Q4 2011 Earnings Call
February 3, 2012 1:30 p.m. ET
Art Coppola - CEO and Chairman of the Board of Directors
Ed Coppola - President
Tom O’Hern - Senior Executive VP and Chief Financial Officer
Randy Brant - Executive VP, Real Estate.
Craig Schmidt – Bank of America Merrill Lynch
Quentin Velleley – Citi
Paul Morgan – Morgan Stanley
Christy McElroy – UBS
Todd Thomas – KeyBanc Capital Markets
Vincent Chao – Deutsche Bank
Steve Sakwa - ISI
Cedrik Lachance - Green Street Advisors
Alexander Goldfarb – Sandler O’Neill
Wes Golladay - RBC Capital Markets
Ben Yang – KBW
Tayo Okusanya - Jefferies & Co.
Michael Mueller – JPMorgan
Previous Statements by MAC
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Thank you everyone for joining us today on the fourth quarter of 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 are 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; Ed Coppola, President; Tom O’Hern, Senior Executive VP and Chief Financial Officer; and Randy Brant, Executive VP, Real Estate.
With that, I would like to turn the call over to Tom.
Thanks Jean. Today, we’re going to be discussing fourth quarter results as well as annual results of our recent capital activity and our outlook and guidance for 2012. During the quarter our fundamentals continued to improve. Retail sales had a good increase and same-center ROI was positive for the eighth quarter in a row. The re-leasing spreads also showed strong increases. Although occupancy did drop compared to year end 2010, there was an 80 basis point improvement from September 30.
Leasing volume and spreads were both very good. During the quarter we signed 272,000 square feet of leases. That was 184 deals. The average new rent was $46.86, and the average re-leasing spread compared to expiring - and that’s over a trailing 12 month period - was 13.7. So through the course of the year it was 13.7 positive spread.
The occupancy cost as a percentage of sales dropped to 13.0 for the trailing 12-months. That was down from 13.4 a year ago. Average rent in the portfolio was up to $45.37. That compared to $42.47 at the end of the 2010.
For the quarter, adjusted FFO, which excludes the impact of Valley View and Shopping Town, was $0.87 a share. That was up 13% over $0.77 a share in the fourth quarter of 2010. Same-center NOI, excluding termination revenue and SFAS 141 revenue, was up 1.7 for the quarter, and up 2.5% for the full year.
Lease terminate from revenue was up slightly at $4.1 million compared to $3 million in the fourth quarter of last year, and bad debt expense continued the positive trend, which was a reduction to $1.4 million, compared to $1.6 million in the fourth quarter of 2010. For the full year, bad debt expense was down to $5.3 million, and that’s down from $8 million in 2010.
Included in income and equity of joint ventures was the fact that the company and its joint venture partner in the SDG partnership - SDG-Macerich - that owned 11 regional malls, broke that portfolio and distributed the assets. Six of the 11 assets were distributed to Macerich in December. We received 100% ownership of Eastland Mall in Evansville, Indiana; Lake Square Mall in Florida; South Park Mall in Moline; Southridge Mall in Des Moines; North Park Mall in Davenport, Iowa; and Valley Mall in Harrison, Virginia.
Those assets that we received for accounting purposes were accorded a fair value at the date of transfer, and that resulted in a gain for Macerich - that compared to the book value - of $188 million. And that was reflected during the quarter.
As mentioned in the press release this morning, we are planning a significant amount of non-core asset sales in 2012. The range of the asset sales in the guidance is $300 million to $350 million. The timing of those sales is expected to be in the first half of 2012.
In-place debt on those assets is approximately $125 million, with an average interest rate of 5%. The net cash proceeds from the transactions, that’s estimated to be about $225 million. And that will be used to pay down our line of credit, which today has a rate of about 2.25%.
So as a result of the sales and the debt reduction, we have factored in about $0.08 a share in FFO dilution for our 2012 guidance. So $0.08 is reflected in the guidance we gave today, so the midpoint as issued was $3.10. That was reduced by $0.08 for the expected non-core asset sales.