SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED SEPTEMBER 30, 2000 COMMISSION FILE NO. 1-12504
THE MACERICH COMPANY
- ---------------------------------------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 95-4448705
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(State or other jurisdiction of incorporation (I.R.S. Employer Identification Number)
or organization)
401 Wilshire Boulevard, Suite 700, Santa Monica, CA 90401
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(Address of principal executive office)(Zip code)
Registrant's telephone number, including area code (310) 394-6000
-------------------
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Number of shares outstanding of the registrant's common stock, as of November 9, 2000.
Common stock, par value $.01 per share: 34,174,850 shares
- ---------------------------------------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve (12) months (or such shorter period that the Registrant was required to file such
report) and (2) has been subject to such filing requirements for the past ninety (90) days.
YES X NO
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Form 10-Q
INDEX
Page
----
Part I: Financial Information
- ------------------------------
Item 1. Financial Statements
Consolidated balance sheets of the Company as of September 30, 2000 and
December 31, 1999 1
Consolidated statements of operations of the Company for the periods from
January 1 through September 30, 2000 and 1999 2
Consolidated statements of operations of the Company for the periods from
July 1, 2000 through September 30, 2000 and 1999
3
Consolidated statements of cash flows of the Company for the periods from
January 1 through September 30, 2000 and 1999 4
Notes to condensed and consolidated financial statements 5 to 22
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 23 to 34
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 35
Part II: Other Information 36 to 38
- ----------------------------
THE MACERICH COMPANY (The Company)
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Unaudited)
September 30, December 31,
2000 1999
------------------- ---------------
ASSETS:
Property, net $1,924,403 $1,931,415
Cash and cash equivalents 35,799 40,455
Tenant receivables, including accrued overage rents of
$927 in 2000 and $7,367 in 1999 27,978 34,423
Deferred charges and other assets, net 56,123 55,065
Investments in joint ventures and the Management Companies 268,684 342,935
------------------- ---------------
Total assets $2,312,987 $2,404,293
=================== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Mortgage notes payable:
Related parties $133,281 $133,876
Others 1,121,707 1,105,180
------------------- ---------------
Total 1,254,988 1,239,056
Bank notes payable 101,722 160,671
Convertible debentures 161,400 161,400
Accounts payable and accrued expenses 27,761 27,815
Due to affiliates 2,524 6,969
Other accrued liabilities 22,394 25,849
Preferred stock dividend payable 4,648 4,648
------------------- ---------------
Total liabilities 1,575,437 1,626,408
------------------- ---------------
Minority interest in Operating Partnership 148,845 157,599
------------------- ---------------
Commitments and contingencies (Note 9)
Stockholders' equity:
Series A cumulative convertible redeemable preferred stock, $.01 par value,
3,627,131 shares authorized, issued and outstanding
at September 30, 2000 and December 31, 1999 36 36
Series B cumulative convertible redeemable preferred stock, $.01 par value,
5,487,471 shares authorized, issued and outstanding
at September 30, 2000 and December 31, 1999 55 55
Common stock, $.01 par value, 100,000,000 shares
authorized, 34,174,418 and 34,072,625 shares issued and
outstanding at September 30, 2000 and December 31, 1999, respectively 342 338
Additional paid in capital 584,635 582,837
Accumulated earnings 11,790 43,514
Unamortized restricted stock (8,153) (6,494)
------------------- ---------------
Total stockholders' equity 588,705 620,286
------------------- ---------------
Total liabilities and stockholders' equity $2,312,987 $2,404,293
=================== ===============
The accompanying notes are an integral part of these financial statements.
- 1 -
THE MACERICH COMPANY (The Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share amounts)
(Unaudited)
Nine Months Ended September 30,
-----------------------------------------------
2000 1999
--------------------- ---------------------
REVENUES:
Minimum rents $142,920 $153,474
Percentage rents 5,156 10,594
Tenant recoveries 74,329 72,785
Other 6,091 5,915
--------------------- ---------------------
Total revenues 228,496 242,768
--------------------- ---------------------
EXPENSES:
Shopping center expenses 73,231 72,537
General and administrative expense 4,032 4,083
Interest expense:
Related parties 7,569 7,559
Others 74,492 77,609
--------------------- ---------------------
Total interest expense 82,061 85,168
--------------------- ---------------------
Depreciation and amortization 44,632 46,434
Equity in income of unconsolidated
joint ventures and the Management Companies 20,461 16,692
(Loss) gain on sale of assets (1,297) 162
--------------------- ---------------------
Income before extraordinary item, minority interest and
cumulative effect of change in accounting principle 43,704 51,400
Extraordinary loss on early extinguishment of debt (984) (1,016)
Cumulative effect of change in accounting principle (963) -
--------------------- ---------------------
Income of the Operating Partnership 41,757 50,384
Less minority interest in net income
of the Operating Partnership 6,722 9,795
--------------------- ---------------------
Net income 35,035 40,589
Less preferred dividends 13,945 13,581
--------------------- ---------------------
Net income - available to common stockholders $21,090 $27,008
===================== =====================
Earnings per common share - basic:
Income before extraordinary item and cumulative effect
of change in accounting principle $0.68 $0.82
Extraordinary item (0.03) (0.03)
Cumulative effect of change in accounting principle (0.03) -
--------------------- ---------------------
Net income per share - available to common stockholders $0.62 $0.79
===================== =====================
Weighted average number of common shares
outstanding - basic 34,134,000 33,987,000
===================== =====================
Weighted average number of common shares
outstanding - basic, assuming full conversion of
Operating Partnership units outstanding 45,084,000 46,286,000
===================== =====================
Earnings per common share - diluted:
Income before extraordinary item and cumulative effect
of change in accounting principle $0.66 $0.81
Extraordinary item (0.02) (0.02)
Cumulative effect of change in accounting principle (0.02) -
--------------------- ---------------------
Net income per share - available to common stockholders $0.62 $0.79
===================== =====================
Weighted average number of common shares
outstanding - diluted for EPS 45,084,000 46,286,000
===================== =====================
The accompanying notes are an integral part of these financial statements.
- 2 -
THE MACERICH COMPANY (The Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share amounts)
(Unaudited)
Three Months Ended September 30,
---------------------------------------------
2000 1999
--------------------- --------------------
REVENUES:
Minimum rents $47,839 $51,569
Percentage rents 2,154 3,446
Tenant recoveries 24,891 25,509
Other 2,053 2,720
--------------------- --------------------
Total revenues 76,937 83,244
--------------------- --------------------
EXPENSES:
Shopping center expenses 25,122 25,316
General and administrative expense 851 1,240
Interest expense:
Related parties 2,527 2,506
Others 24,435 27,307
--------------------- --------------------
Total interest expense 26,962 29,813
--------------------- --------------------
Depreciation and amortization 15,064 15,895
Equity in income of unconsolidated
joint ventures and the Management Companies 7,353 6,058
(Loss) gain on sale of assets (1,189) 162
--------------------- --------------------
Income before extraordinary item and minority interest 15,102 17,200
Extraordinary loss on early extinguishment of debt (984) (28)
--------------------- --------------------
Income of the Operating Partnership 14,118 17,172
Less minority interest in net income --------------------- --------------------
of the Operating Partnership 2,301 3,307
--------------------- --------------------
Net income 11,817 13,865
Less preferred dividends 4,648 4,740
--------------------- --------------------
Net income - available to common stockholders $7,169 $9,125
===================== ====================
Earnings per common share - basic:
Income before extraordinary item $0.24 $0.27
Extraordinary item (0.03) 0.00
--------------------- --------------------
Net income per share - available to common stockholders $0.21 $0.27
===================== ====================
Weighted average number of common shares
outstanding - basic 34,162,000 34,044,000
===================== ====================
Weighted average number of common shares
outstanding - basic, assuming full conversion of
Operating Partnership units outstanding 45,107,000 46,318,000
===================== ====================
Earnings per common share - diluted:
Income before extraordinary item $0.23 $0.27
Extraordinary item (0.02) 0.00
--------------------- --------------------
Net income per share - available to common stockholders $0.21 $0.27
===================== ====================
Weighted average number of common shares
outstanding - diluted for EPS 45,107,000 46,318,000
===================== ====================
The accompanying notes are an integral part of these financial statements.
- 3 -
THE MACERICH COMPANY (The Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
January 1 to September 30,
----------------------------------------------
2000 1999
---------------------- ---------------------
Cash flows from operating activities:
Net income - available to common stockholders $21,090 $27,008
Preferred dividends 13,945 13,581
---------------------- ---------------------
Net income 35,035 40,589
---------------------- ---------------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Extraordinary loss on early extinguishment of debt 984 1,016
Cumulative effect of change in accounting principle 963 -
Loss (gain) on sale of assets 1,297 (162)
Depreciation and amortization 44,632 46,434
Amortization of net discount (premium) on trust deed note payable 25 182
Minority interest in net income of the Operating Partnership 6,722 9,795
Changes in assets and liabilities:
Tenant receivables, net 5,482 3,079
Other assets (1,185) 9,583
Accounts payable and accrued expenses (54) (1,228)
Due to affiliates (4,445) -
Preferred stock dividend payable - 320
Other liabilities (3,455) (12,638)
---------------------- ---------------------
Total adjustments 50,966 56,381
---------------------- ---------------------
Net cash provided by operating activities 86,001 96,970
---------------------- ---------------------
Cash flows from investing activities:
Acquisitions of property and improvements (3,134) (4,918)
Renovations and expansions of Centers (25,093) (40,231)
Tenant allowances (3,307) (3,604)
Deferred charges (8,239) (10,194)
Equity in income of unconsolidated joint ventures
and the Management Companies (20,461) (16,692)
Distributions from joint ventures 97,909 17,271
Contributions to joint ventures (3,197) (88,142)
Loans to affiliates, net - (82,393)
---------------------- ---------------------
Net cash provided by (used in) investing activities 34,478 (228,903)
---------------------- ---------------------
Cash flows from financing activities:
Proceeds from mortgages and notes payable 162,055 335,931
Payments on mortgages and notes payable (205,097) (125,529)
Dividends and distributions to partners (68,148) (66,706)
Dividends to preferred stockholders (13,945) (13,581)
---------------------- ---------------------
Net cash (used in) provided by financing activities (125,135) 130,115
---------------------- ---------------------
Net decrease in cash (4,656) (1,818)
Cash and cash equivalents, beginning of period 40,455 25,143
---------------------- ---------------------
Cash and cash equivalents, end of period $35,799 $23,325
====================== =====================
Supplemental cash flow information:
Cash payment for interest, net of amounts capitalized $79,212 $81,132
====================== =====================
The accompanying notes are an integral part of these financial statements.
