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, 1996 COMMISSION FILE NO. 1-12504
THE MACERICH COMPANY
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(Exact name of registrant as specified in its charter)
MARYLAND 95-4448705
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
233 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) 394-5333
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N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Number of shares outstanding of each of the registrant's classes of common
stock, as of November 5, 1996.
Common stock, par value $.01 per share: 24,993,266
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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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1
The Macerich Company
Form 10Q
INDEX
Page
Part I: Financial Information
Item 1. Financial Statements
Condensed consolidated balance sheets
of The Company as of September 30, 1996
and December 31, 1995. 3
Condensed consolidated statements of
operations of The Company for the periods
from January 1, 1996 through September 30, 1996
and January 1, 1995 through September 30, 1995. 4
Condensed consolidated statements of operations
of The Company for the periods from July 1, 1996
through September 30, 1996 and July 1, 1995
through September 30, 1995. 5
Condensed consolidated statements of cash flows
of The Company for the periods from January 1
through September 30, 1996 and January 1, 1995
through September 30, 1995. 6
Notes to condensed consolidated financial
statements 7 to 14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15 to 19
Part II: Other Information 20
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2
CONDENSED CONSOLIDATED BALANCE SHEETS OF THE COMPANY
(Dollars in thousands, except per share amounts)
September 30, December 31,
1996 1995
(Unaudited) (Audited)
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ASSETS:
Property, net $774,766 $694,900
Cash and cash equivalents 2,631 15,570
Tenant receivables, including accrued
overage rents of $3,167 in 1996 and
$2,920 in 1995 18,776 15,214
Due from affiliates 3,200 -
Deferred charges and other assets 20,261 20,434
Investment in unconsolidated joint ventures
and the management companies 18,098 17,280
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Total assets $837,732 $763,398
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LIABILITIES AND STOCKHOLDERS' EQUITY:
Mortgage notes payable:
Related parties $136,032 $136,186
Others 405,866 349,007
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Total 541,898 485,193
Bank note payable 34,500 -
Accounts payable 1,501 2,265
Accrued interest expense 2,306 2,015
Other accrued expenses 7,003 4,522
Due to affiliates - 811
Deferred acquisition liability 5,000 5,000
Other liabilities 9,397 9,507
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Total liabilities 601,605 509,313
Minority interest in Operating Partnership 89,402 95,740
Commitments and contingencies
Stockholders' equity
Preferred Stock, $.01 par value,
10,000,000 shares authorized -
none issued - -
Common Stock, $.01 par value,
100,000,000 shares authorized,
19,993,000 outstanding at
September 30, 1996 and
19,977,000 at December 31, 1995 200 200
Additional paid in capital 146,525 158,145
Accumulated deficit - -
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Total stockholders' equity 146,725 158,345
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Total liabilities and
stockholders' equity $837,732 $763,398
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3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS OF THE COMPANY
(Unaudited)
(Dollars in thousands, except per share amounts)
January 1, 1996 January 1, 1995
to to
Sept 30, 1996 Sept 30, 1995
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REVENUES:
Minimum rents $70,890 $49,535
Percentage rents 4,570 3,837
Tenant recoveries 34,033 19,595
Other 1,642 489
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Total Revenues 111,135 73,456
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OPERATING COSTS:
Shopping center expenses 36,076 22,948
General and administrative expense 1,862 1,693
Interest expense 30,490 18,195
Depreciation and amortization 23,799 18,750
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Total Expenses 92,227 61,586
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Equity in income of unconsolidated
joint ventures and the
management companies 2,876 2,393
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Income of the Operating Partnership 21,784 14,263
Minority interest in net income of
Operating Partnership (8,096) (5,739)
Extraordinary loss on early
extinguishment of debt (315) (1,299)
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Net income $13,373 $7,225
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Net income per common share $0.67 $0.50
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---------- ----------
Dividend/distribution per common
share outstanding $1.26 $1.24
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Weighted average number of
common shares outstanding 19,993,000 14,375,100
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Weighted average number of
Operating Units outstanding 32,111,000 25,792,000
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4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS OF THE COMPANY
(Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended
September 30,
1996 1995
