Good day, ladies and gentlemen, and welcome to the Q4 2014 Simon Property Group Earnings Conference Call. My name is Towanda, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] And as a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Mr. Tom Ward, VP of Investor Relations. Please proceed sir.

Thank you Towanda. Good morning, and welcome to Simon Property Group’s fourth quarter and full year 2014 earnings conference call. Presenting on today’s call is David Simon, Chairman and Chief Executive Officer. Also on the call are Rick Sokolov, President and Chief Operating Officer; Andy Juster, Chief Financial Officer; and Steve Broadwater, Chief Accounting Officer. Before we begin, a quick reminder that statements made during this call may be deemed forward-looking statements within the meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995, and actual results may differ materially due to a variety of risks, uncertainties and other factors. We refer you to today’s press release and our SEC filings for a detailed discussion of forward-looking statements. Please note that this call includes information that maybe accurate only as of today’s date. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included within the press release and the supplemental information in today’s Form 8-K filing. Both the press release and the supplemental information are available on our IR website at investors.simon.com. For our prepared remarks, I’m pleased to introduce David Simon.

Good morning, we had strong results to wrap up in exceptional 2014. We open Premium Outlets Montreal, started construction on two new Premium Outlets in strong and growing markets of Tampa and Tucson. We announced our first new full-price development project in the last several years with The Shops at Clearfork in Ft. Worth, Texas, anchored by Neiman Marcus and most importantly we continue to produce strong operating and financial performance. Results in the quarter, were highlighted by FFO of $2.47 per share. On a comparable basis, excluding the operating results from WPG properties in the prior year period, our FFO per diluted share increased 12.3% for the quarter or $0.27 year-over-year. As a reminder, our FFO per diluted share is calculated strictly in accordance with the NAREIT white paper. We encourage the industry to acknowledge the importance of using this long standing measure without modification. Our fourth quarter FFO per diluted share was impacted by approximately $0.04 from our share of Klépierre’s costs related to both their bond tender offer and their tender offer for Corio, as well as unfavorable effects of foreign currency devaluations. For the year, on a comparable basis excluding the operating results from the WPG properties, the spin-off transactions and the debt extinguishment charge FFO per diluted share increased 13.9% after taking into account this spin-off and debt charge, we beat our initial guidance of 2014 that we provided to you by an impressive $0.40. We continue to record strong key operating metrics and cash flow. Occupancy increased across the portfolio and our malls and premium outlets combined occupancy ended at the year at record 97.1%. Leasing activity is healthy. The malls and premium outlets recorded releasing spreads of $9.59 per square foot, an increase of 16.6%. Comp NOI increased 4% in the fourth quarter…

[Operator Instructions] Your first question comes from the line of Ross Nussbaum with UBS. Please proceed.

Hey David good morning. I guess it’s on first what’s coming I guess I get the honor of asking you what the heck is going on with may search?

Well, I thought we are going to talk about your headline that said mix bag? So what was mix bag? Our record revenue growth or record comp NOI growth, our record balance sheet, our record occupancy, our record rental rates, I wanted to talk about your headline first. Can we do that?

Yes, we can all read the note, but the guidance coming in below the Street is an offset to beating for the quarter. One would call that perhaps a mix bag, but we can talk about with all that.

I think on the guidance, look, first of all those are your numbers, not ours. And obviously, that’s predominantly driven by the currency devaluation that’s occurring both with respect to the Yen and Euro. The good news is even with that, because of our at least our hedge in Europe, we’re up $850 million in Klépierre. So yes we’re going to have some volatility, it’s about 1% of our - this where the rates are today versus where they are, it’s above 1% of our earnings, which to me is somewhat immaterial. So I do think we need to put that in perspective. I’m not sure that should have generated your headline, but you certainly understand our position, I understand yours.

I appreciate that. So back to the elephant in the room.

Yes, what’s your question?

A little California-based mall company called Macerich, what can you tell us about, what’s currently going on? What was going through your head a couple of months ago when you put out the announcement that you did? What can you say about it?

Well, look. As much as we - I’m sure you’d love to talk about, we disclosed our stake of - was 4.1% and got diluted down to 3.6% in Macerich, we still hold that position and at this point it’s really not appropriate for me to add anything other than the fact that we still own it. And there’s not a lot more I can say, actually let me take away the clarifying statement, there’s nothing more I can add to that.

You may not want to answer this, but I will ask it anyway. If there were nothing going on one might assume you would be happy to tell us that you own a position in another company, that you thought the stock was undervalued at the time. But if you can’t comment on it would suggest that there is something going on other than that.

Well, look we don’t - we never comment on M&A activity. And we still own the stake. And as you know we’re significantly in the money of this on the stake, there is been no P&L impact on our stake as I know some people asked Tom that question. And it is what it is, there is nothing really I can add other than that. And I’m sorry I can’t, but there’s nothing more that I can add to that.

