Prepared remarks
Greetings. Welcome to Simon Property Group Second Quarter 2026 Earnings Conference Call. Operator Instructions: Please note this conference is being recorded. I will now turn the conference over to Tom Ward, Senior Vice President, Investor Relations. Thank you. You may begin.
Thank you, Sherry, and thank you for joining us this evening. Presenting on today's call are Eli Simon, Chief Executive Officer, President and Chief Operating Officer; and Brian McDade, Chief Financial Officer. 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 the risk factors relating to those forward-looking statements. Please note that this call includes information that may be accurate only as of today's date. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included within the press release and the supplemental information in today's Form 8-K filing. Both the press release and the supplemental information are available on our IR website at investors.simon.com. Our conference call this evening will be limited to 1 hour. For those who would like to participate in the question and answer session, we ask that you please respect our request to limit yourself to one question. I am pleased to introduce Eli Simon.
Good evening. We delivered excellent financial and operational results in the second quarter. Domestic property NOI and real estate FFO growth accelerated in the quarter to 8.5% and 7.9%, respectively. This was driven by continued leasing demand, disciplined execution across all platforms and contributions from recent acquisitions. Shopper traffic accelerated in the quarter and retailer sales volume again grew solidly year-over-year, further evidence that our portfolio is well positioned and our properties are the places where shoppers and tenants want to be. And with our recently declared dividend, we will have paid out over $50 billion to shareholders since becoming a public company. Tenant demand continues to be widespread with no slowdown, drawing from a broad mix of established and emerging retailers across categories, platforms and geographies. During the second quarter, we signed more than 1,200 leases totaling over 4.8 million square feet. The number of new deals signed in the quarter increased more than 20% compared to last year, and new deals represented approximately 28% of total lease square feet. Year-to-date through the second quarter, initial base minimum rent per square foot on new deals is up 17% year-over-year, while tenant allowance per square foot on new deals is down 12% year-over-year. We have completed more than 87% of our 2026 expirations and are ahead of where we were at this time last year as we continue to negotiate 2027 and 2028 expirations with many tenants. The pipeline of prospective deals continues to build, remaining well ahead of last year's pace, reflecting continued broad-based tenant demand. Moving on to retailer sales. Malls and Premium Outlets were $838 per square foot, up 13.9%. Importantly, total sales volume increased 6.6% over the trailing 12 months and 7.6% in the quarter, with comparable sales growth of 5.7% for the second quarter. We continue to host unique activations that highlight the incredible value our portfolio offers. Our fifth annual National Outlet Shopping Day produced another year of shopper traffic and retailer sales growth, along with a more than 25% increase in retailer participation compared to last year with Simon+ members enjoying exclusive rewards tied to the event. We also built on the momentum around the World Cup, running a coordinated activation strategy across our portfolio that featured fan experiences, watch parties, retailer collaborations and community programming. The shopper and retailer response to these types of events underscores Simon's offering, the ability to turn major moments into large-scale real-world experiences that bring our consumers, brands and communities together. Turning now to development and redevelopment activity. At the end of the quarter, we had development projects underway across all platforms with our share of the net cost totaling $1.07 billion at a blended yield of 9%. Approximately 50% of the net cost is for mixed-use projects. Looking ahead, we expect projects representing more than $600 million of additional net cost to start construction in the second half of this year. Our development pipeline remains robust with over $4 billion of projects, which we believe will generate attractive returns, enhance our properties and support long-term growth in cash flow, FFO and dividends per share. This is consistent with the results we have achieved on similar recently completed projects such as Southdale Center in Edina, Minnesota, Brea Mall in Orange County and Briarwood Mall in Ann Arbor, Michigan. Over the last 4 years, we have also committed more than $400 million to center enhancements that are either completed, underway or recently approved, including common area upgrades, landscaping, lighting and other amenities, creating a more elevated shopping experience. These enhancements are noticed and appreciated by our customers and particularly by our retailers who value a landlord committed to the long-term success of their stores and the communities we serve. We remain focused on these enhancements alongside our broader development activity, and our balance sheet allows us to continue reinvesting in our portfolio for years to come. With that, I will turn it over to Brian, who will review our financial results from the second quarter in more detail and provide an update on our outlook for the remainder of the year.
