Business Context and Reporting Period
Company: The Macerich Company (REIT)
Filing Type: Form 10-Q (Unaudited)
Period Ended: June 30, 1997
Business Overview: The Company acquires, owns, redevelops, manages, and leases regional and community shopping centers. Operations are conducted through The Macerich Partnership L.P. (Operating Partnership), in which the Company owns approximately 68%.
Key Financial Metrics (Six Months Ended June 30, 1997)
| Metric | 1997 (YTD) | 1996 (YTD) |
|---|---|---|
| Total Revenues | $102,653,000 | $73,385,000 |
| Net Income | $12,924,000 | $8,713,000 |
| Net Income Per Share (Diluted) | $0.50 | $0.44 |
| Funds From Operations (FFO) | $39,549,000 | $29,518,000 |
| Operating Cash Flow | $37,182,000 | $27,094,000 |
| Total Debt (Including JV) | $921,400,000 | N/A |
| Cash and Equivalents | $8,383,000 | $15,643,000 |
| Debt to Market Cap Ratio | 47% | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased $29.3 million (40%) driven primarily by the inclusion of "1996 Acquisition Centers" for the full period and the March 1997 acquisition of South Towne Center.
- Expense Increases: Operating expenses rose $8.1 million and interest expense increased $10.8 million, largely attributable to the expanded property portfolio and associated debt.
- Debt Structure: The Company issued $150 million in convertible subordinated debentures in June 1997. Total mortgage notes payable remained relatively stable at approximately $720 million, but the capital structure shifted with the new debentures.
- Joint Venture Income: Equity in income of unconsolidated joint ventures decreased to $1.1 million from $2.1 million due to reduced fee income and lower net operating income at Panorama Mall.
- Extraordinary Items: An extraordinary loss of $512,000 was recorded for the early extinguishment of debt, compared to $315,000 in the prior year.
Guidance, Outlook, and Risks
Management Commentary: Management attributes performance improvements to acquisitions. They anticipate meeting liquidity needs through operating cash flow and working capital. Future growth capital is expected to come from equity offerings and debt financings. A shelf registration for $500 million of common stock and warrants has been filed but is not yet effective.
Risks and Contingencies:
- Environmental Liabilities: Reserves have been established for environmental remediation at several properties:
- North Valley Plaza: Perchloroethylene (PCE) detected; $674,000 reserve.
- Queens Center: Toluene detected; $150,000 reserve.
- Villa Marina Marketplace: Dry cleaning chemicals; $150,000 reserve.
- Huntington Center: Dry cleaning chemicals; $500,000 reserve.
- Fresno Fashion Fair: Asbestos in fireproofing; $3.3 million reserve.
- Tenant Risk: Bankruptcy or closure of anchor tenants (e.g., Federated Department Stores) could reduce traffic and cash flow.
- Interest Rate Risk: $86 million of floating rate indebtedness exists, though $65.1 million is hedged via interest rate protection agreements.
Subsequent Events: On August 6, 1997, the Company acquired Stonewood Mall for $92 million and declared a dividend of $0.44 per share.
Investor Verification Checklist
- Acquisition Impact: Verify the pro forma impact of the South Towne Center and Stonewood Mall acquisitions on future FFO.
- Debt Maturities: Review the schedule of mortgage maturities, noting the $150 million convertible debentures maturing in 2002 and floating rate exposure.
- Environmental Reserves: Monitor the adequacy of the $4.7 million+ in environmental reserves against actual remediation costs.
- Dividend Coverage: Confirm that operating cash flow continues to support the dividend rate of $0.88 per share (YTD 1997).
- Joint Venture Performance: Assess the trend in income from unconsolidated joint ventures, which declined significantly year-over-year.