Business Context and Reporting Period
Company: The Macerich Company (Macerich)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Nine months ended September 30, 2000
Business Overview: Macerich is a self-administered and self-managed Real Estate Investment Trust (REIT) engaged in the acquisition, ownership, redevelopment, management, and leasing of regional and community shopping centers. As of September 30, 2000, the Company owned or had an interest in 51 centers (46 regional, 5 community) aggregating approximately 41.5 million square feet of gross leasable area.
Key Financial Metrics
| Metric (Nine Months Ended Sept 30, 2000) | Value (in thousands) |
|---|---|
| Total Revenues | $228,496 |
| Net Income | $35,035 |
| Net Income Available to Common Stockholders | $21,090 |
| Earnings Per Share (Basic) | $0.62 |
| Net Cash Provided by Operating Activities | $86,001 |
| Total Assets | $2,312,987 |
| Total Liabilities | $1,575,437 |
| Total Debt (Including Pro Rata Joint Venture) | ~$2.2 billion |
| Cash and Cash Equivalents | $35,799 |
| Funds From Operations (Diluted) | $114,879 |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 5.9% to $228.5 million from $242.8 million in the prior year. This was driven by a 9.8% decrease in minimum and percentage rents, largely due to the contribution of Lakewood Mall and Stonewood Mall to the Pacific Premier Retail Trust (PPRT) joint venture in late 1999 and the adoption of SAB 101, which deferred percentage rent recognition to the fourth quarter.
- Net Income Decrease: Net income available to common stockholders fell 21.9% to $21.1 million from $27.0 million. Key factors included the revenue recognition changes, a $1.3 million loss on the sale of assets, and a $0.96 million cumulative effect of a change in accounting principle.
- Interest Expense Reduction: Total interest expense decreased to $82.1 million from $85.2 million, primarily due to the contribution of debt associated with Lakewood Mall to the PPRT joint venture.
- Joint Venture Income Increase: Equity in income of unconsolidated joint ventures increased to $20.5 million from $16.7 million, reflecting the impact of 1999 joint venture acquisitions and a $10.9 million gain on the sale of Manhattan Village.
- Cash Flow Shift: Operating cash flow decreased to $86.0 million from $97.0 million. However, investing activities shifted from a net use of $228.9 million in 1999 (due to major acquisitions) to a net generation of $34.5 million in 2000, driven by significant distributions from joint ventures ($97.9 million).
Guidance, Outlook, and Risks
- Acquisition Outlook: Management anticipates no acquisitions in 2000, contrasting with significant activity in 1999. Future growth is expected to be funded through equity/debt financings, joint ventures, and asset sales.
- Capital Resources: The Company maintains a $150 million unsecured line of credit with $17 million outstanding. It is currently undertaking a $90 million redevelopment of Pacific View, funded largely by a construction loan. The debt-to-total market capitalization ratio stood at approximately 66%.
- Share Repurchase: On November 10, 2000, the Board approved a 3.4 million share repurchase program.
- Accounting Changes: The adoption of SAB 101 significantly impacts quarterly revenue recognition, deferring percentage rent to the fourth quarter. This creates seasonality in reported earnings, with the fourth quarter typically being the strongest.
- Risks and Contingencies:
- Environmental: Ongoing remediation costs for Perchloroethylene (PCE) at a former joint venture property (North Valley Plaza) and asbestos removal reserves at Fresno Fashion Fair ($2.76 million remaining).
- Market Risk: Primary exposure is interest rate risk. A 1% increase in rates on variable debt would decrease earnings by approximately $3.7 million annually.
- Tenant Risk: Bankruptcy or closure of anchor tenants could adversely affect traffic and income.
Investor Verification Checklist
- SAB 101 Impact: Verify the timing of percentage rent recognition, as Q1-Q3 results are depressed by deferrals to Q4.
- Joint Venture Distributions: Confirm the sustainability of the $97.9 million in distributions from joint ventures that drove positive investing cash flow.
- Debt Maturities: Review the $294 million in debt maturing in 2001 (including variable rate exposure) and the recent refinancing of the Santa Monica Place loan.
- Redevelopment Costs: Monitor the $90 million Pacific View redevelopment project and associated construction loan drawdowns.
- Environmental Reserves: Track the utilization of the $2.76 million asbestos reserve and ongoing PCE remediation costs.