Q3 2025 Earnings Call Transcript

Greetings. Welcome to Simon Property Group Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Tom Ward, Senior Vice President, Investor Relations. Thank you, sir. You may begin.

Thank you, Sherry, and thank you all for joining us this evening. Presenting on today's call are David Simon, Chairman, Chief Executive Officer and President; Eli Simon, Chief Operating Officer; and Brian McDade, Chief Financial Officer. A quick reminder that statements made during this call may be deemed forward-looking statements within the meaning of the safe harbor of the Private Securities Litigation Reform Act of 1995, and actual results may differ materially due to a variety of risks, uncertainties and other factors. We refer you to today's press release and our SEC filings for a detailed discussion of the risk factors relating to those forward-looking statements.

Please note that this call includes information that may be accurate only as of today's date. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included within the press release and the supplemental information in today's Form 8-K filing. Both the press release and the supplemental information are available on our IR website at investors.simon.com. Our conference call this evening will be limited to 1 hour.

For those who would like to participate in the question-and-answer session, we ask that you please respect our request to limit yourself to one question. I'm pleased to introduce David Simon.

Good evening. I'm obviously pleased with our financial and operational performance for the third quarter. Our results were driven by solid fundamentals. Higher occupancy, accelerating shopper traffic, strong retail sales and a positive supply and demand dynamics, all contributing to strong cash flow growth.

We are pleased to have acquired the remaining interest in Taubman Realty Group that we didn't own and are excited about the opportunities to enhance the operational efficiency and increase the NOI from the assets and deliver long-term returns to our shareholders. I want to thank Bobby and Billy Taubman and the entire TRG team for our successful partnership over the last 5 years. I'm now going to turn it over to Eli, who will discuss the terrific TRG transaction and update on our development activity, and Brian will cover our third quarter results and other various goodies. There you go, Eli.

Thank you. As mentioned, we completed the acquisition of the remaining 12% interest in TRG that we did not previously own in exchange for 5.06 million limited partnership units. We are pleased with the outcome, having acquired these high-quality assets at an overall cap rate of over 7.25%, not taking into account any operational efficiencies and improvements. These iconic assets further enhance the quality of our overall portfolio, and we are now in a position to pursue new growth and value creation opportunities for this portfolio.

The portfolio has strong operating metrics, including 94.2% occupancy, average base minimum rent of $72.36 per square foot and retailer sales of approximately $1,200 per square foot. This transaction will be accretive in 2026 as we assume management responsibilities and integrate the assets, with the full benefit realized in 2027, given all of the operational aspects of running on our platform, adding at least 50 basis points to the going-in overall yield. TRG will be consolidated and the acquisition will be accounted for as a business combination. This will require remeasurement of our previously held equity interest to fair value, resulting in a really big noncash, non-FFO gain to be recognized in the fourth quarter of 2025. Now turning to development.

In the third quarter, we began construction on several new projects, including a second phase of residential at Northgate Station, an expansion of the Westin Austin Hotel at The Domain, retail and experiential additions at Brea Mall, King of Prussia and The Shops at Mission Viejo. At quarter end, our share of the net cost of development projects across all platforms was $1.25 billion with a blended yield of 9%. Approximately 45% of net costs are for mixed-use projects. In addition, our new development and redevelopment pipeline continues to grow with exciting new opportunities ahead, including a major full-price retail and mixed-use project in Nashville, where we will be unveiling our vision later this week.

I will now turn it over to Brian, who will walk through our third quarter results.

Thank you, Eli. Real estate FFO was $3.22 per share in the third quarter compared to $3.05 in the prior year, 5.6% growth. Domestic and international operations had a very good quarter and contributed $0.26 of growth, driven by an 8% increase in lease income. As anticipated, lower interest income and higher interest expense combined were a $0.09 drag year-over-year.

Domestic NOI increased 5.1% year-over-year for the quarter and 4.2% for the first 9 months of the year. Portfolio NOI, which includes our international properties at constant currency, grew 5.2% for the quarter and 4.5% for the first 9 months. Retailer demand remains strong as we signed over 1,000 leases totaling approximately 4 million square feet during the quarter. Approximately 30% of our leasing activity represents new deals, reflecting continued strong demand across the portfolio.

