Simon's Q3 2025: Contradictions Emerge on Leasing Demand, Investment Strategy, and Economic Outlook

Guidance:

• Full-year 2025 real estate FFO raised to $12.60–$12.70 per share (prior guidance $12.45–$12.65; 2024 FFO $12.24).
• TRG acquisition expected to be accretive in 2026 with full operational benefit in 2027; management expects at least +50 bps to going-in overall yield.
• Q4 dividend declared $2.20 per share payable Dec 31, 2025 (up $0.10 YOY, +4.8%).

Business Commentary:

• Financial Performance and Funds from Operations (FFO):
• Simon Property Group reported real estate FFO of $3.22 per share in Q3 2025, an increase of 5.6% year-over-year.
• Domestic and international operations contributed $0.26 of growth, driven by an 8% increase in lease income.

• The increase was supported by higher occupancy and retailer demand, despite lower interest income and higher interest expenses.

• Occupancy and Retailer Demand:

• Mall and premium outlet occupancy reached 96.4%, an increase of 40 basis points sequentially, and 20 basis points year-over-year.
• Mills occupancy achieved 99.4%, an increase of 10 basis points sequentially and 80 basis points year-over-year.

• The increase in occupancy was driven by strong retailer demand, with over 1,000 leases signed totaling approximately 4 million sq ft.

• Development Activity and Cap Rate:

• Simon Property Group completed the acquisition of the remaining 12% interest in Talbot Realty Group, enhancing its portfolio quality with an overall cap rate of over 7.25%.
• The acquisition is expected to be accretive in 2026 and add at least 50 basis points to the overall yield by 2027.

• The acquisition was driven by the high operating metrics of the Talbot Realty Group assets and the opportunity for operational efficiencies.

• Dividend and Capital Allocation:

• Simon Property Group announced a fourth-quarter dividend of $2.20 per share, a 4.8% year-over-year increase.
• The increase reflects the company's strong financial performance and confidence in its future growth potential.
• The company plans to quarterize the issuance of 5 million Limited Partnership Units, aiming to restore its share level post-issuance, subject to market conditions.

Sentiment Analysis:

Overall Tone: Positive

• Management repeatedly described results as driven by "solid fundamentals," "higher occupancy, accelerating shopper traffic, strong retail sales," and "strong cash flow growth." They raised FY25 real estate FFO guidance and highlighted the TRG deal as accretive (acceleration to NOI and at least +50 bps yield), signaling confidence in near-term performance.

Q&A:

• Question from Michael Goldsmith (UBS): You mentioned operational efficiencies from bringing the Talbot assets onto Simon's platform that should improve yield by 50 bps—can you share specifics?
  Response: Bringing TRG assets onto Simon's platform eliminates duplicate public-company costs and applies Simon's leasing, development, marketing and property-management expertise to raise occupancy and NOI, yielding roughly a 50 bps uplift and driving a going‑in cap north of 8%.

• Question from Alexander Goldfarb (Piper Sandler): Can you clarify the cap-rate math—how does the final 12% purchase price relate to the ~7.25% overall and the >8% with synergies?
  Response: Unpacked: the combined Talbot transactions imply ~7.25% on today's numbers; adding expected operational synergies pushes to north of 8%; the isolated 12% tranche implies ~6.25–6.5% absent the platform enhancements.

• Question from Caitlin Burrows (Goldman Sachs): Sales increased in the quarter—how widespread was the improvement; any categories or tenants driving it and signs from tenant-upgrade initiatives?
  Response: Sales and traffic improvement was broad across all three platforms, led by luxury, athleisure and apparel categories and higher‑income centers; tourism markets (e.g., Las Vegas) lagged, but leasing initiatives to upgrade tenant mix are underway.

• Question from Samir Khanal (Bank of America): Given strong NOI growth (≈5% Q3), can you sustain or accelerate that momentum into 2026 assuming similar retail sales?
  Response: Management is optimistic about sustaining or improving comp NOI growth into 2026 but will provide quantified guidance in February.