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REVENUES:
Minimum rents $24,249 $17,075
Percentage rents 1,482 1,567
Tenant recoveries 11,451 7,403
Other 567 246
---------- ----------
Total Revenues 37,749 26,291
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OPERATING COSTS:
Shopping center expenses 12,279 8,347
General and
administrative expense 466 495
Interest expense 10,131 6,674
Depreciation and amortization 8,148 6,478
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Total Expenses 31,024 21,994
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Equity in income of unconsolidated
joint ventures and the
management companies 754 769
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Income of the Operating Partnership 7,479 5,066
Minority interest in net income of
Operating Partnership (2,820) (2,245)
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Net income $4,659 $2,821
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Net income per common share $0.23 $0.20
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Dividend/distribution per common
share outstanding $0.42 $0.42
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5
THE MACERICH COMPANY (The Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS OF THE COMPANY
(In Thousands)
January 1, 1996 January 1, 1995
to to
Sept 30, 1996 Sept 30, 1995
Cash flows from operating activities:
Net income $13,373 $7,225
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Adjustments to reconcile net
income to net cash provided
by operating activities:
Extraordinary loss on early
extinguishment of debt - 1,299
Loss on sale of assets 315 -
Depreciation and amortization 23,799 18,750
Amortization of discount on trust
deed note payable 33 410
Minority interest in the income
of the Operating Partnership 8,096 5,739
Changes in assets and liabilities:
Tenant receivables, net (3,562) (3,213)
Other assets 447 2,514
Accounts payable and
accrued expenses 2,009 822
Due to affiliates (1,174) (467)
Other liabilities 252 (657)
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Total adjustments 30,215 25,197
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Net cash provided by
operating activities 43,588 32,422
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Cash flows from investing activities:
Acquisitions of property
and improvements (67,211) (8,549)
Renovations and expansions
of centers (5,349) (4,214)
Additions to
tenant improvements (624) (1,207)
Deferred charges - leasing costs (2,707) (2,152)
Deferred charges -
financing costs (1,981) (2,801)
Loans to affiliates (3,200) -
Proceeds from sale of assets 948 -
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Net cash used in
investing activites (80,124) (18,923)
Cash flows from financing activities:
Proceeds from notes and
mortgages payable 131,544 94,000
Payments on mortgages
and notes payable (67,101) (75,497)
Equity in income of
unconsolidated joint ventures
and the management companies (2,876) (2,393)
Distributions from joint ventures
and management companies 2,058 2,199
Dividends and distributions (40,028) (30,618)
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Net cash provided by (used in)
financing activities 23,597 (12,309)
Net increase (decrease) in cash (12,939) 1,190
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Cash and cash equivalents,
beginning of period 15,570 3,823
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Cash and cash equivalents,
end of period $2,631 $5,013
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Supplemental cash flow information:
Cash payment for interest $30,166 $17,115
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Non-cash transactions:
Acquisition of Property by
assumption of debt $25,849 $74,650
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Acquisition of Property by
issuance of OP units $600 -
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6
1. Interim Financial Statements and Basis of Presentation:
The accompanying Condensed Consolidated financial statements of The
Macerich Company ("financial statements") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements and have not
been audited by independent public accountants.
The unaudited interim financial statements should be read in
conjunction with the audited financial statements and related notes
included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995. 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.
Certain reclassifications have been made in the 1995 financial
statements to conform to the 1996 financial statement presentation.
2. Organization:
The Macerich Company (the "Company") was incorporated under the
General Corporation Law of Maryland on September 9, 1993 and
commenced operations effective with the completion of its initial
public offering ("IPO") on March 16, 1994. The Company was formed to
continue the business of the Macerich Group, which since 1972 has
focused on the acquisition, ownership, redevelopment, management and
leasing of regional shopping centers located throughout the United
States. In 1994, the Company became the sole general partner of The
Macerich Partnership L.P., (the "Operating Partnership"). In
connection with it's IPO the Company acquired a 56% interest in the
Operating Partnership. The Operating Partnership now owns 100% of 17
properties, including three that were acquired in 1995, one in
January, 1996 and one in October, 1996. In addition, the Operating
Partnership owns interests in four other regional shopping centers.
