Jan 29, 2016
Executives
Tom Ward - VP, IR David Simon - Chairman & CEO Rick Sokolov - President & COO Andy Juster - CFO Steve Broadwater - CAO
Analysts
Ross Nussbaum - UBS Christy McElroy - Citi Michael Bilerman - Citi Craig Schmidt - Bank of America Caitlin Burrows - Goldman Sachs Alexander Goldfarb - Sandler O'Neill Steve Sakwa - Evercore Paul Morgan - Canaccord Paul Adornato - BMO Capital Markets Ki Bin Kim - SunTrust Vincent Chao - Deutsche Bank George Hoglund - Jefferies Mike Mueller - JPMorgan Floris van Dijkum - Boenning
Operator
Good day, ladies and gentlemen, and welcome to the Fourth Quarter Simon Property Group 2015 Earnings Call. My name is Lauren and I will be your operator for today.
At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session.
[Operator Instructions]. I would now like to turn the conference over to Tom Ward, Vice President, Investor Relations.
Please proceed.
Tom Ward
Thank you, Lauren. Good morning everyone.
Presenting on today's call is David Simon, Chairman and Chief Executive Officer. Also on the call are Rick Sokolov, President and Chief Operating Officer; Andy Juster, Chief Financial Officer; and Steve Broadwater, our Chief Accounting Officer.
Before we begin, a quick reminder that statements made during this call may be deemed forward-looking statements within the meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995, and actual results may differ materially due to a variety of risks, uncertainties, and other factors. We refer you to today's press release and our SEC filings for a detailed discussion of forward-looking statements.
Please note that this call includes information that may be accurate only as of today's date. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included within the press release and the supplemental information, in today's form 8-K filing.
Both the press release and the supplemental information are available on our IR website at investors.simon.com. For our prepared remarks, I am pleased to introduce David Simon.
David Simon
Good morning. We had strong results to wrap up a great year.
We opened, started, and completed several new development and redevelopment projects. We successfully executed several capital market transactions, extending our average term and reducing our weighted interest cost.
We continued to achieve strong operating and financial results. Our full-year 2015 FFO per share was $9.86 which peaked our initial guidance range of $9.60 to $9.70 a share, even with a net $0.11 loss reported during the year which was derived from $0.33 loss on extinguishment of debt, partially offset by $0.22 gain on the sale of marketable securities that occurred in the year, as well as $0.12 negative impact from foreign currency devaluations.
On a comparable basis, excluding the impact from WPG spin-off in the prior year, and the net loss mentioned above, full-year FFO increased 11.4% to $9.97 per diluted share. We posted record FFO results once again and have achieved a compound annual FFO growth rate of more than 14% over the last five years.
For the fourth quarter, FFO of $2.40 per share included a $0.33 loss on extinguishment of debt and exceeded the consensus estimate by $0.02. On a comparable basis, excluding the loss on the extinguishment of debt in the quarter, FFO per diluted share increased 10.5% year-over-year.
Now, let me turn to operating metrics and cash flow. Our Malls and Premium Outlets occupancy ended the year at 96.1%.
This was 100 basis points lower than year-end 2014, due to the timing of lease up of more 2 million square feet of new space we brought online this year from expansions and new developments, as well as replacing the 1.3 million square feet of space lost due to tenant bankruptcies during the year. Importantly, we are more than 90% leased on the new space we brought online this year.
The timing of the lease up on the remaining space to be leased impacted our year-end occupancy by approximately 50 basis points. By the end of the year we replaced more than 70% of the space loss to tenant bankruptcies and the remaining space to be leased impacted occupancy by 50 basis points as well.
Put the two together, and that's a 100 basis point differential. Leasing activity remained healthy as evidenced by the Mall and Premium Outlets reported leasing spread of $10.62 per foot, an increase of 18%, and the base minimum rent was $48.96 which was up more than 4% compared to last year reflecting strong retailer demand for our locations.
As I mentioned retailer demand per space remained strong. Retailers who want to grow their business were adding brand extensions, and creating new brands, and pure-play retailers want physical locations to increase their revenues.
Retailers who opened bricks-and-mortar stores experienced increased consumer awareness and subsequently greater organic site traffic and lower customer acquisition cost. We have repeatedly heard from retailers that online sales is directly influenced by the presence of a physical store in that market.
When the retailer opens a physical store in a market they see their online sales increase, and likewise, if they close the store they see their online sales in that market decline. Successful omnichannel retailers are increasing their buy online and pickup in store.
This functionality not only increases convenience for shoppers, but also facilitates incremental purchases and upsell opportunities when the shopper enters our retail environment. For 2015, sales per square foot for our Mall and Premium Outlets were $620 a foot compared to $619 a foot.
Comparable sales per square foot for the Malls increased 5.7%. We were up a greater amount at the Mills and we were down slightly at our tourist oriented premium outlets, and up slightly at our non-tourist outlet centers.
We have great centers in key tourist locations that generate incredible sales volume and is the envy of the industry. The strong dollar, however, impacted tenant sales as these unique centers which negatively affected our overage rent for the quarter.
I know you've all heard about mall traffic decreases. But let me give you some facts based on our internal data across the largest retail portfolio in the U.S.
and not just estimates derived from arbitrary algorithms. Traffic at our Malls was flat for the year including the Holiday season, traffic at our Premium Outlets increased 1.5% for the year and more than 2% for the holidays, and traffic at the Mills increased slightly for the year as well.
