The Macerich Company — FY 2015 Form 10-K
Reporting period: Year ended December 31, 2015; filed February 23, 2016. This is an annual filing, not a standalone fourth-quarter report. Macerich is a self-managed REIT focused on owning, operating, leasing, developing and redeveloping U.S. shopping centers. At year-end, its portfolio comprised 58 centers and approximately 55 million square feet of GLA, including joint ventures.
Financial and operating performance
| Metric | FY 2015 | FY 2014 | Change / context |
|---|---|---|---|
| Total revenue | $1.288 billion | $1.105 billion | Up 16.6% |
| Net income attributable to Macerich | $487.6 million | $1.499 billion | Down; 2014 included a $1.423 billion remeasurement gain |
| Diluted EPS | $3.08 | $10.45 | GAAP earnings were materially affected by the prior-year remeasurement gain |
| Diluted FFO | $642.3 million | $542.8 million | Up 18.3%; supplemental, non-GAAP measure |
| Cash from operating activities | $540.4 million | $400.7 million | Up $139.7 million |
| Cash used in investing activities | $101.0 million | $255.8 million | Lower outflow, reflecting higher asset-sale proceeds |
| Cash used in financing activities | $437.8 million | $129.7 million | Higher outflow, including debt payments, dividends and share repurchases |
| Cash and cash equivalents | $86.5 million | $84.9 million | At December 31 |
| Consolidated mortgage and notes payable | $5.284 billion | $6.292 billion | At December 31; company-reported total loan indebtedness including its share of joint-venture debt was approximately $7.0 billion |
Operating indicators improved: comparable reported portfolio occupancy rose to 96.1% from 95.8%, and regional-center tenant sales per square foot increased to $635 from $587. Releasing spreads were positive at 14.2% ($57.41 per square foot on new and renewal leases versus $50.29 on expiring leases). These metrics exclude redevelopment centers and, for 2015, Flagstaff Mall.
Reported total revenue growth partly reflects changes in portfolio ownership and consolidation, notably the PPR portfolio. Management attributed much of the rental-revenue increase to joint-venture centers rather than same-center growth; same-center rental revenue increased only $0.3 million. Shopping-center operating expenses rose 7.4% to $379.8 million, depreciation and amortization rose to $464.5 million, and interest expense rose to $211.9 million. No clear consolidated operating-margin figure is provided in the filing text.
Material changes and significant transactions
- Macerich sold a 40% interest in the four-property PPR portfolio for approximately $1.259 billion, including $545.6 million cash and the buyer’s assumption of $713.0 million of proportional mortgage debt. The transaction generated a $311.2 million gain.
- It sold Panorama Mall for $98.0 million, recognizing a $73.7 million gain, and acquired the remaining 50% interest in Inland Center, recognizing a $22.1 million remeasurement gain.
- The company invested $150 million in a 50/50 joint venture with Sears for nine freestanding stores.
- In 2015, the company repurchased $400 million of stock under an accelerated share repurchase program; the program was completed in January 2016 for 5.11 million shares at an average $78.26 per share. A further $400 million ASR was entered into in February 2016.
- Two special distributions of $2.00 per share were declared in October 2015. One was paid in December 2015 and the other in January 2016. Total 2015 cash dividends and distributions were $787.1 million, including the first special distribution and the accrued second payment.
- The board rejected two unsolicited Simon Property Group acquisition proposals, concluding they substantially undervalued the company. Macerich recorded $25.2 million of related costs.
Liquidity, outlook and risks
Management expected to meet operating, debt-service and dividend needs for the next 12 months through operating cash flow, working capital and/or its unsecured credit line. The $1.5 billion revolving facility matures in August 2018; borrowings were $650 million at year-end, at an average effective rate of 1.95%. The company reported compliance with applicable loan covenants. It expected to refinance, restructure, extend or repay near-term maturities, except the Flagstaff Mall loan. Management forecast $300–$400 million of development, redevelopment, expansion and renovation spending over the following 12 months, with funding expected from debt or equity financing and construction loans. It also expected positive releasing spreads in 2016; these are expectations, not guarantees.
Flagstaff Mall’s $37 million nonrecourse mortgage went into maturity default on November 1, 2015. Management was negotiating with the servicer and anticipated transfer of the property to the servicer or a receiver; Flagstaff was excluded from certain 2015 operating metrics. Great Northern Mall had been conveyed to its lender in June 2015 under a nonrecourse deed-in-lieu of foreclosure.
Key risks include the company’s substantial debt and refinancing needs, floating-rate exposure, tenant and anchor closures or bankruptcies, e-commerce and competition, geographic concentration in California and Arizona, development and redevelopment execution, joint-venture control and funding obligations, environmental liabilities, and natural-disaster and insurance limitations. A 1% rise in interest rates was estimated to reduce annual earnings and cash flow by approximately $11.5 million, based on $1.2 billion of floating-rate debt. The filing reports $62.8 million of letters of credit, which management did not expect to result in a liability, and $5.0 million of joint-venture debt that could become recourse, partly offset by a $2.5 million partner indemnity.
Three major projects were underway: Broadway Plaza’s expansion, estimated at $270 million total cost and targeted for completion in phases through summer 2018; Green Acres Mall’s 335,000-square-foot power-center expansion, estimated at approximately $110 million and expected to finish in late 2016; and Fashion Outlets of Philadelphia redevelopment, estimated at $275–$335 million and expected to finish in 2018–2019. Subsequent events included a proposed 50/50 joint venture to acquire Country Club Plaza for $660 million, with Macerich’s expected share of $330 million funded by its credit line, and sales of interests in Arrowhead Towne Center and the MAC Heitman portfolio.
Most important facts for investors to verify
- Underlying same-center rent and cash-flow growth, distinct from acquisition, disposition, consolidation and joint-venture effects.
- Debt maturities, refinancing terms, revolver availability, covenant headroom and the company’s total debt exposure including proportional joint-venture borrowings.
- Whether the Flagstaff Mall default results in a property transfer and any related financial or operational effects.
- Actual project costs, leasing progress and completion timing for major redevelopment and expansion projects.
- Cash funding and ongoing sustainability of dividends and buybacks, particularly after the special distributions and the additional $400 million ASR.
- Tenant and anchor exposure, including scheduled lease expirations and announced store openings or closures.