Business Context and Reporting Period
Company: The Macerich Company (REIT)
Filing Type: Form 10-Q (Unaudited)
Period Ended: June 30, 1999
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, 1999, the portfolio included 47 regional and 7 community shopping centers aggregating approximately 41 million square feet of gross leasable area.
Key Financial Metrics (Six Months Ended June 30, 1999)
| Metric | 1999 (in thousands) | 1998 (in thousands) |
|---|---|---|
| Total Revenues | $159,524 | $122,582 |
| Net Income | $26,724 | $16,896 |
| Net Income Available to Common Stockholders | $17,883 | $14,190 |
| Funds From Operations (FFO) - Diluted | $77,510 | $49,753 |
| Net Cash Provided by Operating Activities | $58,901 | $51,227 |
| Net Cash Used in Investing Activities | ($192,641) | ($393,858) |
| Net Cash Provided by Financing Activities | $133,207 | $413,843 |
| Total Assets | $2,466,670 | $2,322,056 |
| Total Liabilities | $1,743,269 | $1,579,119 |
| Total Debt (Including Pro Rata JV) | $2,200,000 (approx) | N/A |
| Cash and Cash Equivalents | $24,610 | $25,143 |
Note: Total debt figure includes pro rata share of joint venture debt as disclosed in Liquidity and Capital Resources.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 30% to $159.5 million, driven primarily by acquisitions in 1998 and 1999. Minimum and percentage rents rose 30% to $109.1 million. Tenant recoveries increased to $47.3 million.
- Expense Increases: Total expenses rose to $136.0 million. Interest expense increased significantly to $55.4 million (from $41.2 million) due to debt incurred for acquisitions. Shopping center expenses increased to $47.2 million.
- Profitability: Net income available to common stockholders increased 26% to $17.9 million. Diluted EPS was $0.53 for the six months ended June 30, 1999, compared to $0.49 in 1998.
- Acquisitions: Significant portfolio expansion occurred in 1999, including the acquisition of Los Cerritos Center ($188 million) and the first phase of a portfolio with Ontario Teachers' Pension Plan Board ($427 million). These are reflected in the equity income line item.
- Debt Structure: Total outstanding loan indebtedness (including pro rata joint venture debt) was approximately $2.2 billion, representing a debt-to-total market capitalization ratio of 61%.
Guidance, Outlook, Risks, and Unusual Items
- Outlook: Management anticipates meeting liquidity requirements through operating cash flow and working capital. Future growth is expected to be funded via equity offerings, debt financings, and joint ventures. A $90 million redevelopment of Pacific View is underway.
- Unusual Items: The Company recorded an extraordinary loss of $988,000 on the early extinguishment of debt in 1999 (compared to $90,000 in 1998).
- Accounting Changes: The Company adopted EITF 97-11, requiring the expensing of internal acquisition costs rather than capitalization, impacting general and administrative expenses. The Company also resumed accrual accounting for percentage rent effective January 1, 1999, following the reversal of EITF 98-9.
- Risks:
- Year 2000 Compliance: The Company is actively managing Y2K risks for IT and non-IT systems (elevators, security, energy management). While most critical systems are compliant, some upgrades are pending. Costs are not expected to be material.
- Market Risk: Primary exposure is interest rate risk. A 1% increase in rates would decrease future earnings by approximately $3.7 million annually.
- Environmental: Contingencies exist regarding soil/groundwater contamination (PCE at North Valley Plaza, Toluene at Queens Center, Asbestos at Fresno Fashion Fair). Reserves have been established, and remediation is ongoing.
Investor Verification Checklist
- Acquisition Integration: Verify the revenue contribution and occupancy rates of the 1998 and 1999 acquisition centers (SDG Macerich, Pacific Premier, Los Cerritos) to ensure they meet pro forma expectations.
- Debt Maturities: Review the schedule of debt maturities, specifically the $60 million variable rate debt maturing in 2000 and the $119.5 million credit facility, to assess refinancing risks.
- Year 2000 Status: Confirm the completion of remediation for the remaining 18% of critical operating systems where vendor information is pending.
- Environmental Reserves: Monitor the adequacy of reserves for the North Valley Plaza and Fresno Fashion Fair remediation projects against actual costs incurred.
- FFO vs. Net Income: Analyze the reconciliation between Net Income and Funds From Operations (FFO), noting the significant impact of depreciation and amortization adjustments.