Business Context and Reporting Period
Company: The Macerich Company (REIT)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and nine months ended September 30, 2006
Business Overview: The Company acquires, owns, develops, redevelops, manages, and leases regional and community shopping centers. As of September 30, 2006, the portfolio included 73 regional centers, 18 community centers, and 2 development properties totaling approximately 79 million square feet of gross leasable area.
Key Financial Metrics
| Metric (in thousands) | 9 Months Ended Sep 30, 2006 | 9 Months Ended Sep 30, 2005 |
|---|---|---|
| Total Revenues | $626,404 | $530,909 |
| Net Income | $98,231 | $42,151 |
| Net Income Available to Common Stockholders | $80,092 | $28,954 |
| Diluted EPS (Common) | $1.13 | $0.49 |
| Funds From Operations (FFO) - Diluted | $262,031 | $234,110 |
| Cash Flow from Operating Activities | $138,905 | $184,978 |
| Total Assets | $7,280,523 | $7,178,944 |
| Total Liabilities | $5,140,851 | $5,732,806 |
| Cash and Cash Equivalents | $62,047 | $155,113 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 18.0% ($95.5 million) year-over-year, driven primarily by the 2005 acquisition of Wilmorite Properties and the 2006 acquisition of Valley River Center. Minimum rents increased by $53.1 million.
- Profitability: Net income available to common stockholders increased 176.6% to $80.1 million. This surge was significantly influenced by gains on the sale of assets classified as discontinued operations.
- Discontinued Operations: The Company recorded a $75.1 million gain from discontinued operations in the first nine months of 2006, compared to $4.7 million in 2005. This resulted from the sales of Scottsdale/101, Park Lane Mall, Holiday Village, Greeley Mall, and Great Falls Marketplace.
- Debt Structure: Total liabilities decreased by $592 million, primarily due to the payoff of a $619 million acquisition loan in January 2006 using proceeds from a stock offering. However, mortgage notes payable increased slightly due to new property acquisitions.
- Capital Expenditures: Cash used in investing activities increased to $184.5 million (from $95.3 million) due to the acquisition of Valley River Center and increased development/redevelopment spending, partially offset by $237.9 million in proceeds from asset sales.
Guidance, Outlook, and Risks
- Capital Strategy: The Company intends to fund future capital expenditures and growth through a combination of debt/equity financings, joint ventures, and the sale of non-core assets. Management expects to incur between $250 million and $350 million in 2006 for development, redevelopment, and renovations.
- Dividends: A dividend of $0.71 per share was declared on October 27, 2006, payable December 8, 2006. The Company maintains its REIT status, requiring the distribution of at least 90% of taxable income.
- Interest Rate Risk: The Company manages interest rate risk through a mix of fixed and floating rate debt and the use of interest rate swaps and caps. A 1% increase in interest rates is estimated to decrease future earnings and cash flows by approximately $12.2 million annually.
- Off-Balance Sheet Arrangements: The Company has recourse debt exposure of $10.2 million in certain joint ventures and is contingently liable for $6.0 million in letters of credit.
- Redevelopment Projects: Key projects include the Twenty-Ninth Street district in Boulder (opening phases in 2006/2007), Westside Pavilion in Los Angeles (completion Fall 2007), and SanTan Village in Gilbert, Arizona (opening phases Fall 2007).
Investor Verification Checklist
- Asset Sales Impact: Verify the sustainability of earnings by analyzing Net Income excluding the $75.1 million gain from discontinued operations.
- Debt Maturities: Review the schedule of long-term debt obligations, noting $810.7 million in principal and interest payments due within one year.
- Joint Venture Exposure: Assess the financial health of unconsolidated joint ventures, which represent a significant portion of the portfolio ($1.0 billion investment) and carry potential recourse debt risks.
- FFO vs. Net Income: Compare Funds From Operations ($262.0 million) to Net Income to understand core operating performance independent of depreciation and asset sale gains.
- Liquidity Position: Monitor the reduction in cash and cash equivalents from $155.1 million to $62.0 million and the utilization of the $1.5 billion revolving credit facility.