Citi's 2025 Global Property CEO Conference. I'm Nick Joseph here with Craig Mailman with Citi Research. Pleased to have with us Simon Property Group and CFO Brian McDade. This session is for Citi clients only, and disclosures have been made available at the corporate access desk. To ask a question, you can raise your hand or go to LiveQA.com and enter code GPC25 to submit questions. Brian, I'll turn it over to you to introduce the company and team, provide any opening remarks, tell the audience the top reasons an investor should buy your stock today, and then we can get into Q&A.
Great. Thank you, Nick and Craig, for the introduction. Good afternoon, and thank you for joining the roundtable today. I'm Brian McDade. With me is Tom Ward, our Senior Vice President of Investor Relations. First off, I just want to say congrats on 30 years of this conference. It's quite an accomplishment, and it's still going strong. I thought that giving that backdrop, and it's only fitting that I talk about our 31 years as a public company as we've continued to evolve. We were founded over 60 years ago and have been a public company for 31 years with a portfolio that originally principally consisted of Midwest shopping centers. Over the last three decades, we have systematically grown our company into a global leader in retail real estate that brings together five distinct retail distribution channels: malls, mills, outlets, international, and digital.
At the time of our IPO, just to give you some sense of size, the company had about $300 million of NOI, would have produced FFO of about $150 million and paid $188 million in dividends. Fast forward to today. Last year, through incredible hard work, we've reported record results of $6.4 billion of NOI, FFO of $4.9 billion, and paid more than $3 billion in dividends. Through our active portfolio management, disciplined investments, and relentless focus on operations and growth, our annual NOI and FFO has increased 21 and over 31 times, respectively, since our IPO. Over this period of time, we paid more than $45 billion in dividends as a company and returned over 4,000% to shareholders. Thirty years ago, there were more than 30 companies operating in the retail real estate sector that would have probably been at the first conference.
Today, there are just a few left, and only one that has consistently delivered for shareholders, as evidenced by our results, and candidly, we feel like we're just getting started. The operating fundamentals of our real estate business are as good as they've been since as a public company. Supply and demand is very favorable. There is no new supply in our sector in the U.S., and the underproductive antiquated product is finally leaving the system. Creative destruction is a positive contribution to the industry. There is a resurgence of retailer demand for well-located, high-productivity physical real estate across the globe, but especially in the United States, which is driving demand, which is broad-based across all of our platforms from a variety of retailers, which allowed us to sign a record 5,500 leases for more than 21 million sq ft last year.
We have the free cash flow and balance sheet to allow us to invest countercyclically in our business. We will be the only retail company that delivers materially new product in the coming years. Thinking back over the past 30 years, we've really never wavered from our core strategy, which we established: own the best retail real estate in the markets, make accretive acquisitions where we can add value, invest in select new developments that meet our stringent investment criteria, export our know-how internationally and grow our global footprint, and reinvest in our properties, curate the retail mix, and enhance the shopping experience through physical and technological innovations. All of this is supported by our fortress balance sheet, which provides us with superior operating and financial flexibility. Last year, we completed more than $11 billion in financing activities while also deleveraging the balance sheet $1.5 billion.
Net debt to EBITDA year-end was 5.2 times, and naturally, given the expected growth of our NOI, we'll continue to deleverage naturally. Our A-rated balance sheet does provide a distinct advantage, and we ended the year with more than $10 billion of liquidity. We are well-positioned to grow our cash flow and create shareholder value with our diverse retail distribution channels, our international business, our vision of what our communities will offer through new development and redevelopment activities, and with our people who are the industry's best at what they do. We have an exciting opportunity in front of us to continue to evolve and grow this company over the coming years. Prepared remarks, do you want me to go into something else, guys, or do you want to open up for questions?
I guess just maybe one or three reasons. What's the reason someone should buy your stock today?
Look, I think by just about any measure compared to the REIT industry today, we're undervalued. Whether it's FFO, AFFO multiples, whether it's free cash flow or dividend yields, we screen cheap. With the demonstrated record of outperformance over the last 30 years in our track record of expected future growth, we feel like we're well-positioned and undervalued relative to the market today.
