All improvement: Simon Property Group Management Discusses Q4 2013 Results

Executives

Elizabeth A. Zale - Senior Vice President of Corporate Affairs and Communications

David E. Simon - Chairman and Chief Executive Officer

Stephen E. Sterrett - Senior Executive Vice President and Chief Financial Officer

Richard S. Sokolov - Director, President, and Chief Operating Officer

Analysts

Ross T. Nussbaum - UBS Investment Bank, Research Division

Nathan Isbee - Stifel, Nicolaus & Co., Inc., Research Division

Josh Patinkin

Christy McElroy - Citigroup Inc, Research Division

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

Steve Sakwa - ISI Group Inc., Research Division

Ki Bin Kim - SunTrust Robinson Humphrey, Inc., Research Division

Vincent Chao - Deutsche Bank AG, Research Division

Cedrik Lachance - Green Street Advisors, Inc., Research Division

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Omotayo T. Okusanya - Jefferies LLC, Research Division

Haendel Emmanuel St. Juste - Morgan Stanley, Research Division

Daniel Oppenheim - Crédit Suisse AG, Research Division

Benjamin Yang - Evercore Partners Inc., Research Division

Craig R. Schmidt - BofA Merrill Lynch, Research Division

Jeffrey Spector - BofA Merrill Lynch, Research Division

Simon Property Group (SPG) Q4 2013 Earnings Call January 31, 2014 10:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the Q4 2013 Simon Property Group Inc. Earnings Conference Call. My name is Allison, and I'll be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I'd now like to turn the call over to Liz Zale, Senior Vice President of Corporate Affairs. Please proceed, Ma'am.

Elizabeth A. Zale

Thank you. Good morning, everyone, and welcome to Simon Property Group's fourth quarter 2013 earnings conference call. Presenting on today's call is David Simon, our Chairman and Chief Executive Officer; Rick Sokolov, our President and Chief Operating Officer; and Steve Sterrett, our Chief Financial 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 also note that this call includes information that may only be accurate 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 Investor Relations website, investor.simon.com.

With that, we will start the call. And I would like to introduce David Simon.

David E. Simon

Okay. Thanks, Liz. Good morning. We had strong results to wrap up 2013, which also was our 20th year as a public company. First, let me talk about the quarter's strong performance. Given the growth in our core business, we continue to see a positive impact on our growth strategy, which basically is comprised of investing in our existing assets to expand and to meet the retailer demand, enhance productivity, continue to develop new outlets and make smart, thoughtful, accretive acquisitions.

FFO was $2.47 per share, up 7.9% for the fourth quarter compared to 2012. Our FFO exceeded the first call consensus again by $0.05 per share. For our mall and Premium Outlets, comparable property NOI growth was 5.5% for the quarter, driven by basement rent increase; occupancy, up 80 basis points to 96.1%; and the continuation of positive sales from 2012. Our releasing spread continues to grow. It was a positive 16.8% or $8.94 per square foot, with much of the improvement driven by better leasing execution in the malls, while Premium Outlets spread continues to be robust. Mills comparable NOI was up 11% for the quarter, 10.8% for the year, driven by all the other factors I just went through.

For the year, our FFO in total was $3.2 billion, an increase of $321 million from 2012. This resulted in a per share FFO growth of 10.9% to $8.85 per share. This was $0.46 above where the consensus started in early 2013 at $8.39. Our performance was driven by thoughtful capital allocation, and I'm proud of the execution of the team. We opened 5 new Premium Outlets this year, 3 in North America and 2 in Asia. We invested, in total, $942 million in new and redevelopment projects in response to retailer demand and customer needs. These projects are all up at very good starts, and we'll increase the productivity of our assets. We completed $1.05 billion of acquisitions, including the expansion of our European presence, with the investment in McArthurGlen's Designer Outlet assets and the management development company. We also, in January, acquired our joint venture partner's remaining interest in Kravco Simon, which is -- owns 10 assets. We now own 100% of King of Prussia mall, which is an iconic asset with a major expansion in the works. We strengthened and we also disposed the 49 core retail assets, as well as announced our spinoff transaction, which we'll talk about in a moment.

We see strength across our portfolio and platforms. Occupancy continues to rise, which is a sign of retailer demand. The majority of our existing leases are under market. Ongoing NOI growth is supported by our ability to replace underperforming retailers. And as a final note on the operations, our operating profit margin grew by 60 basis points to 71.7% in 2013.

In the quarter, the fourth quarter that is, we broke ground on Premium Outlets in Montréal in early October and construction is underway. It's cold up there, but it's still -- we're still working. Construction also continues on new developments in Vancouver, Minneapolis and Charlotte. Less cold and our pipeline includes 6 additional new outlets expected to start construction in 2014, 2015.

Redevelopment expansions are ongoing at 25 properties in the U.S., Asia and Mexico. We opened 2 in the fourth quarter, the shops at Nanuet, Walt Whitman in Long Island. Please go visit. Well executed, thank you for the team -- thank you to the team. Also, open expansion and number of other properties in the fourth quarter, including Orlando Premium Outlets at Vineland and Johor Premium Outlets in Malaysia.

Construction is ongoing to expand-enhance some of our most productive properties, which please do not lose sight of Roosevelt Field, Woodbury Common, Houston Galleria, Lenox Square, Del Amo and Desert Hills just to name a few. Overall, our multi-year pipeline of new development and redevelopment expansion projects will continue to drive growth NOI in the future. And our pipeline continues to -- we expect to invest approximately $1 billion annually through 2016.

