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 SEPTEMBER 30, 2001 COMMISSION FILE NO. 1-12504
THE MACERICH COMPANY
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 95-4448705
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(State or other jurisdiction (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 November 9,
2001.
Common stock, par value $.01 per share: 33,906,001 shares
- ------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or such shorter period that the Registrant was
required to file such report) and (2) has been subject to such filing
requirements for the past ninety (90) days.
YES X NO
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Form 10-Q
INDEX
Page
Part I: Financial Information
Item 1. Financial Statements
Consolidated balance sheets of the Company as of September 30, 2001
and December 31, 2000 1
Consolidated statements of operations of the Company for the periods
from January 1 through September 30, 2001 and 2000 2
Consolidated statements of operations of the Company for the periods
from July 1 through September 30, 2001 and 2000 3
Consolidated statements of cash flows of the Company for the periods
from January 1 through September 30, 2001 and 2000 4
Notes to condensed and consolidated financial statements 5 to 20
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 21 to 31
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 32
Part II: Other Information 33
THE MACERICH COMPANY (The Company)
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Unaudited)
September 30, December 31,
2001 2000
----------------- -----------------
ASSETS:
Property, net $1,934,233 $1,933,584
Cash and cash equivalents 27,882 36,273
Tenant receivables, including accrued overage rents of
$1,780 in 2001 and $6,486 in 2000 35,988 38,922
Deferred charges and other assets, net 57,831 55,323
Investments in joint ventures and the Management Companies 276,087 273,140
----------------- -----------------
Total assets $2,332,021 $2,337,242
================= =================
LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY:
Mortgage notes payable:
Related parties $82,285 $133,063
Others 1,201,802 1,119,684
----------------- -----------------
Total 1,284,087 1,252,747
Bank notes payable 154,000 147,340
Convertible debentures 150,848 150,848
Accounts payable and accrued expenses 27,864 24,681
Due to affiliates 907 8,800
Other accrued liabilities 24,799 17,887
Preferred stock dividend payable 4,549 4,831
----------------- -----------------
Total liabilities 1,647,054 1,607,134
----------------- -----------------
Minority interest in Operating Partnership 108,098 120,500
----------------- -----------------
Commitments and contingencies (Note 9)
Series A cumulative convertible redeemable preferred stock, $.01
par value, 3,627,131 shares authorized, issued and
outstanding at September 30, 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 September 30, 2001 and December 31, 2000 148,402 148,402
----------------- -----------------
247,336 247,336
----------------- -----------------
Common stockholders' equity:
Common stock, $.01 par value, 100,000,000 shares
authorized, 33,904,642 and 33,612,462 shares issued and
outstanding at September 30, 2001 and December 31, 2000, respectively 338 338
Additional paid in capital 343,838 359,306
Accumulated earnings - 10,314
Accumulated other comprehensive loss (6,155) -
Unamortized restricted stock (8,488) (7,686)
----------------- -----------------
Total common stockholders' equity 329,533 362,272
----------------- -----------------
Total liabilities, preferred stock and common stockholders' equity $2,332,021 $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)
Nine Months Ended September 30,
---------------------------------------------
2001 2000
--------------------- ----------------------
REVENUES:
Minimum rents $148,209 $142,920
Percentage rents 5,380 5,156
Tenant recoveries 79,867 74,329
Other 7,885 6,091
--------------------- ----------------------
Total revenues 241,341 228,496
--------------------- ----------------------
EXPENSES:
Shopping center expenses 80,606 73,231
General and administrative expense 4,478 4,032
Interest expense:
Related parties 5,450 7,569
Others 77,592 74,492
--------------------- ----------------------
Total interest expense 83,042 82,061
--------------------- ----------------------
Depreciation and amortization 49,092 44,632
Equity in income of unconsolidated
joint ventures and the management companies 20,891 20,461
Loss on sale of assets (295) (1,297)
--------------------- ----------------------
Income before minority interest, extraordinary item and
cumulative effect of change in accounting principle 44,719 43,704
Extraordinary loss on early extinguishment of debt (187) (984)
Cumulative effect of change in accounting principle - (963)
--------------------- ----------------------
Income of the Operating Partnership 44,532 41,757
Less minority interest in net income
of the Operating Partnership 7,342 6,722
--------------------- ----------------------
Net income 37,190 35,035
Less preferred dividends 14,675 13,945
--------------------- ----------------------
Net income available to common stockholders $22,515 $21,090
===================== ======================
Earnings per common share - basic:
Income before extraordinary item and cumulative effect
of change in accounting principle $0.68 $0.68
Extraordinary item (0.01) (0.03)
Cumulative effect of change in accounting principle - (0.03)
--------------------- ----------------------
Net income per share available to common stockholders $0.67 $0.62
===================== ======================
Weighted average number of common shares
outstanding - basic 33,761,000 34,134,000
===================== ======================
Weighted average number of common shares
outstanding - basic, assuming full conversion of
operating partnership units outstanding 44,915,000 45,084,000
===================== ======================
Earnings per common share - diluted:
Income before extraordinary item and cumulative effect
of change in accounting principle $0.67 $0.66
Extraordinary item - (0.02)
Cumulative effect of change in accounting principle - (0.02)
--------------------- ----------------------
Net income per share - available to common stockholders $0.67 $0.62
===================== ======================
Weighted average number of common shares
outstanding - diluted for EPS 44,915,000 45,084,000
===================== ======================
The accompanying notes are an integral part of these financial statements.
