MAC

Business Context and Reporting Period

Company: The Macerich Company (REIT)
Filing Type: Form 10-Q (Unaudited)
Period Ended: March 31, 2005
Business Overview: The Company acquires, owns, develops, redevelops, manages, and leases regional and community shopping centers. As of March 31, 2005, the portfolio included 62 regional centers, 18 community centers, and six development/redevelopment projects totaling approximately 63 million square feet of gross leasable area.

Key Financial Metrics

Note: Total Debt figure combines Consolidated Mortgage/Bank notes ($3,277,165) and Pro Rata Joint Venture debt ($1,202,402) as disclosed in Item 3.

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 22.1% to $151.4 million, driven by acquisitions in 2004 (Mall of Victor Valley, La Cumbre Plaza, Fiesta Mall) and redevelopment projects (Queens Center, La Encantada). Minimum and percentage rents rose 26.9%.
• Expense Increases: Interest expense increased 28.0% to $42.6 million due to higher borrowings on the line of credit and new debt for acquisitions. Operating expenses rose 23.0% to $47.8 million, largely due to new acquisitions and redevelopment costs.
• Joint Venture Income: Equity in income of unconsolidated joint ventures decreased 24.3% to $11.2 million, primarily due to increased depreciation and interest expense on floating rate debt within joint ventures.
• Cash Flow: Net cash provided by operating activities decreased 5.2% to $57.8 million. Net cash used in investing activities increased significantly to $77.2 million (from $55.5 million) due to joint venture acquisitions (Metrocenter, Kierland Commons) and contributions to NorthPark Center.

Guidance, Outlook, and Risks

Subsequent Events & Acquisitions:

• Wilmorite Acquisition (April 25, 2005): Completed acquisition of Wilmorite Properties for approximately $2.333 billion, adding 11 regional malls and 2 community centers (13.4 million sq. ft.). Financed via $879 million debt assumption, $234 million convertible preferred units, and new term/acquisition loans.
• Ridgmar Mall (April 8, 2005): Acquired 50% interest in Ridgmar Mall (Fort Worth, TX) for $71.1 million.

Capital Expenditures: Management expects to incur between $150 million and $200 million in 2005 for development, redevelopment, expansions, and renovations.

Risks and Contingencies:

• Interest Rate Risk: A 1% increase in interest rates would decrease future earnings and cash flows by approximately $14.5 million annually based on $1.4 billion of outstanding variable rate debt.
• REIT Qualification: Failure to qualify as a REIT would result in corporate taxation and disqualification for four subsequent years.
• Environmental: Ongoing remediation costs for Perchloroethylene (PCE) at North Valley Plaza (sold 1997) and asbestos at Fresno Fashion Fair.
• Joint Venture Control: Lack of control over cash distributions from certain joint ventures could jeopardize REIT qualification.

Investor Verification Checklist

• Wilmorite Integration: Verify the impact of the $2.3 billion Wilmorite acquisition on leverage ratios and future FFO, as this transaction closed after the reporting period.
• Debt Maturity Profile: Review the schedule of long-term debt obligations, noting $210 million due in 2005 and $234 million due in 2006 for consolidated centers.
• Variable Rate Exposure: Confirm the effectiveness of interest rate swaps and caps covering approximately $250 million of variable debt, leaving $1.4 billion exposed to rate fluctuations.
• Development Completion: Monitor the stabilization timeline for Queens Center and La Encantada, which were substantially complete but still impacting cash flows.
• Dividend Sustainability: Verify that FFO ($75.9 million diluted) continues to cover the quarterly dividend of $0.65 per share ($38.3 million total distribution).