All right, I and my mixed bag will get back in the queue.

Sorry listen, you know, it’s a two-way street, you give it today we’re going to give it back a little bit anyway. That’s what you like about us.

And your next question comes from the line of Christy McElroy with Citi. Please proceed.

Yes it is Michael Bilerman with Christy. David, let me just try just a different angle. When you made the statement you said you may seek a waiver, and you put that out publicly. So at least can you comment on whether you’ve made the ask for the waiver and if there has been a response? And if you haven’t made the ask why haven’t you? And then the second part is just the intent of taking the stake. And was it solely for the purpose of a passive investment just to you thought you had a lot of cash hanging around, so buy something that you think - you can’t buy assets in the private market, so buy something that you know really well that you think is trading at a discount, make money and go home? Or was it made for the purpose of moving forward with a non-passive agenda?

Well, I can’t - Ross ask a question I can’t add to that other than, we have manage defined investments was evidence by the little over $1 billion that we just spent in January 15 by two really good assets with really good growth potential that we think this year will yield terrific results. I’m still an old fashioned real estate guy, I like current yield going in and the current yield going in is very attractive with once Rick and The Mills team certainly with Jersey Gardens, works their magic I think we got a lot upside. And not to say that I think Michael Glimcher did a great job with that asset. But there’s nothing I can add other than what I said to Ross just earlier Michael. And I’m sorry. But as you know it’s just inappropriate for me to comment further.

Hi, its Christy McElroy here with Michael. Just following-up on the currency and the impact to 2015, you mentioned that $0.10 impact embedded in your guidance. How are you thinking about hedging that exposure potentially, would you to expect pick on more debts provided natural hedge or may be put in place any other foreign currency hedges, just want to get a sense for how that’s rolling through the numbers? And then just related to that I’m wondering if you’ve seen any impact at all from the stronger dollar in terms of a change in traffic or sales at any of your centers that have a higher international tourism component to the customer base.

Sure I’m happy to answer those. So let’s just talk about the net. We’re pretty well hedged on the Klépierre initial stake, though we are not as hedge with our McArthurGlen investment. The problem as you know to get the perfect hedge and with rates as lowest they are in the Euro, you’re never going to make up that. But I would say generally, we’re reasonably hedged in the Euro in kind of the 80%, 90% range. But since rates - with debt, but with rates are so low there, the math is such that, it’s still going to have an impact on us. So the good news that I see at least is that the business there is not necessarily reflecting the devaluation. So I think the consumer there is still shopping and doing that. And so, I think it’s kind of more of a temporary thing. But it’s going to impact us for next year. And it is what it is the same thing with the Yen in a sense that from a book value point of view, we’re basically completely hedged. But again, the Yen’s rates are so low, there’s just no way to do it. Now, we’ve locked in some forwards on the dividend yields. I’m sorry, in the dividends that we both get from Klepierre and from Japan, but as you know, the equity account for both so that doesn’t impact, that’s just cash flow, which is important to be hedged on cash flow, don’t get me wrong. But still at the same time, it does as we take our share of the equity income in those businesses. We’re going to have exposure and it is what it is. So I assume that answered your question on that. I mean from an investment point of view book value were essentially hedged, but it’s not going to mean a lot. We’re still going to have some volatility. Not from a cash flow point of view, but from an earnings point of view. That answered your question on that front?

Yes it does, thanks David.

Now on the sales, look I think it’s very interesting, because I’ve some commentary around it. We did see a little bit of bit of flattening out in the Florida area kind of first is, as one initial as you know, in terms of devaluation that Latin American customer happened quicker than say the Euro devaluation. We don’t have any earnings impact on that that just might have impacted sales. We also, as Christy, as you know, we are undergoing huge transformational redevelopment in King of Prussia the field, even The Forum Shops were changing a lot of the tenant mix, changing the transition hall from phase 1 to the phase 3 that’s out on this strip, as well as we had this unusual anomaly that we have one retailer that’s in a state that doesn’t pay sales tax, they had an extraordinary amount of sales in 2013, that didn’t repeat because of their own constraints that they post for 2014, that also may have flattened sales in terms of how you’re thinking about it. But I would generally say you put all those things together our portfolio does what $620 a foot, still industry leading given size and scale, we’re adding to the mix, we’re doing a lot of great stuff. So you know how generally I feel about retail sales, okay. And you have seen even with flat retail sales generally over the last two years or three years you’ve seen our comp NOI increases, you know my argument on that. But at least I hope that gives you some color as to how you might think about our number, compared to others out there, but the portfolio is never been stronger or better.

I appreciate the color. Thank you, David.

Sure.

Your next question comes from the line of Craig Schmidt with Bank of America. Please proceed.

