MACERICH CO quarterly report, Q3 FY2022

Business context and reporting period

The Macerich Company is a REIT that owns, operates, leases and redevelops U.S. shopping centers. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2022. At quarter-end, its portfolio comprised 51 properties, including joint-venture interests, with approximately 48 million square feet of gross leasable area.

Financial and operating highlights

At September 30, 2022, cash and cash equivalents were $110.0 million, restricted cash was $55.0 million, and total assets were $8.07 billion. Consolidated mortgage debt was $4.26 billion and bank and other notes payable were $91.5 million. The Company reported total outstanding loan indebtedness of $6.77 billion including its pro rata share of unconsolidated joint-venture debt. The revolving facility had $423.8 million available; the Company reported covenant compliance.

Leased occupancy was 92.1%, up from 90.3% a year earlier. Trailing-12-month releasing spreads were 6.6%; comparable tenant sales for spaces under 10,000 square feet fell 0.6% year over year in Q3 but rose 4.8% for the nine-month period. Trailing-12-month tenant sales per square foot reached a reported record $877.

Material changes versus prior comparable period

• Q3 revenue was down 0.7% year over year; nine-month revenue increased 2.1%.
• Q3 and nine-month GAAP earnings weakened sharply, largely because 2021 included the $117.2 million gain on sale of Tucson La Encantada. Q3 interest expense also rose $12.3 million, including higher expense from the Chandler Freehold financing arrangement.
• Adjusted FFO increased 1.4% in Q3 and 4.4% for the nine-month period. This is a supplemental non-GAAP measure, not a substitute for GAAP earnings or operating cash flow.
• Nine-month operating cash flow increased to $285.0 million, while investing cash flow fell to $46.7 million from $256.1 million, primarily reflecting lower asset-sale proceeds. Financing activities used $333.6 million of cash.
• The Company acquired the remaining 50% interest in two former Sears parcels at Deptford Mall and Vintage Faire Mall for $24.5 million and consolidated them.

Outlook, risks and unusual items

• Management expected positive 2022 cash flow after recurring operating and leasing capital expenditures and dividends, with any surplus intended for debt reduction and development/redevelopment. It expected liquidity needs for the next 12 months and beyond to be met through operations, joint-venture distributions, reserves and/or credit-line borrowings. No specific earnings guidance was provided.
• Management said results could remain affected by COVID-19-related occupancy shortfalls and additional anchor closures. It also highlighted inflation, higher operating costs, rising interest rates, refinancing costs, tenant credit risk and the availability and cost of financing.
• In November 2022, after quarter-end, the Company reported that it had not repaid Towne Mall’s November 1 loan maturity and had begun transitioning the asset to the loan servicer. Extensions for Santa Monica Place and a Washington Square joint-venture loan were expected but remained subject to final terms and closing conditions.
• Management expected a 1% interest-rate increase to reduce future earnings and cash flows by approximately $8.4 million annually, based on $0.8 billion of floating-rate debt at quarter-end. LIBOR transition terms could also affect borrowing costs.
• The Company recorded property and joint-venture impairment losses, including losses tied to shortened expected holding periods. Q3 2021 results included the substantial La Encantada sale gain, making the GAAP earnings comparison unusually favorable to the prior period.
• The Company announced a fourth-quarter cash dividend of $0.17 per share, up from $0.15, payable December 2, 2022.

Important facts for investors to verify

• Progress and final terms for the Santa Monica Place and Washington Square loan extensions, and the outcome of the Towne Mall loan-servicer transition.
• Near-term maturities, refinancing access and the effect of higher rates on interest expense, coverage and liquidity.
• Whether occupancy, tenant sales, collections and leasing spreads continue to improve, and whether anchor closures or tenant distress increase.
• Actual cash generation after capital expenditures and dividends, and whether it supports debt reduction and planned redevelopment spending.
• Assumptions and valuation sensitivity behind property and joint-venture impairments and the Chandler Freehold financing-arrangement fair value.