Business Context and Reporting Period
Company: The Macerich Company (Macerich)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three months ended March 31, 2003
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 March 31, 2003, the portfolio included 56 regional shopping centers, 20 community shopping centers, and two development projects, aggregating approximately 58 million square feet of gross leasable area.
Key Financial Metrics
| Metric (in thousands) | Q1 2003 | Q1 2002 |
|---|---|---|
| Total Revenues | $114,957 | $76,950 |
| Net Income | $24,620 | $22,363 |
| Net Income Available to Common Stockholders | $19,425 | $17,350 |
| Earnings Per Share (Basic) | $0.38 | $0.50 |
| Earnings Per Share (Diluted) | $0.37 | $0.50 |
| Funds From Operations (FFO) - Diluted | $63,285 | $41,132 |
| Net Cash Provided by Operating Activities | $79,687 | $39,593 |
| Total Assets | $3,933,848 | $3,662,080 |
| Total Liabilities | $2,685,527 | $2,395,449 |
| Cash and Cash Equivalents | $105,754 | $53,559 |
| Total Debt (including pro-rata JV) | $3,546,270 | N/A |
Note: Total debt figure includes consolidated debt and pro-rata share of joint venture debt as disclosed in Item 3.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 49.4% to $114.96 million, driven primarily by the acquisition of the Westcor portfolio (July 2002) and The Oaks (June 2002). Minimum and percentage rents rose 47.9% to $73.8 million.
- Net Income: Net income increased 10.1% to $24.62 million. However, Net Income Available to Common Stockholders per share decreased from $0.50 to $0.38 due to a significant increase in the weighted average number of shares outstanding (from 34.7 million to 51.8 million) following equity offerings in late 2002.
- Discontinued Operations: Q1 2002 included a $13.4 million gain from the sale of Boulder Plaza. Q1 2003 included a $0.2 million loss from the sale of Paradise Village Gateway. Excluding these non-recurring items, core operating performance improved significantly.
- Interest Expense: Increased 35.4% to $34.0 million, largely due to debt assumed in the Westcor acquisition and increased borrowings under the new line of credit, partially offset by the repayment of convertible debentures in December 2002.
- FFO Growth: Diluted FFO increased 53.9% to $63.3 million, reflecting the accretive nature of recent acquisitions and improved operating income.
Guidance, Outlook, and Risks
- Capital Expenditures: Management expects to incur between $200 million and $300 million in 2003 for development, redevelopment, expansions, and renovations, excluding the Queens Center expansion and specific developments (La Encantada, Scottsdale 101) which are separately financed.
- Liquidity: The company maintains a $425 million revolving line of credit with $382 million outstanding as of March 31, 2003. Cash and cash equivalents stood at $105.8 million. The company recently closed a $250 million unsecured note offering in May 2003 to pay down debt and increase credit availability.
- Dividends: A dividend of $0.57 per share was declared for common stockholders and OP unit holders, payable June 10, 2003.
- Key Risks:
- Interest Rate Risk: A 1% increase in interest rates would decrease future earnings and cash flows by approximately $11.6 million annually based on $1.2 billion of variable rate debt.
- Concentration Risk: A significant percentage of centers are located in California, with Westcor centers concentrated in Arizona.
- Development Risk: Risks associated with the Queens Center redevelopment ($250-$275 million total cost) and other new developments.
- Tenant Dependence: Revenue is sensitive to tenant bankruptcies and retail sales performance.
Investor Verification Checklist
- Acquisition Integration: Verify the performance of the Westcor portfolio and The Oaks against pro forma expectations, given they drive the majority of revenue growth.
- Debt Maturity Profile: Review the schedule of debt maturities, specifically the $92.3 million of floating rate debt refinancing in May 2003 and the $184.5 million joint venture debt due in May 2003.
- Queens Center Redevelopment: Monitor progress and cost overruns on the $250-$275 million Queens Center expansion project.
- Share Count Dilution: Assess the impact of the 15.2 million shares issued in November 2002 on future EPS growth.
- Environmental Liabilities: Review the status of remediation costs for North Valley Plaza (PCE/DCE) and Fresno Fashion Fair (Asbestos), though current reserves appear adequate.