The Macerich Company — FY2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. This is an annual filing, not a standalone Q4 report. Macerich is a U.S. shopping-center REIT; at year-end it reported interests in 57 centers and approximately 56 million square feet of GLA.
Financial performance and position
- Revenue: $1.041 billion, down 19.2% from $1.288 billion in 2015. Rental revenue fell 18.9%, primarily because several properties moved from consolidated reporting to unconsolidated joint ventures; same-center rental revenue increased.
- Profit: Net income attributable to Macerich was $517.0 million, up from $487.6 million; diluted EPS was $3.52 versus $3.08. Results included $415.3 million in net gains on asset sales/write-downs, including gains on joint-venture transactions. FFO-diluted was essentially unchanged at $642.3 million.
- Cash flow: Operating cash flow was $417.5 million, down from $540.4 million. Investing activities provided $443.1 million, including asset-sale proceeds and joint-venture distributions; financing activities used $853.1 million. Cash and cash equivalents were $94.0 million at year-end.
- Debt and liquidity: Reported consolidated mortgage and notes payable totaled $4.966 billion. Management also reported $7.6 billion of total loan indebtedness on a pro-rata basis, including unconsolidated joint-venture debt. The $1.5 billion revolving credit facility had $885 million outstanding at year-end and matures in 2020, with a one-year extension option. The company said it complied with applicable covenants.
- Operating indicators: Regional-center occupancy was 95.4%, down from 96.1%; tenant sales per square foot were $630 versus $635. Releasing spreads were positive 17.7%. Consolidated mall occupancy costs increased to 14.1% of sales from 13.9%.
- Margins: The filing does not provide a single comparable operating-margin measure; reported revenue and expenses are affected by changes in consolidation and portfolio composition.
Material changes and unusual items
- Macerich sold a 40% interest in Arrowhead Towne Center and a 49% interest in the MAC Heitman portfolio, recognizing gains of $101.6 million and $340.7 million, respectively. It also sold Capitola Mall and conveyed Flagstaff Mall to its lender through a deed-in-lieu of foreclosure.
- The company acquired a 50% interest in Country Club Plaza for a $660 million purchase price through a joint venture. In January 2017, it sold Cascade Mall and Northgate Mall together for $170 million.
- The company repurchased $800 million of shares in 2016 under its 2015 buyback authorization, completing the $1.2 billion program. In February 2017, the board authorized up to another $500 million of repurchases, subject to market conditions and liquidity.
- Q4 2016 revenue was $272.0 million and net income attributable to the company was $37.1 million, or $0.26 per diluted share. Q4 2015 revenue was $320.8 million and company-attributable net income was $415.0 million, including major asset-sale gains; quarterly comparisons are therefore not indicative of underlying operating trends.
Outlook, management commentary, and risks
- Management expected to fund operating costs, debt service, and dividends over the following 12 months through operating cash flow, working capital, and/or the credit line. It expected $200–$300 million of development, redevelopment, expansion, and renovation spending over that period.
- Projects included Broadway Plaza and Fashion Outlets of Philadelphia, both expected to complete in 2018, and the Kings Plaza former-Sears redevelopment, also expected to complete in 2018. Green Acres Mall’s expansion was completed in October 2016.
- Management expected positive releasing spreads in 2017. This is an expectation, not a guarantee; the filing gives no earnings or FFO guidance.
- Key risks include substantial indebtedness and refinancing needs, floating-rate exposure, retailer bankruptcies and store closures, e-commerce competition, leasing and occupancy pressure, geographic concentration, redevelopment execution and cost risks, joint-venture partner rights, and environmental or natural-disaster exposures. A 1% interest-rate increase was estimated to reduce annual earnings and cash flow by approximately $13.2 million.
- Reported gains and FFO are not equivalent to recurring cash earnings. The filing also describes property impairments and a $12.2 million contingent-consideration charge in 2016.
Important facts for investors to verify
- Reconcile the $517.0 million of company-attributable net income with recurring operating performance, asset-sale gains, impairments, and FFO adjustments.
- Review debt maturities, credit-line usage, covenant headroom, refinancing assumptions, and the distinction between consolidated debt and pro-rata joint-venture debt.
- Check occupancy, tenant sales, lease renewals, releasing spreads, and retailer exposure—including vacant anchor space and announced store closures.
- Assess funding and completion risks for the redevelopment pipeline and the effect of the 2017 buyback authorization on liquidity and leverage.
- Confirm post-year-end property sales and refinancings, including the Cascade and Northgate sale and the West Acres and Kierland Commons financing activity.