Thank you. I was wondering if you could comment on the trend of the outlet sales.

They actually were slightly better than the malls, because the malls had this - those kind of two or three things Craig that I just discussed. And our premium outlets on from a both the from a comp point of view had better results than the mall business.

Okay, great. And then how far is the ground of development shops at Clearfork from the University Park Village that you just acquired?

How far a long is it?

Well how far are they from each other?

Well, three miles are so. Three miles Rick half way through?

Yes three.

But its different trade here, but I would say three because there’s a river that runs through it, is one of those things.

Okay. And then is there any further things that you could do with Costco just given the size of their project beyond The Shops at Clearfork?

Hi, Craig its Rick. Right now, we are obviously focused on the first phase. There are a number of elements to that phase. They do have some additional land and depending on how this goes we obviously be open to try and do some additional development. But right now the first phase draws our attention.

Great, and then finally just may be this is for Rick. Have you seen what you think might be a change in pace in either store openings or store closings in the Mall space for 2015?

Well basically, obviously we’ve had the announcements that everyone has seen. So there is a little more pressure on some closings, but conversely where our record occupancy we’ve just come out of our meetings in December and we got a lot of momentum in the business, because there’s lot of people that are looking for space. And we certainly anticipate we’re going to be able to hold our market share and there is always going to be churning that we’ve had historically. But we’re going to basically to be able to keep things pretty much where they are now in terms of occupancy. And everybody we replace is going to be replaced by someone who is more credit worthy and more productive want to sales per foot base.

But, Craig, we clearly have at this point in time compared to last year more retailers in bankruptcy. So as you know we’re not sure how many stores we’re going to get back, some we’ve already announced, so it’s really closing stores some in factory been liquidating. So I mean, I don’t - it doesn’t change the fundamentals of our business, but 2015 is going to be a lot of work and really she knows those retailers because depending on when we get it and how much time we have to lease it up, there could be a little gap there.

Okay, thank you.

Sure.

Your next question comes from the line of Paul Morgan with MLV. Please proceed.

Hi, good morning.

Good morning.

Your same store numbers have been bouncing sort of in the 4% to 6% range over the past three years and you’re lease spreads kind of in the 15% to 20% range. I mean your guidance for same store was 4%. How should I think about that in the context of the past few years where the average is sort of above that? And then kind of related to that where you’re at in terms of occupancy, is that what you think of as maybe approaching a kind of frictional feeling and whether that could constrain your same store growth at all?

Well, I think what we’ve always tried to be realistic and conservative. I forget Steve, what we’ve announced last year for our comp NOI was, but 4%?

4%.

So we were fortunate to outperform that. So Paul, we are taking into account. We do have more bankruptcies this year. So I think it’s appropriate for us to be conservative, because as you know, we don’t control, we don’t get the space back, and then we can have downtime, and so on. So if there is a conservative element to what I’d say it’s a little bit because of the just the bankruptcies that we’re having to deal with in 2015 versus 2014.

Okay, thanks. And then just maybe you think about investments you’ve got $3 billion in developments, redevelopments at what you target as a 9% yield. On acquisitions the cap rates for today are kind of have that for decent properties. And I mean how do you think about that spread both in terms of kind of evaluating acquisitions what makes an acquisition, whether it’s a single asset, or portfolio, or an M&A deal at a much lower yield and then you are getting on your redevelopments? I mean, what makes it compelling from your perspective?

Well, look I mean there’s nobody been more active in new development and redevelopment than we have been. But it’s not like, oh let’s just do a redevelopment there’s a lot that’s required to get there. And then new development we want to build stock that is at the end of the day going to fit in the certainly in the top half of our portfolio over the long run. So that’s - we have a hell of a portfolio, so that’s hard to achieve. And we’re going reasonably quick when we get to new development and redevelopment. And so at the same time we are not going to buy anything or anybody unless we feel like we can add significant value to it. Now let’s take a couple of recent examples. It’s not bad for my net investment in Klépierre to be up 4x okay, not bad. And we felt like we could add value to that business and thankfully we have. The same thing on the going in yield with the two deals we brought for Glenshire is around five. And we think they are A assets A+ assets and obviously we think we’ll be able to grow those. So that’s a great opportunity. And look at the one thing that I think the market has lost sight of is just everybody’s balance sheet again. It’s like forget about it. Our balance sheet is 5.4 EBITDA multiple, it’s 3.8% interest coverage despite having I still look at those ten and three-quarters that I got outstanding to my team. Right Andy? My team.

Right.

We still have room to, depending on where rates are, to roll that down and even to make a stronger coverage ratio in balance sheet. So I mean, we’ve always looked at every thing, we’ll look at everything. We’re not going to chase deals, and when it comes to acquisitions unless we feel like we can add value to that property with our, either our infrastructure or leasing know-how development, know-how we just don’t do it.

