The Macerich Co. is still very much in recovery mode, but things are starting to look up.
In a Nutshell: Leasing, sales and traffic show signs of improvement at the real estate investment trust (REIT).
According to Macerich CEO Thomas O’Hern, “almost all of our operating metrics have started to trend positive, including occupancy,” he told Wall Street analysts in a call Wednesday. “And many of these metrics are even trending positive, compared to the pre-pandemic second quarter of 2019.”
Leasing volume occupancy and tenant sales have been trending positively, he said. Halfway through 2021, Macerich has reached an “inflection point” after tumbling to a nadir in March last year, he said.
Monthly numbers illustrate a move in the right direction. March tenant sales climbed 8.6 percent, with April’s up 9.9 percent and May and June capping off the growth trajectory with both up a “strong 15 percent,” O’Hern said, noting the increases over the 2019 period.
Traffic, however, is still lagging at 90 percent of pre-Covid levels, he said.
Macerich expects traffic trends to maintain their strengthening trajectory as the year unfolds, O’Hern said. Already, results are outperforming the aftermath of the Great Recession.
“Because of the robust leasing environment, it feels much better to us than when we emerged from the great financial crisis in 2009, 2010,” O’Hern said. What’s more, Macerich has paid down over $1.3 billion of debt so far this year.
“Given the healthy retailer environment that exists today, coupled with our strong leasing pipeline, we anticipate occupancy to continue to increase throughout the remainder of this year and into 2022 and beyond,” Doug Healey, Macerich’s senior executive vice president of leasing, told analysts.
Last year’s bankruptcy onslaught has virtually disappeared this year. “In fact, year to date, bankruptcies within our portfolio are the lowest we’ve seen since 2015,” he said, noting that just two Macerich tenants filed for bankruptcy in Q2, including a small movie theater company.
“We see the leasing environment as robust and dynamic. This is confirmed by our leasing activity which is stronger than it’s been in recent history,” Healey said, which means not just “the 16 months we’ve been dealing with Covid” but rather all the way back to “2019, which again was our highest leasing volume here since 2015.”
Macerich, Healey continued, is “currently on pace for our highest volume leasing year since 2015,” with second-quarter signings of 23 leases for 692,000 square feet, equaling $37 million in annual rent.
For the first half 2021, Macerich signed 488 leases for 1.9 million square feet, resulting in $88.7 million in total annual rent, Healey said, equaling 80 percent more leases, 34 percent more square footage and 11 percent more rent versus 2019 comparisons.
Over the past year, the mall operator has extended six mortgage loans totaling $950 million for the Danbury Fair Mall, The Shops at Atlas Park, Fashion Outlets of Niagara Falls, Flatiron Crossing Mall, Green Acres Mall and Green Acres Commons. Loan terms range up to three years.
In the meantime, the company expects less than $100 million in capital expenditures in 2021 and in 2022, excluding its One Westside project in Los Angeles, and on-schedule, on-budget office redevelopment that’s on schedule and on budget for Google by early 2022.
Macerich has several openings on deck.
Primark stores will open at Fashion District Philadelphia, Green Acres Mall and Tysons Corner Center, while Shopper’s World has locations debuting at former Century 21 locations in Fashion District Philadelphia and Green Acres Mall. Meanwhile, Kids Empire is slated to open its doors at SanTan Village, Dior has a new location planned for Scottscale Fashion Square, and an expanded Apple store is in the works at Virginia’s Tysons Corner Center. Macerich is in the process of securing rights to redevelop the former Lord & Taylor site at Tysons Corner Center with office space and the onetime Sears parcels at both Washington Square and Los Cerritos Center with mixed-use expansions.
Net Sales: Total revenues for the three months ended June 30 rose 21 percent to $215.5 million from $178.6 million. Revenues included a 17 percent gain in leasing revenue to $197.0 million from $168.8 million. The balance of revenue was from other income sources.
For the six months, total revenues inched up to $405.9 million from $405.5 million. Revenues included a 1 percent decline in leasing income to $376.5 million from $379.5 million.
Earnings: For the second quarter, Macerich posted a net loss of $11.8 million, or 6 cents a diluted share, that was narrower than the $25.1 million net loss, or 18 cents a diluted share, the REIT reported in the year-ago quarter.
Funds From Operations (FFO) in the for the quarter, excluding financing expenses for Chandler Freehold, totaled $127.6 million, or 59 cents a diluted share, for the quarter. REITS use the FFO metric to show free cash flow from operations. Macerich’s FFO marks a 51 percent improvement from $60.5 million, or 39 cents a diluted share, a year ago.
Macerich adjusted its outlook, now expecting diluted earnings per share in the range of a loss of 6 cents to a profit of 9 cents. FFO is expected in the range of $1.79 to $1.94. Guidance doesn’t reflect potential Covid-related disruptions.
For the six months, the net loss grew to $75.4 million, or 42 cents a diluted share, from a net loss of $17.6 million, or 13 cents a year ago.
CEO’s Take: “Focusing for a moment now on leasing, we’re seeing incredible demand for space, including big box space and perimeter locations,” O’Hern said during the call. “We are very optimistic about our business, as we move forward to the balance of the year and into 2022. For the most part, in the U.S. with 58 percent of the population vaccinated, the worst of the pandemic is behind us. The leasing environment is strong and getting better by the month, and we expect significant gains in occupancy, net income and FFO growth as we move through the year and into the next year.”