Great. I guess if I think about the opening comments you just made, you talked about the scale, you talked about kind of the leasing environment, the supply-demand dynamic. You obviously talk to a lot of retailers day-to-day constantly. The question we keep getting is kind of the broader economy, what's happening with the consumer, a lot of uncertainty of what's kind of coming from a policy perspective, which we can get into later. But just what's your broad read on the consumer today, and how does that go into leasing decisions?
Sure. I think you have to break the consumer down into its respective cohorts. And I think as you look at, we'll start with the lower-income consumer who we've been talking about now for several years. That consumer still is under pressure, whether it's inflation, whether it's interest costs, whether it's a variety of other things. That consumer still, for the past several years and continuing, is under pressure. But the vast majority of our real estate really skews more towards the upper-end consumer who still feels relatively strong. Obviously, that upper-end consumer really is a function of balance sheets. And the left-hand side of the consumer balance sheet, the majority of the shopper at our assets continue to see assets go higher. If you look since 2019, I think asset values have increased something like $50 trillion. So in addition to that, that consumer also is generating yield.
If you think back for the past five years where we were in a zero-interest rate environment, your assets weren't earning yield. Now there is interest income being earned across the investments that that consumer traditionally holds, so I think by and large, while maybe a little bit more discerning, that consumer is still in a good place and is definitely out shopping and engaging in our assets, and as we look at the leasing environment that we've seen, which has been incredibly robust, we've not seen any degradation in that thus far this year. We are still continuing to see leasing being done at record paces across our portfolio.
Brian, the mall space, the outlet space has generally kind of sidestepped a lot of the bankruptcy issues, at least from the retailers so far this year. But the one area that you guys still have to contend with is Macy's, JCPenney, some of the anchors. As some of those boxes are put on the market, how much capital do you think, if any, you guys will put forth to strategically buy back some of those boxes to be able to facilitate some of the redevelopment, take out some of the blocking rights, and other things?
So I think everybody wants to just have a broad brush rule of thumb. Unfortunately, it's fact and circumstance specific in the sense of if we have an opportunity because the tenant demand is such or the demand for residential or hospitality in a market that we operate is strong, each individual investment decision is done kind of in isolation. And so there isn't a $500 million to buy back boxes. That's not in our DNA. It's truly an asset-by-asset specific opportunity that presents itself. Certainly, we'll take advantage. It's interesting you bring up Macy's. When we were here last year, Macy's was in the news. They had just announced their store closure plan. And so we spent a lot of time talking about that. And I think in hindsight, when you look back at that, how much of that actually came to fruition?
We've seen this kind of movie play out over time where retailers believe that by announcing store closures, they're going to get a benefit from that, and then they ultimately look at the performance of those stores and make changes over time with their approach because they are truly positive cash flow generating entities or assets. I think David talked a lot about that. Shrinking to grow is a really difficult strategy, and so if you're giving a positive cash flow contribution from an asset that maybe is mature to replace that with a new asset that still has to be amortized and generate in a market, the math of that is difficult.
And so while there is opportunity to recapture boxes, and that's an area that we continue to invest heavily in, I think it's going to be fact and circumstance specific and not just done in a portfolio way.
And you guys have a bit of a purview into JC Penney's, obviously, through SPARC. I mean, can you talk a little bit about the actual business versus maybe what we're hearing in terms of the health of some of those stores bifurcated between a mall that Simon may own versus a B or C mall in a tertiary location? How is the performance of those differentiated among kind of your exposure versus maybe where they're struggling more?
Look, I think it's just going to come down to the market that they're operating in, right? As you look at the quality of our portfolio and the JCPenney consumer, that consumer traditionally skews more towards the lower-income consumer who we just talked about has been under pressure for some time. As you look across our portfolio, the tendency of JCPenney, there are certainly markets that they're outperforming in, and there's some that they're underperforming in. It's really a catalyst of the individual market characteristics, not necessarily whether they're in Simon or in someone else's portfolio. Generally, if you looked at our portfolio, where they express themselves more is in our lower productivity assets versus the upper end of the portfolio. I think they have a place in the market. Certainly, they're providing value to the consumer.