- 2 -
THE MACERICH COMPANY (The Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share amounts)
(Unaudited)
Three Months Ended September 30,
-----------------------------------
2001 2000
----------------- ----------------
REVENUES:
Minimum rents $49,991 $47,839
Percentage rents 2,392 2,154
Tenant recoveries 27,701 24,891
Other 2,803 2,053
----------------- ----------------
Total revenues 82,887 76,937
----------------- ----------------
EXPENSES:
Shopping center expenses 28,629 25,122
General and administrative expense 963 851
Interest expense:
Related parties 1,491 2,527
Others 26,059 24,435
----------------- ----------------
Total interest expense 27,550 26,962
----------------- ----------------
Depreciation and amortization 16,601 15,064
Equity in income of unconsolidated
joint ventures and the management companies 8,209 7,353
Loss on sale of assets (107) (1,189)
----------------- ----------------
Income before minority interest, extraordinary item and
cumulative effect of change in accounting principle 17,246 15,102
Extraordinary loss on early extinguishment of debt - (984)
----------------- ----------------
Income of the Operating Partnership 17,246 14,118
Less minority interest in net income
of the Operating Partnership 2,965 2,301
----------------- ----------------
Net income 14,281 11,817
Less preferred dividends 5,013 4,648
----------------- ----------------
Net income available to common stockholders $9,268 $7,169
================= ================
Earnings per common share - basic:
Income before extraordinary item and cumulative effect
of change in accounting principle $0.27 $0.24
Extraordinary Item - (0.03)
----------------- ----------------
Net income per share available to common stockholders $0.27 $0.21
================= ================
Weighted average number of common shares
outstanding - basic 33,879,000 34,162,000
================= ================
Weighted average number of common shares
outstanding - basic, assuming full conversion of
operating partnership units outstanding 45,032,000 45,107,000
================= ================
Earnings per common share - diluted:
Income before extraordinary item and cumulative effect
of change in accounting principle $0.27 $0.23
Extraordinary Item - (0.02)
----------------- ----------------
Net income per share - available to common stockholders $0.27 $0.21
================= ================
Weighted average number of common shares
outstanding - diluted for EPS 45,032,000 45,107,000
================= ================
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)
For the nine months ended September 30,
-------------------------------------
2001 2000
---------------- ----------------
Cash flows from operating activities:
Net income - available to common stockholders $22,515 $21,090
Preferred dividends 14,675 13,945
---------------- ----------------
Net income 37,190 35,035
---------------- ----------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Extraordinary loss on early extinguishment of debt 187 984
Cumulative effect of change in accounting principle - 963
Loss on sale of assets 295 1,297
Depreciation and amortization 49,092 44,632
Amortization of net discount (premium) on trust deed note payable 25 25
Minority interest in net income of the Operating Partnership 7,342 6,722
Changes in assets and liabilities:
Tenant receivables, net 2,934 5,482
Other assets 486 (1,185)
Accounts payable and accrued expenses 3,183 (54)
Due to affiliates (7,893) (4,445)
Preferred stock dividend payable (282) -
Other liabilities 6,912 (3,455)
---------------- ----------------
Total adjustments 62,281 50,966
---------------- ----------------
Net cash provided by operating activities 99,471 86,001
---------------- ----------------
Cash flows from investing activities:
Acquisitions of property, equipment and improvements (11,159) (3,134)
Renovations and expansions of Centers (25,595) (25,093)
Tenant allowances (7,762) (3,307)
Deferred charges (10,501) (8,239)
Equity in income of unconsolidated joint ventures
and the Management Companies (20,891) (20,461)
Distributions from joint ventures 21,990 97,909
Contributions to joint ventures (4,046) (3,197)
---------------- ----------------
Net cash (used in) provided by investing activities (57,964) 34,478
---------------- ----------------
Cash flows from financing activities:
Proceeds from mortgages, notes and debentures payable 223,164 162,055
Payments on mortgages, notes and debentures payable (185,189) (205,097)
Dividends and distributions (73,198) (68,148)
Dividends to preferred stockholders (14,675) (13,945)
---------------- ----------------
Net cash used in financing activities (49,898) (125,135)
---------------- ----------------
Net decrease in cash (8,391) (4,656)
Cash and cash equivalents, beginning of period 36,273 40,455
---------------- ----------------
Cash and cash equivalents, end of period $27,882 $35,799
================ ================
Supplemental cash flow information:
Cash payment for interest, net of amounts capitalized $80,592 $79,212
================ ================
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, 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 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
defers 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 are
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 delayed 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 amended 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 was reflected in the
quarter ended March 31, 2001. The transition adjustment of $9,445, less
minority interest of $2,297 and amortization of $993 for the nine
months ended September 30, 2001, is subtracted from net income to
arrive at comprehensive income of $31,035. The Company expects that
$1,328 will
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THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
1. Interim Financial Statements and Basis of Presentation - Continued:
be reclassified from accumulated other comprehensive income to earnings
for the year ended December 31, 2001. During the quarter ended
September 30, 2001, the Company reclassified $334 from accumulated
other comprehensive income to earnings.
In October 2001, the FASB issued SFAS 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. This statement supersedes SFAS 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" ("SFAS 121") and related literature establishes a single
accounting model, based on the framework established in SFAS 121, for
long-lived assets to be disposed of by sale. The Company is required to
adopt SFAS 144 no later than January 1, 2002. The Company does not
believe that the adoption of SFAS 144 will have a material impact on its
consolidated financial statements.
