Earnings Call Transcript - SPG Q3 2025

Operator, Operator

Greetings. Welcome to Simon Property Group Third Quarter 2025 Earnings Conference Call. 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.

Thomas Ward, Senior Vice President, Investor Relations

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 one 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.

David Simon, Chairman, CEO, and President

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 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 five 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 highlights. There you go, Eli.

Eli Simon, Chief Operating Officer

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 them 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 substantial 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.

Brian McDade, Chief Financial Officer

Thank you, Eli. Real estate FFO was $3.22 per share in the third quarter compared to $3.05 in the prior year, representing 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 nine 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 nine 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 nine 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, Operator

Our first question is from Michael Goldsmith with UBS.

Michael Goldsmith, Analyst

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 specifics about the opportunity from fully integrating these assets onto your platform? Hello.

Operator, Operator

We are able to hear you.

David Simon, Chairman, CEO, and President

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

Michael Goldsmith, Analyst

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?

David Simon, Chairman, CEO, and President

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 a 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 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 increase 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 consider the entire transaction, we're going to be at essentially an 8% cap rate when we add these a little over an 8% cap rate when we add the assets to our platform. And you look at the quality of the assets, that makes for a terrific deal, which you guys need to understand. It's at a much higher cap rate than strip centers are trading, and has a much better growth rate than what I've seen for strip centers. And these assets have been around for 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 what they're going to look like in 5 years. What we do know is that good malls have been around for 70 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.

Operator, Operator

Our next question is from Alexander Goldfarb with Piper Sandler.

Alexander Goldfarb, Analyst

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 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%.

David Simon, Chairman, CEO, and President

Yes, let me clarify things a bit. We had four transactions within the Taubman Group: the initial 80%, two 4% transactions, and then the final 12%. Based on today’s figures, that amounts to just over a 7.25% cap rate. When we factor in the expected operational synergies and efficiencies, we believe that can increase to over 8%. Additionally, as you mentioned, the portfolio has intrinsic growth that we aren’t currently accounting for, which should lead to year-over-year growth. The quality of these assets is generally higher compared to just the Simon portfolio, suggesting a stronger growth potential than we have seen historically. Therefore, we anticipate that our comparable NOI growth will speed up as a result of including this. If we focus solely on the 12% and exclude operational enhancements, we see a cap rate in the range of 6.25% to 6.5%. Would you like me to elaborate further?

Alexander Goldfarb, Analyst

Yes, that's what we initially thought, but clearly, all the elements are coming together to shape our perspective on that.

Operator, Operator

Our next question is from Caitlin Burrows with Goldman Sachs.

Caitlin Burrows, Analyst

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?

Brian McDade, Chief Financial Officer

Caitlin, it's Brian. Quite honestly, throughout the quarter, you saw a widespread increase across all three 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 outperformed, 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 widespread across the portfolio, sequential improvement, both in traffic and in sales.

David Simon, Chairman, CEO, and President

Yes, Caitlin, I would like to add that, as I mentioned last quarter, we are still not performing at our full potential from a sales perspective. What I've observed is that the higher-end consumer is thriving, clearly indicating a K-shaped recovery. We have seen better results in the higher income-oriented locations, while the value-oriented centers have been relatively flat. Therefore, the entire portfolio is not experiencing uniform growth. Brian is correct; the quarter was acceptable and stabilized. Florida remains very strong. However, we are observing that Las Vegas is underperforming in the tourist market. This can be seen in the casinos; we possess many excellent properties, yet they are not achieving the sales growth we anticipated. Brian is also right that we have seen stabilization in the luxury segment, which is encouraging. Still, higher income properties are performing better. One point to note is our Vegas properties are skewed towards that higher income segment, and their comparable sales have been somewhat lower, though I don't have the exact number on hand. We are witnessing underperformance, but we are not overly concerned, as our Vegas assets are strong, and the market fluctuates. There has been a notable decline in Canadian visitors to Las Vegas, and other demographics are not visiting as frequently as before, but we are not worried about that. Currently, we are in a bit of a downturn.

