Macerich's CEO Discusses 1 2012 Results - Earnings Call Transcript

Macerich Company (MAC)

Q1 2012 Earnings Call

May 2, 2012 1:30 p.m. ET

Executives

Arthur Coppola - CEO and Chairman of the Board of Directors
Edward Coppola - President
Thomas O’Hern - Senior Executive VP and Chief Financial Officer and Treasurer

Jean Wood - Vice President of Investor Relations

Analysts

Christy McElroy – UBS

Rich Moore - RBC Capital Markets

Nathan Isbee - Stifel Nicolaus

Michael Mueller – JPMorgan

Craig Schmidt - Bank of America Merrill Lynch

Quentin Velleley - Citi

Paul Morgan - Morgan Stanley

Todd Thomas – KeyBanc Capital Markets

Tayo Okusanya - Jefferies & Co.

Ben Yang – KBW

Alexander Goldfarb - Sandler O’Neill

Cedrik Lachance - Green Street Advisors

Presentation

Operator

Good day ladies and gentlemen. Welcome to the Macerich Company first quarter 2012 earnings conference call. 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 cue up for questions.

I would like to remind everyone that this conference is being recorded and now would like to turn the conference over to Jean Wood, Vice President of Investor Relations. Please go ahead.

Jean Wood

Hi and thank you everyone for joining us today on our first quarter 2012 earnings call. During the course of this call management will be making forward-looking statements which are subject to uncertainty and risk 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 I believe that 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 page filings for the quarter which is 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 of Directors, Ed Coppola, President, Tom O'Hern, Senior Executive Vice President and Chief Financial Officer. With that I will turn the call over to Tom.

Thomas O'Hern

Thanks Jean and welcome everyone. Today we are going to be discussing the first Quarter results, capital activity and our outlook for 2012.

As we expected during the quarter fundamentals continued to improve. Retail sales had a strong increase and same-Center NOI was positive for the ninth quarter in a row. The re-leasing spreads showed double digit increases. Although occupancy dropped slightly, it remained at a very healthy level of 92.1%.

Leasing volume and spreads were both good. Leases signed during the quarter amounted to 216,000 square feet. The average new starting rent was $46.06 per foot. The average re-leasing spread on a trailing 12 month basis is 15.8%.

Average rent per square foot in the entire portfolio was up 5% to 45.87% compared to March 31st, 2011. Occupancy cost as a percentage of sales dropped to 12.9% compared to 13.5% a year ago.

Looking at the results for the quarter adjusted FFO, which excludes the impact of Valley View, was $0.76 per share, up from $0.52 per share in the first quarter 2011. The operating results were good including same-center NOI growth, excluding termination revenue and SFAS 141 income was 3.4% for the quarter. Lease termination revenue was up nearly $800,000 to $2.9 million. Bad debt expenses are up somewhat at $800,000 compared to $400,000 in the first quarter of last year.

With Management company expense and REIT G&A expense were down, Management company expense was down approximately $3 million to $22.5 million, and REIT G&A was down to $4.5 million compared to $7.6 million in the first quarter of last year. That was due to the first quarter of 2011 being usually high in both of those categories as there was a full years' worth of bonuses accrued in the first quarter of 2011.

Subsequent to that, bonuses are accrued throughout the year with 25% of the estimated amount booked in each quarter. That change accounts for the drop in both categories for both REIT-G&A and Management company expense.

During the quarter, we also booked an impairment loss on Valley View. Valley View has been a hands and loans service since mid-2010. On April 23rd, last week, it was sold for approximately $33 million and concurrently with the sale, the debt and all the accrued interest was forgiven. As of quarter end, because the sale price that was expected in April was less than our carrying value of $88 million we recorded a impairment write-down of $55 million in the first quarter of '12, that hits net income but not FFO.

Then in the second quarter we turned around, on April 23rd with the asset sale, we booked a gain on extinguishment of debt of $104 million. We have not included the impairment nor the gain on extinguishment of debt in our AFFO numbers. Valley View and the attached financial highlights of this morning's press release was included in discontinued operations.

Looking at our balance sheet, our debt to market cap at quarter-end was 42.3%. Net debt to EBITDA was 7.6 times and our interest coverage ratio is a very healthy 2.57 times. Looking at recent loan activity, in March we closed on a $140 million loan on Pacific View. That was a non-encumbered asset. We put a 10-year fixed rate financing in place at 4.08%. Also in March, we paid off $438 million of the remaining convertibles debentures. Those debentures are now paid in full.

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