Simon Property at BofA Conference: Resilient Retail Strategy

On Tuesday, 09 September 2025, Simon Property Group (NYSE:SPG) presented at the BofA Securities 2025 Global Real Estate Conference, offering a strategic overview of its robust performance and future plans. The company highlighted strong Q2 results, driven by increased occupancy and retail sales, but acknowledged challenges such as interest rate headwinds.

Key Takeaways

• Simon Property Group reported strong Q2 results with increased occupancy and retail sales.
• The company is investing in digital infrastructure to enhance customer experience.
• New redevelopment projects are underway, including a premium outlet in Jakarta, Indonesia.
• The Simon Plus loyalty program is set to launch soon, aiming to integrate online and in-store experiences.
• Simon Property remains confident in its financial flexibility and future growth.

Financial Results

• Funds from Operations: Generates over $4.5 billion annually.
• Dividends: Pays over $3 billion annually, with a yield of about 4.5%.
• Second Quarter Performance: Real estate FFO was $3.05 per share.
• NOI Growth: Domestic property NOI grew 4.2% in Q2; portfolio NOI grew 4.7%.

Operational Updates

• Redevelopment and Expansion: Opened a new premium outlet in Jakarta; ongoing global projects.
• Simon Plus Loyalty Program: In beta, launching soon to enhance customer engagement.
• Digital Initiatives: Investing in data analytics; Simon Search enables real-time inventory search.

Future Outlook

• Consumer Sentiment: Resilient consumer base with strong back-to-school sales.
• International Expansion: Plans for further investments in global outlet developments.
• Debt Management: Raised $1 billion at a 4.7% rate; anticipates similar interest rate challenges next year.
• Capital Allocation: Focus on reinvesting in assets, growing dividends, and evaluating acquisitions.

Q&A Highlights

• International Investments: Continued focus on global outlet development and acquisitions.
• Domestic Opportunities: Limited new developments; Nashville site under consideration.
• AI Initiatives: Increased spending on AI expected to improve productivity.

In conclusion, Simon Property Group’s presentation at the BofA Securities 2025 Global Real Estate Conference emphasized its strategic initiatives and financial resilience. For more details, please refer to the full transcript below.

Full transcript - BofA Securities 2025 Global Real Estate Conference:

Samir, B of A: I’ll go ahead and get started here. Thank you for joining us. Very happy to have Simon Property Group here. Welcome to the roundtable with the company. Happy to have Eli Simon here, who’s the Chief Operating Officer of the company, and Brian McDade, Chief Financial Officer. Eli, maybe to start off with you, I’ll turn it over to you with some opening remarks that you can provide. When I look across the room here, there are people here who aren’t familiar with Simon Property Group. I’m from a generalist perspective. Maybe talk a little bit about the company.

Eli Simon, Chief Operating Officer, Simon Property Group: Yes, sure. Thank you, Samir. It’s great to be here with everyone today. Quickly, an overview of Simon Property Group. We’ve been a public company since 1993. We’re a member of the S&P 100 and we’re the largest owner of retail real estate globally. Our business today, we have interest in over 250 properties, 212 domestic, 42 internationally. About 90% of our NOI is from our domestic portfolio, which spans 37 states, and the remaining 10% from our international portfolio, which is primarily in Europe and Asia, but also includes Canada and Mexico. Our U.S. business, our domestic business spans a spectrum from full-price malls to the value-oriented centers and our premium outlets in our Mills portfolio. We generate over $4.5 billion in funds from operations annually and pay over $3 billion in dividends each year, and today have a dividend yield of about 4.5%.

As a public company, we have paid over $47 billion in dividends to date. We take a very long-term view of our business, very focused on disciplined investments and operational excellence in order to increase cash flow growth, funds from operations, and our dividend while continuously improving our properties and our portfolio, as well as the company overall. This long-term view and this focused approach has allowed us to generate industry-leading returns, and we’ve generated over 4,300% total shareholder return since we went public in 1993. Brian, I’ll turn it over to you for a little bit more about the most previous quarter.