- 4 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
1. Interim Financial Statements and Basis of Presentation:
The accompanying consolidated financial statements of The Macerich Company (the "Company") have been prepared in accordance
with generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for
complete financial statements and have not been audited by independent public accountants.
The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated
financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31,
1999. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the financial statements for the interim periods have been made. The results for interim periods are not
necessarily indicative of the results to be expected for a full year. The accompanying consolidated balance sheet as of
December 31, 1999 has been derived from the audited financial statements, but does not include all disclosure required by
GAAP.
Certain reclassifications have been made in the 1999 consolidated financial statements to conform to the 2000 financial
statement presentation.
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin 101, "Revenue Recognition in
Financial Statements," ("SAB 101") which became effective for periods beginning after December 15, 1999. This bulletin
modified the timing of revenue recognition for percentage rent received from tenants. This change will defer recognition of
a significant amount of percentage rent for the first three calendar quarters into the fourth quarter. The Company applied
this accounting change as of January 1, 2000. The cumulative effect of this change in accounting principle, at the adoption
date of January 1, 2000, including the pro rata share of joint ventures, was approximately $1,750,000.
In June 1998, the FASB issued Statement of Financial Accounting Standard ("SFAS") 133, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS 133") which requires companies to record derivatives on the balance sheet,
measured at fair value. Changes in the fair values of those derivatives will be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. The key criterion for hedge accounting is that the hedging
relationship must be highly effective in achieving offsetting changes in fair value or cash flows. In June 1999, the FASB
issued SFAS 137, "Accounting for Derivative Instruments and Hedging Activities," which delays the implementation of SFAS 133
from January 1, 2000 to January 1, 2001. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133," ("SFAS138"), which amends the
accounting and reporting standards of SFAS 133. The Company has determined the implementation of SFAS 133 and SFAS 138 should
have a minor impact on its consolidated financial statements.
- 5 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
Earnings Per Share ("EPS")
The computation of basic earnings per share is based on net income and the weighted average number of common shares
outstanding for nine and three months ending September 30, 2000 and 1999. The convertible debentures and convertible
preferred stock were not included in the calculation since the effect of their inclusion would be anti-dilutive. The
Operating Partnership units ("OP units") not held by the Company have been included in the diluted EPS calculation
since they are redeemable on a one-for-one basis for common stock. The following table reconciles the basic and diluted
earnings per share calculation:
For the Nine Months Ended September 30,
-------------------------------------------------------------------------------
-------------------------------------- ---------------------------------------
2000 1999
-------------------------------------- ---------------------------------------
Net Net
Income Shares Per Share Income Shares Per Share
-------------------------------------- ---------------------------------------
(In thousands, except per share data)
Net income $35,035 $40,589
Less: Preferred stock dividends 13,945 13,581
------------- -------------
Basic EPS:
Net income - available to common stockholders 21,090 34,134 $0.62 27,008 33,987 $0.79
Diluted EPS:
Effect of dilutive securities:
Conversion of OP units 6,722 10,950 9,795 12,299
Employee stock options and restricted stock n/a - antidilutive for EPS n/a - antidilutive for EPS
Convertible preferred stock n/a - antidilutive for EPS n/a - antidilutive for EPS
Convertible debentures n/a - antidilutive for EPS n/a - antidilutive for EPS
-------------------------------------- ---------------------------------------
Net income - available to common stockholders $27,812 45,084 $0.62 $36,803 46,286 $0.79
====================================== =======================================
For the Three Months Ended September 30,
----------------------------------------------------------------------------
------------------------------------- -------------------------------------
2000 1999
------------------------------------- -------------------------------------
Net Net
Income Shares Per Share Income Shares Per Share
------------------------------------- -------------------------------------
(In thousands, except per share data)
Net income $11,817 $13,865
Less: Preferred stock dividends 4,648 4,740
------------ ------------
Basic EPS:
Net income - available to common stockholders 7,169 34,162 $0.21 9,125 34,044 $0.27
Diluted EPS:
Effect of dilutive securities:
Conversion of OP units 2,301 10,945 3,307 12,274
Employee stock options and restricted stock n/a - antidilutive for EPS n/a - antidilutive for EPS
Convertible preferred stock n/a - antidilutive for EPS n/a - antidilutive for EPS
Convertible debentures n/a - antidilutive for EPS n/a - antidilutive for EPS
------------------------------------- -------------------------------------
Net income - available to common stockholders $9,470 45,107 $0.21 $12,432 46,318 $0.27
===================================== =====================================
- 6 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
2. Organization:
The Company is involved in the acquisition, ownership, redevelopment, management and leasing of regional and community
shopping centers located throughout the United States. The Company is the sole general partner of, and owns a majority of
the ownership interests in, The Macerich Partnership, L.P., a Delaware limited partnership (the "Operating Partnership").
The Operating Partnership owns or has an ownership interest in 46 regional shopping centers and five community shopping
centers aggregating approximately 41.5 million square feet of gross leasable area. These 51 regional and community shopping
centers are referred to hereinafter as the "Centers", unless the context otherwise requires. The Company is a
self-administered and self-managed real estate investment trust ("REIT") and conducts all of its operations through the
Operating Partnership and the Company's three management companies, Macerich Property Management Company, a California
corporation, Macerich Manhattan Management Company, a California corporation, and Macerich Management Company, a California
corporation (collectively, the "Management Companies").
The Company was organized to qualify as a REIT under the Internal Revenue Code of 1986, as amended. The 20%,
as of September 30, 2000, limited partnership interest of the Operating Partnership not owned by the Company is
reflected in these financial statements as minority interest.
3. Investments in Unconsolidated Joint Ventures and the Management Companies:
The following are the Company's investments in various joint ventures. The Operating Partnership's interest in each
joint venture as of September 30, 2000 is as follows:
The Operating Partnership's
Joint Venture Ownership %
------------- -----------
Macerich Northwestern Associates 50%
Manhattan Village, LLC 10%
MerchantWired, LLC 9.5%
Pacific Premier Retail Trust 51%
Panorama City Associates 50%
SDG Macerich Properties, L.P. 50%
West Acres Development 19%
The Operating Partnership also owns the non-voting preferred stock of Macerich Management Company and Macerich Property
Management Company and is entitled to receive 95% of the distributable cash flow of these two entities. Macerich Manhattan
Management Company is a 100% subsidiary of Macerich Management Company.
- 7 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
3. Investments in Unconsolidated Joint Ventures and the Management Companies, Continued:
The Company accounts for the Management Companies and joint ventures using the equity method of accounting.
On February 18, 1999, the Company, through a 51/49 joint venture with Ontario Teachers' Pension Plan Board ("Ontario
Teachers") closed on the first phase of a two phase acquisition of a portfolio of properties. The phase one closing included
the acquisition of three regional malls, the retail component of a mixed-use development, five contiguous properties and two
non-contiguous community shopping centers comprising approximately 3.6 million square feet for a total purchase price of
approximately $427,000. The purchase price was funded with a $120,000 loan placed concurrently with the closing, $140,400
of debt from an affiliate of the seller, and $39,400 of assumed debt. The balance of the purchase price was paid in cash.
The Company's share of the cash component was funded with the proceeds from two refinancings of centers and borrowings under
the Company's line of credit. On July 12, 1999, the Company closed on the second phase of the acquisition. The second
phase consisted of the acquisition of the office component of the mixed-use development for a purchase price of
approximately $111,000. The purchase price was funded with a $76,700 loan placed concurrently with the closing and the
balance was paid in cash. The Company's share of the cash component was funded from borrowings under the Company's line of
credit.
On June 2, 1999, Macerich Cerritos, LLC ("Cerritos"), a wholly-owned subsidiary of Macerich Management Company, acquired Los
Cerritos Center in Cerritos, California. The total purchase price was $188,000, which was funded with $120,000 of debt
placed concurrently with the closing and a $70,800 loan from the Company. The Company funded this loan from borrowings
under a $60,000 bank loan agreement and the balance from the Company's line of credit.
On October 26, 1999, 49% of the membership interests of Macerich Stonewood, LLC ("Stonewood"), Cerritos and Macerich
Lakewood, LLC ("Lakewood"), were sold to Ontario Teachers' and concurrently Ontario Teachers' and the Company contributed
their 99% collective membership interests in Stonewood and Cerritos and 100% of their collective membership interests in
Lakewood to Pacific Premier Retail Trust ("PPRT"), a real estate investment trust, owned approximately 51% by the Company
and 49% by Ontario Teachers. Lakewood, Stonewood, and Cerritos own Lakewood Mall, Stonewood Mall and Los Cerritos Center,
respectively. The total value of the transaction was approximately $535,000. The properties were contributed to PPRT
subject to existing debt of $322,000. The net cash proceeds to the Company were approximately $104,000 which were used for
reduction of debt and for general corporate purposes.
The results of these joint ventures are included for the period subsequent to their respective dates of acquisition.
On October 27, 1999, Albany Plaza, a 145,462 square foot community center, which was owned 51% by the Macerich Management
Company, was sold.
- 8 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
3. Investments in Unconsolidated Joint Ventures and the Management Companies, Continued:
On November 12, 1999, Eastland Plaza, a 65,313 square foot community center, which was 51% owned by the Macerich Management
Company, was sold.
On September 30, 2000, Manhattan Village, a 551,847 square foot regional shopping center, which was owned 10% by the
Operating Partnership, was sold. The joint venture sold the property for $89,000, including a note receivable from the buyer
for $79,000 at an interest rate of 8.75% payable monthly, until maturity, September 30, 2001. A gain from sale of the property
for $10,945 was recorded at September 30, 2000.
Combined and condensed balance sheets and statements of operations are presented below for all unconsolidated joint ventures
and the Management Companies, followed by information regarding the Operating Partnership's beneficial interest in the
combined operations. Beneficial interest is calculated based on the Operating Partnership's ownership interests in the
joint ventures and the Management Companies.
