Business Context and Reporting Period
Company: The Macerich Company (REIT)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Six months ended June 30, 2000
Business Overview: The Company acquires, owns, redevelops, manages, and leases regional and community shopping centers across the United States. Operations are conducted through The Macerich Partnership, L.P. (Operating Partnership) and three management companies. As of June 30, 2000, the portfolio included 47 regional and 5 community shopping centers aggregating approximately 42 million square feet of gross leasable area.
Key Financial Metrics
| Metric (in thousands) | Six Months Ended June 30, 2000 |
Six Months Ended June 30, 1999 |
|---|---|---|
| Total Revenues | $151,557 | $159,524 |
| Net Income | $23,218 | $26,724 |
| Net Income Available to Common Stockholders | $13,921 | $17,883 |
| Earnings Per Share (Basic) | $0.41 | $0.53 |
| Net Cash Provided by Operating Activities | $48,662 | $58,901 |
| Total Assets | $2,310,156 | $2,404,293 |
| Total Liabilities | $1,559,702 | $1,626,408 |
| Cash and Cash Equivalents | $34,954 | $40,455 |
| Total Debt (Including Pro Rata JV) | $2,231,566 | N/A |
Note: Total debt figure includes the Company's pro rata share of joint venture debt ($718.2 million) and wholly-owned debt ($1.51 billion).
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 5.0% to $151.6 million. Minimum and percentage rents dropped 10.1% primarily due to the contribution of Lakewood Mall and Stonewood Mall to the Pacific Premier Retail Trust (PPRT) joint venture in late 1999. Additionally, the adoption of SAB 101 deferred approximately $4.1 million of percentage rent revenue to the fourth quarter.
- Net Income Decrease: Net income available to common stockholders fell 22.1% to $13.9 million. This was driven by lower rental revenues, a $0.96 million cumulative effect of the change in accounting principle (SAB 101), and the absence of an extraordinary loss on debt extinguishment recorded in 1999.
- Operating Cash Flow: Cash provided by operating activities decreased 17.4% to $48.7 million, reflecting lower net operating income.
- Investing Activities: The Company generated $51.5 million in net cash from investing activities in 2000, a significant shift from the $192.6 million utilized in 1999. This change was due to large cash contributions to joint ventures in 1999 ($70.1 million) and a loan to affiliates ($81.3 million) which did not recur in 2000. Conversely, distributions from joint ventures increased significantly to $85.7 million in 2000.
- Debt and Liquidity: Total outstanding loan indebtedness was approximately $2.2 billion. The debt-to-total market capitalization ratio was approximately 65%. The Company maintained $35.0 million in cash and cash equivalents and had $29.4 million outstanding on a $150.0 million line of credit.
Guidance, Outlook, and Risks
- Acquisition Outlook: Management anticipates the pace of acquisitions will slow considerably in 2000 compared to 1999. Future growth depends on capital availability, interest rates, and suitable targets.
- Redevelopment: The Company is undertaking a $90 million redevelopment of Pacific View (formerly Buenaventura Mall), funded by a bank construction loan. Other centers under redevelopment include Crossroads Mall-Boulder and Parklane Mall.
- Accounting Changes: The adoption of SAB 101 will continue to defer percentage rent recognition to the fourth quarter, impacting interim earnings but not annual totals. The Company has not yet determined the implementation date or impact of SFAS 133/138 regarding derivative instruments.
- Risks and Contingencies:
- Anchor Tenants: Bankruptcy or closure of anchor tenants could adversely affect traffic and income.
- Environmental: Perchloroethylene (PCE) contamination was detected at a former joint venture property (North Valley Plaza); remediation costs are being shared. Asbestos was detected at Fresno Fashion Fair, with a $3.3 million reserve established for future removal.
- Interest Rate Risk: A 1% increase in interest rates on variable rate debt ($368.2 million) would decrease future earnings and cash flows by approximately $3.7 million annually.
- Dividends: A dividend of $0.51 per share was declared for common stockholders and OP unit holders on August 9, 2000, payable September 6, 2000.
Investor Verification Checklist
- SAB 101 Impact: Verify the specific timing and magnitude of percentage rent deferrals to the fourth quarter to understand the true annual revenue run-rate versus interim reporting.
- Joint Venture Distributions: Confirm the sustainability of the $85.7 million in distributions from joint ventures, which significantly boosted 2000 investing cash flow compared to 1999.
- Debt Maturities: Review the $305.3 million of debt maturing in 2001 for wholly-owned centers and the refinancing commitments (e.g., the $85 million floating rate debt refinancing at 7.70%).
- Redevelopment Costs: Monitor the $90 million Pacific View redevelopment budget and the drawdown status of the $89.2 million construction loan.
- Environmental Reserves: Assess the adequacy of the $2.759 million asbestos reserve at Fresno Fashion Fair and ongoing remediation costs at North Valley Plaza.