The Macerich Company — Q1 2011 Form 10-Q
Business and period: Macerich is a U.S. REIT focused on owning, developing, redeveloping, managing and leasing shopping centers. For the three months ended March 31, 2011, it had interests in 85 regional and community centers totaling approximately 73 million square feet. Figures below are unaudited; dollar amounts are in millions unless stated otherwise.
Financial performance and position
| Metric | Q1 2011 | Q1 2010 / comparison |
|---|---|---|
| Total revenue | $191.1 | $182.1; up 4.9% |
| Net income (loss) attributable to the Company | $0.034 | $(6.357) |
| Basic and diluted EPS | $0.00 as displayed | $(0.08) |
| FFO, diluted | $73.7 | $71.6; up 2.9% |
| Cash from operating activities | $41.5 | $64.9 |
| Cash and cash equivalents at period end | $188.0 | $445.6 at December 31, 2010 |
| Consolidated mortgage debt | $3,189.7 | $3,259.5 at December 31, 2010 |
| Bank and other notes payable | $635.0 | $632.6 at December 31, 2010 |
- Rental revenue (minimum and percentage rents) increased 7.2%, primarily reflecting redevelopment centers, higher same-center occupancy and increased lease-termination income. Management said occupancy and tenant sales per square foot improved year over year.
- Operating expenses rose: shopping-center expenses increased 3.2%, management-company operating expenses increased $3.7 million, and depreciation and amortization increased $5.4 million. Interest expense declined $3.4 million.
- Equity income from unconsolidated joint ventures rose to $30.3 million from $16.5 million. The increase primarily included Macerich’s $12.5 million share of a Kierland Commons remeasurement gain. A $9.1 million loss on early debt extinguishment, including a $9.0 million prepayment penalty, partly offset the improvement. FFO is a non-GAAP supplemental measure, not cash flow or a substitute for GAAP income.
- Net investing cash outflow was $73.3 million; net financing cash outflow was $225.8 million. Cash fell by $257.6 million in the quarter, reflecting debt repayments, distributions and investment activity. The $73.1 million of dividends and distributions was funded by $41.5 million of operating cash and $31.6 million of joint-venture distributions.
- Total outstanding indebtedness was approximately $6.0 billion, including $2.2 billion representing Macerich’s pro rata share of joint-venture debt. Management reported compliance with applicable loan covenants at quarter end.
Changes, outlook and risks
- During the quarter, Macerich increased its Kierland Commons ownership from 24.5% to 50%, acquired a 50% joint-venture interest in The Shops at Atlas Park, and acquired the remaining 50% of Desert Sky Mall. Desert Sky Mall became consolidated.
- Management expected to spend $100 million to $200 million over the next 12 months on development, redevelopment, expansion and renovations. It expected 2011 debt maturities, approximately $270.5 million at its pro rata share excluding specified extensions and refinancing transactions, to be refinanced, extended or paid from cash or its credit line, except the non-recourse Valley View Center loan.
- On May 2, 2011, after quarter end, the Company obtained a new $1.5 billion revolving credit facility maturing in 2015, with a one-year extension option and a current leverage-based borrowing spread of LIBOR plus 2.0%. This replaced the prior facility that matured April 25; the new facility’s stated spread range is higher.
- Management described economic conditions as improving but still weak, with persistent unemployment and retail rents and valuations below pre-recession levels. Reduced tenant performance could weaken operating cash flow, increase reliance on credit and raise floating-rate exposure. A 1% rise in interest rates was estimated to reduce annual earnings and cash flows by approximately $10.1 million on $1.0 billion of floating-rate debt.
- Joint-venture debt of $347.0 million could become recourse to the Company in specified circumstances, partly offset by a $161.6 million partner indemnity. Valley View Center remained under a court-appointed receiver; its non-recourse loan was expected to be resolved through a transfer or similar disposition. Eight former Mervyn’s stores remained vacant.
- Subsequent events included a deed-in-lieu transfer of Granite Run Mall by a joint venture, a declared $0.50-per-share cash distribution, and a $28.5 million purchase of a Kohl’s store at Capitola Mall. The filing also disclosed a putative wage-and-hour class action, which the Company denied and was defending; it reported no material legal proceedings and no material change to previously disclosed risk factors.
Important facts for investors to verify
- How much of the near-break-even GAAP result and increased JV income reflects nonrecurring remeasurement gains, versus ongoing property operations.
- Progress on 2011 debt maturities, the 2012 Senior Notes maturity, and utilization and terms of the replacement revolving facility.
- Cash availability and funding plans for distributions, planned capital spending and joint-venture commitments.
- Potential exposure from joint-venture guarantees and indemnities, and the timing and financial effect of the Valley View Center resolution.
- Whether improved occupancy and tenant sales continue amid the economic and retail-market risks described by management.