To give you a quick international update, Klépierre will report next week. But I'm proud of the fact that the company, with our help, has employed [ph] a very thoughtful strategy. We've strengthened the balance sheet. We've improved operations and focused on cash flow growth. We have now signed and we were instrumental in the deal with Carrefour to sell smaller assets in order to focus on larger and more productive centers. We are exiting the office business. That will be completed shortly, including selling the headquarter building. We've strengthened the management with the hiring of Jean-Marc Jestin as COO. And we're focused on capital allocation among the different markets and continue to work on leasing and marketing opportunities.

Together, the European retail recovery is stable and continuing. And then just to finally mention that we did close McArthurGlen. I was actually there at both places this week, a day with McArthurGlen, 2 days with Klépierre. The opportunities -- McArthurGlen are there. We've got development and expansion projects to consider and continue to be impressed with where Klépierre is headed.

Now just to talk briefly about SpinCo. We have -- as you know, we won't go into much detail today about it, but we plan to spin off our strip center business in 44 smaller enclosed malls. We believe this will create additional value for Simon Property Group shareholders and be a good investment vehicle for SpinCo. We have yet to name the names. SpinCo is not the name, okay? SpinCo is not the name. And we're open to any ideas out there for any names. Please send them to us. We expect the transaction to be effective in the second quarter of 2014. We'll provide further updates as it's available, but everything is moving absolutely according to plan there.

Fourth quarter capital market activity, we were busy. We closed or locked rates on 10 new secured loans, totaling approximately $2.2 billion. Our share of that is roughly $1 billion. Including in the fourth quarter activity is the $1.2 billion refinance at Aventura Mall at a rate of 2.75.

In January, as you know, we announced and closed a bid offering of $1.2 billion of senior notes with a combined weighted average duration of 7.5 years and an average coupon rate of just under 3%. Demand was very robust for these bonds. We're using the proceeds for general corporate purposes and to repay debt, including the unencumbering of $820 million mortgage on Sawgrass Mills.

Dividend, we increased the dividend again in the first quarter, $1 to $1.25. That's a year-over-year increase of 8.7%. SPG, which not including SpinCo, will now pay, as you know, at least $5 in 2014. Now I would just take a moment to talk about something and I'll turn to '14. I'd like to make an announcement regarding our management team. Steve Sterrett, our long-term CFO, will be retiring in March of 2015. So he will be staying on board through another full fiscal year in our process. It's hard to overstate the contributions that Steve has made to our company. And I know I speak for everyone when I say we will be sorry to see him go. As many of you know, Steve has been with the company for 20 years during the period of extraordinary growth. Throughout it all, Steve's contributions have been immeasurable. We will conduct a search during the next few months for Steve's replacement. Expect to consider both internal and external candidates. And having Steve available for the rest of 2014 in the audit cycle will helpful and ensure a smooth transition. And he will still not be able to beat me on a consistent basis in golf.

Now let me just talk about 2014. I'm sure he'll have a response to that, by the way, but let's talk about 2014. Guidance is in a range of $9.50 to $9.60. This represents at the midpoint growth rate of 8%. This is based on comparable NOI growth of at least 4% for a combined mall and outlet portfolio. This FFO guidance is on a comparable basis for 2013 and ignores any potentially impact of SpinCo. When SpinCo is effective, we'll provide updated and adjust the range for SPG, as well as provide a range for SpinCo.

And now let me conclude. We had a great year, a great fourth quarter. We continue to prioritize the creation of the value for our properties, our retailers and our shareholders. We believe we have very great prospects for 2014. And we're now ready for any questions.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Ross Nussbaum of UBS.

Ross T. Nussbaum - UBS Investment Bank, Research Division

I'm here with Jeremy Metz. Can you break out the terms for the Kravco purchase, as well as for Oyster Bay and Arizona Mills, how you broke out the consideration for those?

David E. Simon

Well the Kravco purchase was a -- basically, we had to put in the call at a combined cap rate of...

Stephen E. Sterrett

A little bit over 8%.

David E. Simon

A little over 8%.

Stephen E. Sterrett

And as well as 113%.

David E. Simon

113%. And we -- what was your next question?

Ross T. Nussbaum - UBS Investment Bank, Research Division

On Oyster Bay and Arizona Mills, how did the consideration break out between those assets?

David E. Simon

Well that was a private negotiation, and we will not be going through that.

Ross T. Nussbaum - UBS Investment Bank, Research Division

Okay. And then lastly, when can we expect an update on SpinCo management? Can you talk a little bit about that?

David E. Simon

We got initial comments from the SEC, so we're in that process. We are -- have identified both an internal and external candidate that we're having serious discussions with. And now we would hope to conclude that over the next few weeks. And as soon as we do, I'm sure it will be part of our filing. The board's pretty much set, and it's going according to plan.

Operator

And the next question comes from Nathan Isbee of Stifel.

Nathan Isbee - Stifel, Nicolaus & Co., Inc., Research Division

The portfolio continues to perform very well, but there's clearly a lot of questions swirling around shopper traffic, shopper habits, et cetera. Could you maybe comment on what you're seeing? Are we seeing a sea change in retail as characterized by Starbucks last week? And what do you think this impact could have on your business over the next few years?

David E. Simon

Well, look, we've been doing this for quite some time. And I think we have to put the fourth quarter sales into perspective. First of all, and these are just some thoughts off the top of my head, we are absolutely believers that our business will continue to grow. But let me just talk about the fourth quarter because I do think we were at a point of a little bit of overreaction. Clearly, in '13, there was a move toward global goods, which happens in certain cycles. And as the second half of the year came about, I do think the consumer was relatively cautious. We had a short season. There was, obviously, lots of weather issues for certain parts of the country. And I don't think what's put in perspective, which I listened to the pundits on TV and elsewhere, not just on TV but elsewhere, but between the confusion of ObamaCare and taxes did raise pretty materially for the consumer, you have what I'll call a -- I don't know if it was a perfect storm, but you have a lot of this stuff all come together or that basically resulted in the consumer being very cautious. The pundits, I've heard this stuff about malls in the Internet, obviously, having the right retailers, the right customer service, the right look and feel of the properties will continue to hold our own in that space without question.

