Simon Property slashes annual profit forecasts as leasing demand slumps

(Reuters) – Simon Property (NYSE:) lowered its annual profit forecast on Wednesday, signaling a fall in leasing demand from retailers who are battling conservative consumer spending and higher rentals.

High borrowing and input costs have weighed heavily on retailers and restaurant owners, even as customers turn conscious about spending under inflationary pressures.

This has slowed footfall at outlet malls, shopping centers and restaurants, denting leasing demand for Simon Property. The real estate trust has also raised its base minimum rent, which was up 3.1% in the quarter ended June 30, in order to protect margins.

With student loan repayments returning in the second half of the year, discretionary spending is likely to be curtailed further.

The company now expects annual net income attributable to shareholders to be between $6.39 and $6.49 per share, compared with its previous forecast between $6.45 to $6.60 per share.

Data from UBS Evidence Lab showed that outlet malls have seen lower foot traffic and mall tenant categories of clothing and accessories, and food services and drinking places have seen growth rates fall below the overall retail sales level in May.

This is in contrast to grocery-oriented shopping centers such as those owned by Simon Property’s peer Kimco Realty (NYSE:), which beat quarterly revenue estimates last week.

Simon Property’s reported funds from operations (FFO) per share of $2.88 in the quarter ended June 30 dropped from $2.91 a year ago. Analysts on average had expected per share FFO of $2.92, as per Refinitiv data.

Net revenue from lease income in the second quarter came in at $1.25 billion, in line with Street expectations.