Collectively these properties and interests are referred to as the
"Centers". The Company conducts all of its operations through the
Operating Partnership and other wholly owned subsidiaries, and the
Company's two Management Companies, Macerich Property Management
Company and Macerich Management Company, collectively referred to as
"the Management Companies".
The Company is a real estate investment trust under the Internal
Revenue Code of 1986, as amended, owns approximately 67% of The
Operating Partnership and is the sole General Partner. The limited
partnership interest not owned by the Company is reflected in these
financial statements as Minority Interest.
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7
3. Investments in Unconsolidated Joint Ventures and the Management
Companies
The following are the Company's investments in various real estate
joint ventures which own regional retail shopping centers. The
Operating Partnership is a general partner in these joint ventures.
The Operating Partnership's interest in each joint venture is as
follows:
The Operating Partnership's
Joint Venture Ownership %
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Macerich Northwestern Associates 50%
North Valley Plaza Associates 50%
Panorama City Associates 50%
West Acres Development 19%
The non-voting preferred stock of the Management Companies is owned
by the Operating Partnership, which provides the Operating
Partnership the right to receive 95% of the distributable cash flow
from the Management Companies. The Company accounts for the
Management Companies using the equity method of accounting.
Combined and condensed balance sheets and statements of operations
are presented below for all unconsolidated joint ventures, and the
Management Companies, followed by information regarding the Operating
Partnership's beneficial interest in the combined operations.
Beneficial interest is calculated based on the Operating
Partnership's ownership interests in the joint ventures and the
Management Companies.
COMBINED AND CONDENSED BALANCE SHEETS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
September 30, December 31,
1996 1995
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Assets:
Properties, net $107,015 $104,879
Other assets 14,951 10,923
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Total assets $121,966 $115,802
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Liabilities and partners' capital:
Mortgage notes payable $82,015 $82,515
Other liabilities 10,953 5,306
The Company's capital 18,098 17,280
Outside Partners' capital 10,900 10,701
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Total liabilities and
partners' capital $121,966 $115,802
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8
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 Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Revenues $8,782 $7,663 $24,132 $23,766
-------- -------- -------- --------
Expenses:
Shopping center expenses 3,195 2,092 6,886 6,438
Interest 1,609 1,624 4,822 4,855
Management company expense 871 1,045 2,675 3,275
Depreciation and
amortization 1,202 908 3,244 3,108
-------- -------- -------- --------
Total operating costs 6,877 5,669 17,627 17,676
-------- -------- -------- --------
Gain on sale of land - 2 282 724
-------- -------- -------- --------
Net income $ 1,905 $ 1,996 $6,787 $ 6,814
-------- -------- -------- --------
-------- -------- -------- --------
Significant accounting policies used by the unconsolidated joint ventures and
the Management Companies are similar to those used by the Macerich Company.
Included in mortgage notes payable are amounts due to related parties of
$43,500 at September 30, 1996 and December 31, 1995. Interest expense incurred
on these borrowings amounted to $748 and $751 for the three months ended
September 30, 1996 and 1995, respectively, and $2,236 and $2,234 for the nine
months ended September 30, 1996 and 1995, respectively.
