The Macerich Company: Q1 2024 Form 10-Q
Business context and period. Macerich is a U.S. REIT that owns, leases, develops and manages regional retail and community shopping centers. This unaudited report covers the three months ended March 31, 2024, compared with Q1 2023. At quarter-end, its portfolio comprised 47 centers and approximately 47 million square feet of gross leasable area.
Financial results and liquidity
- Revenue: $208.8 million, down 2.8% from $214.9 million. Leasing revenue declined 3.7% to $191.7 million; management-company revenue rose to $8.2 million from $6.8 million.
- Profit and loss: Net loss attributable to the Company was $126.7 million, or $0.59 per share, versus a $58.7 million loss, or $0.27 per share, a year earlier. Total expenses were $232.1 million, including $52.2 million of interest expense (versus $39.4 million). The filing does not provide a headline operating margin.
- Unusual losses: Results included a $36.0 million impairment at Santa Monica Place and a $57.7 million write-off of the Company’s investment in Los Angeles Premium Outlets. Equity in losses of unconsolidated joint ventures totaled $73.3 million.
- FFO: FFO excluding Chandler Freehold financing expense, accrued default interest and unrealized losses on non-real-estate investments was $74.6 million, down 22.2% from $95.9 million. FFO is a non-GAAP supplemental measure, not a substitute for GAAP earnings or operating cash flow.
- Cash flow: Operating activities provided $61.1 million, down from $80.7 million. Investing activities used $27.0 million, compared with $118.2 million provided in Q1 2023, when joint ventures distributed substantial refinancing proceeds. Financing activities provided $0.7 million versus $174.3 million used. Cash, cash equivalents and restricted cash totaled $225.1 million at quarter-end, including $120.1 million of unrestricted cash.
- Debt and liquidity: Consolidated mortgage notes payable were $4.10 billion and bank and other notes payable were $170.5 million. The Company reported total outstanding loan indebtedness of $6.96 billion on a pro rata basis, including its share of joint-venture debt. Its $650 million revolving facility had $185.0 million drawn and $464.9 million of additional availability; the borrowing rate was SOFR plus 2.35%, with an 8.33% effective rate. The Company was compliant with applicable covenants at March 31.
- Cash distributions: The Company paid a quarterly dividend of $0.17 per share. It announced another $0.17 per share distribution for June 3, 2024.
Changes and operating indicators
- Leased occupancy was 93.4%, up from 92.2% a year earlier but down from 93.5% at year-end 2023. Comparable tenant sales for spaces under 10,000 square feet declined 0.8% year over year; first-quarter center traffic increased 1.5%.
- Trailing-12-month releasing spreads were positive 14.7%: new and renewal leases averaged $62.95 per square foot versus $54.88 on expiring leases. This was the tenth consecutive quarter of positive spreads.
- Shopping center operating expenses increased 5.2%, primarily from higher weather-related costs. Interest expense rose $12.8 million, principally reflecting the financing arrangement and higher revolving-credit costs.
- Cash distributions from unconsolidated joint ventures fell substantially year over year, largely because Q1 2023 included proceeds from the Scottsdale Fashion Square refinancing.
Outlook, risks and contingencies
- Management’s strategic focus is portfolio management, operational improvement and reducing leverage over the next several years. It expects positive operating cash flow after recurring operating and leasing capital expenditures and dividends during 2024; any surplus is intended for development, redevelopment and, where available, debt reduction. This expectation excludes proceeds from asset sales, refinancings or equity issuance.
- Management expects approximately $160 million to $180 million of development, redevelopment, expansion and renovation spending in 2024. Projects may be paused or limited if no longer considered economically viable. The Company wrote off its Los Angeles Premium Outlets investment after concluding it should not continue funding the project.
- Debt refinancing is a significant risk. On April 9, 2024, after quarter-end, the Company defaulted on the $300 million non-recourse Santa Monica Place loan and entered negotiations with the lender. It recorded the property impairment in Q1 after reducing its estimated holding period. The Company also expected a two-year extension of The Oaks loan and was pursuing a refinance of Chandler Fashion Center’s loan; these were described as in process, not completed.
- Management cites elevated interest rates, inflation, tenant financial distress and bankruptcies, refinancing access and real estate market conditions as risks. The Express bankruptcy, announced April 22, 2024, involved 36 leases and approximately $17.1 million of annual leasing revenue at the Company’s share, according to the filing. Management expects inflation to pressure costs.
- Letters of credit totaled $40.9 million, of which $40.8 million was secured by restricted cash; management did not expect them to create a liability. Outstanding construction obligations were $12.5 million. The filing reports no material legal proceedings and no material changes to the prior annual report’s risk factors.
Key facts investors should verify
- Progress and terms of the Santa Monica Place lender negotiations following the April 9 default, and any resulting effect on the property or financial statements.
- Completion, pricing and maturity terms of the planned Chandler Fashion Center refinance and The Oaks extension, and management’s treatment of upcoming debt maturities.
- Whether occupancy, leasing spreads and tenant sales trends continue, and the realized effect of tenant bankruptcies, including Express.
- Execution of the leverage-reduction plan, including asset dispositions, refinancing or equity issuance, and the funding of projected 2024 capital spending.
- Future performance of unconsolidated joint ventures and any further impairment charges, given the Q1 Los Angeles Premium Outlets write-off and substantial joint-venture losses.