Simon Property Group, Inc. Q2 FY2025 earnings call

• Delivered robust financial and operational results with occupancy gains, increased shopper traffic, and higher retail sales volumes contributing to strong cash flow growth.
• Enhanced retail real estate platforms through development, redevelopment, and acquisitions, including purchasing partners' interest in Brickell City Centre.
• Focus on creating long-term value through disciplined investments and operational excellence, driving growth in cash flow, funds from operation, and dividends per share, with a dividend increase announced.
• Second quarter real estate FFO was $3.05 per share, up 4.1% year-over-year. Domestic and international operations contributed $0.21 of growth from a 5% increase in lease income.
• Completed 21 secured loan transactions totaling approximately $3.8 billion in the first half of the year with a weighted average interest rate of 5.84%, and ended the quarter with over $9 billion of liquidity.
• Development projects underway with $1 billion net cost at a blended yield of 9%, approximately 40% of which are for mixed-use projects.

Real estate FFO was $3.05 per share in the second quarter of 2025, up 4.1% from $2.93 in the prior year. Domestic property NOI increased 4.2% year-over-year for the quarter and 3.8% for the first half of the year. Portfolio NOI (including international properties at constant currency) grew 4.7% for the quarter and 4.2% for the first half. The Malls and Premium Outlets ended the second quarter at 96.0% occupancy, up 10 basis points sequentially and 40 basis points year-over-year. The Mills achieved a record 99.3% occupancy, an increase of 90 basis points sequentially and 110 basis points from the prior year. Average base minimum rent for the Malls and Outlets increased 1.3% year-over-year and the Mills increased 0.6%. Sales for Malls and Premium Outlets per square foot were $736 for the quarter. Funds from operation were $1.19 billion or $3.15 per share in the second quarter of 2025, compared to $1.09 billion or $2.90 per share last year, a 8.6% growth.

• Increased the full year 2025 real estate FFO guidance range to $12.45 to $12.65 per share, up from $12.24 last year. The bottom end of the range increased by $0.05 and the midpoint by $0.03.

• Geopolitical uncertainties, political uncertainties in certain cities, tariff swings, and interest rate uncertainties.
• Retailers having leverage to close stores, go online, or leave the market, which can affect occupancy and sales.

Q: Given them first, I'll keep it high level. So just given all the uncertainty, ICSC to today, I guess, could you describe for us the leasing velocity you're seeing, some of the demand may be a peak in to your last leasing meeting in terms of quantity, deal flow and quality of the deals, please?

A: Unabated. So you're right, Jeff, in the sense that the whole world and -- is uncertain, a lot of geopolitical stuff going on, obviously, a lot of domestic political stuff going on. New York City, thankfully, we're not an investor in New York City, but obviously, a lot of political uncertainty in New York City. Tariff swings back and forth, interest rate uncertainty, you can name it. However, you have unbelievable stewards that are -- in particular, they are able to manage that. And in addition, retail demand is really unabated. And the physical shopping environment continues to be the place to be. So we're quite bullish about what we've done, what we are doing, where we are going despite all of the headlines that are out there. So unabated.

Q: On tenant demand, bifurcate between national retailers and mom-and-pop local concepts.

A: Yes. Yes. You're right. Last quarter, I did express my concern about that segment given how tariffs might affect them and their cost of goods. But it's -- they're doing -- they're beating their plans so far this year. So it's -- they're doing -- they're beating their plans so far this year. So it's all systems go there. I'm sure there's trepidation, but they're -- I think they're managing it as best they can. I still think the full story, obviously, given the volatility has not been written, but we're not seeing it in demand. And that particular business that is sensitive to moms-and-pops continues to perform well. So we're more optimistic about that segment than I was last quarter. But like I said, it is something that we're watching closely.

Q: On acquisition of Brickell, upside and other acquisition opportunities.

A: Sure. Well, Brickell is a really good asset that long term will be great. Miami, Caitlin, I'm sure you're familiar with it. We're in the Central Business District. There's no real retail that can be built in that. Because of the traffic of Miami, it's kind of its own submarket. And even though there's a lot of retail generally in Miami, just because of the traffic and the population density and the tourism, it is really -- you can have a number of properties that flourish. And Central Business District, you see what [ Citadel ] is doing there. I still think you'll see a continuation of New York and Chicago companies moving there. So the job prospects are great. And Brickell in itself deals and attracts a lot of international customers and tourisms, it's got the hotels, it's got the nightlife. And we just think the asset is going to get better and better, and there will be more development around it that will continue to fuel its growth. And we bought it on a very accretive basis. We bought it at a higher cap rate than the strip centers that are being sold today, strip centers that are subject to probably easier competition, easier to build. And Brickell, we bought it at below its replacement cost by far. It hasn't even had its first rollovers of rents. And again, I think we'll do -- now this is our core business. So I think we'll do better leasing and managing the asset. So we're very excited about Brickell as we are with the mall. And we're working on a few other things that we're able to do, and I mentioned this before, we're working on some other interesting things that we're able to do because we've never gone through a restructuring. Oh, great -- it's great to buy a mall because you haven't bought anything in a decade. Well, that's never been us. And -- so we'll keep finding opportunities where we can grow our platform, but we're going to be picky on what we buy and what we want to do. But we're able to do it because this company doesn't need to sell a bunch of assets, doesn't need to bring in a new management team. It doesn't need to downsize its platform. It doesn't need to do it because it's outperformed over a 30-plus year period that no one else has done. So we're hopeful that a couple of more things will get announced this year, and they'll be accretive. They'll add to our platform and that we'll be able to manage them better, so we'll be able to grow our cash flow.

Q: Quantify shopper traffic and differences between mall and outlet.

A: Yes. It's -- our traffic is up 1.5%. So that's the number. I would still -- we're not operating on all cylinders and where we see a little bit of sales and traffic weakness are border -- these assets are still great, so don't get me wrong. But generally, they provide pretty healthy sales growth. And right now, they're relatively flat. But I would say the softness at least based upon historical results has been assets on -- and it doesn't really matter whether it's an outlet or a full-price mall, but it's assets that are on the border north or south, okay? It's almost irrelevant, whether it's Canadian border or the Mexican border. And so from a sales and traffic point of view, we're not hitting on all cylinders because those -- that freedom of going back and forth to shop or whatever is restricted. And I would also say we're not seeing the benefit that normally you might see from a weaker U.S. dollar vis-a-vis the euro or certain other currencies as the international tourists is not growing or flatlining in terms of people the way you might see historically. So those kind of tourist-oriented centers are not -- again, they're great centers. So they have a high bar to achieve. But they're not -- hopefully being articulate, but they're not outperforming like they always do for us. They're kind of in line. So therefore, we're not, in my opinion, not performing at the highest level because those great properties border, North-South tourism are kind of operating within the normal portfolio performance. Makes sense? Do you understand what I'm saying?