8-K: Macerich Reports Q3 2024 Results, Consolidates Portfolio and Refinances Debt

Macerich reported a net loss for Q3 2024, but saw positive trends in leasing and same-center net operating income, while also strategically acquiring properties and refinancing debt.

Summary

• Macerich reported a net loss of $108.2 million, or $0.50 per share, for the third quarter of 2024, an improvement from a net loss of $262.5 million in the same quarter of 2023.
• Funds from Operations (FFO), excluding certain items, was $86.0 million, or $0.38 per share, compared to $100.6 million, or $0.45 per share, in Q3 2023.
• Same-center net operating income (NOI) increased by 1.9% in Q3 2024 compared to Q3 2023, both including and excluding lease termination income.
• Portfolio occupancy reached 93.7% as of September 30, 2024, a slight increase from 93.4% in the previous year.
• The company leased 2.6 million square feet in the first nine months of 2024 and has a new store leasing pipeline of 2.5 million square feet, expected to generate $80 million in incremental rent.
• Macerich acquired its partner's 40% interest in the Pacific Premier Retail Trust (PPRT) portfolio for $122 million at a 7.4% cap rate.
• The company refinanced the loan on Queens Center for $525 million at a fixed interest rate of 5.37%.
• Macerich is under contract to sell The Oaks for $157 million, expected to close in the fourth quarter of 2024.
• The company sold 9.4 million shares of common stock for $151.7 million through its ATM program.
• Macerich has approximately $667 million of liquidity, including $505 million available on its revolving line of credit.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive. While the company reported a net loss, there are positive trends in leasing, same-center NOI, and strategic acquisitions and refinancing. The withdrawal of guidance and high debt levels are concerning, but the company is taking steps to improve its financial position.

Positives

• The net loss for Q3 2024 was significantly lower than the net loss for Q3 2023.
• Same-center NOI showed a positive increase of 1.9% year-over-year.
• Portfolio occupancy increased slightly to 93.7%.
• Base rent re-leasing spreads were positive for the twelfth consecutive quarter, at 11.9%.
• Leasing activity remains strong with 2.6 million square feet leased in the first nine months of 2024.
• The company has a strong leasing pipeline of 2.5 million square feet.
• The acquisition of the PPRT portfolio consolidates ownership of key assets.
• The refinance of Queens Center at a low fixed interest rate improves financial stability.
• The company has a significant amount of liquidity available.
• The company has internally approved 4.3 million square feet of new and renewal leases, representing an 85% increase in approved leasing volume relative to the same period in 2023.

Negatives

• The company reported a net loss of $108.2 million for Q3 2024.
• Funds from Operations (FFO) decreased compared to the same quarter last year.
• Portfolio tenant sales per square foot decreased modestly by 1.0% for the nine months ended September 30, 2024 compared to the same period in 2023.
• Year-to-date through September 30, 2024, the company has leased 2.6 million square feet of space, a 14% decrease compared to the same period in 2023.

Risks

• The company withdrew its 2024 guidance due to uncertainty regarding the timing and impact of its Path Forward Plan.
• The company is exposed to general economic conditions, including rising interest rates and inflation.
• There are risks associated with real estate development and redevelopment, including rising inflation, supply chain disruptions and construction delays.
• The company is exposed to the risk of tenant bankruptcies, closures, mergers or consolidations.
• The company is exposed to the risk of adverse changes in the real estate markets including competition from other companies, retail formats and technology.
• The company is exposed to the risk of adverse impacts from any future pandemic, epidemic or outbreak of any highly infectious disease.
• The company is exposed to the risk of governmental actions and initiatives (including legislative and regulatory changes).
• The company is exposed to the risk of environmental and safety requirements.
• The company is exposed to the risk of terrorist activities or other acts of violence.

Future Outlook

The company withdrew its previously published 2024 guidance and is not providing an updated outlook at this time due to the implementation of its Path Forward Plan and the uncertainty regarding the timing, extent, and impact of any transactions.

Management Comments

• We are firmly dedicated to advancing environmental goals, social good and sound corporate governance.
• These acquisitions are consistent with our stated strategic objective of opportunistically consolidating selected ownership of our portfolio over time.
• We also continue to focus on other potential disposition transactions aimed at improving our balance sheet and refining our portfolio quality.
• We believe these selected assets present an opportunity for sales at attractive pricing levels.
• We anticipate those transactions will take place over the next several quarters.
• We also continue to find attractive financing opportunities in the debt capital markets for Class-A regional retail centers.
• We remain extremely pleased with the pace and quality of leasing.
• This volume of approved leasing deals should serve to further propel and increase our existing lease pipeline and future volumes of signed leases.

Industry Context

The report reflects the ongoing challenges and strategic adjustments within the retail real estate sector, including the consolidation of assets, debt refinancing, and a focus on high-quality properties. The company's focus on sustainability and environmental goals aligns with broader industry trends.

Comparison to Industry Standards

• Macerich's same-center NOI growth of 1.9% is a positive sign, but it is important to compare this to other REITs in the sector such as Simon Property Group (SPG) and Taubman Centers (now part of SPG) to see how it stacks up against industry leaders. SPG has consistently shown strong NOI growth and occupancy rates, often exceeding 2% and 95% respectively.
• The portfolio occupancy of 93.7% is solid, but again, comparing to SPG and other top-tier mall operators is crucial. SPG often reports occupancy rates in the mid-90s, indicating a higher level of tenant demand.
• Macerich's focus on consolidating ownership of key assets is a common strategy in the industry, similar to how Brookfield Property Partners (BPY) has been streamlining its portfolio. However, the success of this strategy depends on the quality of the assets and the execution of the plan.
• The refinancing of Queens Center at 5.37% is a positive move, but the overall debt level and interest rate environment remain a concern. Other REITs have been actively managing their debt profiles, and Macerich's debt-to-EBITDA ratio of 8.23x is relatively high compared to some of its peers.
• The company's leasing activity is a bright spot, but the decrease in leased square footage compared to last year is a concern. It is important to compare Macerich's leasing spreads and tenant sales per square foot to industry benchmarks to assess its competitive position.

Stakeholder Impact

• Shareholders will be impacted by the net loss and the withdrawal of 2024 guidance, but may be encouraged by the positive trends in leasing and strategic acquisitions.
• Employees may be affected by the ongoing restructuring and asset disposition activities.
• Tenants may benefit from the company's focus on high-quality properties and leasing activities.
• Creditors will be impacted by the company's debt refinancing and asset disposition activities.
• Suppliers may be affected by the company's ongoing restructuring and asset disposition activities.

Next Steps

• The company expects to close the sale of The Oaks during the fourth quarter of 2024.
• The company intends to either market for sale or engage the lender in transition discussions for one mall asset during early 2025.
• The company anticipates further disposition transactions over the next several quarters.
• The company will continue to focus on leasing and development activities.
• The company will provide an online Web simulcast and rebroadcast of its quarterly earnings conference call on November 6, 2024.

Key Dates

Keywords

Real Estate, Retail, Shopping Centers, REIT, Leasing, Occupancy, FFO, NOI, Debt Refinancing, Asset Disposition, Acquisition