Thank you, Eli. Real estate FFO was $1.25 billion or $3.29 per share in the second quarter compared to $1.15 billion or $3.05 per share in the prior year period, an increase of 7.9%. Domestic and international operations both performed well and contributed $0.29 of growth, driven by increased lease income, disciplined cost management and contribution from acquisitions. As anticipated, higher interest expense and lower interest income combined were a $0.06 drag year-over-year. Reported FFO was $3.12 per share in the second quarter compared to $3.15 per share in the prior year period, which included a $0.21 per share noncash after-tax gain primarily due to Catalyst Brands' deconsolidation of Forever 21. Domestic property NOI increased 8.5% year-over-year for the quarter and 7.6% for the first half of the year. Approximately 120 basis points of growth for both the second quarter and first half of the year were attributable to our acquisition of the remaining 12% interest in TRG. Portfolio NOI, which includes our international properties at constant currency, grew at 8.3% for the quarter and 7.5% for the first half of the year. Malls and Premium Outlets occupancy at the end of the second quarter was 96%, flat compared to the first quarter and year-over-year, a result that reflects the depth of retail demand as we absorbed approximately 1 million square feet of retailer bankruptcy-related space returned during the quarter and successfully relet. The Mills occupancy was 98.8%. Average base minimum rent for the Malls and Premium Outlets increased 6.3% year-over-year, while ADR for the Mills increased 12.3%. Occupancy cost at the end of the quarter was 12.5%. Shifting to return of capital. Today, we announced a dividend of $2.25 per share for the third quarter, an increase of $0.10 or 4.7% year-over-year. The dividend is payable on September 30 to shareholders as of the record date. During the second quarter, we repurchased approximately 793,000 shares of common stock and approximately 238,000 limited partnership units for a $211 million investment at an average purchase price of $205.10 per share. On to the balance sheet. During the quarter, we completed 8 secured loan transactions totaling $1.4 billion at a weighted average interest rate of 5.36%. We issued EUR 500 million of senior notes at a 3.65% rate for 5 years, and we closed on a $460 million 5-year term loan priced at SOFR plus 70 basis points, the proceeds of which were used to repay $460 million drawn under our revolving credit facility. We ended the quarter with approximately $9.3 billion in liquidity, and our balance sheet remains incredibly robust with net debt-to-EBITDA below 5.0x and fixed charge coverage of 4.7x. This supports our strategy and our continued execution. Finally, on to 2026 guidance. Given our results for the first half of the year and our current view for the remainder of the year, we are increasing our full year 2026 real estate FFO guidance to a range of $13.20 to $13.30 per share. That compares to $12.73 last year and is a $0.08 increase at the midpoint compared to the range previously provided. Thank you, and we are now available for your questions.
Questions and answers
Operator Instructions: Our first question is from Caitlin Burrows with Goldman Sachs.
I guess I'm wondering if you can talk about TIs and cash flow growth. You did reference some of the pieces in the prepared remarks. So if you look over a long time period, like the last 10 years, NOI and FFO growth have outpaced FAD growth. Year-to-date, it looks like actually FAD growth has outpaced NOI and FFO growth. So maybe that is a change in the trend or maybe the numbers move around. But wondering, can you discuss the outlook for TIs and what they're a function of? If the demand and leasing environment is so strong, do you expect to pull back on TIs? And is reducing TIs a goal of yours?
