The Macerich Company (NYSE: MAC) — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Macerich owns, operates, leases and redevelops U.S. shopping centers. At quarter-end, its portfolio comprised 51 centers with approximately 50 million square feet of gross leasable area. The unaudited filing was signed August 6, 2021.
Financial and operating performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $215.5m | $178.6m | $405.9m | $405.5m |
| Net loss attributable to Macerich | $11.8m | $25.1m | $75.4m | $17.6m |
| Loss per share, basic and diluted | $0.06 | $0.18 | $0.42 | $0.13 |
| FFO attributable to common stockholders and unit holders, excluding Chandler Freehold financing expense | $127.6m | $60.5m | $203.1m | $183.2m |
Q2 leasing revenue was $197.0m, up 16.7% year over year; higher percentage rents and lower bad-debt expense contributed to the increase. Six-month leasing revenue was down 0.8%. Q2 FFO on the company’s stated adjusted basis rose 110.8%; six-month FFO rose 10.9%. These are non-GAAP measures and are not equivalent to cash flow. The filing does not provide a clear standardized operating-margin measure.
For the six months, operating cash flow was $113.0m, versus cash used of $15.4m in 2020. Investing provided $104.9m, versus cash used of $109.1m; financing used $437.3m, versus providing $517.9m. Cash and cash equivalents were $194.0m at June 30; including restricted cash, the total was $263.3m.
At June 30, total assets were $8.64bn, total liabilities $5.52bn and total equity $3.13bn. Consolidated mortgage and bank/other notes payable totaled approximately $4.89bn. Management reported total loan indebtedness of approximately $7.5bn including its pro rata share of unconsolidated joint venture debt. Q2 interest expense was $54.9m, compared with $20.0m, largely reflecting a year-over-year change in the fair value-related financing expense for Chandler Freehold. Total debt is not a measure of consolidated debt alone.
Common shares outstanding increased from 149.8m at December 31, 2020 to 211.2m at June 30, 2021. ATM offerings generated $791.4m net proceeds in the first half, which were used to pay down the line of credit. The company paid $0.30 per share in distributions during the first half and announced a $0.15-per-share cash distribution for Q3 2021.
Material changes and operating indicators
- All centers had been open since October 2020, and government-imposed capacity restrictions were essentially eliminated across the company’s markets by the filing date. Q2 comparable tenant sales for spaces under 10,000 square feet increased 13.4% versus Q2 2019; traffic remained in the low 90% range relative to 2019.
- Leased occupancy was 89.4%, up from 88.5% at March 31, 2021, but down from 91.3% a year earlier. Trailing-12-month releasing spreads were down 0.16%, an improvement from the 2.1% decline reported through March.
- On March 29, Macerich sold Paradise Valley Mall for $100m, received $95.3m net proceeds, and reinvested for a 5% interest in the buyer joint venture. The sale and related land gain totaled approximately $5.6m.
- First-half loss on sale or write-down of assets, net, was $25.2m. This included a $27.3m impairment of Estrella Falls, partly offset by land-sale gains; 2020 included significant impairments of Wilton Mall and Paradise Valley Mall.
- The company issued 59.9m shares through its ATM programs for $791.4m net proceeds. Approximately $176.6m of gross sales capacity remained at June 30, including shares sold but not settled until July.
Liquidity, outlook, risks and contingencies
- In April, Macerich replaced its prior credit facility with a $700m facility: a $525m revolver maturing in 2023, with a one-year extension option, and a $175m term loan maturing in 2024. At June 30, gross borrowings were $280m on the revolver and $104.4m on the term loan. The facility is guaranteed and secured by specified assets and subsidiary equity interests.
- Management expected near-term loan maturities to be refinanced, restructured, extended or paid from the credit facility or cash. It reported compliance with loan covenants. A 1 percentage-point increase in interest rates was estimated to reduce annual earnings and cash flows by approximately $7m, based on $0.7bn of floating-rate debt.
- Management expected 2021 results to remain affected by COVID-19, anchor closures and tenant bankruptcies, while describing improving sales, collections and leasing. It anticipated positive operating cash flow after recurring capital expenditures and dividends, to support deleveraging and development. No specific full-year earnings or FFO guidance was provided.
- COVID-related rent abatements at the company’s share were $44.3m in the first half of 2021, primarily relating to 2020 rents. Rent deferrals negotiated in the first half were $4.9m; $8.6m remained outstanding at June 30. Management said rent-assistance negotiations were essentially completed. Some tenant closures could trigger co-tenancy clauses, though management did not expect a significant revenue impact.
- Major development commitments include One Westside, a joint venture project expected to cost $500m–$550m in total, with Macerich’s estimated share of $125m–$137.5m. The company also anticipated $130m–$160m of its share of Sears-site redevelopment costs, subject to potential scope changes.
- A joint venture had $50m of debt that could become recourse to Macerich if the venture could not discharge it. The company also had $40.9m of letters of credit, $40.6m secured by restricted cash; management did not expect these to result in a liability. Outstanding construction obligations were $2.8m.
- Other risks include refinancing and capital-market access, tenant credit and closures, property redevelopment and impairment estimates, and LIBOR transition. The filing reported no material change to previously disclosed risk factors, no material legal proceedings, and effective disclosure controls.
Important facts for investors to verify
- Whether occupancy, tenant sales, rent collections and leasing spreads continue to recover, and how much reported improvement reflects reopening comparisons and bad-debt recoveries.
- The effect of share issuance on per-share FFO and distributions, alongside the company’s plan to use operating cash flow and financing proceeds to reduce debt.
- Debt maturities, refinancing progress, credit-facility availability and the cost of floating-rate borrowings, including interest-rate hedges expiring in September 2021.
- Actual costs, funding and timing for One Westside and Sears redevelopments, and any further property impairments or dispositions.
- How joint-venture debt, potential recourse exposure, rent concessions and remaining tenant deferrals affect liquidity and reported results.