Brian McDade, Chief Financial Officer, Simon Property Group: Thank you and good afternoon, everybody. Good to be with you today. About 30 days ago now in August, we reported a second quarter real estate FFO of about $3.05 per share. Our Q2 results were driven by strong fundamental performance, including occupancy gains, increasing shopper traffic, and higher retail sales volumes. Our domestic property NOI grew 4.2% in the quarter and has grown 3.8% for the first half of the year. Our portfolio NOI, which includes our international investments at a constant currency, grew 4.7% for the quarter and 4.2% for the first half of the year. Occupancy in our malls and our premium outlets was 96% at the end of June, and our reported retailer sales per square foot was $736 on a trailing 12-month basis ending June 30. We continue to see robust opportunities to deploy our significant free cash flow.

Work continues on major redevelopment and expansion projects across the globe. Importantly, we opened a new premium outlet in Jakarta, Indonesia, earlier this year. We are the one company, or one of the one companies in the world that can build in Jakarta and domestically all at the same time. This is a key strategic advantage of our growth. Our balance sheet continues to be a differentiator for us and is one of the strongest in the industry, if not the strongest, providing unmatched operating and financial flexibility to fund our business. This positions us with free cash flow and allows us to create long-term shareholder value by reinvesting in our assets at a decretive yield. We are bullish about what we’ve done so far this year and what’s coming on the balance of the year and heading into next year.

We are well positioned to continue as a company, very comfortable with where we sit, and we are building momentum throughout the year. With that, we can certainly open it up to questions both from the B of A team, but obviously everybody in the room, feel free to ask questions along the way.

Samir, B of A: Thank you, Brian, for that. Eli, just maybe starting off with you, you certainly were promoted to the COO role recently from the CIO role. As CIO, you worked on the Taubman acquisition and also the luxury outlet transactions earlier in the year. How has that transition been in terms of moving to the COO role? I know it’s only been a month here, but talk to us about the areas you’re focused in, let’s call it the next three to six months.

Eli Simon, Chief Operating Officer, Simon Property Group: Sure. I would say the promotion, I guess, right? I don’t know what it was a few months ago or so. I’m doing what I’ve been doing, frankly, for a decent bit of time now. I’d say today I probably split half my time on capital allocation, whether that’s new investments, new developments, redevelopments, or mixed-use portfolio renovations, larger tenant capital situations. The other half of my time is really on our operations, with a particular focus on our media at large business. That includes our marketing team, our innovation team, our data analytics team, our Simon Brand Ventures team, which is where we monetize our footfall throughout our domestic centers. In that bucket, I would say the thing that we’re most focused on over the next, really shorter than three months, in the next couple of weeks, is launching our loyalty program.

We’re in beta right now on Simon Plus, which we think is going to be the industry standard for an omnichannel or omni approach to a loyalty program to allow customers to earn points in store and online on our marketplace, ShopSimon.com, and then be able to burn those points either online or in store, which we think is going to be a real differentiator from a retailer perspective to one who’s signed up, want to have their products and some of their awards on our loyalty program. We’re continuing to invest in our data business and our digital business. We have Simon Search, which allows you to search real-time inventory from your home to know what’s in store today. The next step in that evolution is to link fulfillment from that.

Now you can be at home, see that the black dress you want is in store, and have the ability to either order it or go to the mall, know it’s going to be at the store, and pick it up. We’re continuously investing in that. I have a lot of really innovative ideas that are going to roll out over the next several months and into next year.

Samir, B of A: That’s great. Thank you for that. Just maybe taking a step back here, maybe about the macro and the consumer. A lot of questions about the consumer. Will they continue to spend given sort of the tariffs and the spending pressures? Talk to us kind of what you’re seeing across the three platforms. Are you seeing any differences in spending by the consumer or retailer demand for space at this time?