- 6 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
1. Interim Financial Statements and Basis of Presentation - Continued:
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 nine and
three months ending September 30, 2001 and 2000. The computation of
diluted earnings per share does not include the effect of outstanding
restricted stock and common stock options issued under the employee and
director stock incentive plans as they are antidilutive 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 Nine Months Ended September 30,
--------------------------------------------------------------------------
--------------------------------- ---------------------------------------
2001 2000
--------------------------------- ---------------------------------------
Net Net
Income Shares Per Share Income Shares Per Share
-------------------------------------- ----------------------------------
(In thousands, except per share data)
Net income $37,190 $35,035
Less: Preferred stock dividends 14,675 13,945
------------- -------------
Basic EPS:
Net income - available to common stockholders 22,515 33,761 $0.67 21,090 34,134 $0.62
Diluted EPS:
Effect of dilutive securities:
Conversion of OP units 7,342 11,154 6,722 10,950
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 $29,857 44,915 $0.67 $27,812 45,084 $0.62
====================================== =======================================
For the Three Months Ended September 30,
-------------------------------------------------------------------
---------------------------------- --------------------------------
2001 2000
---------------------------------- --------------------------------
Net Net
Income Shares Per Share Income Shares Per Share
---------------------------------- --------------------------------
(In thousands, except per share data)
Net income $14,281 $11,817
Less: Preferred stock dividends 5,013 4,648
------------- -----------
Basic EPS:
Net income - available to common stockholders 9,268 33,879 $0.27 7,169 34,162 $0.21
Diluted EPS:
Effect of dilutive securities:
Conversion of OP units 2,965 11,153 2,301 10,945
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 $12,233 45,032 $0.27 $9,470 45,107 $0.21
================================== ================================
- 7 -
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 September 30, 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
September 30, 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.
- 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:
The Company accounts for the Management Companies (exclusive of MPMC,
LLC), and joint ventures using the equity method of accounting.
Effective March 29, 2001, the Company consolidated the accounts for
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, with an original maturity date of
September 30, 2001. The buyer is currently negotiating to extend the
maturity date. 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.
COMBINED AND CONDENSED BALANCE SHEETS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
September 30, December 31,
2001 2000
---------------- ------------------
Assets:
Properties, net $2,183,890 $2,064,777
Other assets 172,884 155,919
---------------- ------------------
Total assets $2,356,774 $2,220,696
---------------- ------------------
---------------- ------------------
Liabilities and partners' capital:
Mortgage notes payable $1,461,622 $1,461,857
Other liabilities 149,029 51,791
The Company's capital 276,087 273,140
Outside partners' capital 470,036 433,908
---------------- ------------------
Total liabilities and partners' capital $2,356,774 $2,220,696
---------------- ------------------
---------------- ------------------
- 9 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
3. Investments in Unconsolidated Joint Ventures and the Management
Companies - Continued:
COMBINED STATEMENTS OF OPERATIONS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
Nine Months Ended September 30, 2001
---------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
------------------ -------------- ---------------- ------------- -------------
Revenues:
Minimum rents $68,415 $74,460 $15,135 - $158,010
Percentage rents 2,805 2,373 1,077 - 6,255
Tenant recoveries 32,033 27,167 7,425 - 66,625
Management fee - - - $7,656 7,656
Other 1,957 1,225 11,203 - 14,385
------------------ -------------- ---------------- ------------- -------------
Total revenues 105,210 105,225 34,840 7,656 252,931
------------------ -------------- ---------------- ------------- -------------
Expenses:
Shopping center expenses 38,810 30,145 29,302 - 98,257
Interest expense 28,666 37,173 6,204 (95) 71,948
Management Company expense - - - 7,636 7,636
Depreciation and amortization 18,848 17,167 5,063 783 41,861
------------------ -------------- ---------------- ------------- -------------
Total operating expenses 86,324 84,485 40,569 8,324 219,702
------------------ -------------- ---------------- ------------- -------------
Gain on sale of assets - 72 675 45 792
------------------ -------------- ---------------- ------------- -------------
Net income (loss) $18,886 $20,812 ($5,054) ($623) $34,021
================== ============== ================ ============= =============
COMBINED STATEMENTS OF OPERATIONS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
Nine Months Ended September 30, 2000
--------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
------------------- -------------- ------------------ ------------ ---------------
Revenues:
Minimum rents $66,190 $69,645 $19,473 - $155,308
Percentage rents 2,781 2,109 1,257 - 6,147
Tenant recoveries 30,633 24,097 7,993 - 62,723
Management fee - - - $9,160 9,160
Other 1,554 1,087 2,119 603 5,363
------------------- -------------- ------------------ ------------ ---------------
Total revenues 101,158 96,938 30,842 9,763 238,701
------------------- -------------- ------------------ ------------ ---------------
Expenses:
Shopping center expenses 37,733 26,602 12,153 - 76,488
Interest expense 28,846 34,287 5,602 (240) 68,495
Management Company expense - - - 10,651 10,651
Depreciation and amortization 17,523 15,011 2,284 806 35,624
------------------- -------------- ------------------ ------------ ---------------
Total operating expenses 84,102 75,900 20,039 11,217 191,258
