The Macerich Company — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. Macerich is a REIT that owns, operates, leases, and redevelops U.S. shopping centers. Its portfolio comprised 52 centers with approximately 50 million square feet of gross leasable area.
Financial and operating performance
| Metric | 2020 | 2019 | Change / context |
|---|---|---|---|
| Total revenue | $786.0 million | $927.5 million | Down 15.3% |
| Leasing revenue | $740.3 million | $858.9 million | Down 13.8%; includes $44.3 million provision for doubtful accounts, versus $7.7 million in 2019 |
| Net income (loss) attributable to Macerich | $(230.2) million | $96.8 million | 2020 loss included a $163.3 million Fashion District Philadelphia remeasurement loss |
| EPS, basic and diluted | $(1.58) | $0.68 | Reflects the net loss |
| FFO, diluted, excluding Chandler Freehold financing expense | $339.5 million | $537.0 million | Down 36.8%; non-GAAP measure |
| Cash from operating activities | $124.8 million | $355.2 million | Down $230.3 million |
| Cash and cash equivalents | $465.3 million | $100.0 million | At year-end; management reported approximately $555 million including its pro rata share of joint-venture cash |
| Occupancy | 89.7% | 94.0% | Regional shopping center portfolio occupancy |
Cash used in investing activities was $202.8 million; cash provided by financing activities was $446.5 million. Cash dividends and distributions were $179.9 million for the year. The quarterly dividend was reduced during 2020; the second-quarter $0.50-per-share dividend was paid primarily in shares, and third- and fourth-quarter dividends were $0.15 per share in cash.
At December 31, 2020, consolidated mortgage and other notes payable totaled $6.04 billion. Macerich reported total loan indebtedness of approximately $8.7 billion after adjusting for noncontrolling interests and including its pro rata share of unconsolidated joint-venture debt. Its $1.5 billion revolving credit facility was nearly fully drawn: borrowings were $1.48 billion and remaining availability was approximately $19.7 million. The facility was extended to July 6, 2021; refinancing negotiations were ongoing.
Material changes and notable items
- COVID-19 closures and restrictions, tenant payment delays, and tenant financial distress drove lower leasing revenue, occupancy, and joint-venture earnings. Comparable tenant sales fell approximately 16% in fourth-quarter 2020 versus fourth-quarter 2019; full-year 2020 sales per square foot were not available.
- Management said it collected 93% of rents billed in fourth-quarter 2020 and approximately 89% of January 2021 rent billed. Lease amendments included rent deferrals and abatements. The company recorded substantially higher bad-debt provisions.
- There were 42 tenant bankruptcy filings in 2020, covering 323 leases, approximately 6.0 million square feet, and $85.8 million of annual leasing revenue at Macerich’s share.
- Effective December 10, 2020, Macerich consolidated Fashion District Philadelphia after restructuring its joint venture and becoming the VIE’s primary beneficiary. The transaction generated the $163.3 million remeasurement loss. Macerich funded a $100 million mortgage paydown through a partnership loan; that loan accrues interest at 15% and must be repaid before 50/50 cash distributions resume.
- Impairment and write-down losses contributed to the year’s results, including impairment charges associated with Wilton Mall and Paradise Valley Mall and write-downs of development costs. The filing also identifies substantial valuation judgment in the Fashion District and Chandler Freehold fair-value assessments.
Outlook, financing, and risks
- Management expects 2021 results to remain negatively affected by COVID-19, anchor closures, and tenant bankruptcies, despite improving regional mall fundamentals and eased restrictions. It anticipates further occupancy pressure from bankruptcies and certain pre-lease termination abandonments.
- Management expects significant 2021 operating cash flow after recurring operating and leasing capital expenditures and dividends, to be used for deleveraging and the development pipeline. It did not provide a specific cash-flow or earnings forecast. Planned 2021 development and redevelopment spending is expected to be below $100 million, excluding One Westside, which is funded by a construction loan.
- The company said it did not expect to refinance near-term maturing mortgages in the prevailing environment and pursued extensions. Danbury Fair Mall’s loan was extended to April 2021, with a further conditional extension; Fashion Outlets of Niagara was extended to 2023; FlatIron Crossing was extended to January 2022 at a higher rate; and Green Acres Mall was extended after year-end to February 2022, with a further option to 2023. A two-year extension for Green Acres Commons was being pursued.
- The revolving credit facility’s July 2021 maturity is a key liquidity event. Management was negotiating a replacement facility and cautioned it could have a lower commitment and require collateral. The company also registered a $500 million at-the-market common-stock offering program in February 2021.
- One Westside is being redeveloped into 584,000 square feet of Google-leased creative office space and 96,000 square feet of dining and entertainment space, with completion expected in 2022. Macerich’s estimated share of total project cost is $125 million to $137.5 million. The company also expects to spend $130 million to $160 million, at its pro rata share, on redevelopment of former Sears spaces over several years.
- Key risks include refinancing and covenant pressure, tenant and anchor failures, reduced rent collection and leasing demand, a sustained shift to online retail, property-value impairments, concentrated regional exposure, joint-venture obligations, interest-rate and LIBOR transition risks, and potential uninsured losses. The company said it did not believe it was likely to collect on its COVID-19 business-interruption insurance claims as of year-end.
Investor verification priorities
- Confirm current liquidity, replacement credit-facility terms, covenant headroom, and repayment or extension outcomes for near-term property debt.
- Track rent collections, deferred and abated rent, bad-debt expense, tenant bankruptcies, occupancy, and leasing spreads as pandemic effects evolve.
- Review the assumptions supporting the Fashion District Philadelphia remeasurement, Chandler Freehold financing obligation, and property impairment assessments.
- Assess the cash-flow and dilution implications of the reduced dividend, the $500 million ATM program, and planned redevelopment commitments.
- Check whether management’s 2021 operating cash-flow expectations and tenant recovery assumptions are being realized; the filing gives no quantified earnings guidance.