Business Context and Reporting Period
Company: The Macerich Company (REIT)
Filing Type: Form 10-Q (Unaudited)
Period Ended: September 30, 1999
Business Overview: The Company acquires, owns, redevelops, manages, and leases regional and community shopping centers. As of September 30, 1999, the portfolio included 48 regional and 5 community shopping centers (53 total) aggregating approximately 41 million square feet of gross leasable area. Operations are conducted through The Macerich Partnership, L.P. (Operating Partnership) and three management companies.
Key Financial Metrics (Nine Months Ended Sept 30, 1999)
| Metric | 1999 (in thousands) | 1998 (in thousands) |
|---|---|---|
| Total Revenues | $242,768 | $197,661 |
| Net Income | $40,589 | $25,667 |
| Net Income Available to Common Stockholders | $27,008 | $18,769 |
| Earnings Per Share (Diluted) | $0.79 | $0.62 |
| Funds from Operations (Diluted) | $118,434 | $80,653 |
| Net Cash Provided by Operating Activities | $96,970 | $82,826 |
| Total Assets | $2,486,237 | $2,322,056 |
| Total Liabilities | $1,773,204 | $1,579,119 |
| Total Debt (Including Pro Rata JV) | $2.3 Billion | N/A |
| Cash and Cash Equivalents | $23,325 | $25,143 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 22.8% to $242.8 million. Minimum and percentage rents rose 22.6% to $164.1 million, driven by $24.6 million from 1998 acquisitions and $7.5 million from same-center growth. Tenant recoveries increased to $72.8 million.
- Expense Increases: Total expenses rose to $208.2 million. Interest expense increased significantly to $85.2 million (from $66.1 million) due to acquisition-related debt. General and administrative expenses increased to $4.1 million, partly due to the expensing of internal acquisition costs under EITF 97-11.
- Joint Venture Income: Equity in income of unconsolidated joint ventures and management companies more than doubled to $16.7 million (from $8.4 million), reflecting the impact of the SDG Macerich Properties and Pacific Premier Retail Trust acquisitions.
- Acquisition Activity: Significant cash outflows for investing activities ($228.9 million) were primarily due to $88.1 million in contributions to joint ventures and $40.2 million in renovations/expansions. This compares to $655.8 million in 1998, which included a $240.2 million joint venture contribution.
- Financing: Net cash provided by financing activities was $130.1 million, a decrease from $564.8 million in 1998, as there were no equity offerings in the first nine months of 1999 compared to significant stock sales in 1998.
Guidance, Outlook, Risks, and Unusual Items
- Outlook: Management anticipates revenues will cover operating expenses and debt service. Capital for major expenditures is expected to come from equity/debt financings or joint ventures. The Company is undertaking a $90 million redevelopment of Pacific View.
- Debt Profile: Total outstanding loan indebtedness was $2.3 billion (including pro rata share of joint venture debt), representing a debt-to-total market capitalization ratio of approximately 64%. The Company has a $150 million unsecured line of credit with $134.5 million outstanding.
- Year 2000 (Y2K) Readiness: The Company believes critical IT and non-IT systems are substantially compliant. Approximately 94% of critical operating systems at centers are compliant. Remediation costs are not expected to be material, though some uncertainty remains regarding third-party vendors.
- Environmental Contingencies:
- North Valley Plaza: Remediation for PCE/DCE contamination is ongoing; $304,000 remains reserved.
- Queens Center: Low levels of toluene detected; $150,000 reserved.
- Fresno Fashion Fair: Asbestos detected; $2,794,000 remains reserved for future removal.
- Unusual Items: An extraordinary loss of $1.0 million was recorded in 1999 for the early extinguishment of debt, compared to $2.4 million in 1998.
Investor Verification Checklist
- Acquisition Integration: Verify the performance and occupancy rates of the 1998 and 1999 acquisition centers (SDG Macerich, Pacific Premier Retail Trust) which drove the majority of revenue growth.
- Debt Maturities: Review the schedule of debt maturities, specifically the $150 million credit facility maturing in February 2000 (with extension option) and the refinancing of variable rate debt.
- Redevelopment Costs: Monitor the $90 million Pacific View redevelopment project for cost overruns or delays.
- Y2K Contingencies: Assess the status of the remaining 8% of critical operating systems where vendor compliance information is pending.
- Environmental Reserves: Track the adequacy of the $3.25 million+ in environmental reserves against actual remediation costs.