Macerich Company (The) (MAC)

MAC 
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Macerich Co. (MAC)

Q3 2013 Earnings Conference Call

October 29, 2013 11:00 PM ET

Executives

Jean Wood – Vice President of Investor Relations

Arthur M. Coppola – Chairman and Chief Executive Officer

Tom O’Hern – Senior Executive Vice President, Chief Financial Officer and Treasurer

Robert D. Perlmutter – Executive Vice President-Leasing

Analysts

Craig Schmidt – Bank of America Merrill Lynch

Michael Bilerman – Citigroup Inc.

Richard Moore – RBC Capital Markets

Luke McCarthy – Deutsche Bank

Daniel Busch – Green Street Advisors

Haendel St. Juste – Morgan Stanley & Co. LLC

Alexander Goldfarb – Sandler O’Neill & Partners L.P.

Joshua Patinkin – BMO Capital Markets

Michael Mueller – JPMorgan Chase & Co.

Presentation

Operator

Good day, everyone. Thank you for standing by. Welcome to the Macerich Company Third Quarter 2013 Earnings Call. As a reminder, 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.

Again, this call is being recorded and I would now like to turn the conference over to Ms. Jean Wood, Vice President of Investor Relations. Please go ahead Ma’am.

Jean Wood

Thank you, everyone for joining us on our third 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 Investors section of the Company’s website at www.macerich.com.

Joining us today are Art Coppola, CEO and Chairman of the Board of Directors; Tom O’Hern, Senior Executive Vice President and Chief Financial Officer; Bobby Perlmutter, Executive Vice President, Leasing; and John Perry, Senior Vice President, Investor Relations.

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

Thomas E. O’Hern

Thank you, Jean. Today, we will be keeping our introductory comments brief to allow plenty of time for Q&A. That being said, we will be limiting this call to one hour. We run out of time and you are still in need of questions being answered, please do not hesitate to reach out for me, Art, John Perry or Jean Wood.

It was another great quarter. We continued to execute 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. Looking at our operating metrics, leasing volumes and spreads were both good. We signed 306,000 square feet of leases during the quarter with an average positive releasing spreads of 14.2% over the trailing 12-month period.

Mall occupancy was at 93.7%. That was up 90 basis points year-over-year. Also it’s very important to note when looking at the year-over-year occupancy gain that over the past four quarters, we’ve had about 250,000 square feet that had been converted from temporary tenant occupancy to permanent leases. The average rent differential between a permanent lease and a temporary lease is between $20 and $25 per square foot. Currently we have 5.6% of our occupancy which comes from tenants we consider temporary.

We will continue to focus on converting those tenants to permanent occupancy in the near future. In terms of FFO for the quarter it was up 10% at $0.86 per share compared to $0.78 a year ago, included in that was same-center NOI of 3.5% compared to the third quarter of last year. That increase was driven by increased occupancy, positive releasing spreads and annual CPI increases.

Year-to-date same-center NOI was up 3.83% and our guidance for the year remains at 3.75% to 4.25% and just to remind you that’s up a 100 basis points from our initial guidance for this year. Included in FFO for the quarter was a $1.4 million gain on early extinguishment of debt. The results of significant interest expense savings during the quarter as our average interest rate is down to 4.22% compared to 4.88% in the third quarter of last year that’s also evidenced by our 2.9 times interest coverage ratio for the quarter.

Our balance sheet we have again made significant progress our debt-to-market cap at the end of the quarter was 42% and our floating-rate debt has been reduced to 12.7%. That’s about half of what it was year ago. Our average debt maturity duration has increased to six years, that’s up from 4.2 years at September 30 of 2012.

We recently committed to a $268 million life insurance company financing on the currently unencumbered FlatIron Crossing mall. That’s a seven year fixed-rate transaction with a rate of 3.85 that loan is expected to close in November and the loan proceeds will be used primarily to pay down floating-rate debt. So that will reduce our floating rate debt to under 10% of our total debt, and it will also stretch out our maturity schedule.

At September 30 the Company’s debt to EBITDA was 7.75 times, that’s down from 8.25 at the beginning of the year. We also have relatively light interest rate sensitivity if you look at the maturities coming up in 2014, 2015 and 2016. We only got a $119 million of debt maturing in 2014 at an average rate of 4.1%.

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