The following table sets forth the Operating Partnership's beneficial
interest in the joint ventures and the Management Companies:
PRO RATA SHARE OF COMBINED AND STATEMENT OF
OPERATIONS OF JOINT VENTURES AND THE MANAGEMENT COMPANIES
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Revenues $3,877 $3,517 $11,369 $11,171
-------- -------- -------- --------
Expenses:
Shopping center expenses 1,087 860 2,871 2,758
Interest 539 541 1,611 1,615
Management company expense 905 867 2,541 3,111
Depreciation and
amortization 592 480 1,524 1,431
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Total operating costs 3,123 2,748 8,547 8,915
-------- -------- -------- --------
Gain on sale of land - - 54 137
-------- -------- -------- --------
Net income $754 $769 $2,876 $2,393
-------- -------- -------- --------
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9
4. Property:
Property is comprised of the following:
Sept 30, December 31,
1996 1995
Land $173,049 $155,490
Building Improvements 714,851 636,183
Tenant Improvements 35,354 34,730
Equipment and Furnishings 4,334 3,668
Construction in Progress 6,042 3,927
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933,630 833,998
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Less, accumulated
depreciation 158,864 139,098
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$774,766 $694,900
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5. Deferred Charges And Other Assets:
Deferred charges and other assets include leasing, financing and other
assets are:
Sept 30, December 31,
1996 1995
Leasing $27,264 $24,926
Financing 6,561 8,173
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33,825 33,099
Less, accumulated
amortization 16,928 16,476
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16,897 16,623
Other assets 3,364 3,811
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Total $20,261 $20,434
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10
6. Notes and Mortgages Payable:
Notes and mortgages payable at September 30, 1996 and December 31, 1995
consists of the following:
Carrying Amount of Notes
------------------------
1996 1995
Property Pledged Related Related Interest Payment Maturity
As Collateral Other Party Other Party Rate Terms Date
Capitola Mall - $38,062 - $38,250 9.25% 316(f) 2001
Chesterfield Towne Center $59,156 - $59,536 - 8.75% 475(h) 2024
Chesterfield Towne Center 5,315 - 5,346 - 9.38% 43(h) 2024
Chesterfield Towne Center 1,926 - 1,938 - 8.88% 16(h) 2024
Crossroads Mall (a) - 35,970 - 35,936 7.08% 244(f) 2010
Greeley Mall 18,679 - 19,000 - 8.50% (i) 2003
Green Tree/
Crossroads - OK (b) - - 50,000 - 7.45% interest only 2004
Holiday Village Mall 14 - 73 - 5.50% 7(f) 1996
Holiday Village Mall - 17,000 - 17,000 6.75% interest only 2001
Lakewood Mall (c) 127,000 - 127,000 - 7.20% interest only 2005
Marina Marketplace 21,918 - - - 6.35% 173 1997
Northgate Mall - 25,000 - 25,000 6.75% interest only 2001
Parklane Mall - 20,000 - 20,000 6.75% interest only 2001
Queens Center 65,100 - - - (d) interest only 1999
Queens Center - - 55,800 - (e) (e) 1999
Queens Center - - 10,200 - (e) (e) 1999
The Centre at Salisbury (b) - - 21,000 - 7.13% interest only 2004
Salisbury/Crossroads-OK/
Greentree 103,300 - - - 7.11% interest only(b) 2004
Sassafras Square 3,464 - - - 8.54% 31 (j) 1999
-------- -------- -------- --------
Sub-Total 405,872 136,032 349,893 136,186
Less interest rate
arrangements (g) 6 - 886 -
-------- -------- -------- --------
Total $405,866 $136,032 $349,007 $136,186
-------- -------- -------- --------
-------- -------- -------- --------
Bank note payable $34,500 - - - 7.25% (k) 1997
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average interest rate at September 30, 1996 7.42%
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------
Weighted average interest rate at December 31, 1995 7.52%
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------
Notes:
(a) There is a discount on this note which is being amortized over
the life of the loan using the effective interest method. At
September 30, 1996 and December 31, 1995 the unamortized
discount was $463 and $496, respectively.
(b) On April 16, 1996 these loans were combined and secured by all
three properties. The loan amount was increased to $103,300. The
average interest rate is 7.11% and the maturity is March, 2004. On
October 18, 1996 the loan amount increased to $117,713 at an average
interest rate of 7.22%.
