60% committed now and leases that are going, Banana, Brooks, Cole Haan, Converse, Gap, Levi, Nike, Puma.
We talked about The Bay, Under Armour, Calvin Klein, Hugo Boss, Michael Kors. It's going to be an outstanding selection of retailers and we're going to create what is going to be the unique Premium Outlet environment in that market.
Nathan Isbee - Stifel, Nicolaus & Co., Inc., Research Division
So given that tenant mix, another competing center perhaps a few miles closer to Toronto you think people will be willing to drive past to get to yours?
David E. Simon
Well, look, I'm not going to really comment on this other potential site other than to say there are a lot of merits to our site and, Nate, we're opening next year, okay. We don't have to get any approvals, we're done, we're under construction and we'll lease the center, so I don't know what else I can tell you other than that.
And you can draw your own conclusions. We're done, we're moving and we have no worries.
Operator
Your next question is coming from the line Ben Yang from KBW.
Benjamin Yang - Keefe, Bruyette, & Woods, Inc., Research Division
David, going back to your comments on the new players making a push into the mall industry. I'm just curious what you think these newcomers might mean to the small industry longer term given that it's an oligopoly that obviously benefits from fewer, rather than more owner-operators?
David E. Simon
I missed part of your -- can you just restate it because I just -- the connection wasn't that good.
Benjamin Yang - Keefe, Bruyette, & Woods, Inc., Research Division
Just obviously private equity trying to make -- increase their presence in the mall space. It's an oligopoly.
Fewer owners are better than more owners, and I'm just curious to get your thoughts on what this might mean to the industry longer term?
David E. Simon
Well, I certainly don't use oligopoly as any -- by any stretch of imagination. I mean, retail, if you want to hear my -- I'll save you a lot of diatribe here, but retail is really competitive.
Malls compete with all sorts of retail, online, strip centers, Lifestyle centers. So that may be your view of the world.
It's not mine because we -- it is really a competitive industry across the board and it's tough, very tough. So the more the people want to come into the business and put capital into it, I think the better for us.
I'm not sure I answered your question. Look, at the end of the day, operating your real estate is -- the key to success in retail real estate primarily is to contract at the sale [ph] office.
Has been operating it better versus buying it, right, and then finding the right time that cap rates are x and waiting for cap rates to move in your favor. That's not always the case.
But generally, unlike office where it's really more of a potential timing where it can help. So the answer for a lot of those folks is just how do they operate it?
And can they operate it effectively? And if they can, maybe they'll make money, which I think is -- which is good.
It attracts more capital. Institutionally, and Steve can comment on it, I mean, institutionally, the level of interest from deep money institutional investors in high-quality retail assets has never been higher and price is secondary because they look at the returns -- I shouldn't say price, going in yield is a secondary consideration.
It's really the growth of the NOI. And I mean, it's never been higher, frankly.
But again, the need for us to look at that source of capital is not critical, but it's never been higher.
Benjamin Yang - Keefe, Bruyette, & Woods, Inc., Research Division
Okay. But I guess the difference this time is that unlike a passive attention [indiscernible] that gives you guys money.
These guys are trying to actual platforms to run their businesses, but that is helpful. But just moving along, you also made comments that the B malls are firming up.
I think Rick mentioned retailers are generally opening up across the board. You're obviously always trying to cull the low end of the portfolio.
But does this make you maybe more or less inclined to sell your B malls, maybe taking advantage of mall buyers out there, but maybe at the risk of missing the recovery in the B mall space?
David E. Simon
No. Look, I think we're good enough to know what we believe in, in the future and what is better in other people's hands in terms of just a poor allocation of our human resources.
And sometimes, it's okay to sell and let somebody redevelop it just because we've got enough to do and we want to allocate our resources elsewhere. So I think we can handle that issue in particular.
And I said I like the fact that there's more people coming into that market, might lead to a few more sales from us over a period of time.
Operator
Your next question is coming from the line of Rich Moore from RBC Capital Markets.
Richard C. Moore - RBC Capital Markets, LLC, Research Division
David, on Klepierre, can you buy or build something together in a joint venture given that you guys sit on the board of Klepierre?
David E. Simon
Sure. I mean, it would have to be subject to approval of their board without us participating.
