Macerich FFO Misses on Bad Winter - Analyst Blog

California-based retail real estate investment trust (REIT), The Macerich Company MAC, reported first-quarter 2014 funds from operations (FFO) per share of 81 cents, which missed the Zacks Consensus Estimate by 4 cents and the year-ago quarter figure by a nickel. Higher-than-expected snow removal and utilities costs, resulting from bad weather conditions hurt the results.

Total revenue moved up 0.7% year over year to $264.5 million and comfortably beat the Zacks Consensus Estimate of $247 million.

Quarter in Details

As of Mar 31, 2014, mall portfolio occupancy climbed 170 basis points (bps) year over year to 95.1%. Also, same centers net operating income (NOI) advanced 3.5% year over year to $179.3 million.

Mall tenant annual sales increased 5.6% year over year to $565 per square foot. In addition, re-leasing spreads rose 14.8% on a year-over-year basis.

In tune with its portfolio restructuring activity, Macerich divested 3 non-core properties for total sales proceeds of $34.1 million. The divested assets were the Rotterdam Square in Schenectady, NY, Lake Square Mall in Leesburg, FL and Somersville Towne Center in Antioch, CA.  

Also, Macerich carried on with constructions at Tysons Corner Center and Fashion Outlets of Niagara Falls and Broadway Plaza during first-quarter 2014.

Liquidity

As of Mar 31, 2014, on a pro rata basis, Macerich's share of cash and cash equivalents stood at $93.5 million compared to $102.3 million as of Dec 31, 2013. Also, the company had a total debt of around $6.1 billion (on pro rata basis), up from $6.0 billion at the end of the prior quarter.

Outlook Reiterated

Macerich reaffirmed its full-year 2014 FFO per share guidance in the range of $3.50 – $3.60. The Zacks Consensus Estimate of $3.58 is within this range.

Our Viewpoint

Although the FFO miss is definitely discouraging, Macerich's premium operating portfolio promises better growth prospects. Going forward, we expect the company's rising mall tenant annual sales per square foot and re-leasing spreads to pave way for strengthening of the top line. Also, the portfolio repositioning activity bodes well for the long term.

Currently, Macerich carries a Zacks Rank #3 (Hold). Investors interested in retail REITs may consider stocks like Regency Centers Corporation REG, Simon Property Group Inc. SPG and General Growth Properties, Inc GGP. All these stocks carry a Zacks Rank #2 (Buy).

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.