Business Context and Reporting Period
Company: The Macerich Company (Macerich)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 1999
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, 1999, the Company owned or had an ownership interest in 52 centers (47 regional, 5 community) aggregating approximately 42 million square feet of gross leasable area (GLA). Operations are conducted through The Macerich Partnership, L.P. (Operating Partnership) and three management companies.
Key Financial Metrics
| Metric | 1999 | 1998 |
|---|---|---|
| Total Revenues | $327.4 million | $283.9 million |
| Net Income | $129.0 million | $44.1 million |
| Net Income Available to Common Stockholders | $110.9 million | $32.5 million |
| Funds from Operations (FFO) - Diluted | $164.3 million | $120.5 million |
| EBITDA | $221.6 million | $189.5 million |
| Cash Flow from Operating Activities | $139.6 million | $85.2 million |
| Total Assets | $2,404.3 million | $2,322.1 million |
| Total Debt (Mortgage, Notes, Debentures) | $1,561.1 million | $1,507.1 million |
| Debt to Total Market Capitalization | 66% | N/A |
| Cash and Cash Equivalents | $40.5 million | $25.1 million |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 15.3% to $327.4 million, driven primarily by acquisitions in 1998 and 1999. Minimum and percentage rents rose 14.1% to $219.7 million.
- Net Income Surge: Net income available to common stockholders increased significantly to $110.9 million from $32.5 million. This was largely due to a $96.0 million gain on sale of assets resulting from the sale of membership interests in Stonewood and Lakewood to Ontario Teachers' and the sale of Huntington Center.
- Acquisition Activity: Major 1999 acquisitions included a portfolio of properties via a joint venture with Ontario Teachers' ($427 million purchase price), Los Cerritos Center ($188 million), and Santa Monica Place ($130.8 million).
- Debt Levels: Total mortgage, notes, and debentures payable increased to $1.56 billion, reflecting debt incurred to fund acquisitions and refinancing activities.
- Interest Expense: Increased to $113.3 million from $91.4 million due to higher debt levels associated with acquisition activity.
Guidance, Outlook, and Risks
- Acquisition Outlook: Management anticipates the pace of acquisitions to slow considerably in 2000 compared to 1999 and 1998. Future growth is expected to be funded through a combination of equity offerings, debt financings, and joint ventures.
- Redevelopment: The Company is undertaking a $90 million redevelopment of Pacific View (formerly Buenaventura Mall), funded by a bank construction loan.
- Dividends: Cash distributions declared per common share were $1.965 in 1999, up from $1.865 in 1998. A dividend of $0.51 per share was declared in February 2000.
- Key Risks:
- Tenant Bankruptcy/Closure: Closure of anchor tenants (e.g., Montgomery Ward) could adversely affect traffic and income. No single tenant accounted for more than 5.2% of total rents.
- Environmental Liabilities: Potential costs associated with asbestos, underground storage tanks, and chlorinated hydrocarbons (PCE) at various centers. Reserves exist for known issues (e.g., $3.3 million for Fresno Fashion Fair asbestos).
- 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 $3.4 million.
- Competition: Competition from other retail formats (outlet centers, internet shopping) and other REITs for acquisitions and tenants.
Investor Verification Checklist
- Gain on Sale Sustainability: Verify the extent to which the $96 million gain on sale of assets (Stonewood, Lakewood, Huntington Center) impacted net income and whether this is a recurring revenue stream.
- Debt Maturity Profile: Review the schedule of debt maturities, noting $65.8 million due in 2000 and $363.3 million due in 2001, to assess refinancing risks.
- Joint Venture Exposure: Confirm the Company's pro-rata share of debt and income in unconsolidated joint ventures (Pacific Premier Retail Trust, SDG Macerich Properties, L.P.), which represent significant assets and liabilities.
- Environmental Reserves: Assess the adequacy of reserves for environmental remediation, particularly regarding asbestos at Fresno Fashion Fair and PCE at North Valley Plaza.
- FFO vs. Net Income: Compare Funds from Operations ($164.3 million) to Net Income ($129.0 million) to understand the impact of non-cash items like depreciation and one-time gains on the Company's operational cash generation.