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11
6. Mortgage Notes Payable, Continued:
(c) The loan indenture requires the Company to deposit all cash flow
from the property operations with a trustee to meet its obligations
under the Notes. Cash in excess of the required amount, as defined,
is released. Included in cash and cash equivalents is $750 of
restricted cash deposited with the trustee at September 30, 1996 and
at December 31, 1995.
(d) This loan bears interest at LIBOR plus .45%. Interest only is
payable monthly. There is an interest rate cap that provides for a
LIBOR strike price of 5.88% on $10,200 of debt through March, 1999.
The remaining principal has a LIBOR strike price of 6.45% for 1996,
7.075% for 1997 and 7.7% from January 1, 1998 through maturity.
(e) These loans were paid off on September 30, 1996.
(f) This represents the monthly payment of principal and interest.
(g) Represents the unamortized cost of interest rate arrangements
at Crossroads Mall. The estimated market value of these
arrangements is $0 at September 30, 1996 and $886 at December 31,
1995.
(h) 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 $245 at September 30, 1996 and $138 at
September 30, 1995.
(i) Interest only is payable through March, 1996. Thereafter
monthly payments total $187 until maturity at which time the balance
is due in full.
(j) Represents the monthly payment of principal and interest.
(k) Represents borrowings under the Company's unsecured working
capital line of credit. The total amount of the line is $60,000 and
the interest rate is LIBOR plus 1.75% or the prime rate. The
borrowings under this line were paid off in full on November 5, 1996.
Certain mortgage loan agreements contain a prepayment penalty provision
for the early extinguishment of the debt.
The market value of notes payable at September 30, 1996 and December 31,
1995 is estimated to be approximately $575,000 and $466,000, respectively,
based on current interest rates for comparable loans.
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12
7. Related-Party Transactions:
The Company engages The Management Companies to manage the operations of
the unconsolidated joint ventures and other affiliated shopping centers.
The Management Companies are reflected under the equity method of
accounting for investments.
Certain mortgage notes were held by outside partners of the individual
Macerich Group partnerships. Interest expense in connection with these
notes was $2,688 and $1,918 for the three months ended September 30, 1996
and 1995, respectively, and $8,105 and $5,681 for the nine months ended
September 30, 1996 and for 1995, respectively. Included in accrued
interest expense is interest payable to these partners of $492 and $537 at
September 30, 1996 and December 31, 1995, respectively.
8. Commitments and contingencies:
Certain partnerships have entered into 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 percent of base rent income, as
defined. Ground rent expenses were $580, including contingent rents of
$0, for the nine months ended September 30, 1996, and $1,669, including
contingent rents of $517, for the nine months ended September 30, 1995.
Ground rent expenses were $192 and $538 for three months ended September
30, 1996 and September 30, 1995, respectively.
On December 21, 1995, the Company acquired Capitola Mall. As part of the
purchase price, the Company will issue $5,000 of Operating Partnership
units five years after the acquisition date. The units will be issued at
a price equal to the stock price at that time.
Perchloroethylene (PCE) has been detected in soil and groundwater in the
vicinity of a dry cleaning establishment at North Valley Plaza. The
California Department of Toxic Substance Control (DTSC) has advised the
Company that very low levels of Dichlorethylene (1,2,DCE) a degradation
byproduct of PCE, have been detected in a water well located 1/4 mile west
from the dry cleaners, and 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 1,2DCE which is permitted in
drinking water is 6 parts per billion (ppb); and that the 1,2DCE was
detected in the water well at 1.2 ppb, which is below the MCL. The
Company has retained an environmental consultant to investigate the
contamination and the Company has initiated testing of the site.
Evaluation of this situation is preliminary, and at this time the Company
is unable to determine whether any remediation will be required, or if
necessary, what the range of remediation costs might be. The joint
venture that owns that property has set up a $200 reserve ($145 of which
has already been incurred) to cover professional fees and testing costs.
The Company intends to look to the responsible parties and insurers if
remediation is required.
