The Macerich Company — Q1 2016 10-Q
Business context and reporting period
For the three months ended March 31, 2016. Macerich is a REIT focused on owning, developing, redeveloping, managing and leasing U.S. shopping centers. At quarter-end, it had ownership interests in 59 centers totaling approximately 56 million square feet. The financial statements are unaudited.
Key financial metrics
| Metric | Q1 2016 | Q1 2015 / prior date |
|---|---|---|
| Total revenue | $256.0 million | $318.3 million |
| Net income attributable to Macerich | $420.9 million | $24.6 million |
| Diluted EPS | $2.76 | $0.15 |
| FFO attributable to common stockholders and unit holders, diluted | $141.0 million | $133.5 million |
| Operating cash flow | $107.8 million | $162.1 million |
| Cash and cash equivalents | $106.5 million | $86.5 million at Dec. 31, 2015 |
| Consolidated debt | $4.7 billion | $5.3 billion at Dec. 31, 2015 |
| Debt including pro rata share of unconsolidated joint ventures | $7.1 billion | Prior comparable value not stated |
Debt includes $3.9 billion of mortgage notes and $746.9 million of bank and other notes at quarter-end. The $1.5 billion revolving credit facility had $745 million drawn, at an average effective rate of 2.11%, and matures August 2018. Management reported compliance with applicable loan covenants. The filing does not provide a clear consolidated operating-margin measure.
Material changes versus the prior comparable period
- Revenue fell 19.6%, principally because interests in the PPR Portfolio, Arrowhead Towne Center and the MAC Heitman Portfolio shifted from consolidated properties to unconsolidated joint ventures. Same-center rental revenue increased $9.0 million.
- GAAP net income rose sharply, but was dominated by $434.5 million in net gains on asset sales or write-downs, chiefly gains from selling interests in the MAC Heitman Portfolio and Arrowhead Towne Center. Q1 2015 included a $22.1 million remeasurement gain.
- Diluted FFO increased 5.6% to $141.0 million. FFO excluding debt-extinguishment effects and prior-year takeover-offer costs was $144.6 million versus $144.9 million, a slight decline.
- Operating cash flow declined $54.3 million. Investing activities provided $358.4 million, including $600.7 million of asset-sale proceeds and $181.9 million of joint-venture distributions, partly offset by $350.7 million of joint-venture contributions. Financing activities used $446.3 million, including stock repurchases and dividends/distributions.
- Management’s same-center indicators showed tenant sales per square foot up to $625 from $607; occupancy down to 95.1% from 95.4%; and trailing-twelve-month releasing spreads of positive 15.4%.
Outlook, commentary, risks and unusual items
- Management expects operating expenses, debt service and dividends for the next 12 months to be met through operating cash flow, working capital and/or the revolving credit facility. It expects $300–$400 million in development, redevelopment, expansion and renovation spending over that period.
- Management expects positive releasing spreads for the remainder of 2016. Leases scheduled to expire represent 0.9 million square feet, or 10.3% of mall and freestanding-store GLA in the specified smaller-space category.
- Management expects maturities over the next 12 months, except Flagstaff Mall, to be refinanced, restructured, extended or paid from the credit line or cash. Flagstaff’s non-recourse mortgage was in maturity default; the company was negotiating with the servicer and anticipated transfer to the servicer or a receiver.
- Interest-rate exposure is material: a 1 percentage-point increase was estimated to reduce annual future earnings and cash flows by approximately $12.5 million, based on $1.2 billion of floating-rate debt.
- Other commitments included $62.8 million of construction obligations expected to be settled within 12 months and $61.0 million of letters of credit, which management did not expect to result in a liability. Certain joint-venture debt could become recourse; $5.0 million was potentially exposed, partially offset by a $2.5 million partner indemnity.
- Q1 included a $400 million accelerated share repurchase and $337.7 million of special dividends paid during the quarter. A further $400 million share repurchase was completed in April. Subsequent events also included the April sale of Capitola Mall for $93 million and declaration of a $0.68-per-share dividend payable in June.
- Forward-looking results are subject to retail and real-estate market conditions, tenant credit and closures, financing availability and cost, interest rates, development risks, and competition from other retail formats and technology. The filing reported no material change to previously disclosed risk factors and no material legal proceedings.
Important facts for investors to verify
- How much of the reported GAAP earnings reflects recurring property operations versus asset-sale gains, and how FFO compares with operating cash flow.
- Debt maturities, refinancing progress, remaining credit-line availability and exposure to floating-rate borrowing, including the Flagstaff Mall default.
- Whether same-center occupancy, tenant sales and positive releasing spreads persist, and how disposals and joint-venture structures affect reported revenue and cash distributions.
- Funding plans and expected returns for the $300–$400 million development and redevelopment program, and the effect of share repurchases and dividends on liquidity.
- Potential recourse obligations, construction commitments and contingent consideration, as well as the completed share repurchase and Capitola Mall sale after quarter-end.