8-K: Macerich Reports Strong Leasing Activity and Improved Occupancy in 2023, Announces Leadership Transition

Macerich achieved record leasing activity in 2023, with a 12% increase in leased space compared to 2022, and saw a healthy increase in portfolio occupancy to 93.5% by year-end.

Summary

• Macerich, a leading owner, operator, and developer of retail real estate, reported its financial results for the three and twelve months ended December 31, 2023.
• The company owns 46 million square feet of real estate, primarily consisting of interests in 43 regional town centers.
• Macerich achieved a #1 Global Real Estate Sustainability Benchmark (GRESB) ranking for the North American retail sector for the ninth consecutive year.
• Jackson Hsieh will become President and CEO on March 1, 2024, succeeding Thomas OHern.
• The company's shareholder returns ranked approximately eleventh among all REITs on a trailing three-year basis as of December 31, 2023, at approximately 69%.
• Macerich's leasing team had a record year, leasing 4.2 million square feet of space, a 12% increase over 2022.
• Portfolio occupancy reached 93.5% as of December 31, 2023, up from 92.6% at the end of 2022.
• Trailing twelve-month base rent leasing spreads showed strong double-digit increases for the third consecutive quarter.
• Net income attributable to the company was $62.2 million, or $0.29 per share-diluted, for the fourth quarter of 2023, compared to $1.7 million, or $0.01 per share-diluted, for the same period in 2022.
• Funds from Operations (FFO), excluding certain items, was $126.5 million, or $0.56 per share-diluted, for the fourth quarter of 2023, compared to $119.5 million, or $0.53 per share-diluted, for the same period in 2022.
• Same center net operating income (NOI), excluding lease termination income, increased 3.0% in the fourth quarter of 2023 and 4.5% for the full year compared to 2022.
• Portfolio tenant sales per square foot for spaces less than 10,000 square feet were $836 for 2023, compared to $869 in 2022, a modest decrease of 1.8%.
• The company made significant progress in addressing near-term debt maturities through various financing and disposition transactions.
• Macerich has refinanced or extended eight loans totaling $2.8 billion, or $2 billion at their ownership share, including a 4.5 year renewal and upsizing of their $650 million revolving corporate credit facility.
• As of the date of the filing, Macerich had approximately $657 million of liquidity, including $490 million of available capacity on their revolving line of credit.
• The company issued 2024 guidance for EPS-diluted of ($0.08) to ($0.02) and FFO per share-diluted, excluding certain items, of $1.76 to $1.86.
• A quarterly cash dividend of $0.17 per share of common stock was announced, payable on March 4, 2024.

Sentiment

Score: 8

Explanation: The document presents a generally positive outlook with strong leasing activity, improved occupancy, and increased profitability. The company's proactive debt management and strong liquidity position further contribute to a positive sentiment. However, the slight decrease in tenant sales per square foot and negative EPS guidance for 2024 temper the overall optimism.

Positives

• The company achieved record leasing activity in 2023, demonstrating strong demand for their retail spaces.
• Portfolio occupancy improved significantly, indicating successful leasing efforts and tenant retention.
• Base rent re-leasing spreads showed strong double-digit increases, reflecting the company's ability to command higher rents.
• Net income and FFO increased substantially in the fourth quarter of 2023 compared to the same period in 2022.
• Same center NOI growth indicates improved performance of existing properties.
• The company made significant progress in managing near-term debt maturities, reducing financial risk.
• Macerich has a strong liquidity position, providing financial flexibility.
• The company has a strong sustainability record, achieving a #1 GRESB ranking for nine consecutive years.

Negatives

• Portfolio tenant sales per square foot decreased modestly by 1.8% for the year ended December 31, 2023, compared to 2022.
• The company's 2024 EPS-diluted guidance is negative, ranging from ($0.08) to ($0.02).
• The company is accruing default interest expense on non-recourse debt associated with Country Club Plaza, although this is expected to be reversed.

Risks

• The company's performance is subject to general economic conditions, including the impact of 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 faces competition from other companies, retail formats, and technology.
• Future pandemics or outbreaks of infectious diseases could adversely impact the company and its tenants.
• The company's actual results may differ from the estimates provided in the 2024 guidance.
• The company is in negotiations with lenders regarding defaulted loans on certain properties.

Future Outlook

Macerich issued 2024 guidance for EPS-diluted of ($0.08) to ($0.02) and FFO per share-diluted, excluding certain items, of $1.76 to $1.86. This guidance does not assume any sale of common equity during 2024 and does not include potential future gains or losses or the impact on operating results from possible, future, material property acquisitions or dispositions, other than land sales.

Management Comments

• We are excited to make this leadership transition at a time when the fundamentals of the company are strong.
• 2023 was an exceptional and historic year for our leasing team.
• We expect to open most of these exciting new uses during 2024 and 2025.

Industry Context

The report indicates a positive trend in the retail real estate sector, with increased leasing activity and occupancy rates. Macerich's focus on high-quality retail properties in densely populated areas aligns with the industry's shift towards experiential retail and mixed-use developments. The company's sustainability leadership also positions it well in an increasingly environmentally conscious market.

Comparison to Industry Standards

• Macerich's 69% shareholder return over the past three years is a strong result, ranking approximately eleventh among all REITs.
• The company's 93.5% occupancy rate is a positive indicator, suggesting strong demand for its properties, and is comparable to other high-quality mall operators.
• The 17.2% base rent re-leasing spread is a strong result, indicating the company's ability to increase rents on expiring leases, which is a key metric for REIT performance.
• The company's same-center NOI growth of 4.5% for the year is a positive sign, indicating the company's ability to generate growth from its existing portfolio, and is comparable to other well-performing REITs.
• The company's focus on refinancing and extending debt maturities is a positive step, reducing financial risk and is a common strategy for REITs in the current interest rate environment.
• The company's liquidity of $657 million is a strong position, providing financial flexibility for future investments and operations, and is comparable to other well-capitalized REITs.

Management Changes

Stakeholder Impact

• Shareholders will benefit from the increased profitability and dividend payments.
• Employees will experience a leadership transition with the appointment of a new CEO.
• Tenants will benefit from the company's focus on high-quality retail spaces and improved occupancy.
• Creditors will be reassured by the company's proactive debt management and strong liquidity position.

Next Steps

• The company expects to open most of the new leases signed in 2023 during 2024 and 2025.
• The company will continue to manage its debt maturities and explore financing and disposition opportunities.
• The company will host an online Web simulcast and rebroadcast of its quarterly earnings conference call on February 7, 2024.

Key Dates

Keywords

Real Estate, Retail, REIT, Leasing, Occupancy, FFO, NOI, Debt, Sustainability, Dividend