The Macerich Company — FY 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. This is an annual filing, not a standalone fourth-quarter report; quarterly results are disclosed separately in the filing. Macerich is a self-managed REIT focused on owning, operating, leasing, acquiring, and redeveloping U.S. shopping centers. At year-end, it reported interests in 60 centers totaling approximately 55 million square feet.
Key financial and operating metrics
| Metric | 2014 | 2013 | Change / context |
|---|---|---|---|
| Total revenue | $1.105 billion | $1.029 billion | Up 7.4% |
| Net income attributable to Macerich | $1.499 billion | $420.1 million | Increase largely reflects a $1.423 billion noncash gain on remeasurement |
| Diluted EPS | $10.45 | $3.00 | Includes the unusual remeasurement gain |
| Diluted FFO | $542.8 million | $527.6 million | Up 2.9%; supplemental, non-GAAP measure |
| AFFO | $552.3 million | $524.5 million | Up about 5.3%; supplemental measure |
| Operating cash flow | $400.7 million | $422.0 million | Down about 5.1% |
| Cash and cash equivalents | $84.9 million | $69.7 million | At December 31 |
| Total loan indebtedness | $7.1 billion | — | Includes consolidated debt, net of noncontrolling interests, and Macerich’s pro rata share of joint-venture debt |
Consolidated mortgage and notes payable were $6.292 billion; total assets were $13.122 billion. The $1.5 billion revolving credit facility had $752 million drawn at year-end and matured in 2018. The filing does not present a directly comparable operating-margin measure; reported net income is materially affected by asset remeasurement, sales, and depreciation.
- Portfolio performance: Regional-center occupancy rose to 95.8% from 94.6%; sales per square foot increased to $587 from $562.
- Leasing: Releasing spreads were positive 22.0% (new and renewal rent of $54.48 per square foot versus $44.66 on expiring leases). Management expected positive spreads to continue in 2015.
- Distributions: Common dividends declared were $2.51 per share, versus $2.36 in 2013. A $0.65-per-share distribution for March 2015 was announced after year-end.
Material changes and unusual items
- In November 2014, Macerich acquired the remaining 49% interest in the five-center PPRLP Queens Portfolio. Consideration was approximately $1.839 billion, funded with about $1.167 billion of newly issued common stock and $672.1 million of assumed debt. The transaction generated the $1.423 billion remeasurement gain, which drove most of the reported earnings increase.
- Other notable transactions included the sale of South Towne Center for $205 million (gain of $121.9 million), sale of Camelback Colonnade (gain of $24.6 million), and acquisition of the remaining interest in Fashion Outlets of Chicago.
- Interest expense decreased to $190.7 million from $197.2 million, but 2014 included a $9.6 million loss on early extinguishment of debt, including a $9.0 million charge related to prepaying $254.2 million of mortgage debt.
- Cash used in investing activities was $255.8 million, compared with $271.9 million of cash provided in 2013, reflecting lower joint-venture distributions and increased joint-venture contributions, among other items. Cash used in financing activities was $129.7 million.
- The company adopted revised discontinued-operations accounting in 2014; 2014 property dispositions were reported in continuing operations, limiting direct comparisons with 2013.
Outlook, risks, and contingencies
- Management anticipated meeting operating, debt-service, and dividend needs over the next 12 months using operating cash flow, working capital, and/or revolver borrowings. It expected $300–$400 million in development, redevelopment, expansion, and renovation spending over that period.
- Management expected 2015 debt maturities other than Great Northern Mall to be refinanced, restructured, extended, or paid from the credit line or cash. Its pro rata share of debt maturities was approximately $406.8 million.
- Great Northern Mall’s non-recourse mortgage went into maturity default on January 1, 2015. The company expected the property to transition to the loan servicer or a receiver. The center was excluded from certain 2014 operating metrics.
- Interest-rate risk is significant: approximately $1.2 billion of floating-rate debt was outstanding; management estimated a 1% rate increase would reduce annual earnings and cash flow by about $12.4 million. No interest-rate caps or swaps were in place at year-end.
- Key risks include substantial debt and refinancing needs, tenant or anchor closures and bankruptcies, retail-sector and e-commerce competition, local economic concentration, redevelopment execution and funding, joint-venture control and obligations, environmental exposures, natural disasters, and continued REIT qualification. Certain joint-venture debt could become recourse; the disclosed potential exposure was $33.5 million, partly offset by a $16.8 million partner indemnity. Outstanding performance letters of credit totaled $18.4 million.
- The filing reported no material legal proceedings. Management and the auditor concluded internal control over financial reporting was effective; the financial-statement audit opinion was unqualified.
Important facts for investors to verify
- How much recurring earnings and FFO growth remains after excluding the one-time remeasurement and property-sale gains; FFO and AFFO are not GAAP cash-flow measures.
- Refinancing or repayment progress for 2015 maturities, especially Lakewood Center and the consequences of the Great Northern Mall default.
- Leasing, occupancy, tenant sales, and anchor-store changes, including the reported Sears closure at Cascade Mall.
- Funding, costs, timing, and lease-up progress for redevelopment commitments and the expected $300–$400 million of 2015 capital spending.
- Whether revolver use, floating-rate exposure, joint-venture obligations, and dividend requirements remain manageable as the portfolio expands.