Business context and reporting period
The Macerich Company is a REIT that owns, develops, manages, and leases shopping centers. This unaudited Form 10-Q covers the three months ended March 31, 2020, compared with the same period in 2019. At quarter-end, its portfolio included interests in 47 regional and five community/power centers, totaling approximately 51 million square feet.
COVID-19 drove widespread temporary property closures following stay-at-home orders. Management said approximately 74% of previously occupied gross leasable area had closed; the pandemic’s full financial impact was not yet estimable.
Financial and operating results
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Total revenue | $227.0 million | $226.5 million |
| Net income | $8.7 million | $8.8 million |
| Net income attributable to Macerich | $7.5 million | $7.8 million |
| Diluted earnings per share | $0.05 | $0.05 |
| Cash provided by operating activities | $49.7 million | $98.8 million |
| FFO, diluted, excluding Chandler Freehold financing expense | $122.7 million | $121.9 million |
Leasing revenue was essentially flat at $210.7 million. Net income included a $36.7 million loss on asset write-downs, including impairments of Wilton Mall and Paradise Valley Mall, and a $48.4 million fair-value adjustment that was recorded as interest income related to the Chandler Freehold financing arrangement. FFO is a non-GAAP measure; the company cautions it is not a substitute for GAAP net income or operating cash flow.
Cash and cash equivalents were $652.4 million at March 31, versus $100.0 million at December 31, 2019; cash, cash equivalents, and restricted cash totaled $663.1 million. The company reported approximately $735 million of cash including its pro rata share of joint-venture cash. Operating cash flow declined by $49.1 million year over year. Cash used in investing activities was $41.4 million; financing activities provided $540.6 million, primarily reflecting increased borrowings. Q1 dividends and distributions totaled $114.7 million, of which $49.7 million was funded by operations.
Consolidated mortgage debt was $4.38 billion and bank and other notes payable were $1.48 billion at quarter-end. Including its pro rata share of joint-venture debt, the company reported total loan indebtedness of approximately $8.7 billion. Its $1.5 billion revolving line was nearly fully drawn, with $19.7 million available at March 31. The company was in compliance with applicable loan covenants. It extended the line’s maturity from July 2020 to July 2021 on April 8, after quarter-end.
Operating indicators: tenant sales per square foot were $801 for the 12 months ended February 29, 2020, versus $746 a year earlier; occupancy was 93.1%, down from 94.7%; and trailing-12-month releasing spreads were positive 6.5%. Sales data exclude March because of closures.
Material changes, outlook, and risks
- On March 27, the company withdrew its 2020 earnings guidance and provided no updated guidance, citing COVID-19 uncertainty.
- Management reported collecting approximately 26% of April rent billed and 18% of May rent billed as of May 8. Many tenants requested rent deferrals or reductions; the impact was uncertain.
- Management anticipated reopening approximately 35 centers by the end of May, as permitted by local rules, and expected most centers to be open in June. These were expectations, not assured outcomes.
- Liquidity measures included drawing most remaining revolving-credit capacity, reducing controllable operating costs and planned capital spending, seeking debt-service deferrals, and paying the announced second-quarter dividend in a mix of cash and shares. The announced dividend was $0.50 per share, with cash limited to 20%; management estimated the dividend approach could retain about $400 million annually if continued.
- Management expected approximately $60 million of development, redevelopment, expansion, and renovation spending during the rest of 2020, excluding One Westside, which it said was funded by a non-recourse construction facility. It also reduced planned property capital expenditures to approximately $15 million for 2020.
- Risks include prolonged closures, weaker tenant rent-paying ability and bankruptcies, reduced consumer traffic and sales, permanent anchor closures and possible co-tenancy effects, refinancing and capital-market access, covenant compliance, and further pressure on property values. The company said 11 tenant bankruptcy filings in 2020 involved 85 leases, approximately 524,000 square feet, and $19.9 million of annual leasing revenue at its share.
- The company submitted COVID-19 business-interruption insurance claims but said collection was uncertain. Potential contingencies include $40.8 million of letters of credit, which it did not expect to result in a liability, and $7.3 million of construction obligations expected to be settled within 12 months.
Most important facts for investors to verify
- Subsequent rent collections, tenant assistance requests, reopening progress, and any later updates to earnings guidance.
- Revolving-credit availability, covenant compliance, debt maturities and refinancing plans, including the effect of the post-quarter extension.
- Dividend policy and the proportion paid in shares versus cash, as reviewed by the board.
- Further tenant bankruptcies, permanent anchor closures, lease renewals, occupancy, and potential co-tenancy impacts.
- Additional property impairments, realized insurance recoveries, and actual redevelopment and capital-spending requirements.