That’s your leverage and your balance sheet advantages. I mean do you think of that as an important lever to pull, when you’re looking at bigger deals, capitalizing on that?

Well, sure. I mean, look it led to - let’s just go back to, ‘09, I mean, the fact of matter is there’s - in the retail real estate sector, there’s nobody, because they were so levered and we did some tough financing including equity, but there is nobody in our sector other than maybe say Taubman, that has out grown whatever dilution. And not only we’re growing it, we just blew it away. Everybody else is still trying to get back to the record FFO per share that they had in 2006, 2007 and the dividend. We are blowing through those dramatically. And what that balance sheet that we had even though, we panic like a few others, allowed us that to be conservative yet, signaled the market that we’re alive and well, blow through the growth that we had, we had a year or two of flatness or step back. But we were able to use that to find good investments that have fueled our growth. So I would hope even in capital rich times we were able to do that as well. But it’s - we’re pretty conservative, we don’t want to blow the balance sheet, we - as you know my background in the real estate world besides being an M&A banker, which was outside of real estate and in all sorts of industries was directly involved in restructuring real estate workouts. And having no fund and we are never going to get there. So we have a great asset, we’ve worked hard to achieve it and it’s a great thing, but you can’t take it for granted.

Okay, thanks.

Sure.

Your next question comes from the line of George Auerbach with Credit Suisse. Please proceed.

Thank you. Just a follow-up on Christy’s question, Dave, have you quantified the impact of redevelopment at King of Prussia fields and I forgot the other asset that you mentioned, but just sort of what that’s done to the overall sales growth, trying to think about your portfolio on a more normalized level, adjusting at some of the noise.

Look, yes, I’m not making to excuses and you know how we’ve all had this discussion about our tenant sales and how I think about it. But if you take these anomalies I’d say generally we’d be around 4%-ish, but again it - our number is our number and you know how management feels about it. I appreciate you may have a different point of view, we have nothing to hide or we had a few anomalies, we’re not making excuses, will accept being dinged on it if you want. But there is a lot of transforming we do have exposure to certain markets within Brazil takes a little breather. And we had this strange thing in a state, I mean, I’m giving you enough, but we tend not to talk about specific retailers. But you could figure out what the state that doesn’t have sales tax. And it is what it is. Same time we do FFO per still into the white paper, the number is the number. We pointed out the $0.04 only because we thought may be the market didn’t know, we had to pickup our share, Klepierre’s transaction cost associated with the bulk tenders, as well as the currency drop pretty precipitously quarter-over-quarter of last year. So we thought it was important do it, but the numbers were not.

Well, no, I was asking because in the Macerich Analyst Day they mentioned that I think there were three big redevelopments they had that lowered their same-store growth on that whole portfolio by 100 basis points. So I know one or two assets can really move the number. That is why I was asking.

Yes, no, no, it’s a legitimate question. I was talking more about tenants sales on our comp NOI they’re in our number. For all of those that I’ve talked about are in, even though we’re taking some immediate step backs as we redevelop it. So those really aren’t an effect in our comp NOI, at least those assets that I talked about it.

Great and I guess just a last one from me, you and the Board, have increased the dividend pretty meaningfully over the last couple of quarters at a pace above FFO growth. I guess as the redevelopment spends kind of may be tapers off into 2015 and 2016 should we anticipate that the dividend growth will continue to outpace FFO or AFFO growth for the foreseeable future?

Yes, we’ve got taxable incomes got a lot of variability, we are - as you know we paid out 100% of our taxable income last year. And I did underline, I hope you saw that at least $560, I will underline that that’s at least $560 or so. The answer is our taxable income is growing significantly as our earnings are and so it’s very conceivable that that could be an outcome of that.

Great, thank you.

Sure.

Your next question comes from the line of Steve Sakwa with Evercore ISI. Please proceed.

Hello.

Mr. Sakwa, your line is open. Your phone maybe muted.

Hello, [indiscernible]

We’ll move the next question. Your next question comes from the line of Alexander Goldfarb with Sandler O’Neill. Please proceed.

Hi, good morning David.

Good morning.

Hey, and it is, I know you’re not commenting on the Macerich. But it is interesting the market is cheering you guys and your stocks out performance. So clearly the market seems to be suggesting that it wants something to happen. Just as far as Macerich in the guidance, Andy, are you saying there’s no impact the way you are accounting for, there’s no impact to the 2015 numbers, or we should be picking up something?

No impact.

Okay, okay. And then, hi David.

Let me do clarify that, I mean, we - let me just clarify that, they do pay us a dividend, so we do have the dividend income in our numbers. Okay.

Okay.

But not, but obviously it’s the movement up and down goes in the comprehensive income or loss, in this case its income, because its up. Yes, but that’s not an FFO number, so and the only thing in our FFO guidance is their dividend have income. Okay, Alex.