Eli Simon, Chief Operating Officer, Simon Property Group: On the consumer front, the consumer remains very resilient. Back to school is very strong. I live in New York, so I have a little New York bias, but in Indiana and the Midwest, back to school starts in July. If you look at the results that we’ve seen, both in terms of retailer sales and traffic in July, in what I call the mainstream centers, like a Woodfield in Chicago or Greenwood, Castleton, very strong results, which is really encouraging. We see continued strong retailer demand that’s unabated across all our platforms. People know that physical retail is where the consumer wants to be and that our properties are excellent locations for them to continue to open stores. On the consumer side, I think as we said on our last earnings call, not hitting at all cylinders with really kind of the one exception being our border properties.

We have fantastic properties, both malls and on the premium outlet side on the Canadian border and on the southern border that have been historically our best assets or some of our best assets in terms of traffic growth and sales growth. It’s obviously pulled back a little, but still long-term great assets. A couple of the international markets, international tourism markets have been a touch softer. Even if you look at Vegas, in July it was down 12%. Our sales were actually up a little bit. Not the normal, incredibly robust sales growth from that market, but still definitely getting more than our fair share overall, which is an encouraging sign so far.

Samir, B of A: By the way, I want to keep this interactive. If there’s any questions, just...

Unidentified speaker: That’s across all three platforms for about regions, and then within the malls or even outlets, that could be your most dominant to, let’s say, least dominant. Any differences to you?

Eli Simon, Chief Operating Officer, Simon Property Group: I’d say regionally, you know, again, besides the border, right? Southern California, Arizona. Maybe not just on the border, but as you go a little bit further north in those two states, a little bit softer. Otherwise, you know, again, the middle markets, the middle, you know, centers, very, very strong. The malls, you know, definitely outperformed, you know, the outlets and the mills in the last little bit. If you kind of normalize, the outlets just happen to be more weighted towards some of the international tourism. If you normalize that out, it’s much closer. Really, you know, resilient consumer across the board and a good back to school is what we’re hearing kind of across the board.

Brian McDade, Chief Financial Officer, Simon Property Group: If you think about the business, you know, we over-index to the higher-end consumer. That higher-end consumer is really driven by asset values, you know, the exposure to the stock market, what’s happening there. That drives their purchasing decisions. We’re still seeing really good uptake from the higher-end consumer in our business.

Unidentified speaker: It seems as if recently there was a lot of interest in non-for-profits. You mentioned the bottom of the acquisition. Is that something we should expect?

Brian McDade, Chief Financial Officer, Simon Property Group: I think the answer is yes, and I’ll absolutely have Eli opine upon this. We’ve been in international business for a long time. As you look at opportunities to acquire high-quality retail assets, whether that’s domestically or abroad, it’s going to be an area of focus for us. Right now it was more about the opportunity set. Jakarta was ground-up development versus the acquisition of the two assets in Italy, so a little bit different there. I would expect us absolutely to continue to invest in ground-up development in the outlet space globally, and I would expect us to continue to evaluate opportunities to add high-quality retail real estate from an acquisition perspective.

Eli Simon, Chief Operating Officer, Simon Property Group: Yeah, I think that’s right. I think, you know, sort of the law of large numbers, right? If we’re at 90-10 today, it’s going to be hard to move that, you know, materially, that 10% international and materially above that. As Brian said, we’re always evaluating opportunities. We look at what’s the best risk-adjusted return. It’s not a, we’re only going to do international, we’re only going to do domestic, we’re only going to buy, we’re only going to develop or redevelop. We can do all what we think is the good risk-adjusted returns, and then we’ll do it.

Samir, B of A: How much outlet opportunity is there in the U.S. right now domestically, do you think?

Eli Simon, Chief Operating Officer, Simon Property Group: For new development?

Samir, B of A: Yeah.

Eli Simon, Chief Operating Officer, Simon Property Group: I would say it’s funny, we had a capital committee meeting two weeks ago. There were a couple of opportunities presented, early stages that we were evaluating. I would say one was more interesting than another. It’s onesies and twosies, there’s not a lot. We have announced, right, in Nashville. I’d say more to come, but that site might almost be too good for an outlet based on the retailer demand we’re hearing. We’ll still continue to evaluate opportunities. We have a team that looks at it here, Canada, Mexico, throughout Asia, Southeast Asia, and Europe. We’ll continue to evaluate, but it’s not a tremendous number of markets that really are lacking today.

