Macerich Company (The) (MAC)

MAC 
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The Macerich Company (MAC)

Q3 2011 Earnings Conference Call

November 1, 2011 13:30 ET

Executives

Jean Wood – Vice President, Investor Relations

Art Coppola – Chairman and Chief Executive Officer

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

Randy Brant – Executive Vice President, Real Estate

Analysts

Paul Morgan – Morgan Stanley

Quentin Velleley – Citi

Craig Schmidt – Bank of America

Christy McElroy – UBS

Michael Mueller – JPMorgan

Rich Moore – RBC Capital Markets

Todd Thomas – KeyBanc Capital Markets

Alex Goldfarb – Sandler O’Neill

Ben Yang – KBW

Vincent Chao – Deutsche Bank

Nathan Isbee – Stifel Nicolaus

Presentation

Operator

Please standby. Good day, ladies and gentlemen. Thank you for standing by. Welcome to The Macerich Company Third 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 and instructions will be provided at that time for you to queue up for questions. Again, I would like to remind everyone that today’s conference is being recorded.

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

Jean Wood – Vice President, Investor Relations

Thank you for joining us today on the third 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 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 is posted in the Investor section at the company’s website at www.macerich.com.

Joining us today are Art Coppola, CEO and Chairman of the Board of Directors; and Tom O’Hern, Senior Executive Vice President and Chief Financial Officer and Randy Brant, Executive Vice President, Real Estate. We look forward to see many of you at NAREIT Convention in Dallas in two weeks.

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

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

Thank you, Jean. Today, we are going to be discussing third quarter results, our recent capital activity and our outlook for the rest of 2011.

During the quarter, our fundamentals continue to improve, retail sales had a very solid increase, and same center NOI was positive for the seventh quarter in a row. The re-leasing spreads also showed good increases. We did have a drop in occupancy, but that was almost exclusively due to 14 Border stores closing as well as a large lease termination at ESTN zone in North Bridge Mall in Chicago.

During the quarter, we signed 180,000 square feet of lease deals that was 121 deals the average new ramp was $41.11 per square foot. Our average releasing spread versus expiring on a trailing 12-month basis is up 10.8%. On occupancy we did have a 70 basis point decrease, 91.9% versus 92.6% on a same center basis a year ago. As I mentioned much of that was due to closure of The Border stores as well as ESPN zone. On the ESPN zone space, which is 34,000 square feet, we received $2.8 million lease termination revenue, which is reflected in the third quarter. Average rent increased to 44.05 per foot, that’s up from 42.24 a year ago. Occupancy cost declined to 13% for the trailing 12 months that compares to 13.5% at yearend and that was down as a result of leasing activity as well as tenant sales increases.

Looking at FFO now for the quarter, the adjusted FFO, which excludes the impact of Valley View and Shoppingtown, two centers in the receiver ship, number was up 13.6% to $0.75 per share and that compared to $0.66 a year ago. The other operating results, same center NOI excluding lease termination revenue and SFAS 141 was up 2.82% compared to third quarter of last year. I would like to point out that that increase does not include Santa Monica Place and any impact from Santa Monica Place. Lease termination revenue increased to $4.7 million compared to $3.5 million in the third quarter of last year. Most of this was due to the ESPN zone space at North Bridge I previously mentioned. Bad debt expense for the quarter continued to trend down and was only $900,000 compared to $1.7 million in the third quarter of last year. Management company expense was down to $20.2 million compared to $22.1 million for the third quarter of last year.

Looking now at the balance sheet, we continued our recent trend by paying off the Rimrock mortgage. That loan had a 7.6% interest rate. It was a $40 million loan. Rimrock has now been added to our unencumbered pool of assets that includes 14 centers that generates nearly $100 million of NOI. This gives us a very significant balance sheet flexibility and capacity that we have not had in the past.

On September 29, we closed on a $230 million seven year fixed rate loan at 4.25 that’s on Arrowhead Town Center that paid off the prior loan, which was $73 million at an interest rate of 6.9%. Subsequent to quarter end, the company retired at par plus accrued interest of $180 million of our convertible notes that have a stated maturity of March of ‘12 that leaves us with a balance of $440 million on those debentures.

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