COMBINED AND CONDENSED BALANCE SHEETS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
September 30, December 31,
2000 1999
--------------- ---------------
Assets:
Properties, net $2,055,253 $2,117,711
Other assets 169,331 58,412
--------------- ---------------
Total assets $2,224,584 $2,176,123
=============== ===============
Liabilities and partners' capital:
Mortgage notes payable $1,461,522 $1,287,732
Other liabilities 50,482 62,891
The Company's capital 268,684 342,935
Outside partners' capital 443,896 482,565
---------------- ----------------
Total liabilities and partners' capital $2,224,584 $2,176,123
================ ================
- 9 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
3. Investments in Unconsolidated Joint Ventures and the Management Companies - Continued:
COMBINED STATEMENTS OF OPERATIONS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
Nine Months Ended September 30, 2000
------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
----------------- ----------------- --------------- -------------- --------------
Revenues:
Minimum rents $66,190 $69,645 $19,473 - $155,308
Percentage rents 2,867 2,109 1,180 - 6,156
Tenant recoveries 30,633 24,097 7,993 - 62,723
Management fee - - - $9,151 9,151
Other 1,554 1,087 2,119 603 5,363
----------------- ----------------- --------------- -------------- --------------
Total revenues 101,244 96,938 30,765 9,754 238,701
----------------- ----------------- --------------- -------------- --------------
Expenses:
Shopping center expenses 37,733 26,602 12,153 - 76,488
Interest expense 28,846 34,287 5,602 (240) 68,495
Management Company expense - - - 10,651 10,651
Depreciation and amortization 17,523 15,011 2,284 806 35,624
----------------- ----------------- --------------- -------------- --------------
Total operating expenses 84,102 75,900 20,039 11,217 191,258
----------------- ----------------- --------------- -------------- --------------
Gain (loss) on sale of assets (3) - 11,586 (475) 11,108
Cumulative effect of change in
accounting principle (1,139) (397) (21) - (1,557)
----------------- ----------------- --------------- -------------- --------------
Net income (loss) $16,000 $20,641 $22,291 ($1,938) $56,994
================= ================= =============== ============== ==============
COMBINED STATEMENTS OF OPERATIONS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
Nine Months Ended September 30, 1999
------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
----------------- ----------------- --------------- -------------- --------------
Revenues:
Minimum rents $63,903 $25,208 $18,954 $4,928 $112,993
Percentage rents 5,384 1,450 1,393 205 8,432
Tenant recoveries 31,079 8,574 8,326 2,169 50,148
Management fee - - - 6,466 6,466
Other 1,702 144 987 339 3,172
----------------- ----------------- --------------- -------------- --------------
Total revenues 102,068 35,376 29,660 14,107 181,211
----------------- ----------------- --------------- -------------- --------------
Expenses:
Shopping center expenses 37,948 10,236 9,809 2,017 60,010
Interest expense 22,843 11,802 5,689 4,426 44,760
Management Company expense - - - 8,334 8,334
Depreciation and amortization 16,225 5,828 3,253 2,002 27,308
----------------- ----------------- --------------- -------------- --------------
Total operating expenses 77,016 27,866 18,751 16,779 140,412
----------------- ----------------- --------------- -------------- --------------
Gain on sale of assets 5 - 983 220 1,208
----------------- ----------------- --------------- -------------- --------------
Net income (loss) $25,057 $7,510 $11,892 ($2,452) $42,007
================= ================= =============== ============== ==============
- 10 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
3. Investments in Unconsolidated Joint Ventures and the Management Companies - Continued:
COMBINED STATEMENTS OF OPERATIONS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
Three Months Ended September 30, 2000
---------------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
-------------------- --------------- ------------------ --------------- -------------
Revenues:
Minimum rents $22,147 $23,569 $6,448 - $52,164
Percentage rents 637 861 449 - 1,947
Tenant recoveries 10,638 8,166 3,474 - 22,278
Management fee - - - $2,660 2,660
Other 503 496 1,415 412 2,826
-------------------- --------------- ------------------ --------------- -------------
Total revenues 33,925 33,092 11,786 3,072 81,875
-------------------- --------------- ------------------ --------------- -------------
Expenses:
Shopping center expenses 12,425 9,315 6,674 - 28,414
Interest expense 10,901 12,063 1,870 (79) 24,755
Management Company expense - - - 2,745 2,745
Depreciation and amortization 6,289 5,439 818 300 12,846
-------------------- --------------- ------------------ --------------- -------------
Total operating expenses 29,615 26,817 9,362 2,966 68,760
-------------------- --------------- ------------------ --------------- -------------
Gain (loss) on sale of assets (3) - 11,526 (28) 11,495
-------------------- --------------- ------------------ --------------- -------------
Net income $4,307 $6,275 $13,950 $78 $24,610
==================== =============== ================== =============== =============
COMBINED STATEMENTS OF OPERATIONS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
Three Months Ended September 30, 1999
---------------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
-------------------- --------------- ------------------ --------------- -------------
Revenues:
Minimum rents $21,355 $11,627 $6,391 $3,529 $42,902
Percentage rents 1,830 519 442 193 2,984
Tenant recoveries 11,467 4,295 2,661 1,828 20,251
Management fee - - - 2,368 2,368
Other 771 (23) 411 124 1,283
-------------------- --------------- ------------------ --------------- -------------
Total revenues 35,423 16,418 9,905 8,042 69,788
-------------------- --------------- ------------------ --------------- -------------
Expenses:
Shopping center expenses 13,660 4,729 3,419 1,644 23,452
Interest expense 7,654 5,403 1,895 3,407 18,359
Management Company expense - - - 2,615 2,615
Depreciation and amortization 5,659 2,303 1,112 1,305 10,379
-------------------- --------------- ------------------ --------------- -------------
Total operating expenses 26,973 12,435 6,426 8,971 54,805
-------------------- --------------- ------------------ --------------- -------------
Loss on sale of assets - - - (80) (80)
-------------------- --------------- ------------------ --------------- -------------
Net income (loss) $8,450 $3,983 $3,479 ($1,009) $14,903
==================== =============== ================== =============== =============
- 11 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
3. Investments in Unconsolidated Joint Ventures and the Management Companies - Continued:
Significant accounting policies used by the unconsolidated joint ventures and the Management Companies are similar to those used
by the Company.
Included in mortgage notes payable are amounts due to affiliates of Northwestern Mutual Life ("NML") of $161,441 and $156,219
for the periods ended September 30, 2000 and December 31, 1999, respectively. NML is considered a related party because it is a
joint venture partner with the Company in Macerich Northwestern Associates. Interest expense incurred on these borrowings
amounted to $7,306 and $4,710 for the nine months ended September 30, 2000 and 1999, respectively; and $2,661 and $2,245 for
the three months ended September 30, 2000 and 1999, respectively.
- 12 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
3. Investments in Unconsolidated Joint Ventures and the Management Companies - Continued:
PRO RATA SHARE OF COMBINED AND CONDENSED STATEMENTS OF
OPERATIONS OF JOINT VENTURES AND THE MANAGEMENT COMPANIES
----------------------------------------------------------
The following tables set forth the Operating Partnership's beneficial interest in the joint ventures and the Management Companies:
Nine Months Ended September 30, 2000
------------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
------------------ -------------------- ------------------ ------------- ------------
Revenues:
Minimun rents $33,095 $35,519 $6,060 - $74,674
Percentage rents 1,434 1,076 341 - 2,851
Tenant recoveries 15,317 12,289 2,308 - 29,914
Management fee - - - $8,693 8,693
Other 777 554 351 573 2,255
------------------ -------------------- ------------------ ------------- ------------
Total revenues 50,623 49,438 9,060 9,266 118,387
------------------ -------------------- ------------------ ------------- ------------
Expenses:
Shopping center expenses 18,867 13,567 3,306 - 35,740
Interest expense 14,423 17,486 2,194 (228) 33,875
Management Company expense - - - 10,101 10,101
Depreciation and amortization 8,762 7,656 1,002 766 18,186
------------------ -------------------- ------------------ ------------- ------------
Total operating expenses 42,052 38,709 6,502 10,639 97,902
------------------ -------------------- ------------------ ------------- ------------
Gain (loss) on sale of assets (3) - 1,217 (451) 763
Cumulative effect of change in accounting principle (570) (202) (15) - (787)
------------------ -------------------- ------------------ ------------- ------------
Net income (loss) $7,998 $10,527 $3,760 ($1,824) $20,461
================== ==================== ================== ============= ============
Nine Months Ended September 30, 1999
------------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
------------------ -------------------- ------------------ ------------- ------------
Revenues:
Minimun rents $31,951 $12,856 $5,826 $4,682 $55,315
Percentage rents 2,692 739 422 195 4,048
Tenant recoveries 15,539 4,373 2,369 2,060 24,341
Management fee - - - 6,143 6,143
Other 851 73 199 322 1,445
------------------ -------------------- ------------------ ------------- ------------
Total revenues 51,033 18,041 8,816 13,402 91,292
------------------ -------------------- ------------------ ------------- ------------
Expenses:
Shopping center expenses 18,974 5,220 3,005 1,916 29,115
Interest expense 11,421 6,019 2,231 4,205 23,876
Management Company expense - - - 7,917 7,917
Depreciation and amortization 8,112 2,972 1,105 1,902 14,091
------------------ -------------------- ------------------ ------------- ------------
Total operating expenses 38,507 14,211 6,341 15,940 74,999
------------------ -------------------- ------------------ ------------- ------------
Gain on sale of assets 2 - 188 209 399
------------------ -------------------- ------------------ ------------- ------------
Net income (loss) $12,528 $3,830 $2,663 ($2,329) $16,692
================== ==================== ================== ============= ============
- 13 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
3. Investments in Unconsolidated Joint Ventures and the Management Companies - Continued:
PRO RATA SHARE OF COMBINED AND CONDENSED STATEMENTS OF