Samir, B of A: I know, Brian, you talked about the leasing environment being robust. It’s strong. You, I mean, talk to us kind of, I know you guys are all focused on deal review meetings that you sit on.

Eli Simon, Chief Operating Officer, Simon Property Group: Sure.

Samir, B of A: Talk to us, kind of, how is that conversation in these deal review meetings, and how much of sort of 2026 expirations have you taken care of at this point or rather addressed?

Eli Simon, Chief Operating Officer, Simon Property Group: Yeah, we’re about 25% through our expirations for next year, which is ahead of where we would have been last year. I think that’s a function of retailers’ desires to continue to secure high-quality locations, which is really the driving force of our leasing environment. The ability for us to put together high-quality real estate with our capital position really is a differentiator for us. Honestly, the retail backdrop in the leasing environment is as robust and unabated as it’s been the last 18 to 24 months. I mean, retailers are still looking to secure the very best locations. There’s nothing new being built that we just discussed. If anything, supply is leaving the system, given creative destruction, assets that are over-levered or finally being foreclosed upon and being revitalized into other things. That’s taking supply out of the market.

Retailers, as they’re looking to grow their business in the U.S., have a shrinking pool of opportunities. They’re looking to secure those opportunities over long periods of time. Our leasing environment is as good as it’s been in a really long time. That’s a function of the quality of our assets and the ability to put capital back into them. It’s broad-based across a variety of categories of retailers, from food and beverage and entertainment uses, which are really proliferating at our mall assets and our full-price assets, to the athleisure categories, which continue to see expansion with new entrants into that category. Ten years ago, it was Lululemon. Now there’s an incredibly deep roster of high-quality companies that are looking to access our type of space. The environment is robust as it’s been. Thankfully, we’re in a position to meet that demand kind of where it is.

Samir, B of A: Even if you hear about luxury pulling back in terms of demand for space, you have all these other categories pretty active, right?

Eli Simon, Chief Operating Officer, Simon Property Group: Absolutely. I would say that, candidly, luxury isn’t materially pulling back. At least, we’re not experiencing that. Certainly, they’ve had more volatilities in their sales, and there are individual brands that are going through their own respective challenges. As a whole, I think the luxury category continues to grow and is looking to secure space in our assets over long-term periods of time.

Unidentified speaker: The question on your initiative with Simon Plus and the Simon Search. Simon Plus is aimed at building a lot of your art and your attribute. Can you talk a bit more about what that investing is from an aspect but also from a retailer perspective and what the financial returns are, what kind of benefits are you seeing? Also, the same thing with Simon Search, right? It’s still not translated into our retailer sales. Can you quantify?

Eli Simon, Chief Operating Officer, Simon Property Group: Sure. I guess the first Simon Plus is, you know, a week or two in beta. We haven’t really seen results. I would say what is interesting, you know, from the retailer’s perspective is, you know, today, speaking as a landlord of Simon, we know that somebody went to Apple and somebody went to Abercrombie. We don’t know if you went to Apple and then Abercrombie. Now we’re going to be able to know that you went to this store and you went to that store. That’s real data and real analytics that we’re going to be able to share with our retailers to help get them excited, to help them improve their sales as well.

From our perspective, our focus is really on marketing, on getting the customer acquisition in the loyalty program, which we’re really launching, you know, kind of on center literally in the next week or two. From the retailer’s perspective, it’s what exciting rewards can you have on our platform. There’s a lot of opportunity there, whether it’s, you know, a spend $100, get $10 off, but it could be a, you know, a bag tag. It can be a free pretzel, right? There’s a lot of opportunities to engage with our customer. We’re hoping that this is a really robust ecosystem where retailers will want to put their best foot forward because they know that we have a qualified customer, right? When somebody comes to the mall and they’re buying, they know that they’re going to come back to that mall and they’re going to buy again.

