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 MARCH 31, 2001 COMMISSION FILE NO. 1-12504
THE MACERICH COMPANY
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 95-4448705
- ----------------------------- ------------------------------------
(State or other jurisdiction
of incorporation (I.R.S. Employer Identification Number)
or organization)
401 Wilshire Boulevard, Suite 700, Santa Monica, CA 90401
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(Address of principal executive office)(Zip code)
Registrant's telephone number, including area code (310) 394-6000
-------------------
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Number of shares outstanding of the registrant's common stock, as of May 9,
2001.
Common stock, par value $.01 per share: 33,750,275 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 March 31, 2001 and December 31, 2000 1
Consolidated statements of operations of the
Company for the periods from January 1 through
March 31, 2001 and 2000 2
Consolidated statements of cash flows of the
Company for the periods from January 1 through
March 31, 2001 and 2000 3
Notes to condensed and consolidated financial statements 4 to 18
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19 to 26
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 27
Part II: Other Information 28 to 30
THE MACERICH COMPANY (The Company)
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Unaudited)
March 31, December 31.
2001 2000
----------------- -----------------
ASSETS:
Property, net $1,933,533 $1,933,584
Cash and cash equivalents 21,762 36,273
Tenant receivables, including accrued overage rents of
$1,278 in 2001 and $6,486 in 2000 32,759 38,922
Deferred charges and other assets, net 53,399 55,323
Investments in joint ventures and the Management Companies 272,661 273,140
----------------- -----------------
----------------- -----------------
Total assets $2,314,114 $2,337,242
================= =================
LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY:
Mortgage notes payable:
Related parties $70,828 $133,063
Others 1,117,464 1,119,684
----------------- -----------------
Total 1,188,292 1,252,747
Bank notes payable 220,250 147,340
Convertible debentures 150,848 150,848
Accounts payable and accrued expenses 25,227 24,681
Due to affiliates 1,560 8,800
Other accrued liabilities 17,005 17,887
Preferred stock dividend payable 4,831 4,831
----------------- -----------------
----------------- -----------------
Total liabilities 1,608,013 1,607,134
----------------- -----------------
Minority interest in Operating Partnership 116,236 120,500
----------------- -----------------
Commitments and contingencies (Note 9)
Series A cumulative convertible redeemable preferred stock, $.01 par value,
3,627,131 shares authorized, issued and
outstanding at March 31, 2001 and December 31, 2000 98,934 98,934
Series B cumulative convertible redeemable preferred stock, $.01 par value,
5,487,471 shares authorized, issued and
outstanding at March 31, 2001 and December 31, 2000 148,402 148,402
----------------- -----------------
Common stockholders' equity: 247,336 247,336
----------------- -----------------
Common stock, $.01 par value, 100,000,000 shares
authorized, 33,740,191 and 33,612,462 shares issued and
outstanding at March 31, 2001 and December 31, 2000, respectively 338 338
Additional paid in capital 360,514 359,306
Accumulated earnings - 10,314
Accumulated other comprehensive loss (9,118) -
Unamortized restricted stock (9,205) (7,686)
----------------- -----------------
Total common stockholders' equity 342,529 362,272
----------------- -----------------
----------------- -----------------
Total liabilities, preferred stock and common stockholders' equity $2,314,114 $2,337,242
================= =================
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)
Three Months Ended March 31,
-----------------------------------------------
2001 2000
--------------------- ---------------------
REVENUES:
Minimum rents $48,665 $47,175
Percentage rents 1,848 1,532
Tenant recoveries 24,803 24,569
Other 2,447 2,027
--------------------- ---------------------
Total revenues 77,763 75,303
--------------------- ---------------------
EXPENSES:
Shopping center expenses 24,151 23,900
General and administrative expense 1,682 1,469
Interest expense:
Related parties 2,485 2,519
Others 25,511 25,632
--------------------- ---------------------
Total interest expense 27,996 28,151
--------------------- ---------------------
Depreciation and amortization 16,104 14,528
Equity in income of unconsolidated
joint ventures and the management companies 6,055 6,723
Loss on sale of assets (321) (2)
--------------------- ---------------------
Income before minority interest, extraordinary item and
cumulative effect of change in accounting principle 13,564 13,976
Extraordinary loss on early extinguishment of debt (186) -
Cumulative effect of change in accounting principle - (963)
--------------------- ---------------------
Income of the Operating Partnership 13,378 13,013
Less minority interest in net income
of the Operating Partnership 2,128 2,039
--------------------- ---------------------
Net income 11,250 10,974
Less preferred dividends 4,831 4,648
--------------------- ---------------------
Net income available to common stockholders $6,419 $6,326
===================== =====================
Earnings per common share - basic:
Income before extraordinary item and cumulative effect
of change in accounting principle $0.20 $0.22
Extraordinary item (0.01) -
Cumulative effect of change in accounting principle - (0.03)
--------------------- ---------------------
Net income per share available to common stockholders $0.19 $0.19
===================== =====================
Weighted average number of common shares
outstanding - basic 33,640,000 34,091,000
===================== =====================
Weighted average number of common shares
outstanding - basic, assuming full conversion of
operating partnership units outstanding 44,796,000 45,052,000
===================== =====================
Earnings per common share - diluted:
Income before extraordinary item and cumulative effect
of change in accounting principle $0.19 $0.21
Extraordinary item - -
Cumulative effect of change in accounting principle - (0.02)
--------------------- ---------------------
Net income per share - available to common stockholders $0.19 $0.19
===================== =====================
Weighted average number of common shares
outstanding - diluted for EPS 44,796,000 45,350,000
===================== =====================
The accompanying notes are an integral part of these financial statements.
