<PAGE>
PROSPECTUS SUPPLEMENT
(To Prospectus dated December 29, 1995)
5,000,000 SHARES
[LOGO]
THE MACERICH COMPANY
COMMON STOCK
----------------
The Macerich Company (the "Company") is a self-administered and self-managed
real estate investment trust that acquires, owns, redevelops, manages and leases
regional and community shopping centers located throughout the United States.
The Company's portfolio currently consists of interests in 18 regional shopping
centers and three community shopping centers located in eleven states
aggregating approximately 15 million square feet of gross leasable area.
All the shares of common stock offered hereby (the "Shares") are being sold
by the Company (the "Offering"). The outstanding shares of the Company's common
stock (the "Common Stock") are, and the Shares will be, listed on the New York
Stock Exchange (the "NYSE") under the symbol "MAC." On October 30, 1996, the
reported last sale price of the outstanding shares of Common Stock on the NYSE
was $22 1/8 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THE ACCOMPANYING PROSPECTUS FOR
CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE SHARES.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
---------------------
Lehman Brothers Inc. (the "Underwriter") has agreed to purchase from the
Company the shares of Common Stock offered hereby for an aggregate price of
$106,250,000. The Company has granted to the Underwriter a 30-day option to
purchase up to 750,000 additional shares of Common Stock at a purchase price of
$21.25 per share, solely to cover over-allotments, if any. If such option is
exercised in full, the total proceeds to the Company will be $122,187,500,
before deducting expenses payable by the Company, estimated at approximately
$300,000.
The Shares may be offered by the Underwriter from time to time in one or
more transactions on the NYSE or otherwise, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices, or at
negotiated prices. See "Underwriting."
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
---------------------
The Shares are offered by the Underwriter subject to prior sale, to
withdrawal, cancellation or modification of the offer without notice, to
delivery and acceptance by the Underwriter and to certain further conditions. It
is expected that delivery of the Shares will be made at the offices of Lehman
Brothers Inc., New York, New York on or about November 5, 1996.
---------------------
LEHMAN BROTHERS
November 1, 1996
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS OR INCORPORATED HEREIN AND
THEREIN BY REFERENCE. UNLESS OTHERWISE INDICATED, THE INFORMATION CONTAINED IN
THIS PROSPECTUS SUPPLEMENT ASSUMES NO EXERCISE OF THE UNDERWRITER'S
OVERALLOTMENT OPTION. ALL REFERENCES TO THE COMPANY IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS INCLUDE THE COMPANY, THOSE ENTITIES
OWNED OR CONTROLLED BY THE COMPANY AND PREDECESSORS OF THE COMPANY, UNLESS THE
CONTEXT INDICATES OTHERWISE. "FUNDS FROM OPERATIONS" MEANS NET INCOME (LOSS)
(COMPUTED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES),
EXCLUDING GAINS (OR LOSSES) FROM DEBT RESTRUCTURING AND SALES OF PROPERTY, PLUS
DEPRECIATION AND AMORTIZATION FROM REAL PROPERTY AND DEFERRED LEASING COSTS ,
AND AFTER ADJUSTMENTS FOR UNCONSOLIDATED PARTNERSHIPS AND JOINT VENTURES. FUNDS
FROM OPERATIONS 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. FUNDS FROM OPERATIONS INCLUDES A PRO
RATA SHARE FOR UNCOMBINED JOINT VENTURES CALCULATED ON THE SAME BASIS.
THE COMPANY
The Macerich Company (the "Company") was formed in 1993 to continue the
business of The Macerich Group (the "Predecessor"), which since 1972 has focused
on the acquisition, ownership, redevelopment, management and leasing of regional
and community shopping centers located throughout the United States. On March
16, 1994 the Company sold 14,375,000 shares of Common Stock in its initial
public offering ("IPO"). The Company currently owns or has ownership interests
in 18 regional shopping centers and three community shopping centers located in
eleven states, containing approximately 15 million square feet of gross leasable
area ("GLA") (the 21 regional and community shopping centers described above are
referred to hereinafter as the "Centers").
Eighteen of the 21 Centers contain more than 400,000 square feet of GLA. The
18 regional shopping centers average 784,696 square feet of GLA and range in
size from 1,754,624 square feet of GLA at Lakewood Mall to 368,345 square feet
of GLA at Panorama Mall. The three community shopping centers, Villa Marina
Marketplace, Marshalls' Boulder Plaza and Bristol Shopping Center, have 458,485,
159,128 and 165,682 square feet of GLA, respectively. The 21 Centers presently
include 66 department or other large retail stores ("Anchors") that lease an
aggregate of approximately 8,715,327 square feet of GLA and approximately 1,846
Mall and Freestanding Stores (as defined herein) totaling approximately
6,255,000 square feet of GLA. Mall and Freestanding Store space at the Centers
was 91.7% leased as of June 30, 1996 and generated 1995 full year average sales
of $286 per square foot.
The Company was organized as a Maryland corporation in September 1993 to
continue and expand the business of The Macerich Group, which has been engaged
in the shopping center business since 1965. The Macerich Group consists of Mace
Siegel, Arthur M. Coppola, Dana K. Anderson and Edward C. Coppola (the
"Principals") and certain of their family members, relatives and business
associates. The Principals are directors and executive officers of the Company
and have a combined total of over 100 years of experience in the shopping center
business. Together with certain family members, the Principals will beneficially
own approximately 20% of the Company after the consummation of this Offering.
The Company operates through The Macerich Partnership L.P., a Delaware
limited partnership (the "Operating Partnership"). The Company has a majority
ownership interest in the Operating Partnership and, as the sole general
partner, has exclusive power to manage and conduct the business of the Operating
Partnership, subject to certain limited exceptions. The Company conducts all of
its operations through the Operating Partnership, two management companies,
Macerich Property
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Management Company and Macerich Management Company, both California corporations
(collectively, the "Management Companies"), and certain single purpose
subsidiaries jointly owned by the Company and the Operating Partnership.
The Company's primary objective is to enhance stockholder value by
increasing its Funds from Operations per share, primarily by (i) maximizing cash
flow from existing space through intensive management and leasing; (ii)
acquiring regional shopping centers that meet its investment criteria; (iii)
redeveloping, expanding and/or renovating existing Centers; and (iv) acquiring
certain strategically located community shopping centers.
RECENT DEVELOPMENTS
OPERATING PERFORMANCE. For the quarter ended June 30, 1996, Funds from
Operations per share increased 13.4% to $.47 per share compared with $.41 per
share for the second quarter of 1995, representing the second consecutive
quarter of double digit growth in Funds from Operations. For the first quarter
of 1996, Funds from Operations increased 19.0% from the comparable period of
1995. Increased rental income resulting from the replacement of expiring leases
with new leases containing higher minimum rents, the impact of completed
renovations and the acquisition of Queens Center ("Queens"), Capitola Mall
("Capitola"), Villa Marina Marketplace ("Villa Marina") and The Centre at
Salisbury ("Salisbury") generated these increases in Funds from Operations. The
Company paid a quarterly dividend of $0.42 per share on September 5, 1996.
ACQUISITIONS. Since August 1995 the Company has acquired five shopping
centers, Salisbury, Queens, Capitola, Villa Marina and Valley View Mall ("Valley
View") for an aggregate purchase price of approximately $408.4 million.
In August 1995, the Company purchased Salisbury, a regional shopping center
located in Salisbury, Maryland, containing 883,972 square feet of GLA. Mall and
Freestanding Store space at Salisbury was 87.7% leased as of June 30, 1996 and
generated 1995 full year sales of $267 per square foot. The aggregate purchase
price for Salisbury was $77.4 million, consisting of $55.0 million in cash, the
assumption of $21.0 million of mortgage indebtedness and the issuance of
Operating Partnership Units ("OP Units") valued at $1.4 million.
In December 1995 the Company purchased Queens for an aggregate purchase
price of $108.0 million, consisting of $42.0 million in cash and the assumption
of debt of $66.0 million. Queens is a 624,654 square foot regional mall in New
York. The 1995 sales per square foot for mall stores was $633 and the occupancy
level at June 30, 1996 was 94.0%. Also in December 1995, the Company acquired
Capitola. Capitola is a 577,396 square foot regional mall located in Santa Cruz
County, California. The 1995 mall store sales per square foot was $261 and the
occupancy level at June 30, 1996 was 91.8%. The aggregate purchase price
consisted of $.9 million in cash, the assumption of $38.3 million in mortgage
indebtedness, and the issuance of OP Units valued at $12.0 million and $5.0
million of consideration, which will be paid in December 2000 in the form of
cash or OP Units.
On January 25, 1996 the Company acquired Villa Marina, a 458,485 square foot
entertainment complex/community center in Marina del Rey, California. The
purchase price was $80.0 million which included assumption of debt in the amount
of $22.4 million and $57.6 million in cash. Villa Marina had 1995 sales per
square foot of $328 and was 96.5% occupied at June 30, 1996.
On October 21, 1996 the Company acquired Valley View, a 1,567,000 square
foot, four anchor super regional center located in Dallas, Texas. The purchase
price was $85.5 million. The 1995 full year sales per square foot were $226 and
occupancy at June 30, 1996 was 83.9%.
The Company believes that all five of these acquisitions are consistent with
the Company's strategy of purchasing dominant, established shopping centers that
have the potential to increase their cash flow from operations. All five
transactions were privately negotiated by the Company's
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<PAGE>
experienced acquisition team. In addition, the issuance of OP Units as a portion
of the purchase consideration was a key element of two of these transactions,
demonstrating the Company's financing flexibility.
REDEVELOPMENTS, EXPANSIONS AND RENOVATIONS. Redevelopment and expansion
projects in 1995 and 1996 occurred at Lakewood Mall, Green Tree Mall,
Chesterfield, Broadway Plaza, Parklane Mall and Northgate Mall. The Company
believes that these redevelopments, expansions and renovations will enhance the
competitive position of the six Centers in their respective trade areas.
- LAKEWOOD MALL -- LAKEWOOD, CALIFORNIA. The Company executed ground leases
at Lakewood Mall with Home Depot and American Stores. Home Depot built a
130,232 square foot store that opened in September 1995 and American
Stores built a 50,000 square foot Lucky's Supermarket that opened in
September 1996.
- GREEN TREE MALL -- CLARKSVILLE, INDIANA. At Green Tree Mall, an existing
building was expanded and renovated at Dillard's expense to accommodate a
new 144,864 square foot Dillard's Department Store that opened on March
22, 1995. The Company also completed the renovation of the mall interior
of this Center in 1995.
- CHESTERFIELD TOWNE CENTER -- RICHMOND, VIRGINIA. Since the acquisition of
Chesterfield in July 1994, the Company executed a ground lease with Sears
to become the fourth Anchor. Sears built a 146,000 square foot department
store which opened in the spring of 1996.
- BROADWAY PLAZA -- WALNUT CREEK, CALIFORNIA. A 190,000 square foot store,
formerly operated as an Emporium department store has been converted to a
Macy's. Nordstrom has recently completed a $20 million renovation of their
store.
- PARKLANE MALL -- RENO, NEVADA. Gottschalks Department Stores executed a
lease in September 1995 and opened a 130,000 square foot department store
in the second quarter of 1996.
- NORTHGATE MALL -- SAN RAFAEL, CALIFORNIA. A 245,000 square foot Emporium
department store was converted to a Macy's in the third quarter of 1996.
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The following table provides certain information concerning the Company's
acquisitions, redevelopments, expansions, and renovations since the IPO.
<TABLE>
<CAPTION>
ACTUAL QUARTER OF
COMPLETION PROPERTY/TENANTS LOCATION GLA
- ---------------------- -------------------------------------------- ------------------------------- -----------
<S> <C> <C> <C>
ACQUISITIONS
3rd Quarter, 1994 CHESTERFIELD TOWNE CENTER Richmond, Virginia 817,697
3rd Quarter, 1995 CENTRE AT SALISBURY Salisbury, Maryland 883,630
4th Quarter, 1995 CAPITOLA MALL Capitola, California 577,396
4th Quarter, 1995 QUEENS CENTER New York City, New York 624,654
1st Quarter, 1996 VILLA MARINA MARKETPLACE Marina Del Rey, California 458,485
4th Quarter, 1996 VALLEY VIEW MALL Dallas, Texas 1,567,285
REDEVELOPMENTS, EXPANSIONS AND RENOVATIONS
1st Quarter, 1995 GREEN TREE MALL -- Dillard's opens new and Clarksville, Indiana 144,864
expanded store
2nd Quarter, 1995 BROADWAY PLAZA -- Walnut Creek, California n/a
- I. Magnin converts to Macy's
- Emporium completes $13 million remodeling
program
- Nordstrom commences its $20 million
renovation
3rd Quarter, 1995 GREEN TREE MALL -- Mall interior renovation Clarksville, Indiana n/a
completed
3rd Quarter, 1995 LAKEWOOD MALL -- Home Depot opens new store Lakewood, California 130,232
at the former Bullocks location
2nd Quarter, 1996 PARKLANE MALL -- Gottschalks Department Reno, Nevada 130,000
Store opens
2nd Quarter, 1996 CHESTERFIELD TOWNE CENTER -- Sears opens new Richmond, Virginia 145,000
store
2nd Quarter, 1996 BROADWAY PLAZA -- Emporium converts to Walnut Creek, California 190,000
Macy's
3rd Quarter, 1996 LAKEWOOD MALL -- New Lucky's Supermarket Lakewood, California 50,000
opens at the former Bullocks location
3rd Quarter, 1996 NORTHGATE MALL -- Emporium converts to San Rafael, California 245,000
Macy's
</TABLE>
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RISK FACTORS
An investment in the Shares involves various risks. Prospective stockholders
should carefully consider the matters discussed in the accompanying Prospectus
under "Risk Factors."