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13
8. Commitments and contingencies - Continued:
Toluene, a petroleum constituent, has been detected in one of three
groundwater dewatering system holding tanks at the Queens Center. The
source of the toluene is currently unknown, but it is possible that an
adjacent service station has caused or contributed to the problem. It is
also possible that the toluene remains from previous service station
operations which occurred on site prior to the development of the site
into its current use in the early 1970s. Toluene was detected at levels
of 410 and 160 parts per billion (ppb) in samples taken from the tank in
October, 1995 and February, 1996, respectively. In May, 1996, two
additional samples were collected, one of which contained toluene at .63
ppb, the other sample detected no toluene. Although the Company believes
that no remediation will be required, it has set up a $300 reserve to
cover professional fees and testing costs. The Company intends to look to
the responsible parties and insurers if remediation is required.
Dry cleaning chemicals, including perchloroethylene (PCE) have been
detected in soil and groundwater in the vicinity of a dry cleaning
establishment at Villa Marina Marketplace. The previous owner of the
property has reported the problem to the appropriate government
authorities and has agreed to fully assess and remediate the site to the
extent required by those authorities subject to a limited indemnity
agreement. The previous owner has removed the dominant source of impacted
soil and is continuing its efforts to assess the site under the direction
of the local regulatory oversight agency. Although the Company believes
that it will not be required to participate in assessment or remediation
activities, it has set up a $300 reserve ($20 of which has already been
incurred), concurrent with its January 25, 1996 acquisition of the Center,
to cover professional fees and testing costs.
9. Pro Forma Information:
Villa Marina Marketplace was acquired on January 25, 1996. On a pro forma
basis, reflecting this acquisition as if it had occurred on January 1,
1996, the Company would have reflected total revenues of $112.2 million,
net income of $13.6 million and net income per share of $0.68 for the nine
months ended September 30, 1996.
Valley View Mall was acquired on October 21, 1996. On a pro forma basis,
reflecting this acquisition as if it occurred on January 1, 1996, the
Company would have total revenues of $122.3 million, net income of $16.8
million and net income per share of $0.72 for the nine months ended
September 30, 1996.
10. Subsequent Events:
On October 21, 1996 the Company acquired Valley View Mall, a 1.6 million
square foot super regional mall in Dallas, Texas. The purchase price of
$85.5 million was paid in cash from the Company's line of credit and from
a $60,000 credit facility secured by Valley View Mall. The Company also
issued an additional $14.4 million of notes secured by Salisbury,
Crossroads-OK and Green Tree malls.
On October 30, 1996 the Company issued 5,000,000 shares of common stock
with net proceeds of $106,250. The proceeds were used to pay off $60,000
of debt incurred on the Valley View acquisition, to pay off the Company's
line of credit and for general corporate purposes.
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14
Item II
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 ("the Company") as of September 30, 1996, and
also compares the activities for the nine months and three months ended
September 30, 1996, to the activities for the nine months and three months
ended September 30, 1995.
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 statement of the results for the interim
periods presented, and all such adjustments are of a normal recurring nature.
The Company acquired The Centre at Salisbury ("Salisbury") in
Salisbury, Maryland on August 15, 1995, Capitola Mall ("Capitola"), in
Capitola, California on December 21, 1995, Queens Center ("Queens"), in
Queens, New York on December 28, 1995, and on January 25, 1996 the Company
acquired Villa Marina Marketplace in Marina del Rey, California. These
properties are known as the "Acquisition Centers". Shopping centers owned by
the Company for the entire nine month period ended September 30, 1996 and 1995
are referred to as the "Same Centers" for comparison purposes below. The
1996 financial statements include Villa Marina Marketplace from the date of
acquisition to September 30, 1996 and include the 1995 Acquisitions from
January 1, 1996 through September 30, 1996. As a result of the acquisitions,
many of the variations in the results of operations, discussed below, occurred
due to the addition of these properties to the portfolio during 1996 and
1995. The Company's ability to acquire additional properties is impacted
by many factors, such as availability and cost of capital, overall debt to
market capitalization level, interest rates and availability of
potential acquisition targets that meet the Company's criteria.
