Business Context and Reporting Period
Company: The Macerich Company (Macerich)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2002
Business Overview: Macerich is a self-administered and self-managed Real Estate Investment Trust (REIT) engaged in the acquisition, ownership, development, redevelopment, management, and leasing of regional and community shopping centers. As of year-end 2002, the portfolio consisted of 79 centers (56 regional, 21 community, and 2 development properties) aggregating approximately 58 million square feet of gross leasable area (GLA).
Key Financial Metrics
| Metric (in thousands, except per share) | 2002 | 2001 |
|---|---|---|
| Total Revenues | $378,924 | $332,465 |
| Net Income Available to Common Stockholders | $60,965 | $58,035 |
| Funds From Operations (FFO) - Diluted | $207,077 | $175,068 |
| Cash Flow from Operating Activities | $206,225 | $140,506 |
| Total Assets | $3,662,080 | $2,294,502 |
| Total Debt (Mortgage, Notes, Debentures) | $2,291,908 | $1,523,660 |
| Debt to Total Market Capitalization | 59.6% | N/A |
| Dividends Declared per Common Share | $2.22 | $2.14 |
Material Changes vs. Prior Period
- Acquisitions: The most significant change was the acquisition of Westcor Realty Limited Partnership on July 26, 2002, for approximately $1.475 billion (including $733 million assumed debt). This added 14.1 million square feet of GLA in Arizona and Colorado. Additionally, The Oaks mall in Thousand Oaks, CA, was acquired in June 2002 for $152.5 million.
- Revenue Growth: Total revenues increased 14% to $378.9 million, driven primarily by the Westcor and The Oaks acquisitions. Minimum and percentage rents increased 15.6%.
- Expense Increases: Interest expense rose to $122.9 million (from $109.6 million) due to debt associated with the Westcor transaction. Depreciation and amortization increased to $78.7 million.
- Equity Offerings: The company issued 15.2 million common shares in November 2002, raising net proceeds of $420.3 million to pay down acquisition-related debt.
- Dispositions: The company sold Boulder Plaza (March 2002) and its interest in Paradise Village Gateway (January 2003, post-year-end) to generate liquidity.
Guidance, Outlook, and Risks
- Development Pipeline: Significant redevelopment and development projects are underway, including the expansion of Queens Center (completion phases starting 2004), Scottsdale 101, and La Encantada. Management expects to incur $200 million to $300 million in 2003 for these activities, excluding Queens Center.
- Liquidity: The company maintains a $425 million revolving credit facility (with $344 million outstanding at year-end) and expects cash from operations and capital markets to fund future needs.
- Key Risks:
- Tenant Concentration: The Limited, Inc. accounted for 5.1% of total minimum rents; no other single tenant exceeded 4.0%.
- Anchor Tenants: Bankruptcy or closure of major anchors (e.g., Montgomery Ward closures previously noted) could adversely affect traffic and income.
- Environmental: Potential liabilities exist regarding asbestos, underground storage tanks, and chlorinated hydrocarbons at various centers, though reserves have been established.
- Interest Rate Risk: A 1% increase in interest rates would decrease future earnings and cash flows by approximately $9.9 million based on variable rate debt exposure.
Investor Verification Checklist
- Debt Maturities: Verify the refinancing status of the $184.5 million variable rate debt due in May 2003 within the SDG Macerich joint venture.
- Westcor Integration: Assess the operational performance and lease-up rates of the newly acquired Westcor portfolio (Arizona/Colorado) in subsequent quarters.
- Development Costs: Monitor capital expenditure levels for the Queens Center expansion and new developments against the projected $200-$300 million range for 2003.
- Environmental Reserves: Review updates on remediation costs for asbestos at Fresno Fashion Fair and dry cleaning chemicals at North Valley Plaza and Bristol Center.
- FFO vs. Net Income: Note the significant difference between Net Income ($61.0 million) and FFO ($207.1 million) due to non-cash depreciation and gains/losses on asset sales; FFO is the primary performance metric for REITs.