- 2 -
THE MACERICH COMPANY (The Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
For the three months ended March 31,
----------------------------------------------
2001 2000
---------------------- ---------------------
Cash flows from operating activities:
Net income - available to common stockholders $6,419 $6,326
Preferred dividends 4,831 4,648
---------------------- ---------------------
---------------------- ---------------------
Net income 11,250 10,974
---------------------- ---------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Extraordinary loss on early extinguishment of debt 186 -
Cumulative effect of change in accounting principle - 963
Loss on sale of assets 321 2
Depreciation and amortization 16,104 14,528
Amortization of net discount (premium) on trust deed note payable 8 8
Minority interest in net income of the Operating Partnership 2,128 2,039
Changes in assets and liabilities:
Tenant receivables, net 6,163 5,305
Other assets (7,021) 584
Accounts payable and accrued expenses 546 (5,889)
Due to affiliates (7,240) (3,933)
Other liabilities (882) 801
---------------------- ---------------------
Total adjustments 10,313 14,408
---------------------- ---------------------
Net cash provided by operating activities 21,563 25,382
---------------------- ---------------------
Cash flows from investing activities:
Acquisitions of property and improvements (4,007) (586)
Renovations and expansions of Centers (7,679) (5,558)
Tenant allowances (2,795) (1,043)
Deferred charges (2,253) (1,634)
Equity in income of unconsolidated joint ventures
and the Management Companies (6,055) (6,723)
Distributions from joint ventures 11,136 6,931
Contributions to joint ventures (4,602) (425)
---------------------- ---------------------
Net cash used in investing activities (16,255) (9,038)
---------------------- ---------------------
Cash flows from financing activities:
Proceeds from mortgages, notes and debentures payable 82,911 34,434
Payments on mortgages, notes and debentures payable (74,464) (32,552)
Dividends and distributions (23,435) (23,277)
Dividends to preferred stockholders (4,831) (4,648)
---------------------- ---------------------
Net cash used in financing activities (19,819) (26,043)
---------------------- ---------------------
Net decrease in cash (14,511) (9,699)
Cash and cash equivalents, beginning of period 36,273 40,455
---------------------- ---------------------
Cash and cash equivalents, end of period $21,762 $30,756
====================== =====================
Supplemental cash flow information:
Cash payment for interest, net of amounts capitalized $25,643 $24,993
====================== =====================
The accompanying notes are an integral part of these financial statements.
- 3 -
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, 2000. 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, 2000 has
been derived from the audited financial statements, but does not
include all disclosures required by GAAP.
Certain reclassifications have been made in the 2000 consolidated
financial statements to conform to the 2001 financial statement
presentation.
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.
In June 1998, the Financial Accounting Standards Board ("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. As a
result of the adoption of SFAS 133 on January 1, 2001, the Company
recorded a transition adjustment of $9,445 to accumulated other
comprehensive income related to treasury rate lock transactions settled
in prior years. The entire transition adjustment is reflected in the
quarter ended March 31, 2001. The transition adjustment of $9,445 less
amortization of $328 would be subtracted from net income to arrive at
comprehensive income of $2,132. The Company expects that $1,328 will
be reclassified from accumulated other comprehensive income to earnings
for the year ended December 31, 2001. During the quarter ended March
31, 2001, the Company reclassified $328 from accumulated other
comprehensive income to earnings.
- 4 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
Earnings Per Share ("EPS"):
The computation of basic earnings per share is based on net income and
the weighted average number of common shares outstanding for the three
months ending March 31, 2001 and 2000. The computation of diluted
earnings per share includes the effect of outstanding restricted stock
and common stock options calculated using the treasury method. 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. The following table reconciles the basic and
diluted earnings per share calculation:
For the Three Months Ended March 31,
-------------------------------------------------------------------------------
-------------------------------------- ---------------------------------------
2001 2000
-------------------------------------- ---------------------------------------
Net Net
Income Shares Per Share Income Shares Per Share
-------------------------------------- ---------------------------------------
(In thousands, except per share data)
Net income $11,250 $10,974
Less: Preferred stock dividends 4,831 4,648
------------- -------------
Basic EPS:
Net income - available to common stockholders 6,419 33,640 $0.19 6,326 34,091 $0.19
Diluted EPS:
Effect of dilutive securities:
Conversion of OP units 2,128 11,156 2,039 10,961
Employee stock options and restricted stock n/a - antidilutive for EPS 458 298
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 $8,547 44,796 $0.19 $8,823 45,350 $0.19
====================================== =======================================
- 5 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
2. Organization:
The Company is involved in the acquisition, ownership, redevelopment,
management and leasing of regional and community shopping centers
located throughout the United States. The Company is the sole general
partner of, and owns a majority of the ownership interests in, The
Macerich Partnership, L.P., a Delaware limited partnership (the
"Operating Partnership"). The Operating Partnership owns or has an
ownership interest in 46 regional shopping centers and five community
shopping centers aggregating approximately 42 million square feet of
gross leasable area ("GLA"). These 51 regional and community shopping
centers are referred to hereinafter as the "Centers", unless the
context otherwise requires. The Company is a self-administered and
self-managed real estate investment trust ("REIT") and conducts all of
its operations through the Operating Partnership and the Company's
three management companies, Macerich Property Management Company, LLC,
a Delaware limited liability company, Macerich Manhattan Management
Company, a California corporation, and Macerich Management Company,
a California corporation (collectively, the "Management Companies").
The term "Management Companies" includes Macerich Property Management
Company prior to the merger with Macerich Property Management Company,
LLC on March 29, 2001.
The Company was organized to qualify as a REIT under the Internal
Revenue Code of 1986, as amended. The 21%, as of March 31, 2001,
limited partnership interest of the Operating Partnership not owned by
the Company is reflected in these financial statements as minority
interest.
