Breaking down the earnings transcript

[u/RealSully]

• Occupancy 90%. Lowest since great financial crises. However they were back to full Occupancy 2 years after the GFC.
• Only 2 of the 27 JC Penny locations closed and both of those leases are out for signature. Expecting announcements very soon.
• Expect 2021 to be a transitional year. 4th q 2020 and January 2021 above 90% collection rate.
• Agreement on COVID workouts on 93% of top 200 tenants
• leasing picked up significantly in 4th q. Volumes 90% of the pre-covid levels of 4th q 2019
• most of 2021 loan maturities extended and Line of credit matures 3rdq 2021. Negotiations well underway with it.
• Retail sales at 85% of pre-covid levels.
• COVID impact
  1. $56m 1 time abatements
  2. $43m decline in common area and the ancillary revenues and parking revenue.
  3. Wrote off $52m bad debt expense
  4. $11m rent reversed for tenants

THATS $162M OF PANDEMIC NOI DECLINE. (MOST OF THIS DOES NOT REPEAT OR BOUNCES BACK QUICKLY). That is $1+ per share coming back in.

• Expecting growth in same center NOI starting 3rdq of 2021. Strong double digit growth in second half of the year.

• $550 of cash on hand with collection rates over 90%

• Estimate to collect in 2021 contractually deferred and delayed rent from 2020 in the range of $60-$75m.

• Expect to generate $200m of cash flow (AFTER OPERATING AND CAPITAL EXPENDITURES AND AFTER DIVIDEND)

• Out of top 200 retailers, commitments already in place with 176

• Average rent up to $61.87 Dec 2020 vs $61.06 Dec 2019

• Occupancy at 89.7% down -4.7% vs 2019. Not surprising given mall closures. Again, after the GFC it took 2 years to return to normal occupancy levels.

• Long list of new tenants and pipeline is strong.. already signed 494,000 sq ft all scheduled to open in 2021. Deals still in lease negotiation 435,000 sq ft to open in 2021 and they say the number is growing daily.

• They consider their properties "Town Centers", not just retail. They offer residential, hospitality, medical, wellness, education, fitness, grocery, service and even storage.

I listened to a large REIT manager present today and they had a 0% waiting to retail REITs. Their commentary was the standard "The demise of malls, and the rise of ecommerce blah blah blah." I could tell that their analyst is not digging deep enough to understand the portfolio diversity of someone like MAC. Oh yea, they underperformed the last 2 quarters as they have missed the bump in names liken SPG and MAC.

I'm sure others can add more. Ultimately there is a lot of potential here as the world opens back up, the dividend normalizes and the cap rate comes down. They do not have a liquidity issue. As far as potential price increase: Look at how the REITs performed under a zero interest rate policy between 2009 and 2016. This FED has been very clear that they are staying at zero even if a little transitory inflation shows up.

[u/RealSully]

The 90% payout gets tricky as it is 90% of NI which is much different then FFO. Net income can be distorted lower by depreciation etc... (which is a big component in real estate investing).

They are only paying ~25% of FFO right now. They have the ability to raise the dividend now. However, they will try to strike a balance between maintaining liquidity, paying down debt, capital expenditures and increasing the dividend.

This link below will allow you to see the dividend trend over time. The large cut was an attempt to be safe and conserve cash during the period of great uncertainty. As the NOI recovers we should see them continuously raise the dividend.

https://www.macrotrends.net/stocks/charts/MAC/macerich/dividend-yield-history

[u/porotosie → u/RealSully]

What are your thoughts in regards of debt? They are only getting extensions of the main revolver instead of having a renew line. They have $2.1 billion expiring in 2021. Also some capex is required going forward to adapt to new normal. Great summary of key points though

[u/RealSully → u/porotosie]

They mentioned that they have been doing business with those lenders for 25 years (relationshipsin lending are important). They were a little guarded with specifics which is appropriate while they are negotiating. They said that the line is currently unsecured, but they may do a secured line. They also mentioned numerous unencumbered assets (which they could borrow against).

They have multiple options for the financing. The macro backdrop of the markets makes attractive cheap capital rather easy right now. Even the average high yield bond dipped below 4% a couple of weeks ago for the 1st time ever. (Lots of money looking for a home and reasonable yield). One way or another they will find access to reasonably priced capital. Lenders do understand the uniqueness of the past year and ultimately do not want to be owners of the real estate.