The Macerich Company — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited interim results. Macerich owns, operates, leases and redevelops U.S. shopping centers; at quarter-end its portfolio included 51 centers and redevelopment properties, approximately 48 million square feet of GLA.
Financial results and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $204.1 million | $215.5 million | $420.2 million | $405.9 million |
| Net loss | $17.7 million | $4.1 million | $55.0 million | $71.8 million |
| Net loss attributable to Macerich | $15.4 million | $11.8 million | $52.6 million | $75.4 million |
| Loss per diluted share | $0.07 | $0.06 | $0.25 | $0.42 |
| Operating cash flow | Not separately presented for the quarter | Not separately presented for the quarter | $115.4 million | $113.0 million |
- Quarterly revenue fell 5.3% year over year, with leasing revenue down 4.3%. First-half revenue rose 3.5%, including a 4.1% increase in leasing revenue.
- Q2 FFO attributable to common stockholders and unit holders, excluding Chandler Freehold financing expense, was $102.9 million, down 19.4% year over year. First-half FFO on the same basis was $215.2 million, up 5.9%. FFO is a non-GAAP supplemental measure, not a substitute for cash flow or net income.
- First-half investing cash flow was $51.1 million, versus $104.9 million in 2021; financing used $175.1 million. Cash, cash equivalents and restricted cash decreased $8.5 million to $158.4 million. Cash and cash equivalents alone were $106.4 million.
- At June 30, consolidated mortgage notes were $4.36 billion and bank and other notes were $75.0 million. Management reported total outstanding indebtedness of $6.86 billion on a pro rata basis, including joint-venture debt and adjustments for partners’ interests.
- The revolving facility had $86.0 million drawn and $438.7 million of additional availability; the borrowing rate was 5.21%. The company reported compliance with applicable loan covenants. It expects maturities over the next 12 months to be refinanced, extended, restructured or paid from its credit line or cash.
Operating trends and changes
- Leased occupancy was 91.8%, up from 89.4% a year earlier and 91.3% at March 31, 2022. Comparable tenant sales for spaces under 10,000 square feet rose 2.2% year over year and 16.8% versus Q2 2019; trailing-12-month sales per square foot reached a reported record $860.
- Q2 leasing revenue declined partly because of lower straight-line rent, lease termination income, percentage rent and bad-debt recoveries. Higher same-center operating costs and increased compensation-related expenses also weighed on results.
- Equity income from unconsolidated joint ventures fell to $6.4 million in Q2 from $20.0 million. For the first half, the company recorded a $22.7 million equity loss, versus $21.9 million of equity income in 2021, primarily reflecting asset write-downs following shortened expected holding periods.
- GAAP net loss improved for the first half, partly because 2021 included larger impairment and disposition losses. In Q2, net loss increased year over year, reflecting lower joint-venture income and other operating variances.
- First-half operating cash flow was broadly stable year over year. Investing cash flow was lower principally because asset-sale proceeds declined by $119.0 million; 2021 included significant disposition proceeds.
Outlook, risks and notable items
- Management expects results to remain negatively affected for the rest of 2022 by pandemic-related effects, occupancy below pre-COVID levels and additional anchor-store closures. All centers had been open since October 2020, with government capacity restrictions essentially eliminated.
- Management expects positive 2022 cash flow after recurring operating, leasing and capital expenditures and dividends, excluding potential proceeds from dispositions, refinancing or equity issuance. It expects to use any surplus to reduce leverage and fund development and redevelopment.
- Rising interest rates are increasing borrowing costs. A 1 percentage-point rate increase was estimated to reduce annual earnings and cash flows by approximately $9.1 million based on $0.9 billion of floating-rate debt. The company also flagged potential higher costs when refinancing lower-rate debt and uncertainty from the transition away from LIBOR.
- During the first half, the company’s share of an impairment at the MS Portfolio joint venture was $30.4 million; consolidated asset write-downs included $5.5 million related to that investment. The financing arrangement tied to Chandler Freehold generated $16.9 million of related-party interest expense for the first half, including a $9.8 million fair-value adjustment.
- Capital plans include approximately $80–$90 million of company-share development, redevelopment, expansion and renovation spending during the remainder of 2022. Sears-site redevelopment costs are estimated at $130–$160 million at the company’s pro rata share over several years.
- Q2 dividend was $0.15 per share. A third-quarter $0.15 cash dividend was declared after quarter-end, payable September 8, 2022. The company reported $3.4 million of rent deferrals outstanding at June 30.
- Letters of credit totaled $41.0 million, of which $40.7 million was secured by restricted cash; management did not expect them to result in a liability. One joint venture had $50.0 million of debt that could become recourse to the company if the venture cannot discharge it. No material legal proceedings or material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Review the company’s ability to refinance or extend upcoming maturities, including the revolving facility scheduled to mature in April 2023, and the terms and costs of completed loan extensions.
- Track floating-rate exposure, interest expense and the replacement of LIBOR in applicable debt and hedge agreements.
- Monitor occupancy, anchor closures, lease renewals and expirations, tenant credit quality, collections and sales trends; 22% of 2022 expiring leased space was in the letter-of-intent stage, while about 145,000 square feet remained in prospecting.
- Assess the assumptions and further impairment risk for joint ventures and the Chandler Freehold financing arrangement, including fair-value estimates that depend on significant unobservable inputs.
- Compare GAAP earnings and cash flows with FFO, noting that FFO excludes certain items and is not cash available to meet all obligations.