OPERATIONS OF JOINT VENTURES AND THE MANAGEMENT COMPANIES
----------------------------------------------------------
The following tables set forth the Operating Partnership's beneficial interest in the joint ventures and the Management Companies:
Three Months Ended September 30, 2000
------------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
----------------- -------------------- ----------------- ------------- -------------
Revenues:
Minimum rents $11,073 $12,020 $2,010 - $25,103
Percentage rents 319 440 122 - 881
Tenant recoveries 5,320 4,164 925 - 10,409
Management fee - - - $2,528 2,528
Other 252 253 201 392 1,098
----------------- -------------------- ----------------- ------------- -------------
Total revenues 16,964 16,877 3,258 2,920 40,019
----------------- -------------------- ----------------- ------------- -------------
Expenses:
Shopping center expenses 6,213 4,751 1,459 - 12,423
Interest expense 5,450 6,152 733 (75) 12,260
Management company expense - - - 2,609 2,609
Depreciation and amortization 3,145 2,774 346 285 6,550
----------------- -------------------- ----------------- ------------- -------------
Total operating expenses 14,808 13,677 2,538 2,819 33,842
----------------- -------------------- ----------------- ------------- -------------
Gain (loss) on sale of assets (3) - 1,206 (27) 1,176
----------------- -------------------- ----------------- ------------- -------------
Net income $2,153 $3,200 $1,926 $74 $7,353
================= ==================== ================= ============= =============
Three Months Ended September 30, 1999
------------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
----------------- -------------------- ----------------- ------------- -------------
Revenues:
Minimum rents $10,677 $5,930 $1,966 $3,353 $21,926
Percentage rents 915 264 122 184 1,485
Tenant recoveries 5,733 2,191 778 1,736 10,438
Management fee - - - 2,250 2,250
Other 385 (12) 82 118 573
----------------- -------------------- ----------------- ------------- -------------
Total revenues 17,710 8,373 2,948 7,641 36,672
----------------- -------------------- ----------------- ------------- -------------
Expenses:
Shopping center expenses 6,830 2,412 1,057 1,562 11,861
Interest expense 3,827 2,756 746 3,237 10,566
Management company expense - - - 2,486 2,486
Depreciation and amortization 2,829 1,174 383 1,240 5,626
----------------- -------------------- ----------------- ------------- -------------
Total operating expenses 13,486 6,342 2,186 8,525 30,539
----------------- -------------------- ----------------- ------------- -------------
Gain on sale of assets - - - (75) (75)
----------------- -------------------- ----------------- ------------- -------------
Net income (loss) $4,224 $2,031 $762 ($959) $6,058
================= ==================== ================= ============= =============
- 14 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
4. Property:
Property is summarized as follows:
September 30, December 31,
2000 1999
--------------------- ---------------------
Land $397,666 $399,172
Building improvements 1,684,392 1,603,348
Tenant improvements 54,308 49,654
Equipment and furnishings 11,971 11,272
Construction in progress 56,708 111,089
--------------------- ---------------------
2,205,045 2,174,535
Less, accumulated depreciation (280,642) (243,120)
--------------------- ---------------------
$1,924,403 $1,931,415
===================== =====================
- 15 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
5. Mortgage Notes Payable:
Mortgage notes payable at September 30, 2000 and December 31, 1999 consist of the following:
Carrying Amount of Notes
------------------------------------------------------------
2000 1999
----------------------------- -----------------------------
Property Pledged Related Related Interest Payment Maturity
As Collateral Other Party Other Party Rate Terms Date
- ---------------------------------------------- --------------- ------------- --------------- ------------- ------------ --------------- -----------------
Wholly Owned Centers:
Capitola Mall ---- $36,694 ---- $36,983 9.25% 316 (a) 2001
Carmel Plaza $28,692 ---- $28,869 ---- 8.18% 202 (a) 2009
Chesterfield Towne Center 63,786 ---- 64,358 ---- 9.07% 548(b) 2024
Citadel 72,421 ---- 73,377 ---- 7.20% 554(a) 2008
Corte Madera, Village at 71,477 ---- 71,949 ---- 7.75% 516(a) 2009
Crossroads Mall-Boulder (c) ---- 34,587 ---- 34,893 7.08% 244(a) 2010
Fresno Fashion Fair 69,000 ---- 69,000 ---- 6.52% interest only 2008
Greeley Mall 15,560 ---- 16,228 ---- 8.50% 187(a) 2003
Green Tree Mall/Crossroads - OK/
Salisbury (d) 117,714 ---- 117,714 ---- 7.23% interest only 2004
Holiday Village ---- 17,000 ---- 17,000 6.75% interest only 2001
Northgate Mall ---- 25,000 ---- 25,000 6.75% interest only 2001
Northwest Arkansas Mall 61,285 ---- 62,080 ---- 7.33% 434(a) 2009
Parklane Mall ---- 20,000 ---- 20,000 6.75% interest only 2001
Queens Center 99,549 ---- 100,000 ---- 6.88% 633(a) 2009
Rimrock Mall 29,999 ---- 30,445 ---- 7.70% 244(a) 2003
Santa Monica Place (e) 85,000 ---- 80,000 ---- 8.39% interest only 2001
South Plains Mall 64,224 ---- 64,623 ---- 8.22% 454(a) 2009
South Towne Center 64,000 ---- 64,000 ---- 6.61% interest only 2008
Valley View Center 51,000 ---- 51,000 ---- 7.89% interest only 2006
Villa Marina Marketplace 58,000 ---- 58,000 ---- 7.23% interest only 2006
Vintage Faire Mall (f) 70,000 ---- 53,537 ---- 7.89% 508(a) 2010
Westside Pavilion 100,000 ---- 100,000 ---- 6.67% interest only 2008
--------------- ------------- --------------- -------------
Total - Wholly Owned Centers $1,121,707 $133,281 $1,105,180 $133,876
--------------- ------------- --------------- -------------
- 16 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
5. Mortgage Notes Payable, Continued:
Mortgage notes payable at September 30, 2000 and December 31, 1999 consist of the following:
Carrying Amount of Notes
------------------------------------------------------------
2000 1999
----------------------------- -----------------------------
Property Pledged Related Related Interest Payment Maturity
As Collateral Other Party Other Party Rate Terms Date
- ---------------------------------------------- --------------- ------------- --------------- ------------- ------------ --------------- -----------------
Joint Venture Centers (at pro rata share):
Broadway Plaza (50%) (g) - $36,204 - $36,690 6.68% 257 (a) 2008
Pacific Premier Retail Trust (51%) (g):
Cascade Mall $13,409 - $13,837 - 6.50% 122 (a) 2014
Kitsap Mall/Kitsap Place (h) 31,110 - 20,452 - 8.06% 450 (a) 2010
Lakewood Mall (i) 64,770 64,770 - 7.20% interest only 2005
Lakewood Mall (j) 8,224 - - - 8.88% interest only 2002
Los Cerritos Center 60,363 60,909 - 7.13% 421(a) 2006
North Point Plaza 1,838 - 1,889 - 6.50% 16 (a) 2015
Redmond Town Center - Retail 32,329 - 32,743 - 6.50% 224 (a) 2011
Redmond Town Center - Office (k) - 45,407 - 42,248 6.77% 298 (a) 2009
Stonewood Mall (l) 38,250 38,250 - 8.38% interest only 2001
Washington Square 59,705 - 60,471 - 6.70% 421 (a) 2009
Washington Square Too 6,374 - 6,533 - 6.50% 53 (a) 2016
SDG Macerich Properties L.P. (50%) (g) 186,923 - 159,282 - 6.70% (m) 1,120 (a) 2006
SDG Macerich Properties L.P. (50%) (g) 92,250 - 92,500 - 7.12% (m) interest only 2003
SDG Macerich Properties L.P. (50%) (g) 40,700 - - - 7.00% (m) interest only 2006
West Acres Center (19%) (g) (n) 7,600 - 7,600 - 6.52% interest only 2009
--------------- ------------- --------------- -------------
Total - Joint Venture Centers $643,845 $81,611 $559,236 $78,938
--------------- ------------- --------------- -------------
--------------- ------------- --------------- -------------
Total - All Centers $1,765,552 $214,892 $1,664,416 $212,814
=============== ============= =============== =============
(a) This represents the monthly payment of principal and interest.
(b) This amount represents the monthly payment of principal and interest. In addition, contingent interest, as defined in the
loan agreement, may be due to the extent that 35% of the amount by which the property's gross receipts (as
defined in the loan agreement) exceeds a base amount specified therein. Contingent interest expense recognized
by the Company was $250 and $14 for the nine and three months ended September 30, 2000, respectively; and $192
and $52 for the nine and three months ended September 30, 1999, respectively.
(c) This note was issued at a discount. The discount is being amortized over the life of the loan using the effective interest
method. At September 30, 2000 and December 31, 1999 the unamortized discount was $339 and $364, respectively.
- 17 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
5. Mortgage Notes Payable, Continued:
(d) This loan is cross collateralized by Green Tree Mall, Crossroads Mall-Oklahoma and the Centre at Salisbury.
(e) The loan bears interest at LIBOR plus 1.75%. In addition, the Company can increase the loan amount up to $90,000. On
October 2, 2000, the Company refinanced this loan with a 10 year fixed rate $85,000 loan bearing interest at 7.70%.
(f) On August 31, 2000, the Company refinanced the debt on Vintage Faire. The old loan was paid in full and a new note was
issued for $70,000 bearing interest at a fixed rate of 7.89% and maturing September 1, 2010. The Company incurred a
loss on early extinguishment of the old debt in 2000 of $984.
(g) Reflects the Company's pro rata share of debt.
(h) In connection with the acquisition of this Center, the joint venture assumed $39,425 of debt. At acquisition, this debt was
recorded at fair value of $41,475 which included an unamortized premium of $2,050. This premium was being amortized as
interest expense over the life of the loan using the effective interest method. The joint venture's monthly debt
service was $349 and was calculated based on an 8.60% interest rate. At December 31, 1999, the joint venture's
unamortized premium was $1,365. On June 1, 2000, the joint venture paid off in full the old debt and a new note was
issued for $61,000 bearing interest at a fixed rate of 8.06% and maturing June 2010. The new loan is interest only
until December 31, 2001. Effective January 1, 2002, monthly principal and interest of $450 will be payable through
maturity. The new debt is cross-collateralized by Kitsap Mall and Kitsap Place.
(i) On August 15, 1995, the Company issued $127,000 of collateralized fixed rate notes (the "Notes"). The Notes bear interest
at an average fixed rate of 7.20% and mature in July 2005. The Notes require the Company to deposit all cash flow from
the property operations with a trustee to meet its obligations under the Notes. Cash in excess of the required amount,
as defined, is released. Included in cash and cash equivalents is $750 of restricted cash deposited with the trustee at
September 30, 2000 and at December 31, 1999. All of the Notes were assumed by the Pacific Premier Retail Trust joint
venture on October 26, 1999.