But certainly, sure. I wouldn't say -- yes, absolutely.
I mean, if we had a development or acquisition and we could certainly partner. It would have to be approved by the board without our involvement, but sure.
Richard C. Moore - RBC Capital Markets, LLC, Research Division
Okay, all right. Good.
And then, on Del Amo, that has always struck me as very good real estate. I used to live out there in that area.
And yet nothing has ever -- nothing seems to ever come on that asset.
David E. Simon
Yes, we know, we know.
Richard C. Moore - RBC Capital Markets, LLC, Research Division
I mean, what are you guys thinking there? I mean, what is the plan?
You said you were working on a big redevelopment there. What is the idea?
David E. Simon
Well, I'll let Rick start. But you're 100% right.
It's been a source of frustration for us. I mean, we were working on some plans when we bought Mills in April of '07, right.
Those got derailed by the '09 crunch. They're back up and running.
We have real confidence in that. Otherwise, we wouldn't have bought.
That was ahead of our bigger deal with Farralon. Rick, this is Contis's baby.
He's not here to tell you about it because it might take 10 minutes. But Rick can give you the highlights of what we're doing, and we would hope definitively to really start this thing next year.
But let Rick, can give you the high level.
Richard S. Sokolov
Just a couple of bullet points. One, you can change everything about a property other than where it is, and it's in a great, great market that is really underserved by fashion retailing.
We've got interest from a couple of fashion anchors. We've got great support from the city and we're looking at a total redevelopment of the property that would substantially change its character by keeping some of the existing anchors, replacing some of the anchors, adding anchors and the best thing is we've got substantial demand from retailers and restaurants.
So there's a lot to do. We're spending a great deal of time on it.
We have people based out there that are working on it on a constant basis, and we're very optimistic we're going to be able to do it.
David E. Simon
And the only thing I'd say, given the size of the property, it's going to be in a couple of phases. But the first phase we would hope to start in '13.
Richard C. Moore - RBC Capital Markets, LLC, Research Division
Okay. So this is probably a few hundred million dollars in total, something like that?
David E. Simon
Yes, I think that's probably right.
Richard C. Moore - RBC Capital Markets, LLC, Research Division
And do you think we'll get that fashion department store that the previous CEO of Mills promised us about 6 or 7 years ago?
David E. Simon
We'll let you know.
Richard C. Moore - RBC Capital Markets, LLC, Research Division
Yes, good. And then a couple quick questions for Steve.
Were there any acquisition expenses this quarter? I mean, I can't figure out where they might be.
I thought they might be in G&A, but I didn't see anything in there.
Stephen E. Sterrett
They were not, Rich. Under the Generally Accepted Accounting Principles, when you make an equity investment, you capitalize those expenses, so they've been capitalized as part of the investment in Klepierre line.
David E. Simon
And I'd just say we have de minimis cost on that Farallon deal that we just put in other expenses.
Richard C. Moore - RBC Capital Markets, LLC, Research Division
Okay. And then the percentage rents in the joint venture jumped pretty significantly, and I'm assuming that's because there's more percentage rents in the Klepierre portfolio.
Is that right?
Stephen E. Sterrett
There were no -- we did not record any results associated with Klepierre in the first quarter, Rich. So that's organic activity related to the portfolio.
Richard C. Moore - RBC Capital Markets, LLC, Research Division
So why would those be so high? They seemed abnormally high.
Maybe I'm missing something, but they seemed unusually high.
Stephen E. Sterrett
Well, there's -- we have a number of venture properties in very, very good markets that have been benefiting from the influx in visitors and that's what you're seeing. We've had great sales programs.
David E. Simon
And also that includes the Japan -- some of the Japan expansions and all those are -- in Japan, they're all basically, and in Korea, they're all percentage rent deals. So we've had great success there.
The one thing on our...
Stephen E. Sterrett
In fact, that's a good point, David, because part of the results driving the JV line, Rich, are if you remember, last year, was the earthquake in Japan, so we had much better results coming out of Japan first quarter of '12 compared to '11.
David E. Simon
And one thing just to keep everybody in perspective, when I mentioned all these assets, our international outlets on average do about 1,000 a foot. And those are not in the numbers that I stated at the end of my prepared remarks.