Sure. So thanks for the question, Caitlin. So I think—when I think about TIs first—that's a function of demand from the tenants and the supply of available space. The reality is we're having a ton of conversations with retailers. Our pipeline today is up 26% from this time last year, which is over 100 more deals. When we have those conversations, rent is a component and TI is a component. There are certain times where it might be a tenant that we want to start a new relationship with, but we're concerned potentially about the credit or about their long-term viability. Maybe we'll say it doesn't make sense to pay as much of a TI as we might pay for someone else where we're more certain about the performance. So I think it's really a function of mix over the long run. Supply and demand shows itself in two ways: rent growth and TIs. Stepping back, if you look at funds available for distribution more broadly, I think for the year, we're up over 9% year-to-date. It's a focus of ours. Our focus is to grow cash flow, and part of the cash flow growth is from FFO and part of it is from the capital we spend. I want to highlight that we are reinvesting back into our centers in a big way, and that is noticeable to consumers and retailers. I've been to many properties recently where we have done transformations, and what I've seen is new leases being signed and new retailers coming to these centers because they see a landlord that has reinvested. When you ask the general manager about customer perception, they say people have come up and said they didn't realize this center was still thriving. So our job is to continue to reinvest into our centers to make them better for customers and retailers. Overall, our job is to grow cash flow, grow dividends per share and make our centers better; we balance all of that in our calculus. The results have been impressive so far, and we're looking forward to the future.
Our next question is from Michael Griffin with Evercore ISI.
Eli, I appreciate your commentary around the leasing outlook. Just wondering, as you look ahead to really '27 and beyond, you've got rents on in-line shops to, call it, $60 to $65. I realize you don't quote a mark-to-market on the portfolio, but can you give us a sense as those leases are coming due, are you signing leases in the 70s, mid-70s? Just curious about the trajectory and opportunity there in rent growth given all the demand that you've really highlighted.
Sure. If you look year-to-date, I think we've signed new leases at about $78 on average. But when you think about leases coming due, a large number will renew. We have great relationships with many tenants who are important for the center, and our renewals historically—and that's holding true now—are in the mid-single digits. We'll renew some and replace some if we think better retailers can perform better and add more to the center. So it's not as simple as saying the $60 to $65 goes to $78. Clearly, the trajectory of where new leases have been signed is positive. The supply and demand story is favorable, but it isn't a one-year leap from $65 to $78 across the board. The focus is on the right retailer for each space. There isn't a single market rent in our industry—it's what's the market rent for that tenant based on how they're going to perform and what they're going to do for the center. We feel very good about the pipeline—it's about 483 deals—and a similar number of them are new deals year-to-date, which is 28%. We feel very good and will continue to execute and grow over time.
Our next question is from Samir Khanal with Bank of America.
Eli, given that occupancy is at 96% today, where do you see the greatest opportunity to drive NOI and earnings growth? Clearly, there's a lot of momentum here. Help us think through the key drivers of growth over the next 12 to 18 months.
Sure. On occupancy, we're at 96% occupied on the mall and outlet portfolio. We absorbed about 1 million square feet of retailer bankruptcy-related space returned during the quarter and are at the same occupancy level as the end of the first quarter. That's impressive and speaks to the strength of the team and the portfolio. When I think about the levers of growth: occupancy has a little more to go from here, though we wouldn't want to be at 100% because we need flexibility to move tenants. I think finishing the year above where we finished last year is the team's goal, and I believe we'll achieve that. Another lever is retenanting—taking out lower performers who pay lower rent and replacing them with new, better tenants that pay more rent and have increased productivity. The last piece is our development pipeline. We have $1 billion in the ground today and expect $600 million-plus to be approved and start by year-end. We're generating a 9% return on those investments, which is healthy. Also, when we complete developments, there's significant benefit to the rest of the center that isn't fully reflected in those returns. That's another avenue for growth. In short, we will continue to reinvest into our centers, upgrade merchandise mix, and execute on the pipeline. There are many factors to growth, but we feel good about our position.
Our next question is from Michael Goldsmith with UBS.
