The Macerich Company (MAC) reported third-quarter 2014 funds from operations (FFO) per share of 88 cents, which missed the Zacks Consensus Estimate by a penny. Nevertheless, the figure exceeded the Zacks Consensus Estimate by 2 cents.
The results were attributable to improving mall tenant annual sales and same centers net operating income (NOI). Notably, the company has been fine-tuning its portfolio for the past two years.
Total revenue came in at $263.5 million, which comfortably surpassed the Zacks Consensus Estimate of $253.0 million. However, it fell short of the year-ago figure by 2.1% on a year-over-year basis.
Quarter in Details
As of Sep 30, 2014, mall portfolio occupancy climbed 190 basis points (bps) year over year to 95.6%. Mall tenant annual sales increased 4.0% year over year to $571 per square foot. In addition, re-leasing spreads rose 20.5% on a year-over-year basis. Also, same centers NOI advanced 3.9% year over year to $190.6 million.
During the third quarter, Macerich disclosed inking of a joint venture partnership with Pennsylvania Real Estate Investment Trust (PEI) for reconstruction of The Gallery in downtown Philadelphia. As per the deal terms, Macerich bought 50% interest in the property for $106.5 million. On the other hand, the company agreed to sell South Towne Center in Sandy, Utah for $205 million.
Macerich continued with constructions at Tysons Corner Center and Fashion Outlets of Niagara Falls, and the redevelopment work including expansion plans at Broadway Plaza, Los Cerritos Center and Scottsdale Fashion Square. Also, the company received final city approvals to initiate expansions at Santa Monica Place.
As of Sep 30, 2014, on a pro rata basis, Macerich’s share of cash and cash equivalents were $100.5 million, as compared to $129.2 million as of Jun 30, 2014. Moreover, the company had a total debt of nearly $6.33 billion (on pro rata basis), up from $6.20 billion at the end of the prior quarter.
2014 Guidance Increase
Macerich raised its full-year 2014 FFO per share guidance range to $3.57 – $3.63, from $3.50 – $3.60 guided earlier. The Zacks Consensus Estimate of $3.57 falls in the new range.
Dividend Raised
On Oct 23, Macerich announced a 4.8% hike in its quarterly dividend rate to 65 cents per share from 62 cents paid earlier. The new dividend will be paid on Dec 5, 2014 to shareholders of record as of Nov 12.
Our Viewpoint
Going forward, we believe that Macerich’s premium operating portfolio promises better growth prospects. Increasing mall tenant annual sales per square foot and re-leasing spreads, would pave the way for a robust top line. Further, the portfolio repositioning activity bodes well for the long term. Additionally, the guidance increase boosts investors’ confidence in this Zacks Rank #2 (Buy) stock.
Investors interested in retail REITs may consider stocks like Regency Centers Corporation (REG) and DDR Corp. (DDR). All carry the same rank as Macerich.
Note: Funds from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
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