MAC

Business Context and Reporting Period

Company: The Macerich Company (Macerich)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
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 December 31, 2009, the portfolio consisted of 86 centers (72 regional, 14 community) totaling approximately 75 million square feet of gross leasable area (GLA). The company operates through The Macerich Partnership, L.P.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased 8.5% to $805.7 million, driven by a 10.4% drop in rental revenue. This was primarily due to the impact of the Mervyn's bankruptcy (rejection of 22 leases), the sale of ownership interests in joint ventures (Queens Center, FlatIron Crossing), and lower occupancy and retail sales at "Same Centers."
• Net Income Volatility: While GAAP net income decreased, the decline was mitigated by a $161.9 million gain on the sale or write-down of assets in 2009, compared to a $30.9 million loss in 2008. This gain was largely attributable to the sale of ownership interests in Queens Center ($154.2 million gain) and FlatIron Crossing.
• Discontinued Operations: The company recorded a loss from discontinued operations of $35.6 million in 2009, a significant reversal from the $108.4 million income in 2008. The 2008 figure was heavily influenced by a $99.1 million gain from the "Rochester Redemption" transaction.
• Debt Reduction: Total indebtedness decreased significantly from $8.2 billion in 2008 to $5.83 billion in 2009. The company paid off its $446.3 million term loan and repurchased $89.1 million of convertible senior notes, utilizing proceeds from asset sales and a $383.4 million equity offering.
• FFO Decline: Funds From Operations (FFO) decreased 25.4% to $344.1 million, reflecting the operational headwinds from the economic downturn and the Mervyn's situation.

Guidance, Outlook, and Risks

• Capital Strategy: Management focused on liquidity preservation and balance sheet strength. In 2009, the company raised approximately $383.4 million via a common stock offering and over $434 million through joint venture transactions. Dividends were paid 90% in stock to conserve cash.
• Development Pipeline: Significant redevelopment costs were incurred for Northgate Mall ($66.5 million) and Santa Monica Place ($163.2 million). The company estimated an additional $114.3 million in costs for these projects in 2010.
• Key Risks:
  • Economic Conditions: Continued adverse economic conditions and constrained credit markets pose risks to tenant sales, occupancy, and the company's ability to refinance debt.
  • Tenant Concentration: The bankruptcy of Mervyn's left 14 former Mervyn's locations vacant as of year-end, creating uncertainty regarding future leasing and potential redevelopment costs.
  • Debt Maturities: Approximately $247.2 million of indebtedness matures in 2010. The company expects to refinance or extend these obligations, though market conditions remain a risk factor.
  • Environmental Liabilities: Potential costs associated with asbestos, underground storage tanks, and chlorinated hydrocarbons at various centers.

Investor Verification Checklist

• Debt Refinancing: Verify the company's ability to refinance the $247.2 million in debt maturing in 2010 given the tight credit markets.
• Mervyn's Vacancy: Monitor the leasing status of the 14 vacant former Mervyn's locations and the timeline for redevelopment or replacement tenants.
• Development Costs: Track the actual capital expenditures for Northgate Mall and Santa Monica Place against the estimated $114.3 million required in 2010.
• Occupancy Trends: Watch for further declines in regional mall occupancy rates, which fell to 91.3% in 2009.
• Dividend Policy: Confirm the sustainability of the dividend policy, noting the shift to 90% stock dividends to preserve cash flow.