3. Investments in Unconsolidated Joint Ventures and the Management Companies:
The following are the Company's investments in various joint ventures.
The Operating Partnership's interest in each joint venture as of March
31, 2001 is as follows:
The Operating Partnership's
Joint Venture Ownership %
--------------- -------------
Macerich Northwestern Associates 50%
Manhattan Village, LLC 10%
MerchantWired, LLC 9.5%
Pacific Premier Retail Trust 51%
Panorama City Associates 50%
SDG Macerich Properties, L.P. 50%
West Acres Development 19%
As of March 28, 2001, the Operating Partnership also owned all of the
non-voting preferred stock of Macerich Property Management Company
and Macerich Management Company, which is generally entitled to
dividends equal to 95% of the net cash flow of each company. Macerich
Manhattan Management Company is a wholly owned subsidiary of Macerich
Management Company. Effective March 29, 2001, Macerich Property
Management Company merged with and into Macerich Property Management
Company, LLC ("MPMC, LLC"). MPMC, LLC is a single-member Delaware
limited liability company and is 100% owned by the Operating
Partnership. The ownership structure of Macerich Management Company has
remained unchanged.
- 6 -
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, exclusive of MPMC,
LLC, and joint ventures using the equity method of accounting. As of
March 29, 2001, the Company will consolidate the accounts of MPMC, LLC.
On September 30, 2000, Manhattan Village, a 551,847 square foot
regional shopping center, 10% of which was owned by the Operating
Partnership, was sold. The joint venture sold the property for $89,000,
including a note receivable from the buyer for $79,000 at an interest
rate of 8.75% payable monthly, until the maturity date of September 30,
2001. A gain from sale of the property for $10,945 was recorded at
September 30, 2000.
Combined and condensed balance sheets and statements of operations are
presented below for all unconsolidated joint ventures and the
Management Companies, followed by information regarding the Operating
Partnership's beneficial interest in the combined operations.
Beneficial interest is calculated based on the Operating Partnership's
ownership interests in the joint ventures and the Management Companies.
COMBINED AND CONDENSED BALANCE SHEETS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
March 31, December 31,
2001 2000
---------------- ------------------
Assets:
Properties, net $2,063,821 $2,064,777
Other assets 149,708 155,919
---------------- ------------------
Total assets $2,213,529 $2,220,696
---------------- ------------------
---------------- ------------------
Liabilities and partners' capital:
Mortgage notes payable $1,458,776 $1,461,857
Other liabilities 53,101 51,791
The Company's capital 272,661 273,140
Outside partners' capital 428,991 433,908
---------------- ------------------
Total liabilities and partners' capital $2,213,529 $2,220,696
---------------- ------------------
---------------- ------------------
- 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:
COMBINED STATEMENTS OF OPERATIONS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
Three Months Ended March 31, 2001
-------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
----------------- ---------------- ---------------- -------------- --------------
Revenues:
Minimum rents $22,810 $24,110 $4,965 - $51,885
Percentage rents 1,672 856 135 - 2,663
Tenant recoveries 10,883 8,591 2,245 - 21,719
Management fee - - - $3,051 3,051
Other 494 604 1,968 - 3,066
----------------- ---------------- ---------------- -------------- --------------
Total revenues 35,859 34,161 9,313 3,051 82,384
----------------- ---------------- ---------------- -------------- --------------
Expenses:
Shopping center expenses 13,256 9,252 6,912 - 29,420
Interest expense 10,451 12,367 1,842 (33) 24,627
Management Company expense - - - 3,942 3,942
Depreciation and amortization 6,148 5,511 839 294 12,792
----------------- ---------------- ---------------- -------------- --------------
Total operating expenses 29,855 27,130 9,593 4,203 70,781
----------------- ---------------- ---------------- -------------- --------------
Gain (loss) on sale of assets (1) 72 260 - 331
----------------- ---------------- ---------------- -------------- --------------
Net income (loss) $6,003 $7,103 ($20) ($1,152) $11,934
================= ================ ================ ============== ==============
COMBINED STATEMENTS OF OPERATIONS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
Three Months Ended March 31, 2000
-------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
----------------- ---------------- ---------------- -------------- --------------
Revenues:
Minimum rents $21,909 $22,988 $6,387 - $51,284
Percentage rents 1,516 792 441 - 2,749
Tenant recoveries 10,188 7,765 2,262 - 20,215
Management fee - - - $3,003 3,003
Other 485 312 302 115 1,214
----------------- ---------------- ---------------- -------------- --------------
Total revenues 34,098 31,857 9,392 3,118 78,465
----------------- ---------------- ---------------- -------------- --------------
Expenses:
Shopping center expenses 12,919 8,607 2,754 - 24,280
Interest expense 8,037 11,260 1,868 (92) 21,073
Management Company expense - - - 3,457 3,457
Depreciation and amortization 5,511 4,629 1,049 232 11,421
----------------- ---------------- ---------------- -------------- --------------
Total operating expenses 26,467 24,496 5,671 3,597 60,231
----------------- ---------------- ---------------- -------------- --------------
Loss on sale of assets - - - (447) (447)
Cumulative effect of change in
accounting principle (1,053) (397) (98) (9) (1,557)
----------------- ---------------- ---------------- -------------- --------------
Net income (loss) $6,578 $6,964 $3,623 ($935) $16,230
================= ================ ================ ============== ==============
- 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:
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 $160,657 and $161,281 for the periods
ended March 31, 2001 and December 31, 2000, 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 $2,681 and $2,495 for the three months ended March 31,
2001 and 2000, respectively.