They've seen some positive improvement in recent times. They've launched several campaigns, marketing campaigns. They've sponsored Thursday Night Football, and they're seeing positive results from that with their consumer. So I do expect that there is bifurcated outperformance across their portfolio. But generally speaking, the business is doing slightly better.
And we had a question come in. What asset class do you think you'll concentrate your investments in in the future? Will it be more retail, offices above retail, residential, outlets? Kind of where do you see the best opportunities today to deploy?
It's adding incremental activity and components to our retail business. We're a retail real estate company, first and foremost. The investments that we've been making are around the adjacencies of our portfolio where we can recapture a department store or, more importantly, the 20 or so acres of land underneath that department store that was uneconomical to us and redeveloping that into its highest and best use. And so as we think about the company, certainly, we will do more residential. We will do more hospitality. We will do more office in select cases. But it's going to be around the peripheral of what is our core real estate business. It's really about creating a flywheel effect of those adjacent businesses on our overall retail offering.
I think you guys talked about, and correct me if I'm wrong, Smith Haven Mall was the mall this quarter. Could you talk about because you guys do have a large portfolio. We don't get into the granularity as much sometimes, but as you look across your portfolio, the magnitude of capital you could spend over the next, say, three to five years on a Smith Haven type repositioning versus ground-up outlet in Asia or internationally, where's the best risk-adjusted return today in terms of what you have in the pipeline?
I think at the end of the day, Craig, we're going to continue to do probably all of those things. We're going to build up ground-up development in Asia at the appropriate risk-adjusted return profile. We will continue to invest in the assets like Smith Haven, where there's a competitive advantage of doing so. We have the tenant demand for space that that asset really is what drove our investment decision at the end of the day. And so if we can meet demand with our real estate, we will continue to do it. I think the moral of the story is we can do a variety of these things all simultaneously with the current capacity of the organization, both human capital and financial. You will see us do more of the Smith Havens of the world across the portfolio.
But we will do this week. We're opening up a brand new outlet in Jakarta, Indonesia. There will be more of that to come as well as we really export our international know-how from an outlet perspective globally. And the portfolio is ripe for continued investment. We're active on Briarwood in Ann Arbor, Michigan, which I would put in a similar genre potentially as Smith Haven, which is the demand around that marketplace is incredibly strong. And given that, it unlocks the opportunity for us to add new retail. We're also adding a residential component to Briarwood as well. And so you will continue to see us express ourselves in numerous ways across the portfolio, specifically the full-price portfolio over the coming years to take advantage of the dynamics that are on the ground today.
Are there any questions in the audience? You guys are one of the few global REITs out there. I mean, as you look around, you talked about Jakarta, but you talked about some U.S. Is there any discernible trend as you guys look at the risk-adjusted returns in certain geographies that make a lot of sense to you and you want to get bigger in certain countries versus others? Just talk about kind of the footprint and where it makes sense to grow versus maybe take a breather.
So I think we're comfortable with all of the geographies that we are generally in, certainly domestically in North America, so Canada, U.S., Mexico. As we think about Europe, we have a big exposure to Europe, both from our outlet business, but also for our ownership in Klépierre. And then as we think about Asia, principally Southeast Asia or South Asia from an outlet perspective, Japan, big business there. I'd say the only place that we probably are not going to invest incremental dollars in is China at this point, just given that the amount of scale required to make returns work there is incredible. And it's obviously a challenging backdrop relative to that economy. So I think for now, we're really comfortable with most of the rest of the world. Now, I think you'll see us do it in a really disciplined way.
If you think about our international business, we principally invest in joint venture formats and reduce the risk profile. We have local operating partners. As we know, real estate is a local business, and so having people on the ground in those jurisdictions brings down the risk profile. The other thing I would say is I would expect us to principally focus on the outlet product, which just has a much lower capital intensity profile than a full-price asset anywhere in the globe. Outlets, generally speaking, are between $200 million-$400 million worth of capital investment, and full-price assets around the globe are well in excess of that. There are many multiples of that because you ultimately have to build usually structured parking. Usually, there's a verticalness to this to a full-price asset that you don't have in an outlet product.
