Macerich: Solid Progress, But Leverage Remains A Concern

Core Viewpoint - The Macerich Company is undergoing significant changes to improve its financial health by divesting non-core assets and reducing debt, despite facing challenges such as tenant bankruptcies and high leverage levels [3][5][7]. Financial Performance - In Q2 2024, the FFO per share was $0.39, which is $0.01 lower than Q2 2023, attributed to flat sales and rising interest expenses [5]. - Occupancy levels decreased by 10 basis points to 93.3% compared to the previous quarter, although it increased by 70 basis points year-over-year [5][6]. - The company faced seven tenant bankruptcies, with Express being the largest, affecting 206,000 square feet of its portfolio [5]. Asset Management and Strategy - The company has committed 76% of the expiring square footage for 2024 and signed letters of intent for an additional 18% [6]. - In Q2, Macerich sold an Outparcel deal for $7.1 million and divested its 50% interest in Biltmore Fashion Park for $110 million, contributing to a debt reduction of approximately $564 million [6]. - The management aims to reduce outstanding debt by $1 billion to $1.4 billion by the end of 2024, with a target to retire $1 billion of debt this year [6]. Market Position and Outlook - The financing market for Class A retail real estate remains strong, with Macerich closing five transactions totaling nearly $700 million year-to-date in 2024 [6]. - Despite positive steps in balance sheet optimization, the current leverage remains high at 8.48x, down from 8.76x, with expectations to further reduce it to the low 8x range by the end of 2024 [6][7].