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered (1)............ 5,000,000
Common Stock to be Outstanding After
the Offering (1)(2)................ 24,991,600
Use of Proceeds..................... To repay outstanding indebtedness incurred to
purchase Valley View, to repay other outstanding
indebtedness, and for general corporate purposes.
New York Stock Exchange Symbol...... "MAC"
<FN>
- ------------------------
(1) Assumes that the Underwriter's overallotment option is not exercised.
(2) Excludes (i) 2,000,000 shares of Common Stock reserved for issuance under
the Company's employee benefit and director plans, of which 1,266,333
options are outstanding and approximately 806,000 options are currently
exercisable, (ii) approximately 15,000 shares which have been issued under
the executive restricted stock plan and which have not vested and (iii)
12,128,000 shares of Common Stock that may be issued upon the redemption of
outstanding OP Units, which are redeemable for Common Stock or cash at the
election of the Company.
</TABLE>
SUMMARY SELECTED FINANCIAL DATA
The following sets forth certain summary selected financial data for the
Company on a historical and pro forma consolidated basis. The following data
should be read in conjunction with "Management's Discussion And Analysis of
Financial Condition and Results of Operations" and the historical financial
statements and the notes thereto and pro forma data included in the Company's
filings under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which are incorporated by reference in this Prospectus Supplement and the
accompanying Prospectus.
The pro forma data for the Company for the year ended December 31, 1994 has
been prepared as if the completion of the IPO and the transactions relating to
the reorganization of the Company and application of the net proceeds therefrom
and the consummation of the acquisition of Crossroads-Oklahoma had occurred on
January 1, 1994 and excludes transactions subsequent to the IPO, such as
acquisitions, refinancings and the Offering and use of proceeds therefrom as
described in this Prospectus Supplement.
The Centers not wholly owned by the Company (Panorama Mall, North Valley
Plaza, Broadway Plaza and West Acres Center, collectively, the "Joint Venture
Centers"), and the Management Companies are reflected in the summary selected
financial data under the equity method of accounting. Accordingly, the net
income from the Joint Venture Centers that is allocable to the Company and the
Predecessor is included on the statement of operations as "Equity in income of
uncombined joint ventures."
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<TABLE>
<CAPTION>
THE COMPANY
-------------------------------------------------------------
PRO FORMA
JANUARY 1 TO JANUARY 1 TO JANUARY 1 TO AS REPORTED
JUNE 30, 1996 JUNE 30, 1995 DECEMBER 31, 1995 FOR 1994
------------- ------------- ------------------ -----------
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA AND NUMBER
OF CENTERS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Minimum rents......................... $ 46,641 $ 32,460 $ 69,253 $ 59,640
Percentage rents...................... 3,089 2,270 4,814 4,906
Tenant recoveries..................... 22,582 12,191 26,961 22,690
Other................................. 758 244 1,441 921
------------- ------------- ---------- -----------
Total revenues...................... $ 73,070 $ 47,165 $ 102,469 $ 88,157
------------- ------------- ---------- -----------
Shopping center expenses (2)............ 23,796 14,601 31,580 28,373
General and administrative expenses
(3).................................... 1,396 1,198 2,011 1,954
Depreciation and amortization........... 15,650 12,273 25,749 23,195
Interest expense........................ 20,359 11,521 25,531 19,231
------------- ------------- ---------- -----------
Net income before minority interest and
extraordinary item..................... 11,869 7,572 17,598 15,404
Minority interest in net income of
Operating
Partnership............................ (5,277) (3,494) (8,246) (8,008)
Equity in income of uncombined joint
ventures and Management Companies
(1).................................... 2,121 1,624 3,250 3,054
Extraordinary loss on early
extinguishment of debt................. -- (1,297) (1,299) --
------------- ------------- ---------- -----------
Net income.............................. $ 8,713 $ 4,405 $ 11,303 $ 10,450
------------- ------------- ---------- -----------
------------- ------------- ---------- -----------
Net income per share.................... $ 0.44 $ 0.31 $ 0.73 $ 0.72
OTHER DATA:
Funds from Operations (4)............... $ 29,520 $ 20,412 $ 44,938 $ 39,343
Funds from Operations per share......... $ 0.92 $ 0.79 $ 1.67 $ 1.53
EBITDA (5).............................. $ 47,878 $ 31,366 $ 68,878 $ 57,830
Number of Centers (6)................... 20 16 19 16
<FN>
- ------------------------------
(1) Uncombined joint ventures include all Centers that the Company has an
ownership interest in but does not wholly own. The Management Companies on
a pro forma basis and after March 15, 1994 have been reflected on the
equity method.
(2) Shopping center expenses include ground rent expense.
(3) General and administrative expenses reflect expenses associated with the
operations of the Company.
(4) Funds from Operations represent net income (computed in accordance with
generally accepted accounting principles ("GAAP")), excluding gains (or
losses) from debt restructuring and sales of property, plus depreciation
and amortization from real property and deferred leasing costs, and after
adjustments for unconsolidated partnerships and joint ventures. Funds from
Operations 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. Funds from Operations includes a pro rata share for uncombined joint
ventures calculated on the same basis.
(5) EBITDA represents earnings before interest, income taxes, depreciation,
amortization, income in uncombined joint ventures and extraordinary items.
This data is relevant to an understanding of the economics of the shopping
center business as it indicates cash flow available from operations to
service debt and satisfy certain fixed obligations. EBITDA should not be
construed by the reader as an alternative to operating income as an
indicator of the Company's operating performance, or to cash flows from
operating activities (as determined in accordance with GAAP) or as a
measure of liquidity.
(6) Crossroads-Oklahoma was acquired concurrently with the IPO, Chesterfield
was acquired on July 21, 1994, Salisbury was acquired on August 15, 1995,
Queens and Capitola were acquired in December 1995, and Villa Marina was
acquired on January 25, 1996. Valley View was acquired in October 1996.
</TABLE>
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<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
There are incorporated herein by reference the following documents of the
Company filed with the Commission: (1) Annual Report on Form 10-K, as amended by
Form 10-K/A, for the fiscal year ended December 31, 1995; (2) Quarterly Reports
on Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996; (3)
Current Report on Form 8-K, as amended by Form 8-K/A, event date January 25,
1996, Current Report on Form 8-K, event date April 11, 1996, and Current Report
on Form 8K, as amended by Form 8K/A, event date October 21, 1996; (4) the
description of the Company's Common Stock contained in the Company's
registration statement filed under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and any amendments or reports filed for the purpose
of updating such description; and (5) all documents filed by the Company
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of this Prospectus Supplement and prior to the termination of the
offering of the Shares.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus Supplement to the extent that a statement
contained herein, or in any subsequently filed document which is incorporated by
reference herein modifies or supersedes such statements. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus Supplement.
The Company will provide without charge to each person, including any
beneficial holder, to whom a copy of this Prospectus Supplement is delivered,
upon the written or oral request of any such person, a copy of any or all the
foregoing documents incorporated by reference herein, including exhibits
specifically incorporated by reference in such documents but excluding all other
exhibits to such documents. Requests should be made to the Corporate Secretary
of the Company at 233 Wilshire Boulevard, No. 700, Santa Monica, California
90401, telephone number (310) 394-6911.
THE COMPANY
OVERVIEW
The Company is engaged in the acquisition, ownership, redevelopment,
management and leasing of regional and community shopping centers located
throughout the United States. The Company currently owns or has an ownership
interest in 18 regional shopping centers and three community shopping centers
with approximately 15 million square feet of GLA.
The Company was organized as a Maryland corporation in September 1993 to
continue and expand the business of The Macerich Group, which has been engaged
in the shopping center business since 1965. The Macerich Group consists of Mace
Siegel, Arthur M. Coppola, Dana K. Anderson and Edward C. Coppola and certain of
their family members, relatives and business associates. The Principals of the
Macerich Group are directors and executive officers of the Company and have a
combined total of over 100 years of experience in the shopping center business.
Together with certain family members, the Principals will beneficially own
approximately 20% of the Company after the consummation of this Offering.
The Company operates through the Operating Partnership, the Management
Companies and certain single purpose subsidiaries jointly owned by the Company
and the Operating Partnership. The Company owns a majority interest in the
Operating Partnership and, as sole general partner of the Operating Partnership,
has exclusive power to manage and conduct the business of the Operating
Partnership, subject to certain limited exceptions. The Management Companies
provide property management, leasing and other related services to the Centers.
The Operating Partnership owns 100% of the non-voting preferred stock (generally
entitled to dividends equal to 95% of cash flow) of each of the Management
Companies. All of the outstanding voting common stock of each of the Management
Companies is owned by the Principals.
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<PAGE>
The Company is a self-administered and self-managed real estate investment
trust ("REIT"). The Company's principal executive offices are located at 233
Wilshire Boulevard, No. 700, Santa Monica, California 90401 and the telephone
number is (310) 394-6911.
GROWTH STRATEGY
The Company's primary objective is to enhance stockholder value by
increasing its Funds from Operations per share, primarily through the following
methods:
MAXIMIZING CASH FLOW FROM EXISTING SPACE. One component of the Company's
strategy is to maximize current and long-term cash flow from existing space in
the Centers through its intensive management, leasing and redevelopment efforts.
In addition, the Company's strategy is to increase Funds from Operations by
increasing base rents to market levels as leases expire. The average initial
base rent for leases under 10,000 square feet commencing during 1995 at the
Centers was 9.2% higher than the average base rental rate of existing leases.
Another component of the Company's strategy is to increase its cash flow from
operations through the negotiation of fixed contractual increases in base rents
at the time of entering into a new lease and through continued intensive efforts
to lease currently available space in the Centers.
The Company also seeks to optimize tenant mix in order to increase the
long-term drawing power and tenant sales of the Centers. The primary goal of the
Company's leasing effort is to obtain the most productive tenants available in a
Center's trade area. The Company also employs an aggressive strategy to keep
operations at each of its properties as efficient as possible. Controlling
common area maintenance, taxes, insurance and other operating costs enables the
Company's tenants to pay more in base and percentage rent, which increases the
Company's available Funds from Operations. In addition, the Company continually
monitors each Center and considers opportunities for redevelopment to enable
each Center to maintain and increase its market share in its respective trade
area.
Mall and Freestanding Store GLA at the Centers was 91.3% occupied as of June
30, 1996 and achieved average 1995 full year sales of $286 per square foot,
which is 62% higher than the national average according to the 1995 edition of
DOLLARS AND CENTS OF SHOPPING CENTERS compiled by the Urban Land Institute.
ACQUISITIONS OF REGIONAL SHOPPING CENTERS. The Company also will continue
to pursue growth opportunities through the acquisition and potential
redevelopment of regional shopping centers. The Company believes that it is
unique among the largest publicly owned regional mall owners and operators in
the United States in that it controls a portfolio composed largely of regional
shopping centers assembled solely through acquisition rather than development.
The Company intends to continue its national acquisition and redevelopment
strategy and believes that such a strategy provides the most profitable
opportunity for growth in the regional shopping center industry, which has
experienced a significant reduction in the development of new shopping centers
because of numerous financial, physical and regulatory constraints.
The Company believes that it has a competitive advantage in acquiring and
redeveloping regional shopping centers because of its access to debt and equity
capital as a public company and its relationships with property owners and
national and regional retailers. The Company also has greater flexibility in
acquiring properties through its ability to pay for properties in cash, shares
of Common Stock or OP Units, thereby creating the opportunity for tax-advantaged
transactions for the sellers of such properties. Since the IPO, the Company has
acquired five regional shopping centers and one entertainment complex/community
center for an aggregate purchase price of approximately $492.9 million. The
Company believes that the purchase of Chesterfield, Salisbury, Queens, Capitola,
Villa Marina and Valley View are representative of the attractive opportunities
that exist for the acquisition of regional shopping centers, as well as the
Company's ability to execute its acquisition strategy. All of these transactions
were privately negotiated by the Company's experienced acquisition team.
S-9
<PAGE>
REDEVELOPMENTS, EXPANSIONS AND RENOVATIONS. The Company will continue to
redevelop shopping centers as part of a long-term strategic plan to maximize a
property's net cash flow and return on investment. The redevelopment of a
shopping center involves a strategic plan, often including major expansions and
renovations of existing shopping center space, designed to reposition the center
in its trade area. Sixteen of the Centers have been redeveloped since
acquisition. Such redevelopments have included additions of new Anchor tenants
and Mall and Freestanding Stores, enclosures of open air shopping centers,
relocations and reconfigurations of existing tenants, site plan reconfigurations
and renovations of interior common areas, building exteriors and shopping center
entrances. The Company evaluates each Center on an annual basis and considers
opportunities for redevelopments and other expansions and/or renovations to
maintain and improve each Center's cash flow, value and market position.
