Macerich Company (The) (MAC)

MAC 
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The Macerich Company (MAC)

Barclays Capital Global Financials Conference Call

September 10, 2013 09:00 ET

Executives

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

John Perry - Senior Vice President, Investor Relations.

Analysts

Ross Smotrich - Barclays

Presentation

Ross Smotrich - Barclays

Okay. I think we’re going to get going. Good morning, everybody. My name is Ross Smotrich, I'm the REIT Analyst for Barclays. And we’ll try and keep it on time here for the purposes also of the webcast. So, it’s my pleasure to introduce Tom O’Hern, Senior Executive Vice President and Chief Financial Officer of Macerich. Macerich, an S&P 500 REIT focused on the ownership development and REIT development as well top quality regional miles nationally. He’s joined by his colleague John Perry, he is SVP of Investor Relations.

Just by way of background, prior to joining Macerich, Tom was the CFO of several commercial real estate companies primarily focused on in the retail space, he’s a CPA with experience with our Dana Anderson, he’s also a member of the board of another REIT called Douglas Emmett. So, we’re thrilled to have Tom represent the Macerich story and when he’s is done we’ll have some time for Q&A. Thanks.

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

Thanks, Ross. As Ross, said Macerich is a mall company that’s our primary focus. And we’ll roll through the slides fairly quickly if I can find the advanced button here. Here we go, we can pass through that and that’s for the legal guys, okay. We were – we went public in 1994 as Ross did my bio, I’ve been at Macerich for 20 years for the period of time before that it almost forgotten. When we went public we were opting $600 million and we grown to about $15 billion in total market cap today. In May, we joined the S&P 500.

Really, for us it’s all about growth and there is two aspects of our growth story internal growth and external growth. We’re relatively unique amongst mall companies in fact most REITs in that we structure our leases with CPI increases annual CPI increases, that’s for a variety of reasons but our goal is to see some increase from those leases every year which doesn’t happen if you have fixed bumps that get straight lined. Today, about 95% of leases we write or written with CPI increases so we expect that 65% or so to roll up close to 90% with the net for the last two or years is a process we can underway with the last six years.

We get about 10% of our space every year on average that we get through lease expiration and we have the opportunity to roll those leases up to market. Over the past few years we’ve averaged mid teens positive releasing spread. So, that picks up roughly 1% to 1.5% of what we call same center EBITDA growth in a given year depending on your CPI assumption if you use two for example that gets to the 3% growth and then if you throw in occupancy in this year we’ve had a nice gain of over a 100 basis points as well as the conversion of temporary tenant occupancy to permit tenant occupancy. We expect to see 3.5% to 4.5% same center EBITDA growth in any given year.

Also, we’ve had a strategy of disposing of less productive assets that have slowed that growth, that improves the quality of our portfolio as well as the growth prospects and year-to-date we’ve disposed about $530 million worth of such assets. We’ve also been extremely active in the last couple of years in taking advantage of this generational low interest rate environment. We’ve done over $3 billion of financing, we’ll show you a few examples of that but we’ve done a number of things, we’ve reduced our floating rate debt significantly, we’ve extended our debt maturity schedule from roughly three years to about six years. And we’ve also reduced the overall average interest rate.

External growth comes from two primary areas, development and redevelopment. We have a pretty significant pipeline of a $1 billion to $1.250 billion over the next five years, we’ll some details on that in a few minutes. We typically see strong returns estimated returns on our developments and redevelopments are 8% to 11%. In addition, we’ll do some selective acquisitions, it’s hard to predict these but as I say that I can also point back to last 12 months where we had that $1.7 billion of acquisitions of high quality regional malls.

On the financing front, some of the details you can look at some of these deals probably the low point was Scottsdale Fashion Square, March 2013 we did a 10 years financing on a $525 million deal right at 3%. It’s still good the most recent deal was Tysons Corner which we just did about a month ago and that was a 10 year deal at 4% and we’re in the market today with Flatiron Crossing and that looks to be very competitive as well, we expect to get a 7-year to 10-year deal on high 3s low 4s. So, it’s been a good market, we’ve taken a significant advantage of that and really improved our balance sheet very dramatically.

When you look at the purchase activity over the last year, have some high quality assets some of which you’re maybe familiar with here in the New York market. The most recent acquisition was in January Green Acres mall and we acquired that as well as Kings Plaza from Vornado to very high quality assets, great additions to our portfolio, we think we’re going to get some great synergy there along with our Queens Center which we own for sometime. And we also bought out some of our partners in the case of Arrowhead Town Center in Flatiron Crossing, some very active deals which will get into some more specifics in a moment and on the disposition front, we’d dispose of six assets and those were performing significantly lower than our portfolio average. So, as a result of disposing those there is some mild earnings dilution but we improved the quality and we’ve improved the growth aspects of our portfolio.

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