Accordingly, management is uncertain as to whether during the balance of 1996,
and beyond that, there will be similar acquisitions and corresponding
increases in revenues, net income and funds from operations that occurred as a
result of the 1996 and 1995 acquisitions. 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.
The bankruptcy and/or closure of retail stores, particularly anchors,
may reduce customer traffic and cash flow generated by a Center. During
1996, Federated Department Stores, Inc. closed the Broadway at Panorama and
Weinstocks at Parklane. Although negotiations are underway to replace these
anchor tenants, completion of those transactions is not certain and the long-
term closure of these or other stores could adversely affect the Company's
performance.
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Results of Operations - Nine months Ended September 30, 1996 and 1995
Revenues
Minimum and percentage rents together increased $22.1 million to
$75.5 million for the nine months ended September 30, 1996 compared to
$53.4 million in the nine months ended September 30, 1995. The
Acquisition Centers contributed virtually all of this increase.
Tenant recoveries for the nine months ended September 30, 1996 increased
by $14.4 million. This was due to the addition of the Acquisition
Centers ($13.1 million) and increases in recoveries at the Same Centers
of $1.3 million which resulted from higher recoverable expenses.
Expenses
Operating expenses, including shopping center, management, leasing
and ground rent expense, increased by $13.1 million for the nine months
ended September 30, 1996 compared to the same period in 1995. This
increase was due to the addition of the Acquisition Centers ($13.4
million) and increases in Same Centers recoverable expenses of $1.3
million. The increase was offset somewhat by lower ground rent expense
of $1.1 million which resulted from the October 1995 acquisition of land
at Crossroads-Boulder which was previously ground leased. Depreciation
and amortization increased by $5.1 million, $4.3 million related to the
Acquisition Centers. Interest expense increased by $12.3 million which
resulted primarily from the increased interest expense on debt
attributable to the Acquisition Centers.
Income From Unconsolidated Joint Ventures and The Management Companies
The income from unconsolidated joint ventures and management
companies increased to $2.9 million compared to $2.4 million for the
period ended September 30, 1995. This increase was primarily due to
increased net income of the Management Companies.
Loss on Early Extinguishment of Debt
The Company financed the debt secured by Lakewood Mall on
September 28, 1995. As a result $1.3 million of unamortized loan costs
were written off as an extraordinary item during the nine months ended
September 30, 1995.
Net Income
Net income for the period increased to $13.4 million compared to
$7.2 million for the nine months ended September 30, 1995. This
increase was due to the factors discussed above.
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16
Results of Operations - Three months Ended September 30, 1996 and 1995
Revenues
Minimum and percentage rents together increased $7.1 million. Of
this increase approximately $7.2 million related to the Acquisition
Centers.
Tenant recoveries increased to $11.5 million in 1996, from $7.4
million in 1995. The Acquisition Centers were responsible for $4.2
million of this increase and the balance of the increase was primarily
due to higher Same Centers recoverable expenses.
Expenses
Operating expenses, including shopping center and ground rent expenses,
increased by $3.9 million to $12.3 million in 1996, most of the change
related to the Acquisition Centers ($4.5 million). The balance of the
change was primarily due to lower Same Center recoverable expenses of
$0.3 million, and by lower ground lease expense of $0.3 million.
Depreciation and amortization for the quarter increased to $8.2 million
from $6.5 million for the same period in 1995. Approximately $1.4
million of this increase was attributable to the Acquisition Centers.
Interest expense increased from $6.7 million in 1995 to $10.1 million in
1996. Most of the increase related to debt assumed on, or debt incurred
to acquire, the Acquisition Centers.
Income From Unconsolidated Joint Ventures and The Management Companies
The income from unconsolidated joint ventures and the Management
Companies remained unchanged at $0.8 million in 1995 compared to $0.8
million in 1996.
