The Macerich Company — Q3 2013 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2013. The Macerich Company is a U.S. shopping-center REIT. At quarter-end, it had interests in 67 centers totaling approximately 61 million square feet. Financial amounts below are in millions, except per-share data and operating statistics.
Financial and operating performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Total revenue | $266.6 | $204.1 | $772.9 | $592.9 |
| Income from continuing operations | $42.8 | $44.9 | $154.1 | $99.2 |
| Net income attributable to the Company | $38.1 | $43.9 | $275.2 | $163.2 |
| Diluted EPS | $0.27 | $0.33 | $1.97 | $1.22 |
| Diluted FFO | $129.6 | $112.9 | $387.0 | $445.3 |
| Operating cash flow | — | $328.9 | $256.2 |
- Q3 revenue rose about 31%; management attributed most of the increase to acquired properties, with additional contributions from redevelopment and same-center operations. Q3 net income attributable to the Company fell about 13%, while diluted FFO increased about 15%.
- Nine-month revenue rose about 30%, and net income attributable to the Company rose about 69%. The increase in reported earnings included significant property-sale gains in discontinued operations and higher equity income from joint-venture asset sales. In contrast, nine-month diluted FFO fell about 13%.
- Nine-month cash from investing was $234.5 million, including substantial joint-venture distributions and asset-sale proceeds; cash used in financing was $567.0 million. Cash and equivalents were $62.1 million at quarter-end, down from $65.8 million at year-end 2012.
- At September 30, total assets were $9.21 billion and total liabilities were $5.55 billion. Mortgage notes payable were $4.48 billion; bank and other notes payable were $282.9 million. Management reported total loan indebtedness of approximately $6.3 billion including its pro rata share of unconsolidated joint-venture debt.
- The $1.5 billion revolving credit facility was amended and extended to August 2023; borrowings were $145 million at quarter-end, at an average rate of 1.86%. A separate $125 million unsecured term loan matures in 2018. The Company reported compliance with applicable loan covenants.
- Same-center indicators improved year over year: tenant sales per square foot increased to $549 from $511, occupancy rose to 93.7% from 92.8%, and trailing-twelve-month releasing spreads were positive 14.2%.
Material changes and unusual items
- Acquisitions, including Green Acres Mall and the prior-year acquisitions brought into the comparison, materially increased reported property revenue and expenses. Green Acres Mall contributed $47.6 million of incremental revenue and a $0.6 million incremental loss for the nine months.
- Disposition gains materially affected year-to-date results: the Company recorded gains from Green Tree Mall and the combined Northridge Mall and Rimrock Mall sale, while joint ventures recorded gains on sales including Redmond Town Center Office, Kitsap Mall, and Redmond Town Center.
- On September 30, the Company transferred Fiesta Mall to its lender through a deed-in-lieu of foreclosure and recognized a $1.4 million debt-extinguishment gain. Q3 discontinued operations showed a $2.0 million loss; nine-month discontinued operations showed $144.0 million of income, largely reflecting disposition gains.
- The Company recorded a $36.3 million remeasurement gain from obtaining control of Camelback Colonnade, partly offset by a $34.5 million impairment charge related to Great Northern Mall and two former Mervyn’s stores.
- Nine-month capital spending included $545.1 million for consolidated property acquisitions and equipment, and $140.3 million for development, redevelopment, expansion, and renovation.
Outlook, risks, and contingencies
- Management expected to meet operating, debt-service, and dividend needs over the next 12 months from operations, working capital, and/or its unsecured credit facility. It expected to refinance, restructure, extend, or repay maturities during that period using the facility or cash.
- Management expected to spend $250–$350 million on development, redevelopment, expansion, and renovations over the next 12 months. It anticipated positive releasing spreads for the remainder of 2013; leases scheduled to expire represented 2.7% of mall-store and freestanding-store area.
- Management cautioned that economic weakness, tenant defaults, reduced operating cash flow, capital-market access, and interest-rate movements could adversely affect results and financing. A 1% increase in rates was estimated to reduce future earnings and cash flows by approximately $8.6 million annually on $0.9 billion of floating-rate debt.
- Some joint-venture debt could become recourse to the Company: $47.0 million gross, partly covered by $21.3 million of partner indemnities. Outstanding construction-related obligations were $12.4 million, expected to be settled within 12 months. The filing reported no material legal proceedings and no material change to previously disclosed risk factors.
- Subsequent events included a commitment for a $268 million FlatIron Crossing mortgage at an expected fixed rate of 3.85% for seven years, and an announced $0.62 per-share dividend payable in cash on December 6, 2013.
Important facts for investors to verify
- Separate recurring operating performance from gains on sales, remeasurement gains, and discontinued operations; reported nine-month earnings rose while diluted FFO declined.
- Assess the contribution and financing of acquisitions, asset sales, joint-venture distributions, and the change in consolidated properties when comparing periods.
- Review debt maturities, floating-rate exposure, refinancing assumptions, covenant compliance, and potential joint-venture recourse obligations.
- Track same-center sales, occupancy, releasing spreads, redevelopment spending, and the leasing performance of the recently opened Fashion Outlets of Chicago.
- Consider capital needs and potential dilution from the ATM program; $149.1 million remained available for issuance at quarter-end.