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Macerich FFO & Revs Top, Div & View Up

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Calif.-based retail real estate investment trust (REIT), The Macerich Company (MAC - Analyst Report), reported third-quarter 2013 adjusted funds from operations (AFFO) per share of 86 cents, beating the Zacks Consensus Estimate of 83 cents. Moreover, this was 10.3% higher than the year-ago figure of 78 cents.

Strong escalation in revenues, overall portfolio occupancy and re-leasing spreads aided the impressive results. Prompted by its strong operating fundamentals, Macerich raised its 2013 FFO per share outlook for the third time this year. Also, the company hiked its quarterly dividend payout by 6.9%.

Total revenue increased 24.8% year over year to $269.1 million. Moreover, this comfortably beat the Zacks Consensus Estimate of $251 million.

Beneath the Headlines

During the quarter, mall tenant annual sales jumped 7.4% year over year to $549 per square foot. In addition, re-leasing spreads for the third quarter rose 14.2% on a year-over-year basis.

As of Sep 30, 2013, mall portfolio occupancy upped 90 basis points (bps) year over year to 93.7%. Also, same centers net operating income (NOI) during the quarter advanced 3.5% year over year to $178.0 million.

Notable Portfolio Activities

In tune with its portfolio restructuring activity, Macerich sold 2 non-core joint venture properties for gross proceeds of about $96 million on a pro rata basis. The divested assets were the Redmond Town Center retail center (Washington) and Ridgmar Mall (Texas). Notably, year-to-date as of Oct 28, Macerich has garnered proceeds of $564 million, on a pro rata basis, from non-core assets dispositions.

Furthermore, Macerich continued construction at Tysons Corner Center – one of the country's premier super regional mall – for the development of a mixed use project. The expansion project will include the addition of an office building (19-story), a luxury residential tower (30-story) and Hyatt Regency hotel (17-story) of Hyatt Hotels Corp. (H - Snapshot Report). Notably, the office tower is presently over 69% leased. The project is slated to open in 2014.

Moreover, Macerich has planned a 175,000 square foot expansion of Fashion Outlets of Niagara. The construction of the $75 million project is expected to start in Nov 2013.

Liquidity

As of Sep 30, 2013, Macerich had cash and cash equivalents of $102.6 million compared to $98.5 million as of Jun 30, 2013. The company had a total debt of $6.3 billion, down from $6.5 billion at the end of the prior quarter.

In the quarter, Macerich completed refinancing worth $850 million of Tysons Corner super regional mall. Moreover, the company committed to financing worth $268 million of FlatIron Crossing mall. The loan is projected to close in November this year and the proceeds will likely be used for debt repayment and other corporate purposes.

Dividend Hike

On Oct 24, Macerich increased the quarterly dividend by 6.9% to 62 cents per share from 58 cents in the last quarter. The dividend will be paid on Dec 6, 2013 to shareholders of record as of Nov 12.

2013 Outlook Raised

For full-year 2013, Macerich raised its FFO per share guidance in the range of $3.46 – $3.52 (prior range of $3.38–3.48). Notably, the company increased its full-year outlook for the third time this year.

Our Viewpoint

Consistent with its winning streak, Macerich reported another impressive quarter, on the back of solid operating fundamentals. Significant developments and portfolio restructuring activities as well as a strong balance sheet position bode well for the company’s long-term growth prospects. Moreover, the dividend hike and increased full-year outlook for the third time will boost investors’ confidence. Going forward, we expect these activities to drive occupancy and mall tenant annual sales per square foot growth of Macerich’s portfolio.

Currently, Macerich carries a Zacks Rank #3 (Hold). Other retail REITs that are performing well include Regency Centers Corp. (REG - Analyst Report) and Cedar Realty Trust, Inc. (CDR - Snapshot Report). All stocks carry a Zacks Rank #2 (Buy).

Note: FFO, a widely accepted and reported measure of REITs performance, are derived by adding depreciation, amortization and other non-cash expenses to net income.

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