We think that’s a pretty compelling story. We have, I don’t know if it’s going to the late, but 500 some odd rewards already, and we’re in beta. Once retailers see and once, you know, customers go and say, well, why don’t you have a reward on Simon Plus XYZ retailer, we think there’s going to be more and more that sign up as we really go live. On Simon Search, it’s been really interesting. We get, you know, 10 to 12 million searches a month on there. From a retailer’s perspective, it’s, you know, we think, again, it’s hard to quantify, but we think it generates incremental visits because if I know that that black dress is there in store in my size and I don’t have time to order it online or it’s sold out online, I’m going to go, right? We think that’s pretty interesting.

From our perspective, we get very interesting insights from that. If you look, this was in February and I was kind of looking at the top searches. The three top searches on Simon Search were dresses, pretty generic phrase, jeans, also generic, and labubu, right? That was before the labubu craze was taking over and now we have 30 some odd deals that we’re working on with Pop Mart. We actually are generating real insights from this, understanding what our customers are searching for. We think that overall helps our retailers because it gets repeat visits and it’s better for our consumer.

Yeah, I mean, yes, very, very marginal.

Unidentified speaker: It’s a pretty easy API that takes a couple of weeks and we get their live feed. We have, I don’t know, upwards of 100 retailers today, and there’s nobody else that has that. If you’re a retailer and if you’re considering two locations, the access to Simon Plus, the access to Simon Search, not to mention we have the balance sheet to put money into our centers, continue to reinvest in our centers, make sure that they have the best, newest food and beverage offerings, the most innovative retailers. That’s a competitive advantage that we use when we go and try to get tenants to come into our centers.

Brian McDade, Chief Financial Officer, Simon Property Group: It allows us to drive performance of those tenants at the end of the day, right? It allows us visibility to the Pop Mart, which was a great example where we, because of our infrastructure, our digital infrastructure now, identified a trend from the consumer level. We could meet that from a leasing perspective by working with the retailer to kind of open up the stores. We’re getting it from a variety of perspectives, and it’s really giving us a new aperture on how we can, you know, run the business.

Eli Simon, Chief Operating Officer, Simon Property Group: Our current database is around 20 million on the, you know, what I just call the old, you know, the original, which for lack of a better word, was a, you know, a glorified coupon book, right? Now it’s, you know, we’re hoping to have a real significant number and have tons of commerce flowing through there. Obviously, as that happens, we’re just going to learn more, have more opportunities to serve our customers better.

Unidentified speaker: Happy with the level of data you have, or in more scale in dominant centers?

Eli Simon, Chief Operating Officer, Simon Property Group: Yeah, I mean, it’s been a week or two, right? I think, you know, in the last July, so I guess a little over a year ago, we kind of saw the roadmap of Simon Plus. We actually really decided we’re going to really invest into data. We hired our first true data analytics person to run that group and started to build that out, knowing that Simon Plus was on the roadmap into 2025 and into 2026. It’s something that we think is going to be pretty significant for us and for our retailers in the coming years.

Brian McDade, Chief Financial Officer, Simon Property Group: We’re just getting started. We built the infrastructure for it, and now, as we collect the data, we’re going to be able to capture that, Jeff. Yes, data is the new currency in the world that we live in. Everybody’s looking to monetize it or have more of it. I think we’ve built out the digital infrastructure to support the business going forward.

Samir, B of A: Brian, just turning to maybe operations, you’ve done a good job on the occupancy front, right? It feels like a lot of demand there. Help us understand in terms of occupancy and how to think about that maybe across your platforms over the next 12 to 18 months. How much room there is to push here?

Eli Simon, Chief Operating Officer, Simon Property Group: Sure. Look, I think if you look at the mall and premium outlet business, roughly 96% last quarter. The previous high was 97%, which was a 2014 number. You know, it’s going to take a little bit, but we think the facts on the ground would lead to that there is the potential to exceed our all-time high, certainly in the outlets and in the mall business. When you pivot to mills, mills was 99% occupied, effectively fully occupied. That portfolio has done incredibly well. Lastly is the Taubman portfolio, which was roughly 93%, which was down a touch. They were replacing some Forever 21 stores. We would expect that to snap back closer to 95% by the end of the year. There is opportunity to drive occupancy.

