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Macerich’s Q3: Funds from Operations Growth Likely to Continue

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Nov. 3 2015, Updated 8:07 p.m. ET

Strong growth in funds from operations 

FFO is a measure used by REITs (real estate investment trusts) to define the cash generated from their operations. Macerich’s (MAC) FFO per diluted share rose to $1.01 in 3Q15, compared with $0.88 in 3Q14, representing a growth of 14.8%. The strong growth in FFO in 3Q15 can be attributed to a healthy jump in rent charged to tenants. In addition, higher leasing spreads also contributed to the rise in FFO in 3Q15. The ability of the company to hike rents in its portfolio will be the main driver for future FFO growth.

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Earnings per share

Net income of the company fell by 16% to $33.6 million, or $0.21 per diluted share in 3Q15 from 3Q14. The drop in net income was mainly attributed to a loss on the sale or a writedown of assets worth $3.3 million in 3Q15. In contrast, 3Q14 saw a gain of $9.6 million in net income. Income from unconsolidated joint ventures was also lower in 3Q15 at $10.8 million, compared with $16.9 million in 3Q14.

Jump in same center net operating income

Macerich’s total portfolio NOI (net operating income) rose by 19% in 3Q15 to $247 million, while same center NOI grew by 7% to $226.6 million in 3Q15 over 3Q14. The rise in NOI was mainly attributed to the company raising rents charged to tenants and associated fees, while keeping strict control over its operating expenses. NOI is used to measure the operating performance of a company’s properties. Same-store NOI metrics are used to determine the percentage of NOI from existing stores while the remaining can be attributed to new stores.

Analysis on a regional basis shows that the highest contribution to the total NOI came from California at 29.8%, followed by New York at 18.2%, Arizona at 16.8%, and New Jersey and Connecticut at 8%.

Other companies in the retail REIT segment, such as Taubman Centers (TCO), Pennsylvania Real Estate Investment Trust (PEI), and CBL & Associates Properties (CBL), released their 3Q15 earnings this week. Macerich makes up 1.3% of the iShares US Real Estate ETF’s (IYR) portfolio. In the next article, we’ll discuss asset sales by Macerich.

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