Nathan Isbee - Stifel, Nicolaus & Co., Inc., Research Division

Okay. So you're not seeing anything at the ground level that indicates shopper traffic is roughly 50% over the last 2 years or anything like that?

David E. Simon

50%?

Nathan Isbee - Stifel, Nicolaus & Co., Inc., Research Division

Well, that's what ShopperTrak says.

David E. Simon

Well, let me talk about -- I'm not going to name names. But we don't use them, and we don't know how reliable a lot of those traffic numbers are. And we'll leave it at that. The answer is, all I can tell you, Nate, is look at our results. That's all I can tell you is look at our results. I think you know at this point, doing this for 20 years and continuing to beat everybody's expectations about the profitability of what this company can't produce, I would suggest to you that things are not what others say they are. And I'll leave it at that.

Nathan Isbee - Stifel, Nicolaus & Co., Inc., Research Division

Okay. I mean, in the -- over the last few years, you have discussed various initiatives of helping and embracing online and developing something at the Simon level. Any update on that?

David E. Simon

Well it would take 30 minutes on this call, but we're happy to go through that in great detail. We have a significant amount of initiatives that we're embarking upon to improve the consumer experience, whether pre-mall or during mall visit. And we are absolutely embracing technology and how it can -- how it could used affectively to make the consumer more satisfied during their visit or as they come to the mall. The retailers feel the absolute same way. And there's probably 20-plus things that are ongoing in this company, individually, collectively with the mall industry, as well as in conjunction with the retailers that we're working on. But it's -- there are so many that I can't do it at this call, but we're happy to share those as they get rolled out.

Operator

And your next question comes from Josh Patinkin of BMO Capital Markets.

Josh Patinkin

I'm trying to get a better sense of what the opportunity to consolidate McArthurGlen managed funds look like. So it's obviously not programmatic, but can you give us a general sense for the total size of the enterprise and what could come up in the next few years?

David E. Simon

Yes, they're a leader in that industry. I think we'll have opportunities to grow that business through new development and extensions of existing assets, as well as acquisitions of assets that either they manage and own a small piece of and/or others that do. But it's really -- I'm not in a position to give you a specific number. But as you know, we've taken our platforms over the years and run them significantly. It reminds me of the outlet business when we entered into it in 2004. We have roughly grown. We have -- if I could put the numbers correctly, we have increased the cash flow of that business roughly 4x. And needless to say, you take the 4x plus the reduction in cap rate, and you'd see the value created there. I think it's hard to develop in Asia, but a great team, good people and we'll just take it a step at a time.

Josh Patinkin

Okay. And then more globally on outlets, you built a lot of centers last decade. And so is there a big sea change in the leasing conversation as you approach tenure rollovers? And do you think higher occupancy cost will become more acceptable to merchants in that business?

David E. Simon

I'll turn it to Rick to [indiscernible].

Richard S. Sokolov

Absolutely, we are seeing an ability to increase our rents. We have significant demand in the outlet sector. If you listen to the retailers, there are many retailers that are entering the sector for the first time as an additional prong and bare growth strategy. And where you have a lot of demand you're able to drive rates, our properties are very productive. We're making them better. And that does give us pricing power.

Operator

And your next question comes from Christy McElroy of Citi.

Christy McElroy - Citigroup Inc, Research Division

So I wanted to go back to Nate's question and ask it a little in a different way, more from a leasing perspective. As we sort of hear more from retailers about the integration of their bricks-and-mortar business with their e-commerce business, so I'm thinking about the longer-term omni-channel initiatives. I'm wondering if you could give us some perspective on how the changes are impacting sort of the leasing cost and how you would expect it to evolve over time? So first, how the retailers are thinking about occupancy costs. You addressed it a little bit in terms of the outlet, but I'm thinking about the [indiscernible] either -- just thinking about the sales within the 4 walls of the store versus sort of the value of that locations, the overall.

David E. Simon

I think the good news for us, as small owners, is I expect them to drive traffic and distribute through their store. So what it means, I believe, over time is that, that store location will become more valuable because instead of building a bunch of distribution centers or trying to figure out how to get various online purchases through the consumer, the most effective and perhaps cost-effective way for them to do it is by using their existing store. Now that means that they're going to have to have a better handle on store and create algorithms in terms of what can be distributed out to the store or not. But I think what it's going to ultimately mean is that they're going to drive purchase -- drive sales through those stores, which, as far as we're concerned and what's in our leases and we'll continue to be, is those sales will be generated from that store. So I don't -- now if they have the store that's losing money, they're not going to keep it open, but that's been that way for 30 years, 40 years. So -- but that's what I anticipate.

Stephen E. Sterrett

The only other thing I would add and I think it's a very significant advantage to our retailers and in David and my discussions with them, they are very focused on it. It's the ability to fulfill their orders online out of their stores and reorient it to whatever store has the appropriate inventory, that's going to have, in their opinion, significant margin enhancement possibility because they won't be able to have less markdowns by selling at full price goods that might otherwise have to be discounted in various locations. And they're all spending a great deal of time getting that backbone in place to effectuate that.

David E. Simon

The one thing that people have question is whether they're going turn these stores into showrooms. And the fact of the matter is, I talked to a very prominent retailer CEO about this issue. They lose sales when they do that, okay? So -- especially when it becomes apparel. So I don't believe that if they want -- if this retailer continues to have an enviable bricks-and-mortar strategy that they are going to get in a point where it's a showroom because people want to -- continue to want to make sure that the size looks right on all that other stuff, okay?