I think Brian in his prepared remarks talked about 1 million square feet of bankruptcy-related space coming back during the quarter. Can you outline who has been giving you back space? And can you talk about the space that you got back—at what rents were they in? Are you seeing similar economics to the overall new leasing on those boxes? Just trying to understand the economic uplift from replacing the space.
Sure. The 1 million square feet were primarily Saks Off 5th stores, which was a public bankruptcy process. We absorbed that space and successfully relet it, so we had effectively no occupancy disruption. As of the end of July, we're at 96.3% occupancy, above where we were. The Saks boxes in the outlets were paying about $18 million in rent, and the deals we've signed so far are already well in excess of that in the spaces we've relet; the rest are under discussion and near final. We'll basically take the $18 million and turn it into roughly $44 million. One caveat: we received those boxes back later than expected—mid-May—so much of the benefit will be a 2027 story when those rents start hitting. But overall, it's a very positive outcome. The replacements are strong retailers—blue-chip and expansion concepts, some carve-ups—and many are ready and excited to occupy the space.
Our next question is from Greg McGinniss with Scotiabank.
Similarly, along the lines of tenants that you're putting into the centers, you mentioned substantial retenanting. Could you please provide some details on which tenants or categories you're adding to centers that seem to be resonating with consumers today versus those where you're looking to potentially limit exposure and where you see the tenant watch list today?
Sure. We're adding retailers across a variety of categories, geographies and platforms. What's most exciting is new and emerging brands across technology, athleisure, home, jewelry—very big with the Gen Z and teen consumer. We're adding many brands that are unique to the market or our centers, differentiating these properties. These brands come from online, Europe, and Asia, particularly in beauty and collectible spaces. Athleisure continues to grow with new entrants. These additions increase traffic and have a positive halo effect for the rest of the center; legacy players often reinvest in response. We're also focused on restaurants—upgrading and adding restaurants. We expect to add probably $400 million to $500 million of incremental restaurant sales from high-profile developments and redevelopments over the next year or so. On the watch list, it's in very good shape—nothing close to material. We view the recaptured space as an opportunity to bring in better merchants.
It's actually an opportunity for us, Greg. The watch list is at its low point. But as we've said, the recaptured space does provide us opportunity to bring in better merchants.
Our next question is from Alexander Goldfarb with Piper Sandler.
Eli, I just wanted to go back on your Simon Brand Ventures. I think before you had said that I think it delivered like $200 million and maybe there's a goal of like $800 million, but also you have 2 billion people who go through your global portfolio. Just want to get a better sense of as you look to monetize this—the visitor count—is this something that you think is near term, like in the next two years that we'll see a material shift in this revenue increase? Or is this more of a longer-term initiative? I'm just trying to get a handle on it. I mean, 2 billion is certainly a lot of people.
Thanks, Alex. We're launching Simon Media Network in the next couple of weeks to take advantage of the first-party customer insights we have. We have billions of visits a year and carry over $100 billion in our domestic portfolio. The announcement will broaden our approach to media and data. We have a strong digital footprint with Simon+, ShopSimon, Simon Search, and an in-house screen network of over 4,000 screens—the largest footprint of screens that we continue to invest in. Simon Media Network will leverage that data to create something interesting for endemic retailers and non-endemic brands who want access to a high-intent shopper. The opportunity is meaningful. I don't want to pin exact numbers between $200 million and $800 million today; I hope it's more than that, but the business is growing in the double-digit to mid-teens percentage year-over-year. We're investing—adding screens, touch points—and we see a one- to two-year payback period on some initiatives. It also enhances the physical environment and supports Simon Search for real-time inventory. Malls and retail centers are having a cultural moment; young people want to be here. We can provide advertisers access that few others can, and we're focused on growing this business over time.
Our next question is from Juan Sanabria with BMO Capital Markets.