Comp NOI increased 3.7% for the full-year 2015 and increased 3.4% for the fourth quarter of 2015. For the fourth quarter, overage rent declined $13 million year-over-year due to the lower sales volumes that I mentioned already at our tourist oriented centers.
The lower overage rent impacted our comp NOI for the quarter of approximately 100 basis points. I will strongly remind you we do not include lease settlement income, new acquisitions, or the impact of recently redeveloped or expanded centers in our comp NOIs -- in our comp NOI number.
Total NOI from our consolidated and unconsolidated properties increased more than 7% to $5.8 billion in 2015. That was on top of 6.7% growth in 2014 and this includes any NOI contribution from Kle'pierre.
Now let me quickly talk as we could spend hours on our redevelopment and expansion. At the end of the fourth quarter, but I'll give you some highlights, at the end of the fourth quarter, redevelopment expansion projects were ongoing at 29 properties across all three of our platforms, with a total committed spend of $1.5 billion.
During the quarter, we opened two significant expansions and completed number of other strategic redevelopments, including the new Fashion Wing at Del Amo which includes the new Nordstrom and more than 100 exceptional brands, expansion of The Colonnade Sawgrass where we added 20 small shops, very high-end small shops and two restaurants, and the redevelopment at Phipps, Woodfield Mall, and Menlo Park. We also started construction on several new projects during the quarter, including The Shops at Riverside and Copley Place.
Construction continues on other major redevelopment and expansion projects at some of our most productive properties including Roosevelt Field, Stanford, King of Prussia, Woodbury Commons, The Galleria in Houston. Most of these projects will be completed in '16 and Houston Galleria will go into '17 as well.
Now not to be ignored we continue to be active on new development. We opened two new outlets during the quarter in Tucson and Tampa both off to very strong sales start.
Construction continues on two new domestic outlets in Columbus and Clarksburg both scheduled to open later this year, as well as a designer outlet in Provence, France, which is scheduled to open in the spring of 2017. We also started construction in upscale outlet center in Seoul, Southwest Seoul, Korea, scheduled to open in the spring of 2017, this will be fourth there.
And we also recently announced a new partnership with Ivanhoe Cambridge developed a premium outlet collection at Edmonton International Airport which will be our fourth outlet in Canada. This is expected to open in the fall of 2017.
Two new full price developments are ongoing as you know one in Miami, a Brickell Centre opening this fall, and Fort Worth at The Shops at Clearfork scheduled to open in early 2017. Leasing demand at both are great.
Brickell will be anchored by Saks; Clearfork will be open air and anchored by Neiman Marcus. Portfolio changes.
We sold The Shops at Sunset Place and we recently completed the sale of Columbia George outlet. And we also recently acquired with our partner McArthurGlen the majority interest in a leading outlet center in Ochtrup, Germany, Northwest Germany.
This successful center is well-positioned within the market and has significant value added expansion opportunities. Let me run through the balance sheet, two senior offerings and totaling $1.9 billion was done last year with an average weighted coupon of 2.34%, term of 7.5.
We redeemed four series of senior notes totaling 1.7 with an weighted average coupon of 6. We closed 23 new mortgages with an average interest rate of 3.2% and 8.5 years.
Our liquidity was $5.5 billion. At the end of the quarter, our fixed charge coverage is up to 4.5%, or I'm sorry 4.5 times, and recently we completed a very successful senior notes offering earlier this month raising $1.35 billion at an average interest rate and term of 2.9% at 8.2 years in a very volatile capital market scenario.
Dividends. We paid a record dividend in 2015 of $6.05 per share.
This has achieved a compound annual growth rate of more than 18% over the last five years. We announced our dividend today to be paid this quarter of $1.60 which is an increase of 14% year-over-year.
Okay, that's pretty busy. Now, let me talk about our guidance, for '16, it's $10.70 to $10.80.
This range represents 9% to 10% growth compared to the FFO per share of $9.86 for 2015 and again will be industry leading. Our range is based on the following assumptions: comp NOI for our portfolio malls, outlets, and mills, of at least 3.5%; and total NOI growth of more than 6% for the portfolio; no additional planned acquisition or retail disposition activity than what we recently completed; continued unfavorable impacts related to foreign currency devaluations which should affect us by approximately $0.05 compared to 2015; and importantly, we are not assuming any additional share count decrease, so an average diluted share count of $362 million.
We are now looking forward to your questions. Operator, are you with us?
Operator
[Operator Instructions].
David Simon
Hello, operator?
Operator
Yes. Can you hear me?
David Simon
We don't have any question ma'am. Let's go to the next.
Operator
Your first question comes from the line of Ross Nussbaum, UBS. Please proceed.
Ross Nussbaum
David, you touched on the link between retailers having stores at your Malls and Internet sales in that local market. One of the questions I get recently from investors is the concept of occupancy cost being measured as a percentage of sales just at that Mall store.
When you're talking to retailers now about the rent they should be paying, how is the conversation going such that you can capture some of those Internet sales in the rents that you're charging them at the physical Mall? Because to me that seems like an important shift in the business going on.
David Simon
Well I don't -- again I -- let's separate media narrative to reality. But we're including anything, any sale that comes from their store and it could be driven by the Internet is in our sales that come from that store.
So we're getting the benefit of that. And so I still think occupancy cost is still going to be very important to the overall negotiation of what the rent they're able to proceed.
However, it is important to note that stores for these retailers are part of their distribution network. And when they look at whether or not they're going to keep a store open, they're also going to affect evaluate what their decrease in overall Internet sales might be in that market and that is a benefit to us -- not that we have a lot of stores that are risk for closures other than through bankruptcy.
