The Macerich Company — Q3 2016 Form 10-Q
Business context and period. This unaudited quarterly report covers the three and nine months ended September 30, 2016. Macerich is a REIT that owns, develops, manages and leases shopping centers. At quarter-end, its portfolio included interests in 57 centers totaling approximately 56 million square feet.
Key financial results
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Total revenue | $253.4 million | $326.3 million | $769.3 million | $967.4 million |
| Net income attributable to the Company | $13.7 million | $33.6 million | $479.9 million | $72.6 million |
| Diluted EPS | $0.09 | $0.21 | $3.25 | $0.45 |
| FFO attributable to common stockholders and unit holders, diluted | $160.3 million | $170.5 million | $461.7 million | $455.0 million |
| Cash from operating activities | Not stated for the quarter | $319.1 million | $413.7 million |
Balance sheet and liquidity. At September 30, 2016, total assets were $9.94 billion, cash and cash equivalents were $84.2 million, and restricted cash was $53.0 million. Consolidated mortgage debt was $3.85 billion and bank and other notes payable were $1.05 billion. Management reported total outstanding indebtedness of approximately $7.5 billion including its pro rata share of unconsolidated joint venture debt. The $1.5 billion revolving credit facility had $1.055 billion borrowed, bore interest at 2.15%, and matures in 2020 with a one-year extension option. The Company reported compliance with applicable loan covenants.
Changes and notable items
- Q3 revenue declined 22% year over year, mainly because properties moved from consolidated ownership to unconsolidated joint ventures or were disposed of. Same-center rental revenue increased, supported partly by lease termination income and higher leasing spreads.
- Q3 net income attributable to the Company fell to $13.7 million from $33.6 million; diluted FFO decreased 6%. For the nine-month period, reported net income rose sharply, chiefly because of $426.1 million in net gains on asset sales and write-downs, including gains on joint venture interests and Capitola Mall. Nine-month FFO increased 1.5%.
- Nine-month operating cash flow declined by $94.6 million. Investing cash flow benefited from asset-sale proceeds and joint venture distributions; financing cash flow included $800 million of share repurchases.
- The Company completed a $1.2 billion accelerated share repurchase program, buying 15.3 million shares at an average $78.62 per share. Shares issued and outstanding declined to 143.9 million at September 30, from 154.4 million at year-end 2015.
Outlook, risks and contingencies
- Management expects to meet operating, debt-service and dividend needs over the next 12 months through operating cash flow, working capital and/or its credit facility. It expects to refinance, restructure, extend or repay maturities due in that period.
- Management expects $300 million to $400 million of development, redevelopment, expansion and renovation spending over the next 12 months. It expected leasing spreads to remain positive for the remainder of 2016.
- Operating indicators were mixed: trailing-12-month tenant sales per square foot eased to $626 from $630, and occupancy declined to 95.3% from 95.4%. Releasing spreads were positive at 16.1%.
- Management cited exposure to retail demand, tenant creditworthiness and bankruptcies, competition, property development and redevelopment, financing availability and interest rates. A 1 percentage-point rate increase was estimated to reduce annual earnings and cash flows by approximately $15.6 million.
- Potential contingencies included $61.0 million of letters of credit, which management did not expect to result in a liability, and $5.0 million of joint venture debt that could become recourse, partly offset by a $2.5 million partner indemnity. Outstanding construction obligations were $39.4 million, expected to be settled within 12 months.
- Q3 included a $23.3 million impairment loss on Promenade at Casa Grande, attributed to a shorter estimated holding period. The Company also conveyed Flagstaff Mall to its lender in July in a non-recourse deed-in-lieu transaction and recorded a $5.3 million gain on debt extinguishment. No material legal proceedings or material changes to previously reported risk factors were disclosed.
- After quarter-end, the Company announced a $0.71-per-share dividend, payable in cash on December 2, 2016. Shopping-center earnings are typically seasonally higher in the fourth quarter.
Investor verification points
- Separate recurring property performance from the substantial asset-sale gains that drove nine-month GAAP earnings.
- Review the effect of joint venture conversions and dispositions on reported revenue, debt and cash flows, and compare FFO with GAAP results.
- Verify refinancing plans and near-term maturities, credit-facility capacity, and the effect of floating-rate exposure on liquidity.
- Monitor tenant sales, occupancy and releasing spreads, as well as the stated $300–$400 million development and redevelopment spending outlook.
- Assess the assumptions behind property impairments, remaining construction commitments and contingent exposures.