------------------- -------------- ------------------ ------------ ---------------
Gain (loss) on sale of assets (3) - 11,586 (475) 11,108
Cumulative effect of change in accounting
principle (1,053) (397) (98) (9) (1,557)
------------------- -------------- ------------------ ------------ ---------------
Net income (loss) $16,000 $20,641 $22,291 ($1,938) $56,994
=================== ============== ================== ============ ===============
- 10 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
3. Investments in Unconsolidated Joint Ventures and the Management
Companies, Continued:
COMBINED STATEMENTS OF OPERATIONS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
Three Months Ended September 30, 2001
-----------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
----------------- --------------- ------------------- -------------- -----------
Revenues:
Minimum rents $23,053 $25,710 $5,178 - $53,941
Percentage rents 718 951 499 - 2,168
Tenant recoveries 10,747 9,576 2,842 - 23,165
Management fee - - - $2,254 2,254
Other 659 334 3,653 - 4,646
----------------- --------------- ------------------- -------------- -----------
Total revenues 35,177 36,571 12,172 2,254 86,174
----------------- --------------- ------------------- -------------- -----------
Expenses:
Shopping center expenses 12,763 10,798 11,109 - 34,670
Interest expense 8,926 12,387 2,352 (28) 23,637
Management Company expense - - - 1,712 1,712
Depreciation and amortization 6,409 5,954 1,746 250 14,359
----------------- --------------- ------------------- -------------- -----------
Total operating expenses 28,098 29,139 15,207 1,934 74,378
----------------- --------------- ------------------- -------------- -----------
Gain on sale of assets 12 - 416 45 473
----------------- --------------- ------------------- -------------- -----------
Net income (loss) $7,091 $7,432 ($2,619) $365 $12,269
================= =============== =================== ============== ===========
COMBINED STATEMENTS OF OPERATIONS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
Three Months Ended September 30, 2000
----------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
------------------ -------------- ----------------- -------------- ------------
Revenues:
Minimum rents $22,147 $23,569 $6,448 - $52,164
Percentage rents 637 861 449 - 1,947
Tenant recoveries 10,638 8,166 3,474 - 22,278
Management fee - - - $2,660 2,660
Other 503 496 1,415 412 2,826
------------------ -------------- ----------------- -------------- ------------
Total revenues 33,925 33,092 11,786 3,072 81,875
------------------ -------------- ----------------- -------------- ------------
Expenses:
Shopping center expenses 12,425 9,315 6,674 - 28,414
Interest expense 10,901 12,063 1,870 (79) 24,755
Management Company expense - - - 2,745 2,745
Depreciation and amortization 6,289 5,439 818 300 12,846
------------------ -------------- ----------------- -------------- ------------
Total operating expenses 29,615 26,817 9,362 2,966 68,760
------------------ -------------- ----------------- -------------- ------------
(Loss) gain on sale of assets (3) - 11,526 (28) 11,495
------------------ -------------- ----------------- -------------- ------------
Net income $4,307 $6,275 $13,950 $78 $24,610
================== ============== ================= ============== ============
- 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 $158,634 and $161,281 for the periods
ended September 30, 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 $8,077 and $7,306 for the nine months ended
September 30, 2001 and 2000, respectively; and $2,710 and $2,661 for the
three months ended September 30, 2001 and 2000, respectively.
4. Property:
Property is summarized as follows:
September 30, December 31,
2001 2000
--------------------- ---------------------
Land $397,926 $397,947
Building improvements 1,729,170 1,716,860
Tenant improvements 65,957 56,723
Equipment and furnishings 17,866 12,259
Construction in progress 60,258 44,679
--------------------- ---------------------
2,271,177 2,228,468
Less, accumulated depreciation (336,944) (294,884)
--------------------- ---------------------
$1,934,233 $1,933,584
--------------------- ---------------------
--------------------- ---------------------
- 12 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
5. Mortgage Notes Payable:
Mortgage notes payable at September 30, 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) ---- $48,143 ---- $36,587 7.13% 380 (a) 2011
Carmel Plaza $28,429 ---- $28,626 ---- 8.18% 202 (a) 2009
Chesterfield Towne Center 62,960 ---- 63,587 ---- 9.07% 548(c) 2024
Citadel 71,063 ---- 72,091 ---- 7.20% 554(a) 2008
Corte Madera, Village at 70,803 ---- 71,313 ---- 7.75% 516(a) 2009
Crossroads Mall-Boulder (d) ---- 34,142 ---- 34,476 7.08% 244(a) 2010
Fresno Fashion Fair 68,900 ---- 69,000 ---- 6.52% 437(a) 2008
Greeley Mall 14,601 ---- 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 ---- ---- ---- 17,000 6.75% interest only (f)
Northgate Mall ---- ---- ---- 25,000 6.75% interest only (f)
Northwest Arkansas Mall 60,160 ---- 61,011 ---- 7.33% 434(a) 2009
Pacific View (g) 88,929 ---- ---- ---- 7.16% 602(a) 2011
Parklane Mall ---- ---- ---- 20,000 6.75% interest only (f)
Queens Center 98,544 ---- 99,300 ---- 6.88% 633(a) 2009
Rimrock Mall (h) 29,363 ---- 29,845 ---- 7.70% 244(a) 2003
Santa Monica Place (i) 84,450 ---- 84,939 ---- 7.70% 606(a) 2010
South Plains Mall 63,632 ---- 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 (j) 69,402 ---- 69,853 ---- 7.89% 508(a) 2010
Westside Pavilion 99,852 ---- 100,000 ---- 6.67% interest only 2008
-------------- ------------ -------------- ------------
-------------- ------------ -------------- ------------
Total - Wholly Owned Centers $1,201,802 $82,285 $1,119,684 $133,063
-------------- ------------ -------------- ------------
- 13 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
5. Mortgage Notes Payable, Continued:
Mortgage notes payable at September 30, 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%) (k) ---- $35,510 ---- $36,032 6.68% 257 (a) 2008
Pacific Premier Retail Trust(51%)(k):
Cascade Mall $12,803 ---- $13,261 ---- 6.50% 122 (a) 2014
Kitsap Mall/Kitsap Place (l) 31,110 ---- 31,110 ---- 8.06% 230 (a) 2010
Lakewood Mall (m) 64,770 64,770 ---- 7.20% interest only 2005
