The Macerich Company — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013. Macerich is a REIT that acquires, owns, develops, redevelops, manages and leases shopping centers. At quarter-end, its portfolio comprised 70 regional and community centers totaling approximately 64 million square feet. Financial statement amounts below are in millions unless otherwise indicated.
Key financial results
| Metric | Q1 2013 | Q1 2012 | Change / context |
|---|---|---|---|
| Total revenue | $262.8 | $209.9 | Up 25.2%, primarily reflecting acquired properties |
| Income from continuing operations | $22.5 | $48.2 | Down 53.3% |
| Net income (loss) attributable to Macerich | $18.1 | $(14.1) | Prior period included substantial discontinued-operation losses |
| Diluted EPS | $0.13 | $(0.11) | Continuing-operations EPS was $0.13 versus $0.31 |
| Diluted FFO | $127.0 | $106.2 | Up 19.6%; non-GAAP supplemental measure |
| Cash from operating activities | $107.5 | $86.2 | Increase attributed mainly to acquisitions and working-capital changes |
| Cash used in investing activities | $(456.6) | $(71.5) | Primarily reflected the $500.0 Green Acres Mall acquisition |
| Cash from financing activities | $352.1 | $147.3 | Higher debt proceeds, partly offset by debt repayments |
Revenue growth included higher minimum rents and tenant recoveries from acquired properties. Same-center rental revenue increased $0.6 million and same-center tenant recoveries increased $1.4 million. Shopping-center operating expenses rose $19.9 million, largely due to acquisitions; depreciation and amortization increased $19.3 million. Interest expense rose $11.2 million, including costs related to acquisitions and borrowings.
The filing does not provide a single consolidated operating-margin measure. The increase in net income versus 2012 should not be read as equivalent improvement in recurring operations: Q1 2012 included a $54.3 million impairment charge tied to Valley View Center, while continuing-operations income and EPS were lower in Q1 2013.
Balance sheet, debt and liquidity
- At March 31, 2013, total assets were $9.76 billion, total liabilities $6.41 billion, and cash and cash equivalents $68.8 million. Restricted cash was $78.1 million.
- Consolidated mortgage notes payable were $4.91 billion and bank and other notes payable were $797.1 million. Management reported total outstanding loan indebtedness of approximately $7.4 billion, including $1.7 billion of Macerich’s pro rata share of joint-venture debt.
- The $1.5 billion revolving credit facility matures in May 2015, with a one-year extension option. Borrowings were $635 million at an average rate of 2.74%; the facility may be expanded subject to conditions. The separate $125 million unsecured term loan matures in December 2018.
- Management stated the company was compliant with applicable loan covenants and expected maturities over the next 12 months to be refinanced, restructured, extended or paid from the credit line or cash on hand. It anticipated meeting near-term operating, debt-service and distribution needs from operating cash flow, working capital and/or credit-line borrowings.
- Most mortgage debt is fixed-rate and property-secured. The filing estimated that a 1% increase in rates would reduce annual future earnings and cash flows by approximately $16.9 million, based on $1.7 billion of floating-rate debt.
Material changes, outlook and risks
- Macerich acquired Green Acres Mall in New York for $500 million in January 2013, funded with a $325 million property mortgage and credit-line borrowings. The property contributed $12.6 million of incremental revenue and $0.9 million of incremental income after acquisition.
- For the 12 months ended March 31, tenant sales per square foot rose to $535 from $504, occupancy increased to 93.4% from 92.1%, and releasing spreads were up 14.9%. These indicators exclude redevelopment properties. Management expected positive releasing spreads to continue during the remainder of 2013.
- Management expected to spend $200 million to $300 million over the next 12 months on development, redevelopment, expansion and renovations. Fashion Outlets of Chicago was scheduled to open August 1, 2013; its estimated project cost was approximately $211 million. A Tysons Corner joint-venture expansion was expected to be completed in 2014.
- The company announced a $0.58-per-share distribution, payable entirely in cash on June 7, 2013 to holders of record on May 10. Q1 distributions paid were also $0.58 per share. Shopping-center earnings are seasonal and generally higher in the fourth quarter; Q1 results should not be annualized without accounting for seasonality.
- Risks cited include economic and political uncertainty, potential tenant defaults and reduced operating cash flow, future access to debt or equity markets, and exposure to interest-rate changes. Joint-venture debt that could become recourse to Macerich was $51.2 million, partly offset by $21.3 million of partner indemnities. Outstanding construction-agreement obligations were $28.0 million, generally expected to be settled within 12 months. Letters of credit totaled $3.8 million; management did not expect them to result in a liability.
- No material change to the previously disclosed risk factors was reported; the filing reported no material legal proceedings. Management said disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether acquired-center performance and same-center leasing and occupancy trends sustain the reported growth.
- Upcoming property and corporate debt maturities, refinancing progress, credit-line availability, and compliance with covenants.
- Actual development and redevelopment spending, project costs and schedules, including Fashion Outlets of Chicago and Tysons Corner.
- How much of the $1.7 billion floating-rate debt exposure remains and the resulting sensitivity to rate increases.
- The distinction between GAAP earnings, which were affected by prior-period impairments and asset-sale items, and FFO, which the company cautions is not a substitute for operating cash flow or cash available for distributions.
- Potential recourse obligations, joint-venture guarantees and the completion of the Green Acres Mall purchase-price allocation.