The Macerich Company — Q2 2013 Form 10-Q
Reporting period: Three and six months ended June 30, 2013; unaudited. Macerich owns, develops, manages and leases U.S. shopping centers. At quarter-end, its portfolio comprised 68 centers totaling approximately 61 million square feet.
Key financial metrics
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Total revenue | $257.0 million | $195.7 million | $511.2 million | $394.0 million |
| Income from continuing operations | $90.9 million | $10.7 million | $109.9 million | $52.6 million |
| Net income attributable to Macerich | $219.0 million | $133.4 million | $237.1 million | $119.3 million |
| Diluted EPS | $1.57 | $1.00 | $1.71 | $0.90 |
| FFO, diluted | $130.4 million | $226.2 million | $257.4 million | $332.4 million |
| Cash from operations | Not presented quarterly | $182.8 million | $144.6 million |
Amounts are in U.S. dollars. Q2 revenues rose about 31%; first-half revenues rose about 30%. Revenue growth primarily reflected acquired properties. Net income includes substantial gains from asset sales, while FFO declined; neither net income nor EPS alone reflects recurring operating performance.
Balance sheet, debt and liquidity
- At June 30, total assets were $9.55 billion, total liabilities $5.87 billion and total equity $3.68 billion. Cash and cash equivalents were $46.9 million; restricted cash was $72.3 million.
- Consolidated mortgage debt was $4.62 billion and bank and other notes payable were $566.9 million. Management reported total loan indebtedness of approximately $6.5 billion, including its pro rata share of unconsolidated joint-venture debt.
- First-half investing cash flow was an outflow of $120.5 million, including acquisitions; financing cash flow was an outflow of $81.2 million. Cash declined $18.9 million from year-end 2012.
- The $1.5 billion revolving credit facility had $405 million drawn at June 30. On August 6, 2013, it was amended and extended to August 2023? Correction: August 6, 2018, with pricing of LIBOR plus 1.375%–2.0%; the rate at amendment was LIBOR plus 1.50%. The facility may be expanded to $2.0 billion, subject to conditions.
- Management said it expected maturities over the next 12 months to be refinanced, restructured, extended or paid from the line of credit or cash. The company reported compliance with loan covenants.
Material changes and operating trends
- Q2 equity income from unconsolidated joint ventures increased to $92.2 million from $18.7 million, primarily due to Macerich’s share of gains on sales of Redmond Town Center Office and Kitsap Mall. First-half equity income was $110.3 million versus $49.3 million.
- Q2 discontinued-operations income was $143.9 million, including gains on the Green Tree Mall sale and the combined Northridge and Rimrock Mall sale. First-half discontinued-operations income was $147.4 million.
- Acquisitions included Green Acres Mall for $500 million and adjacent land for $22.6 million. The company sold Green Tree Mall, Northridge Mall and Rimrock Mall; proceeds were used primarily to reduce the line of credit. Green Acres generated $29.7 million of incremental revenue and a $1.3 million incremental loss from acquisition through June 30.
- Same-center rental revenue increased $3.9 million in Q2 and $5.0 million in the first half. The company’s reported tenant sales per square foot rose to $545 from $513; occupancy increased to 93.8% from 92.7%; and trailing-12-month releasing spreads were positive 14.2%.
- Interest expense increased $11.1 million in Q2 and $22.3 million in the first half, mainly reflecting acquired properties and, for the half year, line-of-credit borrowings. Depreciation and amortization also increased with acquisitions.
Outlook, risks and unusual items
- Management expected $200 million–$300 million of development, redevelopment, expansion and renovation spending over the next 12 months. Fashion Outlets of Chicago opened August 1, 2013; the project’s estimated total cost was approximately $211 million. Tysons Corner expansion was expected to complete in 2014, with estimated total cost of $512.4 million.
- Management anticipated positive releasing spreads for the remainder of 2013. It cited continuing improvement in retail sales and operating results, while warning that economic and political uncertainty, weaker economic growth, tenant defaults and restricted capital-market access could adversely affect results, liquidity and financing costs.
- A 1% increase in interest rates was estimated to reduce annual earnings and cash flows by approximately $12.2 million on $1.2 billion of floating-rate debt. The company stated that most property mortgages are fixed-rate and non-recourse, but some joint-venture debt could become recourse.
- Subsequent events: a joint venture sold Redmond Town Center on August 1 for $127 million; Tysons Corner’s joint venture received a refinancing commitment on August 5, expected to generate approximately $550 million of excess proceeds, with Macerich’s share expected to reduce its line borrowings. On August 7, the company announced a $0.58 per-share cash distribution.
- The company was negotiating with the Fiesta Mall loan servicer, a process management said would likely result in transfer of the property to the servicer or a receiver. It reported no material legal proceedings and no material changes to previously disclosed risk factors.
Most important facts for investors to verify
- How much of reported earnings came from property-sale and joint-venture gains, and how recurring FFO and same-center performance are trending.
- Whether expected refinancing, extension and payoff plans for near-term maturities are completed on acceptable terms.
- Acquisition and redevelopment returns, including Green Acres Mall’s operating contribution and planned capital spending.
- Exposure to floating interest rates, joint-venture guarantees, and the availability and cost of future debt or equity financing.
- Whether occupancy, tenant sales and releasing spreads remain strong, and whether the announced cash distribution is supported by ongoing cash generation.