ACQUISITION OF STRATEGICALLY LOCATED COMMUNITY SHOPPING CENTERS. Although
the Company currently intends to focus its future acquisition activities on
regional shopping centers, it may seek to acquire certain strategically located
community shopping centers in markets where the Company has management, leasing
and marketing presence either through an existing property or a regional office.
The Company believes that there are competitive synergies and advantages in the
ownership and operation of community shopping centers in such markets. The three
community shopping centers in the Company's portfolio are examples of this
strategy. One of these community shopping centers, Marshalls' Boulder Plaza, is
located adjacent to Crossroads-Boulder, a regional shopping center owned by the
Company. Villa Marina, which the Company has managed since 1992, was acquired in
January 1996, and it and Bristol Shopping Center are located in southern
California, where the Company is headquartered and manages over 5.3 million
square feet of shopping center GLA.
RECENT DEVELOPMENTS
OPERATING PERFORMANCE
For the quarter ended June 30, 1996, Funds from Operations per share
increased 13.4% to $.47 per share, compared with $.41 per share for the second
quarter of 1995, representing the second consecutive quarter of double digit
growth in per share Funds from Operations compared to the same quarter in the
prior year. For the first quarter of 1996, Funds from Operations per share
increased 19.5% from the comparable period of 1995. These increases in Funds
from Operations resulted primarily from the impact of renovations completed
during the second half of 1995 and the acquisition of Salisbury, Queens,
Capitola, and Villa Marina.
ACQUISITIONS
Since August 1995, the Company has acquired four regional shopping centers
and a 458,000 square foot community center/entertainment complex (Villa Marina).
All five transactions were privately negotiated by the Company's experienced
acquisition team, and two acquisitions involved the issuance of OP Units as a
portion of the purchase consideration, demonstrating the Company's in-house
acquisition and financing expertise. The Company believes that these
acquisitions are consistent with the Company's strategy of purchasing dominant,
established shopping centers that have the potential to increase their cash flow
from operations. The opportunity exists to enhance the performance of each of
these Centers through economies of scale and intensive management, leasing and
redevelopment efforts.
CENTRE AT SALISBURY
On August 15, 1995, the Company acquired Salisbury, a regional shopping
center located in Salisbury, Maryland. Salisbury contains approximately 883,972
square feet of GLA and has approximately 278,991 square feet of Mall and
Freestanding Store GLA. The Center contains approximately 98 stores and produced
1995 full year Mall and Freestanding Store sales of $267 per square foot. As of
June 30, 1996, the Center's Mall and Freestanding Store GLA was 87.7% leased.
The aggregate purchase price for Salisbury was $77.4 million, consisting of $55
million in cash, the assumption of $21 million of mortgage indebtedness and the
issuance of OP Units valued at $1.4 million.
S-10
<PAGE>
CAPITOLA MALL
In December 1995, the Company acquired Capitola Mall, a 577,396 square foot
regional shopping center serving Santa Cruz County, California. Capitola
contains 197,679 square feet of Mall and Freestanding Store GLA and contains
approximately 95 stores. It produced 1995 full year Mall and Freestanding Store
sales of $261 per square foot. As of June 30, 1996, the Center's Mall and
Freestanding Store GLA was 91.8% leased. The aggregate purchase price for
Capitola Mall was $57.2 million, which included the assumption of $38.3 million
of mortgage indebtedness, the issuance of OP Units valued at approximately $13.0
million and cash of $900,000. Furthermore, an additional $5.0 million of
consideration will be paid in cash, OP Units or a combination thereof, five
years after the closing of this acquisition, representing a net present value of
approximately $3,403,000 assuming a discount rate of 8.0%.
QUEENS CENTER
In December, 1995 the Company purchased Queens Center for an aggregate
purchase price of $108.0 million, consisting of cash of $42.0 million and
assumption of debt of $66.0 million. Queens is a 624,654 square foot regional
mall located in New York. The 1995 sales per square foot for Mall and
Freestanding stores was $633 and the occupancy level at June 30, 1996 was 94.0%.
VILLA MARINA MARKETPLACE
On January 25, 1996, the Company acquired Villa Marina Marketplace, a
458,485 square foot entertainment/community center in Marina del Rey,
California. The purchase price was $80.0 million which included assumption of
debt of $22.4 million and $57.6 million in cash.
VALLEY VIEW MALL
On October 21, 1996 the Company purchased Valley View, a 1.6 million square
foot super regional mall anchored by Dillard's, J.C. Penney, Foley's and Sears.
The purchase price was $85.5 million in cash. The 1995 sales per square foot for
Mall and Freestanding stores was $226 and occupancy at June 30, 1996 was 83.9%.
REDEVELOPMENTS, EXPANSIONS AND RENOVATIONS
As part of the Company's growth strategy, the Company evaluates each Center
annually and considers opportunities for redevelopments and other expansions to
improve the performance of each Center. Redevelopments and expansion projects in
1995 and 1996 occurred at the following six Centers. The Company believes that
these redevelopments, expansions and renovations will enhance the competitive
position of each Center in their respective trade area.
LAKEWOOD MALL -- LAKEWOOD, CALIFORNIA. In September 1995, Home Depot opened
a 130,232 square foot store at Lakewood Mall on an out-parcel formerly occupied
by a Bullock's department store. American Stores built a 50,000 square foot
Lucky's Supermarket adjacent to Home Depot, that opened in September of 1996.
These expansions are generating an additional $1.0 million in annual rental
revenues for Lakewood Mall.
GREEN TREE MALL -- CLARKSVILLE, INDIANA. A new 144,864 square foot
Dillard's Department Store was opened at this Center on March 22, 1995,
representing one of two sites in the greater Louisville area where a Dillard's
store is located. The Company believes the addition of Dillard's will further
enhance Green Tree Mall's competitive position in this region. The Company also
completed the renovation of the mall interior at this Center, which included the
addition of new flooring, ceilings and decorative lighting.
CHESTERFIELD TOWNE CENTER -- RICHMOND, VIRGINIA. Following the acquisition
of Chesterfield, the Company executed a ground lease to add Sears as an Anchor
at this Center. Sears opened a 146,000 square foot store in the spring of 1996.
BROADWAY PLAZA -- WALNUT CREEK, CALIFORNIA. In June 1996, Federated
converted the former Emporium department store to a Macy's. Nordstrom has also
recently completed a $20.0 million renovation of its store at its own expense.
S-11
<PAGE>
PARKLANE MALL -- RENO, NEVADA. Gottschalks Department Stores executed a
lease in September 1995 and opened a 130,000 square foot department store in the
second quarter of 1996.
NORTHGATE MALL -- SAN RAFAEL, CALIFORNIA. A 254,000 square foot store,
formerly operated as an Emporium department store, has been converted to a
Macy's.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby are expected to be approximately $106.3 million (approximately $122.2
million if the Underwriter's overallotment option is exercised in full). The
Company intends to use the proceeds to pay down the indebtedness incurred to
purchase Valley View, including a $60.0 million first mortgage loan that was
provided by the Underwriter, the Company's line of credit and for general
corporate purposes, including acquisition and redevelopment activities. See
"Properties--Mortgage and Other Debt" for a description of the terms of the
first mortgage loan and the line of credit.
S-12
<PAGE>
PRICE RANGE OF COMMON STOCK AND DISTRIBUTION HISTORY
The Common Stock is listed on the New York Stock Exchange under the symbol
"MAC." The following table sets forth the high and low closing prices of the
Common Stock for the periods indicated and the dividends paid by the Company per
share during each such period. The amount of the dividend paid during a specific
quarter is based on the Company's operating results for the prior quarter.
<TABLE>
<CAPTION>
CLOSING PRICES PER SHARE
------------------------- DIVIDEND PAID
QUARTERLY PERIOD HIGH LOW PER SHARE
- ---------------------------------------- ----------- ----------- --------------
<S> <C> <C> <C>
1994:
First Quarter (from March 16 through
March 31) (1)........................ $ 20 1/2 $ 19 $ --
Second Quarter........................ $ 20 1/4 $ 18 1/8 $ 0.07
Third Quarter......................... $ 20 1/8 $ 18 3/4 $ 0.40
Fourth Quarter........................ $ 21 5/8 $ 19 1/4 $ 0.40
1995:
First Quarter......................... $ 21 1/2 $ 20 $ 0.40
Second Quarter........................ $ 20 1/2 $ 19 1/2 $ 0.42
Third Quarter......................... $ 21 7/8 $ 19 1/2 $ 0.42
Fourth Quarter........................ $ 21 1/4 $ 19 $ 0.42
1996:
First Quarter......................... $ 20 1/4 $ 19 1/4 $ 0.42
Second Quarter........................ $ 21 1/4 $ 19 $ 0.42
Third Quarter......................... $ 23 $ 19 7/8 $ 0.42
Fourth Quarter (through October 30)... $ 23 1/8 $ 22 1/8 (2)
</TABLE>
- ------------------------
(1) The Common Stock was not traded publicly prior to the first quarter of 1994.
(2) The dividend for this quarter has not been declared or paid as of October
30, 1996.
The last reported sale price of the Common Stock on the New York Stock
Exchange on October 30, 1996 was $22 1/8 per share. As of October 29, 1996,
there were 216 registered holders of Common Stock.
Beginning with its first full quarter of operations, the Company has paid
regular and uninterrupted dividends. The Company paid a quarterly dividend of
$0.42 per share on September 5, 1996. The payment of future dividends by the
Company will be at the discretion of the Board of Directors and will depend on
numerous factors, including actual cash flow of the Company, its financial
condition, capital requirements, the annual distribution requirements under the
REIT provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
and such other factors as the Board of Directors deems relevant.
S-13
<PAGE>
SELECTED FINANCIAL DATA
The following sets forth selected financial data for the Company on a
historical and pro forma consolidated basis and for the Predecessor on a
historical combined basis. The following data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical and pro forma financial statements and the notes
thereto included in the Company's filings under the Exchange Act, which are
incorporated by reference in this Prospectus Supplement and the accompanying
Prospectus.
The pro forma data for the Company for the year ended December 31, 1994 have
been prepared as if the completion of the IPO and the transactions relating to
the reorganization of the Company and application of the net proceeds therefrom
and the consummation of the acquisition of Crossroads-Oklahoma had occurred on
January 1, 1994 and exclude transactions subsequent to the IPO, such as
acquisitions, refinancings and the Offering and use of proceeds therefrom as
described in this Prospectus Supplement. The pro forma information is not
necessarily indicative of what the Company's financial position or results of
operations would have been assuming the completion of the described transactions
at the beginning of the period indicated, nor does it purport to project the
Company's financial position or what results of operations would have been
assuming the completion of such transactions at the beginning of the period
indicated, nor does it purport to project the Company's financial position or
results of operations at any future date or for any future period.
The Joint Venture Centers are reflected in the selected financial data under
the equity method of accounting. Accordingly, the net income from the Joint
Venture Centers that is allocable to the Company and the Predecessor is included
on the statement of operations as "Equity in income of uncombined joint
ventures."
