Macerich Company (The) (MAC)

MAC 
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Industry: Consumer Services
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The Macerich Company (MAC)

Q1 2011 Earnings Call

May 5, 2011 1:30 p.m. ET

Executives

Jean Wood – VP, IR

Tom O’Hern – Senior EVP, CFO and Treasurer

Art Coppola – Chairman and CEO

Analysts

Christy McElroy – UBS

Quentin Velleley – Citi

Michael Bilerman – Citi

Rich Moore – RBC Capital Markets

Craig Schmidt – Bank of America/Merrill Lynch

Michael Mueller – JP Morgan

Alexander Goldfarb – Sandler O’Neill

Cedric Lachance – Green Street Advisors

Ben Yang – Keefe, Bruyette & Woods

Omatayo Okusanya – Jefferies & Co.

Vincent Chao – Deutsche Bank

Presentation

Operator

Please stand by, we’re about to begin. Good afternoon ladies and gentlemen. Thank you for standing by. Welcome to the Macerich Company First Quarter 2011 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.

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

Jean Wood

Hello, and thank you for joining us today on our first quarter 2011 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 webcast 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; and Tom O’Hern, Senior Executive VP and Chief Financial Officer.

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

Tom O’Hern

Thank you, Jean. Today we’ll be discussing the first quarter results, our recent capital and acquisitions activity and our outlook for 2011.

During the quarter, our fundamentals continue to improve. Occupancy levels improved significantly, retail sales had a very solid increase, and we had good same-center NOI growth. The releasing spreads were also a positive for the quarter.

During the quarter there was 289,000 square feet of lease assigned, 177 deals. Average new rent of 38.53, and a positive re-leasing spread for the period ended March 31 of 9.6%.

Mall occupancy was up 140 basis points closing the quarter at 92.5%, that was down compared to the year-end number of 93.1 but that’s normal, and that’s what we’ve seen the past 10 years without exception. There’s always a little bit of a drop-off in the first quarter. The real meaningful comparison here is how it stood versus a year ago.

The occupancy cost as a percentage of sales were up 13.3% for the trailing 12 months ended March 31. Looking at FFO, FFO diluted was $0.52 for the quarter compared to $0.66 for the quarter ended March 31, 2010. Negatively impacting FFO during the quarter was a $9 million pre-payment penalty on the early extinguishment of debt on a 9.1% participating loan on Chesterfield Towne Center.

Same-center NOI excluding lease termination and SFAS 141 was up 2.54%, straight lining a rent drop 600,000 during the quarter, SFAS 141 income was flat with the year before, at just slightly less than 3 million, and lease termination revenue was 2.1 million up slightly from the 1.5 million reported in the first quarter of last year.

The expense recovery rate improved to 93.6% compared to the rate of 92.3% for the full-year 2010. Another sign of continuing tenant pelt was that bad debt expense dropped significantly, it was down 2.5 million to 280,000 compared to 3.3 million in the first quarter of 2010.

Also during the quarter, management company expenses, they were up about 3.6 million. This was virtually all due to severance payments that related to a right-sizing we did in the first quarter. We had excess capacity in a number of departments so we reduced headcount by about 30. As a result of that reduction, we’ll be seeing savings for the balance of the year, and going forward on the management company expenses.

Moving now to the balance sheet, during the quarter, we refinanced 29th Street. We put $107 million loan in place which closed in January, and that new loan bears interest in LIBOR plus 2.63.

We also received a commitment on Los Cerritos Center, that’s a seven-year fixed rate financing 200 million at 4.46. Capitola was another financing transaction where we made the decision to pay that loan off, that was $33 million loan with a high coupon of 7.13 and that asset will remain unencumbered.

And lastly, on the balance sheet we concluded on May 2, a new line of credit. This is a unsecured line of credit, there was very strong bank demand to be in the facility. The terms and pricing are very attractive. Today it’s a $1.5 billion line with a term of 4 years plus 1 year extension. There’s a pricing grid but on our current leverage level to borrowing rate is LIBOR plus 200. We’ve got some great banking relationships and that was reflected in this transaction. It all came together in less than a month and it was oversubscribed.

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