Lakewood Mall (n) 8,224 ---- 8,224 ---- 5.57% interest only 2002
Los Cerritos Center 59,587 60,174 ---- 7.13% 421(a) 2006
North Point Plaza 1,766 ---- 1,821 ---- 6.50% 16 (a) 2015
Redmond Town Center - Retail 31,722 ---- 32,176 ---- 6.50% 224 (a) 2011
Redmond Town Center - Office (o) ---- 44,683 ---- 45,500 6.77% 370 (a) 2009
Stonewood Mall (p) 39,653 39,653 ---- 7.41% 275 (a) 2010
Washington Square 58,621 ---- 59,441 ---- 6.70% 421 (a) 2009
Washington Square Too 6,147 ---- 6,318 ---- 6.50% 53 (a) 2016
SDG Macerich Properties L.P. (50%) (k) 185,639 ---- 186,607 ---- 6.55% (q) 1,120 (a) 2006
SDG Macerich Properties L.P. (50%) (k) 92,250 ---- 92,250 ---- 4.01% (q) interest only 2003
SDG Macerich Properties L.P. (50%) (k) 40,700 ---- 40,700 ---- 3.92% (q) interest only 2006
West Acres Center (19%) (k) 7,474 ---- 7,600 ---- 6.52% 299 (a) 2009
West Acres Center (19%) (k)(r) 1,900 ---- ---- ---- 9.17% 18(a) 2009
-------------- ------------ -------------- ------------
Total - Joint Venture Centers $642,366 $80,193 $644,105 $81,532
-------------- ------------ -------------- ------------
-------------- ------------ -------------- ------------
Total - All Centers $1,844,168 $162,478 $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 $396 and $119 for
the nine and three months ended September 30, 2001, respectively;
and $250 and $14 for the nine and three months ended September 30,
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 September 30, 2001 and December 31, 2000, the
unamortized discount was $306 and $331, respectively.
- 14 -
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) This loan was issued on July 10, 2001 for $89,000, and may be increased
up to $96,000 subject to certain conditions.
(h) On October 9, 2001, the Company refinanced the debt on Rimrock
Mall. The prior loan was paid in full and a new note was issued
for $46,000 bearing interest at a fixed rate of 7.45% and maturing
October 1, 2011. The Company incurred a loss on early
extinguishment of the prior debt in October 2001 of $1,702.
(i) 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%.
(j) 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.
(k) Reflects the Company's pro rata share of debt.
(l) 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.
(m) 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 September 30, 2001 and at December 31, 2000.
(n) On July 28, 2000, the joint venture placed a $16,125 floating rate
note on the property bearing interest at LIBOR plus 2.25% and
maturing July 2002. At September 30, 2001 and December 31, 2000,
the total interest was 5.57% and 9.0%, respectively.
- 15 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
5. Mortgage Notes Payable, Continued:
(o) Concurrent with this acquisition, the joint venture placed a $76,700
mortgage and a $16,000 mortgage on the property.
(p) 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.
(q) In connection with the acquisition of these Centers, the joint venture
assumed $485,000 of mortgage notes payable which are secured by the
properties. At acquisition, the $300,000 fixed rate portion of this
debt reflected a fair value of $322,700, which included an unamortized
premium of $22,700. This premium is being amortized as interest
expense over the life of the loan using the effective interest method.
At September 30, 2001 and December 31, 2000, the unamortized balance of
the debt premium was $14,178 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 4.01% and 7.21%
at September 30, 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 3.92% and 7.08% at September 30, 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%.
(r) On September 27, 2001, the joint venture placed a $10,000 loan on
the property bearing interest at a fixed rate of 9.17% maturing
December 1, 2009.
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 September 30, 2001, no treasury lock
agreements were outstanding.
Certain mortgage loan agreements contain a prepayment penalty provision
for the early extinguishment of the debt.
- 16 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
5. Mortgage Notes Payable, Continued:
Total interest capitalized, including the prorata share of joint
ventures, during the nine and three months ended September 30, 2001,
was $3,903 and $1,340, respectively; and total interest capitalized
during the nine and three months ended September 30, 2000 was $5,492
and $2,081, respectively.
The fair value of mortgage notes payable, including the pro rata share
of joint ventures, at September 30, 2001 and December 31, 2000 is
estimated to be approximately $2,119,320 and $2,009,932, respectively,
based on current interest rates for comparable loans.
6. Bank and Other Notes Payable:
The Company has a credit facility of $200,000 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
September 30, 2001 and December 31, 2000, $154,000 and $59,000 of
borrowings were outstanding under this line of credit at interest rates
of 5.0% 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 was scheduled to mature in February 2002. Principal was drawn
as construction costs were incurred. As of December 31, 2000, $88,340
of principal had been drawn under the loan at an interest rate of
8.63%. On July 10, 2001, the Company paid off this loan in full and a
permanent loan was issued for $89,000, which may be increased up to
$96,000 subject to certain conditions, bearing interest at a fixed rate
of 7.16% and maturing August 31, 2011.
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.
- 17 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
8. Related-Party Transactions:
The Company engaged the Management Companies to manage the operations
of its properties and certain unconsolidated joint ventures. For the
nine and three months ending September 30, 2001, management fees of
$757 and $0, respectively; and for the nine and three months ending
September 30, 2000, management fees of $2,201 and $764, respectively,
were incurred to the Management Companies by the Company. For the nine
and three months ending September 30, 2001, management fees of $5,463
and $1,902 respectively; and for the nine and three months ending
September 30, 2000, management fees of $5,049 and $1,600, respectively,
were incurred to the Management Companies by the joint ventures.
