The Macerich Company — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Macerich is a REIT that owns, leases, manages, and redevelops U.S. shopping centers. Its portfolio comprised 50 properties totaling approximately 47 million square feet, including unconsolidated joint ventures. Financial statements are unaudited.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $212.4 million | $204.1 million | $427.2 million | $420.2 million |
| Net loss attributable to Macerich | $15.0 million | $15.4 million | $73.7 million | $52.6 million |
| Loss per common share, basic and diluted | $0.07 | $0.07 | $0.34 | $0.25 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $138.7 million | $115.4 million |
| FFO, excluding Chandler Freehold financing expense, diluted | $88.7 million | $102.9 million | $177.4 million | $215.2 million |
Q2 revenue increased 4.1% year over year; leasing revenue grew 2.2%. Q2 net loss narrowed by $0.4 million, while adjusted FFO fell 13.8%. For the first half, revenue rose 1.7%, but the attributable net loss widened by $21.1 million and adjusted FFO declined 17.6%. The six-month result included $68.8 million of equity losses from unconsolidated joint ventures, versus $22.7 million a year earlier, primarily reflecting write-downs and JV transition properties.
- Cash and liquidity: Cash and cash equivalents were $92.5 million at June 30; restricted cash was an additional $92.3 million. The $525 million revolving facility had $130.0 million drawn and $394.8 million available, and matures April 14, 2024. The company reported compliance with applicable loan covenants.
- Debt: Macerich reported $6.85 billion of total outstanding debt on a pro rata basis, including its share of joint-venture debt. Consolidated mortgage notes payable were $4.17 billion. The filing says most debt is fixed-rate, but refinancing and floating-rate exposures are increasing costs.
- Cash flows and distributions: First-half investing cash flow was positive $58.9 million, including $186.1 million of distributions from unconsolidated JVs; financing cash flow was negative $194.0 million. Dividends and distributions paid totaled $81.1 million. A $0.17-per-share third-quarter distribution was declared for payment September 8, 2023.
- Balance sheet: Total assets were $7.89 billion and total equity was $2.81 billion at June 30, down from $8.09 billion and $2.95 billion, respectively, at December 31, 2022.
Operating trends and changes
- Leased occupancy was 92.6%, versus 91.8% a year earlier and 92.2% at March 31, 2023. Comparable tenant sales for spaces under 10,000 square feet declined 4.3% in Q2 year over year; trailing-12-month comparable sales declined 1.6%.
- Trailing-12-month releasing spreads were positive 11.3%: average rent on new and renewal leases was $61.34 per square foot versus $55.12 on expiring leases. The company had executed renewals or commitments for 76% of 2023-expiring space not otherwise expected to close, with another 17% at letter-of-intent stage.
- Q2 FFO was pressured by lower JV contribution and other operating factors despite higher revenue. First-half leasing revenue was nearly flat: lower lease termination and percentage rent income offset growth in other revenue and contributions from recently consolidated former Sears parcels.
- On May 18, 2023, Macerich acquired the remaining interest in five former Sears parcels for $46.7 million and consolidated them. It sold The Marketplace at Flagstaff for $23.5 million, recording a $10.3 million gain, and used net proceeds to reduce debt.
Outlook, risks, and unusual items
- Management expects positive cash flow in 2023 after operating and leasing capital expenditures and dividends, excluding proceeds from asset sales, refinancings, or equity issuance. Any surplus is expected to fund development and redevelopment and, when available, reduce leverage.
- Management expects 2023 development, redevelopment, expansion, and renovation spending of approximately $150 million to $175 million. Santa Monica Place and Scottsdale Fashion Square projects are expected to open in 2024.
- The company expects to address maturities over the next 12 months through refinancing, restructuring, extension, its credit line, or cash, except for Towne Mall. Towne Mall’s loan was not repaid at maturity; the property has been transitioned to a receiver, though the company remains owner of record.
- A joint venture defaulted on the $295.2 million non-recourse Country Club Plaza loan on May 9, 2023; negotiations with the lender were ongoing. Macerich’s pro rata share was $147.6 million.
- Rising interest rates, inflation, weaker consumer or tenant conditions, refinancing availability and costs, and development costs pose risks. Management estimates a 1 percentage-point increase in rates would reduce annual earnings and cash flow by approximately $6.0 million on the stated floating-rate debt exposure.
- Letters of credit totaled $40.9 million, of which $40.7 million was secured by restricted cash; management did not expect them to result in a liability. Outstanding construction obligations were $8.4 million.
- After quarter-end, the company sold Superstition Springs Power Center for $5.6 million and used the net proceeds to pay down debt. Management reported effective disclosure controls and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Near-term refinancing and maturity plans, particularly the April 2024 revolving facility and the status of Towne Mall and Country Club Plaza.
- Whether operating cash flow and the revolving facility can support debt service, distributions, and planned capital spending as borrowing costs rise.
- Drivers and potential recurrence of JV impairment losses and the effect of consolidating the former Sears parcels on reported results.
- Whether occupancy, leasing spreads, and lease execution translate into sustained rent growth amid declining tenant sales.
- Actual 2023 redevelopment spending and cash generation relative to management’s expectations.