Macerich Earnings: Improved Occupancy and Strong Re-Leasing Spreads Despite Falling Retailer Sales

Macerich MAC reported second-quarter results that were relatively in line with our expectations, leading us to reaffirm our $26.50 fair value estimate for the no-moat company. Occupancy increased 40 basis points sequentially to 92.6%, slightly better than our 92.3% estimate, and is up 80 basis points over the 91.8% figure the company reported in the second quarter of 2022. Re-leasing spreads were up a very strong 11.3% in the quarter, well above our estimate of flat rent terms on new leases, and led to 2.3% year-over-year rent growth, the strongest quarter since the first quarter of 2020. Same-store net operating income only grew 0.4% in the second quarter, which matched our estimate. However, the company benefited from significant non-recurring termination lease fee income in the second quarter of 2022, so excluding that same-store NOI was up 5.6%. Macerich reported funds from operations of $0.40 per share in the second quarter, a penny below our $0.41 estimate.

A slightly weaker retail environment is starting to show in Macerich’s underlying fundamentals. Macerich reported that tenant sales were down 1.6% for the first half of 2023. The company reported that sales were up 0.1% in the first quarter, which implies that tenant sales fell 3.3% year over year in the second quarter. Additionally, comparable tenant sales per square foot are down to $853 for the trailing 12-month period compared with $860 for the trailing 12-month period ending in the second quarter of 2022. Still, sales per square foot are up compared with the $801 the company reported in 2019. Additionally, while occupancy cost for Macerich’s portfolio increased 20 basis points sequentially to 11.2%, that is still better than the 11.8% figure the company reported for 2019. Therefore, we view the decline in retail sales as a return to a more maintainable level from the very strong results that retailers saw in the middle of 2022.