Certain mortgage notes are held by one of the Company's joint venture
partners. Interest expense in connection with these notes was $5,450
and $1,491 for the nine and three months ended September 30, 2001,
respectively; and $7,569 and $2,527 for the nine and three months ended
September 30, 2000, respectively. Included in accounts payable and
accrued expenses is interest payable to these partners of $248 and $512
at September 30, 2001 and December 31, 2000, respectively.
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 September 30, 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 $161 and $75 for the nine and three months ended
September 30, 2001, respectively. Ground rent expenses, net of amounts
capitalized, were $255 and $85 for the nine and three months ended
September 30, 2000, respectively. There were no contingent rents
incurred in either periods.
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
- 18 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
9. Commitments and Contingencies, Continued:
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 $42 and $45 have already been incurred by the joint
venture for remediation, professional and legal fees for the periods
ending September 30, 2001 and 2000, respectively. An additional $214
remains reserved by the joint venture as of September 30, 2001, which
management has estimated as its remaining obligation for the
remediation. The joint venture has been sharing costs with former
owners of the property.
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 $145 and $26 in remediation costs
for the nine months ending September 30, 2001 and 2000, respectively.
An additional $2,613 remains reserved at September 30, 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.
- 19 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
11. Subsequent Events:
On November 9, 2001, a dividend/distribution of $0.55 per share was
declared for common stockholders and OP unit holders of record on
November 19, 2001. In addition, the Company declared a dividend of
$0.55 on the Company's Series A Preferred Stock and a dividend of $0.55
on the Company's Series B Preferred Stock. All dividends/distributions
will be payable on December 7, 2001.
- 20 -
THE MACERICH COMPANY (The Company)
Item 2
Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion is based primarily on the consolidated balance
sheet of The Macerich Company as of September 30, 2001, and also
compares the activities for the nine and three months ended September
30, 2001 to the activities for the nine and three months ended
September 30, 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
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; and terrorist activities, which could
adversely affect all of the above factors. The Company will not update
any forward-looking information to reflect actual results or changes in
the factors affecting the forward-looking information.
- 21 -
THE MACERICH COMPANY (The Company)
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 or in
the case of Pacific View was recently developed, and are referred to
herein as the "Redevelopment Centers." All other Centers, excluding the
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 for the nine
and three months ended September 30, 2001 was $0.1 million and $0.0
million, respectively; compared to $0.7 million and $0.0 million for
the nine and three months ended September 30, 2000. Additionally, the
Company recognized through equity in income of unconsolidated joint
ventures, $1.0 million and $0.3 million as its pro rata share of
straight lined rents from joint ventures for the nine and three months
ended September 30, 2001, respectively; compared to $1.6 million and
$0.5 million for the nine and three months ended September 30, 2000,
respectively. 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.
- 22 -
THE MACERICH COMPANY (The Company)
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Continued:
Results of Operations
Comparison of Nine Months Ended September 30, 2001 and 2000
Revenues
Minimum and percentage rents increased by 3.7% to $153.6 million in
2001 from $148.1 million in 2000. Approximately $4.0 million of the
increase is attributable to the Same Centers and $1.5 million of the
increase relates to the Redevelopment Centers.
Tenant recoveries increased to $79.9 million in 2001 from $74.3 million
in 2000. Approximately $4.9 million of the increase is attributable to
the Same Centers and $0.7 million of the increase relates to the
Redevelopment Centers.
Other income increased to $7.9 million in 2001 from $6.1 million in
2000.
Expenses
Shopping center expenses increased to $80.6 million in 2001 compared to
$73.2 million in 2000. The increase is a result of increased property
taxes and recoverable expenses at the Centers. Additionally, management
company expense for MPMC, LLC for periods subsequent to April 1, 2001
are now consolidated and represented $3.5 million of the change. Prior
to April 1, 2001, MPMC, LLC was an unconsolidated entity accounted for
using the equity method.
Interest Expense
Interest expense increased to $83.0 million in 2001 from $82.1 million
in 2000.
Depreciation and Amortization
Depreciation and amortization increased to $49.1 million in 2001 from
$44.6 million in 2000. The increase is primarily due to greater
depreciation at Pacific View Mall, which recently completed an $89.0
million redevelopment.
Income from Unconsolidated Joint Ventures and Management Companies
The income from unconsolidated joint ventures and the Management
Companies was $20.9 million for 2001, compared to income of $20.5
million in 2000.
Extraordinary Loss from Early Extinguishment of Debt
In 2001, the Company wrote off $0.2 million of unamortized financing
costs as compared to $1.0 million in 2000.
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.
- 23 -
THE MACERICH COMPANY (The Company)
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Continued:
Results of Operations - Continued:
Comparison of Nine Months Ended September 30, 2001 and 2000 - Continued:
Net Income Available to Common Stockholders
As a result of the foregoing, net income available to common
stockholders increased to $22.5 million in 2001 from $21.1 million in
2000.
Operating Activities
Cash flow from operations was $99.5 million in 2001 compared to $86.0
million in 2000. The increase is primarily due to the factors mentioned
above.
Investing Activities
Cash used in investing activities was $58.0 million in 2001 compared to
cash provided by investing activities of $34.5 million in 2000. This
decrease is primarily due to improvements and renovations to the
Centers.