The Malls and Premium Outlets ended the third quarter at 96.4% occupancy, an increase of 40 basis points sequentially and 20 basis points year-over-year. The Mills achieved a 99.4% occupancy, an increase of 10 basis points sequentially and 80 basis points from the prior year. Average base minimum rents increased 2.5% year-over-year for the Malls and Premium Outlets, while the Mills saw a 1.8% increase. Retailer sales per square foot for the Malls and the Premium Outlets were $742 for the quarter.

Importantly, total sales volumes increased more than 4% in the third quarter. Shopper traffic and retailer sales accelerated sequentially, reflecting the impact of a successful back-to-school season. Occupancy cost at the end of the quarter was stable at 13% Third quarter funds from operations were $1.23 billion or $3.25 per share compared to $1.07 billion or $2.84 per share last year. Some of the increase was due to improvement in OPI compared to last year.

Please see the FFO reconciliation included in our supplemental today for details on the year-over-year changes in FFO per share. Turning to the balance sheet and liquidity. During the quarter, we completed a dual tranche U.S. senior note offering that totaled $1.5 billion at a combined average term of 7.8 years and a weighted average coupon rate of 4.8%. During the first 9 months of the year, we completed 33 secured loan transactions totaling approximately $5.4 billion.

The weighted average interest rate on these loans was 5.38%. We ended the quarter with approximately $9.5 billion of liquidity. Turning to our dividend. Today, we announced $2.20 per share for the fourth quarter, a year-over-year increase of $0.10 or 4.8%.

The dividend is payable on December 31. Now turning to guidance. We are increasing our full year 2025 real estate FFO guidance range to $12.60 to $12.70 per share. This compares to $12.24 last year in our prior guidance range of $12.45 to $12.65 per share. The updated range reflects a $0.15 increase at the low end and a $0.10 increase at the midpoint.

Thank you. We are now available for questions.

[Operator Instructions] Our first question is from Michael Goldsmith with UBS.

In the prepared remarks, you mentioned the opportunity for operational efficiencies and improvement for the Taubman assets twice and that these should help improve the yield by 50 basis points. So can you share some of the specifics of the opportunity from bringing these assets fully on to your platform? [Technical Difficulty] Hello.

We are able to hear you.

Okay. We got disconnected. So can you repeat the question? We didn't get it all.

Yes, absolutely. In the prepared remarks, you mentioned the opportunity for operational efficiencies and improvements for the Taubman assets twice and that these should help improve the yield by 50 basis points. So can you share some of the specifics of the opportunity from bringing these assets onto your platform?

Yes. I mean when we bought the original 80% of Taubman, the only real operational efficiencies we got was eliminating public company costs. Obviously, they had a full operational team running those assets, and we'll be able to add them to our platform at very little cost. And then from an operational enhancement point of view, we bring our expertise in development, redevelopment, leasing, marketing, brand ventures, and we put all that together, and that's what we do for living.

So we've helped out, but not to the point of how we would if we actually ran the properties day-to-day. So now we put them on our -- we bolt them on to our platform, that's easy. And then we run the properties day-to-day, and we bring all that we can bear to a portfolio like that. And that's where we see a tremendous amount of upside.

If you look at the occupancy, it's lower than where we're at, and we think we can bring it up to our level. And then we've got all our asset management techniques, property management capabilities that are going to just grind higher cash flow. That's what we do for a living. That's why we've been the acquirer.

That's why we've been successful time and again. And if you look back at this portfolio and you look at the entire transaction, we're going to be at an essentially an 8% cap rate when we add these a little over 8% cap rate when we add the assets to our platform. And that -- and you look at the quality of the assets, that makes for a terrific deal, which you guys need to understand. So it's at a much higher cap rate than strip centers are trading, much better growth rate than strip centers are trading that I've seen.

And these assets have been around 70 years. That's the other thing to step back. So take data centers. Data centers trade at a 4.5% cap rate.

And we don't know -- nobody knows what they're going to look like in 5 years. What we do know is that good malls have been around 70 years, 70 years, not 7 years, not 17 years, but 7-0 years. So we made a hell of a trade, and that's certainly one of the reasons why I think the Taubmans wanted to convert this last 12% into our units, which is convertible on a one-to-one basis to our stock because they've seen our ability to execute and perform at levels that no one else has in our peer group.

Our next question is from Alexander Goldfarb with Piper Sandler.