Operator
Your next question is coming from the line of Michael Mueller from JPMorgan.
Michael W. Mueller - JP Morgan Chase & Co, Research Division
Just one question. You obviously have been very complementary of Klepierre, and you seem like you want to be in Europe longer term.
So just thinking, what would cause you not to step up and increase your investment over time once the option period becomes effective? Is it just what's going on with the sovereign issues in Europe or is it something else?
David E. Simon
Well, I mean, it's hard to know exactly where we are and what we're doing, but look, I think, as I said to you that what we have done there and what the company, all the assets and intangibles that the company, the company being Klepierre, possess I think just gives us tremendous amount of optionality on the whole of Europe, and we'll see where that goes.
Operator
Your final question will be coming from the line of the Tayo Okusanya from Jefferies.
Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division
Just a couple of quick questions. Brazil and China, did you guys talk about potential yields on those developments, what that could look like?
David E. Simon
Not yet because we do that once we start construction, but I would say to you, Brazil -- I said it a little bit earlier, I mean, we would expect them to be consistent with kind of mall yields there, double digits. And China, we would expect that to be consistent with our Asian development, which have all been in the mid-teens.
But we'll give more clarity to that once we start construction on something.
Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division
Okay, that's helpful. And then just on the Phoenix construction, could you talk about that in relation to Arizona Mills being so nearby, whether that creates any issues in regards to trying to lease up that asset?
David E. Simon
Not really. We view them as 2 separate distinct markets.
Arizona Mills is more of an infill project. It's actually weathered the Phoenix situation pretty well, the Phoenix economy pretty well.
And we think they'll hopefully be a little bit complementary, and we'd expect given the infill location and the fact that the outlet will probably drive more tourism where Arizona Mills is probably more -- considered more of a regional mall in the sense in terms of less tourism that they'll both be able to prosper as the economy continues to improve.
Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division
Okay. And that's despite the fact that Arizona Mills has a whole bunch of outlet-oriented stores in it already?
Richard S. Sokolov
I think you need to focus. Arizona Mills is almost 1.3 million square feet.
It's got a substantial entertainment component with a theater and sea life. It has a number of tenants that are, as David said, regional mall-type tenants.
There's a Penney outlet. There's Forever 21, there's H&M.
So it really is focused on a much broader market. And while there will be some overlap, it's a relatively small percentage of the square footage in the merchants of Arizona Mills.
Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division
Got it, that's helpful. And then to Klepierre, is the European market dramatically different such that the Simonization process that you guys are so good at in the U.S., is that easily transferable to these assets from generating ancillary income, banner income like all the kind of other things that you kind of established as industry practices here in the U.S.
How easy can you really translate that over to their stuff?
David E. Simon
It's certainly more of a challenge than it is here, but we have had some success in our previous European investments in doing that. And what's interesting, it's changed a lot in that the retailers are now much more global than the ones that we deal with in the U.S.
and in Europe. So I'm hopeful that it won't be as easy as it is here in doing that.
I mean, when we buy something that we don't own, it's a pretty easy transition. There, it's going to take more time, but I think the opportunity exists.
Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division
Great. And then just one more last question.
In regards to this question about A malls and B malls, I think they've all been pushing, trying to get confirmation from you that there is demand similar to the B malls. But you don't quite seem to want to confirm that.
Just kind of curious one way or another why that's so?
David E. Simon
Well, I think all we said is we don't like to say A or B malls. You know our portfolio.
You can decide what you think of it. We like it a lot.
And our statistics that we report on each quarter would have to -- given that it's a huge asset base, it would -- the averages are meaningful, and I don't think we could produce these results if only the top end of the assets were producing results. So how does that answer the question?
Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division
Well said.
David E. Simon
Okay. It's hard for me to -- I appreciate the conflict because that's a real challenge sometimes.
Operator
At this time, I'm showing no further questions in queue. I'd like to turn the call back over to Mr.
David Simon for any closing remarks.
David E. Simon
Okay. Thanks for your time.
Hopefully, we didn't take too long, and we'll talk to you soon.
Operator
Ladies and gentlemen, that concludes today's conference. We thank you for your participation.
You may now disconnect. Have a great weekend.