Operator, Operator

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

Samir Khanal, Analyst

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 better, assuming a sort of a similar retailer sales environment. Curious on your thoughts.

David Simon, Chairman, CEO, and President

The team is currently conducting a thorough evaluation of each property. I'm pleased to report that everything looks good with no issues needing further assessment. We feel very optimistic, and the team is energized about our potential for comp NOI growth in '26. While I won't provide a specific number right now, we are confident we can have another strong year. There are external factors beyond our control, but overall, we are positive about what we are observing.

Brian McDade, Chief Financial Officer

Yes. No, that's the report back. We're in the middle of analyzing all of our properties, but I think there's optimism. Eli, you've been going through all these.

Eli Simon, Chief Operating Officer

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.

Operator, Operator

Our next question is from Greg McGinniss with Scotiabank.

Greg McGinniss, Analyst

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 on 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?

David Simon, Chairman, CEO, and President

I believe that the recent discussions between President Trump and President Xi regarding China are good news for our retailers, even though some have started to move production outside of China. I still think tariffs will have an effect, although we haven't seen the full extent of that yet. The situation has been consistent: some costs will be passed on to suppliers, some will be absorbed by retailers, and some will end up being passed on to consumers. Retailers often cannot absorb all of the increased costs related to tariffs, so they will need to either pass them on or negotiate better deals with vendors. I still feel we haven't fully realized the impact of tariffs. In terms of where we are in this situation, I would estimate we are in the fifth or sixth inning. I am concerned that smaller retailers will face more pressure compared to larger ones, which may leverage the situation to grow their market share. We are not finished with this discussion yet, and I hope it remains a straightforward process rather than extending beyond the expected timeline. It's important to note that, from our leasing perspective, we are not seeing any changes aside from retailers aiming to expand their presence.

Operator, Operator

Our next question is from Craig Mailman with Citi.

Craig Mailman, Analyst

David, going back to your earlier comments about the value mall and the foot traffic compared to your higher-end malls. As you consider 2026, I know you expressed confidence in tenant demand. When you speak with tenants considering both high-end and value segments, do you feel you're losing some momentum in pushing net effective rents for the value portion of your portfolio? Or has inflation in recent years raised occupancy cost ratios to a level where you believe you're still able to achieve decent upside compared to the luxury or higher-end malls?

David Simon, Chairman, CEO, and President

Yes. Let me just say, traffic for the value-oriented centers is up. So it's not the traffic. It's really the conversion. I think that consumer is being a little more cautious. But I think you pinpointed it. I mean we have low occupancy cost ratios there. The demand for the retail properties is still very positive. So no change of perspective. But we do have to be sensitive because the lower-income consumer, which again, we don't skew toward, even in our outlet centers. They're skewed toward higher-end retailers and higher-income consumers. That’s not where we fit. But again, demand is good, and there's really no change of mood or potential there, but sales are not moving as quickly as the full-price, better, higher-end centers. 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 have factors benefiting the lower-end consumer, such as lower gas prices and hopefully lower electricity prices for the time being until these new data centers get built, which is another interesting thing we need to talk about as a country. But again, we're just in a situation where sales are not hitting like in Las Vegas or a couple of the border, northern areas. We're simply not hitting on all cylinders. The reason we say that is to show you that there's more potential here. We believe there's more upside in the portfolio.

Operator, Operator

Our next question is from Michael Griffin with Evercore ISI.

Michael Griffin, Analyst

I wanted to ask about the new leasing in the quarter. Brian, I think you mentioned it was about 30% of the total leases executed. Is this you guys proactively looking to get ahead of leases that might expire in a year or two 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 into the portfolio? And lastly, anything you can comment on leasing spreads would be helpful.

David Simon, Chairman, CEO, and President

I'll let Brian answer most of it. However, I want to mention that Meta is opening a store, and we are in discussions with them. Google is also opening stores, and we are in contact with them. Additionally, Netflix is set to open their flagship destination store at King of Prussia next week. I encourage everyone to check it out. There are more and more new concepts coming in as we approach year-end.

