Business Context and Reporting Period
Company: The Macerich Company (REIT)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Nine months ended September 30, 2001
Business Overview: The Company acquires, owns, redevelops, manages, and leases regional and community shopping centers across the United States. As of September 30, 2001, the portfolio included 46 regional and 5 community shopping centers (51 total) aggregating approximately 42 million square feet of gross leasable area.
Key Financial Metrics
| Metric | Nine Months Ended Sep 30, 2001 | Nine Months Ended Sep 30, 2000 |
|---|---|---|
| Total Revenues | $241.3 million | $228.5 million |
| Net Income (GAAP) | $37.2 million | $35.0 million |
| Net Income Available to Common Stockholders | $22.5 million | $21.1 million |
| Earnings Per Share (Diluted) | $0.67 | $0.62 |
| Funds From Operations (FFO) - Diluted | $119.3 million | $114.9 million |
| Cash Flow from Operating Activities | $99.5 million | $86.0 million |
| Total Debt (Including Joint Ventures) | $2.3 billion | N/A |
| Cash and Cash Equivalents | $27.9 million | $36.3 million (Dec 31, 2000) |
| Debt to Total Market Capitalization | 66% | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 5.6% to $241.3 million. Minimum and percentage rents rose 3.7%, driven by $4.0 million from "Same Centers" and $1.5 million from "Redevelopment Centers." Tenant recoveries increased to $79.9 million.
- Expense Increases: Shopping center expenses rose to $80.6 million due to higher property taxes and the consolidation of Macerich Property Management Company, LLC (MPMC, LLC) starting April 1, 2001. Interest expense increased slightly to $83.0 million.
- Depreciation: Depreciation and amortization increased to $49.1 million, primarily due to the recent $89.0 million redevelopment completion at Pacific View Mall.
- Investing Activities: Net cash used in investing activities was $58.0 million in 2001, compared to cash provided of $34.5 million in 2000. This shift reflects significant capital expenditures for renovations and expansions ($55.1 million total for wholly-owned centers).
- Financing Activities: Net cash used in financing activities decreased to $49.9 million from $125.1 million in the prior year, attributed to refinancing activity on wholly-owned assets.
Guidance, Outlook, Risks, and Unusual Items
- Capital Expenditure Outlook: Management expects to incur between $30.0 million and $75.0 million in 2001 for renovations and expansions. Future capital needs will be met through debt financings, joint ventures, and asset sales.
- Liquidity: The Company maintains a $200 million unsecured line of credit (maturing May 2002) with $154 million outstanding as of September 30, 2001. Management believes operating cash flow and existing reserves are adequate for short-term requirements.
- Accounting Changes:
- SFAS 133: Adopted January 1, 2001, resulting in a $9.4 million transition adjustment to accumulated other comprehensive income related to treasury rate locks.
- SAB 101: Implemented in 2000, deferring percentage rent recognition to the fourth quarter. This reduced straight-lined rent recognition in the first three quarters of 2001 compared to 2000.
- Risks and Contingencies:
- Environmental: Perchloroethylene (PCE) contamination at a former joint venture property (North Valley Plaza) and asbestos at Fresno Fashion Fair. Reserves of $214,000 and $2.6 million, respectively, remain for remediation.
- Market Risk: Primary exposure is interest rate risk. A 1% increase in rates on variable debt ($295.2 million) would decrease future earnings by approximately $2.9 million annually.
- Operational Risk: Anchor tenant bankruptcies or closures could adversely affect customer traffic and income.
- Subsequent Events: On November 9, 2001, the Company declared a dividend of $0.55 per share for common stockholders and OP unit holders, payable December 7, 2001.
Investor Verification Checklist
- Debt Maturities: Verify the schedule of debt maturities, noting $10.9 million due in 2001 and $318.7 million due in 2002 for wholly-owned centers.
- Refinancing Activity: Confirm the terms of recent refinancings, specifically the $48.5 million loan at Capitola Mall (May 2001) and the $89.0 million permanent loan at Pacific View (July 2001).
- Joint Venture Performance: Review the pro-rata share of income from unconsolidated joint ventures ($20.9 million for nine months) and their specific debt obligations.
- Environmental Reserves: Assess the adequacy of the $2.6 million asbestos reserve at Fresno Fashion Fair and the $214,000 remediation reserve for the North Valley Plaza site.
- FFO vs. GAAP: Note the significant difference between GAAP Net Income ($37.2 million) and Funds From Operations ($119.3 million) due to depreciation and amortization adjustments.