Christy McElroy - Citigroup Inc, Research Division

So as it becomes more of a supply-demand of that location issue versus an occupancy cost when negotiating the rent, and how do you attribute as they further integrate their business with e-commerce, how do you attribute the specific sales of that store when reporting up to you?

David E. Simon

It's easy. They'd have to keep track of it. That's simple, if it goes through their POS, and it's going to have to in the stores in the inventories in the store. That's a simple exercise. We have audit -- yes, we have audit rights, okay?

Unknown Analyst

David, I have one quick question just in terms of -- and I recognize the deal with the problems are it's a private transaction. So there certainly was a time where they didn't want to take your stock pretty forcefully. So I'm just curious how that transaction came about and what your plans are now that you're on those parcels of land in terms of the timing of potentially doing something on that site?

David E. Simon

Look, we -- even though we obviously have had issues over the years with Taubman, we've always had what I call a good professional relationship, certainly, as the dust is settled from several years ago. So again, I can't really comment on that other than -- let me talk about the property. We're very excited about it. We are very interested in working with the town of Oyster Bay and our partner, Castagna Realty. We're going to work with the residents, come up with a development plan. Also, at the property that we own with Castagna Realty, together, we think there is an absolute way to create a win-win for the community and for us and our partner. And it's great real estate. So how we got there is really not important. I'm convinced that's in the best interest of our shareholders, and I'm convinced that Taubman feels the same way. So that actually can happen where you can have a win-win for both companies.

Operator

And your next question comes from Alexander Goldfarb of Sandler O'Neill.

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

Just two questions here. The first is the other big story, apart from the Internet this past season, was the Penney closure. And if you look at the 33 stores they we closed, you could say, okay, they went through the whole thing and they could only find 33 stores. And Sears, for the all the years they've talking of rationalizing, the Sears are still open. So should we read this as the various department stores have done these big reviews and these are all the stores that they've closed or your sense is this the start of the wave and over the next several years we're going to see a lot more of these big-type announcements?

David E. Simon

Well, I mean, I think it's a function of what the retailer ultimately is able to do. But the store closures for us is a kind of a normal standard operating procedure that we deal with. We've had retailers clearly -- not necessarily the scale of a couple of that you mentioned -- but we had retailers coming out of business for years. And so, again, yes, it does add to the workload but we find a way to get the job done. And I think you're right though, Alex, is that they went through the portfolio, generally. And what we understand, which I'm not sure is for us to say, but we understand that, that was the list that was actually generating negative cash flow. So I think you're right in the sense of that a number of these retailers continue to have profitability and even in stores that are not as overly productive because for whatever reason. So, as an example, and I don't know maybe we'll have this, but people talk about small malls, B-malls, the Internet. But our comp, in the fourth quarter of our comp, NOI increased for the SpinCo malls was 4%. So that speaks to the ability to continue to move the needle forward despite all the noise. Now, look, the fourth quarter sales, I gave you that. I do think a lot happen all on the fourth quarter. But the consumer, between the uncertainty of ObamaCare, the increase in taxes, rates growth continues to be anemic, they spend on durable goods, they slowed down in the third and fourth quarter across-the-board. I mean, whether it was the high-end, the middle-end or the lower-end consumer. And that happens. Don't panic. We'll deal with that. So, at the end of the today, I can't speak for the future of those two that you mentioned, in terms of store closing, but what we understand is that that's the analysis that led to the 33. But I'm not 100% certain on that, okay?

Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division

Okay. And then the second question is regarding SpinCo. I mean Simon is going to be the platform for the initial, I believe, 2 years. Is Simon Brand Ventures, the income that's generated from that, is that something that SpinCo will have access to beyond that or is the understanding that SpinCo is going to sort of have to try and replicate that NOI stream after the -- if, in fact, it ends the relationship with Simon as the supporting mall platform?

David E. Simon

Well, all of those revenues are at the property level. So they'll continue. Now, ultimately, if they -- remember, just to give you SpinCo, the strip center business will be in SpinCo. SPG will do some back office activity for the strip center business. SPG will act as third-party property manager for SpinCo malls. And all of that revenue that, that group generates goes to the property. So, ultimately, will be the decision for that team to decide whether or not they want to continue after the 2-year period, to continue to use SPG as a property manager. But there's no reason in my mind that they couldn't, if they chose not to do that -- that will be up to the team and the Board there -- that they could replicate the vast majority of that income.

Operator

Your next question comes from Jeff Donnelly of Wells Fargo.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

David, maybe I think you should name SpinCo SteREIT [ph] in honor of Steve's service to you.

Stephen E. Sterrett

That rolls right off the tongue.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

It does, it does. Actually, did I hear you...

David E. Simon

Honestly, I probably shouldn't say this publicly. But I'll go ahead, sometimes I got into that box. But the hardest thing about SpinCo is coming up with the appropriate name.

Stephen E. Sterrett

Right. Yes, so if you have any suggestions please send them our way.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

I don't have any good ones. But, actually, did I hear you correctly? That you said NOI growth at SpinCo was 4% in Q4? And may are you be able to share other operating metrics of leasing spreads and occupancy as well?

David E. Simon

Yes, that'll be in the final filing. But the fourth quarter -- we thought you might ask that so we had that number for the fourth quarter. But that kind of stuff will all be in the filing.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

And I guess maybe doubling on Alex's question about the Penney's and Sears closures risk. When you look at those two situations, I mean, I think people had kind of ultimately handicapped or call it ultimate exposure. Do you guys have the sense of what percentage of those stores, that you have, might not be cost-effectively retenantive?

David E. Simon

I didn't catch the last part.

