y for sales growth, with total revenue, mostly leasing income, amounting to $1.48 billion, a solid 4.9 per cent increase over a year ago. That brought revenue for the first nine months of the year to $4.38 billion, up 6.0 per cent from January-September last year. Net income for the quarter came in at $546.7 million, down 20 per cent from a year ago, but this was due to some non-cash accounting activities that had nothing to do with underlying operations. Funds from operations (FFO), a REIT non-GAAP measure that takes net income and adds back depreciation of the real estate and other items to get a more accurate sense of underlying performance, were $1.14 billion, up 4.9 per cent. For the full first nine months, FFO is up 5.6 per cent.  Rents up, sales down This is all solid and reassuring stuff and is keeping investment analysts happy and largely distracted from the softness in sales. At Simon’s US malls and premium outlets, retailer sales per square foot were $737 for the trailing 12 months, compared with $741 in the second quarter, $745 per square foot in the first, and $745 for the year ending December 2023. This has occurred in an inflationary environment so you can’t argue that sales aren’t soft, at least on average. There has to be a bottom somewhere, but there is no indication in this data that it will be reached imminently. Just as likely they will continue to edge down. Meanwhile, rents continue to rise. Average base rent per square foot in the third quarter was up 2.3 per cent year-on-year, so a familiar pattern persists in which rents per square foot and sales per square foot go in opposite directions, causing occupancy cost ratios to rise. During the quarter, Simon opened, already 100 per cent-leased, Tulsa Premium Outlets with a gross leasable area (GLA) of 338,000 square feet. Occupancy across Simon’s whole domestic portfolio keeps rising, to 96.2 per cent at the end of the quarter, up 1 per cent from a year ago.  Demand for space in Simon’s malls is clearly still strong domestically. Likewise internationally: in September the company, along with its local joint venture partner, unveiled a 184,000-square-foot expansion to Busan Premium Outlets in South Korea. At the end of the third quarter, Simon had 163 malls and outlets in the US, in addition to 18 malls from the old Taubman portfolio and 14 Mills megamalls. Outside the US and Canada, it has another 35 properties, including centers in Korea, Japan, Thailand and Malaysia. It also has a minority interest in four more in China that were Taubman joint ventures. Construction costs have strangled development Simon’s CEO, David Simon, had two clear messages for investors in response to analysts’ questions on its November conference call. First, referring to what he said was an “unbelievable rise in construction costs”, Simon’s sheer size and financial might made it uniquely positioned to absorb the cost and continue to develop and redevelop where opportunities existed. Indeed, he has a point. Construction costs, in his estimate, are up 60 per cent from pre-covid levels and there are few development companies around who can take that kind of escalation and operate as they did in 2019. Consequently, no new supply was coming onto the market to compete against Simon’s own projects. David Simon said that the company could see massive development and redevelopment opportunities, with a particular focus on the bottom 20 per cent of its malls, which were often now the only mall in town and could be enhanced materially with investment and remixes. Simon has a development/redevelopment pipeline of about $4 billion, about one-third of which is residential. That doesn’t mean all of it will happen but the strategy is now clearly in place to develop retail and residential in tandem, a process that will be very familiar to developers in Asia.  Holistic focus on tenant mix The second clear message from the company’s senior leadership is that Simon’s leasing focus is strategic: it is concentrating on getting the retail mix right at each property rather than maximizing rent and/or occupancy. This has been a common theme among mall developers globally in recent years, but the unspoken truth is that incentives are generally not aligned in favor of strategic leasing. Leasing professionals are incentivized to maximize rent in a given space rather than to lease as if the whole were greater than the sum of its parts. Nonetheless, from a company and shopper perspective, it makes more sense to get the mix right. Macerich also reports for the third quarter Santa Monica, California-based Macerich, owner of 45 major retail centers comprised of both enclosed malls and open-air town centers in the US, also reported its third-quarter results in the first week of November. It reported revenues of $220.2 million in the third quarter, an increase of just under 1 per cent from a year ago. On the bottom line, it suffered a net loss of $112.1 million, which, bad as it sounds, was still a vast improvement on its loss of $272.0 million a year ago. On the operations side, it said sales per square foot for the trailing 12 months ending September 30 were $834, about flat with the second quarter, and still more than 2 per cent down on the same period a year ago. Occupancy, re-leasing spreads and average base rents are all rising, so like Simon, Macerich is facing strong demand but its tenants face rising occupancy cost ratios. Other mall REITs will report over the next couple of weeks.