Business Context and Reporting Period
Company: The Macerich Company (Macerich)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2000
Business Overview: Macerich is a self-administered and self-managed Real Estate Investment Trust (REIT) engaged in the acquisition, ownership, redevelopment, management, and leasing of regional and community shopping centers. As of December 31, 2000, the portfolio consisted of 51 centers (46 regional, 5 community) aggregating approximately 42 million square feet of gross leasable area (GLA). The company operates through The Macerich Partnership, L.P. (Operating Partnership) and three management companies.
Key Financial Metrics
| Metric | 2000 | 1999 |
|---|---|---|
| Total Revenues | $320.1 million | $327.4 million |
| Net Income (GAAP) | $56.9 million | $129.0 million |
| Net Income Available to Common Stockholders | $38.0 million | $110.9 million |
| Funds From Operations (FFO) - Diluted | $167.2 million | $164.3 million |
| EBITDA (including JVs pro rata) | $314.6 million | $301.8 million |
| Cash Flow from Operating Activities | $121.2 million | $139.6 million |
| Total Debt (including pro rata JVs) | $2.28 billion | $2.28 billion (approx) |
| Cash and Cash Equivalents | $36.3 million | $40.5 million |
| Dividends Declared per Common Share | $2.06 | $1.965 |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 2.2% to $320.1 million. Minimum and percentage rents dropped 5.4% primarily due to the contribution of Lakewood Mall and Stonewood Mall to the Pacific Premier Retail Trust (PPRT) joint venture in late 1999. This was partially offset by revenue increases from the 1999 acquisition of Santa Monica Place.
- Net Income Volatility: Net income available to common stockholders fell significantly to $38.0 million from $110.9 million in 1999. The 1999 figure included a one-time gain of $96.0 million from the sale of membership interests in Stonewood and Lakewood to Ontario Teachers' and the sale of Huntington Center. In 2000, the company recorded a loss on sale of assets of $2.8 million.
- FFO Growth: Despite the drop in GAAP net income, Funds From Operations (FFO) increased 1.8% to $167.2 million, reflecting the company's core operating performance excluding non-recurring gains/losses and depreciation.
- Acquisition Activity: There were no acquisitions in 2000 due to market conditions and the cost of capital, marking the first year since the IPO without acquisitions. Management anticipates no acquisitions for 2001.
- Refinancing Activity: The company executed several refinancings in 2000, including $138.5 million on the SDG Macerich portfolio, and refinancing debt on Kitsap Mall, Vintage Faire Mall, Santa Monica Place, and Stonewood Mall, generally extending maturities and locking in fixed rates.
Guidance, Outlook, Risks, and Unusual Items
- Outlook: Management anticipates no acquisitions for 2001. The company intends to fund capital expenditures and share repurchases through cash flow from operations, debt financings, and joint ventures.
- Stock Repurchase Program: In November 2000, the Board approved a program to repurchase up to 3.4 million shares. As of year-end, 564,000 shares were repurchased at an average price of $19.02.
- Accounting Changes: The company adopted Staff Accounting Bulletin 101 (SAB 101) effective January 1, 2000, which modified the timing of percentage rent recognition. This resulted in a cumulative effect loss of approximately $1.0 million in 2000.
- Risks and Contingencies:
- Tenant Bankruptcy: Montgomery Ward filed for bankruptcy on December 28, 2000, and announced the closure of all stores, including seven at Macerich centers. The company does not believe this will have a material adverse impact but notes the risk of reduced traffic and income.
- Environmental: Potential liabilities exist regarding asbestos, underground storage tanks, and chlorinated hydrocarbons (PCE) at various centers. A reserve of $3.3 million exists for asbestos removal at Fresno Fashion Fair.
- Interest Rate Risk: The company has variable rate debt exposure. A 1% increase in interest rates would decrease future earnings and cash flows by approximately $2.9 million annually.
Key Facts for Investor Verification
- Montgomery Ward Impact: Verify the specific financial impact of the closure of seven Montgomery Ward anchor stores on occupancy rates and rental income in 2001.
- Debt Maturities: Review the schedule of debt maturities, noting $174.4 million in total debt (wholly-owned and pro-rata JV) maturing in 2001, including $59.0 million in variable rate credit facility borrowings.
- FFO vs. Net Income: Understand the significant divergence between GAAP Net Income ($38.0M) and FFO ($167.2M) driven by the absence of the 1999 asset sale gain and the inclusion of depreciation.
- Joint Venture Exposure: Note that a significant portion of the portfolio (PPRT, SDG Macerich) is held in joint ventures and accounted for via the equity method, meaning consolidated revenue and asset figures do not reflect 100% of the underlying property performance.
- Environmental Reserves: Confirm the adequacy of the $3.3 million asbestos reserve at Fresno Fashion Fair and the status of remediation costs at North Valley Plaza (sold in 1997 but with ongoing liability).