Macerich Co. (MAC)

Q1 2010 Earnings Call

May 04, 2010 11.00 a.m. ET

Executives

Jean Wood - IR

Art Coppola - CEO and Chairman of the Board of Directors

Ed Coppola - President

Tom O’Hern - Senior Executive VP and CFO

Analysts

Craig Smith - Banc of America/Merrill Lynch

Quentin Velleley - Citigroup

Michael Bilerman - Citi

Christy McElroy - UBS

Ross Nussbaum - UBS

Rich Moore - RBC Capital Markets

Paul Morgan - Morgan Stanley

Michael Mueller - JPMorgan

Tayo Okusanya - Jefferies

Nathan Isbee - Stifel Nicolaus

Jim Sullivan - Cowen And Company

David Wigginton - Macquarie

Ian Weissman - ISI Group

Ben Yang - Keefe, Bruyette & Woods

Presentation

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Macerich Company’s first quarter 2010 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. Again, I would like to remind everyone this call is being recorded.

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

Jean Wood

Thank you everyone for joining us today on our first quarter 2010 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 8K filings for the quarter which are posted in the investors section of the company’s website at www.Machrich.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 will turn the call over to Tom.

T om O’Hern

Thanks Jean. Today we’ll be discussing the first quarter results, our capital activity, as well as our outlook for the rest of 2010.

During the quarter, the operating metrics generally improved. Occupancy levels were up. Retail sales increased and same center NOI was positive for the first time in six quarters.

The volume of leasing deals was also up significantly. Looking at leasing, during the quarter, we signed 413,000 square feet. That's almost twice of what we did in the first quarter of 2009. That was 250 leasing deals. The average re-leasing spread was a negative 2.9%. Some of the reason for the negative spread was that we did a significant number of shorter term deals at some of our less productive centers. We think spreads will improve over the balance of the year as we indicated when we gave guidance. We thought throughout the year that spreads would be flat to up modestly. We still believe that would be the case.

Many of the deals that we did sign in the first quarter had been negotiated and committed to tenants in the second and third quarter of 2009. So to some extent that was recession pricing that carried over into 2010. The average re-leasing spreads on a trailing 12-month basis for a positive 7%.

Looking at the occupancy, it increased portfolio-wide to 91.1% that was up a 100 basis points from March 31st of 2009. In addition, compared to yearend, which is usually our highest occupancy period, the occupancy remained even with yearend portfolio occupancy. That's a very positive sign as historically we've seen a 50 to 100 basis point decline between the fourth quarter and the first quarter.

Average rent in the portfolio was at 42.50, that was up from $42 at year end. Occupancy costs as a percentage of sales was 13.9% for the trailing 12 months. Looking now at FFO, diluted per share was $0.66 for the quarter. That was down from $116 last year in the first quarter. The first quarter 2009 did include $0.28 per share of gain from extraordinary debt extinguishment.

Same center NOI was up 1.8% excluding lease termination revenue and SFAS 141. The positive comparison was driven to a large degree by occupancy gains. Lease termination revenue for the quart was 1.6 million. That was down from 1.9 million in the first quarter of last year. We saw an improving expense recovery rate, which came in at 95.6% for the quarter that compared favorably with 90.5% for the first quarter 2009. That's including JVs at pro rata. This improvement was due to significant cost reduction measures implemented in 2009 and the positive impact of having over 70% of our leases now on fixed cam versus triple net. There was a big decline in straight lining the rents of 1.3 million during the quarter. And there was 1.2 million declined in SFAS 141 income for the quarter.

Looking now at the balance sheet, we continue to have a significant amount of capital activity, which is improved the balance sheet significantly. Recent financings include the closings of $135 million loan on Vintage Fair mall. That was a five-year floating rate transaction at a rate of LIBOR plus three. We also closed on a $105 million financing of South Plains Mall Lubbock, Texas. That was a CMBS transaction. That was a very effective execution, and we closed that with a five-year deal at 6.08% interest rate.

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