The Macerich Company — Q3 2023 Form 10-Q
Business context and reporting period
Macerich is a self-managed REIT that owns, leases, manages, develops and redevelops retail properties. At September 30, 2023, its portfolio included 49 centers and related properties totaling approximately 47 million square feet. This unaudited filing covers the quarter and nine months ended September 30, 2023; financial amounts below are in U.S. dollars.
Financial and operating metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $218.2 million | $210.7 million | $645.4 million | $630.9 million |
| Net loss attributable to Macerich | $262.5 million | $15.2 million | $336.2 million | $67.8 million |
| Loss per diluted share | $1.22 | $0.07 | $1.56 | $0.32 |
| FFO, excluding Chandler Freehold financing expense and accrued default interest | $99.1 million | $102.8 million | $276.5 million | $318.0 million |
| Net cash from operating activities | — | $246.1 million | $285.0 million |
Q3 revenue rose 3.5% year over year; nine-month revenue rose 2.3%. GAAP net loss widened substantially, principally due to property and joint-venture impairments. Adjusted FFO fell 3.6% in Q3 and 13.1% year to date. Reported total expenses were $231.7 million in Q3 and $678.3 million for nine months; interest expense was $53.4 million and $147.5 million, respectively. The filing does not provide a comparable consolidated operating-margin measure in the supplied text.
At September 30, 2023, total assets were $7.59 billion and total liabilities were $5.09 billion. Cash and cash equivalents were $111.8 million, with another $96.3 million of restricted cash. Mortgage notes payable were $4.17 billion and bank and other notes payable were $118.6 million on the balance sheet. Management reported total outstanding loan indebtedness of $6.83 billion including its pro rata share of unconsolidated joint-venture debt; this is a supplemental, non-GAAP presentation. The company had $514.8 million available under its revolving facility and reported compliance with applicable loan covenants.
Operating cash flow was $246.1 million, investing activities provided $32.3 million and financing activities used $251.4 million during the first nine months. Cash, cash equivalents and restricted cash increased by $27.0 million to $208.1 million. Cash interest paid, net of capitalized amounts, was $140.2 million. The company paid $120.1 million in dividends and distributions during the period.
Leased occupancy was 93.4%, up 1.3 percentage points from September 2022. For spaces under 10,000 square feet, Q3 comparable tenant sales decreased 2.0% year over year; trailing-12-month sales decreased 1.8%. Trailing-12-month releasing spreads were positive 10.6%: average rent on new and renewal leases was $59.27 per square foot versus $53.58 on expiring leases. Traffic for the first nine months was approximately 94% of 2022 levels.
Material changes versus the prior comparable period
- Q3 net loss attributable to the company increased to $262.5 million from $15.2 million. The period included a $144.7 million impairment at Fashion Outlets of Niagara Falls and a $107.7 million company-share impairment associated with Country Club Plaza.
- For the nine-month period, the company reported a $135.2 million net loss on sale or write-down of assets, versus a $6.8 million gain in 2022. Equity in losses of unconsolidated joint ventures increased to $176.2 million from $16.4 million, including impairments at Country Club Plaza and former Sears parcels.
- Nine-month operating cash flow declined by $38.9 million. Capital spending and investment activity increased; reported capital expenditures at consolidated and unconsolidated centers totaled $228.4 million at the company’s share, compared with $163.2 million in 2022.
- Interest expense for the first nine months decreased to $147.5 million from $157.7 million, largely reflecting a lower financing-arrangement expense, partly offset by higher borrowing costs and balances. Q3 interest expense increased to $53.4 million from $52.6 million.
- In May 2023, Macerich acquired Seritage’s remaining interests in five former Sears parcels for $46.7 million and consolidated them. The company also sold two power centers and land parcels, using proceeds in part to repay debt.
Outlook, risks and unusual items
- Management expects operating expenses, debt service and dividend requirements over the next 12 months and beyond to be funded by operating cash, joint-venture distributions, working-capital reserves and/or revolver borrowings. It expects positive 2023 cash flow after recurring operating and leasing capital expenditures and dividends, excluding proceeds from dispositions, refinancings or equity issuance; any surplus is intended for development and redevelopment and, if available, debt reduction.
- Management expects $45 million to $60 million of development, redevelopment, expansion and renovation spending during the remainder of 2023. It expects tenant allowances and deferred leasing costs over the next 12 months to be comparable to 2022. Redevelopment projects include Santa Monica Place, with phased openings anticipated in 2024–2025, and Scottsdale Fashion Square, with an anticipated 2024 opening.
- The $650 million revolving credit facility, amended in September 2023, matures February 1, 2027, with a one-year extension option; it may be increased to $950 million subject to conditions. Its September 30 borrowing rate was SOFR plus 2.35%, and the reported effective rate was 8.48%.
- Management expects near-term loan maturities to be refinanced, restructured, extended and/or paid from the revolver or cash, except for Towne Mall and Fashion Outlets of Niagara Falls. The Country Club Plaza joint venture defaulted on a $295.2 million non-recourse loan in May 2023 and was negotiating with its lender. Fashion Outlets of Niagara Falls’ $86.5 million non-recourse loan entered default on October 6, 2023, after quarter-end; negotiations were ongoing. Towne Mall had transitioned to a receiver after its loan maturity.
- Interest rates, inflation, tenant financial health, refinancing access, retail demand and redevelopment costs are key risks. Management expects inflation to pressure costs in 2023 and 2024 and higher rates to increase the cost of refinancing or extending debt. A 1-percentage-point increase in rates was estimated to reduce annual future earnings and cash flows by approximately $6.0 million, based on floating-rate debt outstanding.
- The board declared a $0.17-per-share cash dividend for the third quarter, payable December 1, 2023 to holders of record November 9, 2023. The filing provides no specific earnings or FFO guidance.
Important facts for investors to verify
- Progress and final terms of the Country Club Plaza and Fashion Outlets of Niagara Falls loan negotiations, and any implications for collateral, cash flow or impairment estimates.
- Execution of expected refinancing or extensions, including the joint-venture Tysons Corner Center and Boulevard Shops transactions then expected in Q4 2023, and maturities in 2024.
- Whether leasing momentum, occupancy and releasing spreads can offset softer tenant sales, lower traffic and macroeconomic cost pressures.
- Actual operating cash flow after recurring capital expenditures and dividends, and the company’s ability to fund redevelopment without increasing leverage or issuing equity.
- Assumptions behind significant property and joint-venture valuations and impairments, which rely in part on estimated holding periods and other valuation inputs.