Simon Property Group Shows Long-Term NOI/FFO Growth Outpacing FAD, with Q4 2026 Outlook

Interpreting NOI/FFO vs. FAD growth (and what it implies for cash-flow priorities through Q4 2026)

1) Why the “long-term outpacing” vs. “YTD reversal” can both be true

Management explicitly frames TI (tenant improvement) as a demand/supply-driven variable—“a function of demand for the tenants and demand for the space and the supply of available space.” ¹ In other words, TI is not a fixed % of cash flow; it tends to move with the intensity of leasing and the retailer mix. ¹

That helps reconcile the apparent discrepancy you noted:

• Over long periods, NOI and FFO can outpace FAD because successful leasing and retenanting improve operating fundamentals (and therefore NOI) more persistently than the up-front cash swings that can accompany certain leasing cycles. Management describes “releasing demand” and “reterrenting” (replacing lower performers with better tenants) as key levers of growth, alongside occupancy improvements and development. ²
• In a given YTD period, FAD can appear to run ahead if cash outlays (including TIs and other reinvestment) are occurring faster than the operating catch-up—especially when leasing demand is strong enough that landlords are funding incentives and improvements to win/retain tenants. Management states that their TI spend reflects how certain they are about tenant performance/viability and that TI is “a component” of negotiations along with rent. ¹

So, an investor should interpret the “YTD trend” not necessarily as a structural deterioration, but as a timing/mixture issue: strong leasing demand can increase TI spend now, while NOI/FFO benefit may accrue over time. This is consistent with management’s emphasis that TIs are tied to leasing negotiations and supply/demand dynamics rather than a one-way policy commitment to “lower TIs.” ¹

2) What management says about leasing/sales conditions—and why that matters for TI and cash-flow through Q4 2026

Management reports no signs of sales slowdown: traffic accelerated in July (up 2% in the quarter and 3.6% in July), and they state “we have not seen any change in sales.” ³ They add that if sales trends continue they expect to be above the guided range, but also stress it is “very hard to know how sales are going to perform,” and guidance “effectively assumes a slowdown,” particularly because overage/sales-based rent is “back-end weighted” toward the holiday season. ³

They also quantify demand strength:

• Comparable tenant sales are up about 6% year-to-date. ⁴
• For the first half (6 months), comp growth is 6.3%. ³
• Shoppers’ and retailers’ momentum is described alongside 1,200+ leases signed in Q2 (4.8 million sq ft), and new deals represent ~28% of total lease square feet; initial base minimum rent on new deals is up 17% YoY while tenant allowance per sq ft is down 12% YoY. ⁵

This matters for your NOI/FFO vs. FAD observation because:

• Strong sales and leasing demand typically support NOI growth (via lease income, retenanting, and re-leasing at higher rents). Management cites domestic property NOI growth and real estate FFO growth in Q2 and the first half, with domestic NOI up 8.5% for the quarter and 7.6% for the first half, and real estate FFO up 7.9% in Q2. ⁶
• But strong leasing can also bring near-term cash costs (TIs, incentives/allowances, and capital reinvestment), which can temporarily pressure FAD relative to NOI/FFO or vice versa depending on how each metric is defined and timed. Management links TI directly to leasing negotiations and tenant mix uncertainty. ¹

3) Management’s implied cash-flow priority: reinvestment first, but “smartly,” not defensively cutting TIs

Across the excerpts, management’s consistent message is that reinvestment is intentional and ongoing:

• They say: “we are reinvesting back into our centers in a big way,” noticeable to consumers and retailers. ¹
• They also state they will “continue to reinvest into our centers and continue to upgrade the merchandise mix,” while emphasizing doing it “smartly” and focusing on adding great assets over time. ⁷⁸
• On TI specifically, management does not commit to “pull back on TIs” as a goal; instead, they describe TI as a function of tenant demand, supply/demand, and tenant credit/viability confidence in negotiations. ¹

So what does that imply about cash-flow priorities through Q4 2026?

A) Reinvestment is the operating priority, not a cap-driven reduction in TI

Given management’s “big way” reinvestment stance and their refusal to describe sales (and therefore the leasing/incentive environment) as something fully controllable, investors should expect reinvestment and TI to remain active through Q4 2026, rather than being abruptly reduced as a primary lever. ¹³

B) They expect operating upside, while still guiding with prudence (which affects near-term cash metric optics)

Management says guidance assumes some sales moderation, even while they believe conditions could keep them above the guided range if sales trends continue. ³ This suggests that:

• Cash-flow behavior through Q4 2026 may reflect both continued leasing-driven reinvestment and prudent guidance assumptions (i.e., they don’t want to implicitly “over-plan” cash metrics on a fully optimistic sales path). ³

C) Capital allocation appears balanced: reinvestment + development + liquidity preservation

They highlight substantial reinvestment capability and balance-sheet strength:

• Liquidity ended the quarter at ~$9.3 billion, with net debt-to-EBITDA below 5.0x and fixed charge coverage 4.7x. ⁹
• They have $1 billion in the ground and expect $600 million+ approvals to start by end of year, generating ~9% return on those development investments. ²
• They also completed major financing/rebalancing during the quarter (secured loans, issuance of senior notes, term loan) while maintaining liquidity. ⁹

This balance supports an interpretation that cash-flow priorities through Q4 2026 are: (1) fund ongoing reinvestment and development, (2) preserve liquidity/financial flexibility, and (3) manage interest expense proactively—not to sharply reduce reinvestment (including TI) as the primary lever. ⁹⁸¹⁰

4) What an investor should conclude about the “difference” (practical interpretation)

Putting it together:

1. Long-run outperformance (NOI/FFO vs. FAD) can reflect that operating improvements and rent growth eventually translate into durable NOI and FFO, while reinvestment costs (including TI/capex) are partly timing-related and/or absorbed across cycles. This is consistent with management’s multi-year leasing/retenanting and reinvestment narrative. ²⁸
2. YTD reversal (FAD outpacing NOI/FFO) is consistent with a period where cash costs for leasing readiness and tenant negotiations are elevated relative to the immediate NOI/FFO benefit (or simply reflect timing/metric definitions), especially since management ties TI to leasing conversations and market conditions and emphasizes ongoing reinvestment. ¹
3. Through Q4 2026, management’s own framing implies cash-flow is prioritized toward reinvesting back into centers and executing the growth plan (“reinvesting…in a big way,” reinvest smartly, continue upgrades), while maintaining liquidity and prudent guidance assumptions around sales. ¹⁷⁸³

5) Direct linkage to “outpacing vs. trend” and Q4 2026 priorities

Management’s position is effectively: reinvestment intensity will remain meaningful because it is integral to leasing execution and asset upgrades, and because they believe demand remains strong even if they guide conservatively. ¹³⁷ Therefore, investors should interpret any near-term mismatch between NOI/FFO growth and FAD trend as more likely reflecting timing and leasing/cash reinvestment mechanics, rather than a stated intention to materially “de-prioritize” TI or reinvestment through Q4 2026. ¹³

Separately, they directly reinforced confidence in continued contribution beyond guidance if conditions persist (“if the current conditions continue…further contribution beyond…what’s baked into our guidance for the year”). ¹¹ That further supports the view that reinvestment should be expected to continue, not be abruptly curtailed, because management believes operating results can still benefit even under their prudently framed guidance. ¹¹³