THE MACERICH COMPANY (The Company)
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 JUNE 30, 2000 COMMISSION FILE NO. 1-12504
THE MACERICH COMPANY
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(Exact name of registrant as specified in its charter)
MARYLAND 95-4448705
- --------------------------------- ------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation 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 August 9,
2000.
Common stock, par value $.01 per share: 34,164,810 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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THE MACERICH COMPANY (The Company)
Form 10-Q
INDEX
Page
Part I: Financial Information
Item 1. Financial Statements
Consolidated balance sheets of the Company as
of June 30, 2000 and December 31, 1999 1
Consolidated statements of operations of the
Company for the periods from
January 1 through June 30, 2000 and 1999 2
Consolidated statements of operations of the
Company for the periods from April 1, 2000
through June 30, 2000 and 1999 3
Consolidated statements of cash flows of the
Company for the periods from January 1 through
June 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)
June 30, December 31,
2000 1999
------------------- ----------------
ASSETS:
Property, net $1,921,806 $1,931,415
Cash and cash equivalents 34,954 40,455
Tenant receivables, including accrued overage rents of
$461 in 2000 and $7,367 in 1999 27,342 34,423
Deferred charges and other assets, net 55,330 55,065
Investments in joint ventures and the Management Companies 270,724 342,935
------------------- ----------------
Total assets $2,310,156 $2,404,293
=================== ================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Mortgage notes payable:
Related parties $133,479 $133,876
Others 1,106,467 1,105,180
------------------- ----------------
Total 1,239,946 1,239,056
Bank notes payable 112,014 160,671
Convertible debentures 161,400 161,400
Accounts payable and accrued expenses 17,728 27,815
Due to affiliates 1,499 6,969
Other accrued liabilities 22,467 25,849
Preferred stock dividend payable 4,648 4,648
------------------- ----------------
Total liabilities 1,559,702 1,626,408
------------------- ----------------
Minority interest in Operating Partnership 151,524 157,599
------------------- ----------------
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 June 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 June 30, 2000 and December 31, 1999 55 55
Common stock, $.01 par value, 100,000,000 shares
authorized, 34,149,681 and 34,072,625 shares issued and
outstanding at June 30, 2000 and December 31, 1999, respectively 341 338
Additional paid in capital 584,989 582,837
Accumulated earnings 22,243 43,514
Unamortized restricted stock (8,734) (6,494)
------------------- ----------------
------------------- ----------------
Total stockholders' equity 598,930 620,286
------------------- ----------------
Total liabilities and stockholders' equity $2,310,156 $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)
Six Months Ended June 30,
-----------------------------------------------
2000 1999
--------------------- ---------------------
REVENUES:
Minimum rents $95,080 $101,905
Percentage rents 3,002 7,148
Tenant recoveries 49,438 47,276
Other 4,037 3,195
--------------------- ---------------------
Total revenues 151,557 159,524
--------------------- ---------------------
EXPENSES:
Shopping center expenses 48,108 47,221
General and administrative expense 3,181 2,843
Interest expense:
Related parties 5,042 5,053
Others 50,057 50,302
--------------------- ---------------------
Total interest expense 55,099 55,355
--------------------- ---------------------
--------------------- ---------------------
Depreciation and amortization 29,568 30,539
Equity in income of unconsolidated
joint ventures and the Management Companies 13,109 10,634
Loss on sale of assets (108) -
--------------------- ---------------------
Income before extraordinary item, minority interest and
cumulative effect of change in accounting principle 28,602 34,200
Extraordinary loss on early extinguishment of debt - (988)
Cumulative effect of change in accounting principle (963) -
--------------------- ---------------------
Income of the Operating Partnership 27,639 33,212
Less minority interest in net income
of the Operating Partnership 4,421 6,488
--------------------- ---------------------
Net income 23,218 26,724
Less preferred dividends 9,297 8,841
--------------------- ---------------------
Net income - available to common stockholders $13,921 $17,883
===================== =====================
Earnings per common share - basic:
Income before extraordinary item and cumulative effect
of change in accounting principle $0.44 $0.56
Extraordinary item - (0.03)
Cumulative effect of change in accounting principle (0.03) -
--------------------- ---------------------
Net income per share - available to common stockholders $0.41 $0.53
===================== =====================
Weighted average number of common shares
outstanding - basic 34,120,000 33,971,000
===================== =====================
Weighted average number of common shares
outstanding - basic, assuming full conversion of
Operating Partnership units outstanding 45,073,000 46,286,000
===================== =====================
Earnings per common share - diluted:
Income before extraordinary item and cumulative effect
of change in accounting principle $0.43 $0.55
Extraordinary item - (0.02)
Cumulative effect of change in accounting principle (0.02) -
--------------------- ---------------------
Net income per share - available to common stockholders $0.41 $0.53
===================== =====================
Weighted average number of common shares
outstanding - diluted for EPS 45,073,000 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 June 30,
---------------------------------------------
2000 1999
-------------------- --------------------
REVENUES:
Minimum rents $47,905 $51,313
Percentage rents 1,471 3,206
Tenant recoveries 24,869 24,178
Other 2,010 1,978
-------------------- --------------------
Total revenues 76,255 80,675
-------------------- --------------------
EXPENSES:
Shopping center expenses 24,208 23,955
General and administrative expense 1,712 1,439
Interest expense:
Related parties 2,523 2,540
Others 24,424 26,062
-------------------- --------------------
Total interest expense 26,947 28,602
-------------------- --------------------
-------------------- --------------------
Depreciation and amortization 15,040 15,285
Equity in income of unconsolidated
joint ventures and the Management Companies 6,386 5,286
Loss on sale of assets (106) -
-------------------- --------------------
Income before extraordinary item and minority interest 14,628 16,680
Extraordinary loss on early extinguishment of debt - (15)
-------------------- --------------------
Income of the Operating Partnership 14,628 16,665
