The Macerich Company — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Macerich owns, leases, manages, and redevelops U.S. shopping centers. At quarter-end, its portfolio included 49 centers totaling approximately 48 million square feet of gross leasable area.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $216.1 million | $190.4 million |
| Net loss attributable to Macerich | $37.2 million | $63.6 million |
| Loss per diluted share | $0.17 | $0.40 |
| Net cash provided by operating activities | $65.4 million | $52.2 million |
| Cash, cash equivalents and restricted cash at quarter-end | $184.2 million | $1,151.1 million |
- Revenue increased 13.5%. Leasing revenue rose 13.3% to $203.4 million, reflecting stronger Same Center revenue, higher lease termination and percentage rent income, and lower bad-debt provisions. Total expenses were $229.1 million, compared with $236.5 million.
- The GAAP net loss attributable to the Company narrowed; the corresponding loss margin was approximately 17.2% of revenue, versus 33.4% a year earlier. These margins are calculated from reported revenue and attributable loss.
- FFO attributable to common stockholders and unit holders, excluding Chandler Freehold financing expense, was $112.4 million, up 48.7% from $75.6 million. FFO is a non-GAAP measure, not a substitute for GAAP earnings or operating cash flow.
- Investing activities provided $47.0 million, down from $73.7 million, primarily because asset-sale proceeds fell. Financing activities used $95.2 million, versus providing $542.5 million in Q1 2021, when substantial ATM equity proceeds were received.
- At March 31, total assets were $8.21 billion, total liabilities $5.11 billion, and total equity $3.10 billion. Mortgage notes payable were $4.41 billion; bank and other notes payable were $63.4 million. The Company reported $6.9 billion of total outstanding indebtedness on its stated pro rata basis, including joint-venture debt.
- The $525 million revolving facility had $76.0 million drawn and $448.7 million available. Cash and cash equivalents were $128.2 million. The Company reported compliance with applicable loan covenants.
Changes and notable items
- Leased occupancy rose to 91.3% from 88.5% at March 31, 2021. Comparable tenant sales for spaces under 10,000 square feet increased 14.5% year over year and 11.5% versus Q1 2019. Trailing-12-month tenant sales for those spaces reached $843 per square foot.
- The Company’s equity in unconsolidated joint ventures shifted from $1.9 million of income to a $29.1 million loss. This included Macerich’s $30.4 million share of an impairment at the MS Portfolio joint venture related to shorter estimated holding periods.
- Consolidated gain on sale or write-down of assets was $6.5 million, versus a $21.3 million loss. Q1 2022 included $15.1 million of land-sale gains; Q1 2021 included a $27.3 million Estrella Falls impairment.
- Interest expense was $51.9 million versus $53.9 million. Lower revolving-credit interest was partly offset by higher Chandler Freehold financing-arrangement expense, which rose to $8.0 million from $1.3 million.
- Cash distributions were $0.15 per common share for Q1. The Company declared another $0.15 per share for Q2, payable June 3, 2022.
Outlook, risks and commitments
- Management expects COVID-19, including potential new variants, to continue affecting 2022 results, including through occupancy below pre-pandemic levels and possible additional anchor closures. All centers were open, and government capacity restrictions had been essentially eliminated in its markets.
- Management expects positive 2022 cash flow after operating and leasing capital expenditures and dividends, excluding potential proceeds from dispositions, refinancings, or equity issuance. It expects any surplus to support deleveraging and development and redevelopment.
- The Company expected approximately $140 million of 2022 development, redevelopment, expansion, and renovation spending. One Westside’s Google-leased office space was expected to be completed in Q3 2022. Sears-related redevelopments were estimated to cost $130 million to $160 million at the Company’s pro rata share over several years.
- Management said it anticipates meeting liquidity needs for the next 12 months through operations, joint-venture distributions, working capital, and/or its credit line. It expects maturities over that period to be refinanced, restructured, extended, or paid with credit-line borrowings or cash; this is an expectation, not a guarantee.
- Interest-rate exposure is material: approximately $0.9 billion of floating-rate debt was outstanding on the stated basis. The Company estimated a 1 percentage-point rate increase would reduce annual earnings and cash flows by approximately $9 million. LIBOR transition and higher borrowing costs are additional risks.
- As subsequent events, Pacific View’s loan was refinanced in April 2022 with a $72 million fixed-rate loan at 5.29%; The Oaks loan was extended in May 2022 at 5.25%, with a $5 million paydown. Danbury Fair Mall’s loan was scheduled to mature July 1, 2022.
- Contingencies included $41.0 million of letters of credit, of which $40.7 million was secured by restricted cash, and $10.4 million of outstanding construction-agreement obligations. One joint venture had $50 million of debt that could become recourse if the venture could not discharge it. The Company reported no material legal proceedings and no material changes to its previously disclosed risk factors.
Important facts for investors to verify
- Progress on 2022 lease expirations: 56% of expiring leased space was executed or in documentation and another 35% was at the letter-of-intent stage; confirm execution, occupancy, and anchor-tenant developments.
- Ability to refinance or extend upcoming property debt maturities and the revolving facility, including the July 2022 Danbury Fair Mall maturity and April 2023 revolving-facility maturity.
- Effects of higher rates, floating-rate exposure, and LIBOR replacement on interest expense, liquidity, and joint-venture debt.
- Whether management’s positive-cash-flow expectation and planned redevelopment spending remain achievable, including project costs and funding availability.
- Impact of joint-venture impairments and other valuation assumptions, and the basis and comparability of reported FFO.