Macerich Company (The) (MAC)

MAC 
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The Macerich Company (MAC)

Q2 2013 Earnings Conference Call

August 06, 2013; 12:00 p.m. ET

Executives

Art Coppola - Chief Executive Officer & Chairman

Ed Coppola - President

Tom O’Hern - Senior Executive Vice President & Chief Financial Officer

Robert Perlmutter - Executive Vice President, Leasing

Jean Wood - Vice President of Investor Relations

Analysts

Craig Schmidt - Bank of America

Christy McElroy - UBS

Quentin Velleley - Citi

Michael Bilerman - Citi

Cedric Lachance - Green Street Advisors

Vincent Chow - Deutsche Bank

Samit Parikh - ISI

Todd Thomas- KeyBanc Capital Markets

Ben Yang - Evercore

Alexander Goldfarb - Sandler O’Neill

Michael Mueller - JP Morgan

Presentation

Operator

Good day ladies and gentlemen. Thank you for standing by. Welcome to The Macerich Company, second quarter 2013 earnings conference call. Today’s call is being recorded.

At this time all participants are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions.

I would like to remind everyone that this conference is being recorded and I would now like to turn the call over to Jean Wood, Vice President of Investor Relations. Please go ahead.

Jean Wood

Thank you and thank you everyone for joining us today on our second quarter, 2013 earnings call.

During the course of this call management will be making forward-looking statements, which are subject to uncertainties and risk associated with our business and industry. For a more detailed description of these risks, please refer to the company’s press release and SEC filings.

As this call will be webcast for some time to come, we believe it is important to note that the passage of time can render information stale, and you should not rely on the continued accuracy of this material.

During this call we will discuss certain non-GAAP financial measures as defined by the SEC’s Regulation G. The reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure is included in the press release and the supplemental 8-K filings for the quarter, which are posted in the Investor Section of the company’s website at www.macerich.com.

Joining us today are Art Coppola, CEO and Chairman; Ed Coppola, President; Tom O’Hern, Senior Executive Vice President and Chief Financial Officer; and Robert Perlmutter, Executive Vice President, Leasing.

With that I would like to turn the call over to Tom.

Tom O’Hern

Thank you Jean. Today we’re going to keep our introductory comments brief to allow plenty of time for Q&A. That being said, we will be limiting this call to one hour. If we run out of time and you still have questions, please do not hesitate to call me or Art, John Perry or Jean Wood.

It was another great quarter. We executed on our plan to dispose of non-core assets. We continue to strengthen our balance sheet and we had a very strong operating performance during the quarter. That combined with the blockbuster grand opening of Fashion Outlets of Chicago last week, it has been a very productive 90 days since our last earnings call.

Looking at the operating metrics, we had good leasing volume and spreads. We signed 262,000 square feet of leases during the quarter, with a positive re-leasing spread of just over 14%. We had very strong occupancy at 93.8%. That was up 110 basis points compared to June 30 of last year.

FFO for the quarter, adjusted FFO was up 18% to $0.87 per share. That compared to $0.74 a share a year ago. Some of the things that impacted that growth were same center NOI, which increased 4.6% compared to the second quarter of last year. That statistic does not include straight lining or rent, lease termination revenue or SFAS 141 revenue.

This strong increase was driven by increased occupancy, positive re-leasing spreads in 2012 that are now rolling through 2013 revenues, and CPI increases on leases. This is the strongest increase we’ve seen since before the recession. It’s obviously well above our previous guidance range of 2.75% to 3.25% and as indicated in our earnings release, this morning we are raising our guidance and an important part of that is an upward revision of same center NOI guidance to 3.75% to 4.25% for the year.

We had gain on land sales during the quarter of $2.2 million. Those were included in our previously issued guidance. There’s also significant interest savings during the quarter as our average interest rate went down to 4.3% compared to 4.7%, the second quarter of 2012.

There’s another strong quarter in terms of balance sheet improvement. Our debt to market cap dropped to 41%. Our floating rate debt has been significantly reduced. Today it stands at 18% of total debt, compared to 31% of total debt at June 30, 2012. Our average debt maturity has increased to 5.6 years. That compared to 3.9 years at June 30th of ‘12.

Concurrent with our inclusion in the S&P 500 Index this past quarter, we sold 2.5 million shares of common equity, at an average share price of $70.42 per share. This stock was sold under our ATM program. The net proceeds were $171 million that were used to pay down debt.

Yesterday we committed to an $850 million life company refinancing of a debt on Tysons Corner super regional mall. This is a 10 year fixed rate loan, 4.1% interest rate. It will mature in January of 2024 and that pays off a loan that was approximately $300 million and had a GAAP interest rate of 4.78 and an actual coupon up in the mid-5s. The company owns 50% of Tysons and we’ll roughly $275 million of excess loan proceeds and those proceeds we’ll use to further reduce debt, primarily floating rate debt.

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