So at a 12.3% given our productivity and given where our rents are and what you've seen from the history, I mean we've got, we still have a very good run rate to continue increase our rents.
Ross Nussbaum
Okay. And then a second question.
Can you touch on your interest in Macy's real estate now that they are clear that they want to do something there? In particular, I guess in theory, it would be with your Hudson's Bay joint venture.
But may be just touch on your interest level there. Thanks.
David Simon
Well look they've been a very important partner of ours and obviously they have very good real estate. So I can say nothing really is happening that's material or meaningful other than our normal ongoing business and that's been very productive and we have a excellent relationship with Macy's both from a real estate and a corporate point of view.
They've been very supportive in our efforts to enhance the quality of our real estate through our expansion and redevelopment activity and if they've got ideas on how they want to look at the real estate, we're happy to do it either as part of the HPC JV or on our own. But nothing really is happening other than day-to-day business.
Rick Sokolov
And the only thing I would add in the course of that day-to-day business we acquired a Bloomingdale's store at Stanford demolished it creating small shop, they build a new Bloomingdale's store. We combined three Macy's stores into two at Del Amo to facilitate our expansion.
So that day-to-day business does involve activities with respective of their existing stores.
Ross Nussbaum
Thanks guys.
David Simon
And, look, I think it's very interesting that the market needs to understand on these retailers Macy's and the Penney and down the list. I mean does that vast, vast, vast majority of their stores have four-wall profits.
And Rick and I just did a tour in Texas this week and I'll let you guys figure out who the retailers are, a major note in Texas are, and we hear that repeatedly. So, Macy's, I'm sure that vast, vast, vast, vast majority of those stores that they have four-wall profits.
So I don't anticipate there to be significant changes but we will see and I think it will give us the opportunity. I think Rick made a great point in that.
We can pickoff a Bloomingdale's at the Stanford in the middle of the Mall and release it to high-end shops and they can build a new store that's a win-win for everybody involved. So I think there will be a few of those as well.
Ross Nussbaum
Thanks.
David Simon
Sure. Operator?
Operator
Your next question comes from the line of Christy McElroy, Citi. Please proceed.
Michael Bilerman
Hey, David. It's Michael Bilerman with Christy.
Just a question about the balance sheet and as you think about your very conservative balance sheet with exceptional cost of capital and access to capital. And I'm curious as you think about maintaining that really strong balance sheet, how much of it is thinking about opportunities down the road -- and I don't know how quickly those opportunities will come into view -- and how much of it is that your concern perhaps about the macro environment?
And I recognize that use of capital you can buy back stock, which you haven't really done in the back half of the year, and you have a very large development and redevelopment pipeline which is funded by free cash flow. But your overall leverage metrics and access to capital are -- never been better in the Company's history.
And I'm just trying to think about what's driving that in your mind as you run the Company?
David Simon
Well I think it's a great point and it's ignored a lot in terms of how people look at our company. But I love the fact that our interest coverage is 4.5 times given the size of our, I should say fixed charge coverage, not just interest coverage.
And I love the fact that we can fund our development and new development from our free cash flow, and yet at the same time have a compound annual growth rate, dividend increase of 18%. I mean you can't put those kind of metrics against anybody and they can't issue in a day paper at under 3% when the CMBS market is cracking and the life company market is cracking and the high yield market is cracking, and yet we're able to go whether it's in the Euro market or the U.S.
fixed income market but to place that kind of paper in that kind of speed and it's undervalued by the equity markets. So me that is sacrosanct.
And I have been very reluctant enter the big deal business, I continue to be. And where we are so busy, I mean, I -- as you know, I have a hard time speaking generally and I -- when they get -- when we write our script, I can barely get the words out because I didn't take elocution classes in high school.
But the fact of the matter is we are extremely busy building and adding value to the portfolio using our external free cash flow that remains the focus. I think we'll be very conservative on buying our stock back in today's market and my view on the big deal business really hasn't changed.
Christy McElroy
Hi David, it's Christy here. Just following up on some of the stats that you mentioned earlier, with traffic in the malls flat, but sales up 5.7% which is encouraging.
I'm wondering if you have a sense for what's driving that differential, are people staying in the Mall longer, visiting fewer stores, are conversions higher, just several retailers out there commenting that Mall traffic is down and the impact that that perception is any share prices, just any information that we can get from your data, would be helpful.
David Simon
Yes, I think it's a very important point to make the following distinction. So remember we get the overall traffic number and yet most of the folks that quote -- most of the folks that quote numbers are based on algorithms, so it's not real necessarily data like we have, and number two, is it is derived from certain stores.
So it doesn't, it necessarily equate the mall traffic and it gives you store data but not mall traffic data and that's the distinction that I really important to make. And I will tell you the trend though with mobile technology is that the consumer today clearly is going to the physical environment more educated, they're doing less browsing and they're going to less stores.
So we think that the store data that you get is in fact maybe it's a little bit not that far off but it doesn’t represent mall traffic and I just think the consumers go and do a few less stores because they’re doing less browsing because they’re more informed prior to their visits. But overall the mall traffic is what we say it is, our comp sales are what they are, and its so operator driven, you could be in a category where one retailer is selling and another one is not and it's not tied with all boats but it's really retail and operator driven.
And the good news is overall given the size of our portfolio, we have a pretty good handle on this -- overall we're having pretty good comp sales increases.