Eli, welcome to the public earnings call. You now get all the enjoyment that David has had over the years. So David, just going back to the cap rate, and if you'll indulge me a little bit, if we take the implied cap rate of the shares issued on Friday, it's sort of a little over 6%, but you spoke about an 8%, which sounds like the existing assets were producing a lot more the overall versus the final buyout trade. But then you spoke about the initial 50 bp increase once it's on Simon's platform, but presumably, there's a lot more growth over the next 5 or so years that presumably that 8% goes higher.

So one, can you help us understand sort of the pricing of the final 12% and how that relates to the 7.25% that you initially spoke about? And then over the next few years, presumably, this cap rate is going to be much higher than an 8%.

Yes. So let me just unpack it a little bit. I'll be a little more clear. So if you look at -- we had 4 transactions within the Taubman Group.

We had the initial 80% we had the 2 4% and then 12%. If you look at that on today's numbers, today's numbers, that's basically a little over a 7.25% cap rate. If you add what we think will bring in operational synergies, efficiencies/enhancements, that's where we get to north of 8%. And then obviously, Alex, you're right, then you have all the intrinsic growth of the portfolio, which we're not -- that will just be year-after-year growth because I think these assets, by and large, have a higher skew of quality than just the Simon-only portfolio.

So they skew a little higher growth than we do -- we did historically. So we would expect our comp NOI growth to accelerate because of adding that in. So that -- hopefully, that impacts -- if you really are focused on the 12%, not including the operational enhancements, we're in the 6.25% to 6.5% cap rate if you just want to focus on that 12%. Do you want me to explain it?

Yes, that -- it's what we thought initially, but obviously, all the pieces adding up to get us how you think about that.

I told you a lot more -- only a few, I told you a lot more information than I normally would, okay?

I'm sure Floris will ask a lot more details than I have. So...

Our next question is from Caitlin Burrows with Goldman Sachs.

Congrats on the quarter and recent announcements and yes, welcome Eli, to the earnings call. Maybe on the sales results, they increased in the quarter, which was great to see. Could you give any detail on how widespread that was? Did a couple of tenants drive numbers one way or the other?

I know you have initiatives to upgrade the tenant base, maybe shrink where it makes sense. So just whether we're starting to see some impact from those initiatives?

Caitlin, it's Brian. Quite honestly, throughout the quarter, you saw a widespread increase across all 3 platforms. And the tenant base certainly was productive in the quarter. You saw certain categories outperform.

You saw luxury come back a bit. Certainly, athleisure outperform, even the apparel category. So certainly, the back-to-school season was a robust one for our business and our portfolio. Even you saw some positive inflection in some of the tourist-oriented centers.

So we are starting to see it kind of widespread across the totality of the portfolio, sequential improvement, both in traffic and in sales.

Yes, Caitlin, I would only add that I think like I said last quarter, I believe we're still not from a sales point of view, hitting on all cylinders. What I did -- what we did see is that the kind of the higher-end consumer, obviously, I don't have to -- you have as good data as we do at Goldman. But clearly, we're in this K-shaped kind of situation. So we did skew better results in the higher income-oriented centers.

The value-oriented centers were more flat to kind of inching along. So you didn't see the entire portfolio. Brian is right. The quarter was okay, at least stabilized.

So it's not hitting on all cylinders, but it's okay. Florida remains to be very strong. The one area that we're seeing, and I think everybody is seeing is that your -- Las Vegas from a tourist market is underperforming. You see it from the casinos.

Obviously, we have a lot of properties, great properties, but they're not comping the sales growth that we would expect. And then Brian is right, we did see stabilization in the luxury, which is good. But -- and again, the higher income properties are doing better. The one caveat is, as you know, our Vegas properties skewed toward that, and they were not -- their comp sales were intact, I think a little down.

I don't have the number off the top of my head. So we're seeing underperformance. Look, we don't worry about that because Vegas assets are great and Vegas does go up and down. And you've clearly had Canadians that don't go to Las Vegas and other people that are not going at the frequency that's happening, but no concern there.

But right now, it's kind of in the trough.

Our next question is from Samir Khanal with Bank of America.

Brian or David, you've generated very strong NOI growth year-to-date, 5% for the quarter. I guess given the solid leasing environment you're seeing, just trying to see if you can keep up this sort of same-store momentum in '26 or even do better, assuming a sort of a similar retailer sales environment. Curious on your thoughts.