-------------------- --------------------
Less minority interest in net income
of the Operating Partnership 2,383 3,258
-------------------- --------------------
Net income 12,245 13,407
Less preferred dividends 4,648 4,421
-------------------- --------------------
Net income - available to common stockholders $7,597 $8,986
==================== ====================
Earnings per common share - basic:
Income before extraordinary item $0.22 $0.26
-------------------- --------------------
Net income per share - available to common stockholders $0.22 $0.26
==================== ====================
Weighted average number of common shares
outstanding - basic 34,148,000 33,980,000
==================== ====================
Weighted average number of common shares
outstanding - basic, assuming full conversion of
Operating Partnership units outstanding 45,093,000 46,291,000
==================== ====================
Earnings per common share - diluted:
Income before extraordinary item $0.22 $0.26
-------------------- --------------------
Net income per share - available to common stockholders $0.22 $0.26
==================== ====================
Weighted average number of common shares
outstanding - diluted for EPS 45,093,000 46,291,000
==================== ====================
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 June 30,
----------------------------------------------
2000 1999
---------------------- ---------------------
Cash flows from operating activities:
Net income - available to common stockholders $13,921 $17,883
Preferred dividends 9,297 8,841
---------------------- ---------------------
---------------------- ---------------------
Net income 23,218 26,724
---------------------- ---------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Extraordinary loss on early extinguishment of debt - 988
Cumulative effect of change in accounting principle 963 -
Loss on sale of assets 108 -
Depreciation and amortization 29,568 30,539
Amortization of net discount (premium) on trust deed note payable 17 174
Minority interest in net income of the Operating Partnership 4,421 6,488
Changes in assets and liabilities:
Tenant receivables, net 6,118 4,038
Other assets 3,188 8,976
Accounts payable and accrued expenses (10,087) (10,222)
Due to affiliates (5,470) -
Other liabilities (3,382) (8,804)
---------------------- ---------------------
Total adjustments 25,444 32,177
---------------------- ---------------------
Net cash provided by operating activities 48,662 58,901
---------------------- ---------------------
Cash flows from investing activities:
Acquisitions of property and improvements (1,456) (4,226)
Renovations and expansions of centers (11,387) (26,078)
Tenant allowances (2,464) (2,762)
Deferred charges (5,440) (7,932)
Equity in income of unconsolidated joint ventures
and the Management Companies (13,109) (10,634)
Distributions from joint ventures 85,707 10,390
Contributions to joint ventures (387) (70,124)
Loans to affiliates, net - (81,275)
---------------------- ---------------------
Net cash provided by (used in) investing activities 51,464 (192,641)
---------------------- ---------------------
Cash flows from financing activities:
Proceeds from mortgages and notes payable 37,962 324,888
Payments on mortgages and notes payable (85,729) (138,934)
Dividends and distributions to partners (48,563) (43,906)
Dividends to preferred stockholders (9,297) (8,841)
---------------------- ---------------------
Net cash (used in) provided by financing activities (105,627) 133,207
---------------------- ---------------------
Net decrease in cash (5,501) (533)
Cash and cash equivalents, beginning of period 40,455 25,143
---------------------- ---------------------
Cash and cash equivalents, end of period $34,954 $24,610
====================== =====================
Supplemental cash flow information:
Cash payment for interest, net of amounts capitalized $55,263 $54,380
====================== =====================
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 not yet
determined when it will implement SFAS 133 and SFAS 138 nor has it
completed the analysis required to determine the 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")
During 1998, the Company implemented SFAS No. 128, "Earnings per
Share." The computation of basic earnings per share is based on net
income and the weighted average number of common shares outstanding for
six and three months ending June 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 Six Months Ended June 30,
-------------------------------------------------------------------------
------------------------------------ ----------------------------------
2000 1999
------------------------------------ ----------------------------------
Net Net
Income Shares Per Share Income Shares Per Share
------------------------------------ ----------------------------------
(In thousands, except per share data)
Net income $23,218 $26,724
Less: Preferred stock dividends 9,297 8,841
------------ ------------
Basic EPS:
Net income - available to common stockholders 13,921 34,120 $0.41 17,883 33,971 $0.53
Diluted EPS:
Effect of dilutive securities:
Conversion of OP units 4,421 10,953 6,488 12,315
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 $18,342 45,073 $0.41 $24,371 46,286 $0.53
==================================== ==================================
For the Three Months Ended June 30,
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------------------------------------- -----------------------------------
2000 1999
------------------------------------- -----------------------------------
Net Net
Income Shares Per Share Income Shares Per Share
------------------------------------- -----------------------------------
(In thousands, except per share data)
Net income $12,245 $13,407
Less: Preferred stock dividends 4,648 4,421
------------ ------------
Basic EPS:
Net income - available to common stockholders 7,597 34,148 $0.22 8,986 33,980 $0.26
Diluted EPS:
Effect of dilutive securities:
Conversion of OP units 2,383 10,945 3,258 12,311
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 $9,980 45,093 $0.22 $12,244 46,291 $0.26
===================================== ===================================
- 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 47 regional shopping centers and five community
shopping centers aggregating approximately 42 million square feet of
gross leasable area. These 52 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% 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 real estate
joint ventures which own regional retail and community shopping
centers. The Operating Partnership's interest in each joint venture as
of June 30, 2000 is as follows:
The Operating Partnership's
Joint Venture Ownership %
------------- ------------------------
Macerich Northwestern Associates 50%
Manhattan Village, LLC 10%
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.