So as we think about risk mitigation globally, certainly the type of product that we're investing in and the amount of capital required and the use of local partners really mitigate those risks in our minds.
I guess as you kind of lease up the international outlets and Asia, it's going to maybe be a stupid question, but the tenant mix, is that more local brands or is it US companies that want the foothold in some of these international markets? And do you risk kind of cannibalizing a little bit of asset like Woodbury Common, which has some tourism-driven kind of demand for it if you expand too much globally and kind of bring the product to them?
I mean, I think we're probably pretty far away from diluting Woodbury Common by investing in Indonesia at this point. But certainly, if we got to a point where we had that type of critical mass globally, then you could see an impact. There's no question. But I think the tenant makeup of our international portfolio is global retailers and local retailers. It's not so different than what you see expressing themselves through our domestic portfolio. You have local, you have U.S. retailers, you have global retailers, and you have local mom-and-pops. I think you're going to see a similar lineup internationally as well. But I would also say that there is a lot more brand sensitivity internationally. And so the branding of the organization or the retailer really matters internationally in a big way.
So you do see more global retailers populating our outlet product internationally on the margin.
We have a handful of questions coming in through live Q&A, so please submit if you would like. But why don't we just hit a few of them? Questions about omnichannel initiatives and what we can expect in terms of the strategy going forward.
Omnichannel and digital is a big effort for the organization, really bringing the ability to power what is our incredible physical real estate attributes with a growing roster of the world's largest retailers, from the biggest companies of the world, such as Apple, down to the mom-and-pop local retailer who wants to express themselves in one of our assets. And in the middle of that is the Simon flywheel of marketing and digital penetration. So we naturally have wide-ranging digital channels, TikTok and Instagram, and interacting with our community, our consumer there, powered by the marketing campaigns that we are now launching or have been launching. So before Black Friday, we launched the Meet Me at the Mall campaign. Really, it's about bringing together the mall is cool again. It's back in vogue and really kind of highlighting that.
We saw a direct impact from that campaign on traffic data coming out of Black Friday. It was really robust. And so really engaging with the end consumer and showing them what our assets offer, both in the physical and the digital capacity, is a really big area of focus for the organization, driving focus and energy. We also rebranded our Shop Premium Outlets platform in the fall to Shop Simon. So we've expanded its capabilities. Originally, the idea was to drive outlet channel product through a digital channel. But after establishing that and hearing from the retail community, they also want to have on-sale opportunities. And so what we have is a marketplace that is available 24/7 that's sponsored by the Simon technology. And really, it's up to the retailers to provide their inventory feeds and the products that they want to clear through that channel.
And so just like a retailer has to decide what product they're going to send to Woodbury Common because of the opportunity set at Woodbury Common, as we continue to build out our digital channels, it's really that same decision-making that retailers have. If you have a marketplace that has 200 million people that look at it every day, you may clear a variety of inventory through it or make certain distinctions on how you want to approach it. And that's really up to the retail. So it's our job to bring together the infrastructure and the excitement around it. And then it's up to the retailer to really bring product through it to drive purchasing decisions by the end consumer. But it is a big area of focus. It's an area of differentiation.
As you think about the U.S., we have approximately 215 physical assets in the U.S. and 38 states or 37 states. And so as retailers look to expose themselves to those consumers, they can do so in a targeted way through our digital channels and our physical channels. And really powering the two of those things together, we're really excited about what the future opportunities are in front of us.
And the data. Oh, go ahead.
I was just going to ask you, you mentioned before that you're entering some kind of digital situation. Is that something that you're looking to expand? How are you doing that?