• Question from Greg McGinniss (Scotiabank): Any update on tariff impacts from retailer discussions—expected effects on leasing or tenant behavior heading into the holidays?
  Response: Tariffs haven’t fully manifested yet; some costs have been absorbed or passed to suppliers/retailers, but management expects continued caution and potential pressure—especially on smaller retailers—as passthroughs work through the system.

• Question from Craig Mailman (Citi): For value/outlet centers versus full‑price malls, are you losing ability to push net effective rents or seeing OCR constraints given inflation and consumer behavior?
  Response: Traffic at value/outlet centers is up but conversion lags; demand and low occupancy costs remain supportive, yet sales growth trails higher‑end centers—so upside exists but at a slower pace versus luxury/full‑price assets.

• Question from Michael Griffin (Evercore ISI): The ~30% of leases that were new—are these proactive upgrades ahead of expirations, more new‑to‑mall concepts, and what about leasing spreads?
  Response: The ~30% figure reflects active introduction of new concepts and merchandising upgrades (experiential/flagship tenants) alongside demand from existing retailers; Simon is also modestly pre‑leasing ahead of 2026 expirations.

• Question from Juan Sonnambría (BMO Capital Markets): How do you view AI/agentic shopping—risk or opportunity, and how are you positioning Simon?
  Response: AI is both a risk and opportunity; management views it positively—Simon will leverage AI to enhance ShopSimon, loyalty and search, while doubling down on experiential, physical retail that remains relevant as consumer time and spending evolve.

• Question from Vince Tibone (Green Street): Your TRG purchase metrics appear to imply a low trailing cap rate—is there really enough synergy to reach your stated yields?
  Response: Management stands by disclosed deal metrics and accretion expectations, stressing that operational enhancements and portfolio-quality drive higher forward yields and durable growth versus peer valuations.

• Question from Handel St. Just (Mizuho Securities): How are you thinking about Klépierre vs owning assets directly in Europe after you bought an Italian asset on‑balance sheet?
  Response: Klépierre remains a strategic investment; full‑price European acquisitions would generally route through Klépierre, while outlet/worldwide outlet opportunities may be held on Simon's balance sheet—positioning reviewed continuously.

• Question from Mike Mueller (JPMorgan): Will you unencumber secured assets over time and are any portfolio parts sale candidates today?
  Response: Management expects to progressively unencumber secured assets using unsecured capital when opportunistic; no immediate major sale candidates identified but the portfolio is evaluated regularly.

• Question from Ronald Kamdem (Morgan Stanley): How do you prioritize capital allocation now—dividends, buybacks, development, redevelopments?
  Response: Top near‑term priority is to 'quarterize' the 5.06M unit issuance (reduce outstanding units), while continuing dividend growth and selective accretive development/redeployment; buybacks will be opportunistic subject to market conditions.

• Question from Floris van Dijkum (Compass Point): What is the S&O pipeline and how is luxury trending given Kering dropped from your top‑10 list?
  Response: Same‑store & occupancy pipeline was 310 bps as of 9/30 with ~50–60 bps attributable to luxury; Kering fell in ranking due to other strong retailer openings, but luxury demand remains robust for the portfolio.

• Question from Omotayo Okusanya (Deutsche Bank): Thoughts on OPI/Catalyst—opportunity to monetize or is it too murky?
  Response: Catalyst integration is yielding stable improvement across brands (JCPenney, Brooks Brothers, etc.); management sees value and will evaluate monetization options but views current performance as constructive.

Contradiction Point 1

Leasing Demand and Tariffs

It involves differing perspectives on the impact of tariffs on leasing demand and retailer behavior, which could affect the company's financial performance and growth strategy.

How could tariffs impact retailers' leasing and tenant behavior, particularly during the holidays? - Greg McGinniss (Scotiabank)

2025Q3: We haven't seen the full impact of tariffs yet. They may influence smaller retailers more, with some increased pressure on them. Retailer demand for leasing remains strong, with no change in growth plans. - [David Simon](CEO)

Are you still seeing strong demand from smaller tenants, including local concepts, and national retailers? - Michael Anderson Griffin (Evercore ISI)

2025Q2: Demand from smaller tenants is strong and optimistic, despite concerns earlier in the year about tariffs. They are managing tariff-related costs well, and the segment is performing better than anticipated. - [David E. Simon](CEO)

Contradiction Point 2

Investment Strategy and Growth Opportunities

It reflects differing views on the company's acquisition strategy and growth opportunities, which could impact future investment decisions and financial outcomes.

