The Macerich Company — FY2010 Form 10-K
Reporting period: Year ended December 31, 2010. This is an annual filing, not a stand-alone fourth-quarter report. Unless noted, financial amounts below are consolidated and rounded to millions.
Business context
Macerich is a self-managed REIT focused on owning, leasing, managing, acquiring and redeveloping U.S. shopping centers. At year-end, it had interests in 84 centers—71 regional malls and 13 community centers—with approximately 73 million square feet of gross leasable area. The company operates through its partnership and management companies, with many properties held in unconsolidated joint ventures.
Financial and operating results
| Metric | FY2010 | FY2009 |
|---|---|---|
| Total revenue | $758.6 million | $805.7 million |
| Net income available to common stockholders | $25.2 million | $120.7 million |
| Basic and diluted EPS | $0.19 | $1.45 |
| FFO, diluted | $351.3 million | $344.1 million |
| Cash from operations | $200.4 million | $120.9 million |
| Cash and cash equivalents at year-end | $445.6 million | $93.3 million |
| Common dividends declared per share | $2.10 | $2.60 |
- Revenue fell 5.8%. Rental revenue declined $49.3 million, chiefly because of the change in accounting for joint-venture centers and lower same-center rental revenue, including reduced lease-termination income.
- Net income attributable to common stockholders fell substantially from 2009, which included significant gains on asset sales. Interest expense decreased $54.2 million to $212.8 million, while the gain on early debt extinguishment fell to $3.7 million from $29.2 million.
- Diluted FFO increased 2.1%. Management reported improved mall occupancy, tenant sales and same-center net operating income; the filing does not provide a clear same-center NOI growth amount in the supplied text.
- Regional mall occupancy was 93.1%, up from 91.3%; sales per square foot were $433, up from $407. For consolidated mall and freestanding leases under 10,000 square feet, average base rent on leases signed during 2010 was $34.99 per square foot, versus $38.15 in 2009.
- Investing cash flow was a $142.2 million outflow, versus a $302.4 million inflow in 2009, when asset-sale proceeds were substantial. Financing cash flow was a $294.1 million inflow, principally reflecting the 2010 equity issuance.
- Year-end consolidated mortgage and notes payable were $3.9 billion. Total loan indebtedness was reported as $6.1 billion when including $2.2 billion of Macerich’s pro rata joint-venture debt. The $6.1 billion figure also includes $607 million of unsecured debt.
- The company had access to its full $1.5 billion revolving credit facility at year-end, with no borrowings outstanding, and reported compliance with loan covenants. It was negotiating renewal of the facility, whose maturity had been extended to April 25, 2011.
Material changes, outlook and notable items
- Equity and debt: In April 2010, Macerich issued 31 million common shares for net proceeds of approximately $1.2 billion. Proceeds paid off the revolving credit balance and reduced certain property debt; remaining proceeds were intended for debt repayment and general corporate purposes. Shares outstanding rose from 96.7 million at year-end 2009 to 130.5 million at year-end 2010.
- Liquidity and maturities: Management expected approximately $465 million of total debt maturities during 2011, at its pro rata share and excluding loans with extensions and recent refinancings, to be refinanced, extended or paid from cash or the credit facility, except the Valley View Center mortgage. Separately, the consolidated mortgage maturity schedule lists about $1.2 billion due in 2011. These figures use different stated bases; investors should review the detailed debt schedules and subsequent refinancing disclosures.
- Capital spending: Macerich expected to spend $100 million to $200 million over the next twelve months on development, redevelopment, expansion and renovations. It incurred approximately $79 million to redevelop Northgate Mall and $265 million at Santa Monica Place; Santa Monica Place reopened in August 2010, with further development then expected to open in spring 2011.
- Valley View Center: A court-appointed receiver took operational control in July 2010. The company anticipated disposition through foreclosure, deed in lieu or another process within twelve months. Its $125 million mortgage is non-recourse; Macerich said it had stopped funding the property’s cash shortfall but continued recording operations pending transfer of title and discharge of the loan.
- Other developments: After year-end, the company agreed to acquire a 50% interest in Shops at Atlas and increased its Kierland Commons ownership from 24.5% to 50%. It also announced a $0.50-per-share dividend for March 2011, payable entirely in cash.
- Risks and contingencies: Management cited persistent economic weakness, unemployment, retailer distress, leasing and rent pressure, competition from online and other retail formats, geographic concentration in California and Arizona, refinancing and interest-rate exposure, joint-venture control risks, and environmental matters including asbestos, underground tanks and detected chlorinated hydrocarbons. Letters of credit totaled $26.8 million; management did not expect them to result in a liability. No material legal proceedings were reported beyond ordinary-course litigation.
- Unusual items: FY2009 included a $154.2 million gain on the sale of a partial interest in Queens Center and losses on dispositions; these items materially affect year-over-year net income comparisons. FY2010 also included $5.3 million of additional compensation cost related to former executive award modifications.
- Audit and controls: KPMG issued unqualified opinions on the 2010 financial statements and internal control over financial reporting; management concluded disclosure controls and internal controls were effective.
Most important facts for investors to verify
- Reconcile the stated 2011 debt maturities, including the $465 million total-debt estimate, the $1.2 billion consolidated mortgage schedule, extensions and post-year-end refinancings; confirm renewal of the revolving credit facility.
- Assess whether improving occupancy, tenant sales and same-center NOI can support rents and cash flow, given lower rents on new consolidated small-shop leases and the decline in rental revenue.
- Review cash available for dividends and redevelopment, including the effect of the 31-million-share offering, the $2.10 annual distribution and the planned $100–$200 million capital program.
- Track Valley View Center’s transfer and loan discharge, and evaluate any potential environmental remediation exposure and joint-venture debt recourse.
- Compare GAAP earnings with FFO and account for the substantial asset-sale gains in 2009; FFO is a supplemental measure and is not cash flow available for all needs.