Simon Property Group, Inc. 2026 Q2 Earnings Call

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 one 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. 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 leased square feet. Year to date through the second quarter, initial base minimum rents 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 the 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 four 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 non-cash 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 our 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 30th 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 eight 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 five years, and we closed on a $460 million five-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 EUR 9.3 billion in liquidity, and our balance sheet remains incredibly robust, with net debt to EBITDA below 5.0 times and fixed charge coverage of 4.7 times. 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 an 8 cent increase at the midpoint compared to the range previously provided. Thank you, and we are now available for your questions.