Well, the team is doing our -- I think we invite Alex. So we invite you and then disinvite you, but the team is going through the property-by-property root canal, okay? So I'm glad to report no cavities, no need for root canal. We feel really what I'm being told and what I'm seeing from the numbers are really positive.

The team is juiced, energized, so we feel -- I'm not going to give you a number, but we feel really good about '26 in terms of our ability to produce comp NOI growth. As you know, we'll do that in February with our earnings guidance. But the team is feeling good that we'll have another -- obviously, there's external factors that we don't -- even we don't control, I'm kidding. But we're feeling really generally positive about what we're seeing, right?

Brian?

Yes. No, that's the report back. We're in the middle of grinding out. We'll get back to you in February, but I think there's an optimism. Eli, you've been going through all these.

Yes. And it's across the portfolio, not just the powerhouse centers, but really across the portfolio, a lot of exciting new things in store for next year.

Our next question is from Greg McGinniss with Scotiabank.

So from our perspective and despite our expectations, tariffs have had seemingly little impact on shopper or retailer behavior to date. And David, I know you previously mentioned that maybe the holiday season is when we start to see some impact to retailer financials, but we were hoping for an update on what you're seeing in your retailer discussions and regarding your expectations on any impact to leasing and/or tenant behavior?

From the tariffs, right? So look, I think the news that President Trump and President Xi had on the Chinese discussion is positive for our retailers, even though a number of them have moved some of their production out of China, but that's a positive. I do -- I continue to believe that tariffs will have an impact. We have not yet seen all of it.

And I think some of that will -- as I said last time, I mean, it's a pretty consistent story. Some of that will be passed on to the supplier. Some of that will be eaten by the retailer and some of that will be passed on to the consumer. So there's just, in many cases, the inability for retailers to eat that entire tariff.

So they're going to have to pass it on or renegotiate better vendor deals. And I still believe we still haven't seen the full impact of it. So I think your question is appropriate. I think it's still -- now baseball goes to, what is it, 18 innings now, I mean 18 innings.

So I'm not -- let's assume it goes to Stage 9. I think the tariff -- if I had to put an inning on it, I'd say 5 to 6, just a gut feel, so it's not scientific. So we'll have to see. And I do worry that it will put more pressure on the smaller retailers, not the mammoth retailers that we all think about, right? Because they have the ability to handle it and try and use this as an opportunity to squeeze and increase market share.

So we're still in the middle of the game. It is not over. Hopefully, it is a 9-inning game. It doesn't go to 18. But I don't think the final chapter -- how about all these analogies.

But I don't think the final chapter has been there. So we're still cautious on that. Let me just end by saying from a supply and demand point of view, just from our leasing, we see absolutely unequivocally no change apart from the retailers that are looking to grow their footprint.

Our next question is from Craig Mailman with Citi.

David, maybe going back to your comments earlier about the value mall, kind of the foot traffic going on there versus your higher-end mall. As you look at '26, I know you guys said you feel very good, but -- and the tenant demand. As you guys approach conversations with tenants who are looking at both high end and kind of the value segment from some of that crossover, do you feel like you guys are losing a little bit of momentum in the ability to push net effectives at the value side of the portfolio? Or the inflation over the last couple of years just pushed OCRs to a point where you still feel like you're able to get pretty good upside relative to maybe where you're pushing in the luxury or the higher-end malls?

Yes. Let me just say, traffic for the kind of the value-oriented centers is up. So it's not the traffic. It's just really the conversion.

I think that consumer is being a little more cautious. But I think you pinpointed it. I mean we have low OCRs there. The demand -- again, the retail demand on that portfolio is still very positive.

So no change of -- no different point of view. But we do have to be sensitive because the lower-income consumer, which, again, we don't skew to -- even in our outlet centers, they're skewed toward the higher-end retailers, around the higher-end consumers, I should say. So it's not where we skew. But again, demand is good, and it's not a -- there's really no change of mood or potential there, but it is -- sales are not moving as -- they're not increasing at the rate that the full-price better higher-end centers are.

That's it. So I think that the outlet consumer is being a little more cautious. But let's see what happens this Christmas. I mean you still got things going for the lower-end consumer, lower gas price, hopefully lower electricity prices for the time being until all these data centers get built, and that's another interesting thing we need to talk about as a country.

