Business context and reporting period
The Macerich Company is a self-managed REIT that owns, develops, redevelops, leases and manages U.S. regional and community shopping centers. This Form 10-K covers the fiscal year ended December 31, 2011; quarterly results are also provided. At year-end, the portfolio comprised 79 centers with approximately 66.3 million square feet of gross leasable area, including joint venture properties.
Financial and operating metrics
| Metric | 2011 | 2010 |
|---|---|---|
| Total revenue | $791.3 million | $743.4 million |
| Net income attributable to Macerich | $156.9 million | $25.2 million |
| Diluted EPS | $1.18 | $0.19 |
| Diluted FFO | $399.6 million | $351.3 million |
| Cash from operating activities | $237.3 million | $200.4 million |
| Cash and cash equivalents at year-end | $67.2 million | $445.6 million |
| Total assets | $7.94 billion | $7.65 billion |
| Consolidated mortgage and notes payable | $4.21 billion | $3.89 billion |
- Revenue increased 6.4%. Rental revenue rose 8.1%, supported by acquisitions, Santa Monica Place’s redevelopment opening and leasing at former Mervyn’s spaces.
- Reported net income increased sharply, but includes a $188.3 million share of the SDG property-distribution gain. The 2011 results also include a $45.5 million impairment charge and $40.2 million loss from discontinued operations, largely associated with Shoppingtown Mall.
- Diluted FFO increased 13.7%. FFO is a supplemental, non-GAAP measure and is not cash available for all obligations.
- Cash from investing activities was negative $212.1 million; cash from financing activities was negative $403.6 million. Dividends and distributions totaled $296.9 million.
- Portfolio occupancy was 92.7%, down from 93.1%; reported tenant sales per square foot rose to $489 from $433. Releasing spreads increased 13.7%.
- The company reported total loan indebtedness of approximately $6.2 billion, including its pro rata share of joint venture debt. The $1.5 billion revolving credit facility had $290 million drawn at year-end. The filing reports no clear consolidated-company operating-margin measure.
Material changes versus the prior comparable period
- Revenue rose from $743.4 million to $791.3 million, while operating cash flow increased from $200.4 million to $237.3 million.
- Net income attributable to the company rose from $25.2 million to $156.9 million, substantially reflecting the SDG gain rather than solely recurring operations.
- Diluted FFO rose from $351.3 million to $399.6 million. Year-end cash declined from $445.6 million to $67.2 million, alongside acquisitions, capital activity, debt repayment and distributions.
- The company acquired or increased ownership in several properties and took full ownership of six malls from the SDG joint venture at year-end. It also conveyed Shoppingtown Mall to its lender after impairment and default-related events.
Outlook, risks and unusual items
- Management expected to fund near-term operating, debt-service and dividend needs from operations, working capital and/or the credit line. It expected most debt maturities over the next 12 months, other than Valley View Center and Prescott Gateway, to be refinanced, restructured, extended or paid from cash or credit facilities.
- Management forecast $200–$300 million of development, redevelopment, expansion and renovation spending over the next 12 months, funded through a mix of debt or equity financing. Fashion Outlets of Chicago was under development, with an estimated $200 million cost and anticipated summer 2013 completion.
- Management expected releasing spreads to continue improving in 2012, while cautioning that economic and political uncertainty, persistent unemployment and retail-property rents and values below pre-recession levels could affect results.
- Prescott Gateway’s non-recourse loan was in maturity default as of December 1, 2011; negotiations with the lender were ongoing and the outcome uncertain. Valley View Center remained under a receiver, with its non-recourse loan and property disposition unresolved.
- Joint venture debt of $380.3 million could become recourse to Macerich in specified circumstances, partly offset by $182.6 million of partner indemnities. Other risks include refinancing and interest-rate exposure, retailer bankruptcies and vacancies, geographic concentration, environmental liabilities, natural disasters and REIT qualification requirements.
- A 1% increase in interest rates was estimated to reduce annual earnings and cash flows by approximately $17.2 million, based on $1.7 billion of floating-rate debt. Management reported compliance with loan covenants at year-end; the filing also reports effective disclosure controls and internal control over financial reporting.
Important facts for investors to verify
- How much of 2011 earnings and FFO growth reflects recurring property operations versus the $188.3 million SDG gain, impairments and dispositions.
- Whether the 2012 debt maturities were refinanced, extended or repaid as planned, and the resulting borrowing costs and liquidity.
- Current status and potential exposure relating to Prescott Gateway, Valley View Center and the joint venture debt guarantees.
- Whether occupancy, tenant sales and releasing spreads continued to improve, and how scheduled lease expirations affected rent growth.
- Actual development and redevelopment spending, financing and leasing progress, particularly for Fashion Outlets of Chicago.