It is. We've done it, and we're accelerating it in certain places where the demand for residential is incredibly strong, and so there will be Briarwood is a good example. We are building residential next to the mall at Briarwood Mall in Ann Arbor, Michigan. You will continue to see us launch those kind of projects in places where there is demand for housing that is not being satisfied, and in certain municipalities, there is actually an acceleration of our ability to rezone properties to meet that demand, so you're seeing a little bit more of that in California, but we are leaning into the opportunities that are presented to us for our real estate, and so in certain respects, we're building that stuff on balance sheet.
In certain respects, we're partnering with local operators or larger companies that are in the residential space to accelerate that growth and that opportunity.
Any other questions from the audience? Brian, just go back to the commentary about kind of the data analytics that you guys are building. I know it's not exactly early days, but is there a long-term monetization opportunity for that data, or is it too proprietary? As you guys think about collecting all that, what's the end game? Is it just to help you place tenants strategically within the mall, help them think about where they should be co-tenanting next to, or is it more of a potential consulting tool as they think about omnichannel and their supply chain and having inventory levels in the right places?
It's a little bit of all of those things, candidly. It gives us an ability to understand the performance of our assets better, where tenants are doing better and worse, relatively speaking, to other retailers. It really gives us an opportunity to optimize merchandising mix. But there's also an opportunity to monetize the data into the future as well, whether it's traffic data, whether it's a host of other ability to really target marketing to spend to specific cohorts of consumers. So this is the early days of that. But the retail media network aspect is a great growth vehicle for us going forward as we really power our decision-making with additional information. One company that does a great job of this now is certainly Walmart.
I don't know if I have my facts exactly straight, but I believe last year that they generated about 30% of their profit from this exact thing of being able to sell media, targeted media to the end consumer from their retailers. We can do something similar across our portfolio. As you think of the amount of digital boards that we have in our assets and the ability to run advertising over that, it is still a growing part of our business, and we're at the early days of it. But when you can bring together data with the needs of what the retailers are looking for, you traditionally can create a monetization opportunity for us and an incremental revenue stream over time.
We have another question that came in through live Q&A just on tenant exposures. Can you just talk generally about your watch list and, in particular, your Forever 21 exposure?
Sure. Watch list is certainly at a relatively similar point as it was at the start of 2024. I think our retail community, quite honestly, and the retailers that we've done business with, there was a big pull forward effect during COVID, and we saw a really disproportionate amount of fallout from that. And so I think we've kind of normalized and kind of still living off of that. Certainly, there's been bankruptcies in the retail community away from Simon, generally. And so haven't really seen any material impacts overall to our organization from what's happened. Forever 21 is a tenant in the portfolio. They are in the announced process of exploring strategic alternatives. So there's really not much I can say beyond that at this point. That process has to conclude.
But I will say that we've seen retail bankruptcies in our life as a public company over the 30 years. And usually, what we find is they end up turning into somewhat of an opportunity. Usually, the tenancy that ends up in a more difficult, challenged financial position probably isn't paying the most amount of rent. And ultimately, given the dynamic of demand on the ground today, we actually believe that there's opportunity to upsize our rents relative to what we've been seeing across the portfolio for some of those tenants that were traditionally on the watch list. Usually, as it goes through the system, given the ability to release space, which is usually quality space at higher rents, is there.
Just generally, if we were to think about the long-term earnings potential of Simon with the success in the leasing, the development, the redevelopment spend, I mean, over the next couple of years, where do you think a target could be on FFO or AFFO growth for the company?
We're not putting out guidance, but I would say that it would be at least consistent, if not an accelerant, from the past few years. The unlevered NOI growth of the business has continued to be strong. Really, the only headwind that we're seeing is really interest expense. At the end of the day, we are a levered entity, five times levered. So really, the roll-up of that interest to market is really the only real big headwind that we've seen. Obviously, rates have come down in the past 30 days, 50 basis points, at least long-term rates. So we'll see where all of that shakes out. But really, as I think about the earnings power of the company, at least on an unlevered basis, it's incredibly strong. It's as good as it's been the past three years, and kind of our results speak for themselves from that perspective.