Richard S. Sokolov

What percentage of the stores we think may not be cost-effectively retenantive if they close. I would tell you that we're spending a considerable amount of time. And as we've said before of these close, we have our plans in place, we have identified replacement tenants. For example, we have one tenant already lined up to occupy one of the Penney closures, yet this year, at a positive economic impact on that property and a positive sales impact. So we are as prepared as one can be to take advantage of any opportunities that present themselves through the activities of the department stores when they decide they don't want to do it. Over the years we've dealt with over 80 of these things. So, as David said, this is not new to us. We'll just keep doing what we've been doing at historically.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

And maybe I can stick with you Rick, on -- sort of following up on Christie's earlier question. Just, historically, retailers kind of wanted the landlord to stay out of their way, as it relates to retail sales. Are you seeing retailers become more receptive to working with their landlord around their e-commerce and retail sales platform? I mean is it part of the leasing discussion or even specifically addressing the lease or that's sort of a separate conversation, sort of an add-on, if you will?

Richard S. Sokolov

Well, two parts to that. In our lease negotiations, we're incredibly mindful of the role that our stores play in the distribution of their goods, whether online or store-based. And, frankly, if that store is any part of the distribution channel for that sale, it's going to count in our sales. The retailers understand that, and the retailers are emphasizing the convenience and location of their stores adds a significant advantage in their ability to maximize their contacts with the customers and their sales. So they very much view their stores as an integral part of their business going forward and they are working with it in a cooperative way to try and maximize.

David E. Simon

Well, I will just say, Jeff, simply, that we have both mobile and desktop, et cetera. We have a system called Retailer Showcase, that basically presents offers from the retailers to our consumers. They can get it in any mall, they can go on our website or whatever. We do that. I think the last number that I saw, probably 50,000 offers over the year that we present to our consumers. We get those offer -- we don't make them up, we get them from that retailers. So, absolutely, there is a significant amount of coordination, as you would expect, between us and the retailer, to improve and enhance their business. I believe we're just at the scratching of that surface. That is part of our job, to facilitate more productivity for the retailers of stores, and at the same time, trying to do that and increase rent. I mean, it's not the easiest thing. But they know that we want them to be very productive. We work hand-in-hand with them. And I think technology, generally, will be a wonderful opportunity to make that relationship easier to execute.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

And just one last question. I'm curious, internally, when you guys are handicapping -- I'll call it exposure to anchor closures -- what are the metrics that you guys look at internally? Is it four-wall profit, is it some store format or market size or approximated or distribution centers? I mean is there, I guess, a better methodology than maybe just sort of overall sales productivity that you find in forecasting?

David E. Simon

Well, sure, because you don't know how many -- how they cover -- historically, the department stores advertised in a market. They allocate that advertising a certain way. So you've got to have a handle on that. But again, on a specific store, we're going to have a sense as to where that is, based upon lots of discussions over the last few years. Corporately, and where they're headed, we have some insights but it's no different than people that has follow them and covered them. I mean, we're not necessarily privy to all that's going on in what they're doing. I mean we have, obviously, good relationships with our major anchors. But we're not privy to anything that's probably not common knowledge. But we have the sense, over years and years of dealing with them, how they feel about certain stores.

Operator

And your next question will comes from Steve Sakwa of ISI Group.

Steve Sakwa - ISI Group Inc., Research Division

Just a couple of questions, David and Rick. As you kind of look at the rent spreads, those dramatically improved over the course of 2013. And as you look at the rollover for the next, really 3 years, your ending base rents are just a shade under $40. And when you add in the CAM, you're probably close to that $53. So, it would seem that you're releasing spreads ought to continue to accelerate. Is there anything that would, outside of a sales decline, which it doesn't seem to be happening, is there anything that suggest that lease spreads wouldn't continue to tick higher from here?

Richard S. Sokolov

We certainly anticipate that we'll be able to continue to grow our rents as we have historically. The other thing I would tell you is that we're spending a lot of money making these properties better. And so, when you look at a very gross sales number, that's made up of a whole lot of individual stores. And as we renovate our properties, bring in better tenant, our tenants, we believe, are more productive in our properties, and that gives us some incremental ability to drive rent. So we don't envision that slowing down.

Steve Sakwa - ISI Group Inc., Research Division

Okay, and maybe sticking with you, Rick. Just kind of on the tenants and how you're thinking about repositioning the properties. I don't know if you have a specific number. But as you look at the mix of tenants in the mall today, what percentage is apparel and what percentage do you think that'll be 3 years from now?

Richard S. Sokolov

At this point, I think our apparel percentage is going to remain fairly stable. Now, the tenants that make up that apparel percentage could change dramatically. We have some tenants that are reducing the size of their stores, and we have entrants coming in like Czar, H&M, UNIQLO, that are in slightly bigger formats. But there's not going to be a sense of a significant decline in the amount of space allocated to apparel. We are allocating space differently. Look, last year, we opened 36 restaurants across the portfolio. That's a major focus, to be able to extend their stay in our property, give the consumers a wider range of dining alternatives and just make the properties more experiential, which is obviously a focus of our retailers and us. So, the mix may change, but I think apparel is going to stay fairly stable, while the components may change.

David E. Simon

I probably shouldn't say this, but it's interesting, as I travel the world and understand -- probably not as much as I should do -- but the occupancy cost that we have in the U.S. is relatively benign compared to when you see it elsewhere in the world. So it's an interesting thing for us, to pause to think about what the opportunities to continue to grow that rent are. But we've got to be absolutely sensitive to the retailer and making sure they profit in their environment as well. So, all occupancy cost, generally, in comparison to kind of where the other shopping centers, owners have in the world, they're relatively below at least what those would indicate the rents are. So we'll see how that evolves over time.

