The Macerich Company — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012. Financial statements are unaudited. Macerich owns, develops, manages and leases U.S. shopping centers. At quarter-end it reported interests in 76 centers totaling approximately 65 million square feet.
Key financial results
Dollar amounts are in millions except per-share data. Comparisons are with Q1 2011 unless noted.
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Total revenue | $214.7 | $185.3 |
| Total expenses | $214.3 | $213.3 |
| Income from continuing operations | $46.7 | $5.2 |
| Net income (loss) attributable to Macerich | $(14.1) | $0.03 |
| Diluted EPS | $(0.11) | $0.00 |
| Funds from operations (FFO), diluted | $106.2 | $73.7 |
| Adjusted FFO | $109.2 | $74.5 |
| Cash provided by operating activities | $86.2 | $41.5 |
| Cash used in investing activities | $(71.5) | $(73.3) |
| Cash provided by (used in) financing activities | $147.3 | $(225.8) |
Revenue increased 15.9%, largely reflecting acquired properties. Rental revenue rose 16.4%; shopping-center operating expenses rose 13.8%. Interest expense fell $5.6 million to $44.0 million. The GAAP loss chiefly reflects a $54.3 million Valley View Center impairment included in discontinued operations; gains on asset sales and remeasurement partly offset it. FFO increased 44.1%. FFO and adjusted FFO are non-GAAP supplemental measures and are not substitutes for operating cash flow or net income.
Financial position and liquidity
- At March 31, cash and cash equivalents were $229.3 million, restricted cash $70.9 million, and total assets $8.07 billion.
- Reported mortgage debt was $3.36 billion and bank and other notes payable were $954.6 million. Management reported total outstanding indebtedness of $6.2 billion, including $930 million of unsecured debt and $1.9 billion of Macerich’s pro rata share of joint-venture debt.
- Borrowings under the $1.5 billion revolving credit facility were $805 million at a 2.78% average rate; the separate $125 million unsecured term loan bore a 2.59% rate. The facility matures in 2015, with a one-year extension option. The company reported compliance with applicable financial covenants.
- On March 15, the company repaid $439.3 million of maturing senior notes using additional line-of-credit borrowings. The company paid distributions of $0.55 per share during the quarter.
Operating trends and material changes
- Tenant sales per square foot rose to $504 from $449. Occupancy eased to 92.1% from 92.3%; management attributed the decrease primarily to one tenant’s liquidation. Releasing spreads were positive 15.8% for the trailing 12 months.
- Reported results reflect substantial portfolio changes, including the addition of six SDG malls and other acquisitions. The company acquired 500 North Michigan Avenue for $70.9 million in February 2012, funded with credit-facility borrowings.
- In March, Macerich sold its interests in Chandler Village Center and Chandler Festival, recording gains of $8.2 million and $12.3 million. A joint venture also sold SanTan Village Power Center.
- Property and development investment cash outlays included $87.2 million for acquisitions, development, redevelopment and improvements. The company reported $100.2 million of capital expenditures at consolidated centers.
Outlook, risks and unusual items
- Management expected to meet operating, debt-service and dividend needs over the next 12 months with operating cash flow, working capital and/or credit-facility borrowings. It expected to spend $200–$300 million on development, redevelopment, expansion and renovations over that period, and planned additional non-core asset sales.
- Management expected maturities over the next 12 months to be refinanced, restructured, extended or paid from the line of credit or cash, except the Prescott Gateway mortgage. That non-recourse loan was in maturity default; negotiations were ongoing and the outcome was uncertain.
- Valley View Center was classified as held for sale at quarter-end following a $54.3 million impairment. A court-appointed receiver sold it on April 23, 2012 for $33.45 million, discharging the $125 million non-recourse mortgage and accrued interest. Macerich expected to record an approximately $103.9 million debt-extinguishment gain; this was a subsequent event, not a Q1 recognized gain.
- Management estimated that a 1 percentage-point increase in interest rates would reduce annual earnings and cash flows by approximately $22.5 million, based on $2.2 billion of floating-rate debt. Certain joint-venture debt could become recourse to Macerich: $374.2 million was potentially exposed, partly offset by $179.5 million of partner indemnities.
- Other disclosed commitments included $19.7 million of letters of credit and $9.0 million of outstanding construction obligations. Management said it did not expect the letters of credit to result in a liability.
- Management cited continuing economic and political uncertainty, persistent U.S. unemployment, and retail rents and property values not yet fully recovered to pre-recession levels. It cautioned that forward-looking statements are not guarantees. No material changes to previously disclosed risk factors were reported.
- After quarter-end, the company announced a $0.55-per-share cash dividend/distribution for holders of record May 10, payable June 8, 2012.
Important facts for investors to verify
- Whether the expected Valley View debt-extinguishment gain was recorded in the subsequent reporting period and whether the sale fully resolved related obligations.
- Refinancing or resolution of Prescott Gateway and other near-term maturities, and actual credit-facility availability after the senior-note repayment.
- Progress on the planned $200–$300 million development and redevelopment program, funding sources, and project cost or completion changes.
- Whether tenant sales, occupancy and positive releasing spreads persist, particularly given retailer failures and broader economic risks.
- The extent of any contingent recourse exposure on joint-venture debt and the collectability and enforceability of partner indemnities.
- How asset-sale gains, impairment charges and acquired properties affect GAAP earnings versus recurring operating performance and FFO.