But I think it's -- again, it's -- we're just -- the sales are not hitting like Vegas, like a couple of the border, northern borders thing. We're just not hitting on all cylinders. And the reason we say that is to show you that there's more juice in the orange, right? Is it orange or lemon?

Orange. Lemon sounds good, right. So there's more juice there. It's just we're not getting all of it at this point.

Our next question is from Michael Griffin with Evercore ISI.

I wanted to ask on the new leasing in the quarter. Brian, I think you mentioned it was about 30% of the total leases executed. Is this you all proactively looking to get ahead of leases that might expire in a year or 2 and upgrade the credit quality? And can you also give us a sense if you're seeing more of those new-to-mall concepts coming in the portfolio?

And lastly, anything you can comment on leasing spread for that would be helpful.

Well, I'll just let Brian answer most of it. But I'll say the new-to concept, I mean Meta is opening a store. We're in discussions with them. Google is opening stores.

We're in contact with them. Netflix, Eli is going to be opening tomorrow at King of Prussia -- next week. So Netflix is -- I encourage everyone to go check it out. They're opening their flagship destination store at King of Prussia next week.

So there's more and more year-end Labubu.

Pop Mart, Edikted, Princess Polly, a bunch of tenants. And what they see is they can open a bunch of stores with us. And so we're having really great conversations in our new business leasing.

So -- and I'll let Brian get to the rest. But -- so the new idea, new experiential stuff, we're doing new Apple stores as well. They opened in Del Amo. That's a good example.

We've been working that deal for 5 years or so. So I think it's very encouraging what we're seeing on the new storefront. We're still doing a lot of new restaurants with high-end operators. So that's going very well.

We opened Formula 1 at Forum Shops. One of their second or third operations, 2-level flagship store, a bunch of people there for the opening. It's terrific, saw pictures. So just on the new concept, the new store front between the restaurants and the Metas of the world, the Netflix, the Googles that are all working on that.

I think it's very, very positive, very positive. So lots happening on that front.

And Michael, it's -- the 30% statistic is new leases. So it is not picking up old stuff. What you've got is just the unabated demand for us to continue to add interesting and new uses. We're also seeing big demand from the existing kind of retailer base, and we're slightly out ahead of '26's expirations.

And so I think it's coming from a variety of places. Certainly, on the last several calls, you've heard us talk about improving the merchandising mix. And that 30% statistic is really encapsulating our desire and ability to do that.

So -- and I'll give you a simple example. We have a great mall. I probably shouldn't -- I'm not going to name the tenant, but I'll give you some breadcrumbs. But it's a great mall in a great Southeastern city, a great Southeastern city, not Atlanta.

That's a great Southeastern city, but another great Southeastern city, not Atlanta that we're -- and this goes to your point, are you -- even if you have a lease, are you satisfied? The answer is no. So we're taking one tenant that has a lease. We're actually downsizing them, moving them to another space and putting a leading high-end retailer in there, and I'll leave it at that.

I was going to give you a little bit more breadcrumbs, but I don't want people yelling at me. So -- which is a good example of even though we had leases on both spaces, we're taking one, downsizing one tenant moving, bringing in another one. And that's what our folks do. That's one of the great things that we see in the TRG portfolio.

And we'll be a lot more aggressive in doing that because you're never -- we should never be satisfied that we've executed the mix at the rate that you've always got to change it. For instance, talk Forum Shops, I think it just recently opened. We had an H&M store there. We replaced it with Zara, beautiful store, big investment that they had, and that changes the whole kind of the center point, they're familiar with the asset, which is truly exciting.

So absolutely, and that's one of the -- like I said, one of the interesting things that we see in the TRG portfolio and then in our assets across the spectrum, whether it's the outlet centers or the full-price malls.

Our next question is from Juan Sanabria with BMO Capital Markets.

Just hoping maybe to talk a little bit about technology. A lot of things in society seem like they're in flux and retail is not excluded there to talk about ChatGPT agents or agentic agents that can do some of the shopping bypassing people. Just curious on how you guys are trying to position for this and your thoughts on how this may evolve and if you see it as a risk or an opportunity or both?

Well, you have to assume everything is a risk. So I do think bringing AI into the equation will have a pretty big impact on how e-commerce is done. But we offer something much broader than e-commerce. If e-commerce was going to put us out of business for the last 20 years and here we are standing.