Yes, yes, yes, that’s right. I just want to make sure that that’s the way you are accounting for it. Just the next thing David, is right after the world’s woke up to lower oil after Thanksgiving, you announced two projects down in oil country. So just sort of curious what you guys have, obviously tenant demand was unaffected by it. So should we just take away from this that the retailers are un-faced by the drop in oil, and they just see continued strong sales down in those markets, or is your view that may be some of the tenants who initially indicated that they would be in interested in both of these projects, may start to have second thoughts?

Well, Houston Galleria is been under construction for quite some sometime, well over a year or so. But Texas itself is so diversified than it used to be 20 plus years ago, 20 plus years ago with oil. And basically real estate, today its tech, Houston is very diversified obviously oil and gas, is important but it’s got the medical focus on the universities and Dallas Fort work, that’s less and less oil and gas completely, that’s more. So the answer is, we don’t think it’ll have the any impact. Fort Worth we’re excited about because Neiman Marcus is obviously huge in that area, relocating for one mall for this to be their flagship store in Fort Worth. And we think the demand for that is great, no issues in Houston Galleria which one of the top five centers in the country. And so when you put it all together it’s really long run was no issue at all.

Okay, and I guess same applies to Tulsa?

True, yes.

Okay. And then final question is, as you guys start to do more of these mix use or added density to some of the projects, some of your malls, how do you underwrite the projects as, yes, there is a return from obviously adding apartments or adding hotels and then there is hopefully the additional return of just added traffic to the mall that allows you to drive higher NOI and cash flows. So if we think about the returns as you guys pencil out densifying some of the sites, how should we think about the incremental return from just boosting NOI versus just adding an additional use to a center?

Hi, this is Rick, basically when we add an apartment or a hotel those stand on their own. It is a separate analysis. If there is some incremental benefit great, but we do not theoretically create any kind of incremental return based on adding more match or densifying in assets.

Okay. So, Rick, is there like an incremental that we can expect or you guys expect or you don’t underwrite but any way, shape or form?

We do not underwrite that.

Okay.

None. Zero. Don’t give my guys any ideas.

To sandbag the numbers? Never would cross our minds.

No, don’t give that, no, no, no don’t give my development guys, when they come in and they want the project approved don’t assume, they’ll come in and say, it’s going to do this to the mall, we should improve that, forget it. It doesn’t happen that way.

Okay, thanks a lot.

Yes, no worries.

Your next question comes from the line of Carol Kemple with Hilliard Lyons. Please proceed.

Good morning.

How are you?

Fine, have you all noticed any change within the last three months in your conversations with Sears and JCPenney’s about buying some of the boxes back?

No.

Okay. And then are there any new concepts that are coming into your malls or outlet centers that you are excited about that you can share?

Well, here we go again, alright. So Rick, this is Rick. You love this part. So Rick, let her go. Okay, here we go. Here is a list.

Unleashing the fear, in the Outlet sector every literally every month we’re finding more and more retailers that understand that this is a very valuable and profitable distribution channel. And so Jeff, Alice and Olivia, Citizens Watch, Jonathan Adler, [indiscernible] literally we could go on, but the answer is there’s a great deal of new entrants into the outlet sector. Into the mall sector we’re Accolade and David T. We’re doing NYX as a new concept from L’Oreal. And UNIQLO is very actively looking. And interestingly it’s is lost in the sauce, but L Brands is dramatically growing pink and Victoria’s Secret. So there is a lot of very good dynamic demand for our properties.

Okay, thank you.

Yes, thank you.

Your next question comes from the line of Omotayo Okusanya with Jefferies. Please proceed.

Hi yes, good morning, everyone.

Good morning.

I would like to kind of go back to the 2015 guidance and, again, the point of guidance relative to where consensus is. It sounds, based on your comments that’s about 1% of earnings which is about $0.09 to $0.10 that is FX related. But I’m wondering what else is in guidance that maybe we are not - maybe the Street is not fully appreciating which is why our numbers seem a little bit high? Is it, again, some of the working through of some of the retail bankruptcies that have happened that may…

Yes, I think I don’t know what your comp NOI is and I also think a lot of it has to do in maybe how you are factoring in our development spend, because most of 2015 and a lot of 2016 is backend weighted. So we’ve got our share around 2.1. So I mean that that would be our only other gas, but I’m sure Tom can walk you through how you are doing. But maybe you have a little bit higher comp NOI. I mentioned we are conservative on that number, because we are looking at a little bit higher bankruptcies than we look at last year. We obviously always try to do better, but our development spend tends to be back-end weighted, depending on how you factor that in and then obviously the currency delta from the Yen and the Euro is around $0.10 from 2014 to 2015. So you added up and, it is what it is.

Got it. Could you just talk about in 2015 guidance what average occupancies baked into those numbers?

