The Macerich Co. delivered second-quarter earnings that beat analyst expectations and the stock was higher by more than 1 percent to trade at $90.68.
Net income was $45.2 million or 31 cents a share, which was much higher than last year’s $14.4 million and beat the consensus for 20 cents a share.
Funds from operations were $160.3 million or $1.02, which topped the Capital IQ estimate for $155 million and 98 cents per share. The shopping center company recorded revenue of $259.9 million, which was lower than the FactSet estimate for $265 million.
On a positive note, mall tenant sales increased to $626 a square foot over last year’s $623 a square foot for the same period. Same center sales per square foot were $644 compared to $629 year-over-year. Sales were strongest in the West Coast centers and the best categories were beauty and cosmetics, athletic footwear and jewelry.
Chief operating officer Robert Perlmutter said on the earnings conference call that tenant demand was strong. “This demand allows us to replace under productive or struggling stores with those retailers looking to expand,” he said. He noted that demand was coming from core brands that were expanding, retailers with brand extensions that were wanting more locations, foreign-based retailers and online retailers looking for physical stores.
Clicks-to-bricks included brands such as Blue Nile, Amazon, Peloton, Warby Parker and Bonobos. Perlmutter said they also have a new strategy to help online retailers and examples of those retailers were Combatant Gentleman, Blink and With Me.
Macerich also pointed out that as they lose anchors like Sears, they are quickly replacing them with Zara and Primark. Chief executive officer Arthur Coppola suggested it didn’t agree with some of the department stores complaining about mall traffic and has had a great history of replacing unproductive department stores. He also noted that Zara and Primark had resulted in increased mall traffic. Sears is no longer a top 10 rent payer.
As the malls begin to turnover in tenants, chief financial officer Thomas O’Hern said Macerich has $6 million in lease termination revenues versus last year’s $2.8 million. Lease termination fee were $9.4 million compared to $5.4 million last year. O’Hern said they prefer to take the cash now and incur a higher vacancy loss at a future minimum rent and charges until the space is released.
Macerich said the bankruptcy of Sports Authority had little impact on the company and one location has already been rented out to West Elm. It also said packages had been worked out with Aéropostale and PacSun and neither would have a material impact.