The Macerich Company — Q1 2021 Form 10-Q
Business context and period. The unaudited quarter ended March 31, 2021. Macerich owns, develops, leases and manages U.S. shopping centers; its portfolio included 51 regional and community/power centers totaling approximately 50 million square feet. Comparisons below are with Q1 2020 unless noted. Dollar amounts are in U.S. dollars.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Total revenue | $190.4 million | $227.0 million; down 16.1% |
| Leasing revenue | $179.5 million | $210.7 million; down 14.8% |
| Net income (loss) attributable to Macerich | $(63.6) million; $(0.40) per diluted share | $7.5 million; $0.05 per diluted share |
| FFO attributable to common stockholders and unit holders, diluted, excluding Chandler Freehold financing expense | $75.6 million | $122.7 million; down 38.4% |
| Cash provided by operating activities | $52.2 million | $49.7 million |
| Cash, cash equivalents and restricted cash | $1,151.1 million | $482.7 million at December 31, 2020 |
| Total assets / total equity | $9.670 billion / $2.997 billion | $9.184 billion / $2.445 billion at December 31, 2020 |
Shopping center and operating expenses rose 7.7% to $76.2 million. Interest expense was $53.9 million versus $8.1 million, largely reflecting a $45.6 million year-over-year swing in Chandler Freehold financing-arrangement expense. The 2020 comparison included a $48.4 million fair-value-related interest benefit. The company recorded a net $21.3 million loss on asset sales or write-downs, including a $27.3 million impairment of Estrella Falls, partly offset by gains on the Paradise Valley Mall sale and land sales. The filing does not provide a directly comparable consolidated operating-margin measure.
Investing activities provided $73.7 million, compared with $41.4 million used in Q1 2020, primarily reflecting approximately $100.3 million of asset-sale proceeds. Financing activities provided $542.5 million, including $597.0 million net proceeds from common-stock offerings; dividends and distributions were $26.7 million.
At March 31, mortgage notes payable were $4.535 billion and bank and other notes payable were $1.479 billion. The company reported approximately $8.7 billion of total loan indebtedness on a pro rata basis, including its share of joint-venture debt. Consolidated cash and cash equivalents were $1.084 billion; restricted cash was $67.3 million. The existing $1.5 billion revolver was drawn by $1.48 billion, leaving $19.7 million available at quarter end. The company reported compliance with applicable loan covenants.
Material changes and operating indicators
- COVID-19-related rent abatements on 2020 rents totaled $28.9 million at Macerich’s share in Q1 2021. Including these abatements, leasing revenue including joint ventures at the company’s share declined approximately 17%; excluding them, it declined 8% year over year.
- Leased occupancy fell to 88.5% at March 31, 2021 from 93.1% a year earlier. Trailing-twelve-month releasing spreads were negative 2.1%.
- Comparable tenant sales in Q1 2021 were 2.0% below Q1 2019; excluding capacity-restricted food and beverage, they were 1.9% above Q1 2019. Arizona comparable sales were 7.2% above Q1 2019.
- Rent collections improved: approximately 95% of rents billed for Q1 2021 were collected. At March 31, $11.8 million of negotiated rent deferrals remained outstanding, most scheduled for repayment in 2021.
- On March 29, Macerich sold Paradise Valley Mall for $100 million, reinvesting for a 5% interest in the buyer joint venture; net proceeds were approximately $95.3 million. It also issued 45.99 million shares through ATM programs during the quarter, receiving $597.0 million net. Common shares outstanding increased from 149.8 million at year-end to 197.0 million at March 31.
Outlook, risks and contingencies
Management expected 2021 results to remain negatively affected by COVID-19, anchor closures and tenant bankruptcies, while noting easing restrictions, improving sales and leasing activity, and declining requests for rent relief. It anticipated positive cash flow after operating and leasing capital expenditures and dividends, excluding potential proceeds from asset sales, refinancings or equity issuance; management expected to use surplus cash to reduce leverage and fund development. No specific earnings or FFO guidance was provided.
On April 14, 2021, after quarter end, Macerich replaced its prior credit facility with a $700 million facility: a $525 million revolver maturing in 2023, with a one-year extension option, and a $175 million term loan maturing in 2024. It drew $495 million and repaid $985 million, including the $1.48 billion balance on the former revolver. The new facility is secured by mortgages on certain wholly owned assets and pledges of subsidiary equity interests.
Near-term risks include tenant distress, occupancy and rent collection, refinancing and capital-market access, floating-rate exposure, and execution and funding of redevelopment projects. A 1% increase in interest rates was estimated to reduce annual earnings and cash flows by approximately $17.9 million based on $1.8 billion of floating-rate debt. The company also disclosed that one joint venture had $50 million of debt that could become recourse if the venture cannot pay. Letters of credit totaled $40.9 million, of which $40.6 million was secured by restricted cash; management did not expect them to result in a liability. The company said it did not believe it was likely to collect its COVID-19 business-interruption insurance claims as of March 31. No material changes to previously disclosed risk factors and no material legal proceedings were reported.
Most important facts for investors to verify
- Whether occupancy, rent collections and leasing revenue continue to recover, and whether further abatements, bad debt or tenant failures emerge.
- Actual cash generation after capital spending and dividends, and whether debt maturities can be refinanced or repaid on acceptable terms under the post-quarter credit facility.
- The extent of further equity issuance and dilution under the ATM programs, and the use of proceeds to manage leverage.
- Assumptions underlying property impairment valuations and planned redevelopment costs, including One Westside and former Sears locations.
- Potential exposure from joint-venture debt, lease co-tenancy clauses, interest-rate changes and remaining deferred tenant payments.