(j) On July 28, 2000, the joint venture placed a $16,125 floating rate note on the property bearing interest at LIBOR plus 2.25%
and maturing July 2002. At September 30, 2000, the total interest was 8.88%.
(k) Concurrent with the acquisition, the joint venture placed $76,700 of debt and obtained a construction loan for an additional
$16,000. Principal is drawn on the construction loan as costs are incurred. As of September 30, 2000 and December 31,
1999, $12,333 and $6,745 of principal has been drawn under the construction loan, respectively.
(l) The loan bears interest at LIBOR plus 1.75%. At September 30, 2000 and December 31, 1999, the total interest was 8.38% and
8.23%, respectively.
- 18 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
5. Mortgage Notes Payable, Continued:
(m) In connection with the acquisition of these Centers, the joint venture assumed $485,000 of mortgage notes payable which are
secured by the properties. At acquisition, the $300,000 fixed rate portion of this debt reflected a fair value of
$322,700, which included an unamortized premium of $22,700. This premium is being amortized as interest expense over
the life of the loan using the effective interest method. At September 30, 2000 and December 31, 1999, the unamortized
balance of the debt premium was $16,746 and $18,565, respectively. This debt is due in May 2006 and requires monthly
payments of $1,852. $184,500 of this debt is due in May 2003 and requires monthly interest payments at a variable
weighted average rate (based on LIBOR) of 7.12% and 6.96% at September 30, 2000 and December 31, 1999, respectively.
This variable rate debt is covered by an interest rate cap agreement which effectively prevents the interest rate from
exceeding 11.53%. On April 12, 2000, the joint venture issued $138,500 of additional mortgage notes which are secured
by the properties and are due in May 2006. $57,100 of this debt requires fixed monthly interest payments of $387 at a
weighted average rate of 8.13% while the floating rate notes of $81,400 require monthly interest payments at a variable
weighted average rate (based on LIBOR) of 7.00%. This variable rate debt is covered by an interest rate cap agreement
which effectively prevents the interest rate from exceeding 11.83%.
(n) On January 4, 1999, the joint venture replaced the old debt with a new loan of $40,000. The loan has an interest rate of
6.52% and matures January 2009. The debt is interest only until January 2001 at which time monthly payments of
principal and interest will be due in the amount of $299.
The Company periodically enters into treasury lock agreements in order to hedge its exposure to interest rate fluctuations
on anticipated financings. Under these agreements, the Company pays or receives an amount equal to the difference between
the treasury lock rate and the market rate on the date of settlement, based on the notional amount of the hedge. The
realized gain or loss on the contracts is recorded on the balance sheet in other assets and amortized as interest expense
over the period of the hedged loans. As of September 30, 2000, no treasury lock agreements were outstanding.
Certain mortgage loan agreements contain a prepayment penalty provision for the early extinguishment of the debt.
Total interest capitalized including the prorata share of joint ventures, during the nine and three months ended September
30, 2000 was $5,492 and $2,081, respectively; and total interest capitalized during the nine and three months ended September
30, 1999 was $3,011 and $994, respectively
The fair value of mortgage notes payable for the wholly-owned Centers at September 30, 2000 and December 31, 1999 is
estimated to be approximately $1,243,782 and $1,179,469, respectively, based on current interest rates for comparable loans.
- 19 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
6. Bank and Other Notes Payable:
The Company has a credit facility of $150,000 with a maturity of February 2001 currently bearing interest at LIBOR plus
1.15%. The interest rate on such credit facility fluctuates between 0.95% and 1.15% over LIBOR. As of September 30, 2000
and December 31, 1999, $17,000 and $57,400 of borrowings were outstanding under this line of credit at interest rates of
7.73% and 7.65%, respectively.
Additionally, the Company issued $10,776 in letters of credit guaranteeing performance by the Company of certain
obligations. The Company does not believe that these letters of credit will result in a liability to the Company.
During January 1999, the Company entered into a bank construction loan agreement to fund $89,200 of costs related to the
redevelopment of Pacific View. The loan bears interest at LIBOR plus 2.25% and matures in February 2001. Principal is
drawn as construction costs are incurred. As of September 30, 2000 and December 31, 1999, $84,722 and $72,671 of principal
has been drawn under the loan, respectively.
In addition, the Company had a note payable of $30,600 due in February 2000 payable to the seller of the acquired
portfolio. The note bore interest at 6.5%. The entire $30,600 loan was paid off on February 18, 2000.
7. Convertible Debentures:
During 1997, the Company issued and sold $161,400 of convertible subordinated debentures (the "Debentures") due 2002. The
Debentures, which were sold at par, bear interest at 7.25% annually (payable semi-annually) and are convertible at any time,
on or after 60 days, from the date of issue at a conversion price of $31.125 per share. The Debentures mature on December
15, 2002 and are callable by the Company after June 15, 2002 at par plus accrued interest.
8. Related-Party Transactions:
The Company engaged the Management Companies to manage the operations of its properties and certain unconsolidated joint
ventures. For the nine and three months ending September 30, 2000, management fees of $2,201 and $764 respectively, and for
the nine and three months ended September 30, 1999, management fees of $2,439 and $818 respectively, were incurred to the
Management Companies by the Company. For the nine and three months ending September 30, 2000, management fees of $5,049 and
$1,600, respectively, and for the nine and three months ended September 30, 1999, management fees of $3,198 and $1,165,
respectively, were incurred to the Management Companies by the joint ventures.
Certain mortgage notes are held by one of the Company's joint venture partners (See Note 5). Interest expense in connection
with these notes was $7,569 and $7,559 for the nine months ended September 30, 2000 and 1999, respectively; and $2,527 and
$2,506 for the three months ending September 30, 2000 and 1999, respectively. Included in accounts payable and accrued
expenses is interest payable to these partners of $482 and $513 at September 30, 2000 and December 31, 1999, respectively.
- 20 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
8. Related-Party Transactions - Continued:
In 1997 and 1999 certain executive officers received loans from the Company totaling $6,500. These loans are full recourse
to the executives. $6,000 of the loans were issued under the terms of the employee stock incentive plan, bear interest at
7%, are due in 2007 and 2009 and are secured by the Company common stock owned by the executives. On February 9, 2000, $300
of the $6,000 of loans, was forgiven. The $500 loan is non interest bearing and is forgiven ratably over a five year
term. These loans receivable are included in other assets at September 30, 2000 and December 31, 1999.
Certain Company officers and affiliates have guaranteed mortgages of $21,750 at one of the Company's joint venture
properties and $2,000 at Greeley Mall.
9. Commitments and Contingencies:
The Company has certain properties subject to noncancellable operating ground leases. The leases expire at various times
through 2070, subject in some cases to options to extend the terms of the lease. Certain leases provide for contingent rent
payments based on a percentage of base rental income, as defined. Ground rent expenses, net of amounts capitalized, were
$255 and $85 for the nine and three months ended September 30, 2000, respectively. Ground rent expenses, net of amounts
capitalized, were $684 and $228 for the nine and three months ended September 30, 1999, respectively. There were no
contingent rents in either period.
Perchloroethylene ("PCE") has been detected in soil and groundwater in the vicinity of a dry cleaning establishment at North
Valley Plaza, formerly owned by a joint venture of which the Company was a 50% member. The property was sold on December
18, 1997. The California Department of Toxic Substances Control ("DTSC") advised the Company in 1995 that very low levels
of Dichloroethylene ("1,2 DCE"), a degradation byproduct of PCE, had been detected in a municipal water well located 1/4
mile west of the dry cleaners, and that the dry cleaning facility may have contributed to the introduction of 1,2 DCE into
the water well. According to DTSC, the maximum contaminant level ("MCL") for 1,2 DCE which is permitted in drinking water
is 6 parts per billion ("ppb"). The 1,2 DCE was detected in the water well at a concentration of 1.2 ppb, which is below
the MCL. The Company has retained an environmental consultant and has initiated extensive testing of the site. The joint
venture agreed (between itself and the buyer) that it would be responsible for continuing to pursue the investigation and
remediation of impacted soil and groundwater resulting from releases of PCE from the former dry cleaner. Approximately $45
and $104 have already been incurred by the joint venture for remediation, and professional and legal fees for the periods
ending September 30, 2000 and 1999, respectively. An additional $213 remains reserved by the joint venture as of September
30, 2000. The joint venture has been sharing costs on a 50/50 basis with a former owner of the property and intends to look
to additional responsible parties for recovery.
- 21 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
9. Commitments and Contingencies, Continued:
The Company acquired Fresno Fashion Fair in December 1996. Asbestos has been detected in structural fireproofing throughout
much of the Center. Testing data conducted by professional environmental consulting firms indicates that the fireproofing is
largely inaccessible to building occupants and is well adhered to the structural members. Additionally, airborne
concentrations of asbestos were well within OSHA's permissible exposure limit ("PEL") of .1 fcc. The accounting for this
acquisition includes a reserve of $3,300 to cover future removal of this asbestos, as necessary. The Company incurred $26
and $0 in remediation costs for the nine months ending September 30, 2000 and 1999, respectively. An additional $2,757
remains reserved at September 30, 2000.
10. Redeemable Preferred Stock:
On February 25, 1998, the Company issued 3,627,131 shares of Series A cumulative convertible redeemable preferred stock
("Series A Preferred Stock") for proceeds totaling $100,000 in a private placement. The preferred stock can be converted on
a one for one basis into common stock and will pay a quarterly dividend equal to the greater of $0.46 per share, or the
dividend then payable on a share of common stock.
On June 17, 1998, the Company issued 5,487,471 shares of Series B cumulative convertible redeemable preferred stock ("Series
B Preferred Stock") for proceeds totaling $150,000 in a private placement. The preferred stock can be converted on a one
for one basis into common stock and will pay a quarterly dividend equal to the greater of $0.46 per share, or the dividend
then payable on a share of common stock.
No dividends will be declared or paid on any class of common or other junior stock to the extent that dividends on Series A
Preferred Stock and Series B Preferred Stock have not been declared and/or paid.
