Macerich Earnings: Bad Debt Expense and Withdrawn Guidance Overshadow Solid Portfolio Fundamentals

While there were a few bright spots in no-moat Macerich's first-quarter results, we ultimately view the company's bottom-line numbers as disappointing compared with our expectations. Total occupancy fell 10 basis points sequentially to 93.4%, though occupancy normally falls following the fourth-quarter holiday high point and this quarter's decline is smaller than our assumed 50-basis-point decline. First-quarter sales per square foot were only down 0.8% year over year, slightly better than the 1.2% we estimate for all brick-and-mortar retail. Re-leasing spreads were also strong at 14.7%, better than our estimate of 11.6% higher rents on new leases. However, other retail revenue was down in the quarter amid an increase in bad debt expense. So, while rental revenue was better than we anticipated, same-store net operating income was down 2.3% in the first quarter, below our estimate of a 2.3% gain. As a result, Macerich reported diluted funds from operation, or FFO, of $0.31 per share, which was seven cents below our $0.38 estimate. While we find the miss disappointing, we believe the solid fundamentals reported in the quarter are enough to support our long-term outlook and $24 fair value estimate.