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
June 30, December 31,
2000 1999
---------------- ------------------
.
Assets:
Properties, net $2,115,704 $2,117,711
Other assets 69,643 58,412
---------------- ------------------
Total assets $2,185,347 $2,176,123
---------------- ------------------
---------------- ------------------
Liabilities and partners' capital:
Mortgage notes payable $1,447,328 $1,287,732
Other liabilities 54,823 62,891
The Company's capital 270,724 342,935
Outside partners' capital 412,472 482,565
---------------- ------------------
Total liabilities and partners' capital $2,185,347 $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
Six Months Ended June 30, 2000
-------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
----------------- ---------------- ---------------- -------------- --------------
Revenues:
Minimum rents $44,043 $46,076 $13,025 - $103,144
Percentage rents 2,230 1,248 731 - 4,209
Tenant recoveries 19,995 15,931 4,519 - 40,445
Management fee - - - $6,491 6,491
Other 1,051 591 704 191 2,537
----------------- ---------------- ---------------- -------------- --------------
Total revenues 67,319 63,846 18,979 6,682 156,826
Expenses:
Shopping center expenses 25,308 17,287 5,479 - 48,074
Interest expense 17,945 22,224 3,732 (161) 43,740
Management Company expense - - - 7,906 7,906
Depreciation and amortization 11,234 9,572 1,466 506 22,778
----------------- ---------------- ---------------- -------------- --------------
Total operating expenses 54,487 49,083 10,677 8,251 122,498
----------------- ---------------- ---------------- -------------- --------------
Gain (loss) on sale of assets - - 60 (447) (387)
Cumulative effect of change in
accounting principle (1,139) (397) (21) - (1,557)
----------------- ---------------- ---------------- -------------- --------------
Net income (loss) $11,693 $14,366 $8,341 ($2,016) $32,384
================= ================ ================ ============== ==============
COMBINED STATEMENTS OF OPERATIONS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
Six Months Ended June 30, 1999
-------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
----------------- ---------------- ---------------- -------------- --------------
Revenues:
Minimum rents $42,548 $13,581 $12,563 $1,399 $70,091
Percentage rents 3,554 931 951 12 5,448
Tenant recoveries 19,612 4,279 5,665 341 29,897
Management fee - - - 4,098 4,098
Other 931 167 576 215 1,889
---------------- ---------------- ---------------- -------------- --------------
Total revenues 66,645 18,958 19,755 6,065 111,423
Expenses:
Shopping center expenses 24,288 5,507 6,390 373 36,558
Interest expense 15,189 6,399 3,794 1,019 26,401
Management Company expense - - - 5,718 5,718
Depreciation and amortization 10,566 3,525 2,141 698 16,930
----------------- ---------------- ---------------- -------------- --------------
Total operating expenses 50,043 15,431 12,325 7,808 85,607
----------------- ---------------- ---------------- -------------- --------------
Gain on sale of assets 5 - 983 300 1,288
----------------- ---------------- ---------------- -------------- --------------
Net income (loss) $16,607 $3,527 $8,413 ($1,443) $27,104
================= ================ ================ ============== ==============
- 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 June 30, 2000
---------------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
-------------------- --------------- ------------------ --------------- ------------
Revenues:
Minimum rents $22,134 $23,088 $6,638 - $51,860
Percentage rents 628 456 367 - 1,451
Tenant recoveries 9,807 8,166 2,257 - 20,230
Management fee - - - $3,497 3,497
Other 566 279 402 76 1,323
-------------------- --------------- ------------------ --------------- ------------
Total revenues 33,135 31,989 9,664 3,573 78,361
Expenses:
Shopping center expenses 12,389 8,680 2,725 - 23,794
Interest expense 9,908 10,964 1,864 (69) 22,667
Management Company expense - - - 4,449 4,449
Depreciation and amortization 5,723 4,943 417 274 11,357
-------------------- --------------- ------------------ --------------- ------------
Total operating expenses 28,020 24,587 5,006 4,654 62,267
-------------------- --------------- ------------------ --------------- ------------
Gain on sale of assets - - 60 - 60
-------------------- --------------- ------------------ --------------- ------------
Net income (loss) $5,115 $7,402 $4,718 ($1,081) $16,154
==================== =============== ================== =============== ============
COMBINED STATEMENTS OF OPERATIONS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
Three Months Ended June 30, 1999
---------------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
-------------------- --------------- ------------------ --------------- ------------
Revenues:
Minimum rents $21,422 $9,317 $6,274 $1,399 $38,412
Percentage rents 1,684 616 391 12 2,703
Tenant recoveries 9,586 3,068 2,899 341 15,894
Management fee - - - 2,089 2,089
Other 362 91 282 61 796
-------------------- --------------- ------------------ --------------- ------------
Total revenues 33,054 13,092 9,846 3,902 59,894
Expenses:
Shopping center expenses 12,155 3,963 3,269 373 19,760