Just to give you an example, I saw Palantir had EBITDA this quarter of like adjusted EBITDA, whatever that means, of $400 million and our EBITDA this quarter was $1.6 billion. So now Palantir's market cap is $500 billion, ours is $65 billion, if you include the units, right, Tom. So that's pretty good math, right? So again, I do think the people that shop -- the e-commerce shoppers are definitely going to use AI to -- eventually to use AI to replace the way they shop online today.

And the key for us is to create like we have for 70 years. Remember, we've been in this business 70 years, okay? Not 5, not 20. But in this -- we have survived. This product has survived 70 years.

And I will tell you, our half-life is greater than the newfangled data centers that are being built today because I think they'll figure out how to do them smaller and more efficient 3 to 5 years from now, okay? And I know nothing, but that's my gut feel. I know nothing, but that's my gut feel. So going back to your question, so it will have an impact on e-commerce.

I think it's going to absolutely continue to make us great at what we do and that we're going to have to create real shopping -- holistic shopping environments. And another way to look at it is, look, so there's a lot of talk about going to -- and I was at the CEO Summit the other day, which was kind of interesting. But put that aside, there's a lot of talk that people are going to be working 3 days a week. So -- and the potential GDP impact of AI could be $15 trillion or trillions of dollars, right?

So the way I look at it, I look at actual positive. So if you -- let's say we all work now, I'm going to still work 5 days, 8 days a week, right? Lord, I'm going to make work at least 7, 8 days a week. But let's just hypothetically take the point that it's only 3-day a week work, okay, 3 days a week that you work.

You're going to have a lot more free time. We've created this great wealth. Our GDP goes from $18 trillion to $25 trillion to $30 trillion. That means money in people's pocket.

I think we're going to go to the mall to shop. What else are they going to do, okay? So they can only yell at their kids that much when they play New Soccer. So they're going to go to the mall to shop, eat, spend their newfound wealth that's going to eat through this economy.

Now what we have to do is just create these great environments. And ultimately, we'll use AI like everybody else to enhance our loyalty, to enhance our ShopSimon to enhance our search efforts to connect with the consumer. And we'll talk to ChatGPT and ask them what we've heard or did, whatever, what we could do to them all to make it better and do all this stuff. But I'm looking at it positively.

We lasted 70 years. We're only going to work 3 days a week. We're going to create $12 trillion of value and people are going to go the mall to shop because what else are they going to do, okay? Do you see what I'm saying?

Yes. Hopefully. Simon?

So in any event, but we're experimenting how to do it. We are -- we've got a friend called Harvey that we may create the first AI CEO. Now I'm not saying he's going to replace me, but he could replace one of our divisions or elsewhere. So stay tuned. We'll use it effectively like we've used everything else.

Our next question is from Vince Tibone with Green Street Capital.

I wanted to follow up more time on the Taubman cap rate. Just specifically, if you -- look, the way I'm looking at it is just the purchase price is just over $1.5 billion if we use Friday's close for the OP unit value plus incremental debt. And then trailing 12-month NOI is right around $77 million for 12% of Taubman using your supplemental. So that's more like a low 5s cap rate on a trailing 12-month basis.

So I mean, is it really that much synergies to get to the second quarter, second half?

Yes, we told you -- we called out -- we told you the numbers. Vince, at this point in our career, we're not going to mislead you or the public. Your cap rates are too low for certain assets, but not too high for ours. And we told you where the cap rates are.

And we told you where the accretion is, and we told you everything there is to tell you about that deal. They've got a lot of growth this year. They've got growth next year. And we told you everything that there is to tell you.

I will tell you, I think your cap rates for our asset base is too high. I think your peers at Green Street have a product that is too low compared to ours. Our growth is better. And the longevity of our asset base, you don't factor in our assets last 70 years.

Our next question is from Haendel St. Juste with Mizuho Securities.

David, good to hear from you. Eli, welcome to the call. My question is on corporate structure. Congrats on the internalization of the remaining part of TRG.

But I'm curious if there are any changes or shift in how you're thinking about your investment in your European platform, Klépierre. Earlier this year, you bought an asset in Italy off balance sheet outside of Klépierre. So I guess I'm curious if you're happy to own more assets outside of Klépierre. But then I also wanted to add, it seemed like recently you opted to convert some of the Klépierre exchangeable note holders into stock, not cash, which might suggest you have a longer-term hold for that stock.

So maybe help us reconcile those 2 dynamics and how you're thinking about the Klépierre platform.

