Macerich's (MAC) Q2 FFO Beats Estimates, Leasing Revenues Dip

Retail REIT The Macerich Company (NYSE:MAC) delivered second-quarter 2019 funds from operations (FFO) per share, excluding loss on extinguishment of debt and costs related to shareholder activism, of 88 cents, beating the Zacks Consensus Estimate of 86 cents. However, the figure compares unfavorably with the prior-year quarter’s 96 cents.

The company witnessed strong tenant sales growth as well as increase in average rent and releasing spreads, while occupancy declined. Though leasing revenues missed expectations, growth in same-center net operating income (NOI) aided its performance.

In fact, the company generated leasing revenues of $211 million in the quarter, missing the Zacks Consensus Estimate of $217.5 million. The figure also slipped 2.8% year over year.

Behind the Headline Numbers

As of Jun 30, 2019, mall portfolio occupancy shrunk 20 basis points (bps) year over year to 94.1%. Mall tenant annual sales for the 12-month period ended June 30, 2019, increased 12.1% year over year to $776 per square feet. Re-leasing spreads for the 12-month period ended Jun 30, 2019, increased 9.4%. Average rent per square foot ascended 4% to $61.17 from $58.84 as of Jun 30, 2018. Also, same-center net operating income (excluding lease termination revenue) inched up 0.9% from the prior-year quarter.

Moreover, the company accomplished $476 million of loan financing at an average interest rate of 4.19%, netting $112 million of excess loan proceeds.

Outlook

Macerich reiterated its guidance for 2019. The REIT expects FFO per share of $3.50-3.58 for the ongoing year. The Zacks Consensus Estimate for full-year 2019 FFO per share is currently pinned at $3.56.

Our Viewpoint

Although Macerich outshone expectations in terms of FFO per share in the second quarter, the dip in leasing revenues is disappointing. The turbulent retail real estate environment, with tenant bankruptcies and store closures, is expected to keep affecting the company’s leasing and occupancy level. Nevertheless, the company remains focused on redevelopment opportunities, which will likely provide value accretion and enable diversified usage of its high-quality properties.

Macerich currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Macerich Company (The) Price, Consensus and EPS Surprise

Macerich Company (The) price-consensus-eps-surprise-chart | Macerich Company (The) Quote

We, now, look forward to the earnings releases of other REITs like Realty Income Corporation (NYSE:O) , Host Hotels & Resorts, Inc. (NYSE:HST) and Mack-Cali Realty Corporation (NYSE:CLI) , which are slated to report their quarterly numbers next week.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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