Richard S. Sokolov

And they have been relatively stable for the last 3 years even though we've been able to drive more rents.

Steve Sakwa - ISI Group Inc., Research Division

Okay. Well, let me ask, I guess, one last question for maybe the newest member of the senior stores, Steve. Hopefully, you'll get your qualifying card here and get something new going. I went to the balance sheet and kind of debt refinancing. So, obviously it's been very favorable. Just how are you thinking about kind of the balance of debt maturing this year and into '15, and kind of what's your thought in terms of kind laddering and kind of where you want to be on the debt curve?

Stephen E. Sterrett

Well, it's Steve, it's pretty well laddered already. As you know, as part of the SpinCo announcement, we did state that we expect to raise $1 billion of debt through SpinCo, with those proceeds coming this time sign and before the effective date. So if you couple that with our bond yield in January, that's the majority of our capital raise, in terms of dealing with bond expirations. We also unencumbered Sawgrass Mills as part of the use of those proceeds. So, we're in really good shape for '14. We've accomplished most of the capital plan. And in '15, we're ordinary course of business, we have bonds coming due every year. You should expect us to be a regular issuer in that market. But obviously the secured debt market is also important to us as well, so you'll see us in both.

Operator

And your next question comes from Ki Bin Kim of SunTrust.

Ki Bin Kim - SunTrust Robinson Humphrey, Inc., Research Division

Steve, thanks for all your help over the years. Given just some of the clouds around fourth quarter consumer activity in the malls. I know you guys don't typically do this, but would you be able to provide a pure fourth quarter 2013 over fourth quarter 2012 tenant sales trend?

David E. Simon

Yes. It was flat.

Ki Bin Kim - SunTrust Robinson Humphrey, Inc., Research Division

And just a follow-up. I know you've mentioned the SpinCo same-store NOI, but from a tenant sales perspective, how does that look like when you split out the outlets, A malls and B malls? It doesn't have to be the fourth quarter, but maybe the year-over-year, the total trailing 12 months.

David E. Simon

I'm sorry, I didn't really understand the question, Ki Bin.

Ki Bin Kim - SunTrust Robinson Humphrey, Inc., Research Division

Okay. So the trend in your tenant sales of 2.5% year-over-year, trailing 12 months, how does that look like, like if you had to stratify it between outlets, A malls and B malls?

David E. Simon

Well, I mean, we shared some of that with you when we announced SpinCo. That gives you a general direction for that answer. And as you'll see, once SpinCo is done and effective, you'll have the SpinCo data and you'll have the SPG data. So that'll all be there. That gives you a sense of direction where it is.

Ki Bin Kim - SunTrust Robinson Humphrey, Inc., Research Division

Okay, and just last point. Should we expect negative sales at all for SpinCo in the fourth quarter?

David E. Simon

Yes. I mean, we gave you that at -- whenever it was. December, we showed you that.

Stephen E. Sterrett

Several years of history.

David E. Simon

Yes. I can't can remember the exact number. But it's right there, it's public document. I assume it's on our Investor website. It's all there.

Operator

And your next question comes from the line of Vincent Chao with Deutsche Bank.

Vincent Chao - Deutsche Bank AG, Research Division

Just want to go back to the retail side here for a second. A lot of talk about the sales trends, but obviously profitability is very important. And just given the number of pre-announcements that we've heard this season, I'm just curious if you think we should be expecting a higher level of seasonal occupancy decline in the first quarter here than we've seen over maybe the last few years, where perhaps the plans were a little bit more conservative.

David E. Simon

We don't see that at this moment. Things change over the year. But we don't see that necessarily. Obviously we have a good handle on that. The only thing we don't have a handle that could change that is bankruptcies. But based upon our existing status of where we are with our discussion with retailers, we don't see that. Obviously, a bankruptcy here or there may be able to impact that on a faster basis.

Vincent Chao - Deutsche Bank AG, Research Division

And going back to the discussion around e-commerce. We hear a lot about Macy's and Nordstrom and companies like that, that's got a very forward thinking about their strategy. I'm just wondering how you think the smaller retailers that maybe don't have the same scale or infrastructure can evolve in a new environment, to be able to kind of complete with the e-commerce.

David E. Simon

Well, the fact of the matter, and you can see it in technology companies' results, is that it is relatively a lot less expensive to create because of the cloud and the way apps work and so on. It's relatively less expensive to create the combination, become more technology-oriented than it has in the past. Lots of ability to share services in the cloud that you wouldn't otherwise have to invest in. So I think maybe the mom and pop has a harder time. But generally, any retailer that has kind of a reasonable store base can continue very affectively because the cost of technology is -- you don't need routers, you don't need servers, you don't need a bunch of software guys cranking this stuff out like you used to. The fact is, if we had done MerchantWired today, with different technology, we'd probably be successful. But we overpaid for the hardware. So, I think, as long as they have a reasonable store base, we're going to be able to create the appropriate coordination between their bricks and mortar stores and how they want to deal with online shopping.

Richard S. Sokolov

And frankly there is no retailer that we meet with that is not very focused on doing precisely that. Some of them are further along in their implementation of those strategies, but every one of them is focused on more affectively integrating their online with their stores.

Operator

Your next question comes from Cedrik Lachance with Green Street Advisors.

Cedrik Lachance - Green Street Advisors, Inc., Research Division

Just another set of questions. Have you seen retailers expand their footprint in order to better distribute goods than they would be selling online. I'm thinking about, of course, the footprint in the malls.

David E. Simon

It's a good point. What I have seen them do is think about their stores as a point of distribution along as a store. So whether they're now looking at stores just for the sake of having the store and a distribution, I wouldn't' say that thinking is there yet. But clearly, existing stores are being thought as a way to distribute and kind of the e-commerce platform. So I do think that thinking -- and that's a different level for many different retailers, but I actually do think they're thinking about it very seriously.