You’ve also heard us talk about the merchandising mix, which is important, which is really taking lower productive tenants and replacing them with higher productive tenants in the world we’re living in today. We may churn some occupancy. You may not see big increases in occupancy, but we’re doing so with better productive tenants that ultimately over time will be more economically viable for us.

Samir, B of A: Right. It feels like we’re in a great environment here for the mall business, in terms of activity and leasing that we’re seeing. This year you have Forever 21 and Claire’s. How do you think about sort of that watch list in the next year? Is there anything that...

Eli Simon, Chief Operating Officer, Simon Property Group: Those were certainly the two that were on at the beginning of the year. We’ve not added throughout the year, which is, you know, relative to the fundamentals that we’re seeing in the business. Traditionally, holiday season is the make or break. We traditionally re-rank our tenants, call it February, after you have final results for the year in the holiday season. As of where we sit today, we don’t see any new risks emerging in a meaningful way. I actually think that the Forever 21 and the Claire’s situation is really, you know, fundamentally, we absorbed 1.8 million square feet of bankruptcy from those two entities in the second quarter and still increased occupancy ten basis points. That dynamic on the ground is probably underappreciated in that respect and increased rent significantly.

Samir, B of A: Right. How is, I’m not sure how much data you have sort of back to school and holiday. How are you thinking about inventories into the holiday season? What are you hearing from retailers?

Eli Simon, Chief Operating Officer, Simon Property Group: As Eli said, the back to school holiday season, depending where you are geographically, starts in July and kind of ends in September. In those early return states, if you would, the Midwest, Indiana, we have seen outperformance from back to school, both in sales and in traffic. If you listen to some of the retailers that have reported in here in the last couple of weeks, I think they’re reporting something similar. The consumer is engaged. The consumer is buying. It may be more discerning than it has been in the past, but they are still spending. Certainly, event-based things, so back to school holiday is an important part. The upper-end consumer continues to spend, given the value of their assets continues to go higher.

Brian McDade, Chief Financial Officer, Simon Property Group: On the inventory front, we’re not hearing anything. Retailers are planning for a normalized inventory and for a good productive holiday season.

Samir, B of A: In terms of the balance sheet, talk to us as we think, again, as we think about next year, some of the maturities coming up. How are you planning for those maturities, given the interest rate environment here?

Eli Simon, Chief Operating Officer, Simon Property Group: It’s a great question. We were just active here in the last three weeks in the unsecured debt markets. We raised $1 billion at a blended rate of 4.7% between 5 and 10-year money. The unsecured side is incredibly wide open. Spreads, quite honestly, are as tight as they’ve been. We issued at 89 over on our 10-year. The only other time we priced tighter was in 1996 at 82 over. Spreads are incredibly tight on the unsecured perspective. Certainly, we’re pricing off a much higher base rate than when our existing debt is rolling from. As you look at next year against that, we’ve got unsecured debt that’s rolling in the context of 3.5%, and we just reprinted at 4.7%. There is definitely interest rate headwinds. Last year, we talked about those being between $0.25 and $0.30 on the year.

I would expect a similar order of magnitude for next year as you just kind of look at what’s rolling in the rate differential. The markets are certainly wide open. We have access on the unsecured side, certainly domestically, but also to the euro and the yen market. We’ve not issued in yen historically, but have in euro, and would expect that we would access some of those markets certainly next year or balance of this year into next year with some of our maturities. On the secured side, it’s kind of all over the place to some degree. The CMBS market is open. Both the conduit and the SASB market, so bigger loans and the SASB, are pricing incredibly well. Earlier this year, we refinanced Houston Galleria at a sub 50% LTV with a spread in the low 100s.

That’s got a five and a half handle coupon on it. It was a three and a half, right? At the end of the day, interest rates are going higher and will be a bit of a headwind. Again, next year, relative to similar to what we saw this year is what I would say.