Eli Simon, Chief Operating Officer

Pop Mart, Edikted, Princess Polly, a bunch of tenants that see the opportunity to establish multiple locations with us. We're having really great conversations about our new business leasing.

David Simon, Chairman, CEO, and President

To add to that, we have great malls. I probably shouldn't name the tenant, but I'll give you some clues. We are taking one tenant with an existing lease, downsizing them and bringing in a high-end retailer in their place, which is a good example of how we never settle for just executing the mix. We are always looking to improve it to increase the appeal of our properties. Our asset management teams are continuously pushing to elevate the tenant mix, even if it means downsizing existing tenants for better options.

Brian McDade, Chief Financial Officer

And Michael, the 30% statistic refers to new leases. So it isn't just old stuff. What we have is an unabated demand for us to continue adding interesting and new uses. We're also seeing significant demand from the existing retailer base, and we're slightly ahead of the upcoming lease expirations in '26. I think the demand is coming from various sources. On previous calls, we've discussed our efforts to improve the merchandising mix. That 30% figure encapsulates our desire and success in that regard.

David Simon, Chairman, CEO, and President

So I think the take-home here is the new concepts and the new storefront opportunities are very positive, and we're seeing exciting developments on that front.

Operator, Operator

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

Juan Sanabria, Analyst

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 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?

David Simon, Chairman, CEO, and President

Well, you have to assume everything is a risk. I do think bringing AI into the equation will have a pretty big impact on how e-commerce is executed. However, we offer something much broader than e-commerce. If e-commerce was going to put us out of business for the last 20 years, we're still standing here. Our EBITDA this quarter was $1.6 billion, and we continue to thrive. I recognize that e-commerce shoppers will leverage AI to enhance their online shopping experiences. The key for us is to create the best shopping environments. Our product has survived for 70 years, and I believe it will continue to do so. So I look at technologies like AI as an opportunity to improve our offerings rather than a threat. We will adapt and innovate to create effective shopping experiences that appeal to consumers alongside the evolution of e-commerce.

Juan Sanabria, Analyst

Yes. Hopefully, Simon?

David Simon, Chairman, CEO, and President

So in any event, we're experimenting with how to leverage AI effectively, and we see great potential in enhancing our loyalty programs and customer interactions using technology.

Operator, Operator

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

Vince Tibone, Analyst

I wanted to follow up one more time on the Taubman cap rate. Just specifically, if you look, the way I'm seeing 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. Is it really that much in synergies to get to the second quarter, second half?

David Simon, Chairman, CEO, and President

Yes, we provided the numbers clearly. At this stage in our career, we have no intention of misleading you or the public. Your cap rates are too low for some assets, but not for ours. We have shared where the cap rates stand. We offered guidance on the accretion and covered all relevant aspects of that transaction. There is substantial growth potential this year and next, and we've communicated everything regarding that deal. I believe your cap rates for our asset base are too low, and I think our growth rate is significantly higher than that of others in our peer group.

Operator, Operator

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

Haendel St. Juste, Analyst

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 shifts 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 two dynamics and how you're thinking about the Klépierre platform.

David Simon, Chairman, CEO, and President

We bought the mall, which has nothing to do with Klépierre, which is a luxury outlet center in a prime location. So that has nothing to do with Klépierre. Klépierre has been a great investment for us. We evaluate it all the time. As you know, we issued the convertible notes a while ago. We received conversion notices and chose to settle in shares. We continuously evaluate that investment, and we will continue to do so. However, it has added significant value to that organization. The market should appreciate where Klépierre was ten years ago and where it is today. Our strategic input has created a new Klépierre that is positioned to succeed with full-price retailers. We will continue to have a fiduciary duty to add value to Klépierre while also ensuring that our Simon shareholders are well-represented regarding our capital allocations.

Haendel St. Juste, Analyst

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?