Interest expense 7,562 4,324 1,888 1,124 14,898
Management Company expense - - - 2,974 2,974
Depreciation and amortization 5,388 2,533 1,075 614 9,610
-------------------- --------------- ------------------ --------------- ------------
Total operating expenses 25,105 10,820 6,232 5,085 47,242
-------------------- --------------- ------------------ --------------- ------------
Gain on sale of assets 2 - 983 288 1,273
-------------------- --------------- ------------------ --------------- ------------
Net income (loss) $7,951 $2,272 $4,597 ($895) $13,925
==================== =============== ================== =============== ============
- 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 $161,187 and $156,219 for the periods
ended June 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 $4,645 and $2,465 for the six months ended June 30,
2000 and 1999, respectively; and $2,150 and $1,234 for the three months ended
June 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:
Six Months Ended June 30, 2000
------------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
------------------ ------------------- ------------------ ------------ ------------
Revenues:
Minimun rents $22,022 $23,499 $4,050 - $49,571
Percentage rents 1,115 636 219 - 1,970
Tenant recoveries 9,997 8,125 1,383 - 19,505
Management fee - - - $6,166 6,166
Other 525 301 150 181 1,157
------------------ ------------------- ------------------ ------------ ------------
Total revenues 33,659 32,561 5,802 6,347 78,369
------------------ ------------------- ------------------ ------------ ------------
Expenses:
Shopping center expenses 12,654 8,816 1,828 - 23,298
Interest expense 8,973 11,334 1,461 (153) 21,615
Management Company expense - - - 7,511 7,511
Depreciation and amortization 5,617 4,882 656 481 11,636
------------------ ------------------- ------------------ ------------ ------------
Total operating expenses 27,244 25,032 3,945 7,839 64,060
------------------ ------------------- ------------------ ------------ ------------
Gain (loss) on sale of assets - - 11 (424) (413)
Cumulative effect of change in
accounting principle (570) (202) (15) - (787)
------------------ ------------------- ------------------ ------------ ------------
Net income (loss) $5,845 $7,327 $1,853 ($1,916) $13,109
================== =================== ================== ============ ============
Six Months Ended June 30, 1999
------------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
------------------ ------------------- ------------------ ------------ ------------
Revenues:
Minimun rents $21,274 $6,926 $3,860 $1,329 $33,389
Percentage rents 1,777 475 300 11 2,563
Tenant recoveries 9,806 2,182 1,591 324 13,903
Management fee - - - 3,893 3,893
Other 466 85 117 204 872
------------------ ------------------- ------------------ ------------ ------------
Total revenues 33,323 9,668 5,868 5,761 54,620
------------------ ------------------- ------------------ ------------ ------------
Expenses:
Shopping center expenses 12,144 2,808 1,948 354 17,254
Interest expense 7,594 3,263 1,485 968 13,310
Management Company expense - - - 5,431 5,431
Depreciation and amortization 5,283 1,798 722 662 8,465
------------------ ------------------- ------------------ ------------ ------------
Total operating expenses 25,021 7,869 4,155 7,415 44,460
------------------ ------------------- ------------------ ------------ ------------
Gain on sale of assets 2 - 188 284 474
------------------ ------------------- ------------------ ------------ ------------
Net income (loss) $8,304 $1,799 $1,901 ($1,370) $10,634
================== =================== ================== ============ ============
- 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 June 30, 2000
------------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
------------------ -------------------- ----------------- ------------- -------------
Revenues:
Minimum rents $11,068 $11,775 $2,084 - $24,927
Percentage rents 313 233 142 - 688
Tenant recoveries 4,903 4,165 710 - 9,778
Management fee - - - $3,323 3,323
Other 283 142 80 72 577
------------------ -------------------- ----------------- ------------- -------------
Total revenues 16,567 16,315 3,016 3,395 39,293
------------------ -------------------- ----------------- ------------- -------------
Expenses:
Shopping center expenses 6,194 4,426 922 - 11,542
Interest expense 4,955 5,591 729 (66) 11,209
Management company expense - - - 4,226 4,226
Depreciation and amortization 2,861 2,521 298 261 5,941
------------------ -------------------- ----------------- ------------- -------------
Total operating expenses 14,010 12,538 1,949 4,421 32,918
------------------ -------------------- ----------------- ------------- -------------
Gain on sale of assets - - 11 - 11
------------------ -------------------- ----------------- ------------- -------------
Net income (loss) $2,557 $3,777 $1,078 ($1,026) $6,386
================== ==================== ================= ============= =============
Three Months Ended June 30, 1999
------------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
------------------ -------------------- ----------------- ------------- -------------
Revenues:
Minimum rents $10,712 $4,751 $1,915 $1,329 $18,707
