Simon Property Banks on Strong Tenant Demand, Increasing Occupancy

Simon Property Group (SPG), the largest mall owner and developer in the U.S., posted strong second quarter (Q2) results on Wednesday (Aug. 2) amid headwinds from higher interest expenses.

“Our business is performing well and is ahead of our internal plan. Tenant demand is excellent. Occupancy is increasing,” CEO and SPG Chair David Simon said on an earnings call. “Property NOI [net operating income] is growing, beating internal expectations set at the beginning of the year.”

Simon pointed to strong growth in domestic and international operations primarily driven by higher rental income and higher interest income, leading to domestic property NOI and portfolio NOI increasing by 3.3% and 3.7%, respectively, in Q2 2023 compared to the prior year period.

For the six-month period ending June 30, occupancy at U.S. malls and premium outlets slightly increased to 94.7% from June 2022, while retailer sales per square foot was $747 for the trailing 12 months ended June 30 this year.

“Leasing momentum continued across our portfolio […] and we continue to see strong broad-based demand from the retail community across many categories,” Simon noted on the call, adding that the Indianapolis-based retail landlord signed more than 1,300 leases for the quarter, with 1,100 deals in the pipeline.

SPG’s portfolio currently consists of over 250 properties, 200-plus of which it acquired following the billion-dollar merger with the DeBartolo Realty in 1996.

The real estate giant has also taken actions to deepen its long-term profitability. In February of this year, the company announced the trading of Eddie Bauer, a century-old outdoor sportswear seller, in exchange for additional equity ownership in Authentic Brands Group (ABG), increasing its ownership to 12% and valuing it at roughly $1.5 billion. ABG includes brands such as Reebok, Nautica, Forever 21 and Lucky.

Data from U.S. Department of Commerce shows that over 85% of all retail sales in the U.S. still occur in physical stores rather than online, a finding that SPG’s upbeat results seem to confirm.

Brands such as Warby Parker, Hims & Hers Health, Care/of, and Beyond Yoga, which started as online retailers, are expanding into physical retail or strengthening their existing presence in brick-and-mortar stores, PYMNTS previously reported.

As Simon told investors and analysts earlier this year, “Brick and mortar is where the action’s at.”