MACERICH CO annual report, FY2022

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Business context and reporting period

The Macerich Company (NYSE: MAC) filed this Form 10-K for the fiscal year ended December 31, 2022. It is a self-managed REIT focused on owning, leasing, managing, developing and redeveloping U.S. shopping centers. At year-end, it owned or held interests in 51 properties totaling approximately 47 million square feet, including 44 regional town centers. The filing provides annual results; it does not provide a clear standalone fourth-quarter income statement summary.

Financial and operating performance

  • Revenue: $859.2 million, up 1.4% from $847.4 million in 2021. Leasing revenue rose 1.7% to $800.5 million.
  • Profit: Net loss attributable to the Company was $66.1 million, compared with net income of $14.3 million in 2021. Diluted loss per share was $0.31, versus earnings of $0.07. Results included higher financing-arrangement expense and lower gains on asset sales and write-downs.
  • FFO: The company-defined diluted FFO measure excluding Chandler Freehold financing expense and debt-extinguishment loss increased 3.4% to $437.5 million from $423.2 million. FFO is a non-GAAP supplemental measure, not cash flow.
  • Cash flow: Cash from operations was $337.5 million, up from $286.4 million. Investing activities used $1.4 million, versus $235.0 million provided in 2021, mainly reflecting lower asset-sale proceeds. Financing activities used $321.9 million, versus $837.0 million used in 2021. Cash and cash equivalents were $100.3 million; including restricted cash, year-end cash was $181.1 million.
  • Debt and liquidity: Total debt on the company’s pro rata basis was $6.81 billion: $4.40 billion consolidated debt, less $0.41 billion attributable to noncontrolling interests, plus $2.82 billion of pro rata joint-venture debt. The revolving facility had $353.8 million available at year-end; the company reported covenant compliance. A 1 percentage-point increase in rates was estimated to reduce annual earnings and cash flows by approximately $7.9 million.
  • Leasing and occupancy: Portfolio leased occupancy was 92.6%, up from 91.5% at year-end 2021. Comparable tenant sales for spaces under 10,000 square feet increased 2.8% year over year; releasing spreads were positive 4%.
  • Capital spending and distributions: Pro rata capital expenditures and leasing costs were $241.1 million in 2022. The company expects approximately $150 million of development, redevelopment, expansion and renovation spending in 2023. It paid $0.62 per common share in 2022 and announced a $0.17 first-quarter 2023 dividend.

Material changes versus 2021

  • Revenue increased modestly, but net income attributable to the Company swung to a loss. Adjusted diluted FFO increased, while GAAP earnings were affected by higher financing-arrangement expense and much lower asset-sale gains.
  • Interest expense increased $24.2 million, including a $38.5 million increase related to the financing arrangement, partly offset by lower line-of-credit expense.
  • Cash from operations improved, while investing cash flow shifted from a large inflow to a slight outflow as asset-sale proceeds fell. The company issued no shares under its remaining ATM program in 2022; it had issued approximately 62.0 million shares for $830.2 million net proceeds in 2021.
  • The company acquired the remaining interests in two former Sears parcels for $24.5 million and consolidated them. Land sales generated $60.3 million of proceeds at the company’s share, with a $23.9 million share of gains.

Outlook, risks and unusual items

  • Management expects positive 2023 operating cash flow after recurring operating and leasing capital expenditures and dividends, with any surplus directed to debt reduction and the development pipeline. This expectation excludes proceeds from dispositions, refinancings or equity issuance.
  • Management reported 3.8 million square feet of leasing in 2022, described as the strongest comparable-center leasing volume since before the 2009 financial crisis. For 2023 expirations in smaller mall and freestanding spaces, 52% of leased space had executed leases or commitments in documentation and another 27% was at the letter-of-intent stage at year-end.
  • The company expects inflation, higher interest rates and possible economic slowdown or recession to pressure operating costs, tenant health, borrowing costs and 2023 results. Other key risks include retailer bankruptcies and closures, online competition, geographically concentrated properties, refinancing availability, floating-rate exposure, redevelopment execution, natural disasters, environmental liabilities and possible future pandemic impacts.
  • Debt and refinancing: The company did not repay the Towne Mall mortgage at its November 2022 maturity and began transitioning the property to a loan receiver. Subsequent to year-end, it refinanced Green Acres Mall and Green Acres Commons with a $370 million, five-year, 5.90% fixed-rate interest-only loan, and extended Fashion District Philadelphia’s loan to January 2024 after a $26.1 million repayment. A proposed $700 million Scottsdale Fashion Square refinancing remained subject to final documentation and closing conditions.
  • 2023 maturities and extensions remain important: management expected maturities to be refinanced, restructured, extended or paid from the credit facility or cash, except Towne Mall. The revolving facility was scheduled to mature in April 2023, with a one-year extension option.
  • Auditors issued an unqualified opinion on the financial statements and reported effective internal control over financial reporting. Critical audit matters included property holding-period assessments and valuation of the Chandler Freehold financing-arrangement obligation.

Most important facts for investors to verify

  • Progress and final terms for the Scottsdale Fashion Square refinancing, and the status and financial consequences of the Towne Mall receiver process.
  • The timing, terms and available capacity of the credit facility after its April 2023 maturity date, alongside other upcoming property-level maturities.
  • Whether occupancy, leasing spreads, tenant sales and rent collections remain resilient, particularly as 2023 leases expire and economic conditions evolve.
  • Actual cash flow after recurring and redevelopment spending, dividend payments and debt service, compared with management’s 2023 surplus expectation.
  • The assumptions behind property impairment testing and the fair value of the Chandler Freehold financing obligation, which materially affected reported earnings.