Percentage rents 842 314 102 11 1,269
Tenant recoveries 4,793 1,564 829 324 7,510
Management fee - - - 1,985 1,985
Other 180 47 57 57 341
------------------ -------------------- ----------------- ------------- -------------
Total revenues 16,527 6,676 2,903 3,706 29,812
------------------ -------------------- ----------------- ------------- -------------
Expenses:
Shopping center expenses 6,077 2,021 984 354 9,436
Interest expense 3,780 2,205 742 1,068 7,795
Management company expense - - - 2,825 2,825
Depreciation and amortization 2,694 1,292 364 583 4,933
------------------ -------------------- ----------------- ------------- -------------
Total operating expenses 12,551 5,518 2,090 4,830 24,989
------------------ -------------------- ----------------- ------------- -------------
Gain on sale of assets 1 - 188 274 463
------------------ -------------------- ----------------- ------------- -------------
Net income (loss) $3,977 $1,158 $1,001 ($850) $5,286
================== ==================== ================= ============= =============
- 14 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
4. Property:
Property is summarized as follows:
June 30, December 31,
2000 1999
-------------------- --------------------
Land $399,172 $399,172
Building improvements 1,683,112 1,603,348
Tenant improvements 52,660 49,654
Equipment & furnishings 11,623 11,272
Construction in progress 43,167 111,089
-------------------- --------------------
2,189,734 2,174,535
Less, accumulated depreciation (267,928) (243,120)
-------------------- --------------------
$1,921,806 $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 June 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 ---- $36,790 ---- $36,983 9.25% 316 (a) 2001
Carmel Plaza $28,750 ---- $28,869 ---- 8.18% 202 (a) 2009
Chesterfield Towne Center 63,981 ---- 64,358 ---- 9.07% 548(b) 2024
Citadel 72,746 ---- 73,377 ---- 7.20% 554(a) 2008
Corte Madera, Village at 71,637 ---- 71,949 ---- 7.75% 516(a) 2009
Crossroads Mall-Boulder (c) ---- 34,689 ---- 34,893 7.08% 244(a) 2010
Fresno Fashion Fair 69,000 ---- 69,000 ---- 6.52% interest only 2008
Greeley Mall 15,787 ---- 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 61,555 ---- 62,080 ---- 7.33% 434(a) 2009
Parklane Mall ---- 20,000 ---- 20,000 6.75% interest only 2001
Queens Center 99,776 ---- 100,000 ---- 6.88% 633(a) 2009
Rimrock Mall 30,151 ---- 30,445 ---- 7.70% 244(a) 2003
Santa Monica Place (e) 85,000 ---- 80,000 ---- 8.39% interest only 2001
South Plains Mall 64,355 ---- 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) 53,015 ---- 53,537 ---- 7.65% 427(a) 2003
Westside Pavilion 100,000 ---- 100,000 ---- 6.67% interest only 2008
------------- ------------- --------------- -------------
------------- ------------- --------------- -------------
Total - Wholly Owned
Centers $1,106,467 $133,479 $1,105,180 $133,876
------------- ------------- --------------- -------------
- 17 -
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 June 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) - $36,367 - $36,690 6.68% 257 (a) 2008
Pacific Premier Retail
Trust (51%) (g):
Cascade Mall $13,554 - $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
Los Cerritos Center 60,548 60,909 - 7.13% 421(a) 2006
North Point Plaza 1,855 - 1,889 - 6.50% 16 (a) 2015
Redmond Town Center -
Retail 32,469 - 32,743 - 6.50% 224 (a) 2011
Redmond Town Center -
Office (j) - 45,111 - 42,248 6.77% 298 (a) 2009
Stonewood Mall (k) 38,250 38,250 - 8.40% interest only 2001
Washington Square 59,964 - 60,471 - 6.70% 421 (a) 2009
Washington Square Too 6,427 - 6,533 - 6.50% 53 (a) 2016
SDG Macerich Properties
L.P. (50%) (g) 187,231 - 159,282 - 6.52% (l) 1,120 (a) 2006
SDG Macerich Properties
L.P. (50%) (g) 92,250 - 92,500 - 7.15% (l) interest only 2003
SDG Macerich Properties
L.P. (50%) (g) 40,700 - - - 7.02% (l) interest only 2006
West Acres Center
(19%) (g) (m) 7,600 - 7,600 - 6.52% interest only 2009
--------------- ------------- --------------- -------------
Total - Joint
Venture Centers $636,728 $81,478 $559,236 $78,938
--------------- ------------- --------------- -------------
--------------- ------------- --------------- -------------
Total - All Centers $1,743,195 $214,957 $1,664,416 $212,814
=============== ============= =============== =============
Weighted average interest rate at June 30, 2000 - Wholly Owned Centers 7.57%
============
Weighted average interest rate at December 31, 1999 - Wholly Owned Centers 7.39%
============
(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 $236 and $106 for
the six and three months ended June 30, 2000, respectively; and
$138 and $26 for the six and three months ended June 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 June 30, 2000 and December 31, 1999 the unamortized
discount was $347 and $364, respectively.
(d) This loan is cross collateralized by Green Tree Mall, Crossroads
Mall-Oklahoma and the Centre at Salisbury.
- 18 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
5. Mortgage Notes Payable, Continued:
(e) The loan bears interest at LIBOR plus 1.75%. In addition, the
Company can increase the loan amount up to $90,000. The Company
has committed to refinance this loan with a 10 year fixed rate
loan bearing interest at 7.70%.