David Simon, Chairman, CEO, and President

Yes, we would likely only consider acquiring full-price assets while maintaining our investment in Klépierre. Klépierre would handle those acquisitions. However, regarding outlet properties, we are exploring options globally, including our outlets in Asia and several locations across North America that my team will evaluate for our accounts. I apologize for any confusion.

Operator, Operator

Our next question is from Mike Mueller with JPMorgan.

Mike Mueller, Analyst

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?

Brian McDade, Chief Financial Officer

Michael, 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 unencumber those assets to further improve our unencumbered asset base, which is already incredibly strong. As far as the portfolio on balance today, I think we're comfortable where it sits, but we naturally evaluate things frequently. That could change over time. But for now, I think we're in a good place.

Operator, Operator

Our next question is from Ronald Kamdem with Morgan Stanley.

Adam Kramer, Analyst

It's Adam standing in for Ron. We've always considered the dividend in the aftermath of COVID, and it seems you're aiming to return to that pre-COVID dividend level. Now that you've reached that point, could you share how you prioritize capital allocation at this moment? I know you've mentioned development of the Class A assets, but you've also discussed Class B or B+ development and redevelopment opportunities in recent quarters. Considering the various options for capital allocation, how do you rank dividends, buybacks, development, redevelopment, and so on?

David Simon, Chairman, CEO, and President

Thank you for the reminder about our COVID status. We have a buyback plan in place, although we cannot execute it at the moment. You will notice that we issued 5 million unit shares, which we will address in the future. We don't need to issue more equity as the Taubman family preferred units and equity for this deal. Over time, we plan to restore our share levels to where they were before the TRG deal issuance, depending on market conditions. Growing our dividend remains a priority, and we will continue investing in our development projects, even though it takes time to deploy capital compared to quicker projects like data centers. Addressing the 5 million share issuance has become a higher priority for us. Meanwhile, we are progressing with significant projects such as Fashion Valley and Boca, and we are looking forward to announcing new opportunities in Nashville later this week.

Operator, Operator

Our next question is from Floris Dijkum with Ladenburg Thalmann.

Floris Gerbrand Van Dijkum, Analyst

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. 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 how your luxury is trending or how you expect that to trend?

Brian McDade, Chief Financial Officer

Floris, it's Brian. So the S&O pipeline is 310 basis points as of September 30. Kering did drop out of the top 10, but it’s simply because we opened up more stores with other retailers, which pushed them below the current rankings. It's really a reflection of the robust activity on the ground from a leasing perspective, and Kering is still a very important tenant to us. We expect that they will return to the top rankings over time. As you look at the 310 basis points, there's quite a bit of luxury included in there, probably around 50 to 60 basis points of the total 310 basis points. The luxury cohort of tenants continues to favor our portfolio and is seeing growth with us.

David Simon, Chairman, CEO, and President

And again, our occupancy remains high, but much of this new leasing activity is about re-tenancy. And of course, brands like Forever 21 also impact the S&O pipeline significantly.

Operator, Operator

Our final question is from Tayo Okusanya with Deutsche Bank.

Omotayo Okusanya, Analyst

Eli, congratulations and welcome aboard. Regarding OPI, I'm interested in how you're approaching that business, which seems to be more value-oriented. Are there opportunities to monetize that, or is the situation too unclear right now to create such opportunities?

David Simon, Chairman, CEO, and President

We'll see how that transpires, but I will compliment the team at Catalyst. They're doing a terrific job with several of the brands. Not all are smooth sailing, but they're performing well at JCPenney, Aeropostale, Brooks Brothers, and Lucky. We are pleased with how Catalyst has integrated with the various brands since the merger early in 2025. It's a stable environment with good results. Obviously, Forever 21 had its challenges, but the change in regulations is allowing the domestic retailers to compete more effectively against foreign retailers, which is a positive sign. Long story short, Catalyst is performing well, and like everything else, we'll always evaluate the best options available. But for the time being, the businesses are in a good place. They cater to both lower-income and higher-income customers who are in search of value. Value is essential in today's market, and Catalyst is on point with that strategy.

Operator, Operator

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

David Simon, Chairman, CEO, and President

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

Operator, Operator

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