Pretty consistent with what our 2014 showed.

Great, okay, that’s helpful. And then in the supplemental when we just take a look at the development page, the Outlet - the yield on the Outlet business, on the Outlet development is up to 11% versus 9% previously. Is that just a mix change?

Yes, Montreal was little lower yield and Tampa is much higher. Tampa we think will be a great outlet center. One of the - at the end of day, one of the leading outlet centers in the country, and it absolutely is that mix change.

Great. And then lastly with Jersey Gardens, just curious what your thoughts are in regards to what NOI growth could look like once rents start to reset for a lot of the tenants?

What we have, this is Rick, we have already set the base line overall in our NOI growth, and Jersey Gardens should be in excess of that once we start doing what we think can be done there and as David said, they did a great job before, we’re just now taking it to the next level and allocating space and bringing in incremental more productive tenants, that’s going to drive rent and sales.

That’s very helpful. Thank you gentlemen.

Yes, no worries.

Your next question comes from the line of Vincent Chao with Deutsche Bank. Please proceed.

Hey, everyone. Just maybe thinking about the comp NOI guidance slightly differently. Just as we think about the 4% versus the 5.1% and also in light of the comments about higher levels of bankruptcies. I guess what would - and how much of the higher level of bankruptcies is sort of the difference between the 5.1% and the 4%?

Well, look again that we’re factoring that in. And like I said last year we had - our business has certain level of volatility to it, not a lot, because we’ll have to go sell our products at the start of every year like a lot other companies. So because we have mostly contractual rents, the big variability is on anticipated bankruptcy, the timing of which that occurs, when we’d get it and then how long it takes us to lease it up. So and I said last year, Steve Broadwater, we projected, what was our NOI projection?

4%.

4% we got 5.1%. So again we’re factor in that in, we’ll see obviously, we’ve got variability to some extent, marginally on expenses. And we have certain variability on overage rent but we have long history of kind of modeling that, but it does create some variability. We also have a lot of redevelopment work where we are not necessarily taking out a comp. The big projects like Roswell Field and King of Prussia, and those, where we’re moving a lot of tenants around and the forum shops. We’ve got Copley, I think Copley, if I remember from our budget sessions is going down $2 million this year really pissed me of in our budget meeting, because we’re retaining into a better group. But that’s the nature, you got a re-tenant, you got to improve the mix, when you’re bring in a better tenant they have a longer build out, all of that takes time. So we hope to do better, it’s not too shabby, we move on.

Okay, thanks. And then just one other question on the FX, I apologize if I missed it. The $0.10 headwind, what euro rate and yen rate is that based on?

It’s based upon our view of it over period of time. But this is really in comparison to 2014.

Okay, thank you.

Sure.

Your next question comes from the line of Haendel St. Juste with Morgan Stanley. Please proceed.

Good morning.

How are you doing?

So a few questions for you. First, David, on Klépierre, I was curious if you could help give us a broad sense of the magnitude of upside you think you might have there perhaps in terms of percentage of G&A expense, portfolio upgrading, closing evaluation gap with Univie [ph], just curious for your thoughts there.

Well, its better that the management team, there does there. But I will say generally just for my perspective where they’ve done a really good job over the last couple of years with our strategic help to continue to move in the right direction, smaller - reduce the smaller assets, focus more on the bigger ones, upgrade the marketing tenant mix, et cetera. I think Corio has got a better portfolio than a lot of people think. The integration there is a little bit complicated than it is say in the U.S. when it comes to integration because of the rules out there. I’m going to grieve all the technicalities about it, but I think net, net over a period of time, there is great upside in running a better more efficient company with after the Corio mergers completed. And I would expect that that gap would continue to narrow, which it has dramatically, but we’ll continue to narrow. And unlike I said I mean I’m not. The most important thing this is great, but are you making money. Our net invest is up $850 million in two years, two and a half years and maybe its three years - okay, so, I’m sorry, its three years. So - and I felt that they’ve got upside to move forward.

I appreciate that. And following-up on I guess some of the earlier stronger dollar questions clearly makes your purchasing power better overseas. I am wondering is that perhaps might make you more perhaps aggressively inclined on expanding your international portfolio?

We only want to do it if we think we can make money. So I have no desire to expand international as we think it’s a profit opportunity for us.

Fair enough. And then last one. Wondering how much of your energy costs are variable, just trying to get a sense of if there could be a positive impact to margins.

Not really because we tend to charge that to the tenants. And so we just pass on that savings to them. To some extent, the share that we pay for ourselves will have an added benefit. It’s not overly material.

Okay, thank you.

Your next question comes from the line of Ki Bin Kim with SunTrust Robinson Humphrey. Please proceed.