Hoping you could talk a little bit about your retention strategy. Are you looking to maybe pull that back given the strength of demand and the ability to drive leasing spreads on new deals, particularly for in-line tenants? And if you could talk about the spread between leased versus occupied and how that shifted with the 1 million in bankruptcies noted and the lease-up of some of the space subsequently.
On retention, it's a space-by-space decision with many factors: the relationship with the tenant, the replacement opportunity, contribution to the center, and downtime. The team focuses on downtime and balancing long-term growth with intermediate cash flow. We won't make blanket decisions—if replacing a tenant yields better performance, more traffic, and higher rent, we'll do it. It's tenant by tenant, center by center. Regarding signed-but-not-open leases, we're still trending around 310 basis points. That supply got backfilled by the 1 million square feet of leases as we recaptured Saks Off 5th space and re-leased it.
Juan, we're still trending around 310 basis points of signed-but-not-open. That got backfilled by the 1 million square feet of leases—we've been working to capture and re-lease the Saks outlet business.
Our next question is from Floris Van Dijkum with Ladenburg Thalmann.
Maybe obviously, very strong NOI growth, even excluding the TRG, 7% plus and sales growth through the roof with 13% plus. Maybe talk a little bit about the breadth of that sales growth— is this just your top 50 assets carrying the portfolio? How is the rest of the portfolio doing? What's the bifurcation between your top assets versus the rest of the portfolio?
Floris, it's broader than the top 50; it's a pretty broad story. Luxury remains very strong on the full-price side and on the outlet side, though some luxury tenants don't have outlets. Jewelry and watches remain very strong. Junior brands targeting Gen Z have had 16 straight months of positive comps, which is notable. Restaurants are a little softer—maybe due to economic factors and lower alcohol sales, among other things. Regionally, Florida remains very strong across many markets; the border outlets are growing but a bit less than the overall portfolio, impacted by international travel patterns. Some key outlet centers like Vegas and Orlando are components of that dynamic; Orlando had especially strong comps earlier and is moderating. But overall, malls, outlets, and Mills are all positive comping and traffic is up across them. Back-to-school has started in much of the country, and we look forward to the holiday season.
Our next question is from Rich Hightower with Barclays.
I was curious if you could give us an update on TRG. Last quarter, you talked about the level of excitement there and some upside. Maybe give us an update on where we stand there and when that comp starts to normalize within the contribution to the whole.
We remain very excited about TRG. For the assets we manage, we've increased EBITDA margin; we've increased margin by 300 basis points this year with another couple hundred basis points to go. We're focused on purchasing contracts, janitorial, parking, marketing—every dollar. From a comp perspective, approximately 120 basis points Brian noted reflects that we added the remaining 12% ownership; that effect will narrow as we own the remaining interest for a full year, so the temporary boost will normalize over the next two quarters. We view these as long-term assets where we can add value through upgrades and merchandising. We have significant projects planned—Green Hills, International Plaza, Cherry Creek—and we're making long-term investments that will create runway for growth.
Our next question is from Mike Mueller with JPMorgan.
You have about $4.5 billion of unsecured debt coming due in 2H '27, I think about $1.5 billion of cash. Can you talk about how you're thinking about those maturities and the cash today?
Mike, we're focused on the balance sheet and preserving liquidity. We're active across markets; we completed two deals in Europe in the past quarter and continue looking globally for opportunities. We have flexibility across capital markets; credit spreads are tight though pricing is off a higher base rate. There's plenty of capital available to refinance our debt, but we'll be mindful of a higher interest rate environment. At the beginning of the year, we guided toward $0.25 to $0.30 of negative interest expense impact for the year; we're about $0.10 into that and have about $0.20 to go for the balance of the year under current market conditions. We'll remain proactive in managing interest expense.
Our next question is from Craig Mailman with Citi.