Net Income
Net income for the period increased to $4.7 million from $2.8
million for the three months ended September 30, 1995. This increase
was due to the factors discussed above.
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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 redevelopments has
been, and is expected to continue to be, obtained from equity or debt
financings.
The Company believes that it will have access to the capital
necessary to expand its business in accordance with its strategies for
growth and maximizing Funds from Operations. The Company presently
intends to obtain additional capital necessary to expand its business
through a combination of additional equity offerings and debt
financings.
The Company's total outstanding loan indebtedness at September 30,
1996 was $605.5 million (including its pro rata share of joint venture
debt). This equated to a debt to total market capitalization (defined
as total debt of the Operating Partnership, 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 into stock) rate
of 46% at September 30, 1996. Such debt consists primarily of
conventional mortgages payable secured by individual properties. In
connection with $65 million of the Company's floating rate indebtedness,
the Company has entered into interest rate protection agreements that
limit the Company's exposure to increases in interest rates.
On October 30, 1996, the Company issued 5,000,000 shares of common
stock and raised $106.3 million in net proceeds. The proceeds were used
to pay down debt and for general corporate purposes. These transactions
reduced the debt to total market capitalization to 40%.
The Company has an unsecured line of credit of $60 million. The
outstanding borrowings on the line of credit at September 30, 1996 were
$34.5 million. This debt was paid off in full on November 5, 1996,
accordingly, there is $60,000 of capacity available on the line as of
November 5, 1996. The Company also has a $60 million credit facility,
secured by Valley View Mall. The current balance on that facility is
$0.
At September 30, 1996 the Company had cash and cash equivalents
available of $2.6 million.
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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, excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization of real property
and after adjustments for Unconsolidated joint ventures. Adjustments
for Unconsolidated partnerships and joint ventures will be calculated to
reflect FFO on the same basis. Also, extraordinary items and significant
non-recurring events are excluded from the FFO calculation. FFO does
not represent cash flow from operations, as defined by generally
accepted accounting principles, and is not necessarily indicative of
cash available to fund all cash flow needs. The following reconciles
net income to the FFO.
Nine months ended Three months ended
Sept 30, Sept 30,
1996 1995 1996 1995
(amounts in thousands)
Net income $13,373 $7,225 $4,659 $2,821
Adjustments to reconcile
net income to FFO:
Loss on early extinguishment of debt - 1,299 - -
Loss (gain) on sale of assets 262 (139) - -
Minority interest 8,096 5,739 2,820 2,245
Depreciation and amortization on
wholly owned properties 23,799 18,750 8,148 6,478
Less amortization of loan costs and
financial instruments and
depreciation of
personal property (1,896) (2,804) (579) (934)
Pro rata share of joint venture
depreciation and amortization
of real estate 1,524 1,431 592 480
-------- -------- -------- ------
Total FFO $45,158 $31,501 $15,640 $11,090
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average number of shares outstanding,
assuming full conversion of OP Units 32,111 25,792 32,111 25,814
-------- -------- -------- --------
-------- -------- -------- --------
Included in minimum rents for the nine months ended September 30,
1996 were $1.3 million of rents attributable to the accounting practice
of "straight lining of rents." This compares to $0.9 million for the
same period in 1995.
Inflation
In the last three years, inflation has not had a significant impact
on the Company because of a relatively low inflation rate.
Substantially all the leases at the Centers have rent adjustments
periodically through the lease term. These rent increases are either in
fixed increments or based on increases in the Consumer Price Index. In
addition, many of the leases are for terms of less than ten years, which
enables the Company to replace existing leases with new leases at higher
base rents if the rents of the existing leases are below the then
existing market rate. Additionally, most of the leases require the
tenants to pay their pro rata share of operating expenses. This reduces
the Company's exposure to increases in costs and operating expenses
resulting from inflation.
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PART II
Other Information
Item 1 Legal Proceedings
None
Item 2 Changes in Securities
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
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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
Senior Vice President and
Chief Financial Officer
Date: November 14, 1996
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