But we will have some headwinds from an interest expense. I think the entire marketplace is dealing with similar things. So it's not unique to us, but we do have the ability to raise capital in numerous jurisdictions and currencies. So there are times where we can outperform just given our ability to finance ourselves in different markets.
What's the arbitrage opportunity for you guys with capacity in different currencies today to kind of multi-currency borrow and arbitrage?
Sure. Maybe just let's think about 10-year unsecured financing. Here in the U.S., you're probably today 5.25%. If you span to Europe, you can probably print that in the context of 3.5%-3.75%. If you went all the way over to Japan, you're probably closer to 2.5%. So there is opportunity, certainly, to bring down interest costs, but there is a limit on the ability to do that just given that we naturally hedge our asset base in those local jurisdictions for the ability to do that. And so we are somewhat limited in capacity, but we certainly can tap other markets if we so choose to bring down our financing costs.
You guys have had sort of a track record of transformational investments, whether it's acquisitions, technology, or other investments. If you look out five years, where do you think you could deploy capital that could surprise investors?
I think the amount of digitization is going to surprise. I think the upside from that aspect of our business and really powering or bringing together the power of our physical and our digital channels to create revenue and incremental revenue opportunities with a limited amount of capital needed behind it. The technology has already been invested in. I'm sure there'll be an incremental amount. But by and large, we've made the investments, and now it's really trying to harness the power of all of it to deliver one plus one equals two and a half in this regard.
So I think you're going to see us five years from now, you're going to look back and say, "Boy, we didn't expect them to have the type of digital outcome that ultimately they achieved from either the retail media network and the sale of that or other aspects of the business that you can generate tangentially and adjacent to our core physical and digital offerings.
And for you to do transformational digital kind of push, given the infrastructure you have today, how expensive would it be? And maybe what kind of ROI do you get on that versus physical retail capital deployment? What's the spread?
Capital is relatively limited needed going forward for the digital businesses, quite honestly. There's some. I would expect that you would see similar ROIs on capital deployed digitally versus capital deployed in our physical assets. There's going to be a little bit of noise between the two, but I ultimately expect you'd see unlevered 8%-10% returns on capital in both businesses.
Any questions from the audience? The other initiative you guys had talked about was on the logistics side, marrying the retail with the logistics. Where do you think we are in that kind of initiative and the demand for it from your tenants also within certain locations?
Sure. I think we're probably still in the early days of that, trying to figure out how to make that work as an industry and whether there's an economic model that makes sense. But I ultimately think that the idea of logistics was about filling space, was where it came from, is an industry. And given what we're seeing from our true tenancy and retail community and their demand for space, I honestly think the pendulum has swung more towards our traditional approach to investing in our assets. Logistics, we may find it makes sense in a few of our assets over time, but it's not a big area of focus, at least today. But allowing or creating a more convenient opportunity for our tenants to fulfill from their stores is probably what you're going to see happen.
Because ultimately, the tenant community is using their physical store locations to start to fulfill in their local marketplaces, and that probably also ate into the thesis of us creating or the industry creating an opportunity to really create logistics at the mall, if you would, in some of the antiquated department stores that traditionally you would have thought would make sense for a use like that.
Last chance. Anyone in the audience? No? Okay. We'll jump to rapid fires.
We got one?
Oh, go ahead.
Can I get a bankruptcy supplier if they have it?
Not for you.
Higher or lower, but I don't know the answer to that as a totality. But the bankruptcies that have occurred thus far in 2025 are away from our type of real estate and tenant. It's more of the Party City and the JOANN of the world who really don't express their retail channel through our offerings. That's what I was saying. As far as higher or lower, I don't want to comment on the industry as a whole, but that was what I was trying to say. So rapid fires. Same-store NOI growth for the whole retail sector in 2026?
Less than ours.
What will yours be?
Less. More than everybody else's.
And then for retail, same, less, or more companies, public companies this time next year?
Retail as a whole?
Yeah.
I'd say less as a whole. Away from us, there probably will be additional consolidation. We've already seen it with ROIC this year, so I would expect something like that to continue.
Thank you so much.
Thank you.