MAC

Business Context and Reporting Period

Company: The Macerich Company (REIT)
Filing Type: Form 10-Q (Unaudited)
Period Ended: March 31, 2001
Business Overview: The Company acquires, owns, redevelops, manages, and leases regional and community shopping centers across the United States. As of March 31, 2001, the Company and its Operating Partnership owned or held interests in 51 centers (46 regional, 5 community) aggregating approximately 42 million square feet of gross leasable area.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 3.3% to $77.8 million. Minimum and percentage rents rose 3.7% to $50.5 million, driven by growth in both "Same Centers" and "Redevelopment Centers."
• Expense Increases: Shopping center expenses increased to $24.2 million due to higher property taxes and recoverable expenses. Depreciation and amortization rose to $16.1 million, primarily due to increased depreciation at Pacific View Mall.
• Interest Expense: Total interest expense decreased slightly to $28.0 million from $28.2 million.
• Joint Venture Income: Equity in income of unconsolidated joint ventures decreased to $6.1 million from $6.7 million, largely due to higher interest expense following debt restructuring at SDG Macerich Properties, L.P.
• Accounting Changes: The Company adopted SFAS 133 (Derivatives) on January 1, 2001, recording a transition adjustment of $9.4 million to accumulated other comprehensive income. This did not impact net income but affected comprehensive income.

Guidance, Outlook, and Risks

• Liquidity and Capital: The Company maintains a $150 million unsecured line of credit with $131 million outstanding as of March 31, 2001. Management anticipates cash from operations and working capital will fund operating expenses, debt service, and dividends. Major capital expenditures are expected to be funded through debt, equity, or joint ventures.
• Debt Profile: Total outstanding indebtedness was approximately $2.3 billion (including pro rata joint venture share), resulting in a debt-to-total market capitalization ratio of approximately 66%. The debt mix is primarily fixed-rate conventional mortgages.
• Market Risk: The primary market risk is interest rate fluctuation. A 1% increase in interest rates on variable-rate debt ($361.4 million outstanding) would decrease future earnings and cash flows by approximately $3.6 million annually.
• Operational Risks: Risks include anchor tenant bankruptcies or closures, which could reduce traffic and income; competition from other retail formats; and general economic conditions affecting tenant ability to pay rent.
• Contingencies: Environmental remediation costs are being incurred at North Valley Plaza (former dry cleaner site) and Fresno Fashion Fair (asbestos). Reserves of $66,000 and $2.75 million, respectively, remain for these items.

Investor Verification Checklist

• Debt Maturities: Verify the schedule of debt maturities, noting the refinancing of Capitola Mall debt ($48.5 million) completed in May 2001 and the significant portion of debt maturing in 2002 ($382.9 million).
• FFO vs. GAAP: Confirm the reconciliation of Net Income to Funds From Operations (FFO), as FFO ($38.1 million) is the primary performance metric for REITs and differs significantly from GAAP Net Income ($11.3 million) due to depreciation add-backs.
• Joint Venture Exposure: Review the pro-rata share of debt and income from unconsolidated joint ventures, which represent a significant portion of the Company's total asset base and debt load.
• Environmental Reserves: Monitor the status of environmental remediation at North Valley Plaza and Fresno Fashion Fair to ensure reserves are adequate.
• Dividend Sustainability: Assess the ability to maintain dividend payments ($0.53 per share declared for Q2 2001) given the high debt service requirements and interest rate exposure.