(f) This loan will be replaced with a new ten year loan for $70,000 at a
fixed interest rate of 7.89%.
(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 market 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
June 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) 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 June 30, 2000 and December 31, 1999, $11,753 and
$6,745 of principal has been drawn under the construction loan,
respectively.
(k) The loan bears interest at LIBOR plus 1.75%. At June 30, 2000 and
December 31, 1999, the total interest was 8.40% and 8.23%,
respectively.
- 19 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
5. Mortgage Notes Payable, Continued:
(l) 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 market 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 June 30, 2000 and December 31, 1999, the
unamortized balance of the debt premium was $17,361 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 7.15% and 6.96% at June 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 7.02%. This
variable rate debt is covered by an interest rate cap agreement which
effectively prevents the interest rate from exceeding 11.83%.
(m) 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 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.
Certain mortgage loan agreements contain a prepayment penalty provision
for the early extinguishment of the debt.
Total interest capitalized for the wholly-owned centers during the six
and three months ended June 30, 2000 was $2,690 and $1,591,
respectively; and total interest capitalized during the six and three
months ended June 30, 1999 was $2,739 and $1,488, respectively.
The market value of mortgage notes payable for the wholly-owned Centers
at June 30, 2000 and December 31, 1999 is estimated to be approximately
$1,205,411 and $1,179,469, respectively, based on current interest
rates for comparable loans.
- 20 -
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 June 30, 2000 and December 31, 1999, $29,400
and $57,400 of borrowings were outstanding under this line of credit at
interest rates of 8.4% and 7.65%, respectively. As of August 14, 2000,
$17,000 was outstanding under this line of credit.
Additionally, the Company issued $5,776 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 June 30, 2000 and December 31, 1999, $82,614 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
six and three months ending June 30, 2000, management fees of $1,437
and $724 respectively, and for the six and three months ended June 30,
1999, management fees of $1,620 and $812 respectively, were paid to the
Management Companies by the Company. For the six and three months
ending June 30, 2000, management fees of $3,449 and $1,752,
respectively, and for the six and three months ended June 30, 1999,
management fees of $2,033 and $1,142, respectively, were paid 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 $5,042 and $5,053 for the six months ended June 30, 2000 and 1999,
respectively; and $2,523 and $2,540 for the three months ending June
30, 2000 and 1999, respectively. Included in accounts payable and
accrued expenses is interest payable to these partners of $493 and $513
at June 30, 2000 and December 31, 1999, respectively.
- 21 -
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 the loans were
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 June 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 $170 and ($28) for the six and three months ended
June 30, 2000, respectively. Ground rent expenses, net of amounts
capitalized, were $456 and $257 for the six and three months ended June
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 $29 and $72 have already been incurred by the joint
venture for remediation, and professional and legal fees for the
periods ending June 30, 2000 and 1999, respectively. An additional $230
remains reserved by the joint venture as of June 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.
- 22 -
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 $24 and $82 in remediation costs for
the six months ending June 30, 2000 and 1999, respectively. An
additional $2,759 remains reserved at June 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 August 9, 2000, a dividend/distribution of $0.51 per share was
declared for common stockholders and OP unit holders of record on
August 18, 2000. In addition, the Company declared a dividend of $0.51
on the Company's Series A Preferred Stock and a dividend of $0.51 on
the Company's Series B Preferred Stock. All dividends/distributions
will be payable on September 6, 2000.
- 23 -
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 June 30, 2000, and also compares
the activities for the six and three months ended June 30, 2000 to the
activities for the six and three months ended June 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 rents, availability and cost of financing
and operating expenses; adverse changes in the real estate markets
including, among other things, competition with other companies, retail
formats and technology, risks of real estate development and
acquisitions; 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.
- 24 -
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.
- 25 -
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 during 2000, and 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 the pace of
acquisitions to slow considerably 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 Six Months Ended June 30, 2000 and 1999
Revenues
Minimum and percentage rents decreased by 10.1% to $98.1 million in
2000 from $109.1 million in 1999. Approximately $15.0 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
- 26 -
THE MACERICH COMPANY (The Company)
Results of Operations - Continued:
Comparison of Six Months Ended June 30, 2000 and 1999
Revenues- Continued:
Unconsolidated Joint Ventures. In December 1999, the Securities and
Exchange Commission issued Staff Accounting Bulletin 101,
"RevenueRecognition in Financial Statements," ("SAB 101") which became
effective for periods after December 15, 1999. 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
$4.1 million decrease in revenues for the six months ended June 30,
2000.. These decreases are offset by revenue increases of $5.0 million
relating to the 1999 acquisition of Santa Monica Place, $0.4 million
increase at the Redevelopment Centers and $2.7 million of the increase
was attributable to the Same Centers.
Tenant recoveries increased to $49.4 million in 2000 from $47.3 million
in 1999. The 1999 acquisition of Santa Monica Place generated $3.4
million of the increase, $2.3 million of the increase was from the Same
Centers and $0.4 million from the Redevelopment Centers. These
increases were partially offset by revenue decreases of $4.3 million
resulting from the contribution of Lakewood Mall and Stonewood Mall to
the PPRT joint venture.
Other income increased to $4.0 million in 2000 from $3.2 million in
1999. Approximately $0.8 million of the increase related to the 1999
acquisition of Santa Monica Place.
