The Macerich Company — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020; unaudited. Macerich owns, operates, leases, manages and redevelops U.S. shopping centers. Its portfolio comprised 52 centers and approximately 51 million square feet of gross leasable area at period end.
Financial performance and position
Amounts below are in millions except per-share data, percentages and where otherwise noted.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $185.8 | $231.1 | $591.4 | $685.6 |
| Net income (loss) attributable to Macerich | $(22.2) | $46.4 | $(39.8) | $69.9 |
| Diluted EPS | $(0.15) | $0.33 | $(0.28) | $0.49 |
| FFO, diluted, excluding Chandler Freehold financing expense | $83.4 | $133.2 | $266.6 | $388.8 |
| Net cash provided by operating activities | Not separately provided for the quarter | $65.1 | $272.0 |
- Q3 revenue fell 19.6%; leasing revenue fell 18.1% to $175.5 million. Nine-month revenue declined 13.7%, and leasing revenue declined 12.8%.
- Q3 net loss was $22.6 million before noncontrolling interests, compared with $50.0 million net income a year earlier. For nine months, net loss was $40.6 million versus $72.8 million net income.
- Q3 FFO fell 37.4%; nine-month FFO fell 31.4%. FFO is a non-GAAP supplemental measure, not cash flow available for all needs.
- Nine-month operating cash flow declined $206.9 million year over year. Cash used in investing activities was $122.8 million, versus $16.6 million provided in 2019; financing activities provided $485.3 million, versus $330.6 million used in 2019.
- At September 30, cash and cash equivalents were $528.4 million (plus $13.4 million restricted cash). Total assets were $9.18 billion; total equity was $2.65 billion.
- Balance-sheet mortgage notes were $4.37 billion and bank and other notes were $1.48 billion. The $1.5 billion revolver was nearly fully drawn: $1.48 billion outstanding and $19.7 million available. Macerich reported total debt of $8.7 billion including its pro rata share of unconsolidated joint-venture debt.
- Allowance for doubtful tenant accounts rose to $38.2 million from $4.8 million at year-end 2019; nine-month bad-debt provision was $39.2 million versus $6.8 million. Nine-month cash dividends and distributions were $155.2 million, of which $65.1 million was funded by operations.
Material changes and operating trends
- COVID-19 closures and tenant payment difficulties drove lower leasing and parking revenue, higher bad-debt expense, and weaker joint-venture results. Equity in joint-venture results shifted to a $12.5 million Q3 loss from $14.6 million income; the nine-month result was a $17.0 million loss versus $34.1 million income.
- Leased occupancy declined to 90.8% from 93.8% a year earlier. Tenant sales per square foot were $718 versus $800; the filing excludes closure periods in calculating this sales measure. Trailing-12-month releasing spreads remained positive at 4.9%.
- Q3 shopping-center operating expenses declined 6.7%, partly reflecting closures and cost controls. Nine-month REIT general and administrative expense increased $5.8 million, mainly due to compensation and consulting costs.
- Nine-month results included $36.7 million of property impairments—$30.1 million for Wilton Mall and $6.6 million for Paradise Valley Mall—following reductions in estimated holding periods. Land sales generated a $13.3 million Q3 gain. The nine-month net loss on asset sales and write-downs was $28.8 million.
- Cash and borrowing capacity increased through financing actions, including drawing the revolver; bank and other notes payable rose from $817.4 million at December 31, 2019 to $1.48 billion at September 30, 2020. Common shares outstanding increased, including through a stock-and-cash dividend.
Outlook, risks and contingencies
- COVID-19 and rent collections: All properties had reopened by October 7, 2020, though reopening dates varied by location. The company collected approximately 61% of rent billed for Q2, 80% for Q3, and 81% for October as of the filing’s disclosure. Tenant requests for deferrals or rent reductions, bankruptcies and future closures remained risks.
- Liquidity and spending: Management reported approximately $630 million of cash including its pro rata share of joint-venture cash. It reduced planned 2020 property capital expenditures by 65% to approximately $15 million at its share, expected about $30 million of remaining 2020 development and redevelopment spending, and anticipated roughly $100 million less redevelopment spending than pre-pandemic plans. Management said the company could retain approximately $370 million of cash under the dividend assumptions described in the filing.
- Dividends: The second-quarter $0.50 dividend was paid 20% in cash and 80% in shares. Q3 and Q4 dividends were set at $0.15 per share in cash. Management said dividends could remain reduced in 2021 and beyond, subject to quarterly Board review.
- Debt and refinancing: Management said it did not anticipate being able to refinance near-term maturing mortgages amid pandemic and capital-market uncertainty. Danbury Fair Mall’s maturity was extended to April 2021; extensions for several other loans were being pursued. The company anticipated refinancing its revolver before its July 2021 maturity. It was in compliance with loan covenants at September 30.
- Mortgage lenders agreed to defer approximately $47.2 million of debt-service payments at the company’s pro rata share; $8.8 million was repaid in Q3, with $28.1 million due by year-end 2020 and the balance in Q1 2021.
- Other risks include potential tenant bankruptcies, lower occupancy, co-tenancy provisions, restricted access to capital, floating-rate exposure and possible further pandemic-related closures. The company said insurance recovery on COVID-19 business-interruption claims was not considered likely as of September 30. One joint venture had $150.5 million of debt that could become recourse to Macerich if unpaid; the company intended to repay $100 million in Q4, reducing potential recourse to $50 million.
- Major projects include One Westside, with the creative office portion fully leased to Google and expected completion in 2022, and the planned Los Angeles Premium Outlets development. The filing provides no specific company-wide earnings or FFO guidance.
- Letters of credit totaled $40.9 million; the company did not expect them to result in a liability. Outstanding construction obligations were $1.9 million. No material legal proceedings were reported.
Important facts for investors to verify
- Subsequent rent collections, tenant relief agreements, bankruptcies and actual occupancy trends relative to the reported 80% Q3 rent collection and 90.8% occupancy.
- Availability and terms of refinancing or extensions for near-term mortgages and the revolver, including the progress of the extensions management was pursuing.
- Cash needs and debt-service repayment timing, including deferred mortgage payments and the planned joint-venture debt repayment that could reduce potential recourse exposure.
- Whether bad-debt allowances, property impairments and joint-venture losses increase as tenant conditions and property valuations evolve.
- Actual capital spending, project funding and future dividend decisions; the filing’s liquidity and spending figures are management expectations, not guarantees.