Samir, B of A: Maybe talk a little bit about external growth, right? Given sort of the current cost of debt, I mean, even sort of the transaction environment. I guess talk about potential property acquisitions that potentially could look interesting and maybe generally talk about what does that transaction market look like for A malls today?

Eli Simon, Chief Operating Officer, Simon Property Group: Yeah, so on the transaction market, we have a, I think, a relatively simple philosophy when we evaluate what we’re going to buy. First off, it has to be really good real estate that we think improves the franchise value. Two is we think that there’s going to be an ability for our operations teams, our leasing teams, et cetera, to improve it. Three is, is that the right price, a price that we think we can make money on in the long run. We don’t have to buy to buy, for buying sake. We’re going to buy for compelling opportunities that meet those criteria. If you look at the two larger acquisitions that we’ve made over the past nine months, the two mall luxury outlets in Italy and Brickell both met those criteria.

Very excited about those and they’re both, I guess, all three of those assets, they’re growth prospects. On the overall transaction environment, do I think there’s going to be a flooding of class A malls trading? Probably not. If there are opportunities, we will evaluate. If they meet our criteria and we think we can make a good return on it, then we have the ability to be active. If not, we have plenty to do with our existing portfolio. We’re going to keep on doing what we’re doing with our existing portfolio. If we see opportunities, we’ll be able to participate. It’s not a do one or the other. We’re going to do both to the extent that the math and the returns make sense.

Unidentified speaker: Are there return thresholds? Does it have to be accretive year one?

Eli Simon, Chief Operating Officer, Simon Property Group: Yeah, I mean, I think generally speaking, yes, accretive year one. At the end of the day, we want to increase NAV over the long term. Obviously, on a development, you’re hoping that you’re building to a spread outside of what the cap rate is. That math is pretty easy. On an acquisition, either it’s on the buy side where the purchase price is such that there’s embedded NAV growth, or we think we can really improve cash flow, combined with a good purchase, get you the NAV growth. That’s really how we think about it. If you look historically over 32 years as a public company, we’ve kind of bought or done transactions at 125 to 150 basis points outside of our 10-year cost of capital or 10-year debt financing costs. Generally speaking, some higher, some lower. That’s somewhat of a rule of thumb.

Really, it’s asset-specific, deal-specific, and it’s got to make economic sense. We don’t need scale just for scale’s sake.

Unidentified speaker: In the last year or so, are you seeing more rolling stores?

Eli Simon, Chief Operating Officer, Simon Property Group: I would say you definitely have seen more activity on the strip center, quasi-lifestyle center space. There’s definitely been some activity that we’ve looked at and didn’t participate in for a variety of reasons. In the sort of the more traditional class A mall space, whether it’s a willing seller or it’s at a price that doesn’t make sense, there clearly hasn’t been as much robust activity in that space. Obviously, it takes two to tango for transactions to occur.

Brian McDade, Chief Financial Officer, Simon Property Group: I would just say that usually you’ve seen a lot of smaller transactions, so stuff in the $100 million to $300 million kind of zip code of stuff. Usually, that’s what builds into bigger things, right? You see some more activity, more clearing prices at those kind of assets and levels, which usually unlock opportunities kind of for the larger assets.

Unidentified speaker: Talk a little bit more about the decision to invest again in your B malls.

Eli Simon, Chief Operating Officer, Simon Property Group: Yeah, I think it goes, you know, it’s a couple of things. One is, you know, our B malls are other people’s A malls, right? We don’t, you know, view it that way, right? We view it as different, you know, malls have different places in different communities. I think we’ve mentioned, right, the Smithhaven example. That’s a dominant mall on the eastern part of Long Island. You can call it an A mall, a B mall, you call it whatever you want, but it’s growing. That catchment area is growing, super good demographics. We can invest incrementally at really attractive returns, adding, you know, top-tier retailers. When those situations line up, we’re going to do it. You can look at Tacoma, you know, again, call it A mall, call it a B mall, you call it a very good mall with a great, you know, great location.

