Business Context and Reporting Period
Company: The Macerich Company (REIT)
Filing Type: Form 10-Q (Unaudited)
Period Ended: June 30, 2002
Business Overview: The Company acquires, owns, redevelops, manages, and leases regional and community shopping centers. As of June 30, 2002, it held interests in 50 centers (47 regional, 3 community) totaling approximately 42 million square feet of gross leasable area.
Key Financial Metrics
| Metric (Dollars in thousands) | Six Months Ended June 30, 2002 |
Six Months Ended June 30, 2001 |
|---|---|---|
| Total Revenues | $156,058 | $157,302 |
| Net Income | $26,100 | $22,907 |
| Net Income Available to Common Stockholders | $16,074 | $13,245 |
| Funds From Operations (FFO) - Diluted | $81,680 | $76,812 |
| Cash Flow from Operating Activities | $65,330 | $54,310 |
| Total Debt (Including Joint Ventures) | $2,357,827 | $2,294,502 (Total Assets) |
| Cash and Cash Equivalents | $59,605 | $26,470 |
Note: Total debt includes $1,340,767 in mortgage notes, $175,000 in bank notes, and $125,148 in convertible debentures for wholly owned centers, plus pro-rata joint venture debt.
Material Changes vs. Prior Period
- Revenue: Total revenues decreased slightly by 0.8% ($1.2 million) due to the sale of Villa Marina Marketplace and Boulder Plaza, partially offset by higher rents at "Same Centers" and the acquisition of The Oaks.
- Profitability: Net income available to common stockholders increased 21.4% to $16.1 million. This increase was driven by a $13.9 million gain on the sale of Boulder Plaza (classified as discontinued operations) and lower interest expense.
- Interest Expense: Decreased by $5.3 million (9.6%) to $50.2 million, attributed to debt payoffs, the sale of properties, and the retirement of $25.7 million in debentures in late 2001.
- Joint Venture Losses: Equity in income of unconsolidated joint ventures dropped significantly from $12.7 million to $5.4 million. This was primarily due to a $8.9 million write-down of the investment in MerchantWired, LLC, which is shutting down operations.
- Cash Flow: Operating cash flow increased by $11.0 million to $65.3 million. Investing cash outflows surged to $143.4 million (from $29.6 million) due to the $152.5 million acquisition of The Oaks and redevelopment costs.
Guidance, Outlook, and Risks
- Major Acquisition (Subsequent Event): On July 26, 2002, the Company acquired Westcor Realty Limited Partnership for approximately $1.475 billion. This significantly expands the portfolio into the Phoenix, Arizona market and increases floating rate debt exposure.
- Capital Resources: The Company replaced its $200 million credit facility with a new $425 million revolving line of credit on July 26, 2002. It expects to use this facility to retire $125.1 million in convertible debentures maturing in December 2002.
- Development Projects: The Queens Center expansion is underway with an estimated total cost of $275 million, expected to be completed in phases through late 2004.
- Risks:
- Interest Rate Risk: Following the Westcor acquisition, the Company has approximately $1.4 billion in floating rate debt. A 1% increase in rates could impact earnings by approximately $14.0 million annually.
- Environmental: Ongoing remediation costs for asbestos at Fresno Fashion Fair and perchloroethylene (PCE) at a former joint venture property (North Valley Plaza).
- Tenant Concentration: Risks associated with tenant bankruptcies or sales declines affecting minimum rent and percentage rent collections.
Investor Verification Checklist
- Westcor Integration: Verify the financial impact and debt service requirements of the $1.475 billion Westcor acquisition closed in July 2002.
- Debt Maturity Wall: Confirm the refinancing or retirement of the $125.1 million convertible debentures maturing December 15, 2002.
- MerchantWired Write-down: Assess the finality of the $8.9 million loss on the MerchantWired investment and any potential future liabilities.
- Queens Center Financing: Monitor the status of construction and permanent loan negotiations for the $275 million Queens Center redevelopment.
- Interest Rate Exposure: Evaluate the Company's hedging strategy given the increased exposure to variable rate debt post-Westcor acquisition.