- 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:
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 March 31, 2001
------------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
------------------ -------------------- ------------------ ------------- ------------
Revenues:
Minimum rents $11,405 $12,296 $1,905 - $25,606
Percentage rents 836 437 31 - 1,304
Tenant recoveries 5,442 4,381 772 - 10,595
Management fee - - - $2,898 2,898
Other 247 308 236 - 791
------------------ -------------------- ------------------ ------------- ------------
Total revenues 17,930 17,422 2,944 2,898 41,194
------------------ -------------------- ------------------ ------------- ------------
Expenses:
Shopping center expenses 6,628 4,719 1,390 - 12,737
Interest expense 5,226 6,307 719 (31) 12,221
Management Company expense - - - 3,745 3,745
Depreciation and amortization 3,074 2,811 357 279 6,521
------------------ -------------------- ------------------ ------------- ------------
Total operating expenses 14,928 13,837 2,466 3,993 35,224
------------------ -------------------- ------------------ ------------- ------------
Gain on sale of assets - 37 48 - 85
------------------ -------------------- ------------------ ------------- ------------
Net income (loss) $3,002 $3,622 $526 ($1,095) $6,055
================== ==================== ================== ============= ============
Three Months Ended March 31, 2000
------------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
------------------ -------------------- ------------------ ------------- ------------
Revenues:
Minimum rents $10,954 $11,724 $1,965 - $24,643
Percentage rents 759 403 111 - 1,273
Tenant recoveries 5,094 3,960 673 - 9,727
Management fee - - - $2,853 2,853
Other 242 159 70 109 580
------------------ -------------------- ------------------ ------------- ------------
Total revenues 17,049 16,246 2,819 2,962 39,076
------------------ -------------------- ------------------ ------------- ------------
Expenses:
Shopping center expenses 6,460 4,390 906 - 11,756
Interest expense 4,018 5,743 732 (87) 10,406
Management Company expense - - - 3,285 3,285
Depreciation and amortization 2,756 2,361 358 220 5,695
------------------ -------------------- ------------------ ------------- ------------
Total operating expenses 13,234 12,494 1,996 3,418 31,142
------------------ -------------------- ------------------ ------------- ------------
Loss on sale of assets - - - (424) (424)
Cumulative effect of change in
accounting principle (527) (202) (49) (9) (787)
------------------ -------------------- ------------------ ------------- ------------
Net income (loss) $3,288 $3,550 $774 ($889) $6,723
================== ==================== ================== ============= ============
- 10 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
4. Property:
Property is summarized as follows:
March 31, December 31,
2001 2000
--------------------- ---------------------
Land $397,947 $397,947
Building improvements 1,722,471 1,716,860
Tenant improvements 59,222 56,723
Equipment and furnishings 14,964 12,259
Construction in progress 48,345 44,679
--------------------- ---------------------
2,242,949 2,228,468
Less, accumulated depreciation (309,416) (294,884)
--------------------- ---------------------
$1,933,533 $1,933,584
--------------------- ---------------------
--------------------- ---------------------
- 11 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
5. Mortgage Notes Payable:
Mortgage notes payable at March 31, 2001 and December 31, 2000 consist
of the following:
Carrying Amount of Notes
---------------------------------------------------
------------------------ -----------------------
2001 2000
------------------------ -----------------------
Property Pledged Related Related Interest Payment Maturity
As Collateral Other Party Other Party Rate Terms Date
- ------------------------- ------------ ----------- ------------ ----------- ------------ --------------- ---------------
Wholly Owned Centers:
Capitola Mall (b) ---- $36,470 ---- $36,587 9.25% 316 (a) 2001
Carmel Plaza $28,554 ---- $28,626 ---- 8.18% 202 (a) 2009
Chesterfield Towne Center 63,382 ---- 63,587 ---- 9.07% 548(c) 2024
Citadel 71,754 ---- 72,091 ---- 7.20% 554(a) 2008
Corte Madera, Village at 71,146 ---- 71,313 ---- 7.75% 516(a) 2009
Crossroads Mall-Boulder (d) ---- 34,358 ---- 34,476 7.08% 244(a) 2010
Fresno Fashion Fair 69,000 ---- 69,000 ---- 6.52% interest only 2008
Greeley Mall 15,090 ---- 15,328 ---- 8.50% 187(a) 2003
Green Tree Mall/
Crossroads - OK/
Salisbury (e) 117,714 ---- 117,714 ---- 7.23% interest only 2004
Holiday Village (f) ---- ---- ---- 17,000 6.75% interest only 2001
Northgate Mall (f) ---- ---- ---- 25,000 6.75% interest only 2001
Northwest Arkansas Mall 60,732 ---- 61,011 ---- 7.33% 434(a) 2009
Parklane Mall (f) ---- ---- ---- 20,000 6.75% interest only 2001
Queens Center 99,028 ---- 99,300 ---- 6.88% 633(a) 2009
Rimrock Mall 29,687 ---- 29,845 ---- 7.70% 244(a) 2003
Santa Monica Place (g) 84,756 ---- 84,939 ---- 7.70% 606(a) 2010
South Plains Mall 63,914 ---- 64,077 ---- 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 (h) 69,707 ---- 69,853 ---- 7.89% 508(a) 2010
Westside Pavilion 100,000 ---- 100,000 ---- 6.67% interest only 2008
------------ ----------- ------------ -----------
Total - Wholly
Owned Centers $1,117,464 $70,828 $1,119,684 $133,063
------------ ----------- ------------ -----------
- 12 -
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 March 31, 2001 and December 31, 2000 consist
of the following:
Carrying Amount of Notes
---------------------------------------------------
------------------------ -----------------------
2001 2000
------------------------ -----------------------
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%) (i) ---- $35,852 ---- $36,032 6.68% 257 (a) 2008
Pacific Premier Retail
Trust (51%) (i):
Cascade Mall $13,108 ---- $13,261 ---- 6.50% 122 (a) 2014
Kitsap Mall/Kitsap
Place (j) 31,110 ---- 31,110 ---- 8.06% 230 (a) 2010
Lakewood Mall (k) 64,770 64,770 ---- 7.20% interest only 2005
Lakewood Mall (l) 8,224 ---- 8,224 ---- 7.75% interest only 2002
Los Cerritos Center 59,982 60,174 ---- 7.13% 421(a) 2006
North Point Plaza 1,802 ---- 1,821 ---- 6.50% 16 (a) 2015
Redmond Town Center
- Retail 32,020 ---- 32,176 ---- 6.50% 224 (a) 2011
Redmond Town Center
- Office (m) ---- 45,366 ---- 45,500 6.77% 370 (a) 2009
Stonewood Mall (n) 39,653 39,653 ---- 7.41% 275 (a) 2010
Washington Square 59,172 ---- 59,441 ---- 6.70% 421 (a) 2009
Washington Square Too 6,261 ---- 6,318 ---- 6.50% 53 (a) 2016
SDG Macerich Properties L.P.
