Business Context and Reporting Period
Company: The Macerich Company (REIT)
Filing Type: Form 10-Q (Unaudited)
Period Ended: September 30, 2009
Business Overview: The Company acquires, owns, develops, redevelops, manages, and leases regional and community shopping centers. As of September 30, 2009, the portfolio included 91 centers (72 regional, 19 community) totaling approximately 76 million square feet of gross leasable area.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2009 |
|---|---|---|
| Total Revenues | $200.3 million | $613.5 million |
| Net Income (Consolidated) | $164.4 million | $156.4 million |
| Net Income Attributable to Company | $142.8 million | $135.1 million |
| Net Income Available to Common Stockholders | $142.8 million | $135.1 million |
| Earnings Per Share (Diluted) | $1.75 | $1.71 |
| Funds From Operations (FFO) - Diluted | $88.7 million | $251.4 million |
| Cash and Cash Equivalents | $79.6 million | $79.6 million (Ending Balance) |
| Total Debt (Consolidated) | $4.97 billion | $4.97 billion (Carrying Value) |
| Line of Credit Outstanding | $1.10 billion | $1.10 billion |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 9.9% for the three months and 5.9% for the nine months compared to 2008. This was driven by the sale of ownership interests in joint ventures (Queens Center, FlatIron Crossing) and the impact of Mervyn's bankruptcy (lease rejections and vacancies).
- Significant Gains on Sales: Net income was significantly boosted by a $157.6 million gain on the sale or write-down of assets in Q3 2009, primarily due to a $153.9 million gain from selling a 49% interest in Queens Center and a $2.7 million gain from selling a 75% interest in FlatIron Crossing.
- Discontinued Operations: Income from discontinued operations turned negative for the nine months ended September 30, 2009 ($22.1 million loss), compared to a $104.0 million gain in the prior year, largely due to the absence of the $99.1 million gain from the Rochester Redemption in 2008.
- Interest Expense: Interest expense decreased 11.0% for the three months and 5.8% for the nine months, attributed to the payoff of the Term Loan and the repurchase of $89.1 million of Senior Notes.
Guidance, Outlook, and Risks
- Liquidity Strategy: The Company reduced its quarterly dividend to $0.60 per share, with 90% paid in stock to preserve cash. In October 2009, the Company completed an equity offering raising approximately $384.2 million to pay down its line of credit.
- Capital Markets: Management notes that current turmoil in capital markets limits access to debt and equity financing. The Company relies on its $1.5 billion line of credit (maturing April 2010) and joint venture transactions for liquidity.
- Debt Maturities: The Company expects to refinance, extend, or pay off a $30 million loan maturing in 2009 using its line of credit. A significant portion of debt is fixed-rate, but variable-rate exposure exists via the line of credit.
- Operational Risks: Continued vacancy in former Mervyn's spaces poses a risk to rental revenue. The Company is actively seeking replacement tenants.
- Accounting Changes: The Company adopted new accounting standards in 2009 regarding convertible debt and noncontrolling interests, resulting in retrospective adjustments to prior period financial statements.
Investor Verification Checklist
- Gain Sustainability: Verify the extent to which reported net income is driven by one-time gains on asset sales ($157.6 million) versus core operating performance.
- Mervyn's Vacancy: Assess the timeline and success rate for re-leasing former Mervyn's anchor spaces to mitigate revenue declines.
- Debt Refinancing: Confirm the Company's ability to refinance the $1.5 billion line of credit maturing in April 2010 given current credit market conditions.
- Dividend Policy: Monitor the sustainability of the dividend policy, specifically the reliance on stock dividends to meet REIT distribution requirements while conserving cash.
- Joint Venture Recourse: Review the $17.5 million of recourse debt exposure in unconsolidated joint ventures and potential liability implications.