MACERICH CO quarterly report, Q2 FY2020

The Macerich Company (NYSE: MAC) — Q2 2020 Form 10-Q

Reporting period: Three and six months ended June 30, 2020. The unaudited filing covers a U.S. regional-mall REIT with interests in 52 shopping centers totaling approximately 51 million square feet.

Financial results

Metric	Q2 2020	Q2 2019	Six months 2020	Six months 2019
Total revenue	$178.6 million	$228.0 million	$405.5 million	$454.5 million
Net income (loss) attributable to Macerich	$(25.1) million	$15.7 million	$(17.6) million	$23.6 million
Diluted earnings (loss) per share	$(0.18)	$0.11	$(0.13)	$0.16
FFO, excluding Chandler Freehold financing expense	$60.5 million	$133.6 million	$183.2 million	$255.6 million
Cash provided by (used in) operating activities	Not presented by quarter	$(15.4) million	$165.1 million

Q2 revenue fell 21.7% year over year; first-half revenue fell 10.8%. Q2 FFO on the stated adjusted basis declined 54.7%; first-half FFO declined 28.3%. The filing does not provide a single conventional operating-margin measure.

Balance sheet and liquidity: At June 30, cash and cash equivalents were $497.6 million, plus $10.1 million of restricted cash. Management cited approximately $573 million of cash including its pro rata share of unconsolidated joint ventures. Total assets were $9.23 billion and total liabilities were $6.54 billion.
Debt: Consolidated mortgage debt was $4.38 billion and bank and other notes payable were $1.48 billion. The $1.5 billion revolving facility was nearly fully drawn: $1.48 billion outstanding with $19.7 million available. Macerich reported $8.7 billion of total indebtedness on its stated basis, including its pro rata share of joint-venture debt.
Cash flow: First-half operating cash flow swung to a $15.4 million use from $165.1 million provided in 2019, principally reflecting lower rent collections and working-capital changes. Financing activities provided $517.9 million, including borrowing proceeds; cash, cash equivalents and restricted cash rose $393.4 million.

Material changes and unusual items

COVID-19 closures, rent deferrals and tenant credit concerns drove lower leasing revenue and a sharp increase in bad-debt provisions: $27.8 million in Q2 versus $2.0 million a year earlier; first-half provision was $28.7 million versus $3.8 million.
Leased occupancy fell to 91.3% from 94.1% a year earlier. The company signed 37 new and renewal leases in Q2, compared with a quarterly average of 219 in the four quarters through March 2020.
First-half property write-downs included $30.1 million for Wilton Mall and $6.6 million for Paradise Valley Mall, attributed to reduced estimated holding periods. Total first-half loss on sale or write-down of assets was $40.6 million.
Reported interest expense includes a significant financing-arrangement fair-value component: the company recognized $32.9 million of related interest income in Q2 and $77.1 million for the first half. The fair-value change is noncash and makes period comparisons less representative of underlying cash interest costs.
The company’s equity in unconsolidated joint ventures shifted to a $14.2 million Q2 loss from $7.3 million income in Q2 2019, reflecting pandemic-related revenue declines and higher bad-debt provisions at those ventures.

Outlook, liquidity actions and risks

As of August 7, most centers had reopened, but Queens Center and Kings Plaza remained closed, along with nine indoor California malls closed again in July. At the height of restrictions, approximately 74% of previously occupied GLA had closed.
The company collected approximately 46% of rents billed for Q2, including 58% for June, and approximately 66% of July billings. Many tenant amendments defer payments into 2021; some provide rent abatements. Management expects continued pressure on rental revenue and occupancy and anticipates further occupancy declines from bankruptcies and tenant abandonments.
During 2020, 32 tenant bankruptcy filings involved 288 leases, approximately 5.7 million square feet and $77.1 million of annual leasing revenue at the company’s share. Management expects additional filings may occur.
Liquidity measures included cost and capital-spending reductions, a reduced dividend, drawing most revolver capacity, and agreements to defer approximately $47.2 million of debt service on 19 mortgage loans. Of that amount, $37.1 million was due by year-end 2020 and the balance in Q1 2021.
Management said it did not expect to refinance near-term mortgage maturities in the disrupted capital markets and planned to seek short-term extensions for five loans totaling approximately $813.1 million, maturing from October 2020 through March 2021. Success was not assured. The company had extended its revolver maturity to July 6, 2021 and anticipated refinancing it before then.
The Q2 dividend was $0.50 per share, paid 20% in cash and 80% in shares. A $0.15-per-share Q3 cash dividend was declared; management said dividends could remain reduced. No specific earnings or operating guidance was provided.
Other risks include tenant co-tenancy provisions and permanent closures, uncertain collections and lease renewals, access to capital, debt covenant compliance, and potential higher or more volatile rates on floating-rate debt. The company estimated a 1% rate increase would reduce annual earnings and cash flows by approximately $17.1 million based on $1.7 billion of floating-rate debt.

Important facts for investors to verify

Subsequent rent collections, tenant relief agreements and the ultimate collectability of receivables and deferred rent.
Reopening status, occupancy trends, tenant bankruptcies and any co-tenancy rent reductions or termination rights.
Extensions or repayment plans for the identified near-term mortgage maturities and refinancing of the revolving credit facility.
Cash available after deferred debt service, reduced dividends, planned redevelopment spending and other obligations.
Assumptions and valuation impacts behind property impairments and the Chandler Freehold financing-arrangement fair-value income.