Expenses
Shopping center expenses increased to $48.1 million in 2000 compared to
$47.2 million in 1999. Approximately $3.8 million of the increase
resulted from the 1999 acquisition of Santa Monica Place, $1.7 million
of the increase resulted from increased property taxes and recoverable
expenses at the Same Centers. Additionally, the Redevelopment Centers
had an increase of $0.2 million in shopping center expenses resulting
primarily from increased property taxes and recoverable expenses. These
increases were offset by a decrease of $4.8 million resulting from the
contribution of Lakewood Mall and Stonewood Mall to the PPRT joint
venture.
General and administrative expenses increased to $3.2 million in 2000
from $2.8 million in 1999 primarily as a result of higher compensation
expense.
Interest Expense
Interest expense decreased to $55.1 million in 2000 from $55.4 million
in 1999. Approximately $4.6 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.
- 27 -
THE MACERICH COMPANY (The Company)
Results of Operations - Continued:
Comparison of Six Months Ended June 30, 2000 and 1999
Depreciation and Amortization
Depreciation and amortization decreased to $29.6 million in 2000 from
$30.5 million in 1999. Approximately $2.3 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 $1.5
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 $13.1 million for 2000, compared to income of $10.6
million in 1999. A total of $5.5 million of the increase is
attributable to the 1999 Joint Venture Acquisitions and the Contributed
JV Assets. These increases are partially offset by the change in
accounting principle for percentage rent required by SAB 101 of $1.9
million.
Extraordinary Loss from Early Extinguishment of Debt
In 1999, the Company wrote off $1.0 million of unamortized financing
costs, compared to no financing costs written off in 2000.
Net Income Available to Common Stockholders
As a result of the foregoing, net income available to common
stockholders decreased to $13.9 million in 2000 from $17.9 million in
1999.
Operating Activities
Cash flow from operations was $48.7 million in 2000 compared to $58.9
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 $51.5 million in 2000
compared to cash utilized by investing activities of $192.6 million in
1999. The change resulted primarily from the cash contributions
required by the Company for the joint venture acquisitions of $70.1
million in 1999 compared to $0.4 million in 2000. Additionally, a loan
from the Company for $81.3 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 $85.7
million in 2000 compared to $10.4 in 1999.
Financing Activities
Cash flow from financing activities was ($105.6) million in 2000
compared to $133.2 million in 1999. The change resulted primarily from
the refinancing of Centers in 1999.
- 28 -
THE MACERICH COMPANY (The Company)
Results of Operations - Continued:
Comparison of Six Months Ended June 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 1.8% to $76.1 million in 2000
from $77.5 million in 1999.
Comparison of Three Months Ended June 30, 2000 and 1999
Revenues
Minimum and percentage rents decreased by 9.4% to $49.4 million in
2000 from $54.5 million in 1999. Approximately $7.6 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 June 30, 2000 represented approximately a
$1.8 million decrease. These decreases are offset by revenue increases
of $2.5 million relating to the 1999 acquisition of Santa Monica
Place, $0.5 million increase at the Redevelopment Centers and $1.4
million of the increase was attributable to the Same Centers.
Tenant recoveries increased to $24.9 million in 2000 from $24.2 million
in 1999. The 1999 acquisition of Santa Monica Place generated $1.8
million of the increase, $0.7 million of the increase was from the Same
Centers and $0.1 million from the Redevelopment Centers. These
increases were partially offset by revenue decreases of $2.1 million
resulting from the contribution of Lakewood Mall and Stonewood Mall to
the PPRT joint venture.
Expenses
Shopping center expenses increased to $24.2 million in 2000 compared to
$24.0 million in 1999. Approximately $1.9 million of the increase
resulted from the 1999 acquisition of Santa Monica Place, $0.8 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.
General and administrative expenses increased to $1.7 million in 2000
from $1.4 million in 1999 primarily as a result of higher compensation
expense.
- 29 -
THE MACERICH COMPANY (The Company)
Results of Operations - Continued:
Comparison of Three Months Ended June 30, 2000 and 1999
Interest Expense
Interest expense decreased to $26.9 million in 2000 from $28.6 million
in 1999. This decrease of $1.7 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 $15.0 million in 2000 from
$15.3 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 $6.4 million for 2000, compared to income of $5.3 million
in 1999. A total of $2.6 million of the change is attributable to the
1999 Joint Venture Acquisitions and the Contributed JV Assets. 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 $7.6 million in 2000 from $9.0 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 1.8% to $38.2 million in 2000
from $38.9 million in 1999.
- 30 -
THE MACERICH COMPANY (The Company)
Results of Operations - Continued:
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 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 and/or joint ventures. 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 June 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 65% at June 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 $29.4 million of borrowings outstanding at June 30, 2000. As
of August 14, 2000, $17.0 million was outstanding under this line of
credit.
At June 30, 2000, the Company had cash and cash equivalents available
of $35.0 million.
