Business Context and Reporting Period
Company: The Macerich Company (REIT)
Filing Type: Form 10-Q
Reporting Period: Quarter ended March 31, 1998
Business Overview: The Company acquires, owns, redevelops, manages, and leases regional and community shopping centers. Operations are conducted through The Macerich Partnership L.P. (Operating Partnership) and three Management Companies. As of March 31, 1998, the Company owned approximately 69% of the Operating Partnership.
Key Financial Metrics
| Metric | Q1 1998 | Q1 1997 |
|---|---|---|
| Total Revenues | $61,175,000 | $50,302,000 |
| Net Income (Available to Common) | $6,822,000 | $6,751,000 |
| Earnings Per Share (Basic) | $0.25 | $0.26 |
| Earnings Per Share (Diluted) | $0.25 | $0.26 |
| Funds From Operations (FFO) - Diluted | $23,317,000 | $19,531,000 |
| Cash Flow from Operations | $26,768,000 | $24,812,000 |
| Total Debt (Mortgage + Bank + Debentures) | $1,199,882,000 | $1,122,959,000* |
| Cash and Cash Equivalents | $18,726,000 | $9,628,000 |
| Debt to Total Market Cap | 52.5% | N/A |
*Note: Q1 1997 debt figure derived from balance sheet data; Q1 1998 includes $133M bank notes, $905M mortgages, and $161M debentures.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 21.6% to $61.2 million, driven by the addition of 1997 acquisition centers and a 1998 joint venture acquisition. Minimum and percentage rents rose $8.3 million.
- Acquisition Activity: On February 27, 1998, the Company acquired a portfolio of 12 regional malls through a 50/50 joint venture (SDG Macerich Properties, L.P.) for a total purchase price of $974.5 million (including $485 million assumed debt).
- Financing: To fund the acquisition, the Company issued $100 million in Series A Convertible Preferred Stock and $79.6 million in common stock. The unsecured credit facility was increased from $60 million to $150 million, with $133 million outstanding at quarter-end.
- Expenses: Interest expense increased $5.8 million to $20.6 million due to new debt issuances and acquisition activity. Shopping center expenses rose $3.0 million, primarily due to new properties.
- Accounting Change: The Company adopted EITF 97-11 effective March 19, 1998, requiring the expensing of internal acquisition costs rather than capitalization. This is expected to reduce 1998 net income by approximately $0.06 per share.
Guidance, Outlook, and Risks
- Outlook: Management anticipates cash from operations will fund operating expenses, debt service, and dividends. Future growth capital will be sourced from equity offerings and debt financings. The Company maintains a shelf registration for up to $500 million in securities, with approximately $371.3 million remaining available.
- Dividends: A dividend of $0.46 per share was declared for common shareholders and OP unit holders, payable June 4, 1998. A dividend of $0.179 per share was declared for Series A preferred stock.
- Risks and Contingencies:
- Tenant Bankruptcy: Montgomery Ward (11 stores in portfolio) filed for bankruptcy; potential store closures could reduce traffic and cash flow.
- Environmental: Remediation costs are being accrued for Perchloroethylene (PCE) at North Valley Plaza (sold in 1997) and Huntington Center. Asbestos reserves exist for Fresno Fashion Fair. Toluene was detected at Queens Center, though levels are below regulatory limits.
- Interest Rate: The Company has interest rate protection agreements on $65.1 million of floating-rate debt.
Investor Verification Checklist
- Verify the impact of the new EITF 97-11 accounting rule on future quarterly earnings (estimated $0.06/share reduction).
- Monitor the status of Montgomery Ward leases and potential vacancy rates in affected centers.
- Review the progress and cost estimates for environmental remediation at North Valley Plaza and Huntington Center.
- Assess the utilization of the remaining $371.3 million shelf registration for future acquisitions or debt paydown.
- Confirm the pro forma impact of the 12-mall joint venture acquisition on future Funds From Operations (FFO).