Christy McElroy
So the bottom-line is the same number of people are coming to the mall, but sales are up 5.7% there are just spending more while they are there?
David Simon
That's the bottom-line and they may be going to few less stores. I think, yes, you're probably right, I probably could have shortened the explanation but that's the bottom-line.
Operator
Your next question comes from the line of Craig Schmidt, Bank of America. Please proceed.
Craig Schmidt
Thank you. It's Craig Schmidt.
David Simon
I hope that's Craig. I hope that's Craig.
Craig Schmidt
Yes it is Craig.
David Simon
Right.
Craig Schmidt
No transformation. My question is really on the future role of anchors at regional malls.
How is your view changing of the anchors? I mean, there seems to be a lot of repurposing going on, such as the JVs and Seritage.
And I'm also thinking about what you've done at Florida Mall and what you're going to be doing at Shops at Riverside: it seems like you're taking a somewhat different view of what the anchor's role is.
David Simon
Well, look I think it's such as and I'll let Rick weigh in here. I mean it's such as real estate specific equation but in a lot of cases you know the vendors that go into a department store in certain cases would rather have mall stores.
And when we feel as that's the case while we'd rather just have the mall, we just rather have the vendor as a retailer and we don't necessarily want to rely on the department store to bring those vendors. So again it's specific and it's all about creating the right environment and experience and in some cases having this department store as part of that is vital, I take Del Amo with Nordstrom.
They built a fantastic store it is so complementary to what we've done. We couldn't be prouder of that redevelopment and that Nordstrom store and the environment is helping us create.
In other cases, the vendor, we had a Saks store at Riverside. They don't do well in New Jersey all at all.
And we feel like those vendors that were in that store actually would have a better experience in our redone environment than they would in the Saks box. So it's and Florida Mall is a great example of just taking underperforming Saks that was not attracting the consumer, we went from, I think at $10 million Saks to $50 million of revenue generated after repurposing that that box, and that's what it's all about.
Rick?
Rick Sokolov
Yes, the only thing I would add is that every mall has its own story. So for frankly at Roosevelt Field the addition of Neiman Marcus is going to be a fundamental expansion of the market area that's traditional fashion anchor.
At Florida Mall, we added the Crayola Experience that in that market is just doing great business and expands the trade area of that property. What we're all about is trying to put in the appropriate retailers to maximize the importance of our properties in the markets that they serve.
Craig Schmidt
Okay. And how is some of the progress on your JVs with Seritage?
David Simon
Pretty good I just had breakfast with Dan. I think, hopefully we’ll get four or five started this year Rick, right?
That's the plan.
Rick Sokolov
Yes, we literally we've got performance, plans done. That frankly the most interesting timeline is working with Sears is to how their store is going to be reconfigured and that just takes some time.
But we've identified the replacement tenants, we've identified the performance, and as David said we anticipate having developments underway in at least half the properties we have in our joint venture this year.
Operator
Your next question comes from the line of Caitlin Burrows, Goldman Sachs. Please proceed.
Caitlin Burrows
Hi, good morning. Just on the topic of occupancy cost, it has been steadily increasing over the past few years, as you've done a good job of really being able to push the rents despite slower sales growth.
But I was just wondering: Is this something we should be concerned about? To what extent are retailers pushing back, or are the higher occupancy costs just a part of doing business in a strong mall now?
David Simon
Well look I mean at 12.3%, I would not worry at all. And I think we have to put into perspective how much our growth is ahead of GDP growth.
I mean we are in a, I mean, if you look at our results this year and what we did above and beyond our expectations to pick up the extraordinary gain and losses that I mentioned. But if you just look at our numbers and the fact that we overcame relatively softer retail environment, a lot of things going into that move towards durable goods and increase in healthcare cost and taxes and general economic malaise, we overcame our foreign currency translation from outside of the U.S.
here and then obviously the strong dollar. If you look at our outlet business I mean traffic was up across the portfolio yet sales were down there because the international tourist spent less, it's not -- it's pretty good execution with some of the headwinds that we've done.
The 12.3% the way I look at it is an insurance policy against a slow growth U.S. economy that we continue to well outperform GDP growth, and, if it were up 15%, 16% maybe that's when we would raise the alarm.
But at 12.3%, we've got rate insurance to continue grow their cash flow. And if you look at our comp NOI which is a real number, okay, which is a real number of at least 3.5% and what's the Goldman -- tell me what the Goldman -- today's Goldman get the conservative economist to Goldman.
Not the bullish one get the one that you've got in the closet. What's their GDP growth?
What are they saying, 2%, 1.5%?
Caitlin Burrows
Okay.
David Simon
Well tell me what do they say, Caitlin. I want to say 1.5%; I mean we're 2.5% --
Caitlin Burrows
Sure.
David Simon
We're 200 basis points above that and part of that is because we do have leases that are under market and we will be able to continue to push that. At the same time our business is all about repeat business.
We've got to find a win-win with our retailers. We try to do the best we can meeting the expectations of our growth for us, for investors at the same time we want our retailers as strong as possible it's a very -- it's challenging to find that equilibrium.
We do a pretty good job of it and I’m confident we can continue to do it not completely, sometimes we screw up, on -- it's all the various ends there. But at the end of the day we try to find that equilibrium that will satisfy our retailer partner, satisfy our own internal expectations, satisfy our investors that's why I've been able to -- we've been able to grow our earnings 14% per annum, increase the dividend 18% per annum over a long period of time industry leading.
We try to find that equilibrium we have an insurance policy.