- 31 -
THE MACERICH COMPANY (The Company)
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:
Six months ended June 30,
2000 1999
------------------------ ---------------------------
Shares Amount Shares Amount
---------- ------------ ----------- --------------
(amounts in thousands)
Net income - available to common stockholders $13,921 $17,883
Adjustments to reconcile net income to FFO - basic:
Minority interest 4,421 6,488
Depreciation and amortization on wholly owned centers 29,568 30,539
Pro rata share of unconsolidated entities' depreciation and
amortization 11,636 8,465
Loss on sale of wholly-owned assets 108 -
Loss on early extinguishment of debt - 988
Pro rata share of (gain) loss on sale of assets
from unconsolidated entities 413 (474)
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 (2,359) (2,107)
------------ --------------
FFO - basic (1) 45,073 59,458 46,286 61,782
Additional adjustments to arrive at FFO - diluted:
Impact of convertible preferred stock 9,115 9,297 9,115 8,841
Impact of stock options and restricted stock using
the treasury method 401 1,003 435 611
Impact of convertible debentures 5,186 6,292 5,186 6,276
---------- ------------ ----------- --------------
FFO - diluted (2) 59,775 $76,050 61,022 $77,510
========== ============ =========== ==============
- 32 -
THE MACERICH COMPANY (The Company)
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Continued:
Three months ended June 30,
2000 1999
-------------------------- --------------------------
Shares Amount Shares Amount
------------ ------------ ----------- -------------
(amounts in thousands)
Net income - available to common stockholders $7,597 $8,986
Adjustments to reconcile net income to FFO - basic:
Minority interest 2,383 3,258
Depreciation and amortization on wholly owned centers 15,040 15,285
Pro rata share of unconsolidated entities' depreciation and
amortization 5,941 4,933
Loss on sale of wholly-owned assets 106 -
Loss on early extinguishment of debt - 15
Pro rata share of (gain) loss on sale of assets
from unconsolidated entities (11) (463)
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 (1,166) (1,051)
------------ -------------
FFO - basic (1) 45,093 29,890 46,291 30,963
Additional adjustments to arrive at FFO - diluted:
Impact of convertible preferred stock 9,115 4,648 9,115 4,421
Impact of stock options and restricted stock using
the treasury method 506 545 551 368
Impact of convertible debentures 5,186 3,145 5,186 3,161
------------ ------------ ----------- -------------
FFO - diluted (2) 59,900 $38,228 61,143 $38,913
============ ============ =========== =============
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 six and three months ending June 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.
- 33 -
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 $0.6 million and $1.3 million for
the six months ended June 30, 2000 and 1999, respectively; and $0.4
million and $0.7 million for the three months ended June 30, 2000 and
1999, respectively.
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.
- 34 -
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 not yet
determined when it will implement SFAS 133 and SFAS 138 nor has it
completed the analysis required to determine the impact on its
financial statements.
- 35 -
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 June 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 $8,664 $108,286 $11,717 $99,972 $127,705 $798,602 $1,154,946 $1,120,411
Average interest rate 7.40% 7.37% 7.37% 7.33% 7.34% 7.34% 7.40% -
Fixed rate - Debentures - - 161,400 - - - 161,400 158,494
Average interest rate - - 7.25% - - - 7.25% -
Variable rate - 197,014 - - - - 197,014 197,014
Average interest rate - 8.56% - - - - 8.56% -
-------- --------- ----------- --------- ---------- ---------- ------------ -----------
Total debt - Wholly owned
Centers $8,664 $305,300 $173,117 $99,972 $127,705 $798,602 $1,513,360 $1,475,919
-------- --------- ----------- ---------- ---------- ----------- ------------ -----------
Joint Venture Centers:
(at Company's pro rata share)
Fixed rate $6,063 $ 6,498 $7,173 $7,689 $8,212 $511,371 $547,006 $508,582
Average interest rate 6.70% 6.71% 6.71% 6.71% 6.71% 6.71% 6.70% -
Variable rate - 38,250 - 92,250 - 40,700 171,200 171,200
Average interest rate - 8.40% - 7.15% - 7.02% 7.40% -
-------- --------- --------- ----------- ----------- ----------- ----------- ----------
Total debt - Joint Ventures $6,063 $44,748 $7,173 $99,939 $8,212 $552,071 $718,206 $679,782
-------- --------- --------- ----------- ------------ ----------- ------------ -----------
Total debt - All Centers $14,727 $350,048 $180,290 $199,911 $135,917 $1,350,673 $2,231,566 $2,155,701
======== ========== ========== =========== =========== ============ =========== =============
Of the $235.3 million of variable rate debt maturing in 2001, $29.4
million represents the outstanding borrowings under the Company's
credit facility and $82.6 million represents outstanding borrowings
under the Pacific View construction loan. Additionally, the Company has
committed to refinancing $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 $368.2 million outstanding at June 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.
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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
The following matters were voted upon at the Annual Meeting held on May
16, 2000:
A. The following three persons were elected as directors of the
Company to serve until the annual meeting of stockholders in 2003
and until their respective successors are duly elected and
qualify:
For Authority Withheld
Arthur M. Coppola 14,739,760 114,326
James S. Cownie 14,739,758 114,328
Mace Siegel 14,738,016 116,070
B. The ratification of the selection of PricewaterhouseCoopers LLP as
independent public accountants for the fiscal year ending December
31, 2000.
Votes:
For: 14,812,818
Against: 13,867
Abstain: 27,401
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
None
- 37 -
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: August 14, 2000
- 38 -
THE MACERICH COMPANY (The Company)
Exhibit Index
Exhibit
No.
Page
(a) Exhibits
None
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