Business Context and Reporting Period
Company: The Macerich Company (REIT)
Filing Type: Form 10-Q (Unaudited)
Period Ended: June 30, 2008
Business Overview: The Company acquires, owns, develops, redevelops, manages, and leases regional and community shopping centers across the United States. As of June 30, 2008, the portfolio included 72 regional and 19 community shopping centers aggregating approximately 77 million square feet. The Company operates through The Macerich Partnership, L.P., in which it held an 86% ownership interest.
Key Financial Metrics
All figures in thousands, except per share data.
| Metric | Six Months Ended June 30, 2008 | Six Months Ended June 30, 2007 (Restated) |
|---|---|---|
| Total Revenues | $420,241 | $387,122 |
| Net Income Available to Common Stockholders | $114,422 | $14,409 |
| Earnings Per Share (Diluted) | $1.55 | $0.20 |
| Funds From Operations (FFO) - Diluted | $199,191 | $177,052 |
| Net Cash Provided by Operating Activities | $107,246 | $101,972 |
| Net Cash Used in Investing Activities | ($453,200) | ($181,760) |
| Net Cash Provided by Financing Activities | $314,488 | ($140,613) |
| Total Assets | $8,058,765 | $7,937,097 |
| Total Liabilities | $6,355,980 | $6,156,060 |
| Total Debt (Consolidated + Pro Rata JV) | $7.9 Billion | N/A |
| Cash and Cash Equivalents | $53,807 | $85,273 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 8.6% to $420.2 million, driven by rental revenue growth of 8.9% and tenant recoveries growth of 8.7%. Increases were attributed to acquisitions (Mervyn's portfolio, The Shops at North Bridge) and redevelopment centers.
- Profitability Surge: Net income available to common stockholders increased significantly to $114.4 million from $14.4 million. This was primarily due to a $99.3 million gain recognized from the "Rochester Redemption" (exchange of Rochester Properties for increased interest in Non-Rochester Properties) and income from discontinued operations related to Mervyn's stores held for sale.
- Interest Expense: Interest expense increased $16.6 million to $139.3 million, largely due to increased borrowings under the line of credit to fund acquisitions and the issuance of $950 million in convertible senior notes in 2007.
- Investing Cash Flow: Cash used in investing activities more than doubled to $453.2 million, driven by a $126 million increase in contributions to unconsolidated joint ventures (including The Shops at North Bridge) and higher capital expenditures.
- Restatement: Prior year figures (2007) have been restated to correct the accounting for the Wilmorite acquisition and minority interests, resulting in a decrease in previously reported net income for the comparable period.
Guidance, Outlook, Risks, and Unusual Items
- Unusual Items: The financial results for the six months ended June 30, 2008, are heavily influenced by the Rochester Redemption, which generated a $99.3 million gain classified in discontinued operations. Additionally, the Company designated 29 Mervyn's stores as "held for sale," moving their results to discontinued operations.
- Acquisitions & Redevelopment: The Company acquired The Shops at North Bridge (Chicago) and a portfolio of Mervyn's stores. Major redevelopment projects include The Oaks (Thousand Oaks), Santa Monica Place, and Scottsdale Fashion Square, with projected openings in late 2008 and 2009.
- Risk Factors:
- Mervyn's Bankruptcy: In July 2008, Mervyn's filed for bankruptcy protection. The Company owns interests in 46 Mervyn's stores. If Mervyn's rejects leases, the Company faces potential loss of rental revenue and write-offs of intangible assets/liabilities recorded under SFAS 141.
- Interest Rate Risk: The Company has significant floating rate debt exposure. A 1% increase in interest rates would decrease future earnings and cash flows by approximately $17.1 million annually.
- Liquidity: The Company relies on cash from operations, working capital, and borrowings. It maintains a $1.5 billion revolving line of credit with $1.228 billion outstanding as of June 30, 2008.
- Dividends: On July 31, 2008, the Company declared a dividend of $0.80 per share for common stockholders, payable September 8, 2008.
Investor Verification Checklist
- Mervyn's Exposure: Verify the status of lease negotiations with Mervyn's and the potential impact of lease rejections on future rental income and asset write-downs.
- Debt Maturities: Review the schedule of long-term debt maturities, noting that a significant portion of consolidated debt is fixed-rate, but floating-rate exposure exists via the line of credit and joint ventures.
- Discontinued Operations: Confirm that the $99.3 million gain from the Rochester Redemption is non-recurring and excluded from Funds From Operations (FFO) calculations.
- Capital Expenditures: Monitor the $400 million to $600 million capital expenditure guidance for 2008 related to development and redevelopment projects.
- Restatement Impact: Ensure comparisons with prior periods utilize the restated 2007 figures to accurately assess organic growth trends.