Macerich Co (MAC)
Q2 2011 Earnings Call
July 28, 2011 04:00 p.m. ET
Jean Wood – VP, IR
Tom O’Hern – Senior EVP, CFO and Treasurer
Art Coppola – Chairman and CEO
Randy Brant – EVP, Real Estate
Craig Schmidt – BofA/Merrill Lynch
Michael Mueller – JPMorgan
Paul Morgan – Morgan Stanley
Christy McElroy – UBS
Rich Moore - RBC Capital Markets
Eric Schmidt – ISI Group
Cedric LaChance – Green Street Advisors
Quentin Velleley – Citi
Todd Thomas – Keybanc capital Market
Nathan Isbee – Stifel Nicolaus
Benjamin Yang - Keefe, Bruyette & Woods
Alexander Goldfarb - Sandler O'Neill & Partners L.P.
Vincent Chao – Deutsche Bank
Previous Statements by MAC
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Good afternoon. Thank you for joining us today on our second 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 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 on 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 Vice President and Chief Financial Officer.
With that I would like to turn the call over to Tom.
Thanks Jean. Today we'll be discussing second quarter results, our recent capital and acquisition activity and our outlook for the rest of 2011 including our revised guidance.
During the quarter, our fundamentals continued to improve occupancy levels improved, retail sales had a very sold increase and same-center NOI was positive for the six quarter in a row. The releasing spreads also showed good increases.
We signed leases during the quarter for 247,000 square feet that was 161 deals average new rent was $41.60 a foot. The average releasing versus expiring spreads on the trailing 12 month basis was positive 11.6%.
The occupancy level increased 50 basis points over a year ago. It rose to 92.3% compared to 91.8% a year ago. Average rent in the portfolio stands at $43.74 that is up from $42.31 a year ago.
Occupancy cost as a percentage of the sales on a consolidated basis including JVs at pro-rata was 13.2% for the trailing 12 months. Looking at FFO for the quarter, FFO per diluted share was $0.47 for the quarter compared to $0.57 for the quarter ended June 30, 2010. Negatively impacting FFO during the quarter was a $35.7 million impairment charge on Shoppingtown Mall. Adding that to the FFO it was an adjusted FFO per quarter of $0.72 per share.
The operating metrics are good including same center NOI excluding terminations in (inaudible) 141 being up 2.94% compared to the second quarter of last year. As key components of that 90% of our leases have CPI increases built in. So January 1st of this year must get those CPI increases kicked in and may average 1.3%.
In addition, you’ve got the positive impact of the releasing spreads that we saw through 2010 growing through our same center NOI numbers and that was a pickup of about 0.8% plus you add to that the gain from occupancy pick up of another 0.8% and that covers most of the 2.494 same center NOI increase.
Lease termination revenues including the JVs were at $2.5 million compared to $1.5 million during the quarter ended June 30, 2010. Looking for the balance of year we still expect to see approximately 12 million of lease terminations revenues for the year. Bad debt expense for the quarter was up about $700,000 and $2.1 million net compared to $1.4 million in 2010. However, if you take a look at the full year through June we stand at $3 million for the six months ended June 30, 2011 versus $4.8 million in the six month period a year ago.
Management company expense was down at $21 million compared to $24.4 million in the second quarter of last year however you really need to look at your paid management company expense which stands at $46.7 million compared to $46.6 million a year ago. The second quarter difference was primarily due to timing differences as we noted in our first quarter call, because of right sizing in which there was severance payment that happened in the first quarter of 2011 and conversely we saw the benefit of the reduced headcount affecting our numbers in the second quarter of 2011.
Also during the quarter we had from a joint venture gain on early extinguishment of debt of approximately $7 million that happened on April 1st and we mentioned that on our first quarter call and that offsets the $9 million of loss on early extinguishment of debt we saw from the Chesterfield Town Centre pay off that happened late in the first quarter.
Looking now on the balance sheet we got additional loan pay offs in the quarter including $83 million loan at 7.2% interest rate on Pacific View Mall, and again in July, early July we paid off $40.2 million loan on Rimrock that was at 7.6% interest rate, both assets are now unencumbered. With those pay offs we’ve got 13 unencumbered assets that throw off about $93 million in NOI. So we could very comfortably in today’s market borrow on a non recourse basis $750 million to $800 million on those assets.