The Macerich Company — Q2 2011 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2011. Unaudited. Macerich owns, operates, develops and leases U.S. shopping centers; at quarter-end it had interests in 84 centers totaling about 71 million square feet.
Key financial results
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Total revenue | $190.9 million | $181.2 million | $381.0 million | $362.7 million |
| Net loss attributable to Company | $19.2 million | $0.4 million | $19.2 million | $6.8 million |
| Loss per common share, basic and diluted | $0.15 | $0.01 | $0.15 | $0.08 |
| Operating cash flow | Not separately presented for the quarter | $89.9 million | $72.8 million | |
| FFO, diluted | $66.7 million | $77.5 million | $140.4 million | $149.1 million |
| Adjusted FFO, diluted | $102.5 million | $77.5 million | $176.2 million | $149.1 million |
Revenue grew about 5% in both comparisons. The reported net loss included a $35.7 million impairment of Shoppingtown Mall in each 2011 period; adjusted FFO adds back that impairment. FFO and AFFO are supplemental non-GAAP measures and are not cash flow available for all needs.
For the six months, cash used in investing was $197.3 million, chiefly reflecting joint-venture contributions and property investment. Financing activities used $265.0 million; cash and equivalents fell by $372.4 million to $73.2 million. Restricted cash was $82.5 million.
At June 30, total liabilities were $4.40 billion and mortgage notes payable were $3.10 billion. Management reported total outstanding indebtedness of $6.1 billion, including $2.2 billion of Macerich’s pro rata share of joint-venture debt. Bank and other notes payable were $782.4 million. The company reported compliance with applicable loan covenants.
Operating performance and changes
- Management reported tenant sales per square foot of $458 for the trailing 12 months, versus $420 a year earlier; occupancy was 92.3%, versus 91.8%; and releasing spreads increased 11.6%. These KPIs exclude Valley View Center, Granite Run Mall and Shoppingtown Mall.
- Q2 diluted FFO declined 13.9%; first-half diluted FFO declined 5.8%. First-half GAAP loss widened from $6.8 million to $20.8 million, primarily due to the Shoppingtown impairment and a $9.1 million loss on early repayment of Chesterfield Towne Center debt. Higher equity-method income partly offset these charges.
- Interest expense fell year over year, including from lower line-of-credit costs and expired interest-rate swaps; depreciation and amortization rose. Revenue gains included the opening of Santa Monica Place, acquisitions and higher Same Center rents.
- Acquisitions and portfolio changes included increasing ownership in Kierland Commons and Desert Sky Mall; buying The Shops at Atlas Park with a joint venture; and a General Growth Properties exchange that increased interests in Arrowhead Towne Center and Superstition Springs Center. The company also bought a Kohl’s store at Capitola Mall.
Liquidity, outlook and risks
- On May 2, 2011, the company replaced its revolving facility with a $1.5 billion facility maturing in 2015, with an extension option and conditional expansion capacity to $2.0 billion. Drawings were $145 million at June 30; management cited the line, operating cash flow and working capital as liquidity sources.
- Management expected to spend $150 million to $250 million on development, redevelopment, expansion and renovations over the next 12 months. It expected most 2011 debt maturities to be refinanced, extended, restructured or paid from the credit line or cash, except Valley View Center and Shoppingtown Mall. The $612.2 million carrying value of 3.25% Senior Notes matures March 2012.
- Shoppingtown Mall’s $39.0 million non-recourse mortgage was in maturity default. The company was negotiating with the servicer; a loan modification or transfer of the property to the servicer or a receiver was considered likely. The impairment valuation used significant unobservable assumptions.
- Valley View Center remained under a court-appointed receiver, with disposition expected within 12 months; its debt is non-recourse. A joint venture conveyed Granite Run Mall to its lender by deed in lieu of foreclosure in April.
- Joint-venture debt that could become recourse to the company totaled $372.3 million, partly offset by $178.6 million of partner indemnities. A 1 percentage-point increase in interest rates was estimated to reduce annual earnings and cash flows by about $15.8 million on $1.6 billion of floating-rate debt.
- Management described economic and retail-sector weakness, unemployment, incomplete recovery in rents and property values, possible tenant defaults, capital-market access and interest-rate exposure as risks. No formal earnings guidance was provided. A $0.50 per-share cash distribution was announced for September 2011. A wage-and-hour class action settlement was pending court approval and was accrued at an amount management considered immaterial; the filing reported no material legal proceedings.
Important facts for investors to verify
- Progress and final outcome of Shoppingtown Mall’s default negotiations, valuation and potential property transfer, and the disposition of Valley View Center.
- Refinancing or repayment of 2011 maturities and the March 2012 Senior Notes; credit-facility availability, borrowing costs and covenant compliance.
- Quality and sustainability of reported FFO/AFFO, including the impairment add-back and gains recognized through joint ventures and acquisitions.
- Cash generation relative to distributions, planned capital spending and acquisition commitments; the effect of joint-venture debt guarantees and indemnities.
- Whether occupancy, tenant sales and releasing spreads continue to improve, and whether weak economic conditions or tenant defaults affect rents and liquidity.