Macerich Earnings: Same-Store NOI Growth Strong If Lease Termination Income Is Excluded

First-quarter results for no-moat Macerich MAC were relatively in line with our expectations, leading us to reaffirm our $26.50 fair value estimate. Occupancy fell 40 basis points sequentially as there is typically a seasonality-related drop in occupancy from the fourth quarter into the first quarter. Still, occupancy is up 90 basis points year over year and was relatively in line with our 92.3% estimate. Re-leasing spreads were up 6.6% in the first quarter, better than our estimate of flat growth. Same-store net operating income was down 1.4% year over year. However, same-store NOI growth was negatively impacted by Macerich receiving less lease termination income, which we view as a positive for Macerich as that indicates that tenants are healthier than they were a year ago. Excluding lease termination income, same-store NOI was up 4.8%, well above our estimate of 1.6% growth. Funds from operations came in at $0.40 per share in the first quarter, which was a penny below our $0.41 estimate for the quarter.

One of the biggest concerns that the market has for Macerich is that the company will have difficulty refinancing debt as it comes due and will have to accept higher interest rates, restricting the company’s ability to renovate its portfolio. Macerich managed to refinance the $363 million secured loan on the Green Acre Mall at a new interest rate of 5.9%, closed on $700 million of debt secured by the Scottsdale Fashion Square at 6.21%, and extended the $160 million debt secured by the Deptford Mall three years at the existing 3.73% term. While the new debt issued during the quarter is above Macerich’s total debt average of 4.80%, it is below the 6.5% rate on the new debt we assume for the company, so we view the rates the company achieved positively.