S-14
<PAGE>
<TABLE>
<CAPTION>
THE COMPANY (1)
------------------------------------- PREDECESSOR (1)
PRO FORMA ------------------------------------------------
AS REPORTED MARCH 16 TO JANUARY 1 TO
1995 FOR 1994 DEC. 31, 1994 MARCH 15, 1994 1993 1992 1991
--------- ----------- ------------- --------------- --------- --------- ---------
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA AND NUMBER OF CENTERS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Minimum rents.......................... $ 69,253 $ 59,640 $ 48,663 $ 9,993 $ 49,219 $ 46,393 $ 44,462
Percentage rents....................... 4,814 4,906 3,681 851 3,550 3,868 4,204
Tenant recoveries...................... 26,961 22,690 18,515 3,108 16,320 15,991 14,740
Management fee income (2).............. -- -- -- 528 2,658 3,130 2,285
Other.................................. 1,441 921 820 100 766 1,876 2,317
--------- ----------- ------------- --------------- --------- --------- ---------
Total revenues....................... $ 102,469 $ 88,157 $ 71,679 $ 14,580 $ 72,513 $ 71,258 $ 68,008
--------- ----------- ------------- --------------- --------- --------- ---------
Shopping center expenses (3)............. 31,580 28,373 22,576 4,891 23,881 22,959 21,788
Management, leasing and development
services................................ -- -- -- 557 2,084 2,598 3,655
General and administrative expenses
(4)..................................... 2,011 1,954 1,545 -- -- -- --
Depreciation and amortization............ 25,749 23,195 18,827 3,642 16,385 14,090 13,376
Interest expense......................... 25,531 19,231 16,091 6,146 27,783 29,818 28,748
--------- ----------- ------------- --------------- --------- --------- ---------
Net income (loss) before minority
interest and extraordinary item......... 17,598 15,404 12,640 (656) 2,380 1,793 441
Minority interest in net income of
Operating Partnership................... (8,246) (8,008) (6,792)
Equity in income (loss) of uncombined
joint ventures and Management Companies
(2)..................................... 3,250 3,054 2,778 (232) (178) 306 256
Extraordinary loss on early
extinguishment of debt.................. (1,299) -- -- -- -- (1,000) --
--------- ----------- ------------- --------------- --------- --------- ---------
Net income (loss)........................ $ 11,303 $ 10,450 $ 8,626 $ (888) $ 2,202 $ 1,099 $ 697
--------- ----------- ------------- --------------- --------- --------- ---------
--------- ----------- ------------- --------------- --------- --------- ---------
Net income per share before extraordinary
loss.................................... $ 0.78 $ 0.72 $ 0.60
Net income per share..................... $ 0.73 $ 0.72 $ 0.60
OTHER DATA:
Funds from Operations (5)................ $ 44,938 $ 39,343 $ 35,311 $ 3,118 $ 20,359 $ 17,748 $ 15,555
Funds from Operations per share.......... $ 1.67 $ 1.53 $ 1.38
EBITDA (6)............................... $ 68,878 $ 57,830 $ 47,558 $ 9,132 $ 46,548 $ 45,701 $ 42,565
Number of Centers (7).................... 19 16 16 14 14 14 14
</TABLE>
<TABLE>
<CAPTION>
THE COMPANY (1) PREDECESSOR (1)
--------------------------- -------------------------------
DECEMBER 31,
------------------------------------------------------------
1995 1994 1993 1992 1991
--------- ---------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Investment in real estate (before accumulated depreciation).... $ 833,998 $ 554,787 $ 375,972 $ 311,750 $ 304,841
Total assets................................................... $ 763,398 $ 485,903 $ 314,591 $ 281,668 $ 278,282
Total debt..................................................... $ 509,313 $ 326,588 $ 402,885 $ 359,695 $ 340,344
Minority interest in Operating Partnership..................... $ 95,740 $ 72,376 $ (88,294) $ (78,027) $ (62,062)
Stockholders' equity........................................... $ 158,345 $ 86,939 -- -- --
</TABLE>
(FOOTNOTES APPEAR ON THE FOLLOWING PAGES)
S-15
<PAGE>
<TABLE>
<CAPTION>
THE COMPANY (1)
----------------------------
JANUARY 1 TO JANUARY 1 TO
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
(ALL AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA AND
NUMBER OF CENTERS)
<S> <C> <C>
OPERATING DATA:
Revenues:
Minimum rents................................................................................. $ 46,641 $ 32,460
Percentage rents.............................................................................. 3,089 2,270
Tenant recoveries............................................................................. 22,582 12,191
Other......................................................................................... 758 244
------------- -------------
Total revenues.............................................................................. $ 73,070 $ 47,165
------------- -------------
Shopping center expenses (3).................................................................... 23,796 14,601
General and administrative expenses (4)......................................................... 1,396 1,198
Depreciation and amortization................................................................... 15,650 12,273
Interest expense................................................................................ 20,359 11,521
------------- -------------
Net income before minority interest and extraordinary item...................................... 11,869 7,572
Minority interest in net income of Operating Partnership........................................ (5,277) (3,494)
Equity in income of uncombined joint ventures and Management Companies (2)...................... 2,121 1,624
Extraordinary loss on early extinguishment of debt.............................................. -- (1,297)
------------- -------------
Net income...................................................................................... $ 8,713 $ 4,405
------------- -------------
------------- -------------
Net income per share............................................................................ $ 0.44 $ 0.31
OTHER DATA:
Funds from Operations (5)....................................................................... $ 29,520 $ 20,412
Funds from Operations per share................................................................. $ 0.92 $ 0.79
EBITDA (6)...................................................................................... $ 47,878 $ 31,366
Number of Centers (7)........................................................................... 20 16
<CAPTION>
THE COMPANY (1)
----------------------------
JUNE 30,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Investment in real estate (before accumulated depreciation)..................................... $ 929,260 $ 561,982
Total assets.................................................................................... $ 838,984 $ 478,159
Total debt...................................................................................... $ 597,052 $ 332,084
Minority interest in Operating Partnership...................................................... $ 91,667 $ 66,518
Stockholders' equity............................................................................ $ 150,265 $ 79,557
</TABLE>
- ------------------------------
(1) The Predecessor represents entities owned by or affiliated with The Macerich
Group that were reorganized to combine The Macerich Group's interests in
certain retail investment properties and property management, leasing and
redevelopment businesses. The reorganization entailed an initial public
offering of Common Stock of the Company, the proceeds of which were invested
in the Operating Partnership. The Company commenced operations effective
with the completion of the IPO on March 16, 1994. The Company holds
ownership interests in the entities reflected herein as Predecessor for
periods prior to March 16, 1994. These interests in the Predecessor were
obtained in exchange for cash, OP Units and Common Stock. The property
management, leasing and redevelopment of the Company's portfolio is provided
by the Management Companies.
(2) Uncombined joint ventures include all Centers that the Company has an
ownership interest in but does not wholly own. The Management Companies on a
pro forma basis and after March 15, 1994 have been reflected on the equity
method.
(3) Shopping center expenses include ground rent expense.
(4) General and administrative expenses reflect expenses associated with the
operations of the Company.
(5) Funds from Operations represent net income computed in accordance with GAAP,
excluding gains (or losses) from debt restructuring and sales of property,
plus depreciation and amortization on real property and deferred leasing
costs, and after adjustments for unconsolidated partnerships and joint
ventures. Funds from Operations 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. Funds from Operations includes a pro rata share
for uncombined joint ventures calculated on the same basis.
S-16
<PAGE>
(6) EBITDA represents earnings before interest, income taxes, depreciation,
amortization, income in uncombined joint ventures and extraordinary items.
This data is relevant to an understanding of the economics of the shopping
center business as it indicates cash flow available from operations to
service debt and satisfy certain fixed obligations. EBITDA should not be
construed by the reader as an alternative to operating income as an
indicator of the Company's operating performance, or to cash flows from
operating activities (as determined in accordance with GAAP) or as a measure
of liquidity.
(7) Crossroads-Oklahoma was acquired concurrently with the IPO, Chesterfield was
acquired on July 21, 1994 and Salisbury was acquired on August 15, 1995.
Capitola and Queens were acquired in December 1995, Villa Marina on January
25, 1996 and Valley View on October 21, 1996.
S-17
<PAGE>
PROPERTIES
The Centers consist of 18 regional shopping centers and three community
shopping centers aggregating approximately 15 million square feet of GLA.
Fourteen of the Centers were acquired by the Macerich Group since 1975, while
seven of the Centers were acquired by the Company since or concurrent with the
IPO. All of the Company's regional shopping centers are enclosed with the
exception of Broadway Plaza, an open air regional shopping center located in
Walnut Creek, California. Fifteen of the 18 regional shopping centers combine
three or more Anchors with numerous diversified retail stores ("Mall Stores"),
most of which are national or regional retailers, typically located along
corridors connecting the Anchors. In addition, at most of the Centers additional
freestanding retail stores are located along the perimeter of and/or in the
parking areas of the Centers ("Freestanding Stores"). Eighteen of the 21 Centers
contain more than 400,000 square feet of GLA. The 18 regional shopping centers
average 784,696 square feet of GLA and range in size from 1,754,624 square feet
of GLA at Lakewood Mall to 368,345 square feet of GLA at Panorama Mall. The
Company's three community shopping centers, Marshalls' Boulder Plaza, Villa
Marina and Bristol Shopping Center, have 159,128, 458,485 and 165,682 square
feet of GLA, respectively. The 21 Centers presently include 66 Anchors which
lease an aggregate of approximately 8,715,327 square feet of GLA and
approximately 1,846 Mall and Freestanding Stores which lease an aggregate of
approximately 6,255,000 square feet of GLA. As of June 30, 1996, Mall and
Freestanding Store space at the Centers was 91.7% leased, and generated average
1995 full year sales of $286 per square foot.
Total revenues from the Centers increased to $102.4 million in 1995 from
$84.8 million in 1994 and from $69.3 million in 1993 primarily as a result of
the acquisitions of additional Centers. Lakewood Mall generated 22.0% of
shopping center revenues in 1995, 25.6% in 1994 and 28.7% in 1993.
Crossroads-Boulder accounted for shopping center revenues of 10.6% for 1995,
12.1% for 1994 and 13.7% for 1993. Northgate Mall accounted 10.8% of 1993
shopping center revenues. No other Center generated more than 10% of shopping
center revenues during 1995, 1994 or 1993. Unless otherwise indicated, the
financial information regarding the Centers presented in this "Properties"
section excludes any Center not acquired during the period presented or
discussed.
S-18
<PAGE>
The following table sets forth certain information about each of the Centers
as of December 31, 1995 unless otherwise noted herein.
<TABLE>
<CAPTION>
YEAR OF YEAR OF PERCENTAGE THE
ORIGINAL MOST RECENT MALL AND OF MALL AND SALES PER COMPANY'S
NAME OF CONSTRUCTION/ EXPANSION/ TOTAL FREESTANDING FREESTANDING SQUARE OWNERSHIP
CENTER/LOCATION (1) ACQUISITION RENOVATION GLA (2) GLA GLA LEASED ANCHORS FOOT (3) %
- ---------------------- ------------- ----------- ---------- ------------ ------------ -------------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Broadway Plaza (4) 1951/1985 1994 679,327 233,830 99.2% Macy's(9), 385 50.0%
Walnut Creek, Nordstrom's, Macy's
California for Men
Capitola Mall (4) 1977/1995 1988 577,396 197,679 93.3% Gottschalks, J.C. 261 100.0%
Capitola, California Penney, Mervyn's,
Sears
Centre at Salisbury 1990/1995 1990 883,630 278,649 91.5% Boscovs, J.C. 267 100.0%
Salisbury, Maryland Penney, Hechts,
Sears, Montgomery
Ward
Chesterfield Towne 1975/1994 1988 817,697 396,504 95.1% Hechts, Leggetts, 276 100.0%
Center Proffitts, Sears
Richmond, Virginia (5)
County East Mall 1966/1986 1989 488,832 170,272 74.0% Gottschalks, J.C. 206 100.0%
Antioch, California Penney, Mervyn's,
Sears
Crossroads Mall (4) 1963/1979 1986 809,057 365,620 87.4% Foley's, J.C. 262 100.0%
Boulder, Colorado Penney, Mervyn's,
Sears, Montgomery
Ward
Crossroads Mall 1974/1994 1991 1,108,710 372,686 84.5% Dillard's, Foley's, 199 100.0%
Oklahoma City, J.C. Penney,
Oklahoma Montgomery Ward
Greeley Mall 1973/1986 1987 582,510 239,148 89.7% Fashion Bar, J.C. 180 100.0%
Greeley, Colorado Penney, Joslins,
Sears, Montgomery
Ward
Green Tree Mall 1968/1975 1995 787,965 337,183 84.4% J.C. Penney, 277 100.0%
Clarksville, Indiana Dillard's, Sears,
Target
Holiday Village Center 1959/1979 1992 606,908 279,389 93.5% Herbergers, J.C. 257 100.0%
(4) Penney, Montgomery
Great Falls, Montana Ward, Sears
Lakewood Mall 1953/1975 1996 1,754,624 810,975 98.2% Home Depot, J.C. 310 100.0%
Lakewood, California Penney,
Robinson-May,
Mervyn's,
Montgomery Ward
Northgate Mall 1964/1986 1987 744,050 273,719 89.0% Mervyn's, Sears, 242 100.0%
San Rafael, Macy's (9)
California
North Valley Plaza 1968/1987 1994 413,799 187,365 67.1% Mervyn's, Montgomery 143 50.0%
Chico, California Ward
Queens Center 1973/1995 1991 624,654 156,511 100.0% J.C. Penney, Macy's 633 100.0%
Queens, New York
Panorama Mall 1955/1979 1980 368,345 158,345 100.0% (7) 242 50.0%
Panorama, California
Parklane Center (4) 1967/1978 1987 464,232 192,232 94.7% Gottschalks (6) 255 100.0%
Reno, Nevada
West Acres Center 1972/1986 1992 907,757 355,202 99.3% Daytons, J.C. 307 19.0%
Fargo, North Dakota Penney, O.J.
DeLendrecies, Sears
Bristol Shopping 1966/1986 1992 165,682 165,682 98.8% 333 100.0%
Center (4)
Santa Ana, California
Marshalls' Boulder 1969/1989 1991 159,128 159,128 98.9% 298 100.0%
Plaza
Boulder, Colorado
---------- ------------ ------------ ---------
TOTAL/AVERAGE for Centers owned at December 31,
1995 12,944,323 5,330,119 92.0% $284
Centers Acquired in 1996:
Villa Marina 1972/1996 1995 458,485 458,485 94.0% $328 100.0%
Marketplace (8)
Marina del Rey,
California
Valley View Mall 1973/1996 1993 1,567,285 466,162 85.1% Dillard's, Foley's, $226 100.0%
Dallas, Texas J.C. Penney, Sears
---------- ------------ ------------ ---------
TOTAL/AVERAGE -- ALL CENTERS 14,970,093 6,254,766 91.7% $286
---------- ------------ ------------ ---------
---------- ------------ ------------ ---------
</TABLE>
S-19
<PAGE>
- ------------------------------
(1) The land underlying seventeen of the Centers is owned entirely by the
Company or, in the case of jointly-owned Centers, the property partnership
in fee. All or part of the land underlying the remaining Centers is owned by
third parties and leased to the Company or property partnership pursuant to
long-term ground leases. Under the terms of a typical ground lease, the
Company or property partnership pays rent for the use of the land and is
generally responsible for all costs and expenses associated with the
building and improvements. In some cases, the Company or property
partnership has an option or right of first refusal to purchase the land.
