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With increased leasing volumes and good shopper traffic, Simon Property Group chairman, president and CEO David Simon isn’t seeing any signs of recession risks ahead.
“We’re still pretty sanguine about it,” Simon said, adding that the higher-end consumer is currently “steady as she goes.”
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Simon has reason to be optimistic. Acknowledging that “we don’t want to go through a recession,” a fear making headlines of late amid broader market declines, Simon said his company expects that lower-end consumer will pick up some discretionary purchasing power as inflationary pressures ease. And while lower-income consumers have faced the brunt of rising prices, he said their higher-income counterparts have not showed signs of a spending slowdown.
“The higher-end or the better-end consumer, I think, is in a good spot,” Simon said.
Simon made his comments during a second-quarter earnings conference call on Monday.
“We are seeing increased leasing volumes, occupancy gains, shopper traffic, and retail sales volumes, resulting in the company’s highest level of real estate NOI for the second quarter in our company’s history,” he said. “Demand for our space from a broad spectrum of tenants is strong and steady.” NOI, or net operating income, is a metric used in real estate to show the profitability of rental properties.
Simon said that should there be a recession, Simon Property would remain in good shape as the “gap between us and everybody else just gets bigger and bigger.”
He also said that in past recessions, the company “didn’t see cash flow from the properties go down. They flattened.” Simon said the company was expecting the Express and Rue 21 bankruptcies and those expectations were factored into company guidance. “It doesn’t reflect if there’s a material new one coming up, but we don’t know of anyone that’s on that road,” Simon said.
He noted that the better retailers—the ones in good financial standing—”take a longer view just like we do.” And while that’s not everyone, Simon did note that the “majority of who we’re doing new business with is definitely taking a longer term here. So, they’re looking to gain sales and market share as well [and] we’re certainly not on the defensive into the kind of the turmoil over the last few weeks.”
The CEO did say that while he thinks the real estate investment trust (REIT) will increase its occupancy, the bigger opportunity involves a better tenant mix. “The better the mix, the higher the sales. The higher the sales, the more likelihood that you’re going to have higher rents. So, that’s the big focus as we continue to merchandise our properties,” Simon said.