MAC

Business Context and Reporting Period

Company: The Macerich Company (Macerich)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2004
Business Overview: Macerich is a self-administered and self-managed Real Estate Investment Trust (REIT) engaged in the acquisition, ownership, development, redevelopment, management, and leasing of regional and community shopping centers. As of December 31, 2004, the portfolio consisted of 84 centers (60 regional, 18 community, and 6 development/redevelopment properties) aggregating approximately 62.5 million square feet of gross leasable area (GLA). The company operates through The Macerich Partnership, L.P.

Key Financial Metrics

Material Changes Versus Prior Period

• Revenue Growth: Total revenues increased 13.2% to $547.3 million, driven primarily by acquisitions in 2003 and 2004 and the completion of redevelopment phases at Queens Center, La Encantada, and Scottsdale 101.
• Net Income Decline: Net income available to common stockholders decreased 27.1% to $82.5 million. This decline is attributed to the absence of the $22.2 million gain on the sale of Bristol Center recorded in 2003, increased depreciation due to SFAS 141 accounting changes, and higher interest expenses.
• FFO Growth: Despite the drop in GAAP net income, FFO-diluted increased 11.1% to $299.2 million, reflecting the company's core operating performance excluding non-cash depreciation and asset sale gains.
• Debt Expansion: Total debt increased significantly to $3.23 billion (including joint venture pro-rata share) to fund acquisitions and development. The company expanded its revolving line of credit from $425 million to $1.0 billion.

Guidance, Outlook, and Material Events

• Major Acquisition: On December 23, 2004, Macerich signed a definitive agreement to acquire Wilmorite Properties, Inc. for approximately $2.33 billion. The transaction, expected to close in April 2005, includes the assumption of $878 million in debt and the issuance of $320 million in equity units. This will add 13.4 million square feet to the portfolio.
• Development Pipeline: Significant redevelopment and development activities are underway, including the $275 million expansion of Queens Center (opened Nov 2004), the transformation of Crossroads Mall in Boulder into "Twenty Ninth Street," and the multi-phase San Tan Village project in Gilbert, Arizona.
• Financing Strategy: The company maintains a strategy of managing interest rate risk through a mix of fixed and variable rate debt, utilizing interest rate caps and swaps. A 1% increase in interest rates is estimated to decrease future earnings by approximately $13.9 million.
• Risks: Key risks include the potential bankruptcy or closure of anchor tenants (e.g., Sears/Kmart merger, Federated/May merger), environmental liabilities (asbestos, underground storage tanks), and the company's ability to maintain REIT qualification status.

Investor Verification Checklist

• Wilmorite Acquisition Closing: Verify the successful closing of the $2.33 billion Wilmorite acquisition in Q2 2005 and the integration of the new portfolio.
• Debt Maturities: Review the schedule of debt maturities, noting significant fixed-rate debt maturing in 2005 and 2006, and the company's refinancing plans.
• Anchor Tenant Stability: Monitor the impact of major retail consolidations (Sears/Kmart, Federated/May) on occupancy and rental rates at Macerich centers.
• Development Timelines: Track the completion dates and lease-up rates for major redevelopment projects, specifically Queens Center, Twenty Ninth Street, and San Tan Village.
• Environmental Reserves: Assess the adequacy of reserves for environmental remediation, particularly regarding asbestos at Fresno Fashion Fair and chlorinated hydrocarbons at former joint venture sites.