Business Context and Reporting Period
Company: The Macerich Company (REIT)
Filing Type: Form 10-Q
Reporting Period: Three months ended March 31, 2006
Business Overview: The Company acquires, owns, develops, redevelops, manages, and leases regional and community shopping centers. As of March 31, 2006, the portfolio included 76 regional centers, 20 community centers, and 2 development properties totaling approximately 80 million square feet of gross leasable area.
Key Financial Metrics
| Metric (in thousands) | Q1 2006 | Q1 2005 |
|---|---|---|
| Total Revenues | $212,656 | $149,173 |
| Net Income | $13,423 | $20,498 |
| Net Income Available to Common Stockholders | $7,453 | $18,140 |
| Diluted EPS (Common) | $0.11 | $0.30 |
| Funds From Operations (FFO) - Diluted | $90,113 | $75,954 |
| Net Cash Provided by Operating Activities | $51,591 | $60,053 |
| Total Debt (Mortgage + Bank Notes) | $4,862,398 | $5,424,730 |
| Cash and Cash Equivalents | $66,808 | $53,088 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 42.5% to $212.7 million, driven primarily by the 2005 acquisition of Wilmorite Properties (adding $33.9 million in rent) and the February 2006 acquisition of Valley River Center.
- Net Income Decline: Net income available to common stockholders decreased 58.9% to $7.5 million. This decline is primarily due to a $1.8 million loss on the early extinguishment of debt and increased interest expense ($29.2 million increase) associated with new acquisitions and higher rates on floating debt.
- FFO Increase: Despite lower net income, FFO-diluted increased 18.6% to $90.1 million, reflecting the accretive nature of the acquisitions when excluding non-cash depreciation and one-time debt costs.
- Debt Reduction: Total consolidated debt decreased by approximately $562 million, largely due to the payoff of a $619 million acquisition loan using proceeds from a January 2006 common stock offering.
Guidance, Outlook, and Risks
- Capital Expenditures: Management expects to incur between $250 million and $350 million in 2006 for development, redevelopment, expansions, and renovations.
- Acquisitions: On May 3, 2006, the Company executed an agreement to acquire 11 department stores from Federated Department Stores, Inc., expected to close in July 2006.
- Dividends: A dividend of $0.68 per share was declared for common stockholders and OP unit holders, payable June 9, 2006.
- Interest Rate Risk: The Company manages interest rate risk through swaps and caps. A 1% increase in interest rates on outstanding floating rate debt ($1.8 billion) would decrease future earnings and cash flows by approximately $18.4 million annually.
- Accounting Changes: The Company adopted SFAS No. 123(R) effective January 1, 2006, requiring share-based payments to be recognized as compensation expense, impacting operating expenses.
Investor Verification Checklist
- Debt Maturities: Verify the schedule of long-term debt maturities, noting $616 million due within one year (including interest).
- Acquisition Integration: Monitor the performance of the Wilmorite portfolio and the newly acquired Valley River Center to ensure projected rent growth materializes.
- Interest Rate Exposure: Review the effectiveness of interest rate swaps and caps given the $1.6 billion in floating-rate consolidated debt.
- Capital Allocation: Track the use of the $746.5 million raised in the January 2006 stock offering against the planned $250-$350 million capital expenditure budget.
- Dividend Coverage: Confirm that FFO continues to cover the quarterly dividend requirement of $0.68 per share.