The termination dates of the ground leases range from 2014 to 2080.
(2) Includes GLA attributable to Anchors (whether owned or leased) and Mall and
Freestanding Stores as of December 31, 1995.
(3) Sales are based on reports by retailers leasing Mall and Freestanding Stores
for the year ending December 31, 1995 for tenants which have occupied such
stores for a minimum of twelve months. Consistent with industry practices,
sales per square foot are based on gross leased and occupied area, excluding
theaters, and are not based on GLA.
(4) Portions of the land on which the Center is situated are subject to one or
more ground leases.
(5) Sears has entered into a ground lease with the Company for building a
department store at Chesterfield Towne Center which opened in April, 1996.
(6) At Parklane Mall, Gottschalks opened a 130,000 square foot department store
on March 25, 1996. Also at Parklane Mall, Federated has closed the
Weinstocks store and the Company acquired their leasehold interest and is
currently negotiating with replacement tenants.
(7) Federated Department Stores, Inc. merged with Broadway Stores, Inc. in
November, 1995. Federated owns the Broadway Store at Panorama, but has
ceased operations. They are currently negotiating to sell their building.
(8) Villa Marina was originally built in 1972. Approximately 202,510 square feet
were developed in 1990.
(9) Federated Department Stores, Inc. converted the Emporium Store to a Macy's
in March 1996.
S-20
<PAGE>
MORTGAGE AND OTHER DEBT
The following table sets forth certain information regarding the mortgages
encumbering the Centers, including the Joint Venture Centers. All mortgage
indebtedness is nonrecourse to the Company. The information set forth below is
as of June 30, 1996, except as otherwise indicated.
<TABLE>
<CAPTION>
CARRYING AMOUNT OF
NOTES (IN 000'S)
----------------------
1996
---------------------- PAYMENT
RELATED INTEREST TERMS (IN MATURITY
PROPERTY PLEDGED AS COLLATERAL OTHER PARTY RATE 000'S) DATE
- --------------------------------------------- --------- --------- --------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Capitola Mall................................ -- $ 38,116 9.25% 316(f) 2001
Chesterfield................................. $ 3,484 -- 8.54% 31(j) 1999
Chesterfield Towne Center.................... 59,285 -- 8.75% 475(h) 2024
Chesterfield Towne Center.................... 5,326 -- 9.38% 43(h) 2024
Chesterfield Towne Center.................... 1,930 -- 8.88% 16(h) 2024
Crossroads Mall (a).......................... -- 36,267 7.08% 244(f) 2010
Greeley Mall................................. 18,841 -- 8.50% (i) 2003
Holiday Village Mall......................... 34 -- 5.50% 7(f) 1996
Holiday Village Mall......................... -- 17,000 6.75% interest only 2001
Lakewood Mall (c)............................ 127,000 -- 7.20% interest only 2005
Northgate Mall............................... -- 25,000 6.75% interest only 2001
Parklane Mall................................ -- 20,000 6.75% interest only 2001
Queens Center................................ 54,900 -- (d) (d) 1999
Queens Center................................ 10,200 -- (e) (e) 1999
Salisbury/Crossroads -- OK/Greentree (b)..... 117,700 -- 7.22% interest only(b) 2004
Valley View Mall (l)......................... 60,000 -- (l) interest only 2006
Villa Marina Marketplace..................... 22,088 -- 6.35% 173 1997
--------- ---------
Sub-Total.................................... 480,788 136,383
Less interest rate arrangements (g).......... 301 --
--------- ---------
Total........................................ $ 480,487 $ 136,383
--------- ---------
--------- ---------
Bank notes payable (k)....................... $ 38,500 -- 8.25% (k) 1997
--------- ---------
--------- ---------
Weighted average interest rate at June 30,
1996........................................ 7.42%
</TABLE>
- ------------------------------
(All numbers below are in thousands, unless otherwise indicated).
(a) There is a discount on this note which is being amortized over the life of
the loan using the effective interest method. At June 30, 1996 and December
31, 1995 the unamortized discount was $480 and $496, respectively.
(b) On April 16, 1996 this loan replaced the previous loans on Salisbury,
Greentree and Crossroads-Oklahoma. The loan is secured by all three
properties. The initial loan amount was increased to $103,300. The average
interest rate on $103,300 is 7.11% and the maturity is March, 2004. An
additional $14,400 was issued on October 19, 1996 at an interest rate of
8.0% with the same maturity date.
(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 June 30, 1996.
(d) This loan bears interest at LIBOR plus .90%. LIBOR was 5.56% at June 30,
1996. Principal payments of $1,800 are due in 1996, $1,600 in 1997 and
$1,400 in 1998. There is an interest rate ceiling on this debt of 7.25% for
1996, 7.875% for 1997 and 8.5% from January 1, 1998 to June 30, 1999. The
estimated value of this interest rate cap was $420 at June 30, 1996.
(e) This loan bears interest at LIBOR plus 2.22%. Interest only is payable
monthly. There is an interest rate cap that provides for an interest rate
ceiling of 8% through March, 1999. This interest rate cap had an estimated
market value of $840 at June 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 $300 at June 30,
1996.
(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 $153 at June 30,
1996.
(i) Interest was only 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.
S-21
<PAGE>
(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 is LIBOR
plus 1.75% or the prime rate. The balance reflected above is as of October
30, 1996. The Company plans on repaying this debt with the proceeds from the
Offering.
(l) This debt was incurred on October 21, 1996. The interest rate on this debt
is LIBOR +1.50%. The Company intends to pay off this debt with proceeds from
the Offering. The Company has the right, subject to certain restrictions, to
borrow up to $60,000 after the debt has been repaid.
Certain mortgage loan agreements contain a prepayment penalty provision for
the early extinguishment of the debt.
The market value of notes payable at June 30, 1996 is estimated to be
approximately $573,000, based on current interest rates for comparable loans.
The Company also has a $60 million unsecured working capital line of credit
with a financial institution which bears interest at approximately LIBOR plus
1.75% or the institution's prime rate. As of October 30, 1996, the Company had
borrowed $38.5 million under this credit facility and plans to retire this
outstanding indebtedness with the proceeds from this Offering.
On a pro forma basis as of June 30, 1996, after giving effect to the
purchase of Valley View, the debt incurred to acquire Valley View and the
Offering and the application of the net proceeds of the Offering as described in
"Use of Proceeds," the consolidated total indebtedness of the Company (including
its pro rata share of joint venture debt) would be $557.2 million. This equates
to a pro forma debt to Total Market Capitalization rate of 41% based on a share
price of $22. Total Market Capitalization means the sum of (i) the aggregate
market value of the outstanding equity shares, assuming full redemption of OP
Units for shares of Common Stock, plus (ii) the total debt of the Operating
Partnership including a pro rata share of the debt of the Joint Venture Centers.
As of June 30, 1996, the Company's debt to Total Market Capitalization rate was
46.7%. After giving effect to the Offering and the anticipated use of the net
proceeds therefrom, $65.2 million or 12% of the Company's outstanding
indebtedness will represent floating rate indebtedness. The weighted average
term to maturity of such outstanding mortgage indebtedness will be 8.9 years and
the earliest maturity date will be January 29, 1997. See "Use of Proceeds."
S-22
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement
between Lehman Brothers Inc. (the "Underwriter") and the Company (the
"Underwriting Agreement"), the Underwriter has agreed to purchase from the
Company, and the Company has agreed to sell to the Underwriter, 5,000,000 shares
of Common Stock.
The Underwriting Agreement provides that the Underwriter's obligation to
purchase the shares of Common Stock is subject to the satisfaction of certain
conditions, including the receipt of certain legal opinions. The nature of the
Underwriter's obligation is such that it is committed to purchase all of the
shares of Common Stock if any are purchased.
The Underwriter has advised the Company that it proposes to offer the shares
of Common Stock offered hereby for sale, from time to time, to purchasers
directly or through agents, or through brokers in brokerage transactions on the
NYSE, or to underwriters or dealers in negotiated transactions or in a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
Brokers, dealers, agents and underwriters that participate in the
distribution of the shares of Common Stock offered hereby may be deemed to be
underwriters under the Securities Act of 1933. Those who act as underwriter,
broker, dealer or agent in connection with the sale of the shares of Common
Stock offered hereby will be selected by the Underwriter and may have other
business relationships with the Company and its subsidiaries or affiliates in
the ordinary course of business.
The Company has granted to the Underwriter an option to purchase up to an
additional 750,000 shares of Common Stock at a purchase price of $21.25 per
share, solely to cover over-allotments, if any. Such option may be exercised at
any time until 30 days after the date of this Prospectus Supplement.
The Company has agreed that it will not, without the Underwriter's prior
written consent, offer for sale, sell or otherwise dispose of, directly or
indirectly, any shares of Common Stock (other than shares issuable pursuant to
the Company's employee benefit and director plans or to redeem OP Units) or any
securities convertible or exchangeable into Common Stock or sell or grant
options, rights or warrants with respect to any shares of Common Stock (other
than the grant of options to purchase up to an aggregate of 2,000,000 shares of
Common Stock pursuant to the Company's employee benefit and director plans or
additional OP Units in connection with the acquisition of properties), for a
period of 90 days after the date of this Prospectus Supplement.
The Underwriter provided a $60.0 million first mortgage loan secured by
Valley View in connection with the property's acquisition.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribute to payments that the Underwriter may be required to make in
respect thereof.
The Common Stock is listed on the New York Stock Exchange under the trading
symbol "MAC."
LEGAL MATTERS
The validity of the Shares will be passed upon for the Company by O'Melveny
& Myers LLP and certain legal matters will be passed upon for the Underwriter by
Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York. O'Melveny & Myers
LLP and Skadden, Arps, Slate, Meagher & Flom LLP will rely as to certain matters
of Maryland law on the opinion of Ballard Spahr Andrews & Ingersoll.
S-23
<PAGE>
EXPERTS
The financial statements and financial statement schedule included in the
Company's Annual Report on Form 10-K incorporated by reference in this
Prospectus Supplement, to the extent and for the periods indicated in their
report, have been audited by Coopers & Lybrand L.L.P., independent accountants,
and included herein in reliance upon the authority of those experts in giving
their report.
S-24
<PAGE>
PROSPECTUS
$250,000,000
MACERICH COMPANY
SECURITIES
The Macerich Company (the "Company") may offer from time to time, in one or
more series, shares of its Common Stock, $.01 par value (the "Common Stock"),
warrants to purchase Common Stock (the "Securities Warrants") and rights to
purchase Common Stock (the "Rights"). The Common Stock, the Securities Warrants
and the Rights are collectively referred to herein as the "Securities."
Securities will have a maximum aggregate offering price of $250,000,000 and will
be offered on terms to be determined at the time of the offering.
In the case of Common Stock, the specific number of shares and issuance
price per share will be set forth in the accompanying Prospectus Supplement. In
the case of Securities Warrants, the duration, offering price, exercise price
and detachability, if applicable, will be set forth in the accompanying
Prospectus Supplement. In the case of the Rights, the duration, exercise price
and transferability, if applicable, will be set forth in the accompanying
Prospectus Supplement. In addition, such specific terms of the Securities may
include limitations on direct or beneficial ownership and restrictions on
transfer of the Securities, in each case as may be appropriate to preserve the
status of the Company as a real estate investment trust ("REIT") for federal
income tax purposes. The Prospectus Supplement will also disclose whether the
Securities will be listed on a national securities exchange and if they are not
to be listed, the possible effects thereof on their marketability.
Securities may be sold directly, through agents from time to time or through
underwriters and/or dealers. If any agent of the Company or any underwriter is
involved in the sale of the Securities, the name of such agent or underwriter
and any applicable commission or discount will be set forth in the accompanying
Prospectus Supplement. No Securities may be sold without delivery of the
applicable Prospectus Supplement describing the method and terms of the offering
of such Securities. See "Plan of Distribution." The applicable Prospectus
Supplement will also contain information, when applicable, about certain United
State federal income tax considerations relating to the Securities covered by
such Prospectus Supplement.
SEE "RISK FACTORS" AT PAGE 3 OF THIS PROSPECTUS FOR CERTAIN FACTORS RELATING
TO AN INVESTMENT IN THE SECURITIES.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
December 29, 1995
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy and information statements and other information filed by the Company can
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and should be
available for inspection and copying at the regional offices of the Commission
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Reports, proxy and information
statements and other information concerning the Company may also be inspected at
the offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
This Prospectus does not contain all the information set forth in the
Registration Statement and exhibits thereto which the Company has filed with the
Commission under the Securities Act of 1933, as amended, and reference is hereby
made to such Registration Statement, including the exhibits thereto.
