Business Context and Reporting Period
Company: The Macerich Company (REIT)
Filing Type: Form 10-Q (Unaudited)
Period Ended: June 30, 2009
Business Overview: The Company acquires, owns, develops, redevelops, manages, and leases regional and community shopping centers. As of June 30, 2009, the portfolio included 92 centers (72 regional, 20 community) totaling approximately 76 million square feet of gross leasable area.
Key Financial Metrics
| Metric (in thousands) | Six Months Ended June 30, 2009 | Six Months Ended June 30, 2008 |
|---|---|---|
| Total Revenues | $416,693 | $434,321 |
| Net (Loss) Income | $(7,949) | $131,692 |
| Net (Loss) Income Attributable to Company | $(7,720) | $111,624 |
| Funds From Operations (FFO) - Diluted | $162,760 | $192,113 |
| Net Cash Provided by Operating Activities | $65,787 | $107,246 |
| Total Assets | $7,968,948 | $8,090,435 |
| Total Liabilities | $6,362,099 | $6,425,224 |
| Total Debt (Mortgage + Bank/Other Notes) | $5,957,140 | $5,940,418 |
| Cash and Cash Equivalents | $57,889 | $66,529 |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 4.1% year-over-year. Rental revenue dropped $10.2 million, primarily due to the Mervyn's bankruptcy (lease rejections) and lower occupancy in "Same Centers."
- Net Loss vs. Profit: The Company reported a net loss of $7.7 million for the six months ended June 30, 2009, compared to net income of $111.6 million in the prior year. The 2008 period included a $99.1 million gain from the "Rochester Redemption" classified as discontinued operations, which was absent in 2009.
- Asset Impairment: A significant loss of $24.8 million was recorded on the sale or write-down of assets, primarily a $26.0 million impairment charge related to five Mervyn's stores sold in July 2009 (subsequent event).
- Debt Repurchase: The Company repurchased $84.3 million of Senior Notes for $50.7 million, recording a gain on early extinguishment of debt of $29.6 million.
- FFO Decline: Diluted FFO decreased 15.3% to $162.8 million, driven by lower rental revenues and higher depreciation/amortization.
Guidance, Outlook, and Risks
- Liquidity Strategy: To preserve cash, the Company reduced its quarterly dividend to $0.60 per share, with 90% paid in stock and 10% in cash. This strategy is expected to continue to enhance financial flexibility.
- Capital Markets: Management notes that turmoil in capital and credit markets has limited access to financing. The Company relies on its $1.5 billion revolving line of credit (with $1.2 billion outstanding) and asset sales to fund operations and debt service.
- Debt Maturities: Approximately $55.6 million in loans (excluding extension options) mature in 2009. The Company expects to refinance, extend, or pay off these loans using its line of credit.
- Key Risks:
- Tenant Defaults: Continued economic weakness may lead to further tenant defaults, reducing cash flow.
- Refinancing Risk: Volatility in lending markets may force the Company to rely more heavily on variable-rate debt (line of credit), increasing exposure to interest rate fluctuations.
- Mervyn's Vacancies: The Company is actively seeking replacement tenants for vacant Mervyn's spaces; failure to lease these spaces will negatively impact future revenues.
Investor Verification Checklist
- Dividend Sustainability: Verify the Company's ability to maintain the $0.60 quarterly dividend given the shift to stock payments and reduced operating cash flow.
- Mervyn's Re-leasing: Monitor the pace of re-leasing the 22 rejected Mervyn's leases and the impact on occupancy rates and rental revenue.
- Debt Refinancing: Confirm the successful refinancing of the $55.6 million in 2009 maturities and the terms of new debt given current market conditions.
- Asset Sales: Track the execution of non-core asset sales (e.g., Mervyn's stores, Queens Center interest) to ensure proceeds are used to reduce high-cost debt.
- Interest Rate Exposure: Assess the impact of rising interest rates on the $1.9 billion of floating-rate debt, despite existing hedges.