Business Context and Reporting Period
Company: The Macerich Company (REIT)
Reporting Period: Fiscal year ended December 31, 1996
Business Overview: The Company acquires, owns, redevelops, manages, and leases regional and community shopping centers. As of year-end, the portfolio consisted of 26 centers (23 regional, 3 community) totaling approximately 19.1 million square feet of gross leasable area (GLA). The Company operates through the Macerich Partnership, L.P., in which it held a 68% ownership interest following a 1996 equity offering.
Key Financial Metrics
| Metric | 1996 | 1995 | Change |
|---|---|---|---|
| Total Revenues | $155.1 million | $102.5 million | +51.3% |
| Net Income | $18.9 million | $11.3 million | +67.3% |
| Funds from Operations (FFO) | $62.4 million | $44.9 million | +39.0% |
| EBITDA | $101.9 million | $68.9 million | +48.0% |
| Cash Flow from Operations | $80.4 million | $48.2 million | +66.8% |
| Total Debt | $789.7 million | $509.3 million | +55.1% |
| Stockholders' Equity | $237.7 million | $158.3 million | +50.1% |
| Dividends per Share | $1.70 | $1.66 | +2.4% |
Note: Revenue and profit growth were primarily driven by seven major acquisitions completed in 1996.
Material Changes vs. Prior Period
- Acquisitions: The Company significantly expanded its portfolio in 1996, acquiring seven centers including Valley View Mall (Dallas), Rimrock Mall (Billings), Vintage Faire Mall (Modesto), Buenaventura Mall (Ventura), Fresno Fashion Fair (Fresno), Huntington Center (Huntington Beach), and Villa Marina Marketplace (Marina del Rey). These acquisitions added approximately 4.5 million square feet to the portfolio.
- Capital Structure: In late 1996, the Company sold 5.75 million shares of common stock, raising $122 million in net proceeds. These funds were used to repay debt, fund acquisitions, and increase the Company's ownership in the Operating Partnership to 68%.
- Debt Refinancing: The Company refinanced debt on several properties, including a $65.1 million loan at Queens Center (reducing the interest rate spread) and a $117 million package for Crossroads-OK, Greentree Mall, and Salisbury (fixed at 7.2%).
- Operating Expenses: Shopping center expenses rose to $50.8 million from $31.6 million, largely due to the inclusion of new acquisitions. Interest expense increased to $42.4 million from $25.5 million due to higher debt levels associated with acquisitions.
Outlook, Risks, and Contingencies
- Guidance: Management anticipates meeting short-term liquidity needs through operating cash flow and working capital reserves. Future growth capital is expected to come from a combination of equity offerings and debt financings. A new shelf registration for $500 million in securities was filed in February 1997 but was not yet effective.
- Environmental Contingencies: The Company has identified environmental issues at several properties, including asbestos, underground storage tanks, and chlorinated hydrocarbons (PCE).
- North Valley Plaza: PCE detected in groundwater; remediation scheduled for 1997. A $685,000 reserve exists.
- Queens Center: Toluene detected in groundwater; $150,000 reserve established.
- Fresno Fashion Fair: Asbestos detected in structural fireproofing; $3.3 million reserve established at acquisition.
- Huntington Center: PCE detected; $500,000 reserve established.
- Tenant Risks: The bankruptcy or closure of anchor tenants (e.g., Federated/Broadway Stores closures in 1995/1996) can adversely affect traffic and income. No single retailer accounted for more than 6.5% of annual base rents.
- Lease Expirations: Approximately 14.1% of leased GLA (for stores under 10,000 sq. ft.) is scheduled to expire in 1997.
Investor Verification Checklist
- Acquisition Integration: Verify the occupancy rates and rental rates of the seven 1996 acquisitions to ensure they meet projected performance targets.
- Debt Maturities: Review the schedule of debt maturities, noting the $60 million floating-rate loan on Valley View Mall maturing in October 1997 and the $57 million unsecured loan maturing in December 1997.
- Environmental Reserves: Monitor the adequacy of the $4.6 million+ in environmental reserves, particularly for the Fresno Fashion Fair asbestos abatement and North Valley Plaza remediation.
- Anchor Tenancy: Track the status of replacement tenants for closed anchor stores (e.g., Broadway at Panorama and Huntington Center) to mitigate traffic risks.
- FFO Sustainability: Confirm that the 39% increase in Funds from Operations is sustainable as the portfolio stabilizes post-acquisition.