11. Subsequent Events:
On November 9, 2000, a dividend/distribution of $0.53 per share was declared for common stockholders and OP unit holders of
record on November 17, 2000. In addition, the Company declared a dividend of $0.53 on the Company's Series A Preferred Stock
and a dividend of $0.53 on the Company's Series B Preferred Stock. All dividends/distributions will be payable on December
7, 2000.
On November 10, 2000, a 3.4 million share repurchase program was approved by the Company's Board of Directors.
- 22 -
THE MACERICH COMPANY (The Company)
Item 2
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion is based primarily on the consolidated balance sheet of The Macerich Company as of September 30,
2000, and also compares the activities for the nine and three months ended September 30, 2000 to the activities for the nine
and three months ended September 30, 1999.
This information should be read in conjunction with the accompanying consolidated financial statements and notes thereto.
These financial statements include all adjustments, which are, in the opinion of management, necessary to reflect the fair
presentation of the results for the interim periods presented, and all such adjustments are of a normal recurring nature.
Forward-Looking Statements
This quarterly report on Form 10-Q contains or incorporates statements that constitute forward-looking statements. Those
statements appear in a number of places in this Form 10-Q and include statements regarding, among other matters, the
Company's growth and acquisition opportunities, the Company's acquisition strategy, regulatory matters pertaining to
compliance with governmental regulations and other factors affecting the Company's financial condition or results of
operations. Words such as "expects," "anticipates," "intends," "projects," "predicts," "plans," "believes," "seeks,"
"estimates," and "should" and variations of these words and similar expressions, are used in many cases to identify these
forward-looking statements. Stockholders are cautioned that any such forward-looking statements are not guarantees of
future performance and involve risks, uncertainties and other factors that may cause actual results, performance or
achievements of the Company or industry to vary materially from the Company's future results, performance or achievements,
or those of the industry, expressed or implied in such forward-looking statements. Such factors include, among others,
general industry economic and business conditions, which will, among other things, affect demand for retail space or retail
goods, availability and creditworthiness of current and prospective tenants, lease rates and terms, availability and cost of
financing and operating expenses; adverse changes in the real estate markets including, among other things, competition
from other companies, retail formats and technology, risks of real estate development,acquisitions and dispositions;
governmental actions and initiatives and environmental and safety requirements. The Company will not update any
forward-looking information to reflect actual results or changes in the factors affecting the forward-looking information.
- 23 -
THE MACERICH COMPANY (The Company)
Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued:
The following table reflects the Company's acquisitions in 1999:
- ----------------------------------------------------------------------------------------------------------------------------------
Date
Acquired Location
-------- --------
"1999 Joint Venture Acquisition Centers"
- -----------------------------------------
Pacific Premier Retail February 18, 1999 Three regional malls, retail component of a mixed-use
Trust Portfolio (*) development and five contiguous properties in Washington
and Oregon. The office component of the mixed-used
development was acquired July 12, 1999.
Albany Plaza (*) February 18, 1999 Two non-contiguous community shopping
Eastland Plaza (*) Centers located in Oregon and Ohio, respectively.
Los Cerritos Center (*) June 2, 1999 Cerritos, California
"1999 Acquisition Center"
- -------------------------
Santa Monica Place October 29, 1999 Santa Monica, California
- ----------------------------------------------------------------------------------------------------------------------------------
(*) denotes the Company owns its interests in these Centers through an unconsolidated joint venture or through one of the
Management Companies.
The financial statements include the results of these Centers for periods subsequent to their acquisition.
On February 18, 1999, the Company, through a 51%/49% joint venture, known as Pacific Premier Retail Trust ("PPRT"), with
Ontario Teachers' Pension Plan Board ("Ontario Teachers") acquired Washington Square, Redmond Town Center, Cascade Mall,
Kitsap Mall and five contiguous properties.
On October 26, 1999, 49% of the membership interests of Macerich Stonewood, LLC ("Stonewood"), Macerich Cerritos, LLC
("Cerritos") and Macerich Lakewood, LLC ("Lakewood"), were sold to Ontario Teachers' and concurrently Ontario Teachers' and
the Company contributed their 99% collective membership interests in Stonewood and Cerritos and 100% of their collective
membership interests in Lakewood to PPRT, a real estate investment trust, owned approximately 51% by the Company and 49% by
Ontario Teachers. Lakewood, Stonewood, and Cerritos own Lakewood Mall, Stonewood Mall and Los Cerritos Center,
respectively. The total value of the transaction was approximately $535,000. The properties were contributed to PPRT
subject to existing debt of $322,000. The net cash proceeds to the Company were approximately $104,000 which were used for
reduction of debt and for general corporate purposes. Lakewood and Stonewood are referred to herein as the "Contributed JV
Assets."
On October 27, 1999, Albany Plaza, a 145,462 square foot community center, which was owned 51% by the Macerich Management
Company, was sold.
On November 12, 1999, Eastland Plaza, a 65,313 square foot community center, which was 51% owned by the Macerich Management
Company, was sold.
- 24 -
THE MACERICH COMPANY (The Company)
Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued:
The 1999 Joint Venture Acquisitions are reflected using the equity method of accounting. The results of these acquisitions
are reflected in the consolidated results of operations of the Company in equity in income of unconsolidated joint ventures
and the Management Companies.
Many of the variations in the results of operations, discussed below, occurred due to the 1999 Joint Venture Acquisition
Centers, the 1999 Acquisition Center and the partial sale and contribution of the Contributed JV Assets to PPRT during
1999. Many factors impact the Company's ability to acquire additional properties; including the availability and cost of
capital, the overall debt to market capitalization level, interest rates and availability of potential acquisition targets
that meet the Company's criteria. Accordingly, management is uncertain whether in future years, there will
be similar acquisitions and corresponding increases in equity in income of unconsolidated joint ventures and the Management
Companies and funds from operations that occurred as a result of the 1999 Joint Venture Acquisition Centers. Management
anticipates no acquisitions in 2000 compared to 1999. Pacific View (formerly known as Buenaventura Mall), Crossroads
Mall-Boulder and Parklane Mall are currently under redevelopment and are referred to herein as the "Redevelopment Centers."
All other Centers, excluding the 1999 Acquisition Center, the 1999 Joint Venture Acquisition Centers, the
Contributed JV Assets and Redevelopment Centers, are referred to herein as the "Same Centers," unless the context otherwise
requires.
The bankruptcy and/or closure of an Anchor, or its sale to a less desirable retailer, could adversely affect customer
traffic in a Center and thereby reduce the income generated by that Center. Furthermore, the closing of an Anchor could,
under certain circumstances, allow certain other Anchors or other tenants to terminate their leases or cease operating their
stores at the Center or otherwise adversely affect occupancy at the Center. Other retail stores at the Centers may also
seek the protection of bankruptcy laws and/or close stores, which could result in the termination of such tenants and thus
cause a reduction in cash flow generated by the Centers.
In addition, the Company's success in the highly competitive real estate shopping center business depends upon many other
factors, including general economic conditions, the ability of tenants to make rent payments, increases or decreases in
operating expenses, occupancy levels, changes in demographics, competition from other centers and forms of retailing and the
ability to renew leases or relet space upon the expiration or termination of leases.
Results of Operations
Comparison of Nine Months Ended September 30, 2000 and 1999
Revenues
Minimum and percentage rents decreased by 9.8% to $148.1 million in 2000 from $164.1 million in 1999. Approximately $22.7
million of the decrease related to the contribution of 100% and 99% of the membership interests of Lakewood Mall and
Stonewood Mall, respectively, to the PPRT joint venture on October 26, 1999. The Company's prorata share of results from
those assets subsequent to the contribution to PPRT is reflected in Income from
- 25 -
THE MACERICH COMPANY (The Company)
Results of Operations - Continued:
Comparison of Nine Months Ended September 30, 2000 and 1999
Revenues- Continued:
Unconsolidated Joint Ventures. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin
101, "Revenue Recognition in Financial Statements," ("SAB 101") which was adopted by the Company effective January 1, 2000.
This bulletin modified the timing of revenue recognition for percentage rent received from tenants. SAB 101 requires
deferral of the recognition of percentage rent until the tenant's annual sales breakpoint has been exceeded. While annual
revenue from percentage rent will not be materially impacted by this change, the majority of percentage rent will now be
recognized in the fourth quarter of each year, rather than spread throughout the year. The impact of SAB 101 represented
approximately a $5.1 million decrease in revenues for the nine months ended September 30, 2000. These decreases are offset
by revenue increases of $7.4 million relating to the 1999 acquisition of Santa Monica Place, $1.1 million increase at the
Redevelopment Centers and $3.1 million of the increase was attributable to the Same Centers.
Tenant recoveries increased to $74.3 million in 2000 from $72.8 million in 1999. The 1999 acquisition of Santa Monica Place
generated $4.8 million of the increase, $2.7 million of the increase was from the Same Centers and $0.3 million from the
Redevelopment Centers. These increases were partially offset by revenue decreases of $6.3 million resulting from the
contribution of Lakewood Mall and Stonewood Mall to the PPRT joint venture.
Other income increased to $6.1 million in 2000 from $5.9 million in 1999.
Expenses
Shopping center expenses increased to $73.2 million in 2000 compared to $72.5 million in 1999. Approximately $5.4 million
of the increase resulted from the 1999 acquisition of Santa Monica Place, $2.3 million of the increase resulted from
increased property taxes and recoverable expenses at the Same Centers. These increases were offset by a decrease of $7.2
million resulting from the contribution of Lakewood Mall and Stonewood Mall to the PPRT joint venture. Additionally, the
Redevelopment Centers had a decrease of $0.2 million in shopping center expenses resulting primarily from decreased property
taxes and recoverable expenses.
Interest Expense
Interest expense decreased to $82.1 million in 2000 from $85.2 million in 1999. Approximately $6.9 million of the decrease
is from the contribution of Lakewood Mall to the PPRT joint venture. This decrease is offset by the acquisition activity
in 1999, which was partially funded with secured debt and borrowings under the Company's line of credit.
- 26 -
THE MACERICH COMPANY (The Company)
Results of Operations - Continued:
Comparison of Nine Months Ended September 30, 2000 and 1999
Depreciation and Amortization
Depreciation and amortization decreased to $44.6 million in 2000 from $46.4 million in 1999. Approximately $4.2 million of
the decrease relates primarily to the contribution of Lakewood Mall and Stonewood Mall to the PPRT joint venture, which is
offset by an increase of $2.3 million relating to the acquisition of Santa Monica Place.