------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
There are incorporated herein by reference the following documents of the
Company filed with the Commission: (1) Annual Report on Form 10-K for the fiscal
year ended December 31, 1994; (2) Quarterly Report on Form 10-Q for the quarters
ended March 31, 1995, June 30, 1995, as amended and September 30, 1995; (3)
Current Report on Form 8-K, event date May 30, 1995, July 28, 1995, August 15,
1995, October 13, 1995 and December 28, 1995; (4) the description of the
Company's Common Stock contained in the Company's registration statement filed
under the Exchange Act and any amendments or reports filed for the purpose of
updating such description; and (5) all documents filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Prospectus and prior to the termination of the offering of the
Securities.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein,
in a Prospectus Supplement or in any subsequently filed document which is
incorporated by reference herein modifies or supersedes such statements. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial holder, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any or all the foregoing
documents incorporated by reference herein, including exhibits specifically
incorporated by reference in such documents but excluding all other exhibits to
such documents. Requests should be made to the Corporate Secretary of the
Company at 233 Wilshire Boulevard, No. 700, Santa Monica, California 90401,
telephone number (310) 394-6911.
AS USED HEREIN, THE TERM "COMPANY" INCLUDES THE MACERICH PARTNERSHIP, L.P.,
A DELAWARE LIMITED PARTNERSHIP, MACERICH PROPERTY MANAGEMENT COMPANY, A
CALIFORNIA CORPORATION, AND MACERICH MANAGEMENT COMPANY, A CALIFORNIA
CORPORATION, UNLESS THE CONTEXT OTHERWISE REQUIRES.
2
<PAGE>
THE COMPANY
The Macerich 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 17 regional shopping
centers and 2 community shopping centers aggregating approximately 12.9 million
square feet of gross leaseable area. The 19 regional and community shopping
centers described above and any newly acquired shopping centers will be 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 two management companies, Macerich Property Management
Company, a California corporation, and Macerich Management Company, a California
corporation, (collectively, the "Management Companies"). The Management
Companies provide property management, leasing and other related services to the
Company's properties. The Operating Partnership owns 100% of the outstanding
non-voting preferred stock of each of the Management Companies. All of the
outstanding voting common stock of each of the Management Companies is owned by
certain executive officers and directors of the Company consisting of: Mace
Siegel, Arthur M. Coppola, Dana K. Anderson and Edward C. Coppola (the
"Principals").
The Company was organized as a Maryland corporation in September 1993 and
was formed to continue and expand the shopping center operations of the
Principals and certain of their family members, relatives and business
associates. The Company's principal executive offices are located at 233
Wilshire Boulevard, No. 700, Santa Monica, California 90401 and its telephone
number is (310) 394-6911.
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below before purchasing any Securities offered hereby. Any
additional risk factors regarding an investment in the Securities will be set
forth in the applicable Prospectus Supplement. See also "Description of
Securities Warrants -- Certain Risk Considerations."
RISKS OF REAL ESTATE INVESTMENTS
GENERAL FACTORS AFFECTING INVESTMENTS IN SHOPPING CENTERS;
COMPETITION. Real property investments are subject to varying degrees of risk
that may affect the ability of the Centers to generate sufficient revenues to
meet operating and other expenses, including debt service, lease payments,
capital expenditures and tenant improvements, and to make distributions to its
stockholders. Income from shopping center properties may be adversely affected
by a number of factors, including: the national economic climate; the regional
economic climate (which may be adversely impacted by plant closings, industry
slowdowns and other factors); local real estate conditions (such as an
oversupply of or a reduction in demand for retail space); perceptions by
retailers or shoppers of the safety, convenience and attractiveness of the
shopping center; and increased costs of maintenance, insurance and operations
(including real estate taxes). In addition, investments in shopping centers and
other real estate are relatively illiquid. If the Centers were liquidated in the
current real estate market, the proceeds to the Company might be less than the
Company's total investment in the Centers. There are numerous shopping
facilities that compete with the Centers in attracting tenants to lease space,
and an increasing number of new retail formats other than retail shopping
centers that compete with the Centers for retail sales. Increased competition
could adversely affect the Company's revenues. Income from shopping center
properties and shopping center values are also affected by such factors as
applicable laws and regulations, including tax and zoning laws, interest rate
levels and the availability of financing.
3
<PAGE>
DEPENDENCE ON TENANTS. The Company's revenues and funds available for
distribution would be adversely affected if a significant number of the
Company's lessees were unable to meet their obligations, if the Company were
unable to lease a significant amount of space in the Centers on economically
favorable terms, or if for any other reason, the Company were unable to collect
a significant amount of rental payments. A decision by a department store or
other large retail store tenant (an "Anchor") to cease operations at a Center
could also have an adverse effect on the Company. The closing of an Anchor
could, under certain circumstances, allow certain other Anchors to terminate
their leases or cease operating their stores at the Center. In addition,
mergers, acquisitions, consolidations or dispositions in the retail industry
could result in the loss of tenants at one or more Centers. Furthermore, if the
store sales of retailers operating in the Centers were to decline sufficiently,
tenants may be unable to pay their minimum rents or expense recovery charges. In
the event of a default by a lessee, the Center may experience delays and costs
in enforcing its rights as lessor. See "Risk Factors -- Bankruptcy of Anchors,
Mall Stores and Freestanding Stores."
RISKS OF MANAGEMENT AND LEASING BUSINESS. Each of the Management Companies
is subject to the risks associated with the property management and leasing
business. These risks include the risks that management and leasing contracts
with third-party owners will be lost to competitors, that contracts will not be
renewed on terms consistent with current terms, and that leasing activity
generally may decline. Most of the third party management contracts can be
terminated on 30 to 60 days notice by third parties. Additionally, the
compensation of the Management Companies is tied to various revenues under
virtually all of the property management agreements with third-party owners.
CONFLICTS OF INTEREST
MANAGEMENT COMPANIES
The management, leasing and redevelopment business of the Company is carried
on through the Management Companies because income from management, leasing and
redevelopment might jeopardize the Company's status as a REIT under the Internal
Revenue Code of 1986, as amended (the "Code") if such operations were carried on
directly by the Operating Partnership. The Principals own 100% of the
outstanding voting common stock of each of the Management Companies, and the
Operating Partnership owns 100% of the outstanding non-voting preferred stock of
each of such entities. As the holder of 100% of the preferred stock, the
Operating Partnership has the right to receive 95% of the net cash flow of each
of the Management Companies. However, since each of the Management Companies is
an operating company and not a passive entity, the Company's investment in the
Management Companies, through non-voting preferred stock, is subject to the risk
that the Principals might have interests that are inconsistent with the
interests of the Company.
The Management Companies have entered into management agreements
("Management Agreements") with the Operating Partnership and each of the
property partnerships that own title to certain of the Centers (the "Property
Partnerships") providing for the continued day-to-day property management of the
Centers. The Operating Partnership or the applicable Property Partnership will
have the right to terminate any Management Agreement at any time. The terms of
certain of the Management Agreements have not been negotiated on an arm's-length
basis. However, the Company believes the terms of the Management Agreements are
fair to the Company and are similar to the terms of Management Agreements that
the Management Companies have recently entered into with unaffiliated owners of
shopping centers. The Principals have a conflict of interest with respect to
their obligations as executive officers and directors of the Company, which
through the Operating Partnership will be required to enforce the terms of the
Management Agreements with the Management Companies. The failure to enforce the
material terms of those agreements could have an adverse effect on the Company.
4
<PAGE>
The Management Companies also provide management, leasing, construction and
redevelopment services for shopping centers owned by third parties who are
unaffiliated with the Company. In addition, the Management Companies may from
time to time agree to manage additional shopping centers that might compete with
the Centers.
TAX CONSEQUENCES OF SALE OF CERTAIN CENTERS
The sale of certain of the Centers will cause adverse tax consequences to
the Principals. As a result, the Principals might not favor a sale of these
Centers even though such a sale could be beneficial to other stockholders of the
Company. See "Federal Income Tax Considerations -- Tax Aspects of the Company's
Investments in Partnerships."
REQUIRED CONSENT OF LIMITED PARTNERS OF OPERATING PARTNERSHIP FOR CERTAIN
TRANSACTIONS
The partnership agreement of the Operating Partnership (the "Partnership
Agreement") provides that a decision to merge the Operating Partnership, sell
all or substantially all of its assets or liquidate must be approved by the
holders of 75% of the limited partnership interests in the Operating Partnership
("OP Units"). Since the Company owns only approximately 62% of the OP Units, the
concurrence of at least some of the other holders of OP Units (the
"Participants") would be required to approve any such transaction.
PRINCIPAL GUARANTEES
The Principals have guaranteed mortgage loans encumbering the Centers. The
aggregate principal amount of such loans is $23.75 million, and the aggregate
principal amount guaranteed by the Principals is approximately $15.01 million.
The existence of such guarantees could result in the Principals having interests
that are inconsistent with the interests of the Company.
NO LIMITATION ON DEBT
The Company has adopted a policy of limiting the incurrence of debt to 50%
of Total Market Capitalization. "Total Market Capitalization" means the sum of
(i) the aggregate market value of the outstanding equity shares, assuming full
redemption of OP Units for shares of Common Stock, plus (ii) the total debt of
the Operating Partnership including a pro rata share of the debt of jointly
owned Centers. The organizational documents of the Company and its subsidiaries,
however, do not limit the amount or percentage of indebtedness that they may
incur. Accordingly, the Board of Directors of the Company could alter or
eliminate this current policy with respect to borrowing. If this policy were
changed, the Company could become more highly leveraged, resulting in an
increased risk of default on the obligations of the Company and an increase in
debt service requirements that could adversely affect the financial condition
and results of operations of the Company.
ABILITY TO CHANGE POLICIES OF THE COMPANY
The investment and financing policies of the Company and its policies with
respect to certain other activities, including its growth, debt capitalization,
distributions, REIT status and operating policies, will be determined by the
Board of Directors. The Board of Directors has no present intention to amend or
revise these policies. However, the Board of Directors may do so at any time
without a vote of the Company's stockholders. A change in these policies could
adversely affect the Company's financial condition or results of operations. See
"Risk Factors -- No Limitation on Debt."
INABILITY TO QUALIFY AS A REIT
The Company believes that it has operated so as to qualify as a REIT under
the Code and intends to operate to remain so qualified. No assurance, however,
can be given that the Company has qualified or will be able to remain qualified
as a REIT. Qualification as a REIT involves the application of highly technical
and complex Code provisions for which there are only limited judicial or
administrative interpretations. The complexity of these provisions and of the
applicable income tax regulations that have been promulgated under the Code (the
"Treasury Regulations") is greater in the case of a REIT that holds its assets
in partnership form. The determination of various factual matters and
circumstances not entirely within the Company's control may affect its ability
to qualify as a REIT. See also "Risk Factors -- Outside Partners in Joint
Venture Centers." In addition, no assurance can be given
5
<PAGE>
that legislation, new regulations, administrative interpretations or court
decisions will not significantly change the tax laws with respect to
qualification as a REIT or the federal income tax consequences of such
qualification. See "Federal Income Tax Considerations."
If in any taxable year the Company were to fail to qualify as a REIT, the
Company would not be allowed a deduction for distributions to stockholders in
computing its taxable income and would be subject to federal income tax on its
taxable income at regular corporate rates. Unless entitled to relief under
certain statutory provisions, the Company would be disqualified from treatment
as a REIT for the four taxable years following the year during which
qualification was lost. As a result, net income and the funds available for
distribution to the Company's stockholders would be reduced for each of the
years involved. Although the Company currently intends to operate in a manner
designed to qualify as a REIT, it is possible that future economic, market,
legal, tax or other considerations may cause the Company's Board of Directors to
revoke the REIT election. See "Federal Income Tax Considerations."
FAILURE OF THE OPERATING PARTNERSHIP OR A PROPERTY PARTNERSHIP TO QUALIFY AS A
PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES
The Company believes that the Operating Partnership and each of the Property
Partnerships are properly treated as partnerships for federal income tax
purposes. If the Internal Revenue Service ("IRS") were to successfully challenge
the tax status of the Operating Partnership or any Property Partnership as a
partnership for federal income tax purposes, the Operating Partnership or the
affected Property Partnership would be taxable as a corporation. In such event,
the character of the Company's assets and income would change, which would
preclude the Company from qualifying as a REIT. The imposition of a corporate
tax on the Operating Partnership or any of the Property Partnerships would
reduce the amount of the funds available for distribution to the Company and its
stockholders. See "Federal Income Tax Considerations -- Tax Aspects of the
Company's Investments in Partnerships."
RISKS OF DEBT FINANCING
The Company is subject to the risks associated with debt financing,
including the risk that the Company's cash flow will be insufficient to meet
required payments of principal and interest. The Company's outstanding
indebtedness is the obligation of the Operating Partnership and certain Property
Partnerships that hold the Centers and is nonrecourse to the Company. Any
outstanding indebtedness under the Company's working capital credit facility
will be the obligation of the Company. A majority of the Centers are mortgaged
to secure payment of this indebtedness, and if the mortgage payments cannot be
made, a loss could be sustained as a result of foreclosure by the mortgagee. The
Company's current indebtedness bears interest at fixed rates. For future
financings, the Company will seek the most attractive financing arrangements
available at the time, which may involve either fixed or floating interest
rates. To the extent floating interest rates are utilized, increases in these
interest rates could adversely affect the Company's funds from operations
available for distribution and its ability to meet its debt service.