Caitlin Burrows
Got it, okay. So it sounds like we shouldn't be concerned yet there.
And then just --
David Simon
I will let you know okay.
Caitlin Burrows
Okay. And then just regarding your current share price, the market appears to be supporting other mall REITs that might have some take-out potential while perhaps punishing you as a potential buyer.
So the stock's down today. Can you comment on basically turning this argument over and by buying yourself and repurchasing shares -- I know you mentioned before that you'd be very conservative with doing that in the future?
David Simon
Well, look, I think what Bilerman said earlier, asked earlier, I mean we are out of the big deal business. So people can speculate all they want.
And I do think the market should understand and as our plan that we will be conservative on buybacks. As some of the higher -- I understand Tom that some of the higher estimates out there on first call were due to the buyback number.
So that's part of the issue there. We're going to be conservative there.
I love having a great balance sheet. This is not a short-term game here.
This is long-term. But I'm out of the big deal business, somebody wants to call me up and talk to me and show me how to make money, I'm all happy to have that conversation.
But my opinion hasn't changed since really last Spring. So I don't really know what else I can tell you on that front.
And we won't be afraid to buy back stock, it's just we're not planning right now. We have the authorization to do it.
People are betting against that for whatever reason that's the markets but we have a growing dividend and growing earnings and that's usually a bad thing to bet against.
Caitlin Burrows
I agree. Thank you.
David Simon
Thank you.
Operator
Ladies and gentlemen, your next question comes from the line of Alexander Goldfarb, Sandler O'Neill.
Alexander Goldfarb
Good morning, David.
David Simon
How are you doing, Alex?
Alexander Goldfarb
Doing well, doing well. So just quickly, I'll go to the second question first and then I'll go to my first question second, because you mentioned dividends.
Last year you guys to raised the dividend quarterly. Obviously it was up almost 20% for the year.
This year should the expectation -- you didn't raise it from fourth quarter. So should we think about just more normalized sort of annual increase?
Or do you think that we'll see a steady state of increases throughout the year? And part of that is just trying to read into cash flow use.
May be with what's going on you guys are trying to husband more cash; or maybe it was just how you raised it a lot last year and now you want to go back to an annual increase.
David Simon
Yes, I think what we were, we've always -- we've been chasing our taxable income, as you know, and there is a lot that goes into that equation. If we kept it at $1.60 that would be 6% growth year-over-year, I would think that that would be at the bare minimum of what happens but I would start to like to get into a normalized once a year raise.
So we don't do it sequentially, sequentially like we've been doing at quarter after quarter and I think that should be your expectation going forward. And we'll probably assess that at near the end of each year now as we had in the past.
But that's subject to change obviously with the input of our taxable income calculation as well as obviously our boards input, but at the very, very least 6% growth, over 6% growth. I would like for it to be annualized and -- I'm sorry once a year when we evaluate it, which would probably most likely be in the back half, so we can position it for the proceeding or the subsequent year.
But as you know with our NOI growth of least over 6-plus-percent, our taxable income is going to be increasing. And so that will be driving our dividend increase up as well.
Alexander Goldfarb
Okay. And then the second question is, on -- I think it was in your response to Christy's question, if shoppers are getting more selective and visiting fewer stores: one, it sounds like a merchandising issue from retailers; and then, two, does that mean that we should expect higher retailer turnover?
Like we should see more stores closing if they can't get their merchandising right? Or your view was the retailers that had trouble attracting shoppers last year are quickly addressing their merchandising issues?
David Simon
Well, look, I think the retailers clearly are in that boat, and they're not as, what there is, we did experience in '15 a number of bankruptcies of kind of the really poor performing retailers. There was clearly a slowdown in retail sales in the back half of the year.
And then when you couple that with the tourism issue, you couple that with the normal weather, I mean it was so to speak a perfect storm, and it took a lot of retailers out. I mean we've seen this movie and I don't know if it's Rocky 7 -- I'm ready for Creed.
Okay. So we don't have to keep seeing this movie over again.
I think our retailers are pretty sophisticated adapting very aggressive. And I think part of the responsibility of driving traffic for more stores is -- the onus is on us.
I mean, we've got a great environment which does and is able to communicate to the consumer what's going on in the mall so that they can visit kind of more stores than they have and that they at least did in '15 and take advantage of them when they're in our store. And I think clearly as our retailers sneak up their information, drive traffic to the stores, fill out of the stores, return out of the stores, I mean all of that is going to be incremental as their systems get more sophisticated that I think hopefully will extend stays and allow people to visit more stores.
So it's all the work-in-progress, we've got to do some of that ourselves. And as you know we're doing a lot of that, we're at the forefront of lot of that activity to try and figure out how the best way to communicate to the consumer, so they go see eight or 10 stores as opposed to four, five, or six.
Alexander Goldfarb
Okay. And then just for your -- I know how much you love your Crooked Stick suggestion box, but as you guys do a lot of the development and redevelopment, it would just be helpful from our end to have a table in the supp that just sort of quantifies the amount and quarter that developments and redevelopments will come online, just for a modeling perspective.
David Simon
Yes, we're happy, well, I think I'm happy to do that, it doesn't -- now I will say this. I know there was a comment or two that said about our returns going down absolutely not, our mix changes every quarter which we probably, Tom, could do a better job of pointing that out.
And I assure you that if we are doing to deliver; I mean we do have to have a materiality threshold for the size of our company. But I assure you and the market that if we have a major development or a major redevelopment where we're going to lay an egg, we'll let you know.