Eli, it's always helpful going through the development pipeline and the $4 billion. But as you look at the size of your company, $4 billion is a small percentage of total market cap. Is there a way to create a step function in earnings growth from here beyond continuing to fix the portfolio and drive earnings from there—any opportunities to grow the platform further and drive incremental growth above what malls and retail can deliver year in and year out?
There's definitely opportunity, and we're focused on it. Our balance sheet lets us pursue development, reinvestment, and share repurchases. We like owning more of what we own and know the embedded growth profile. We'll evaluate acquisitions that are accretive and that we can operate better on our platform, but only at the right price—we won't chase scale for the sake of it. We have $9.3 billion of liquidity and strong free cash flow generation. We can execute quickly—look at what we did at Brickell last year where year-one yield was over 100 basis points higher than underwriting. We'll pursue transactions that add value but will not do something just to add scale. We have grown NOI over recent years and have $1 billion in the ground, $4 billion in the pipeline, and more in the shadow pipeline. We'll continue to grow cash flow smartly by adding great assets when the opportunities are right.
Our next question is from Vince Tibone with Green Street.
Comparable tenant sales are up about 6% year-to-date, which is much stronger than the last few years. How should we think about potential upside to 2026 NOI and FFO growth from overage rents if these strong sales trends continue for the rest of the year? Also, what's baked into guidance right now in terms of sales growth for the portfolio?
We've seen no signs of slowdown; traffic accelerated in July. Sales are the one thing we cannot control—macroeconomic and geopolitical factors, including elections, are out of our control. Our guidance assumes some moderation in sales; if current strong trends continue, we'll be above the range we've guided. Overage and sales-based rent are back-end weighted toward the holiday season. While nothing suggests an imminent slowdown, there are tougher comps in the back half of the year, and we thought it prudent to guide with some moderation. If conditions remain as they are, we'd expect further contribution beyond what's baked into our guidance.
I think Eli covered it well. Ultimately, if current conditions continue, we would expect further contribution beyond what's baked into the guidance.
Our next question is from Tayo Okusanya with Deutsche Bank.
Quick question. Eli, you mentioned jewelry being very strong. Everything you read suggests diamond prices are going down and younger generations are not buying diamonds. Why is that category doing well? Are there categories you worry about saturation in?
The jewelry and watches category spans a variety of price points. At the top end, demand often outstrips supply, supporting prices and strong demand. At the more affordable end, there are many new entrants catering to younger consumers with great-looking stores—these attract Gen Z and younger buyers. So jewelry strength is coming from both luxury and new, more affordable brands. We continue to expand relationships with established luxury players and add new entrants that create Instagrammable store experiences. We monitor cycles and changes, but right now the category is performing well and we're focused on where the customer is going.
Tayo, given U.S. outperformance versus the rest of the globe, luxury retailers are bringing their newest products here. As long as that continues, we expect the trend to hold.
Our last question is from Ronald Kamdem with Morgan Stanley.
Great. I had a quick AI-related question. We're a couple months into this journey now. When you think about your business and the retailer business, where are we in adoption of these tools to better understand where the customer is coming from and starting to see tangible benefits? Is it still too early to see tangible results? Curious how that's been for your business and the retailers you partner with.
It's obviously early days. From Simon's perspective, we've made big strides recently and there's more to do. We see efficiencies and insights from data across our leases and operations—thousands of leases, loan documents, joint venture documents—where we can be quicker and more efficient. On the marketing front, we can produce imagery faster and better. Retailers are also beginning the journey; everyone is focused on it but there's not yet a sea change in operations. Broadly, we think this makes us more bullish on physical retail: younger cohorts want to come to the mall, and as online navigation becomes more complex, physical retail matters. AI and data will enhance our Simon Media Network and our ability to monetize first-party data from billions of visits and over $100 billion in sales. Overall, we see this as a long-term positive for our assets and retailers, though adoption is still in the early stages.
We have reached the end of our question-and-answer session. I would like to turn the call back over to Eli for closing remarks.
Thank you, everybody, for your questions, and have a great week.
Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.