Macerich Company (The) (MAC)

MAC 
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The Macerich Company (MAC)

Q4 2010 Earnings Conference Call

February 8, 2011 01:30 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

Michael Mueller – JP Morgan

Rich Moore – RBC Capital Markets

Quentin Velleley – Citi

Craig Smith – Bank of America/Merrill Lynch

Paul Morgan – Morgan Stanley

Cedric Lachance – Green Street Advisors

Alexander Goldfarb – Sandler O’Neill

Samir Parikh – International Strategy and Investments

Tayo Okusanya – Jefferies & Company

Ben Yang – Keefe, Bruyette & Woods

Todd Thomas – KeyBanc Capital Markets

Presentation

Operator

Good afternoon ladies and gentlemen. Thank you for standing by. Welcome to the Macerich Company Fourth Quarter 2010 Earnings Conference Call. Today’s call is being recorded. At this time all participants are in a listen-only mode. Following the presentation we’ll 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.

I would now like to turn the conference over to Jean Wood, Vice President of Investor Relations. Please go ahead.

Jean Wood

Hi. Thank you everyone for joining us today on our fourth quarter 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 that 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 VP Real Estate; and Tom O’Hern, Senior Executive VP and Chief Financial Officer.

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

Tom OHern

Thank you, Jean. Today we’re going to be discussing the fourth quarter results, our recent capital activity and our outlook for 2011.

During the quarter, our fundamentals continued to improve significantly, occupancy levels were up, retail sales had a very sold increase for the quarter and same-center NOI was positive for the fourth quarter in a row. The releasing spreads were also positive again this quarter.

Looking at leasing, we did 238 deals in the quarter that’s 295,000 square feet. The average new rent was $42.74 and the average releasing spreads versus the expiring rent was a positive 13.7%. Mall occupancy was 180 basis points higher than a year ago, yearend was 93.1% compared to 91.3% at the end of 2009. The average rent per foot in the portfolio was up to 42.50 a foot that compared to 41.98 at year-end 2009. Occupancy cost as a percentage of sales was down significantly for the year at 13.5% compared to 14.2% for 2009.

Looking at FFO, FFO diluted per share for the quarter was $0.77 and that was 2.66 for the year, that was $0.01 ahead of our – the midpoint of our guidance range. Same-center NOI for the fourth quarter was up 1.82% and for the year same-center NOI growth was 2.04%. That positive comparison is largely driven by occupancy gains, CPI increases and positive releasing spreads. We had a significant drop in straight lining of rents, in the quarter they were down 1.9 million compared to the fourth quarter of last year and SFAS 141 income also dropped to 2.4 million compared to 3.3 million in the fourth quarter of ‘09.

Lease termination revenue also dropped significantly during the quarter at 2.9 million compared to 7.5 million during the fourth quarter of 2009.

The expense recovery rate during the quarter improved to 92.3% and that compared to 91.5% in the fourth quarter of last year, that improvement was driven primarily by the positive impact of moving to fixed CAM versus triple net about 70% of our portfolio today is on fixed CAM.

We saw a significant decrease in bad debt expense, it was 1.5 million for the quarter that was down 2 million compared to the fourth quarter of last year. And this is another sign of renewed tenant health.

Looking now at the balance sheet, we closed a significant financing on December 30 at 232 million loan on Freehold Raceway, that was a seven-year fixed rate deal with an NOL rate of 4.15, that paid off the former loan which had interest rate of 7%, although a slightly lower GAAP rate of 4.7%. The pay rate was the 7% pay rate.

We also negotiated the pay off early, the $50 million loan on Chesterfield Towne Center that was paid off in early February. The loan had an interest rate of 9.1% and it had a 2024 loan maturity. It also had a participation fee too, that would have allowed the lender 35% of any sale proceeds in excess that loan amount if the asset were sold prior to the 2024 loan maturity day. There was a $9 million fee that was paid to the lender as a result of terminating this debt early. And that $9 million charge will flow through the first quarter results for 2011.

At year end, we had 445 million of unrestricted cash on the balance sheet. Our current intention is to use some of that cash to pay off some high coupon debt that matures in 2011, that includes Capitola Mall which is 33 million at 7.1%, Pacific View Mall which is 84 million at 7.2%, Little Rock Mall, 41 million at 7.6%. And as I just mentioned, the pay off at Chesterfield. So there is a debt of over 200 million that we either have or planned to pay off during 2011, that will provide us once this pay offs have happened when Unencumbered Asset Pool that throws off over 92 million of NOI, so that’s a significant source of liquidity should we needed at some point in the future.

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