(50%) (i) 186,289 ---- 186,607 ---- 6.55% (o) 1,120 (a) 2006
SDG Macerich Properties L.P.
(50%) (i) 92,250 ---- 92,250 ---- 5.66% (o) interest only 2003
SDG Macerich Properties L.P.
(50%) (i) 40,700 ---- 40,700 ---- 5.53% (o) interest only 2006
West Acres Center
(19%)(i)(p) 7,569 ---- 7,600 ---- 6.52% interest only 2009
--------------- ------------- --------------- -------------
Total - Joint Venture
Centers $642,910 $81,218 $644,105 $81,532
--------------- ------------- --------------- -------------
--------------- ------------- --------------- -------------
Total - All Centers $1,760,374 $152,046 $1,763,789 $214,595
=============== ============= =============== =============
(a) This represents the monthly payment of principal and interest.
(b) On May 2, 2001, the Company refinanced the debt on Capitola Mall.
The prior loan was paid in full and a new note was issued for
$48,500 bearing interest at a fixed rate of 7.13% and maturing May
15, 2011.
(c) 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 $204 and $130 for
the three months ended March 31, 2001 and 2000, respectively.
(d) This note was issued at a discount. The discount is being
amortized over the life of the loan using the effective interest
method. At March 31, 2001 and December 31, 2000 the unamortized
discount was $322 and $331, respectively.
- 13 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
5. Mortgage Notes Payable, Continued:
(e) This loan is cross collateralized by Green Tree Mall, Crossroads
Mall-Oklahoma and the Centre at Salisbury.
(f) These loans were paid off in full on March 31, 2001.
(g) On October 2, 2000, the Company refinanced this loan with a 10
year fixed rate $85,000 loan bearing interest at 7.70%. The
prior loan bore interest at LIBOR plus 1.75%.
(h) On August 31, 2000, the Company refinanced the debt on Vintage
Faire Mall. The prior loan was paid in full and a new note was
issued for $70,000 bearing interest at a fixed rate of 7.89% and
maturing September 1, 2010. The Company incurred a loss on early
extinguishment of the prior debt in 2000 of $984.
(i) Reflects the Company's pro rata share of debt.
(j) In connection with the acquisition of this Center, the joint
venture assumed $39,425 of debt. At acquisition, this debt was
recorded at its fair value of $41,475 which included an
unamortized premium of $2,050. This premium was being amortized
as interest expense over the life of the loan using the effective
interest method. The joint venture's monthly debt service was
$349 and was calculated based on an 8.60% interest rate. On June
1, 2000, the joint venture paid off in full the prior 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.
(k) In connection with the acquisition of this property, the joint
venture assumed $127,000 of collateralized fixed rate notes (the
"Notes"). The Notes bear interest at an average fixed rate of
7.20% and mature in August 2005. The Notes require the joint
venture 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 March 31, 2001 and at December 31, 2000.
(l) On July 28, 2000, the joint venture placed a $16,125 floating rate
note on the property bearing interest at LIBOR plus 2.25% and
maturing July 2002. At March 31, 2001 and December 31, 2000, the
total interest was 7.75% and 9.0%, respectively.
(m) Concurrent with this 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 March 31, 2001 and December 31, 2000, $15,291 and
$15,038 of principal has been drawn under the construction loan,
respectively.
- 14 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
5. Mortgage Notes Payable, Continued:
(n) On December 1, 2000, the joint venture refinanced the debt on
Stonewood Mall. The prior loan was paid in full and a new note was
issued for $77,750 bearing interest at a fixed rate of 7.41% and
maturing December 11, 2010. The joint venture incurred a loss on
early extinguishment of the prior debt in 2000 of $375.
(o) In connection with the acquisition of these Centers, the joint
venture assumed $485,000 of mortgage notes payable which are
secured by the properties. At acquisition, the $300,000 fixed
rate portion of this debt reflected a fair value of $322,700,
which included an unamortized premium of $22,700. This premium
is being amortized as interest expense over the life of the loan
using the effective interest method. At March 31, 2001 and
December 31, 2000, the unamortized balance of the debt premium was
$15,478 and $16,113, 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 5.66% and 7.21%
at March 31, 2001 and December 31, 2000, 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
5.53% and 7.08% at March 31, 2001 and December 31, 2000,
respectively. This variable rate debt is covered by an interest
rate cap agreement which effectively prevents the interest rate
from exceeding 11.83%.