Consideration will be given to acquiring interest rate caps or entering into
other interest rate protection agreements if appropriate with respect to future
floating-rate indebtedness to reduce exposure to interest rate increases on such
debt.
The Company is obligated to make balloon payments of principal under
mortgages on certain of the Centers. Although the Company anticipates that it
will be able to refinance such indebtedness, or otherwise obtain funds by
selling assets or by raising equity, there can be no assurance that it will be
able to do so. In addition, interest rates on, and other terms of, any debt
issued to refinance such mortgage debt may be less favorable than the terms of
the current mortgage debt.
To obtain the favorable tax treatment associated with qualifying as a REIT
under the Code, the Company generally is required each year to distribute to its
stockholders at least 95% of its net taxable income. See "Federal Income Tax
Considerations -- Taxation of the Company." The Company could be required to
borrow funds on a short-term basis or liquidate investments to meet the
distribution
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requirements that are necessary to achieve the tax benefits associated with
qualifying as a REIT, even if management believed that then prevailing market
conditions were not generally favorable for such actions.
OUTSIDE PARTNERS IN JOINT VENTURE CENTERS
The Company owns partial interests in Property Partnerships holding four of
the Centers (the "Joint Venture Centers"). The Company owns a 50% managing
general partnership interest in Property Partnerships that own three of the
Joint Venture Centers and a 19% non-managing general partnership interest in the
Property Partnership that holds the remaining Joint Venture Center. Such
investments involve risks not otherwise present with respect to wholly-owned
Centers.
The Company may have certain fiduciary responsibilities to its partners
which it will need to consider when making decisions that affect the Joint
Venture Centers. The Company does not have sole control of certain major
decisions relating to the Joint Venture Centers, including certain decisions
with respect to sales, refinancings and the timing and amount of additional
capital contributions thereto. Under certain circumstances, such as the
Operating Partnership's failure to contribute its share of additional capital
needed by the Property Partnerships, or defaults by the Operating Partnership
under a partnership agreement for a Property Partnership or other agreements
relating to the Property Partnerships or the Joint Venture Centers, the Company
may lose its management rights relating to the Joint Venture Centers. In
addition, with respect to one Joint Venture Center, the Company does not have
day-to-day operational control, nor is it able to control cash distributions
therefrom that may jeopardize its ability to maintain its qualification as a
REIT. These limitations may result in decisions by third parties with respect to
such Joint Venture Centers that do not fully reflect the interests of the
Company at such time, including decisions relating to the standards that the
Company is required to satisfy in order to maintain its status as a REIT under
the Code.
BANKRUPTCY OF RETAIL STORES
Over the past six years, two department store companies operating a total of
five of the current Anchors at the Centers have filed for bankruptcy under the
U.S. Bankruptcy Code. All of these stores are still operating and are meeting
their current economic obligations to the Centers. The bankruptcy of an Anchor,
if followed by its closing or by 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 to terminate their leases or
cease operating their stores at the Center or otherwise adversely affect
occupancy at the Center. Retail stores at the Centers other than Anchors may
also seek the protection of the bankruptcy laws, which could result in the
termination of such tenants' leases and thus cause a reduction in the cash flow
generated by the Centers.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state, and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. In addition, the presence of hazardous or toxic
substances, or the failure to properly remediate such property, may adversely
affect the owner's or operator's ability to sell such property or to borrow
using such property as collateral. Persons who arrange for the disposal or
treatment of hazardous or toxic substances may also be liable for the costs of
removal or remediation of such substances at the disposal or treatment facility,
whether or not such facility is owned or operated by such person. Certain laws
impose liability for release of asbestos-containing materials into the air and
third parties may seek recovery from owners or operators of real property for
personal injury associated with exposure to such materials. In connection with
its ownership and operation of the Centers, the Company may be potentially
liable under such laws and may incur costs in responding to such liabilities.
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OWNERSHIP AND GOVERNANCE OF THE COMPANY AND THE OPERATING PARTNERSHIP
Under the Partnership Agreement, the Company, as the sole general partner of
the Operating Partnership, is responsible for the management of the Operating
Partnership's business and affairs. Through their ownership interests in the
Company and the Operating Partnership, the Principals (together with certain
family members) beneficially own approximately 22% of the OP Units. Moreover,
each of the Principals serves as an executive officer of the Company and as a
member of the Company's Board of Directors on a staggered basis. Accordingly,
the Principals have substantial influence over the management of the Company and
the Operating Partnership. See also "Risk Factors -- Conflicts of Interest."
OWNERSHIP LIMIT; CERTAIN ANTI-TAKEOVER PROVISIONS
In order for the Company to maintain its qualification as a REIT, not more
than 50% in value of its outstanding capital stock may (after taking into
account options to acquire shares) be owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities). The
charter of the Company restricts ownership of more than 5% (the "Ownership
Limit") of the capital stock by any single stockholder (with limited exceptions
for certain Participants (and their respective families and affiliated
entities), including all four Principals). In addition to preserving the
Company's status as a REIT, the Ownership Limit may (i) have the effect of
precluding an acquisition of control of the Company without the approval of the
Board of Directors of the Company even if a change in control were in the
interest of stockholders and (ii) limit the opportunity for stockholders to
receive a premium for their Common Stock that might otherwise exist if an
investor were attempting to assemble a block of Common Stock in excess of the
Ownership Limit or otherwise effect a change in control of the Company. The
Board of Directors of the Company, in its sole discretion, may waive the
Ownership Limit with respect to other stockholders if it is satisfied that
ownership in excess of this limit will not jeopardize the Company's status as a
REIT. See "Restrictions on Transfer" for additional information regarding the
Ownership Limit.
Certain other provisions of the Company's charter and bylaws may have the
effect of discouraging a third party from making an acquisition proposal for the
Company and may thereby inhibit a change in control of the Company that some, or
a majority, of the holders of Common Stock might believe to be in their best
interest or that could give the stockholders the opportunity to realize a
premium over the then-prevailing market prices. The provisions include a
staggered board of directors, advance notice requirements for stockholder
nominations of directors and stockholder proposals, the authority of the
directors to consider a variety of factors (other than maximizing stockholder
value) with respect to a proposed business combination or other transaction, the
authority of the directors to issue one or more series of preferred stock and
the authority to create and issue rights entitling the holders thereof to
purchase from the Company shares of capital stock or other securities or
property.
UNINSURED LOSS
The Company carries comprehensive liability, fire, extended coverage and
rental loss insurance covering all of the Centers (except West Acres Center),
with policy specifications and insured limits customarily carried for similar
properties. There are, however, certain types of losses (such as from wars) that
are not generally insured because they are either uninsurable or not
economically insurable. In addition, while the Company carries earthquake
insurance on the Centers located in California, such policies are subject to a
deductible equal to 5% of the total insured value of each Center, a $500,000 per
occurrence minimum and a combined annual aggregate loss limit of $50 million on
these Centers. Furthermore, the Company has elected to carry title insurance on
each Center for less than its full value. Should an uninsured loss or a loss in
excess of insured limits occur, the owner of the Center could lose its capital
invested in the Center, as well as the anticipated future revenue from the
Center, while remaining obligated for any mortgage indebtedness or other
financial obligations related to the Center. Any such loss would adversely
affect the Company. Moreover, as the general partner of the Operating
Partnership and each of the Property Partnerships, the Company will
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generally be liable for any of their unsatisfied obligations other than
non-recourse obligations. The Company's management believes that the Centers are
adequately insured in accordance with industry standards.
USE OF PROCEEDS
The Company is required by the terms of the Partnership Agreement to invest,
contribute or otherwise transfer the net proceeds of any sale of Securities to
the Operating Partnership in exchange for securities of the Operating
Partnership equivalent to the Securities offered hereby. Except as otherwise
provided in the applicable Prospectus Supplement, the Operating Partnership
intends to use any such net proceeds for working capital and general business
purposes, which may include the reduction of outstanding indebtedness, the
financing of future acquisitions and the improvement of certain properties in
the Operating Partnership's portfolio. Pending the use thereof, the Operating
Partnership intends to invest any net proceeds in short-term, interest-bearing
securities.
DESCRIPTION OF COMMON STOCK
GENERAL
The total number of shares of all classes of stock that the Company has
authority to issue is 220,000,000, initially consisting of 10,000,000 shares of
preferred stock, par value $.01 per share ("preferred stock of the Company"),
100,000,000 shares of Common Stock, par value $.01 per share and 110,000,000
shares of excess stock, par value $.01 per share (the "Excess Shares"). The
Company's Articles of Amendment and Restatement, as amended by the articles
supplementary filed with the Maryland State Department of Assessments and
Taxation on May 30, 1995 (collectively, the "Articles") provide that the Board
of Directors of the Company (as used herein the term "Board of Directors of the
Company" includes any duly authorized committee thereof) may classify and
reclassify any unissued shares of capital stock by setting or changing in any
one or more respects the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms or conditions
of redemption of such shares of stock. The terms of any capital stock classified
or reclassified by the Board of Directors pursuant to the Articles shall be set
forth in Articles Supplementary filed with the Maryland State Department of
Assessments and Taxation prior to the issuance of any such capital stock.
RIGHTS OF HOLDERS OF COMMON STOCK
Subject to the provisions of the Articles regarding Excess Shares, the
holders of the outstanding shares of Common Stock have full voting rights, one
vote for each share held of record. Subject to the provisions of the Articles
regarding Excess Shares and the rights of holders of preferred stock of the
Company, holders of Common Stock are entitled to receive such dividends as may
be declared by the Board of Directors of the Company out of funds legally
available therefor. Upon liquidation, dissolution, or winding up of the Company
(but subject to the provisions of the Articles and the rights of holders of
preferred stock of the Company), the assets legally available for distribution
to holders of Common Stock shall be distributed ratably among such holders.
Holders of Common Stock have no preemptive or other subscription or conversion
rights, and no liability for further calls upon shares. The Common Stock is not
subject to assessment.
The Transfer Agent and Registrar for the Common Stock is First Chicago Trust
Company of New York.
DESCRIPTION OF SECURITIES WARRANTS
The Company may issue Securities Warrants for the purchase of Common Stock.
Securities Warrants may be issued independently or together with Common Stock
offered by any Prospectus Supplement and may be attached to or separate from
such Common Stock. Each series of Securities Warrants will be issued under a
separate warrant agreement (a "Securities Warrant Agreement") to be entered into
between the Company and a bank or trust company, as Securities Warrant agent,
all as
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set forth in the Prospectus Supplement relating to the particular issue of
offered Securities Warrants. The Securities Warrant agent will act solely as an
agent of the Company in connection with the Securities Warrant certificates
relating to the Securities Warrants and will not assume any obligation or
relationship of agency or trust for or with any holders of Securities Warrant
certificates or beneficial owners of Securities Warrants. The following
summaries of certain provisions of the Securities Warrant Agreements and
Securities Warrants do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all the provisions of the
Securities Warrant Agreement and the Securities Warrant certificates relating to
each series of Security Warrants which will be filed with the Commission and
incorporated by reference as an exhibit to the Registration Statement of which
this Prospectus is a part at or prior to the time of the issuance of such series
of Security Warrants.
GENERAL
The applicable Prospectus Supplement will describe the terms of such
Securities Warrants, including the following where applicable: (i) the offering
price; (ii) the aggregate number of shares purchasable upon exercise of such
Securities warrants and the exercise price; (iii) the number of such Securities
Warrants being offered; (iv) the date, if any, on and after which such
Securities Warrants and the Common Stock will be transferable separately; (v)
the date on which the right to exercise such Securities Warrants shall commence
and the date on which such right shall expire (the "Expiration Date"); (vi) any
material United States federal income tax consequences; (vii) the terms, if any,
on which the Company may accelerate the date by which the Securities Warrants
must be exercised; and (viii) any other terms of such Securities Warrants,
including terms, procedures and limitations relating to the exchange and
exercise of such Securities Warrants. Securities Warrants for the purchase of
Common Stock will be offered and exercisable for United States dollars only and
will be in registered form only.
Securities Warrant certificates may be exchanged for new Securities Warrant
certificates of different denominations, may be presented for registration of
transfer, and may be exercised at the corporate trust office of the Securities
Warrant agent or any other office indicated in the applicable Prospectus
Supplement. Prior to the exercise of any Securities Warrants, holders of such
Securities Warrants will not have any rights of holders of such Common Stock,
including the right to receive payments of dividends, if any, on such Common
Stock, or to exercise any applicable right to vote.
CERTAIN RISK CONSIDERATIONS
Any Securities Warrants issued by the Company will involve a certain degree
of risk, including risks arising from fluctuations in the price of the
underlying securities and general risks applicable to the stock market (or
markets) on which the underlying securities are traded.