Income from Unconsolidated Joint Ventures and Management Companies
The income from unconsolidated joint ventures and the Management Companies was $20.5 million for 2000, compared to income of
$16.7 million in 1999. A total of $6.7 million of the increase is attributable to the 1999 Joint Venture Acquisitions and
the Contributed JV Assets. Additionally, $1.1 million is attributable to the gain from the sale of Manhattan Village on
September 30, 2000.These increases are partially offset by the change in accounting principle for percentage rent required
by SAB 101 of $2.7 million.
Extraordinary Loss from Early Extinguishment of Debt
In 2000 and 1999, the Company wrote off $1.0 million of unamortized financing costs.
Net Income Available to Common Stockholders
As a result of the foregoing, net income available to common stockholders decreased to $21.1 million in 2000 from $27.0
million in 1999.
Operating Activities
Cash flow from operations was $86.0 million in 2000 compared to $97.0 million in 1999. The decrease is primarily because of
decreased net operating income from the factors mentioned above.
Investing Activities
Cash generated from investing activities was $34.5 million in 2000 compared to cash utilized by investing activities of
$228.9 million in 1999. The change resulted primarily from the cash contributions required by the Company for the joint
venture acquisitions of $88.1 million in 1999 compared to $3.2 million in 2000. Additionally, a loan from the Company for
$82.4 million was made to a joint venture for acquisitions in 1999. There were no loans made to affiliates in 2000. This
is offset by increases in joint venture distributions of $97.9 million in 2000 compared to $17.3 in 1999.
Financing Activities
Cash flow used in financing activities was $125.1 million in 2000 compared to cash provided by financing activities of
$130.1 million in 1999. The change resulted primarily from the refinancing of Centers in 1999.
- 27 -
THE MACERICH COMPANY (The Company)
Results of Operations - Continued:
Comparison of Nine Months Ended September 30, 2000 and 1999
Funds From Operations
Primarily because of the factors mentioned above, including the impact of the change in accounting for percentage rent
required by SAB 101, Funds from Operations - Diluted decreased 3% to $114.9 million in 2000 from $118.4 million in 1999.
Comparison of Three Months Ended September 30, 2000 and 1999
Revenues
Minimum and percentage rents decreased by 9.1% to $50.0 million in 2000 from $55.0 million in 1999. Approximately $7.7
million of the decrease related to the contribution of 100% and 99% of the membership interests of Lakewood Mall and
Stonewood Mall, respectively, to the PPRT joint venture on October 26, 1999. The Company's prorata share of results from
those assets subsequent to the contribution to PPRT is reflected in Income from Unconsolidated Joint Ventures. In December
1999, the Securities and Exchange Commission issued Staff Accounting Bulletin 101, "Revenue Recognition in Financial
Statements," ("SAB 101") which was adopted by the Company effective January 1, 2000. This bulletin modified the timing of
revenue recognition for percentage rent received from tenants. SAB 101 requires deferral of the recognition of percentage
rent until the tenant's annual sales breakpoint has been exceeded. While annual revenue from percentage rent will not be
materially impacted by this change, the majority of percentage rent will now be recognized in the fourth quarter of each
year, rather than spread throughout the year. The impact of SAB 101 for the three months ended September 30, 2000
represented approximately a $1.0 million decrease. These decreases are offset by revenue increases of $2.4 million
relating to the 1999 acquisition of Santa Monica Place, $0.7 million increase at the Redevelopment Centers and $0.4 million
of the increase was attributable to the Same Centers.
Tenant recoveries decreased to $24.9 million in 2000 from $25.5 million in 1999. The 1999 acquisition of Santa Monica Place
generated $1.4 million of the increase and $0.4 million of the increase was from the Same Centers. These increases were
partially offset by revenue decreases of $2.4 million resulting from the contribution of Lakewood Mall and Stonewood Mall to
the PPRT joint venture.
Expenses
Shopping center expenses decreased to $25.1 million in 2000 compared to $25.3 million in 1999. Approximately $1.6 million
of the increase resulted from the 1999 acquisition of Santa Monica Place, $0.6 million of the increase resulted from
increased property taxes and recoverable expenses at the Same Centers. These increases were offset by a decrease of $2.4
million resulting from the contribution of Lakewood Mall and Stonewood Mall to the PPRT joint venture. Additionally, the
Redevelopment Centers had a decrease of $0.2 million in shopping center expenses resulting primarily from decreased
recoverable expenses.
- 28 -
THE MACERICH COMPANY (The Company)
Results of Operations - Continued:
Comparison of Three Months Ended September 30, 2000 and 1999
Interest Expense
Interest expense decreased to $27.0 million in 2000 from $29.8 million in 1999. This decrease of $2.8 million related
primarily of $2.3 million from the contribution of Lakewood Mall to the PPRT joint venture offset by the acquisition
activity in 1999, which was partially funded with secured debt and borrowings under the Company's line of credit.
Depreciation and Amortization
Depreciation and amortization decreased to $15.1 million in 2000 from $15.9 million in 1999. This decrease relates primarily
to the contribution of Lakewood Mall and Stonewood Mall to the PPRT joint venture offset by an increase relating to the 1999
acquisition of Santa Monica Place.
Income from Unconsolidated Joint Ventures and Management Companies
The income from unconsolidated joint ventures and the Management Companies was $7.4 million for 2000, compared to income of
$6.1 million in 1999. A total of $1.2 million of the change is attributable to the 1999 Joint Venture Acquisitions and the
Contributed JV Assets. Additionally, $1.1 million is attributable to the gain from the sale of Manhattan Village on September
30, 2000.These increases are partially offset by the change in accounting principle for percentage rent required by SAB 101
of $0.8 million.
Net Income Available to Common Stockholders
As a result of the foregoing, net income available to common stockholders decreased to $7.2 million in 2000 from $9.1
million in 1999.
Funds From Operations
Primarily because of the factors mentioned above, including the impact of the change in accounting for percentage rent
required by SAB 101, Funds from Operations - Diluted decreased 5.1% to $38.8 million in 2000 from $40.9 million in 1999.
- 29 -
THE MACERICH COMPANY (The Company)
Liquidity and Capital Resources
The Company intends to meet its short term liquidity requirements through cash generated from operations and working capital
reserves. The Company anticipates that revenues will continue to provide necessary funds for its operating expenses and
debt service requirements, and to pay dividends to stockholders in accordance with REIT requirements. The Company
anticipates that cash generated from operations, together with cash on hand, will be adequate to fund capital expenditures
which will not be reimbursed by tenants, other than non-recurring capital expenditures. Capital for major expenditures or
major redevelopments has been, and is expected to continue to be, obtained from equity or debt financings which include
borrowings under the Company's line of credit and construction loans. However, many factors impact the Company's ability to
access capital, such as its overall debt level, interest rates, interest coverage ratios and prevailing market conditions.
The Company currently is undertaking a $90 million redevelopment of Pacific View. The Company has a bank construction loan
agreement to fund $89.2 million of these construction costs.
The Company believes that it will have access to the capital necessary to execute its share repurchase agreement and
expand its business in accordance with its strategies for growth and maximizing Funds from Operations. The Company
presently intends to obtain additional capital necessary to expand its business through a combination of additional public
and private equity offerings, debt financings, joint ventures and the sale of non-core assets. During 1998 and 1999, the
Company acquired two portfolios through joint ventures and raised additional capital in 1999 from the sale of interests
in two properties to one joint venture partner. The Company believes such joint venture arrangements provide an attractive
alternative to other forms of financing.
The Company's total outstanding loan indebtedness at September 30, 2000 was $2.2 billion (including its pro rata share of
joint venture debt). This equated to a debt to Total Market Capitalization (defined as total debt of the Company, including
its pro rata share of joint venture debt, plus aggregate market value of outstanding shares of common stock, assuming full
conversion of OP Units and preferred stock into common stock) ratio of approximately 66% at September 30, 2000. The
Company's debt consists primarily of fixed-rate conventional mortgages payable secured by individual properties.
The Company has filed a shelf registration statement, effective December 8, 1997, to sell securities. The shelf
registration is for a total of $500 million of common stock, common stock warrants or common stock rights. During 1998, the
Company sold a total of 7,920,181 shares of common stock under this shelf registration. The aggregate offering price of
these transactions was approximately $212.9 million, leaving approximately $287.1 million available under the shelf
registration statement.
The Company has an unsecured line of credit for up to $150.0 million. There were $17.0 million of borrowings outstanding at
September 30, 2000.
At September 30, 2000, the Company had cash and cash equivalents available of $35.8 million.