Thank you. So just turning to your expenses, if I look at the trend just in operating expenses as a percent of your revenue has been trending down for a very long time which has helped obviously your expense recoveries and whatnot. And just curious is this a trend - I mean it is hard to imagine it going more favorable towards - versus the perhaps run rate. But given like rising expenses and rising taxes do we - where do you think this settles out? And how does that impact your expense recoveries going forward and maybe should we expect some kind of reversion to the mean at one point?

No, I think, we’re always trying to improve our operating margins. So every once in a while there will be modest changes from year-to-year. Obviously in 2009 recession we took a very tough year that, now we’re still getting the comp NOI growth even though we’re less focused on that like we were in 2009, I shouldn’t say less focus, but we’re not as - we’re not trying to wring every nickel out of it. We also have marketing expenses, customer relations - consumer relations expenses that we’re focused on doing. So there will be year-to-year variability to it, but we’re still trying to improve it.

So, if I - maybe I can ask it in a different way. For 2014 you ended with about 32%-33% operating expenses as a percent of rents. In your guidance are you implicitly modeling that stays flat or improves or reverts back?

Relatively the same.

Okay.

Relatively flat.

And just last question. How do you compare the quality of - and I know there is different regions, but Klepierre with Corio versus a Macerich? How would you describe the quality between those two portfolios?

Well, that’s a good one. I mean, I would say it’s hard to necessarily compare one to the next. In Europe, the supply and demand is reasonably favorable, but on the other hand, the U.S. is really caught up on that front because there has been as we all know no new really full price development for number of years. So the occupancy costs are a little higher in Europe than they are - for a retailer than they are in the U.S. But I don’t know, I have to get that little bit more thought. I don’t necessarily - I look at more in that specific market as opposed to one country to another country. It’s a little tougher comparison to do, but let me give us some thought.

Yes, I mean so the reason I ask that is when you have your choices of capital - where to deploy capital and you have Macerich trading at 4.5%, and I know if you take it further there is probably some operating margin you can pull out of it if you did take down the whole portfolio. And when I compare to maybe a Klepierre with Corio on quality, with that portfolio trading at maybe a 5% cap rate - and this is just rough math, by the way - or higher, how do you make that relative comparison in terms of where to deploy that capital?

I mean the most important thing as you got a risk adjustment and you don’t - in the U.S., you don’t have currency risk. So as you can see, no one is really happy about our currency risk today. So I mean, I don’t - I’m not overly worried about it, but it is we do have a little bit of risk. The U.S. is a safer - we should give a higher return when we go outside of our natural boarders. That is slightly harder to underwrite. It is a little more complex. There are more rules and regulations to do what you want. Even though we’ve had a profound impact on Klépierre, we know U.S. investing better than we know outside U.S. investing. So you certainly would want a higher return anywhere outside the U.S. for those and other reasons. So in your question, you got a factor that into it. The rates there - I mean the rates there really, really attracted. So, if you can take into account the higher risk adjusted rate of return, you may have better, better investment opportunity. But at this point, we don’t look at mutually exclusive: the U.S. or Europe or Asia. We like to look at each individual idea, more investment on its own and then stress test with our own corporate opportunities and our own internal opportunities and see what it means for the balance sheet and our management bandwidth.

Okay, thank you.

Sure.

Your next question comes from the line of Michael Mueller with JPMorgan. Please proceed.

Hi, just a quick one. What sort of yield are you looking at for the Clearfork development? And is there any update on any thoughts on plans for the Oyster Bay site?

Clearfork will be - it’s not had been started construction, but we will outline that once we put it into service. So it’s not in our 8-K, yet, because we haven’t actually started construction. We’re getting - it’s going to happen, but for finalizing our cost numbers and the leasing plan and all of that and should start in the next two months or so. So there is some great thing going on in the site now, but - so we’ll let you know on that, but it will be attractive value enhancing return. And your Oyster Bay; Oyster Bay, I think will be a very active year. We have an unbelievable plan and vision of what we want to do with the properties. We’re working now with the various town and the various agencies about going through the approval process. I’m sure you’ll see more of that this year as it comes out, but we’ve actually developed the plan, a very unique lifestyle mixed use center that we think we’ll have great appeal to ask financially as well as that all of the community groups there.

Okay, great. Thank you.

Sure.

Your next question comes from the line of Linda Tsai with Barclays. Please proceed.

Hi. How would you characterize holiday sales overall? Does the outcome say much to you about the underlying strength of the economy? And then also in the context of recent store closure announcements, I realized a lot of these retailers were already struggling, but how much of an impact did the holiday season have or were they likely to close anyways in your view?

I think on the later question, the arch of the retailers that have already announced bankruptcy or closings was really beyond a given quarter at a given results in the holiday. They have been struggling for an extended period of time. In terms of the holiday sales, in some places they were stronger, some - the stronger retailers reported better sales, but there were a larger percentage that were weaker. But overall is the economy stronger, is the lower oil and gas prices putting some incremental disposable money into the consumer’s pocket, it is. Confidence is up. So overall, the macro factors are encouraging.

