Simon Property Group, Inc. (SPG) Earnings

Management highlights

- Leasing Activity * Signed over 1,200 leases totaling 4.8 million square feet in Q2, with new deal volume up more than 20% year-over-year; new deals represented 28% of total leased square footage. * Year-to-date, initial base minimum rent per square foot on new deals is up 17% year-over-year, while tenant allowances per square foot are down 12% year-over-year. * Over 87% of 2026 lease expirations have been completed, ahead of 2025's pace, with negotiations already underway for 2027 and 2028 expirations; the prospective deal pipeline remains well above last year's level. - Retail Sales and Consumer Engagement * Trailing 12-month total sales volume increased 6.6%, while Q2 total sales rose 7.6% and comparable sales grew 5.7% year-over-year. Shopper traffic accelerated in Q2, reaching 3.6% year-over-year growth in July. * Large-scale experiential activations (including the fifth annual National Outlet Shopping Day and 2026 World Cup fan events) delivered growth in both traffic and sales, with 25% higher retailer participation for National Outlet Shopping Day year-over-year. - Development and Capital Investment * $1 billion in development projects are currently underway, with an additional $600 million+ expected to be approved and started by end-2026; these projects target a 9% return on invested capital, with additional spillover benefits to the surrounding center not included in return projections. * Over $400 million has been committed to center enhancements (common area upgrades, amenities, landscaping) over the past four years, creating a more elevated customer and retail experience. - Balance Sheet and Capital Return * Ended Q2 with $9.3 billion in total liquidity; net debt to EBITDA is below 5.0x, and fixed charge coverage is 4.7x, maintaining a robust balance sheet. * Completed $1.4 billion in secured loan transactions at a weighted average 5.36% rate, issued 500 million euros of 5-year senior notes at 3.65%, and closed a $460 million 5-year term loan to repay revolving credit facility draws. * Declared a $2.25 per share Q3 2026 dividend, a 4.7% year-over-year increase; total shareholder dividends paid since the company went public will exceed $50 billion with this payout. Repurchased ~1.03 million common and partnership units for $211 million in Q2 at an average price of $205.5 per share.

Guidance

- Full-year 2026 real estate FFO guidance was revised upward to a range of $13.20 to $13.30 per share, representing an 8% increase at the midpoint compared to the prior guidance range, and an 8% increase over 2025's full-year result of $12.73 per share. - The current guidance assumes a moderation in retail sales growth in the second half of 2026, due to macro uncertainty and tougher year-over-year comparisons. If current strong sales and traffic trends continue, management expects full-year results will come in above the guided range. - Management projects ~20 cents of additional net negative interest expense impact remaining for full-year 2026, after already recording 10 cents of impact in the first half, consistent with the initial full-year guidance of 25-30 cents of net negative interest expense impact for 2026.

Segment performance

The company reports three core property segments: Malls, Premium Outlets, and Mills. 1) Malls and Premium Outlets: Combined occupancy hit 96% at quarter-end, with average base minimum rent up 6.3% year-over-year. Combined same-store sales reached $838 per square foot, up 13.9% year-over-year. This segment contributed approximately 88% of total domestic NOI growth for the quarter. 2) Mills: Occupancy held steady at 98.8%, with average daily rent (ADR) up 12.3% year-over-year, outperforming the core portfolio on rent growth. This segment contributed roughly 12% of total domestic NOI growth. Overall, consolidated domestic property NOI increased 8.5% year-over-year (7.6% for H1 2026); portfolio NOI including international properties at constant currency grew 8.3% for Q2 and 7.5% for H1. The recent acquisition of the remaining 12% interest in TRG contributed 120 basis points to both Q2 and H1 NOI growth.

Risks & headwinds

- Retail sales performance is dependent on consumer confidence and broader macroeconomic conditions, including geopolitical uncertainty and the 2026 U.S. presidential election, all of which are outside of management's control. - The company operates in a higher interest rate environment that will increase interest expenses for upcoming debt refinancing, pressuring net earnings. - Cross-border outlet centers near international borders are seeing slower growth than the rest of the portfolio due to reduced international travel volumes. - Restaurant same-store sales are softer than the rest of the portfolio, partly driven by declining alcohol sales that management cannot control.

Analyst Q&A

• Q: With tenant allowances (TIs) falling year-to-date and FAD growth outpacing NOI/FFO growth recently, what is the outlook for TIs and is reducing TIs a core goal? /

  A: TIs are primarily a function of supply and demand for space, tenant credit quality, and the desirability of the specific tenant. Strong demand has already pushed up new lease rent and lowered TIs, and this dynamic will persist. Growing FAD and cash flow per share to support dividend growth is a core priority, but the company will continue to reinvest heavily in center improvements, which drives higher future leasing demand and long-term cash flow growth, so TIs will fluctuate based on tenant mix rather than a blanket target. (210 words)

• Q: Where is the greatest opportunity to drive NOI and earnings growth over the next 12-18 months, with occupancy already at 96%? /

  A: While occupancy will not reach 100% (the company wants flexibility to reconfigure space), there is still room for modest additional occupancy gains above 2025's year-end level. The largest growth opportunity is retenanting: replacing underperforming, lower-rent tenants with new, higher-productivity tenants that pay higher rent and increase center-wide traffic. The $1 billion current development pipeline, and upcoming $600 million in new projects, also delivers accretive growth with 9% returns, plus indirect benefits to the rest of the center that are not included in return projections. (165 words)

• Q: The 1 million square feet of bankruptcy-related space returned in Q2 was almost all from Saks Off 5th. What is the expected rent uplift from retenanting this space? /

  A: The original Saks Off 5th leases on this space generated $18 million in annual rent. Already half of the space has been re-leased to new tenants at rates that already exceed the original annual rent total, and the full re-leasing is expected to grow annual rent from $18 million to $44 million. The space was returned later than expected in mid-May, so most of this rent uplift will be realized in 2027 rather than 2026. Demand for the space has been very strong from blue-chip retailers and existing tenants expanding their footprints. (148 words)

• Q: What is the update on monetizing foot traffic via Simon Brand Ventures, and when will revenue grow materially? /

  A: The company will formally launch the Simon Media Network in the coming weeks, which leverages first-party customer data from 2 billion annual global visits and $100+ billion in annual domestic portfolio sales to offer targeted advertising to both in-center retail brands and non-endemic advertisers. The business is already growing at a mid-teens annual rate, with investments in digital screens (over 4,000 currently across the portfolio) and customer touch points delivering 1-2 year payback periods. Management sees large long-term growth potential, with material revenue increases expected over the next 2 years as the new advertising platform scales. (142 words)

• Q: Is there opportunity for larger, step-function earnings growth beyond incremental improvements to the existing portfolio? /

  A: The company has ample balance sheet capacity to pursue multiple paths: continuing organic development/reinvestment, share repurchases, and accretive acquisitions of additional high-quality retail properties. Management will only pursue acquisitions that meet strict return and price requirements, and will not chase deals just for scale. Past acquisitions such as Brickell have outperformed underwriting, and the company will continue to pursue similar attractive opportunities if they arise. If no external opportunities emerge, management is comfortable driving consistent mid-single digit NOI growth from the existing portfolio via ongoing improvements and retenanting. (123 words)