The Macerich Company — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015; unaudited. Macerich owns, develops, redevelops, manages and leases U.S. shopping centers. At quarter-end, its Operating Partnership owned or held interests in 59 centers totaling approximately 55 million square feet.
Key financial metrics
Amounts below are in millions, except per-share data and percentages.
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Total revenue | $326.3 | $263.5 | $967.4 | $782.3 |
| Net income attributable to Macerich | $33.6 | $35.9 | $72.6 | $69.8 |
| Diluted earnings per share | $0.21 | $0.25 | $0.45 | $0.49 |
| Net margin attributable to Macerich | 10.3% | 13.6% | 7.5% | 8.9% |
| Diluted FFO attributable to common stockholders and unit holders | $170.5 | $132.5 | $455.0 | $383.9 |
| Cash provided by operating activities | Not stated for quarter | Not stated for quarter | $413.7 | $296.9 |
At September 30, cash and cash equivalents were $93.0 million. Consolidated debt was $6.8 billion; including Macerich’s pro rata share of unconsolidated joint-venture debt and adjusting for noncontrolling interests, the Company reported total loan indebtedness of approximately $7.5 billion. The $1.5 billion revolving credit facility had $1.0 billion drawn, leaving approximately $498 million undrawn; it may be expandable to $2.0 billion subject to conditions. The Company reported compliance with applicable loan covenants. Nine-month cash used in investing was $551.8 million and cash provided by financing was $146.2 million. The filing does not provide a standalone operating margin.
Material changes versus prior periods
- Revenue rose 23.8% in Q3 and 23.7% for the first nine months, primarily reflecting properties acquired or brought under consolidation, especially the PPRLP Queens portfolio; same-center rental revenue was nearly flat for the nine-month period.
- Q3 net income attributable to the Company declined 6.4%, while nine-month net income increased 4.0%. The nine-month comparison includes a $22.1 million gain on remeasurement from acquiring the remaining interest in Inland Center, partly offset by $25.2 million of costs related to an unsolicited takeover proposal.
- Diluted FFO increased 28.6% in Q3 and 18.5% year to date. FFO is a supplemental, non-GAAP measure and should not be treated as cash available for all purposes.
- Operating cash flow rose $116.7 million year over year for the first nine months. Investing outflows increased with higher development and redevelopment spending and contributions to joint ventures.
- Debt balances increased from year-end 2014: mortgage notes payable rose to $5.69 billion from $5.40 billion, and bank and other notes payable rose to $1.14 billion from $0.89 billion.
Outlook, transactions and risks
- Management expected to meet operating, debt-service and dividend needs over the following 12 months through operating cash flow, working capital and/or credit-facility borrowings. It projected $300–$400 million of development, redevelopment, expansion and renovation spending over that period.
- Management expected most debt maturities over the next 12 months to be refinanced, restructured, extended or paid from the credit line or cash; Flagstaff Mall was the stated exception. The Company was negotiating with the loan servicer, with a transition to the servicer or a receiver considered likely. Great Northern Mall had already been transferred to its lender by deed-in-lieu of foreclosure; its loan was non-recourse.
- On October 30, 2015, after quarter-end, Macerich completed a 40% interest sale in four centers to the GIC joint venture for approximately $1.25 billion, including about $537 million cash and $713 million of assumed debt. A sale of a 40% interest in Arrowhead Towne Center was expected in Q1 2016, subject to closing conditions. A separate proposed Heitman joint venture covering three centers, with an approximately $770 million sale price, was also expected to close in Q1 2016, subject to conditions.
- The Company said proceeds from joint-venture transactions would be used in part to reduce credit-line borrowings and fund special distributions. It declared two subsequent special distributions of $2.00 per share/unit each, as well as a regular $0.68 distribution. The Board also authorized up to $1.2 billion of common-stock repurchases through September 2017; the Company had not sold shares under its $500 million ATM program during the nine-month period.
- Operating indicators were mixed: tenant sales per square foot increased to $630 from $571, occupancy declined to 95.4% from 95.6%, and trailing-12-month releasing spreads were positive 16.3%. Management expected positive releasing spreads for the rest of 2015. Shopping-center seasonality typically makes fourth-quarter earnings higher.
- Key risks include retail demand and tenant creditworthiness, vacancies or tenant bankruptcies, competition and e-commerce, development execution, financing availability and cost, and interest-rate exposure. Management estimated a 1 percentage-point rise in rates would reduce annual earnings and cash flows by approximately $15.5 million based on floating-rate debt outstanding. No material changes to previously disclosed risk factors or material legal proceedings were reported.
Most important facts for investors to verify
- Whether the GIC Arrowhead transaction and the proposed Heitman transaction closed on expected terms and dates, and how their proceeds affected debt and liquidity.
- Debt maturities, credit-line utilization, refinancing assumptions and floating-rate exposure, including the status of Flagstaff Mall.
- Whether revenue and FFO growth persist after separating acquisition and consolidation effects from same-center performance; review FFO alongside GAAP earnings and cash flow.
- Actual development and redevelopment spending versus the $300–$400 million outlook, and the performance of major projects.
- Cash available to support the announced distributions and any share repurchases, given capital commitments and debt obligations.