MAC

Business Context and Reporting Period

Company: The Macerich Company (REIT)
Filing Type: Form 10-Q (Unaudited)
Period Ended: September 30, 2002
Business Overview: The Company acquires, owns, develops, redevelops, manages, and leases regional and community shopping centers. As of September 30, 2002, the portfolio included 56 regional and 21 community shopping centers (77 total) aggregating approximately 58 million square feet of gross leasable area. The Company operates through The Macerich Partnership, L.P. (Operating Partnership).

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 7.4% to $257.6 million from $239.8 million in the prior year period. This was driven by the acquisition of Westcor Realty ($10.9 million impact) and The Oaks ($3.7 million impact), partially offset by the sale of Villa Marina Marketplace and Boulder Plaza.
• Net Income: Net income available to common stockholders increased 23.2% to $27.7 million from $22.5 million. This increase was primarily due to a $13.9 million gain on the sale of Boulder Plaza (classified as discontinued operations) and the inclusion of Westcor results.
• Interest Expense: Increased to $86.4 million from $83.0 million, largely due to debt assumed in the Westcor transaction ($9.1 million) and financing for The Oaks ($1.0 million).
• Balance Sheet Expansion: Total assets grew significantly from $2.29 billion to $3.59 billion, reflecting the $1.475 billion Westcor acquisition and the $152.5 million acquisition of The Oaks.
• Unconsolidated Joint Ventures: The Company recorded a $8.9 million write-down of its investment in MerchantWired LLC due to the failure of a planned sale transaction.

Guidance, Outlook, and Risks

• Capital Strategy: The Company intends to fund growth through a combination of debt and equity financings, joint ventures, and asset sales. A $425 million revolving credit facility was established in July 2002 to replace a $200 million facility.
• Debt Maturities: $125.1 million of convertible debentures mature on December 15, 2002. Management expects to retire these using the new revolving credit facility.
• Development Projects: Significant capital is being deployed for the Queens Center expansion (estimated $280 million total cost), La Encantada development, and Scottsdale 101 development.
• Risk Factors:
  • Interest Rate Risk: A 1% increase in interest rates on variable rate debt would decrease future earnings and cash flows by approximately $13.0 million annually.
  • Geographic Concentration: Significant exposure to California and Arizona (Westcor portfolio).
  • Tenant Dependence: Risks associated with tenant bankruptcies and lease expirations.
  • Environmental: Ongoing remediation costs for asbestos at Fresno Fashion Fair and dry cleaning chemicals at Bristol Center and North Valley Plaza.
• Subsequent Events: On November 7, 2002, a dividend of $0.57 per share was declared for common stockholders. On November 8, 2002, the Company purchased the remaining 50% interest in Panorama City Associates for $23.7 million.

Investor Verification Checklist

• Westcor Integration: Verify the pro forma impact of the Westcor acquisition on future FFO and debt service coverage ratios.
• Debt Refinancing: Confirm the successful refinancing of the $125.1 million debentures maturing in December 2002 and the $150.7 million variable rate debt at Chandler Fashion Center (refinanced in October 2002).
• Capital Expenditures: Monitor cash flow requirements for the Queens Center expansion and other development projects to ensure adequate liquidity.
• Environmental Reserves: Review the adequacy of reserves for asbestos and soil remediation, particularly at Fresno Fashion Fair and Bristol Center.
• Joint Venture Performance: Assess the impact of the MerchantWired write-down and the performance of the newly consolidated Westcor joint ventures.