Macerich Beats Earnings Ests, Ups Outlook

Zacks

California-based retail real estate investment trust (:REIT), The Macerich Company (MAC) reported first-quarter 2013 AFFO (adjusted funds from operations) per share of 86 cents, beating the Zacks Consensus Estimate by 7 cents.

The earnings were also higher than the year-ago figure of 76 cents. Strong fundamentals in the portfolio with solid tenant sales and re-leasing spreads escalation aided the year-over-year growth.

FFO (funds from operations) for the quarter came in at $127.0 million or 86 cents per share, compared with $106.2 million or 74 cents per share in the year-ago period.

Total revenue for the first quarter escalated 21.3% to $262.8 million from $216.6 million reported in the year-ago quarter. Moreover, total revenue significantly beat the Zacks Consensus Estimate of $228 million.

Inside the Headlines

As of Mar 31, 2013, overall portfolio occupancy jumped 130 bps (basis points) to 93.4% from 92.1% reported as of Mar 31, 2012. Moreover, mall tenant sales upped 6.2% to $535 per square foot in the quarter from $504 in the year-ago period.

In addition, re-leasing spreads for the first quarter increased 14.9% year over year. Same center net operating income (:NOI) during the quarter advanced 3.4% to $180.4 million from $174.5 million in prior-year quarter.

Notable Portfolio Activities

In the first quarter, Macerich continued construction at a 526,000 square feet fashion outlet center – Fashion Outlets of Chicago – which is slated to open for business on Aug 1, 2013. Also, Macerich stated that over 150 of the most desired brands joined the mall including Bloomingdale's The Outlet Store, Skechers USA Inc. (SKX), Last Call by Neiman Marcus and Gap Inc. (GPS).

Additionally, Macerich has ongoing constructions at Tysons Corner Center for the development of a mixed use project, which includes an office building, a luxury residential tower and a Hyatt Hotels Corp. (H)’s Hyatt Regency hotel. Macerich recently inked a lease deal with Deloitte LLP during the first quarter for leasing 3 floors in the office tower at the development project.

Notably, in the last quarter, the company signed a 15-year lease with Intelsat, Ltd. for leasing the office space at the Tysons Corner Center. The 2 tenants occupy more than 60% of the project's leasable office space.  The project is slated to open in 2014. 

Liquidity

As of March 31, 2013, Macerich had cash and cash equivalents of $68.8 million compared to $65.8 million at the end of 2012. The company had a total debt of $7.0 billion at the end of first quarter of 2013.

In the quarter under review, Macerich completed over $700 million of financings (at its pro rata share) of 3 properties – Green Acres Mall, Scottsdale Fashion Square and SanTan Village Center. The loans carried an average term of over 8.4 years and an average fixed interest rate of 3.21%. These major financing activities considerably extended the maturity date and reduced the floating rate of the debt balance.

Outlook Revised

For full-year 2013, Macerich increased its FFO per share guidance and now expects it in the range of $3.35–3.45 (prior range of $3.32–3.42).

Our Viewpoint

Consistent with its winning streak, Macerich came up with another robust quarterly result. The company’s solid portfolio of A-quality malls across the most attractive U.S. markets has enabled it to hold rents fairly stable, thereby leading to an increase in occupancy levels and revenue figures.

Moreover, the company’s strong balance sheet and liquidity position further added to the bliss. We expect these activities to provide Macerich a considerable upside potential and boost its top-line growth going forward.

Currently, Macerich holds a Zacks Rank #3 (Hold).

Note: FFO, a widely accepted and reported measure of REITs performance, are derived by adding depreciation, amortization and other non-cash expenses to net income.

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