Cedrik Lachance - Green Street Advisors, Inc., Research Division

So how many such distribution centers, if you will, would a retailer need in a large metro-area?

David E. Simon

Okay, I'm not in a position to say that. But it depends on the retailer.

Richard S. Sokolov

And the funny thing is they're not talking about drones to ship their goods.

Cedrik Lachance - Green Street Advisors, Inc., Research Division

I'm sure that's going to be an interesting transition. Just getting back on the disposition of 14 non-core assets. Can you give us a little bit more detail in terms of which property tied and cap rates?

David E. Simon

I don't have it in front of me. But a few smaller shopping centers, a couple of outlets. So we'll continue to do that as well.

Cedrik Lachance - Green Street Advisors, Inc., Research Division

Were any of those considered to be spun out into SpinCo?

David E. Simon

The answer is none of those were in the SpinCo because we already had contracts of there. There is a couple of strip centers that may or may not be sold before SpinCo is done. So, if that's the case, we're going to -- ultimately, the portfolio, as we said to you in December, when we announced it, will change a little bit. Part of that will be because of a couple of fails here and there, and a couple of them will be because we may or may not get a consent. But that could still happen.

Cedrik Lachance - Green Street Advisors, Inc., Research Division

Okay. And then a final question on the relationship with anchors. So, a couple of weeks ago I think Sears announced that they would be leasing space to big sporting goods, King of Prussia. It's obviously, by far, the best mall in the Philly area. When you think about your ability to recapture stores from Sears, and Penney in particular, versus the decision that they may ultimately make to lease to what is effectively power center tenant into what is, by far the best mall, and particularly in the metro. How are thinking about what is the right price for you to pay to recapture that box? And what can you do to influence their decision on the retailer that will come into their center or into their box?

David E. Simon

Well, I mean, the simple answer is it depends. Each case is different, to be honest with you. So in that case, we cooperate with Sears. Given the location of that store and what our plans were on the future redevelopment, we thought it was a win-win for us. We're happy to have Dick's in there, and it was a good transaction for Sears. In some cases, because of location of stores, we may want to do the development on ourselves -- by ourselves. In some cases, we'll let them do it. And if -- in fact, we may -- in most cases, we have approval rights, so each case is very different. Believe me, we have understanding of each one to a great level. But in that case, we just saw it as a way to be cooperative with Sears, way to help them all, great for the consumer, and as you know, we think Dick's is great. We do a lot of business with them. So in that case, we said, "Perfect, let's go. We'll help you, we'll cooperate."

Cedrik Lachance - Green Street Advisors, Inc., Research Division

So you didn't try to acquire the box back from Sears?

David E. Simon

No, we did not, and Sears will continue to operate there as well. So it's -- Dick's is taking the upper level, and Sears is going to actually, we understand, kind of create the store, the future, so to speak, in the lower level, so that's great. And we'll continue to work with anchors like that as well. There's lots of little tactical things that are going on with all of our anchors about getting rights to put restaurants in. On some of the frontage of the -- just to bring up an example, in Briarwood, we're putting a couple of restaurants, and we do that all the time, like in front of Macy's. And so all of that stuff is out there to do. In some cases, we facilitate them if they want to do a lease. So the simple goal is, "Let's make the property better for the consumer," and it will take all sorts of different forms. We wouldn't rule out partnering with somebody on a redevelopment of their box if that circumstance made sense for both parties.

Operator

Your next question comes from Michael Mueller of JPMorgan.

Michael W. Mueller - JP Morgan Chase & Co, Research Division

And I guess, going to the Mills for a second, I was wondering, can you give us a little more color on the 11% comp NOI growth? And was it a handful of assets? Was it broad-based? I mean, what was really driving those numbers?

David E. Simon

Look, they have a -- they're major markets at 16 assets. As you know, the focus on value for them, value-oriented retailers, has been tremendously successful. You've got the outlets at Orange, that conversion from more of an entertainment center to an outlet center has been terrific. Ontario is on fire. Sawgrass, needless to say, is -- continues to be behemoth. Potomac Mills, we brought a couple of restaurants in Opry that's not in the comps.

Stephen E. Sterrett

It's not in the comp, yes.

David E. Simon

Opry has been fantastic.

Stephen E. Sterrett

[indiscernible] run hole.

David E. Simon

You can see it on the run hole. So lots of things go there, just a lot of things happening here to make the portfolio -- by the way, we added Macy's at Gurnee Mills as an example, so...

Stephen E. Sterrett

But Mike, this is Steve. It is rent. It's really saying it's higher occupancy, it's growing rents.

Michael W. Mueller - JP Morgan Chase & Co, Research Division

I'm sorry. So it sounds like if we're thinking about '14, '15, you're probably still getting above average growth out of that part of the portfolio?

David E. Simon

I think it will be good. I'm not going to do 10% -- what I got to do is 10.8% for the year. So don't put that in your numbers.

Operator

And your next question comes from Tayo Okusanya of Jefferies.

Omotayo T. Okusanya - Jefferies LLC, Research Division

Steve, also let me add my congratulations. It looks like really I'm one here left sort of to finally go shoe shopping before you lose your steady paycheck.

Stephen E. Sterrett

Tayo, if I'm going to go shoe shopping, I'm going to go with you. That's for sure.

Omotayo T. Okusanya - Jefferies LLC, Research Division

Sounds good. Two quick questions. First of all, just to get around commentary, a lot of retailers are saying Christmas was week. I know David made a couple of comments about what could change your initial outlook for 2014, would be on a potential for more bankruptcies or things of that nature. But I just -- and then for everything you're seeing right now, are you seeing kind of on the fringe tenants talking like that about potentially closing shops or things like that just based off the tough holiday season?

