Business Context and Reporting Period
Company: The Macerich Company (Macerich)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 31, 1997
Business Overview: Macerich is a self-administered and self-managed Real Estate Investment Trust (REIT) engaged in the acquisition, ownership, redevelopment, management, and leasing of regional and community shopping centers. As of December 31, 1997, the Company owned or had an interest in 42 centers (38 regional, 4 community) aggregating approximately 33.1 million square feet of gross leasable area (GLA). The Company operates through The Macerich Partnership, L.P. (Operating Partnership).
Key Financial Metrics
| Metric | 1997 | 1996 |
|---|---|---|
| Total Revenues | $221.2 million | $155.1 million |
| Net Income | $22.0 million | $18.9 million |
| Funds From Operations (FFO) | $83.2 million | $62.4 million |
| EBITDA | $147.6 million | $101.9 million |
| Cash Flow from Operations | $78.5 million | $80.4 million |
| Total Assets | $1,505.0 million | $1,187.8 million |
| Total Debt (Mortgage & Notes) | $1,123.0 million | $789.2 million |
| Debt to Total Market Cap | 51.5% | N/A |
| Cash and Cash Equivalents | $25.2 million | $15.6 million |
| Dividends per Share | $1.78 | $1.70 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 43% to $221.2 million, driven primarily by acquisitions in 1996 and 1997. Minimum and percentage rents rose 44% to $151.5 million.
- Acquisitions: The Company acquired five properties in 1997: South Towne Center (Utah), Stonewood Mall (California), Manhattan Village (California, 10% JV), The Citadel (Colorado), and Great Falls Marketplace (Montana). These additions significantly expanded the portfolio's GLA.
- Debt Expansion: Total debt increased by approximately $334 million to $1.12 billion to fund acquisitions and refinance floating-rate debt. This included the issuance of $161.4 million in convertible subordinated debentures in mid-1997.
- Operating Expenses: Shopping center expenses increased to $70.9 million (from $50.8 million), largely due to the inclusion of new acquisition centers. General and administrative expenses rose to $2.8 million.
- Joint Venture Loss: Equity in income of unconsolidated joint ventures turned into a loss of $8.1 million in 1997 (compared to a $3.3 million gain in 1996), primarily due to a write-down and loss on the sale of North Valley Plaza.
Guidance, Outlook, Risks, and Unusual Items
Recent Developments and Outlook
- Major Acquisition (Post-Period): On February 27, 1998, the Company acquired the ERE Yarmouth portfolio (12 regional malls, 10.7 million sq. ft.) for $974.5 million via a 50/50 joint venture. Funding included $100 million in convertible preferred stock and $79.6 million in common stock.
- Capital Resources: The Company maintains a $150 million unsecured credit facility (expanded in Feb 1998) and a $500 million shelf registration for securities. Management anticipates using operations, equity, and debt to fund future growth and redevelopment.
- Year 2000 Compliance: The Company has completed software testing and modifications for Year 2000 compliance and does not expect significant operational impact.
Risks and Contingencies
- Tenant Bankruptcy: Montgomery Ward, an anchor tenant in 11 of the Company's centers, filed for bankruptcy in 1997. Closure of these stores could adversely affect customer traffic and income.
- Environmental Liabilities: The Company faces potential remediation costs for asbestos, underground storage tanks, and chlorinated hydrocarbons (PCE) at various centers. Reserves of approximately $1.2 million were established for known issues (e.g., North Valley Plaza, Fresno Fashion Fair, Huntington Center).
- Lease Expirations: Approximately 7.8% of leased GLA (for stores under 10,000 sq. ft.) is scheduled to expire in 1998.
Investor Verification Checklist
- Montgomery Ward Impact: Verify the status of Montgomery Ward leases in the 11 affected centers and any resulting vacancy or rent concessions.
- Environmental Reserves: Confirm the adequacy of reserves for remediation at North Valley Plaza, Fresno Fashion Fair, and Huntington Center, and monitor for additional undisclosed liabilities.
- Debt Maturity Profile: Review the maturity schedule of the $1.12 billion debt load, noting that $73.4 million is due in 1999 and $142.1 million in 2001.
- FFO vs. Net Income: Analyze the divergence between Net Income ($22.0M) and FFO ($83.2M) to understand the impact of depreciation and non-cash items on cash generation.
- Post-Period Leverage: Assess the impact of the February 1998 ERE Yarmouth acquisition on the Company's leverage ratios and liquidity position.