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Malls are seeing a ‘resurgence in suburbia,’ Simon Property Group CFO says

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Simon Property Group CFO & EVP Brian McDade joins Yahoo Finance Live to discuss mall tenant demand, consumer spending, inflation, mall trends, and the expectations for National Outlet Shopping Day.

Video Transcript

- OK, let's bring in our next guest, somebody who's quite familiar with the mall space. We've got Brian McDade, Simon Property Group CFO and executive vice president. Brian, we're not going to ask you about Hot Topic. But let me ask you about what you're seeing in the malls. Because we have come off of several weeks of what has been a pretty gloomy outlook from the big box retailers. It sounds like you're a little more optimistic about what you're seeing in the malls.

BRIAN MCDADE: Good morning. Yes, we're very optimistic about what we're seeing in the malls. Tenant demand is very strong. The consumer is back shopping. You know, they're looking for product that is found within our mall portfolio, you know, more dressier clothing and things of that nature. You know, the consumer has changed their shopping patterns. People are going back to work. People are going to events. And they are redoing their wardrobe after being stuck in the house for two years. So there is a lot of excitement about-- from the consumer in our assets. And we're really pleased with where business is today.

BRIAN SOZZI: Hey Brian. It's Brian here. I wanted to ask just kind of about the overall vacancy rates. So we know that there have been some changes in terms of who's actually in the malls right now, some concerns about delinquency rates among those that are paying rent in the malls. What are you seeing on that front, especially as the Fed raises rates? I mean, is there any concern that maybe tenants won't be able to meet the rent?

BRIAN MCDADE: Well, look, tenants have found themselves in a very fortified financial position after the last two years. So they're in a strong position. We continue to see our occupancy increase and see strong demand for tenants and expect to continue to increase throughout the year and well into next year. So strong demand. You know, from a delinquency perspective, we are at a low in the cycle for us. And so tenants are fully paying their rent. We're excited about the opportunities to continue to grow our business with retailers.

You know, the United States is the place for growth. Retailers are really leaning into the omnichannel approach. And the store is at the center of that. And so we are benefiting from that.

- What kind of changes are you seeing in terms of the makeup of the malls themselves? I know during the pandemic when so many people were staying at home, there was a lot of discussion about, you know, these department stores reducing their footprint, what would move in on behalf of that. There were talks about fulfillment centers, maybe some schools that were moving in too. I mean, what are you seeing on that front? And how has that shifted the mall experience?

BRIAN MCDADE: Sure, we are definitely seeing an opportunity to add new components to a mall. You know, there's a lot of densification in our portfolio going on. So we are adding Lifetime Fitness. We are adding hotels, residential in place of department stores, which, quite honestly, are actually on solid financial footing for first time in a really long time. And so we are adding complementary components where it makes sense, which drives foot traffic to our asset base.

- Hey Brian, is there anything to be said about whether or not that strategy is different depending on whether or not you're talking about urban areas or the suburbs are kind of rural areas. I mean, I think about a Simon Property mall that I grew up next to. I mean, a big transformation towards having entertainment, like a Dave and Busters, like, you know, sit-down restaurants as opposed to the food courts in there. But is that something that's scalable to malls that you have that might be in the city centers?

BRIAN MCDADE: Yes, absolutely, we're seeing great opportunity for the food and beverage and entertainment component tree within our assets. We've been investing in those and adding that tenant tree several years now. And if anything, it's accelerating. The mall is where the consumer wants to be. And therefore, you're seeing a lot of incremental uses around that to take advantage of that foot traffic and to really tap into that customer base. And so we do expect the food and beverage and entertainment categories will continue to expand across our portfolio, both in urban and suburban areas. But the portfolio, our portfolio, specifically, skews more towards the suburban areas.

And we're seeing that resurgence in suburbia. You know, the white picket fence is now all in the rage. And we're seeing migration away from urban centers. And so we are benefiting from that as populations move out of urban cores, moving into the suburbs and getting closer to our asset base.

- Brian, what are you seeing specifically with some of the outlet malls? We've heard so much from retailers who've talked about high inventory, being able to discount things. I'd imagine that kind of passes things over to outlet centers at a time when people are looking for some steeper discounts with their costs of living going up. Do you see traffic they're picking up in a big way? What's the outlook?

BRIAN MCDADE: We do. You know, the outlet is a great value orientation product. And with excess inventories, which are-- have been talked about with some other retail companies, we do think that will be a channel where some excess inventory will be cleared. The foot traffic continues to come back.

We're very excited about this upcoming weekend with National Outlet Shopping Day, which is a shopping day that Simon founded, where we are partnering with our brands-- over 300 of around the country of over 90 assets in over 30 states-- where we're going to have two days of shopping, incremental deals. And so we really are expecting a big turnout this coming weekend and really driving traffic throughout the summer where the consumer is looking for value giving the backdrop from a macro perspective.

- Brian McDade Simon Property Group CFO and executive vice president, thanks so much for joining us today. I appreciate the time.