A company’s occupancy rate equals the percentage of its mall and freestanding GLA (gross leasable area) leased as of the last day of the reporting period. But occupancy excludes centers under development and redevelopment. The higher the occupancy, the higher the rental income for the company. Macerich (MAC) knows this rule very well and has always been at a very comfortable position to acquire more tenants.
Key performance indicators
Macerich considers the following to be its key performance indicators of internal growth:
- tenant annual sales per square foot for regional shopping centers (for tenants in place for a minimum of 12 months or longer, renting 10,000 square feet or fewer)
- occupancy rates for its centers (excluding large retail stores or anchors)
- releasing spreads
“Releasing spread” refers to a comparison of the initial average base rent per square foot (on leases executed during the trailing twelve months) with the average base rent per square foot at expiration for the leases expiring during the year (based on the spaces 10,000 square feet or smaller).
Occupancy steadily improving
For the past few years, sales per square foot and occupancy rates of the company’s regional shopping center portfolio has grown steadily. Tenant sales per square foot increased to $587 in fiscal 2014 from $433 in fiscal 2010. Similarly, occupancy rate increased to 95.8% in 2014 from 93.1% in 2010. This is the highest occupancy rate witnessed by the company during the past decade.
Releasing spreads remained positive in 2014 because the company was able to lease its available space at higher rents on average than the expiring rental rates. This led to a releasing spread of $9.82 per square foot ($54.48 on new and renewal leases executed, compared to $44.66 on leases expiring), representing a 22% increase in 2014.
Peer group occupancy
A comparison with its peer group shows that Macerich’s occupancy was lower compared to Simon Property Group (SPG), at 97.1%, while higher than General Growth Properties (GGP) and CBL & Associates Properties (CBL), at 92.3% and 94.9%, respectively. The SPDR DJ Wilshire REIT ETF (RWR) invests 1.84% of its portfolio in MAC.
Continue to the next part of this series for a more in-depth discussion of Macerich’s tenant leases.