Business Context and Reporting Period
Company: The Macerich Company (REIT)
Filing Type: Form 10-Q (Unaudited)
Period Ended: June 30, 2001
Business Overview: The Company acquires, owns, redevelops, manages, and leases regional and community shopping centers in the United States. As of June 30, 2001, it owned or had an interest in 51 centers (46 regional, 5 community) aggregating approximately 42 million square feet of gross leasable area. Operations are conducted through The Macerich Partnership, L.P. (Operating Partnership) and three management companies.
Key Financial Metrics
| Metric (in thousands) | Six Months Ended June 30, 2001 |
Six Months Ended June 30, 2000 |
|---|---|---|
| Total Revenues | $158,454 | $151,557 |
| Net Income | $22,907 | $23,218 |
| Net Income Available to Common Stockholders | $13,245 | $13,921 |
| Earnings Per Share (Basic) | $0.39 | $0.41 |
| Earnings Per Share (Diluted) | $0.39 | $0.41 |
| Funds From Operations (Diluted) | $76,812 | $76,050 |
| Net Cash Provided by Operating Activities | $54,310 | $48,662 |
| Total Assets | $2,321,909 | $2,337,242 |
| Total Liabilities | $1,627,587 | $1,607,134 |
| Total Debt (Including Joint Ventures) | $2,304,487 | N/A |
| Cash and Cash Equivalents | $27,364 | $36,273 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 4.6% to $158.5 million. Minimum and percentage rents rose 3.2% to $101.2 million, driven by Same Centers ($1.8M increase) and Redevelopment Centers ($1.3M increase). Tenant recoveries increased to $52.2 million.
- Expense Increases: Shopping center expenses rose to $52.0 million (from $48.1M) due to higher property taxes and recoverable expenses. Interest expense increased slightly to $55.5 million. Depreciation and amortization increased to $32.5 million, primarily due to Pacific View Mall.
- Net Income Decline: Net income available to common stockholders decreased 4.9% to $13.2 million. This was impacted by an extraordinary loss of $0.2 million on early extinguishment of debt and lower income from unconsolidated joint ventures ($12.7M vs $13.1M) due to debt restructuring costs.
- Cash Flow: Operating cash flow improved to $54.3 million. Investing cash outflows decreased significantly to $31.1 million (from $51.5M outflow in 2000) due to reduced improvements and renovations. Financing cash outflows decreased to $32.1 million (from $105.6M) due to refinancing activity.
- Debt Profile: Total outstanding loan indebtedness (including pro rata joint venture share) was $2.3 billion, representing a debt-to-total market capitalization ratio of approximately 63%.
Guidance, Outlook, Risks, and Unusual Items
- Capital Expenditure Outlook: Management expects to incur between $30.0 million and $75.0 million in 2001 for renovations and expansions. Tenant allowances and deferred charges are expected to remain at similar levels to the prior year.
- Liquidity Strategy: The Company intends to fund operations and dividends through cash generated from operations and working capital reserves. It maintains a $175 million unsecured line of credit (with $144 million outstanding as of June 30, 2001) and expects to access capital markets for major redevelopments.
- Accounting Changes:
- SAB 101: Implementation in 2000 deferred percentage rent recognition to the fourth quarter, impacting comparability.
- SFAS 133: Adoption on Jan 1, 2001, resulted in a $9.4 million transition adjustment to accumulated other comprehensive income related to treasury rate locks.
- Risks and Contingencies:
- Environmental: Perchloroethylene (PCE) contamination at a former joint venture property (North Valley Plaza) with a remaining reserve of $241,000. Asbestos remediation reserve at Fresno Fashion Fair stands at $2.7 million.
- Market Risk: Primary exposure is interest rate risk. A 1% increase in rates would decrease future earnings by approximately $3.7 million annually.
- Tenant Risk: Bankruptcy or closure of anchor tenants could adversely affect traffic and income.
- Dividends: On August 9, 2001, a dividend of $0.53 per share was declared for common stockholders and OP unit holders, payable September 10, 2001.
Investor Verification Checklist
- Debt Maturities: Verify the schedule of debt maturities, noting $17.5 million due in 2001 and $412.8 million due in 2002 (including joint venture pro-rata shares).
- Refinancing Activity: Confirm the terms of the Capitola Mall refinancing ($48.5M at 7.13% fixed) and the Pacific View construction loan conversion to permanent financing.
- Joint Venture Performance: Review the specific impact of the SDG Macerich Properties debt restructuring on equity income.
- Environmental Reserves: Monitor the adequacy of the $2.7 million asbestos reserve at Fresno Fashion Fair and the $241,000 PCE reserve.
- FFO vs. Net Income: Note the divergence between GAAP Net Income ($13.2M) and Funds From Operations ($76.8M) due to significant depreciation and amortization charges.