(p) This debt is interest only until January 2001 at which time
monthly payments of principal and interest will be due in the
amount of $299.
The Company periodically enters into treasury lock agreements in order
to hedge its exposure to interest rate fluctuations on anticipated
financings. Under these agreements, the Company pays or receives an
amount equal to the difference between the treasury lock rate and the
market rate on the date of settlement, based on the notional amount of
the hedge. The realized gain or loss on the contracts was recorded,
prior to January 1, 2001, on the balance sheet in other assets and
amortized as interest expense over the period of the hedged loans.
As of January 1, 2001, in accordance with SFAS 133, the gain or loss on
the contracts has been reclassified to accumulated other comprehensive
income on the balance sheet. As of March 31, 2001, no treasury lock
agreements were outstanding.
Certain mortgage loan agreements contain a prepayment penalty provision
for the early extinguishment of the debt.
Total interest capitalized, including the prorata share of joint
ventures, during the three months ended March 31, 2001 and 2000, was
$1,218 and $1,311, respectively.
The fair value of mortgage notes payable for the wholly-owned Centers
at March 31, 2001 and December 31, 2000 is estimated to be
approximately $1,208,307 and $1,282,163, respectively, based on current
interest rates for comparable loans.
- 15 -
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 May
2002. The interest rate on such credit facility fluctuates between
1.35% and 1.80% over LIBOR depending on leverage levels. As of March
31, 2001 and December 31, 2000,$131,000 and $59,000 of borrowings were
outstanding under this line of credit at interest rates of 6.42% and
7.90%, respectively.
Additionally, the Company issued $10,776 in letters of credit
guaranteeing performance by the Company of certain obligations. The
Company does not believe that these letters of credit will result in a
liability to the Company.
During January 1999, the Company entered into a bank construction loan
agreement to fund $89,250 of costs related to the redevelopment of
Pacific View. The loan bore interest at LIBOR plus 2.25% through 2000.
In January 2001, the interest rate was reduced to LIBOR plus 1.75% and
the loan matures in February 2002. Principal was drawn as construction
costs were incurred. As of March 31, 2001 and December 31, 2000,
$89,250 and $88,340 of principal had been drawn under the loan at
interest rates of 7.63% and 8.63%, respectively. The Company has
committed to replacing this loan with a $96,000 ten-year 7.16% fixed
rate permanent loan.
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 into common stock at any time, on or
after 60 days, from the date of issue at a conversion price of $31.125
per share. In November and December 2000, the Company purchased and
retired $10,552 of the Debentures. The Company recorded a gain on early
extinguishment of debt of $1,018 related to the transaction. 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
three months ending March 31, 2001 and 2000, management fees of $757
and $713 respectively, were paid to the Management Companies by the
Company. For the three months ending March 31, 2001 and 2000,
management fees of $1,772 and $2,013 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. Interest expense in connection with these notes was $2,485
and $2,519 for the three months ended March 31, 2001 and 2000,
respectively. Included in accounts payable and accrued expenses is
interest payable to these partners of $262 and $512 at March 31, 2001
and December 31, 2000, respectively.
- 16 -
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 Company common stock owned by the executives.
On February 9, 2000, $300 of the $6,000 of loans was forgiven with
respect to three of these officers and charged to compensation expense.
The $500 loan issued in 1997 is non interest bearing and is forgiven
ratably over a five year term. These loans receivable are included in
other assets at March 31, 2001 and December 31, 2000.
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 $9 and $198 for the three months ended March 31, 2001
and 2000, respectively. There were no contingent rents incurred 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 $4 and $18 have already been incurred by the joint
venture for remediation, professional and legal fees for the periods
ending March 31, 2001 and 2000, respectively. An additional $66 remains
reserved by the joint venture as of March 31, 2001. The joint venture
has been sharing costs with former owners of the property and intends
to look to additional responsible parties for recovery.
- 17 -
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 $4 and $13 in remediation costs for
the three months ending March 31, 2001 and 2000, respectively. An
additional $2,754 remains reserved at March 31, 2001.
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.
The holders of Series A Preferred Stock and Series B Preferred Stock
have redemption rights if a change of control of the Company occurs, as
defined under the respective Articles Supplementary for each series.
Under such circumstances, the holders of the Series A Preferred Stock
and Series B Preferred Stock are entitled to require the Company to
redeem their shares, to the extent the Company has funds legally
available therefor, at a price equal to 105% of their respective
liquidation preference plus accrued and unpaid dividends. The Series A
Preferred Stock holder also has the right to require the Company to
repurchase its shares if the Company fails to be taxed as a REIT for
federal tax purposes at a price equal to 115% of its liquidation
preference plus accrued and unpaid dividends, to the extent funds are
legally available therefor.
11. Subsequent Events:
On May 11, 2001, a dividend/distribution of $0.53 per share was
declared for common stockholders and OP unit holders of record on May
18, 2001. In addition, the Company declared a dividend of $0.53 on the
Company's Series A Preferred Stock and a dividend of $0.53 on the
Company's Series B Preferred Stock. All dividends/distributions will be
payable on June 8, 2001.
- 18 -
THE MACERICH COMPANY (The Company)
Item 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion is based primarily on the consolidated balance
sheet of The Macerich Company as of March 31, 2001, and also compares
the activities for the three months ended March 31, 2001 to the
activities for the three months ended March 31, 2000.
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 and other strategies,
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, tenant bankruptcies, lease rates and terms,
availability and cost of financing, interest rate fluctuations and
operating expenses; adverse changes in the real estate markets
including, among other things, competition from other companies, retail
formats and technology, risks of real estate development, acquisitions
and dispositions; governmental actions and initiatives;
environmental and safety requirements; energy and electricity shortages
` and costs. The Company will not update any forward-looking information
to reflect actual results or changes in the factors affecting the
forward-looking information.
