Macerich Company (The) (MAC)

MAC 
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The Macerich Company (MAC)

Q3 2010 Earnings Conference Call

November 4, 2010 1:30 PM ET

Executives

Jean Wood – VP, IR

Tom O’Hern – Senior EVP, CFO and Treasurer

Art Coppola – Chairman and CEO

Randy Brant – EVP, Real Estate

Analysts

Craig Smith – Bank of America/Merrill Lynch

Cedric Lachance – Green Street Advisors

Rich Moore – RBC Capital Markets

Manning (ph) – Citigroup

Michael Mueller – JPMorgan

Tayo Okusanya – Jefferies & Company

Ben Yang – Keefe, Bruyette & Woods

Alexander Goldfarb – Sandler O’Neill

Presentation

Operator

Good afternoon ladies and gentlemen. Thank for standing by and welcome to Macerich Company Q3 2010 Earnings Conference Call. (Operator Instructions).

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

Jean Wood

Hi, thank you everyone for joining us today on our Q3 2010 earnings call. During the course of this call, management will be making forward-looking statements, which are subject to uncertainties and risks associated with our business and industry.

For a more detailed description of these risks, please refer to the company’s press release and SEC filing. As this call will be web cast 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’s section of the company’s website at www.macerich.com.

Joining us today are Art Coppola, CEO and Chairman of the Board of directors; Ed Coppola, President; Randy Brant, Executive Vice President Real Estate; and Tom O’Hern, Senior Executive Vice President and Chief Financial Officer.

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

Tom OHern

Thanks Jean. Today we’re going to be discussing Q3 results, our recent capital activity and our outlook for the balance of the year.

During the quarter, operating metrics were strong, occupancy levels improved, retail sales increased and same-center NOI was positive for the third quarter in a row. The releasing spreads were also positive again this quarter.

We signed leases for about 305,000 square feet, that was 225 deals and we had a positive releasing spread of 15.7% on average. The occupancy level increased 160 basis points compared to a year ago. We’re at 92.6% at quarter end compared to 91% at the end of Q3 last year. The occupancy cost as a percentage of sales continue to trend down at 13.7% for the trailing 12 months ended September 30th. That compared to 14.2% at year-end.

FFO for the quarter came in at $.66; that was slightly ahead of consensus, which was $.64. Part of the metrics impacting that FFO number was same-center NOI being up 2.6%. That positive comparison to last year was largely driven by occupancy gains, terms of lease termination revenue, that was down significantly; that was at 3.5 for the quarter compared to $11 million during Q3 of last year. If you recall during Q3 of last year, we had some significant lease termination payments from Rule. They closed five or six stores at some of our better malls and had a big termination payment.

The expense recovery rate including JVs was 93%, a significant improvement from a year ago when it was 90.4%. This improvement is due to having 70% of our leases now on fixed (inaudible) as well as some significant cost reduction measures we took in the end of 2009 that we’re getting the full year benefit for this year.

Looking at the balance sheet, we’ve continued to have a significant amount of financing activity. In September we closed on a new loan on Danbury fair. It was a $250 million dollar loan fixed at 5.5% for ten years. That paid off the old loan that had a coupon 7.51 and a principal amount of 160.

Earlier this week we closed on a $114 million dollar refinancing of Stone Wood Center, that’s a joint venture property. The new rate was 4.6% for seven year financing and that paid off the old loan, which was $71 million at 7.41.

And most recently we’ve agreed to a $232 million dollar loan on Freehold Raceway Mall. It’s a seven year fixed rate deal with a coupon of 4.15%. That compared to the old loan, which had an actual pay rate of 7% although the GAAP interest rate was lower than that at about 4.7%.

So you can see as we progressed from the end of Q2, the financing environment continued to improve both in terms of rate as well as capacity. Several of the financings we’ve done were on 2011 maturities. When you factor in the financings as well as excluding loans with extension, we have about $466 million of loans maturing in 2011. The average interest rate on the remaining 2011 fixed rate maturities is about 7% so we should see some significant interest savings there.

In addition we have a $400 million dollar swap that expires in April of 2011. Based on today’s (inaudible) rate, the expiration of that swap will effectively reduce the interest rate by 4.8% on $400 million of floating rate debt that that swap has been applied to. Just looking, not even at a full year savings, but just at the 2011 savings that will be almost $13 million in interest savings there.

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