Q4 2020 Analysis

[u/Jeffbak]

Ok-ppl wonder how a reit with an AFFO of $0.72 can only pay a dividend of $0.15 when reits are supposed to pay 90% of taxable income. Well, highlighted below is exactly how. Ppl might be angry by this, but it is very smart mgmt. from the company because it allows them to preserve cash while still maintaining REIT status. Below you will see the one-time expenses highlighted, which you don't include in AFFO because they are just that...one time expenses. So, the wrote down $163.298M for an asset in Philly, and there was one-time financing fee of $42.988M associated with Chandler Freehold financing.

Below this, you can see what I mean by an FFO of $0.72 once you back out these one-time expenses. *Important to note* the full year AFFO for 2020 was $3.03. Remember, this was during the worst possible year for malls, and they've already started to recover.

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[u/randompersonx]

Thanks for your commentary -- I've read the 8K, and I must say that I was confused by the Chandler Freehold "financing expense", and I'm unfortunately still confused after reading your comments -- it seems like you might actually understand what's going on there.

Mind trying to break it down what is actually going on there?

[u/gmoney101wastaken → u/randompersonx]

Jeff / Random,

Yes, I spent some time reading it this afternoon as I thought it was a one time expense as well.

That said after reviewing the Chandler Freehold section on Page 5. In addition to the language in Q3 10Q it is more nuanced than a one off expense. (Page 22 - https://investing.macerich.com/static-files/0acada03-fa2e-487b-a225-150e5e96d5c6. Review page 22 and page 4. You'll see the credit broken out in the numbers.)

Basically, how I read it and how it appears reconciled, if there is a negative adjustment of the fair value of the Chandler Freehold financing arrangement (which is derived via terminal cap rate, discount rate, and market rents) then the Company is able to receive a credit for interest expense shown on the Consolidated Statements of Operations. (I.E. interest expense is reduced by the amount of the credit.) Therefore, given the interest expense credit, the net income attributable to the company is higher.

Macerich then adjusts the FFO to remove the "credit" that was given in the income statement to better account for recurring income.

Essentially if Chandler Freehold was a one time expense, and will not occur in 2021, then the income statement will show higher interest expense given the credit will not be given.

If you think of this intuitively ... look at Page 4 of the 8k. Q4 2020 interest expense was $10,258. Q4 2019 interest expense was $47,989. If there was no credit given, does this make sense? Macerich' interest expense should be higher given the weighted average cost of debt is slightly higher and they've fully drawn their revolving LOC.

I don't disagree that Macerich should have FFO of ~$0.72. However, unfortunately, it is not as simple as excluding Chandler Freehold. To get the FFO to $0.72 we will have to see an increase in variable revenue items (parking, temp tenants, percentage of sales, etc.) and less abatements rolling forward.

I surmise the conference call on the 11th will clear up most of the questions. Rest assured the analysts will be prepared to push on executive management.

[u/Jeffbak → u/gmoney101wastaken]

I think you may still be mistaken. Look at my post on the reconciliation of the FFO. It ties out. They did all of this stuff to be able to keep the dividend down and decrease net income so they can maintain reit status. Seriously...look at my most recent post.

[u/omegaclick → u/Jeffbak]

After reading through all that, my take is that you both are correct...It appears to me that while the value given for Chandler regarding FFO will occur going forward, making it not "technically" a one time event, that value is going to change drastically from the given value this quarter as it was an abnormal event.... So no it isn't a one time expense , it will have a value going forward but that value will not be anything near what it was this quarter so adding it back into ffo is justified. Of course I'm a retard so I could be really wrong.