We’re adding, you know, some restaurants outside that will open, you know, in a month or two because we thought it was really interesting risk-adjusted returns. It benefits the rest of the property. We believe in that asset in the long term. We don’t look at A, B, C, whatever. We look at where can we invest and make money and have good returns.

Brian McDade, Chief Financial Officer, Simon Property Group: I think importantly, the driver of this investment is the tenant community, right? They want to be there. They wanted to be there. They wanted a store there. It unlocks the opportunity for us to invest. I mean, this isn’t spec investing anymore. We’re doing it with the demand in the marketplace. There is demand from those retailers for those B assets, if you would. This is more of a pet peeve for me, but A’s and B’s and C’s, you know, we grade those assets based upon relativeness to other assets, not relative to their market. A $450 foot asset may be the best market in that asset. It may be an A, but it looks different than shops at Crystals and Form. The relativeness, I think, is lost in the gradient there. That is an important asset for us.

The retail community was the driving force of our investment. We were in the position to have the capital to invest, which is also very important, right? The tenant community is coming to us because of our capital position to grow with us.

Samir, B of A: You guys generate a lot of cash flow annually. When you think about that use of cash, is that, what are the priorities as you kind of rank them?

Eli Simon, Chief Operating Officer, Simon Property Group: Just to level set, right? In a given year, we’re going to generate after our dividend about $1.5 billion of free cash flow. Certainly, the redeployment of that capital back into our assets is first and foremost priority, making them better. In any given year, you’re going to see $1 billion to $1.5 billion of committed development spend. Now, they’re 24-month projects, so half of that goes out the door in any given year from a cash perspective. So $1.5 billion of free cash flow, $750 million of it funds our degree development program, which are yielding roughly 9% on unlevered yields. Making our, growing our dividend, returning capital to shareholders, investing in our core business creatively. We have other opportunities, acquisitions. Certainly, we can delever the balance sheet if necessary, just given not facing higher interest rates. The balance sheet’s in a great place.

We’re approaching five times net debt to EBITDA and may actually crest over that by the end of the year, given EBITDA growth and no need to seek external funding or capital to drive our business because we’re using internally generated funds. As we rank order kind of capital priorities, it’s, again, it’s an and conversation for us. It’s not an or. We’re not doing acquisitions or reinvesting in our business. We’re doing both simultaneously.

Samir, B of A: Any questions? Okay, I have to ask the rapid-fire questions.

Eli Simon, Chief Operating Officer, Simon Property Group: All right.

Samir, B of A: All right. Number one, when the Fed starts to cut rates, the short end, how do you think the borrowing rates will react? Decline, stay flat, or potentially rise?

Eli Simon, Chief Operating Officer, Simon Property Group: I guess if the Fed cut rates, they by definition have to fall, borrowing rates, at least the front end. I think overall, the long end rates will stay probably pretty anchored on where they are today.

Samir, B of A: The 10-year yield, yeah.

Eli Simon, Chief Operating Officer, Simon Property Group: 10 years probably anchored more on growth and inflation expectations versus what the Fed is traditionally doing, or at least historically, that’s how the economic model worked. I would say kind of no change in long-term rates relative to what the Fed’s doing.

Samir, B of A: Okay. Number two, majority of companies last year talked about ramping up spending on AI initiatives. How would you characterize your plans over the next year, higher, flat, or lower?

Eli Simon, Chief Operating Officer, Simon Property Group: From a spending perspective, we’ll spend a little bit more next year than we did this year for sure. We’re kind of feeling our way through it like so many organizations and industries are, but it’s clear that there is opportunity by using AI to drive cost structure changes and/or greater productivity from our human capital assets.

Samir, B of A: Okay. Number three, same story in a way, growth next year, higher, lower, or same for the industry?

Eli Simon, Chief Operating Officer, Simon Property Group: I would say higher.

Samir, B of A: Thank you very much.

Eli Simon, Chief Operating Officer, Simon Property Group: Thank you.

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