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.
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“We’re still pretty sanguine about it,” Simon said, adding that the higher-end consumer is currently “steady as she goes.”
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.
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He also said that the REIT hasn’t made any recent acquisitions and is largely out of the portfolio business. While it continues to look at quality assets, Simon emphasized that the company likes to add quality where it can add value, and the price has to be right. In the meantime, there’s plenty for the company to do with its existing portfolio as it continues to add to its liquidity.
Executive vice president and CFO Brian J. McDade said the REIT ended the quarter with $11.2 billion of liquidity and is sitting on $3.1 billion of cash.
“We signed more than 1,400 leases for approximately 4.8 million square feet in the quarter. Approximately 30 percent of our leasing activity in the second quarter was new deal volume. Our traffic in the second quarter was up 5 percent compared to last year. And importantly, total sales volumes increased approximately 2 percent year over year,” McDade said. “Reported retailer sales per square foot in the second quarter was $741 for the mall and premium outlets combined.”
He said the company will open its Tulsa Premium Outlets on Aug. 15 at 100 percent leased, and it will also open a “significant expansion” at Busan Premium outlets in South Korea this fall. The website for the Tulsa Premium Outlets indicated that it is the first outdoor outlet center in Tulsa, Okla., and that it features more than 75 designers brands, with savings up to 65 percent off.
For the second quarter ended June 30, the REIT posted a 1.5 percent gain in net income to $493.5 million, or $1.51 a diluted share, from $486.3 million, or $1.49, a year ago. Total revenue rose 6.5 percent to $1.46 billion from $1.37 billion. Funds From Operations, or FFO, was $1.09 billion, or $2.90 a diluted share, versus $1.08 billion, or $2.88, a year ago. FFO is a term REITs use to show cash flow from operations. The year ago diluted share included 9 cents in net gains from investment activity. For the six months, net income was up 30.6 percent to $1.23 billion, on a 6.6 percent increase in revenue to $2.90 billion from $2.72 billion.
For the full year ending Dec, 31, 2024, the company forecasted net income in the range of $7.37 to $7.47 a diluted share, with FFO between $12.80 to $12.90 a diluted share.
Separately, a regulatory filing with the Securities and Exchange Commission on May 29 said that Simon will continue to serve as chairman, president and CEO while undergoing therapeutic treatment for cancer.
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