MAC

Business Context and Reporting Period

Company: The Macerich Company (Macerich)

Filing Type: Form 10-Q (Quarterly Report)

Reporting Period: Three months ended March 31, 2010

Business Overview: Macerich is a self-administered and self-managed Real Estate Investment Trust (REIT) engaged in the acquisition, ownership, development, redevelopment, management, and leasing of regional and community shopping centers. As of March 31, 2010, the Company owned or had an interest in 85 centers totaling approximately 74 million square feet of gross leasable area.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased 11.5% to $182.1 million. Rental revenue (minimum and percentage rents) dropped $21.0 million (16.7%), primarily due to the sale of interests in Joint Venture Centers (Queens Center and FlatIron Crossing) in late 2009, which are now accounted for under the equity method.
• Net Loss: The Company reported a net loss of $6.4 million attributable to common stockholders, compared to net income of $14.0 million in the prior year. This shift was driven by the absence of a $22.5 million gain on the early extinguishment of debt recorded in Q1 2009 and lower rental revenues.
• Expense Reduction: Interest expense decreased significantly by $14.5 million ($69.9 million to $55.4 million) due to debt paydowns and the removal of interest from sold joint venture properties. Operating expenses also declined by $8.6 million.
• Cash Flow Improvement: Net cash provided by operating activities more than doubled to $64.9 million, driven by changes in working capital (specifically accounts payable and accrued liabilities) despite the net loss.

Guidance, Outlook, and Risks

• Capital Markets & Liquidity: In a subsequent event (April 2010), the Company completed a common stock offering raising approximately $1.22 billion in net proceeds. These funds were used to pay down the $690 million line of credit in full, significantly improving liquidity.
• Development Pipeline: The Company expects to incur between $150 million and $200 million in the next year for development, redevelopment, and renovations. Major projects include Northgate Mall and Santa Monica Place.
• Economic Outlook: Management notes that adverse economic conditions and disruptions in credit markets continue to impact consumer spending and tenant performance. The spread between rents on executed leases and expiring leases was negative in Q1 2010.
• Debt Maturities: The Company expects all 2010 loan maturities to be refinanced, extended, or paid off using the line of credit or cash on hand. As of March 31, 2010, the Company was in compliance with all loan covenants.
• Dividends: On April 29, 2010, the Company declared a dividend of $0.50 per share, to be paid 100% in cash on June 8, 2010.

Investor Verification Checklist

• Debt Refinancing: Verify the Company's ability to refinance the significant volume of debt maturing in 2010 and 2011, particularly given the recent paydown of the line of credit.
• Occupancy Trends: Monitor vacancy rates and rent spreads, specifically regarding the 14 former Mervyn's stores that remain vacant as of March 31, 2010.
• Joint Venture Performance: Review the equity income from unconsolidated joint ventures (e.g., Queens Center, FlatIron Crossing) to ensure they are performing as expected post-sale.
• Capital Expenditures: Track progress and cost overruns on major redevelopment projects like Santa Monica Place, where an additional $74.1 million in costs were estimated for the remainder of 2010.
• Interest Rate Exposure: Assess the impact of interest rate fluctuations on the remaining floating-rate debt, although the Company utilizes swaps and caps to mitigate this risk.