- 30 -
Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued:
Funds From Operations
The Company believes that the most significant measure of its performance is Funds from Operations ("FFO"). FFO is defined
by the National Association of Real Estate Investment Trusts ("NAREIT") to be: Net income (loss) (computed in accordance
with GAAP), excluding gains (or losses) from debt restructuring and sales or write-down of assets, plus depreciation and
amortization (excluding depreciation on personal property and amortization of loan and financial instrument costs) and after
adjustments for unconsolidated entities. Adjustments for unconsolidated entities are calculated on the same basis. FFO
does not represent cash flow from operations, as defined by GAAP, and is not necessarily indicative of cash available to
fund all cash flow needs. The following reconciles net income available to common stockholders to FFO:
Nine months ended September 30,
2000 1999
------------------------ --------------------------
Shares Amount Shares Amount
---------- ------------ ---------- --------------
(amounts in thousands)
Net income - available to common stockholders $21,090 $27,008
Adjustments to reconcile net income to FFO - basic:
Minority interest 6,722 9,795
Depreciation and amortization on wholly owned centers 44,632 46,434
Pro rata share of unconsolidated entities' depreciation and
amortization 18,186 14,091
Loss (gain) on sale of wholly-owned assets 1,297 (162)
Loss on early extinguishment of debt 984 1,016
Pro rata share of (gain) loss on sale of assets
from unconsolidated entities (763) (399)
Cumulative effect of the change in accounting principle -
wholly-owned assets 963 -
Cumulative effect of the change in accounting principle -
pro rata joint ventures 787 -
Less: Depreciation on personal property and amortization
of loan costs and interest rate caps (3,810) (3,524)
------------ --------------
FFO - basic (1) 45,084 90,088 46,286 94,259
Additional adjustments to arrive at FFO - diluted:
Impact of convertible preferred stock 9,115 13,945 9,115 13,581
Impact of stock options and restricted stock using
the treasury method 437 1,392 468 1,141
Impact of convertible debentures 5,186 9,454 5,186 9,453
---------- ------------ ---------- --------------
FFO - diluted (2) 59,822 $114,879 61,055 $118,434
========== ============ ========== ==============
- 31 -
THE MACERICH COMPANY (The Company)
Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued:
Three months ended September 30,
2000 1999
-------------------------- -------------------------
Shares Amount Shares Amount
------------ ------------ ----------- ------------
(amounts in thousands)
Net income - available to common stockholders $7,169 $9,125
Adjustments to reconcile net income to FFO - basic:
Minority interest 2,301 3,307
Depreciation and amortization on wholly owned centers 15,064 15,895
Pro rata share of unconsolidated entities' depreciation and
amortization 6,550 5,626
Loss (gain) on sale of wholly-owned assets 1,189 (162)
Loss on early extinguishment of debt 984 28
Pro rata share of (gain) loss on sale of assets
from unconsolidated entities (1,176) 75
Cumulative effect of the change in accounting principle -
wholly-owned assets - -
Cumulative effect of the change in accounting principle -
pro rata joint ventures - -
Less: Depreciation on personal property and amortization
of loan costs and interest rate caps (1,451) (1,420)
------------ ------------
FFO - basic (1) 45,107 30,630 46,318 32,474
Additional adjustments to arrive at FFO - diluted:
Impact of convertible preferred stock 9,115 4,648 9,115 4,740
Impact of stock options and restricted stock using
the treasury method 507 390 535 530
Impact of convertible debentures 5,186 3,162 5,186 3,177
------------ ------------ ----------- ------------
FFO - diluted (2) 59,915 $38,830 61,154 $40,921
============ ============ =========== ============
1) Calculated based upon basic net income as adjusted to reach basic FFO. Weighted average number of shares includes the
weighted average number of shares of common stock outstanding for 2000 and 1999 assuming the conversion of all
outstanding OP units.
2) The computation of FFO - diluted and diluted average number of shares outstanding includes the effect of outstanding
common stock options and restricted stock using the treasury method. Convertible debentures are dilutive for the
nine and three months ending September 30, 2000 and 1999, and therefore assumed converted to equity to calculate FFO
- diluted. On February 25, 1998, the Company sold $100 million of its Series A Preferred Stock. On June 17, 1998,
the Company sold $150 million of its Series B Preferred Stock Each series of preferred stock can be converted on a
one for one basis for common stock. These preferred shares are not assumed converted for purposes of net income per
share as they would be anti-dilutive to that calculation. The preferred shares are assumed converted for purposes
of FFO diluted per share as they are dilutive to that calculation.
- 32 -
THE MACERICH COMPANY (The Company)
Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued:
Included in minimum rents were rents attributable to the accounting practice of straight-lining of rents. The amount of
straight-lining of rents that impacted minimum rents was $0.7 million and $1.9 million for the nine months ended September
30, 2000 and 1999, respectively; and $0.0 million and $0.7 million for the three months ended September 30, 2000 and 1999,
respectively. The decline in straight-lining of rents from 1999 to 2000 is due to the Company structuring its new leases using
rent increases tied to the change in the consumer price index ("CPI") rather than using contractually fixed rent increases.
CPI increases do not generally require straight-lining of rent treatment.
Inflation
In the last three years, inflation has not had a significant impact on the Company because of a relatively low inflation
rate. Most of the leases at the Centers have rent adjustments periodically through the lease term. These rent increases are
either in fixed increments or based on increases in the Consumer Price Index. In addition, many of the leases are for terms
of less than ten years, which enables the Company to replace existing leases with new leases at higher base rents if the
rents of the existing leases are below the then existing market rate. Additionally, most of the leases require the tenants
to pay their pro rata share of operating expenses. This reduces the Company's exposure to increases in costs and operating
expenses resulting from inflation.
Seasonality
The shopping center industry is seasonal in nature, particularly in the fourth quarter during the holiday season when
retailer occupancy and retail sales are typically at their highest levels. In addition, shopping malls achieve a
substantial portion of their specialty (temporary retailer) rents during the holiday season. As a result of the above, plus
the accounting change discussed below for percentage rent, earnings are generally highest in the fourth quarter of each year.
New Accounting Pronouncements Issued
In December 1999, the Securities and Exchange Committee issued Staff Accounting Bulletin 101, "Revenue Recognition in
Financial Statements" ("SAB 101"), which became effective for periods beginning after December 15, 1999. This bulletin
modified the timing of revenue recognition for percentage rent received from tenants. This change will defer recognition of
a significant amount of percentage rent for the first three calendar quarters into the fourth quarter. The Company applied
this accounting change as of January 1, 2000. The cumulative effect of this change in accounting principle at the adoption
date of January 1, 2000, including the pro rata share of joint ventures, was approximately $1,750,000.
- 33 -
THE MACERICH COMPANY (The Company)
Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued:
New Accounting Pronouncements Issued- Continued:
In June 1998, the FASB issued Statement of Financial Accounting Standard ("SFAS") 133, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS 133") which requires companies to record derivatives on the balance sheet,
measured at fair value. Changes in the fair values of those derivatives will be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. The key criterion for hedge accounting is that the hedging
relationship must be highly effective in achieving offsetting changes in fair value or cash flows. In June 1999, the FASB
issued SFAS 137, "Accounting for Derivative Instruments and Hedging Activities," which delays the implementation of SFAS 133
from January 1, 2000 to January 1, 2001. In June 2000, the FASB issued SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133," ("SFAS 138") which amends the
accounting and reporting standards of SFAS 133. The Company has determined the implementation of SFAS 133 and SFAS
138 should have a minor impact on its financial statements.
- 34 -
THE MACERICH COMPANY (The Company)
Item 3
Quantitative and Qualitative Disclosures About Market Risk
The Company's primary market risk exposure is interest rate risk. The Company has managed and will continue to manage
interest rate risk by (1) maintaining a conservative ratio of fixed rate, long-term debt to total debt such that variable
rate exposure is kept at an acceptable level, (2) reducing interest rate exposure on certain long-term variable rate debt
through the use of interest rate caps with appropriately matching maturities, (3) using treasury rate locks where
appropriate to fix rates on anticipated debt transactions, and (4) taking advantage of favorable market conditions for
long-term debt and/or equity.
The following table sets forth information as of September 30, 2000 concerning the Company's long term debt obligations,
including principal cash flows by scheduled maturity, weighted average interest rates and estimated fair value ("FV").
For the Years Ended December 31,
(dollars in thousands)
2000 2001 2002 2003 2004 Thereafter Total FV
------------- ------------- ------------ ------------ ------------ -------------- -------------- --------------
Wholly Owned Centers:
Long term debt:
Fixed rate $7,746 $107,653 $11,139 $50,738 $128,476 $864,236 $1,169,988 $1,158,782
Average interest rate 7.44% 7.42% 7.42% 7.40% 7.42% 7.42% 7.44% -
Fixed rate - Debentures - - 161,400 - - - 161,400 158,494
Average interest rate - - 7.25% - - - 7.25% -
Variable rate - 186,722 - - - - 186,722 186,722
Average interest rate - 8.48% - - - - 8.48% -
------------- ------------- ------------ ------------ ------------ -------------- -------------- --------------
Total debt - Wholly owned Centers $7,746 $294,375 $172,539 $50,738 $128,476 $864,236 $1,518,110 $1,503,998
------------- ------------- ------------ ------------ ------------ -------------- -------------- --------------
Joint Venture Centers:
(at Company's pro rata share)
Fixed rate $6,063 $ 6,498 $7,173 $7,689 $8,212 $510,397 $546,032 $525,651
Average interest rate 6.90% 6.87% 6.87% 6.87% 6.87% 6.87% 6.90% -
Variable rate - 38,250 8,224 92,250 - 40,700 179,424 179,424
Average interest rate - 8.40% 8.88% 7.12% - 7.00% 7.40% -
------------- ------------- ------------ ------------ ------------ -------------- -------------- --------------
Total debt - Joint Ventures $6,063 $44,748 $15,397 $99,939 $8,212 $551,097 $725,456 $705,075
------------- ------------- ------------ ------------ ------------ -------------- -------------- --------------
Total debt - All Centers $13,809 $339,123 $187,936 $150,677 $136,688 $1,415,333 $2,243,566 $2,209,073
============= ============= ============ ============ ============ ============== ============== ==============
Of the $225.0 million of variable rate debt maturing in 2001, $17.0 million represents the outstanding borrowings under the
Company's credit facility and $84.7 million represents outstanding borrowings under the Pacific View construction loan.
Additionally, on October 2, 2000, the Company refinanced $85.0 million of floating rate debt scheduled to mature in 2001
with a 10 year fixed rate loan bearing interest at 7.70%.
In addition, the Company has assessed the market risk for its variable rate debt and believes that a 1% increase in interest
rates would decrease future earnings and cash flows by approximately $3.7 million per year based on $366.1 million
outstanding at September 30, 2000.
The fair value of the Company's long term debt is estimated based on discounted cash flows at interest rates that management
believes reflect the risks associated with long term debt of similar risk and duration.
- 35 -
THE MACERICH COMPANY (The Company)
PART II
Other Information
Item 1 Legal Proceedings
During the ordinary course of business, the Company, from time to time, is threatened with, or becomes a party to, legal
actions and other proceedings. Management is of the opinion that the outcome of currently known actions and proceedings to
which it is a party will not, singly or in the aggregate, have a material adverse effect on the Company.
Item 2 Changes in Securities and Use of Proceeds
None
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
See Exhibit Index
- 36 -
THE MACERICH COMPANY (The Company)
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
The Macerich Company
By: /s/ Thomas E. O'Hern
--------------------
Thomas E. O'Hern
Executive Vice President and
Chief Financial Officer
Date: November 14, 2000
- 37 -
THE MACERICH COMPANY (The Company)
Exhibit Index
Exhibit No. Page
- ----------- -----
(a) Exhibits
Number Description
--------- -------------
10.7 The Macerich Company Eligible Directors'
Deferred Compensation Plan/Phantom Stock
Plan (as Amended and restated as of June 30, 2000)
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