Financing Activities
Cash flow used in financing activities was $49.9 million in 2001
compared to cash used in financing activities of $125.1 million in
2000. This decrease was due to more refinancing activity in 2001 of
wholly-owned assets.
Funds From Operations
Primarily because of the factors mentioned above, Funds from Operations
- Diluted increased 3.8% to $119.3 million in 2001 from $114.9 million
in 2000 (See "Funds From Operations").
Comparison of Three Months Ended September 30, 2001 and 2000
Revenues
Minimum and percentage rents increased by 4.8% to $52.4 million in 2001
from $50.0 million in 2000. Approximately $2.2 million of the increase
is attributable to the Same Centers and $0.2 million of the increase
relates to the Redevelopment Centers.
Tenant recoveries increased to $27.7 million in 2001 from $24.9 million
in 2000. Approximately $2.6 million of the increase is attributable to
the Same Centers and $0.2 of the increase relates to the Redevelopment
Centers.
Other income increased to $2.8 million in 2001 from $2.1 million in
2000.
- 24 -
THE MACERICH COMPANY (The Company)
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Continued:
Results of Operations
Comparison of Three Months Ended September 30, 2001 and 2000, Continued:
Expenses
Shopping center expenses increased to $28.6 million in 2001 compared to
$25.1 million in 2000. The increase is a result of increased property
taxes and recoverable expenses at the Centers. Additionally, management
company expense for MPMC, LLC for periods subsequent to April 1, 2001
are now consolidated and represented $2.2 million of the change. Prior
to April 1, 2001, MPMC, LLC was an unconsolidated entity accounted for
using the equity method.
Interest Expense
Interest expense increased to $27.6 million in 2001 from $27.0 million
in 2000.
Depreciation and Amortization
Depreciation and amortization increased to $16.6 million in 2001 from
$15.1 million in 2000. The increase is primarily due to greater
depreciation at Pacific View Mall, which recently completed an $89.0
million redevelopment.
Income from Unconsolidated Joint Ventures and Management Companies
The income from unconsolidated joint ventures and the Management
Companies was $8.2 million for 2001, compared to income of $7.4 million
in 2000.
Net Income Available to Common Stockholders
As a result of the foregoing, net income available to common
stockholders increased to $9.3 million in 2001 from $7.2 million in
2000.
Funds From Operations
Primarily because of the factors mentioned above, Funds from Operations
- Diluted increased 9.5% to $42.5 million in 2001 from $38.8 million in
2000 (See "Funds From Operations").
- 25 -
THE MACERICH COMPANY (The Company)
Management's Discussion and Analysis of Financial Condition and 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. The following table summarizes
capital expenditures incurred at the Wholly-Owned Centers for the nine
months ending September 30,:
2001 2000
--------------------- ---------------------
(Dollars in millions)
Renovations, expansions and acquisitions of property,
equipment and improvements $36.8 $28.2
Tenant allowances 7.8 3.3
Deferred charges 10.5 8.2
--------------------- ---------------------
Total $55.1 $39.7
===================== =====================
Management expects similar levels to be incurred in future years for
tenant allowances and deferred charges and to incur between $30.0
million to $75.0 million in 2001 for renovations and expansions.
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. 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. The Company believes joint venture arrangements have in the
past and may in the future provide an attractive alternative to other
forms of financing, whether for acquisitions or other business
opportunities.
The Company's total outstanding loan indebtedness at September 30, 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 September 30, 2001. The
Company's debt consists primarily of fixed-rate conventional mortgages
payable secured by individual properties.
- 26 -
THE MACERICH COMPANY (The Company)
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Continued:
Liquidity and Capital Resources - Continued:
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 $200.0 million
with a maturity of May 2002. There were $154.0 million of borrowings
outstanding at September 30, 2001.
At September 30, 2001, the Company had cash and cash equivalents
available of $27.9 million.
- 27 -
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, 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. FFO, as
presented, may not be comparable to similarly titled measures reported
by other real estate investment trusts. The following reconciles net
income available to common stockholders to FFO:
Nine Months Ended September 30,
2001 2000
------------------------ --------------------------
Shares Amount Shares Amount
---------- ------------ ---------- --------------
(amounts in thousands)
Net income - available to common stockholders $22,515 $21,090
Adjustments to reconcile net income to FFO - basic:
Minority interest 7,342 6,722
Depreciation and amortization on wholly owned centers 49,092 44,632
Pro rata share of unconsolidated entities' depreciation and
amortization 20,244 18,186
Loss (gain) on sale of wholly-owned assets 295 1,297
Loss on early extinguishment of debt 187 984
Pro rata share of (gain) loss on sale of assets
from unconsolidated entities (208) (763)
Cumulative effect of the change in accounting principle -
wholly-owned assets - 963
Cumulative effect of the change in accounting principle -
pro rata joint ventures - 787
Less: Depreciation on personal property and amortization
of loan costs and interest rate caps (3,698) (3,810)
------------ --------------
FFO - basic (1) 44,915 95,769 45,084 90,088
Additional adjustments to arrive at FFO - diluted:
Impact of convertible preferred stock 9,115 14,675 9,115 13,945
Impact of stock options and restricted stock using
the treasury method - - 437 1,392
Impact of convertible debentures 4,847 8,829 5,186 9,454
---------- ------------ ---------- --------------
FFO - diluted (2) 58,877 $119,273 59,822 $114,879
========== ============ ========== ==============
- 28 -
THE MACERICH COMPANY (The Company)
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Continued:
Funds From Operations - Continued:
Three Months Ended September 30,
2001 2000
------------------------ --------------------------
Shares Amount Shares Amount
---------- ------------ ---------- --------------
(amounts in thousands)
Net income - available to common stockholders $9,268 $7,169
Adjustments to reconcile net income to FFO - basic:
Minority interest 2,965 2,301
Depreciation and amortization on wholly owned centers 16,601 15,064
Pro rata share of unconsolidated entities' depreciation and
amortization 6,920 6,550
Loss (gain) on sale of wholly-owned assets 107 1,189
Loss on early extinguishment of debt - 984
Pro rata share of (gain) loss on sale of assets
from unconsolidated entities (85) (1,176)
Less: Depreciation on personal property and amortization
of loan costs and interest rate caps (1,298) (1,451)
------------ --------------
FFO - basic (1) 45,032 34,478 45,107 30,630
Additional adjustments to arrive at FFO - diluted:
Impact of convertible preferred stock 9,115 5,013 9,115 4,648
Impact of stock options and restricted stock using
the treasury method - - 507 390
Impact of convertible debentures 4,847 2,971 5,186 3,162
---------- ------------ ---------- --------------
FFO - diluted (2) 58,994 $42,462 59,915 $38,830
========== ============ ========== ==============
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 September 30, 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 nine and three
months ending September 30, 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 $0.7 million for
the nine months ended September 30, 2001 and 2000, respectively; and
$0.0 million and $0.0 million for the three months ended September 30,
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.