Thanks.

Sure.

Your next question comes from the line of Caitlin Burrows with Goldman Sachs. Please proceed.

Hi I guess, good afternoon. Now this is getting a little long, so I’ll try to be quick. If you could just comment on your capacity and interest in issuing more Euro denominated debt [indiscernible] is at 0.3%.

Yes, good question, I think the answer is we’re going to seriously consider it, right Andy.

Yes, absolutely, we always look at both currencies. Right now, we could issue 10 year Euro debt at under 1.5%, significantly under. So that’s something we’ll look at. And the basis play has become a lot more favorable in the last couple of months.

Okay, great, thanks. And then also just acknowledging that you’ve already spun off your lower tier [indiscernible] within the portfolio you have now. Could you just describe any differences between tenant productivity and your top-tier versus lower-tier centers and also tenant interest?

Within our - the existing SPG portfolio after spend?

That’s correct.

I would say not dramatically different in terms of tenant demand. I mean, sure the top 20 centers always are going to have somewhat more demand than the next 20, but generally, nothing no great variation there.

Okay. Great thanks.

Sure.

Your next question comes from the line of Rich Moore with RBC Capital Markets. Please proceed.

Hey, guys good afternoon. I wanted to just make sure I understood - the redevelopment pipeline you guys have right now is pretty much completed in 2015 and 2016. But then as you look forward, what kind of annual spend in redevelopment do you think you’ll have as you go out to 2017, 2018, et cetera?

Well, Rich the 2.1% is directly from our 8-K and that is only projects that are actually started and then corporately approved through our approval process. So for instance, it doesn’t include Clearfork yet, it doesn’t include Oyster Bay, it doesn’t include Copley, it doesn’t include the whole host of other deals. So the number that we’ve kind of said generally was around $1 billion a year. For the foreseeable future, and I still, Rich, would generally say that’s probably a pretty good number.

Okay, good. So you feel comfortable with that. That is great. Thank you. And then I also wanted to ask usually early in the year, maybe by the middle of the year, you’ve pretty much covered a lot of the leasing, Rick, that is going to happen for the year. So 2015 by middle of the year would pretty much be handled. And I am curious with occupancy as high as it is, is that moving up? I mean are you done with more leasing at this point in the year for 2015 than you might normally be?

We are ahead this year over last year. We’re about 65% through our renewals in 2015. And we’ve obviously made a major focus on getting as far out ahead of it as we can. So we can be responsive. And because our occupancy is higher, those tenants that are looking for space understand that if they don’t commit someone else is going to get the space. So that obviously is also encouraging people to accelerate there, just as you making as well.

Okay, good, got you. So normally this time of year you would be maybe half done, something like that or less?

Yes.

Okay. Good thank you guys.

Okay, thank you.

Your next question comes from the line of Scott ODonnell with MetLife. Please proceed.

Yes, hi, good afternoon and I’ve got a quick question. You guys have been a great steward of the balance sheet for bondholders. I guess I have to ask the question, why the commercial paper program? How does that make sense from a strategic standpoint? And can you explain the strategy around exposing yourself to the short-term money markets?

Well, Scott we go back, it’s handy. We go back for long time. As you know we’ve got a 70 billion equity market cap, it’s less than 1% of our total market cap and it helps us. One of the things we’re looking at is as we significantly want to roll down our debt cost we have a huge opportunity over the next two years as our average interest rate is about 5.65% on the $5 billion of debt it comes to. It allows us to look at potentially one prepaying some of our secure debt where we can borrow at was at 15 basis points to 16 basis points and there is absolutely no risk. It also diversifies our investor base. We’ve had significant strong investors and there is really no risk because it is like in the olden days, as you know, when we used to have the banks fit on a competitive bid line now we just replace that with as you know commercial paper. And the regulations in the market is far, far different than it was five, ten years ago. So we had no problem. We started in October, there were some volatile market s. We had absolutely no problem rolling over any of our, if you would, euro paper or our USD paper and it’s again something in a small way that we’re going to continue to do and to be proactive and opportunistic.

So I get that. So you are viewing it more from a transactional flexibility standpoint rather than a strategic part of your capital structure because I think we have talked over the years about this. You guys have long-term assets and you tend to want to fund them long-term, right?

And yes, absolutely and that’s why we significantly increased our average weighted term as we reduced the rate and that will continue to be the case.

Okay.

Thank you.

I think any other questions operator?

At this time, there are no further questions. I would now…

Thank you, Ma’am. Thank you everybody. Have a healthy New Year, happy New Year and we’ll talk to you soon.

Thank you for joining today’s conference. That concludes the presentation. You may now disconnect and have a great day.