- 19 -
Management's Discussion and Analysis of Financial Condition
and Results of Operations, Continued:
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 Redevelopment Centers, are referred to herein as the
"Same Centers," unless the context otherwise requires.
Revenues include rents attributable to the accounting practice of
straight lining of rents which requires rent to be recognized each year
in an amount equal to the average rent over the term of the lease,
including fixed rent increases over that period. The amount of straight
lined rents, included in consolidated revenues, recognized at March 31,
2001 was $0.1 million compared to $0.2 million at March 31, 2000.
Additionally, the Company recognized through equity in income of
unconsolidated joint ventures, $0.4 million as its pro rata share of
straight lined rents from joint ventures at March 31, 2001 compared to
$0.5 million at March 31, 2000. These decreases resulted from the
Company structuring the majority of its new leases using annual
Consumer Price Index ("CPI") increases, which generally do not require
straight lining treatment. The Company believes that using CPI
increases, rather than fixed contractual rent increases, results in
revenue recognition that more closely matches the cash revenue from
each lease and will provide more consistent rent growth throughout the
term of the leases.
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.
- 20 -
Management's Discussion and Analysis of Financial Condition
and Results of Operations, Continued:
Results of Operations
Comparison of Three Months Ended March 31, 2001 and 2000
Revenues
Minimum and percentage rents increased by 3.7% to $50.5 million in 2001
from $48.7 million in 2000. Approximately $0.9 million of the increase
is attributable to the Same Centers and $0.9 million of the increase
relates to the Redevelopment Centers.
Tenant recoveries increased to $24.8 million in 2001 from $24.6 million
in 2000.
Other income increased to $2.4 million in 2001 from $2.0 million in
2000.
Expenses
Shopping center expenses increased to $24.2 million in 2001 compared to
$23.9 million in 2000. The increase is a result of increased property
taxes and recoverable expenses at the Centers.
Interest Expense
Interest expense decreased to $28.0 million in 2001 from $28.2 million
in 2000.
Depreciation and Amortization
Depreciation and amortization increased to $16.1 million in 2001 from
$14.5 million in 2000. The increase is primarily due to greater
depreciation at Pacific View Mall.
Income from Unconsolidated Joint Ventures and Management Companies
The income from unconsolidated joint ventures and the Management
Companies was $6.1 million for 2001, compared to income of $6.7 million
in 2000. The decrease is primarily due to greater interest expense from
the debt restructuring at SDG Macerich Properties, L.P.
Extraordinary Loss from Early Extinguishment of Debt
In 2001, the Company wrote off $0.2 million of unamortized financing
costs.
Cumulative Effect of Change in Accounting Principle
A loss of $1.0 million in 2000 is a result of implementation of SAB 101
at January 1, 2000.
Net Income Available to Common Stockholders
As a result of the foregoing, net income available to common
stockholders increased to $6.4 million in 2001 from $6.3 million in
2000.
- 21 -
Management's Discussion and Analysis of Financial Condition
and Results of Operations, Continued:
Results of Operations - Continued:
Comparison of Three Months Ended March 31, 2001 and 2000 - Continued:
Operating Activities
Cash flow from operations was $21.6 million in 2001 compared to $25.4
million in 2000. The decrease is primarily due to the factors
mentioned above.
Investing Activities
Cash used in investing activities was $16.3 million in 2001 compared to
cash utilized by investing activities of $9.0 million in 2000. This
decrease is primarily due to improvements and renovations to the
Centers.
Financing Activities
Cash flow used in financing activities was $19.8 million in 2001
compared to cash used in financing activities of $26.0 million in 2000.
Funds From Operations
Primarily because of the factors mentioned above, Funds from Operations
- Diluted increased 1% to $38.1 million in 2001 from $37.8 million in
2000 (See "Funds From Operations").
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 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 and to execute its share
repurchase program. The Company presently intends to obtain additional
capital necessary for these purposes through a combination of debt
financings, joint ventures and the sale of non-core assets. During 1998
and 1999, the Company acquired two portfolios through joint ventures
and raised additional capital in 1999 from the sale of interests in two
properties to one joint venture partner. The Company believes such
joint venture arrangements provide an attractive alternative to other
forms of financing, whether for acquisitions or other business
opportunities.
- 22 -
Management's Discussion and Analysis of Financial Condition
and Results of Operations, Continued:
Liquidity and Capital Resources - Continued:
The Company's total outstanding loan indebtedness at March 31, 2001 was
$2.3 billion (including its pro rata share of joint venture debt). This
equated to a debt to Total Market Capitalization (defined as total debt
of the Company, including its pro rata share of joint venture debt,
plus aggregate market value of outstanding shares of common stock,
assuming full conversion of OP Units and preferred stock into common
stock) ratio of approximately 66% at March 31, 2001. 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
with a maturity of May 2002. There were $131.0 million of borrowings
outstanding at March 31, 2001.
At March 31, 2001, the Company had cash and cash equivalents available
of $21.8 million.