- 29 -
THE MACERICH COMPANY (The Company)
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Continued:
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.
New Accounting Pronouncements Issued
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
defers 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.
- 30 -
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 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 are
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 delayed 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 amended 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 accumulate other
comprehensive income related to treasury rate lock transactions settled
in prior years. The entire transition adjustment was reflected in the
quarter ended March 31, 2001. The transition adjustment of $9.4
million, less minority interest of $2.3 million and amortization of
$1.0 million for the nine months ended September 30, 2001, is
subtracted from net income to arrive at comprehensive income of $31.0
million for the nine months ended September 30, 2001. 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 September 30, 2001, the Company reclassified
$0.3 million from accumulated other comprehensive income to earnings.
In October 2001, the FASB issued SFAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144
addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. This statement supersedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS 121") and related literature and
establishes a single accounting model, based on the framework
established in SFAS 121, for long-lived assets to be disposed of by
sale. The Company is required to adopt SFAS 144 no later than January
1, 2002. The Company does not believe that the adoption of SFAS 144
will have a material impact on its consolidated financial statements.
- 31 -
THE MACERICH COMPANY (The Company)
Item 3
Quantitative and Qualitative Disclosures About Market Risk
The Company's primary market risk exposure is interest rate risk. The
Company has managed and will continue to manage interest rate risk by
(1) maintaining a conservative ratio of fixed rate, long-term debt to
total debt such that variable rate exposure is kept at an acceptable
level, (2) reducing interest rate exposure on certain long-term
variable rate debt through the use of interest rate caps with
appropriately matching maturities, (3) using treasury rate locks where
appropriate to fix rates on anticipated debt transactions, and (4)
taking advantage of favorable market conditions for long-term debt
and/or equity.
The following table sets forth information as of September 30, 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 $10,947 $13,845 $53,651 $131,690 $15,126 $1,058,828 $1,284,087 $1,370,826
Average interest rate 7.38% 7.38% 7.38% 7.38% 7.38% 7.38% 7.38% -
Fixed rate - Debentures - 150,848 - - - - 150,848 150,570
Average interest rate - 7.25% - - - - 7.25% -
Variable rate - 154,000 - - - - 154,000 154,000
Average interest rate - 5.00% - - - - 5.00% -
---------- ------------ ----------- ------------ ----------- ------------- ------------- -------------
Total debt - Wholly owned
Centers $10,947 $318,693 $53,651 $131,690 $15,126 $1,058,828 $1,588,935 $1,675,396
---------- ------------ ----------- ------------ ----------- ------------- ------------- -------------
Joint Venture Centers:
(at Company's pro rata share)
Fixed rate $6,978 $7,766 $8,655 $9,241 $74,752 $473,993 $581,385 $607,320
Average interest rate 6.86% 6.87% 6.87% 6.87% 6.83% 6.83% 6.83% -
Variable rate - 8,224 92,250 - - 40,700 141,174 141,174
Average interest rate - 5.57% 4.01% - - 3.92% 4.01% -
---------- ------------ ----------- ------------ ----------- ------------- ------------- -------------
Total debt - Joint Ventures $6,978 $15,990 $100,905 $9,241 $74,752 $514,693 $722,559 $748,494
---------- ------------ ----------- ------------ ----------- ------------- ------------- -------------
Total debt - All Centers $17,925 $334,683 $154,556 $140,931 $89,878 $1,573,521 $2,311,494 $2,423,890
========== ============ =========== ============ =========== ============= ============= =============
All 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 $2.9 million
per year based on $295.2 million outstanding at September 30, 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.
- 32 -
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
On July 23, 2001, the Company issued 1,287 shares of Common Stock upon
the redemption of 1,287 OP Units in a private placement to a limited
partner of the Operating Partnership, an accredited investor, pursuant
to Section 4(2) of the Securities Act of 1933.
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
- 33 -
THE MACERICH COMPANY (The Company)
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Macerich Company
By: /s/ Thomas E. O'Hern
Thomas E. O'Hern
Executive Vice President and
Chief Financial Officer
Date: November 14, 2001
- 34 -
THE MACERICH COMPANY (The Company)
Exhibit Index
Exhibit No.
Page
(a) Exhibits
Number Description
None
- 35 -