Well, we bought the mall, which has nothing to do with the -- which is a luxury outlet center in the middle of the two. It's actually on balance sheet. It's on balance sheet. Yes.

So that has nothing to do with Klépierre. Klépierre, look, it's been a great investment for us. We evaluate it all the time. We did get some -- as you know, we issued the convert.

Did we do it 3 years ago? 2 years ago? 3 years ago. We got conversion notice. We did settle in shares. And we look and evaluate that investment continually, and we'll continue to do that.

But it's been a very good investment. We've added a lot of value to that organization. I think, again, the market should appreciate where Klépierre go back -- let's turn the clock back 10 years ago where Klépierre was and look at where it is today and for our strategic input vision, guidance created the new Klépierre that exists today that's positioned to succeed in European full-price retailer with the best. And that's all -- I mean, again, the management team did a great job, but we hired the management team, okay?

So -- but at the same time, we have a fiduciary duty to continue to add value to Klépierre while we're on the Board, while I were on the Board. At the same time, we have a fiduciary duty to our Simon shareholders to look at all of our investments to see if that's the best allocation of our capital, and we will continue to do so.

I appreciate that, David. I guess I just wanted to clarify because I mentioned the asset in Italy you bought because you bought it on balance sheet and not in Klépierre . So I guess I was curious if you were happy owning more assets outside of Klépierre in Europe?

Yes. We would probably -- I'm sorry, if I misunderstood. So we would probably only look to -- we've kind of decided that the full-price -- again, this could always change, right? But we've kind of decided that if there are full-price assets to acquire while we continue to hold our Klépierre investment and stand the Board, that Klépierre would do that.

On the other hand, if it's in the outlet world, because we look at outlets worldwide, we have outlets in Asia, obviously, North America, both in Mexico, Canada, U.S., obviously, several countries in Asia, that we would look at those for our own accounts, the signing accounts. Okay. I'm sorry, I misunderstood your question.

Our next question is from Mike Mueller with JPMorgan.

So Taubman has used a secured debt strategy for the portfolio ever since the '98 restructuring. Do you think you'll be unencumbering a number of those assets over time? And as a follow-up, are there any parts of that portfolio that look like they're sale candidates today?

Michael, it's Brian. You're right. They did go to a secured strategy over time. I would expect that over time, we will unlock that and use our unsecured capital to unencumbered assets in due course to further improve our unencumbered asset base, which is already incredibly powerful.

As far as the portfolio on balance today, I think we're comfortable where it sits, but we naturally evaluate things frequently. And so that could change over time. But for now, I think we're in a good place.

Our next question is from Ronald Kamdem with Morgan Stanley.

It's Adam on for Ron. I think we had always looked at the dividend sort of post-COVID as I think you guys are sort of targeting getting back to that pre-COVID dividend level. You're now past that. So I guess just sitting here today, how do you sort of stack rank the capital allocation priorities?

I know you've talked about sort of development of -- obviously, of the Class A assets, but also, I think you've talked in recent quarters about some of the Class B or B+ development opportunities or redevelopment opportunities as well. So just sitting here the different options in terms of capital allocation, how do you sort of stack rank those dividend buybacks potentially development, redevelopment, et cetera?

Actually, thank you for -- I forgot we passed our COVID? We did? All right, good. Well done.

So look, I think one of the things that you'll probably -- we do have a buyback open, right? Obviously, we can't buy that now. But one of the things you'll see from us most likely, which is not in the numbers, but we issued 5-million-unit shares. So we'll look to quarterize that over -- we're not issued -- we don't -- we have a balance sheet that does not need to issue equity.

So now as part of the deal, Taubman family really wanted units, equity. So I think over time, obviously, subject to market conditions, we'll look to quarterize, i.e., at least want to get our share level back to kind of where it was pre-issuance for the TRG deal. Now that's subject to market conditions. We'll be very smart about it and we do everything else.

But that -- so that has moved up the -- I still think we're going to want to grow our dividend. And obviously, I think I said last time, the development stuff does take time to put the capital to work. We don't move as fast as these data centers that just go up 9 months. But I think quarterizing that $5 million issuance has moved up to the top of the charts.

But that does not mean that the capital redeployment in the portfolio slows down. We're very -- and you're rightly pointing out that we all get in these classifications of A-, B+. We're going to put it where the capital is accretive to that property value. Now we don't use Green Street cap rates.