- 23 -
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, sales or write-down of assets, and
cumulative effect of change in accounting principle, 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:
Three Months Ended March 31,
2001 2000
------------------------ --------------------------
Shares Amount Shares Amount
---------- ------------ ---------- --------------
(amounts in thousands)
Net income - available to common stockholders $6,419 $6,326
Adjustments to reconcile net income to FFO - basic:
Minority interest 2,128 2,039
Depreciation and amortization on wholly owned centers 16,104 14,528
Pro rata share of unconsolidated entities' depreciation and
amortization 6,521 5,695
Loss (gain) on sale of wholly-owned assets 321 2
Loss on early extinguishment of debt 186 -
Pro rata share of (gain) loss on sale of assets
from unconsolidated entities (85) 424
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 (1,220) (1,194)
------------ --------------
FFO - basic (1) 44,796 30,374 45,052 29,570
Additional adjustments to arrive at FFO - diluted:
Impact of convertible preferred stock 9,115 4,831 9,115 4,648
Impact of stock options and restricted stock using
the treasury method - - 298 458
Impact of convertible debentures 4,847 2,904 5,186 3,146
---------- ------------ ---------- --------------
FFO - diluted (2) 58,758 $38,109 59,651 $37,822
========== ============ ========== ==============
- 24 -
Management's Discussion and Analysis of Financial Condition
and Results of Operations, Continued:
Funds From Operations - Continued:
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 2001 and 2000 assuming the conversion of all outstanding
OP units. As of March 31, 2001, 11.2 million of OP units were
outstanding.
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.
The convertible debentures are dilutive for the three months
ending March 31, 2001 and 2000, and are included in the FFO
calculation 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. The preferred stock can be converted on a
one for one basis for common stock. The preferred shares are
assumed converted for purposes of FFO diluted per share, as
they are dilutive to that calculation.
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 $0.1 million and $0.2 million for
the three months ended March 31, 2001 and 2000, respectively. The
decline in straight-lining of rents from 2000 to 2001 is due to the
Company structuring its new leases using rent increases tied to the
change in the CPI rather than using contractually fixed rent increases.
CPI increases do not generally require straight-lining of rent
treatment.
Inflation
In the last three years, inflation has not had a significant impact on
the Company because of a relatively low inflation rate. Most of the
leases at the Centers have rent adjustments periodically through the
lease term. These rent increases are either in fixed increments or
based on increases in the CPI. 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 and the majority
of percentage rent is recognized in the fourth quarter. 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.
- 25 -
Management's Discussion and Analysis of Financial Condition
and Results of Operations, Continued:
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 at March 31, 2000.
In June 1998, the Financial Accounting Standards Board ("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. As a
result of the adoption of SFAS 133 on January 1, 2001, the Company
recorded a transition adjustment of $9.4 million to accumulated other
comprehensive income related to treasury rate lock transactions settled
in prior years. The entire transition adjustment is reflected in the
quarter ended March 31, 2001. The transition adjustment of $9.4 million
less amortization of $0.3 million would be subtracted from net income
to arrive at comprehensive income of $2.1 million. The Company expects
that $1.3 million will be reclassified from accumulated other
comprehensive income to earnings for the year ended December 31, 2001.
During the quarter ended March 31, 2001, the Company reclassified $0.3
million from accumulated other comprehensive income to earnings.
- 26 -
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 March 31, 2001
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)
2001 2002 2003 2004 2005 Thereafter Total FV
------------- -------------- ------------ ------------ ------------ ------------- -------------- ----------
Wholly Owned Centers:
Long term debt:
Fixed rate $46,490 $11,857 $52,235 $129,297 $12,554 $935,859 $1,188,292 $1,208,307
Average interest rate 7.47% 7.41% 7.39% 7.41% 7.41% 7.41% 7.42% -
Fixed rate - Debentures - 150,848 - - - - 150,848 150,052
Average interest rate - 7.25% - - - - 7.25% -
Variable rate - 220,250 - - - - 220,250 220,250
Average interest rate - 6.91% - - - - 6.91% -
------------- -------------- ------------ ------------ ------------ ------------- -------------- ------------
Total debt - Wholly
owned Centers $46,490 $382,955 $52,235 $129,297 $12,554 $935,859 $1,559,390 $1,578,609
------------- -------------- ------------ ------------ ------------ ------------- -------------- ------------
Joint Venture Centers:
(at Company's
pro rata share)
Fixed rate $6,812 $7,538 $8,410 $8,977 $74,468 $476,749 $582,954 $577,710
Average interest rate 6.86% 6.86% 6.86% 6.87% 6.83% 6.83% 6.85% -
Variable rate - 8,224 92,250 - - 40,700 141,174 141,174
Average interest rate - 7.75% 5.66% - - 5.53% 6.30% -
------------- -------------- ------------ ------------ ------------ ------------- -------------- ------------
Total debt -
Joint Ventures $6,812 $15,762 $100,660 $8,977 $74,468 $517,449 $724,128 $718,884
------------- -------------- ------------ ------------ ------------ ------------- -------------- ------------
Total debt -
All Centers $53,302 $398,717 $152,895 $138,274 $87,022 $1,453,308 $2,283,518 $2,297,493
============= ============== ============ ============ ============ ============= ============== ============
On May 2, 2001, the Company refinanced the $36.5 million fixed rate
debt on Capitola Mall maturing in 2001. The prior loan was paid in full
and a new note was issued for $48.5 million bearing interest at a fixed
rate of 7.13% and maturing May 15, 2011. The remaining debt maturing
in 2001 reflects the amortization of principal on existing debt.
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 $3.6 million
per year based on $361.4 million outstanding at March 31, 2001.
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.
- 27 -
PART II
Other Information
Item 1 Legal Proceedings
During the ordinary course of business, the Company, from time to time,
is threatened with, or becomes a party to, legal actions and other
proceedings. Management is of the opinion that the outcome of currently
known actions and proceedings to which it is a party will not, singly
or in the aggregate, have a material adverse effect on the Company.
Item 2 Changes in Securities and Use of Proceeds
None
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
None
- 28 -
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: May 14, 2001
- 29 -
Exhibit Index
Exhibit No.
Page
(a) Exhibits
Number Description
-------- ------------
None
- 30 -