In the realm of property leasing, Simon Property Group, the largest mall owner and developer in the U.S., is seeing growth in tenant sales, particularly in its tourism-centric properties, including both outlets and malls.
While overall foot traffic was reported to be slightly higher compared to the previous year, it remains slightly below 2019 levels. However, Chairman, Chief Executive Officer and President David Simon noted on the company’s latest earnings call on Monday (Oct. 30) that the conversion rate has improved, reflecting higher sales per square foot compared to 2019.
“We produced an excellent quarter highlighted by strong financial and operational performance,” Simon said in a statement. “We continue to demonstrate our ability to grow our business.”
Focusing on its property leasing growth, Simon Property Group reported progress, particularly in the Sunbelt region. They also tracked sales figures year-to-date, with California showing an increase. Additionally, Woodbury Common in New York has displayed growth, suggesting the resurgence of tourism in the region.
During the call, Simon also disclosed that the outlet business has remained robust, possibly because consumers are pursuing affordability, especially in the face of increasing inflation. He also mentioned that the performance differences between malls and outlets are unique to each property, with no significant disparities in overall sales.
“Not a huge bifurcation between malls and outlets. It’s very property specific,” said Simon.
Simon further noted that Simon Property Group’s sales remained relatively flat quarter-over-quarter, without a notable disparity between outlets and malls. In the luxury segment, there was some flattening in the third quarter of the year. However, this trend was not consistent across all luxury retailers; it appeared to be retailer-specific.
Jewelry sales, which Simon noted may have a greater presence in malls, experienced some challenges. Nonetheless, certain higher-end jewelry retailers performed well, suggesting that these trends were not uniform across the board.
The report follows its previous quarterly update, where Simon noted growth in domestic and international operations driven by higher rental income and interest income. This led to domestic property net operating income (NOI) and portfolio NOI increasing by 3.3% and 3.7%, respectively, in Q2 2023 compared to the prior year.
“Our business is performing well and is ahead of our internal plan. Tenant demand is excellent. Occupancy is increasing,” Simon said on an earnings call. “Property NOI is growing, beating internal expectations set at the beginning of the year.”
Over the six-month period concluding on June 30, occupancy at U.S. malls and premium outlets experienced a slight uptick, rising to 94.7% from the levels recorded in June 2022. During the trailing 12 months ending on June 30 this year, retailer sales per square foot amounted to $747.
“Leasing momentum continued across our portfolio,” noted Simon in the previous quarter. He also highlighted robust and widespread demand from various retail categories. During the quarter, the Indianapolis-based retail landlord finalized over 1,300 leases, with an additional 1,100 deals in progress.
Simon Property Group reported a net income of $594.1 million, or $1.82 per diluted share, for the period, which is an increase from $539.0 million, or $1.65 per diluted share in 2022.
In the third quarter of 2023, the net income includes non-cash after-tax gains of $118.1 million, or $0.32 per diluted share, primarily due to the partial sale of the company’s ownership interest in its SPARC Group joint venture. This resulted in the company’s ownership in SPARC being reduced from 50% to 33%.
Funds from operations amounted to $1.2 billion, or $3.20 per diluted share, including the gains mentioned earlier, compared to $1.099 billion, or $2.93 per diluted share in the previous year.
The domestic property NOI increased by 4.2%, while portfolio NOI increased by 4.3% compared to the previous year period.