Is the cap rate accurate based on the TRG purchase's trailing 12-month NOI, considering growth and synergies? - Vince Tibone (Green Street)

2025Q3: We believe our cap rates are accurate. The transaction adds high-quality assets at a strong cap rate, with considerable growth potential identified. - [David Simon](CEO)

What's the return threshold for external investments vs. internal reinvestment, and do you expect another mall transaction wave? - Alexander David Goldfarb (Piper Sandler)

2025Q2: Simon Property Group can handle both acquisitions and internal reinvestment. The decision is based on yield, NAV, and growth potential. While more mall transactions are expected, Simon doesn't anticipate another massive wave like the late 1990s or early 2000s. - [David E. Simon](CEO)

Contradiction Point 3

Economic Outlook and Cautiousness

It illustrates varying levels of caution regarding the economic environment and potential macroeconomic factors that could impact the company's growth and performance.

Will strong NOI growth continue into next year, given current retail sales trends? - Samir Khanal (Bank of America)

2025Q3: We are optimistic about 2026 NOI growth, with external factors in mind. We expect solid performance across the portfolio, not just powerhouse centers. Exciting new opportunities exist for next year. - [David Simon](CEO)

How cautious are you about the economic environment, and what are your views on macroeconomic factors impacting 2026 growth? - Craig Allen Mailman (Citi)

2025Q2: Cautious due to tariff uncertainties, but optimistic about the U.S. growth profile. Geopolitical and economic uncertainties are significant, but 2026 is expected to provide greater clarity on tariffs, potentially improving the business outlook. - [David E. Simon](CEO)

Contradiction Point 4

Retailer Leasing Demands and Impact of Tariffs

It involves differing perspectives on the impact of tariffs on retailer leasing demands and the overall health of retail demand, which is crucial for assessing the company's financial outlook.

How does the implied cap rate for the final 12% TRG shares compare to the 7.25% previously mentioned? What is the expected cap rate after full integration into Simon's platform? - Alexander Goldfarb (Piper Sandler)

2025Q3: The transaction at 5.06 million units is at an implied cap rate of 6.25%-6.5% for the remaining 12%. Adding operational synergies and efficiencies, the combined cap rate on the assets becomes over 8% once they are fully integrated onto Simon's platform. - [David Simon](CEO)

What discussions are you having with retailers regarding tariffs and how might leasing be impacted? What assumptions are you factoring in for sales considering tariffs? - Steve Sakwa (Evercore ISI)

2025Q1: Currently, only four deals with one European retailer are affected due to import costs from Europe. Overall, leasing demand is strong. Predicting sales is difficult due to uncertainty around China tariffs. Retailers may hold off on inventory decisions or look for alternative sourcing. Even with reduced tariffs, China tariffs could still impact inventory levels and sales. However, overall demand is good, and historical pull-forward in demand is not evident yet. - [David Simon](CEO)

Contradiction Point 5

Consumer Demand and Sales Trends

It highlights differing views on the state of consumer demand and sales trends, which directly impacts the company's revenue and growth expectations.

Can you detail the sales results and the extent of sales growth across categories and locations? - Caitlin Burrows (Goldman Sachs)

2025Q3: Sales increases were widespread across the portfolio, with athleisure, luxury, and apparel categories outperforming. High-income-oriented centers showed better results, while Vegas underperformed due to reduced tourist activity. The back-to-school season supported sequential traffic and sales growth. - [David Simon](CEO)

Are consumer spending trends strong, and how does sales growth affect earnings? - Alexander Goldfarb (Piper Sandler)

2025Q1: The consumer is generally fine, but cautious. Traffic trends are mixed, with malls performing better than outlets. Sales are flat, and retail trends are idiosyncratic across countries. International operations, particularly in Europe and Asia, are performing well. - [David Simon](CEO)