MAC

Business Context and Reporting Period

Company: The Macerich Company (Macerich)

Filing Type: Form 10-Q (Quarterly Report)

Reporting Period: Three months ended March 31, 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 March 31, 2000, the Company and its Operating Partnership owned or held interests in 52 centers aggregating approximately 42 million square feet of gross leasable area.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased 4.5% to $75.3 million. This was driven by a 10.6% decrease in minimum and percentage rents ($48.7 million vs. $54.5 million).
  • Accounting Change: Implementation of SAB 101 deferred approximately $2.2 million of percentage rent recognition to the fourth quarter.
  • Portfolio Changes: A $7.1 million decrease resulted from the contribution of Lakewood Mall and Stonewood Mall to the Pacific Premier Retail Trust (PPRT) joint venture in October 1999.
  • Acquisitions: Increases from the 1999 acquisition of Santa Monica Place ($2.4 million) and redevelopment centers partially offset the declines.
• Expense Increases:
  • Interest Expense: Increased to $28.2 million from $26.8 million, primarily due to debt incurred for 1999 acquisitions, partially offset by the contribution of assets to PPRT.
  • Shopping Center Expenses: Increased to $23.9 million from $23.3 million due to the Santa Monica Place acquisition and higher property taxes.
• Net Income: Net income available to common stockholders decreased 29% to $6.3 million, reflecting the revenue deferrals, accounting changes, and the absence of an extraordinary loss on debt extinguishment recorded in Q1 1999 ($0.97 million).
• Cash Flow: Operating cash flow improved to $25.4 million. Investing cash outflows dropped significantly to $9.0 million from $104.7 million in 1999, as the heavy capital contributions for joint venture acquisitions in 1999 were not repeated in Q1 2000.

Guidance, Outlook, and Risks

• Acquisition Outlook: Management anticipates the pace of acquisitions will slow considerably in 2000 compared to 1999. Future growth depends on capital availability, interest rates, and suitable targets.
• Capital Resources: The Company intends to fund operations and dividends through cash flow. Major expenditures (e.g., the $90 million Pacific View redevelopment) are funded via debt and equity. The Company maintains a $150 million unsecured line of credit with $80.4 million outstanding as of March 31, 2000.
• Seasonality: Earnings are typically highest in the fourth quarter due to holiday retail sales and the new accounting treatment for percentage rent (SAB 101), which defers recognition until year-end.
• Market Risk: Primary exposure is interest rate risk. A 1% increase in interest rates on variable rate debt ($375 million outstanding) would decrease future earnings and cash flows by approximately $3.8 million annually.
• Contingencies:
  • Environmental: Remediation costs are being incurred for Perchloroethylene (PCE) at a former joint venture property (North Valley Plaza) and asbestos at Fresno Fashion Fair. Reserves of $240,000 and $2.77 million, respectively, remain as of March 31, 2000.
  • Tenant Risk: Bankruptcy or closure of anchor tenants could adversely affect traffic and income.
• Dividends: A dividend of $0.51 per share was declared for common stockholders and preferred stockholders on May 11, 2000, payable June 7, 2000.

Investor Verification Checklist

• SAB 101 Impact: Verify the long-term impact of the new revenue recognition standard on quarterly earnings volatility, specifically the deferral of percentage rent to Q4.
• Joint Venture Accounting: Review the pro-rata share of income and debt for unconsolidated joint ventures (e.g., PPRT, SDG Macerich) to understand the full scope of assets and liabilities not fully consolidated on the balance sheet.
• Debt Maturity Profile: Assess the concentration of debt maturities, particularly the $352.9 million of wholly-owned debt maturing in 2001, and the Company's refinancing strategy.
• Redevelopment Progress: Monitor the $90 million Pacific View redevelopment project and its impact on future cash flows and capital requirements.
• Environmental Reserves: Track the adequacy of reserves for asbestos removal at Fresno Fashion Fair and PCE remediation at North Valley Plaza.