That's not what happened in today's supplement. We had some things come off and we had some things come on, just like we do every quarter and Tom is happy to walk you through what went in and what went out.
But I assure the market if we're going to lay an egg on anything that's new or whether it's new or redevelopment we'll let you know with some materiality threshold obviously. But that's not the case with the changes in our development pipeline and redevelopment pipeline.
Operator
Your next question comes from the line of Steve Sakwa, Evercore. Please proceed.
Steve Sakwa
Just I guess two quick questions. You mentioned that, I guess, comp sales were up.
I think you 5.7%. When I look in the supplemental and just looked at total sales it's basically flat December to December.
And I realize that comp sales are only a piece of the overall sales. But as you replace weaker tenants with new ones I would think there's an uplift.
I guess I'm just trying to reconcile the strong comp sales.
David Simon
Remember our comp you got to be in place for 24 months. So that's not the case, that's number one.
And number two, I mean we did have our -- that the -- we did have slippage in our tourist oriented centers not just the outlets but in a number of the malls that were I mean that we had to deal with. And again it wasn't a traffic issue and it's not anything other than and I know we've seen it from the retailers, but the tourism that is important to the economic growth of the United States of America may have come if they spent less and we have unbelievable great properties that in the long run are fantastic.
And the sales have come out. I mean we have small shops and medium size shops that do $30 million, $40 million of volumes in some of these places.
But the tourism affected that. And as you know we've got a lot going on in some of our major properties moving tenants in and out.
So we put it all together and total sales were relatively flat. We don't view that as a big deal.
Steve Sakwa
Okay. Any sense as to what -- of the overall sales, comp sales make up what percentage of that total sales number?
Is that two-thirds of the bucket, three-quarters, a half?
David Simon
70%.
Steve Sakwa
70%? Okay.
And then I guess as it comes to -- or in terms of bankruptcies this year, I realize you guys got hit pretty hard last year. You're working through.
What is your expectation for bankruptcies this year? And how is that impacting that sort of 3.5% NOI number that you're giving us?
David Simon
Well, look at, it is. I mean, we still have lease-up from last year, and we're -- we've budgeted in some of the weaker tenants whether they go bankrupt or we do, we renegotiate short-term deals while we replace them with strong tenants I mean that’s all factored in there.
So we have been conservative on overage rent. I mean these -- we're not a perfect science model I mean, nor is the U.S.
economy. So we do the best that we can, budgeting the best that we can, being as conservative as we can.
We clearly thought in '15, we would hit 4%; we didn't because of the overage rent thing that we did mention. And that was, as you know, overage rent you hit breakpoints or if you're over the breakpoints there is a lot of volatility the fourth quarter is important in total sales.
And I mean that's hard to necessarily model. But we took a very conservative approach in how we look to the books at year-end.
And we're taking a reasonably conservative approach; we still have work to do. But conservative sales, conservative lease-up, conservative restructuring at certain tenants whether in or out of bankruptcy is all factored into that number.
But importantly Steve and this is the true distinction. I mean our number is -- our 3.5% is different than most people, okay.
So you have to put that into perspective.
Steve Sakwa
No, I do. I appreciate that.
I'm just trying to get a sense. Do you think the 1.3 million will go up or down in '16?
Is that -- do you think you have similar amounts?
David Simon
I think it will go down, I think it will go down, '15 was a big year.
Operator
Your next question comes from the line of Paul Morgan, Canaccord. Please proceed.
Paul Morgan
Just in terms of the impact you mentioned, if I understand correctly, in terms of occupancy from the space that was added but wasn't -- and is leased but wasn't occupied at year-end. Was that, I mean was that sort of part of the budget that may be we just didn't fully understand going into the quarter?
Or was there any openings that may be kind of slipped into the first quarter that were expected for the fourth quarter?
David Simon
I think when you open a new project and you get the 90%, what was it 90.7% or whatever it was? I mean when you open a new project and you're at 90.7%, year one that's pretty good it’s not just as 96% or 97% and that creates a little bit drag on the overall occupancy.
So that's just real estate development. I mean I don’t know of any project that opens a 100% occupied I mean may be a few do.
And as I think we mentioned in the third quarter, we did put a lot in the system last year. So our resources were maxed out between all the redevelopments and all the new stuff, I again it's not like we're delivering these things at 60% occupied or 50%.
I mean 90% after, 90.7% after at the end of year one is pretty good. So I think that's pretty good execution.
Paul Morgan
Yes, okay. And then you've got a lot of your kind of A+ assets that are under construction right now with expansions and redevelopments.
I mean is there any dislocation that takes place either in the numbers or just in terms of traffic? I mean if some of the malls are kind of getting torn up in pretty major ways as you're doing the expansions.
I mean does that trickle through to sales in your expectation or CAM or anything that's material?
David Simon
Well, I -- look, I mean I -- we don't want excuses, but, yes, I mean we ripped up Roosevelt Field, we ripped up King of Prussia, and we -- those were in -- we didn't take them out of our sales numbers and those things. You move tenants around.
We had a number of that -- of those scenarios this year, which is investing in the future and it's not an immediate return. So I would tell you that all of those we had a setback in Copley, because we're ripping Copley to shreds, moving tenants around, making room for the potential of the apartments/condo tower.
So that's clearly affecting us. But at the end of the day I mean that's just -- we're just not going to -- we're not going to use that as a basis to say, here is a little bit of a slippage, but yes it clearly is affecting -- it clearly affected '15 both from a NOI point of view and a sales point of view.