David E. Simon

Not really. This is always the general time where you may see a few of these pop-up. But no one -- in fact, there's a few that have been in the edge for a number of years and actually turn their business around even last year. Look, I think the consumer -- I read something yesterday on the plane back from Europe that consumer is still under a pretty decent amount of pressure. Higher taxes, more regulation, uncertainty of ObamaCare, spending on durable goods a little bit in the first half the year, higher rates potentially, I would think, and they took it easy in the third and fourth quarter, as you've seen across the board. So we are still in a tepid recovery. The fascinating thing I read, last year, forget the federal government, in the state and local governments, there were 40,000 new rules and regulations in the state -- in the United States of the America. So that is going to slow the growth of America, 40,000 new regulations throughout this country at a state and local level. That's going to slow us down. So we have a tepid recovery, even though some of the broad-based numbers look better. The fact is it's still a very cautious environment. But we're producing terrific results in that environment. And that's the facts. We produced great results in the Great Recession. We had cash flow that was flat. So despite all of that, that noise out there, we can only do what we're capable of doing. We can't control the outcome of an anchor business plan or not. We can just be ready to go to work if, in fact, these things are thrown in our way.

Omotayo T. Okusanya - Jefferies LLC, Research Division

Got it. That's helpful. And then the second thing is we also heard about Matt Lentz had also kind of left the company. Just wondering if role was -- there's going to be a replacement for him or if there's going to be any changes around the CIO position.

David E. Simon

The answer is we brought someone in the -- helped internationally. We're -- and that was helping Stanley Shashoua who has been terrific. Stanley is great, speaks 5 languages, maybe 6, unlike the team here who can actually speak English, but he's great and he's helping me. And in the sense, he really took Matt's role on our International business.

Omotayo T. Okusanya - Jefferies LLC, Research Division

Got it. Could you just also -- a little bit more about just Stanley's overall background and what he's kind of done in the past?

David E. Simon

He worked for both real estate and investment banking companies. So he's been -- he's a young guy compared to me probably, but he's been -- he's got a great experience. And he was instrumental with the McArthurGlen deal. I had to put him on that deal because of the complexity, and he really helped us get there with another kind of great guy here who actually came from the Mills, but moved to Minneapolis when did that deal. Brian McDade -- the 2 of them, grabbed the -- did that along our General Counsel, grabbed that deal and took it to the finish line. And so the good thing about the -- we have kind of the what I call younger folks that are really taking a lot more responsibility in the organization and doing a great job.

Operator

And your next question comes from Haendel St. Juste of Morgan Stanley.

Haendel Emmanuel St. Juste - Morgan Stanley, Research Division

A couple of questions on SpinCo. So several of the SpinCo properties are encumbered with CMBS debt that has near-term maturities, Ridge Mall in Topeka, Chesapeake Square in Chesapeake, Virginia, and...

David E. Simon

Yes. Those are all being refinanced.

Stephen E. Sterrett

As we speak.

David E. Simon

As we speak.

Haendel Emmanuel St. Juste - Morgan Stanley, Research Division

Okay.

David E. Simon

So that is your question?

Haendel Emmanuel St. Juste - Morgan Stanley, Research Division

Well, I was getting to it, right? So there's 4 or 5 of that list with near-term debt maturities. So should we assume that all 5 are in that list of being refinanced or the candidates for dispositions?

David E. Simon

No, they're all going to be refinanced absent -- one may not be -- one is further out there. I don't know, I don't -- yes, but they'll be refinanced.

Haendel Emmanuel St. Juste - Morgan Stanley, Research Division

Okay. And you've quietly gone about proving your U.S. portfolio in recent years. I'm just trying to get a sense how to process slows down post SpinCo. How do you think about your U.S. portfolio or disposition strategy after the spinoff of SpinCo?

David E. Simon

Well, for SPG, we'll continue to call properties like we have for year-after-year. SpinCo, I think, again, I'm not going to be in charge there. But I think I would expect SpinCo to sell a couple assets here and there. And I think it's -- that's business as usual. I mean, we'll always continue to sell assets at both companies. I can't necessarily -- as a Director, I'll have certainly my point of view on capital allocation and reallocation. But I would expect both companies to continue to sell assets like we have in the past.

Operator

And your next question comes from Dan Oppenheim with Crédit Suisse.

Daniel Oppenheim - Crédit Suisse AG, Research Division

I was wondering -- I guess, there's been enough questions about some seasonal trends here, with normally season closings in the first quarter. I guess, in the other side of that, at over 96% occupancy here, you're likely to have some sort of backlog in terms of retailers wanting to get in. I just wonder if you can comment a bit in terms of conversations with retailers looking ahead in terms of Del Amo as that opens up next year and just others, just how you think about that in terms of demand, just in terms of -- just if there are to be any vacancies in terms of sort of backfilling or -- adding there.

Richard S. Sokolov

We still have very strong demand. And in fact, the response to Del Amo has been terrific. We are going to be able to move that up significantly in price point and with the quality retailers. And retailers still want to expand. Retailers still want to have great real estate that will help their brand and we're seeing no real slowdown in that conversation. And in fact, and we've said this in other calls, a great amount of the time that David and I spend are basically dealing with retailers that we cannot accommodate in the size they want or in the space they want at our property. So demand remains high.

Stephen E. Sterrett

Dan, this is Steve. I'll just add one point. We tend not to get into the 27 different variables that go into our forecast for the year, but I will say that our plan in 2014 is that occupancy year-over-year will be up at the end of '14.

Operator

Your next question comes from the line of Ben Yang of Evercore.