Business Context and Reporting Period
Company: The Macerich Company (REIT)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Six months ended June 30, 2003
Business Overview: The Company acquires, owns, develops, redevelops, manages, and leases regional and community shopping centers. As of June 30, 2003, the portfolio included 56 regional centers, 19 community centers, and two development projects totaling approximately 57 million square feet of gross leasable area. The Company operates through its Operating Partnership and various management companies.
Key Financial Metrics
| Metric (Dollars in thousands) | Six Months Ended June 30, 2003 |
Six Months Ended June 30, 2002 |
|---|---|---|
| Total Revenues | $232,670 | $156,058 |
| Net Income | $58,390 | $26,100 |
| Net Income Available to Common Stockholders | $47,999 | $16,074 |
| Earnings Per Share (Basic) | $0.93 | $0.45 |
| Net Cash Provided by Operating Activities | $124,426 | $65,330 |
| Total Assets | $3,830,091 | $3,662,080 |
| Total Liabilities | $2,579,160 | $2,395,449 |
| Cash and Cash Equivalents | $79,713 | $53,559 |
| Funds From Operations (FFO) - Diluted | $127,048 | $81,680 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 49.1% to $232.7 million, driven primarily by the 2002 acquisition of the Westcor portfolio (approx. $40.6 million impact) and The Oaks acquisition center ($6.3 million impact).
- Profitability: Net income available to common stockholders nearly tripled to $48.0 million. This was significantly aided by a $8.8 million gain on the sale of a 49.9% interest in the Village at Corte Madera and a $2.8 million gain from discontinued operations (sale of Gainey Village).
- Expense Increases: Operating expenses rose to $81.2 million (from $53.4 million) and interest expense increased to $67.0 million (from $50.2 million), largely due to the expanded debt load from the Westcor acquisition and new financing for redevelopment projects.
- Joint Venture Income: Equity in income of unconsolidated joint ventures surged to $29.6 million from $5.4 million, reflecting the inclusion of Westcor joint ventures and the absence of the $10.2 million MerchantWired LLC loss recorded in 2002.
- Cash Flow: Operating cash flow increased 90.5% to $124.4 million. Investing cash outflows decreased to $90.6 million (from $143.4 million) due to significant proceeds from asset sales offsetting development costs.
Guidance, Outlook, and Risks
- Capital Expenditures: Management expects to incur between $200 million and $300 million in 2003 for development, redevelopment, expansions, and renovations, excluding specific projects like Queens Center, La Encantada, and Scottsdale 101 which are separately financed.
- Liquidity: The Company maintains a $425 million revolving line of credit ($77 million outstanding as of June 30, 2003) and issued $250 million in unsecured notes in May 2003. Cash on hand was $79.7 million.
- Dividends: A dividend of $0.57 per share was declared for common stockholders and OP unit holders, payable September 10, 2003.
- Key Risks:
- Concentration: Significant portfolio concentration in California and Arizona (Westcor).
- Interest Rate Risk: A 1% increase in interest rates could decrease future earnings and cash flows by approximately $11.0 million annually.
- Development Risks: Exposure to construction delays, budget overruns, and lease-up risks associated with new developments.
- Tenant Dependence: Reliance on major tenants and retail sales performance; risk of tenant bankruptcies.
- Accounting Changes: Adoption of SFAS 141 (Business Combinations) and SFAS 144 (Impairment/Disposal) impacted revenue recognition and the classification of discontinued operations.
Investor Verification Checklist
- Acquisition Integration: Verify the operational performance and debt service coverage of the Westcor portfolio acquired in July 2002.
- Debt Maturities: Review the schedule of debt maturities, noting significant variable-rate exposure and upcoming refinancing needs (e.g., FlatIron Crossing loans maturing in 2004).
- Redevelopment Progress: Monitor the $250-$275 million Queens Center redevelopment project for cost overruns or delays.
- Asset Sales: Confirm the realization of gains from recent dispositions (Corte Madera, Gainey Village) and the impact on future recurring revenue.
- Environmental Liabilities: Assess the status of remediation costs for asbestos at Fresno Fashion Fair and PCE contamination at North Valley Plaza.