And -- because a lot of these were moving traffic around, were closing entrances, and there is absolutely dislocation going on.
Paul Morgan
Thanks. Then just lastly, I mean any update on your kind of current thoughts about mixed-use?
You've got obviously some of it in your redevelopment pipeline. But is it -- as you think about your shadow pipeline, both with your own properties and then specifically with some of the Seritage opportunities, I mean, how big a piece of your portfolio is residential or other mixed-use?
Sort of something we could see over the next decade?
David Simon
I still think it's going to grow, but selectively. I mean, I kind of view this as the good news in that it's almost like our international investments.
We've had such great results from our international investments. I mean, if you looked at what's on our books and what the value of this real estate is it's a homerun, a homerun.
If you look at the yield on cash flow returns, a homerun. That gives us -- the only wrinkle on that is we lost $10 million in China.
But if you look at Kle'pierre, McArthurGlen our own development in Japan, Korea, Canada, homerun. We've also had great experience.
And I can't think of a problem we've had, Rick, in your mixed used development. So I -- as we gain more confidence in that business I think we'll continue to do it.
But as you know that's so driven by supply and demand and it's so specific to the real estate. But we like it, we have had good success in it, we'll continue with it assuming we can continue to produce the results that we produced in that area.
Operator
Your next question comes from the line of Paul Adornato, BMO Capital Markets. Please proceed.
Paul Adornato
Hi, good morning. Was wondering if you could compare the performance of your top-tier properties, minus the noise of any redevelopments, versus the bottom tier.
The market seems to dislike Class B properties. I was wondering if your lower tier is subject to some of those same risks.
David Simon
Well, look, I think our portfolio is the -- our results and our averages kind of the indicate -- indicative of kind of what results were. So I don't think there is any unusual trend.
I think market sometimes may be overreacts to the only game in town mall. We think that business is good and very viable.
If that's the only game in town market, have too much retail, it's going to be heard, but that could be in an A market too. I don't think we had any real unpleasant surprises and the not exciting markets that we still own.
The only thing that was a little out of the ordinary from our results this year was the tour of spend that we've mentioned. And obviously that happened at some of our most unique landmark properties.
I mean, we can't hide from that fact, not a long-term issue I hope. And -- but the tourist reined in a little bit, they rein in New York City, Madison Avenue, Fifth Avenue, down in Miami, North and South of the Canadian dollar, the Mexican peso.
We have Mexican Nationals to shop at our -- some of our premier properties. We've got the Canadian snowbirds I mean, that's -- that happens.
That's the only trend that I would say is a little bit different than what we've experienced, not the only game in town which is -- we are in some of those markets but they continue to perform very well.
Paul Adornato
Thanks. And as a follow-up, could you talk about rent growth at the luxury side of the retail business?
Which we expect, given the dollar.
David Simon
I think it's good, because as you know a lot of that even with the growth, even with that the tourism spending down most of those leases are well below market and -- number one. And number two is, they are still unique enough properties that when the opportunity presents itself that the demand is still there for that real estate.
So very few people -- I'd say very few retailers don't -- that are of that nature that we want in those properties don't look at the long-term opportunity. But if it -- if there is a difference it's on the margin.
But we still -- we're still pretty insulated from that, demand is good and our leases are under market there.
Operator
Your next question comes from the line of Ki Bin Kim, SunTrust. Please proceed.
Ki Bin Kim
Thank you. So, David, hypothetical question.
Given that we know a little bit more about the market and what the equity markets are doing versus last spring, all else equal -- and I know Macerich has sold some assets -- but in your mindset today and what you know about the world, would you still be a buyer of Macerich, all else equal, if it was back in the market today?
David Simon
I'm not going to comment on that.
Ki Bin Kim
Okay.
David Simon
All I can -- all I'm going to comment on is where we are today. And I've explained that a couple different places, okay.
Ki Bin Kim
Okay. Okay, and then the second question on your Outlet business, you've already talked about the traffic or tourists being down a little bit.
But does that eventually translate into lease spreads? Where it's not just the overage rents that are taking a little bit of a hit, but if this continues are your lease spreads that the tenants are willing to pay eventually become more at risk?
David Simon
Well, the reality is I wish they were at market, because then the volatility -- so just say, when we roll over a lease we try to get effective rent, which is base rent plus overage rent and the reason we have a little more volatility is because the lease hasn't expired. So the good news is as these leases expire we're going to be able to get them at market rent.
I mean that's why we had a little exposure in the fourth quarter, because we're not at market rent, we're not at market rent. So even with today's decrease in tours and spend, the important point though also is that the traffic was up and so that's an important point.
I mean the traffic was up, it was really just the spend was down. And I think that's just going to be an adjustment until we get where the currencies are a little more stable and anniversary these sales.
But the -- it's our intention to make that overage volatility go away and that's marking the leases to market.
Operator
Your next question comes from the line of Vincent Chao, Deutsche Bank. Please proceed.
Vincent Chao
Yes, good morning or good afternoon. Just curious, going back to the 1.3 million square feet of bankruptcy space that was taken back, I thought I heard earlier that 70% had been re-let as of the end of the year.
And apologize if I'd missed this, but I guess how did that stack up relative to your expectations? I mean, would you have expected to have more of that re-leased by now?
And just I'll leave it at that.
Rick Sokolov
Hi. This is Rick.
In fact, we were doing very well with that releasing. What we are going to do is we are not going to put our space on sale, we are holding margins.
