MAC

Business Context and Reporting Period

Company: The Macerich Company (REIT)
Filing Type: Form 10-Q (Unaudited)
Period Ended: March 31, 2009
Business Overview: The Company acquires, owns, develops, redevelops, manages, and leases regional and community shopping centers. As of March 31, 2009, the portfolio included 92 centers totaling approximately 76 million square feet of gross leasable area. The Company operates as a self-administered REIT.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased 3.1% to $210.8 million. Rental revenue dropped $3.6 million, primarily due to the impact of Mervyn's bankruptcy (decrease of $2.9 million) and lower lease termination income.
• Net Income Volatility: Net income attributable to the Company fell significantly to $14.0 million from $95.1 million. This decline is largely attributable to the absence of a $99.3 million gain from the "Rochester Redemption" transaction recorded in Q1 2008, which is classified as discontinued operations.
• Operating Expenses: Management Companies' operating expenses increased $5.1 million due to a workforce reduction plan implemented in Q1 2009. Conversely, interest expense decreased $4.4 million due to lower LIBOR rates and the repurchase of Senior Notes.
• Unusual Items: The Company recorded a $22.5 million gain on the early extinguishment of $56.8 million of Senior Notes in Q1 2009. In Q1 2008, discontinued operations included a massive gain from the Rochester Redemption.
• FFO Growth: Despite the drop in GAAP net income, FFO-diluted increased 11.2% to $102.8 million, reflecting the exclusion of non-cash depreciation and one-time gains/losses.

Guidance, Outlook, and Risks

• Dividend Policy: On May 1, 2009, the Company announced a quarterly dividend of $0.60 per share, payable June 22, 2009. To preserve liquidity, the dividend will be paid partially in cash (up to 10% or $0.06 per share) and the remainder in common stock, subject to shareholder election.
• Liquidity and Capital Markets: Management notes that general market liquidity is constrained. The Company anticipates meeting liquidity needs through operations, working capital, and its $1.5 billion revolving line of credit (with $1.2 billion outstanding as of March 31, 2009).
• Debt Maturities: Approximately $143.6 million of indebtedness matures in 2009. The Company expects to refinance, extend, or pay off these maturities using its line of credit.
• Capital Expenditures: The Company expects to incur between $80 million and $150 million in 2009 for development, redevelopment, and renovations.
• Risks: Key risks include the ongoing impact of the Mervyn's bankruptcy on lease rejections and tenant defaults, volatility in capital markets limiting access to debt/equity financing, and exposure to floating interest rates (though hedged via swaps and caps).

Investor Verification Checklist

• Mervyn's Impact: Verify the status of the 22 rejected Mervyn's leases and the timeline for re-leasing these spaces to Kohl's, Forever 21, or other tenants.
• Debt Refinancing: Confirm the Company's ability to refinance the $143.6 million of debt maturing in 2009 given current credit market conditions.
• Dividend Structure: Review the specific mechanics of the stock dividend election and its potential dilutive impact on existing shareholders.
• Joint Venture Recourse: Assess the $17.1 million of recourse debt exposure in unconsolidated joint ventures should those entities default.
• Interest Rate Hedging: Evaluate the effectiveness of the Company's interest rate swaps and caps in protecting against rising rates on its $1.9 billion of floating-rate debt.