MAC

Business Context and Reporting Period

Company: The Macerich Company (REIT)
Filing Type: Form 10-Q (Unaudited)
Period Ended: September 30, 2003
Business Overview: The Company acquires, owns, develops, redevelops, manages, and leases regional and community shopping centers. As of September 30, 2003, the portfolio included 57 regional centers, 18 community centers, and two development projects totaling approximately 58 million square feet of gross leasable area. The Company operates through its Operating Partnership and various management companies.

Key Financial Metrics

Note: Debt figures include consolidated debt and the Company's pro rata share of joint venture debt.

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 37.1% to $347.9 million, driven primarily by the 2002 acquisition of the Westcor portfolio, the 2002 acquisition of The Oaks, and the 2003 acquisition of Northridge Mall. Minimum and percentage rents rose 36.6%.
• Profitability: Net income available to common stockholders more than tripled to $87.7 million from $27.7 million. This was significantly aided by a $22.6 million gain on the sale of Bristol Center (discontinued operations) and a $12.0 million gain on continuing operations asset sales (Corte Madera and Gainey Village).
• Expense Increases: Operating expenses rose to $122.2 million (from $86.8 million) and interest expense increased to $98.8 million (from $86.2 million) due to higher debt levels associated with acquisitions and development projects.
• Capital Structure: The Company converted all Series B Preferred Stock to common stock in September 2003. It also issued $250 million in unsecured notes in May 2003.

Guidance, Outlook, and Risks

Management Commentary & Outlook:

• Capital Expenditures: Management expects to incur between $200 million and $300 million in 2003 for development, redevelopment, expansions, and renovations (excluding Queens Center, La Encantada, and Scottsdale 101, which are separately financed).
• Liquidity: The Company maintains a $425 million revolving line of credit with $212 million outstanding as of September 30, 2003. Cash on hand was $77.6 million.
• Dividends: A dividend of $0.61 per share was declared for common stockholders and OP unit holders, payable December 9, 2003.

Risks and Contingencies:

• Market Risk: Primary exposure is interest rate risk. A 1% increase in rates would decrease future earnings by approximately $13.0 million annually.
• Development Risks: Ongoing redevelopment of Queens Center (total expected cost $250M-$275M) and other projects face risks regarding financing, construction delays, and lease-up.
• Environmental: Ongoing remediation costs for asbestos at Fresno Fashion Fair and perchloroethylene (PCE) at a former joint venture property (North Valley Plaza).
• Concentration: Significant portfolio concentration in California and Arizona exposes the Company to regional economic downturns.

Investor Verification Checklist

• Acquisition Integration: Verify the performance of the Westcor portfolio and The Oaks against pro forma expectations.
• Debt Maturities: Review the schedule of debt maturities, particularly the $180 million of floating rate debt refinanced in November 2003 and the $250 million unsecured notes maturing in 2007.
• Discontinued Operations: Confirm that the $22.6 million gain from the Bristol Center sale is treated as a one-time event and does not reflect recurring operational performance.
• Capital Expenditure Funding: Assess the funding sources for the Queens Center expansion and other major redevelopment projects to ensure liquidity is sufficient.
• Environmental Liabilities: Monitor the status and cost estimates for the asbestos and PCE remediation projects.