Macerich Company (The) (MAC)

MAC 
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The Macerich Company (MAC)

Q3 2012 Earnings Call

October 31, 2012 1:30 PM ET

Executives

Jean Wood, Vice President, Investor Relations

Arthur Coppola - Chairman of the Board and Chief Executive Officer

Edward Coppola - President

Thomas O'Hern - Senior Executive Vice President and Chief Financial Officer and Treasurer

Robert Perlmutter - Executive Vice President, Leasing

Analysts

Michael Bilerman - Citi

Paul Morgan - Morgan Stanley

Nathan Isbee - Stifel Nicolaus

Jeffrey Spector - Merrill Lynch

Richard Moore - RBC Capital Markets

Todd Thomas - KeyBanc

Alexander Goldfarb - Sandler O'Neill

Ross Nussbaum - UBS

Omotayo Okusanya - Jefferies & Company

Cedrik Lachance - Green Street Advisors

Ben Yang - Evercore Partners

Presentation

Operator

Welcome to The Macerich Company third quarter 2012 earnings conference call. (Operator Instructions) I would now like to turn conference over to Jean Wood, Vice President of Investor Relations.

Jean Wood

Thank you, everyone, for joining us today on our third quarter 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 that defined by the SEC Regulation G. The reconciliation of each non-GAAP financial measure to the most directly comparable GAAP measure is included in the press release and a supplemental 8-K filing for the quarter which are posted in the Investor Section of the company's website at www.macerich.com.

Joining us today are Art Coppola, CEO and Chairman of the Board; Ed Coppola, President; Tom O'Hern, Senior Executive VP and Chief Financial Officer; and Robert Perlmutter, Executive VP, Leasing.

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

Thomas O'Hern

Thank you, Jean. Welcome everyone. First of, I'd like to say our thoughts and prayers are going out to those of you that have been affected by Hurricane Sandy. From our end, we're mobilizing all our malls in the region with the Red Cross to help with the recovery where we can. Fortunately, we have sustained no material damage at our malls.

Today, we'll be discussing the third quarter results, capital activity and our outlook for the balance of the year. It was another strong quarter for us in terms of the fundamentals in our business. Retail sales had a strong increase and we saw very significant increases in occupancy up to 93%, which is a 190 basis point increase from a year ago. The leasing volumes were good. We signed 247,000 square feet of mall shop leases in the quarter. And we the average re-leasing spread was a positive 18.5%.

If you look at occupancy, sequentially compared to June 30, we're also up, we're at 92.7% at the end of June and then we're at 93.0% at the end of September. Occupancy cost as a percent of sales for the trailing 12 months was at 12.6% that compared to 13% a year ago.

Looking now at results of operations for the quarter, adjusted FFO was $0.78 a share, up from $0.75 a year ago. Same-center net operating income excluding termination revenue SFAS 141 was up 2.6%.

Negatively impacting the quarter were lease termination revenues, which decreased by $3.2 million compared to the third quarter of last year. Also negatively impacting the quarter on a comparative basis was the reduction in SFAS 141 revenue, which was $1.9 million decrease from the third quarter of last year.

Management company expenses were up for the quarter at $20.7 million compared to $20 million, but they're flat year-to-date at $66.9 million compared to $67 million for the same period in 2011. Other income has been up this year compared to last. In each of the last three quarters we've been averaging about $11 million a quarter in this category, which is mostly our business initiatives and includes garage and parking income, advertising income, sponsorship income, interest income, gift card income and a variety of other miscellaneous items.

Looking at our balance sheet, our total debt-to-market cap for the quarter at quarter-end was 38.3%. Our interest coverage ratio was very healthy 2.85 times. We continue to be in a situation to be able to take advantage of the great financing markets. There is a significant amount of capacity and obviously the rates are fantastic.

As a result of this market, we began the year with an average debt maturity of 3.2 years, as a result of the refinancing and the debt reduction as of September 30. We've extended the average maturity to 4.2 years, and by yearend we expect the average debt maturity to be over six years.

In addition, most of the loans we've been putting in place for long-term fixed rate loans, and the excess proceeds are being used to pay down our line of credit and other floating rate debt. Our floating rate debt at September 30 was 23.6% of our total debt and that's down from 28.2% at the beginning of the year. I would expect that trend to continue as we move forward with the financings planned for the fourth quarter.

We have $1.5 billion line of credit, and as of September 30, only $255 million was outstanding on that line. Looking at the recent capital activity, in August and September, we sold 2.9 million shares of common stock under our ATM program. The average share price for those sales was $60.06 and the net proceeds were a little over $176 million.

As we mentioned in the press release this morning, we have arranged for a $600 million financing in Queens Center. This is a 12-year fixed rate loan. The interest rate has been locked at 3.487%. This loan is interest only, no amortization. The loan proceeds will go to pay off the existing $317 million loan that bears interest at 7.3%.

The closing is expected in December and our pro rata share of excess proceeds will be approximately $135 million. We've also committed to $205 million loan on Deptford Mall. This is a 10-year fixed rate financing and the expected interest rate will be approximately 3.75%.

In September, we also financed Westside Pavilion, again a 10-year fixed rate loan with an interest rate of 4.49%, and that was a $155 million financing. And in September, we also put a $110 million loan on Chesterfield Towne Center. That asset had been previously unencumbered, so that was $110 million of additional liquidity that came in during the quarter.

To date, we've close $1.1 billion in financings at our pro rata share and another $500 million is expected to close before yearend. On the recently announced $1.25 billion acquisition of Kings Plaza and Green Acres, we are anticipating putting a $500 million loan on Kings Plaza and $275 million to $300 million worth of loan on Green Acres, both of which will be long-term fixed rate financings.

We recently on October 25 announced an increase in our quarterly dividend. The dividend was increased to $0.58 per share for quarter, that's a 5.5% increase over the prior dividend. In this morning's earnings release, we gave additional confirmation of the FFO guidance range of $306 million to $314 million, that range is unchanged.

Looking now at tenant sales. Small tenant sales per square foot came in at $511 for the portfolio at September 30. That was up 9.4% from the 12 months ended September 30, 2011. If you look sequentially at June, and if you exclude North Park Center from the June numbers and compare those to September, we had a 2.6% increase in just that one quarter in sales per foot.

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