We use David Simon's cap rates. And over my career, I've been more right than wrong. So we could do a ChatGPT pull of who's got the better cap rates. I'm going to go with David for the time being, but I've been proven wrong.

So we're blowing and going, and we've got some really exciting big things on the horizon to do with capital. And just to name a few, we bought out Seritage at Boca, which is a huge, massive thing to a great center, which should be a 4.5% cap rate. But don't worry, we're not going to -- our development yield is going to be greater than that, much greater than that. But we've got Fashion Valley.

We've got Boca. We've got Barton Creek. These are just 2 or 3 that are popping. Later in the week, the team will be announcing a really landmark deal in Nashville at a great site in a great city that we have a very important presence in now, complemented by the TRG assets that we now have full operational control with, which is a very good asset in Opry Mills as an example, which is a very good mill and a distinct trade area.

So that will be our new ground-up development that we're really excited about. So it's pretty much status quo other than we're going to be moving up the -- I don't want another 5 million shares outstanding. Okay? We're going to run a little bit over.

We got 2 more questions.

Our next question is from Floris Dijkum with Ladenburg Thalmann.

I know we're running late. David, great to hear your voice. Eli, again, I'll not be the first one to welcome you, but good to have you on the call as well. And David, I love your passion.

Question for you. I'll try to keep it relatively short here, but your S&O pipeline, could you talk about that? And I note that Kering has dropped out of your top 10 tenants list. Presumably, they haven't closed any stores.

Is that just you haven't signed new leases or they haven't opened new stores in the portfolio? And maybe talk a little bit about in that S&O, how your luxury is trending or how you expect that to trend maybe?

Floris, it's Brian. So the S&O pipeline is 310 basis points as of 9/30. And you're right, Kering did drop out of the top 10. It's just simply because we opened up more stores with other retailers and forced them above the Kering ranking. So it's really a reflection of the robust activity that's on the ground from a leasing perspective. Kering is still a very important tenant.

And over time, we would expect to continue to see them move around to the top rankings. As you look at that 310 basis points, there is a substantial amount of luxury in there. It's probably to the tune of about 50 to 60 basis points of the total 310 basis points. So the luxury cohort of tenants continues to favor our portfolio and continue to see growth with us.

And again, we've got -- we're -- our occupancy is pretty high, but we're -- a lot of this new stuff is re-tenancy. And obviously, Forever 21, is having -- re-leasing all that space is having an impact on the S&O, right?

Our final question is from Tayo Okusanya with Deutsche Bank.

Eli, congratulations. Welcome aboard. In regards to OPI, just curious what you guys are -- how you're thinking about that business again, is a little bit more value-oriented. I'm just kind of curious if there's opportunities to kind of monetize that? Or is just the world too murky right now to really have an opportunity?

Well, we'll see how that transpires. But I will compliment the team at Catalyst. They're doing really terrific work at a number of the brands, not all -- some of the brands are -- again, it's not perfect sailing, but they're doing a great job at JCPenney, great job at Aeropostale, a great job at Brooks Brothers, a really good job at Lucky. So we've been very pleased with how Catalyst has integrated with the various brands.

That merger is really -- this is the first 9 months. If you go back, it really happened in early '25. So they're doing a terrific job. It's stable, good results. Obviously, out of Forever 21, which was as much as we tried to say that we couldn't primarily because of the de minimis, now that -- we would have a fighting chance had we not suffered from the de minimis, but we couldn't overcome that.

Now thankfully, it's changed and at least it puts domestic retailers on an even footing with certain foreign retailers. So long story short, Catalyst is doing a terrific job. And like everything else, look, if I would say we'll always look at what the best options are. But for the time being, it's in good stead.

And again, they skew toward -- a few of the brands skew towards the lower income. And I will say this, the lower income and the higher income as well is they're looking for value. So value can be -- value is in the eye of the beholder, but you got to give the consumer today value, whether they're a high-income consumer or a lower income consumer, value is the name of the game. And I think Catalyst has recognized that and are providing it at a high end like the Brooks Brothers and at the kind of the more moderate Aero and Penney.

So it's all good.

There are no further questions. I would like to turn the conference over to David Simon for closing remarks.

Okay. We had a very active quarter. We're going to have a very active fourth quarter. So more good stuff to come. And thank you very much for your interest and your questions. Thank you.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.