In fact, the rents for foot of the space that has to lease are above the rents of the tenants that left because of bankruptcy and we're making sure that we are getting in the right tenants at the right price, at the right space. So we're on track with that, and there you'll continue to see the benefit of that coming into this year as more of those leases open.
Vincent Chao
Okay, thanks. And on a slightly different topic, just going back to the -- sort of the changing profile of the mall and may be the decreasing importance of the anchors, particularly as a traffic driver, just curious if this -- or if you think about shortening lease terms from the traditional leased deals, five years or so, just so you have more control over how to control and create that experience, given that tastes change pretty quickly and things like that.
Rick Sokolov
When we do our leasing every space and every tenant has their own situation and we are strategic about our terms. If we feel that it's a tenant that is underperforming the mall, may be we'll do a shorter-term, if it's a tenant that were higher desires of having in the mall, we want them to remodel, we may give them a longer-term.
So there is no overarching strategy on term, it's really a lease specific strategic decision.
Operator
Your next question comes from the line of George Hoglund, Jefferies. Please proceed.
George Hoglund
I was wondering if you could give some additional color on the trends in asking rents. Because what we've been hearing is that asking rents are down year-over-year in the A malls as it's getting a little bit tougher to back-fill space, and the balance of power may be shifting a little bit towards the tenants.
Just wondering if you could just give some color on that.
David Simon
May I ask where do you hear that?
George Hoglund
Hearing it from brokers out there.
David Simon
And what cities are these brokers from? Are they talking about like city street space?
Or they -- I mean is it mall space?
George Hoglund
It's mall space.
David Simon
Well, I think you could -- I would put more faith in what we would tell you and the answer is that we don't see that.
Operator
Your next question comes from the line of Mike Muller, JP Morgan. Please proceed.
Mike Mueller
Yes. Hi.
Just a couple quick ones here. I guess first, where do you see occupancy ending at year-end '16?
David Simon
We are projecting an increase from where we are this year.
Mike Mueller
Okay. Any shot at narrowing that down a little bit?
David Simon
No, no, because look the end of the day -- we're -- listen, we made our FFO this year, was $3.6 billion, right?
Andy Juster
Yes.
David Simon
So we -- which happen to be more than certain technology companies, I won't name names, okay. And -- I mean I know everybody wants all these metrics, but you've got to look at what we're all about, which is growing earnings, growing dividends, investing for the future.
And I do think there is this move on metrics that I just want to put it in overall perspective, that it's not how we -- we don't stress over metrics the way others might. We're just focused on increasing our cash flow, investing for the future, making our properties the best they can be in a particular market for the benefit of shareholders, communities, retailers.
And we will just tell you that we -- as we model all this we are expecting an increase in occupancy, it takes a lot of work. How many leases did we sign this year my friend?
Rick Sokolov
Over 10 million square feet.
David Simon
10 million square feet, right? So you know it's hard to model.
But we've had a pretty good track record. But certain things were out of our control bankruptcies, tourism spend and so on.
So again, it's a slight uptick and we hope to be able to achieve that.
Mike Muller
Okay. And then may be a quick Andy question.
It looks like interest income tripled in the fourth quarter relative to the third, just wondering what's driving that?
Andy Juster
Now --
Mike Muller
I know it's not a huge number in the grand scheme of things, but still.
Andy Juster
Yes. We can get back to you on that.
Operator
Your next question comes from the line of Floris van Dijkum, Boenning. Please proceed.
Floris van Dijkum
David, Floris. Quick question on your NOI growth.
You posted 7% this year. If you do that for 10 years you've basically almost doubled your NOI.
Is it reasonable to expect that kind of growth going forward, sort of the 3% on top of your same-store numbers that you're expecting to post?
David Simon
Well, it's a good question. I can't -- 10 years is a hard time for me to project.
But look, I think the redevelopment and development pipeline that we've got I mean I think we've got a pretty decent shot of continuing that as we go forward. I mean, I think fact is of course, as you know a lot of people who have doubted our ability to grow our earnings because of the size of the company and obviously math does make it a little bit harder, but the fact is nobody in our industry -- and when I say industry, I -- I'm talking about retail real estate, nobody in our subsector of our industry, retail real estate has been able to do that over a, sure a quarter here or quarter there, a year there, or year there.
But over the life of our company nobody has been able to do this. I mean we started out with I think, if I can remember the math $200 million of earnings, we're at $3.6 billion, okay.
That's not too shabby. As I said in my annual report quoting Adam Sandler, but nobody liked but I kind of thought it was funny.
But point is I don't know, I -- but we got a good runway for the next few years, Floris.
Floris van Dijkum
One follow-up question may be, David, on Aventura. I noticed there it's not in your supplements, but there are potential plans for, I guess an expansion that Seritage is suing Turnberry over.
Can you make any comments on that?
David Simon
No, we're not named in that lawsuit, so we have no -- and we haven't seen the complaints, so we've got nothing more to add. And the one question on the other income was the cash flow that we got from our investment in Value Retail, which tends to happen year-after-year, but it -- we -- since we only -- we cost account for it.
For those of you old like me, you know what that means? We don't equity account for it.
So we only book the income upon receipt of cash and it happened to be in that quarter, but it tends to happen year-after-year. Operator?
Operator
I would now like to turn the conference over to David Simon.
David Simon
Okay. Thank you.
Very, very good questions. Appreciate staying with us and we'll talk to you soon.
Operator
Ladies and gentlemen, that concludes today's conference. Thank you for your participation.
You may now disconnect and have a great day.