Prospective purchasers of the Securities Warrants should recognize that the
Securities Warrants may expire worthless and, thus, purchasers should be
prepared to sustain a total loss of the purchase price of their Securities
Warrants. This risk reflects the nature of a Securities Warrant as an asset
which, other factors held constant, tends to decline in value over time and
which may, depending on the price of the underlying Securities, become worthless
when it expires. The trading price of a Securities Warrant at any time is
expected to increase if the price or, if applicable, dividend rate on the
underlying Securities, increases. Conversely, the trading price of a Securities
Warrant is expected to decrease as the time remaining to expiration of the
Securities Warrant decreases and as the price or, if applicable, dividend rate
on the underlying Securities, decreases. Assuming all other factors are held
constant, the more a Securities Warrant is "out-of-the-money" (i.e., the more
the exercise price exceeds the price of the underlying Securities and the
shorter its remaining term to expiration), the greater the risk that a purchaser
of the Securities Warrant will lose all or part of his or her investment. If the
price of the underlying Securities does not rise before the Securities Warrant
expires to an extent sufficient to cover a purchaser's cost of the Securities
Warrant, the purchaser will lose all or part of his or her investment in such
Securities Warrant upon expiration.
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In addition, prospective purchasers of the Securities Warrants should be
experienced with respect to options and option transactions and understand the
risks associated with options and should reach an investment decision only after
careful consideration, with their financial advisers, of the suitability of the
Securities Warrants in light of their particular financial circumstances and the
information discussed herein and, if applicable, the Prospectus Supplement.
Before purchasing, exercising or selling any Securities Warrants, prospective
purchasers and holders of Securities Warrants should carefully consider, among
other things, (i) the trading price of the Securities Warrants, (ii) the price
of the underlying Securities at such time, (iii) the time remaining to
expiration and (iv) any related transaction costs. Some of the factors referred
to above are in turn influenced by various political, economic and other factors
that can affect the trading price of the underlying Securities and should be
carefully considered prior to making any investment decisions.
Purchasers of the Securities Warrants should further consider that the
initial offering price of the Securities Warrants may be in excess of the price
that a purchaser of options might pay for a comparable option in a private, less
liquid transaction. In addition, it is not possible to predict the price at
which the Securities Warrants will trade in the secondary market or whether any
such market will be liquid. The Company may, but is not obligated to, file an
application to list any Securities Warrants issued on a United States national
securities exchange. To the extent that any Securities Warrants are exercised,
the number of Securities Warrants outstanding will decrease, which may result in
a lessening of the liquidity of the Securities Warrants. Finally, the Securities
Warrants will constitute direct, unconditional and unsecured obligations of the
Company and as such will be subject to any changes in the perceived
creditworthiness of the Company.
EXERCISE OF SECURITIES WARRANTS
Each Securities Warrant will entitle the holder thereof to purchase such
number of shares of Common Stock, as the case may be, at such exercise price as
shall in each case be set forth in, or calculable from, the Prospectus
Supplement relating to the offered Securities Warrants. After the close of
business on the Expiration Date (or such later date to which such Expiration
Date may be extended by the Company), unexercised Securities Warrants will
become void.
Securities Warrants may be exercised by delivering to the Securities Warrant
agent payment as provided in the applicable Prospectus Supplement of the amount
required to purchase the Common Stock purchasable upon such exercise together
with certain information set forth on the reverse side of the Securities Warrant
certificate. Securities Warrants will be deemed to have been exercised upon
receipt of payment of the exercise price, subject to the receipt within five (5)
business days, of the Securities Warrant certificate evidencing such Securities
Warrants. Upon receipt of such payment and the Securities Warrant certificate
properly completed and duly executed at the corporate trust office of the
Securities Warrant agent or any other office indicated in the applicable
Prospectus Supplement, the Company will, as soon as practicable, issue and
deliver the Common Stock, as the case may be, purchasable upon such exercise. If
fewer than all of the Securities Warrants represented by such Securities Warrant
certificate are exercised, a new Securities Warrant certificate will be issued
for the remaining amount of Securities Warrants.
AMENDMENTS AND SUPPLEMENTS TO SECURITIES WARRANT AGREEMENTS
The Securities Warrant Agreements may be amended or supplemented without the
consent of the holders of the Securities Warrants issued thereunder to effect
changes that are not inconsistent with the provisions of the Securities Warrants
and that do not adversely affect the interests of the holders of the Securities
Warrants.
COMMON STOCK WARRANT ADJUSTMENTS
Unless otherwise specified in the applicable Prospectus Supplement, the
exercise price of, and the number of shares of Common Stock covered by, a Common
Stock Warrant are subject to adjustment in certain events, including (i) payment
of a dividend on the Common Stock payable in capital stock and stock splits,
combinations or reclassifications of the Common Stock, (ii) issuance to all
holders of Common Stock of rights or warrants to subscribe for or purchase
shares of Common Stock at less than
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their current market price (as defined in the Securities Warrant Agreement for
such series of Common Stock Warrants), and (iii) certain distributions of
evidences of indebtedness or assets (including securities but excluding cash
dividends or distributions paid out of consolidated earnings or retained
earnings or dividends payable in Common Stock) or of subscription rights and
warrants (excluding those referred to above).
No adjustment will be required unless such adjustment would require a change
of at least 1% in the exercise price then in effect. Except as stated above, the
exercise price of, and the number of shares of Common Stock covered by, a Common
Stock Warrant will not be adjusted for the issuance of Common Stock or any
securities convertible into or exchangeable for Common Stock, or carrying the
right or option to purchase or otherwise acquire the foregoing, in exchange for
cash, other property or services.
Unless otherwise specified in the applicable Prospectus Supplement, in the
event of any (i) consolidation or merger of the Company with or into any entity
(other than a consolidation or a merger that does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Stock), (ii) sale, transfer, lease or conveyance of the assets of the
Company substantially as an entirety or (iii) reclassification, capital
reorganization or change of the Common Stock, then any holder of a Securities
Warrant will be entitled, on or after the occurrence of any such event, to
receive on exercise of such Securities Warrant the kind and amount of shares of
stock or other securities, cash or other property (or any combination thereof)
that the holder would have received had such holder exercised such holder's
Securities Warrant immediately prior to the occurrence of such event. If the
consideration to be received upon exercise of the Securities Warrant following
any such event consists of common stock of the surviving entity, then from and
after the occurrence of such event, the exercise price of such Securities
Warrant will be subject to the same anti-dilution and other adjustments
described in the second preceding paragraph, applied as if such common stock
were Common Stock.
DESCRIPTION OF RIGHTS
The Company may issue Rights to its stockholders for the purchase of Common
Stock. Each series of Rights will be issued under a separate rights agreement (a
"Rights Agreement") to be entered into between the Company and a bank or trust
company, as Rights agent, all as set forth in the Prospectus Supplement relating
to the particular issue of Rights. The Rights agent will act solely as an agent
of the Company in connection with the certificates relating to the Rights and
will not assume any obligation or relationship of agency or trust for or with
any holders of Rights certificates or beneficial owners of Rights. The Rights
Agreement and the Rights certificates relating to each series of Rights will be
filed with the Commission and incorporated by reference as an exhibit to the
Registration Statement of which this Prospectus is a part at or prior to the
time of the issuance of such series of Rights.
The applicable Prospectus Supplement will describe the terms of the Rights
to be issued, including the following where applicable: (i) the date for
determining the stockholders entitled to the Rights distribution; (ii) the
aggregate number of shares of Common Stock purchasable upon exercise of such
Rights and the exercise price; (iii) the aggregate number of Rights being
issued; (iv) the date, if any, on and after which such Rights may be
transferable separately; (v) the date on which the right to exercise such Rights
shall commence and the date on which such right shall expire; (vi) any material
United States federal income tax consequences; and (vii) any other terms of such
Rights, including terms, procedures and limitations relating to the
distribution, exchange and exercise of such Rights. Rights will be exercisable
for United States dollars only and will be in registered form only.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code, (i) not more than 50%
in value of its outstanding capital stock (after taking into account options to
acquire capital stock) may be owned,
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directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain entities) during the last half of a taxable year, (ii) capital
stock must be beneficially owned by 100 or more persons during at least 335 days
of a taxable year of 12 months or during a proportionate part of a shorter
taxable year and (iii) certain percentages of the Company's gross income must be
from particular activities (see "Federal Income Tax Considerations -- Taxation
of the Company" and "-- Requirements for Qualification"). Because the Board of
Directors believes it is essential for the Company to continue to qualify as a
REIT, the Articles restrict the ownership and transfer of shares of the
Company's capital stock.
Subject to certain exceptions specified in the Articles, no stockholder may
own, or be deemed to own by virtue of the attribution provisions of the Code,
more than 5% of the number or value of the issued and outstanding capital stock
of the Company. The attribution of ownership provisions are complex and may
cause capital stock owned directly or indirectly by a group of related
individuals or entities to be deemed to be owned by one individual or entity. As
a result, the acquisition of less than 5% in value or in number of capital stock
(or the acquisition of an interest in an entity which owns capital stock) by an
individual or entity could cause that individual or entity (or another
individual or entity) to be deemed to own in excess of 5% in value or in number
of the outstanding capital stock of the Company, and thus subject such capital
stock to the Ownership Limit. The Board of Directors may waive the Ownership
Limit if evidence satisfactory to the Board of Directors is presented that such
ownership will not jeopardize the Company's status as a REIT. As a condition of
such waiver, the Board of Directors may require opinions of counsel satisfactory
to it and/or an undertaking from the applicant with respect to preserving the
REIT status of the Company. The Company's Articles exclude from the Ownership
Limit certain persons and their respective families and affiliates ("Excluded
Participants") but provide that no Excluded Participant may own (directly or
indirectly) more than a specified percentage of Common Stock as determined in
accordance with the Articles (such Excluded Participant's "Percentage
Limitation").
The Company's Articles provide that any purported transfer or issuance of
shares, or other event, that would (i) result in a person owning capital stock
in excess of the Ownership Limit or the Percentage Limitation, as appropriate,
(ii) result in the shares of Common Stock and preferred stock being owned by
fewer than 100 persons (determined without reference to any rules of
attribution), (iii) cause the Company to become "closely held" under Section
856(h) of the Code (determined without regard to Code Section 856(h)(2) and by
deleting the words "the last half of" in the first sentence of Code Section
542(a)(2) in applying Code Section 856(h)) or (iv) result in the
disqualification of the Company as a REIT (collectively, the "Prohibited
Events"), that is not otherwise permitted as provided above, will be null and
void AB INITIO as to the intended transferee or purported owner and the intended
transferee or purported owner will acquire or retain no rights to, or economic
interest in, those shares of capital stock.
ISSUANCE OF EXCESS SHARES
The Articles provide that in the event of a purported transfer of capital
stock or other event that would, if effective, result in a Prohibited Event,
such capital stock will automatically be exchanged for Excess Shares, to the
extent necessary to ensure that the purported transfer or other event does not
result in the Prohibited Event. Outstanding Excess Shares will be held in trust.
The trustee of such trust shall be appointed by the Company and shall be
independent of the Company, any purported record or beneficial transferee and
any beneficiary of such trust (the "Beneficiary"). The Beneficiary shall be one
or more charitable organizations selected by the trustee.
The Articles further provide that Excess Shares shall be entitled to the
same dividends as the shares of capital stock exchanged for Excess Shares (the
"Original Shares"). The trustee, as record holder of the Excess Shares, shall be
entitled to receive all dividends and distributions in respect of such Excess
Shares as may be authorized and declared by the Board of Directors and shall
hold such dividends or distributions in trust for the benefit of the
Beneficiary. The trustee shall also be entitled to cast all votes which holders
of the Excess Shares are entitled to cast. Excess Shares in the hands of the
trustee shall have the same voting rights as Original Shares. Upon the
liquidation, dissolution or
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winding up of the Company, each Excess Share shall be entitled to receive
ratably with each other share of capital stock of the same class or series as
the Original Shares, the assets of the Company distributed to the holders of
such class or series of capital stock. The trustee shall distribute to the
purported transferee the amounts received upon such liquidation, dissolution, or
winding up of the Company, but only up to the amount paid by such purported
transferee, or the market price on the date of the purported transfer, if no
consideration was paid by such transferee, for the Original Shares and subject
to additional limitations and offsets set forth in the Articles.
If, after the purported transfer or other event resulting in an exchange of
capital stock for Excess Shares, dividends or distributions are paid with
respect to the Original Shares, then such dividends or distributions are to be
repaid to the trustee for the benefit of the Beneficiary. While Excess Shares
are held in trust, Excess Shares may be transferred by the trustee only to a
person whose ownership of the Original Shares will not result in a Prohibited
Event. At the time of any permitted transfer, the Excess Shares will be
automatically exchanged for the same number of shares of the same type and class
as the Original Shares. The Articles contain provisions that prohibit the
purported transferee of the Excess Shares from receiving in return for such
transfer an amount that reflects any appreciation in the Original Shares during
the period that such Excess Shares were outstanding. The Articles require any
amount received by a purported transferee in excess of the amount permitted to
be received to be paid to the Beneficiary.
The Articles further provide that the Company may purchase, for a period of
90 days during the time the Excess Shares are held in trust, all or any portion
of the Excess Shares at the lesser of the price paid for the capital stock by
the purported transferee (or if no consideration was paid, fair market value at
the time of such transaction) or the market price of such shares as determined
in accordance with the Articles. The 90-day period begins on the date of the
prohibited transfer if the purported transferee gives notice to the Board of
Directors of the transfer or, if no such notice is given, the date the Board of
Directors determines that a prohibited transfer has been made.
The aforementioned provisions of the Articles will not be automatically
removed even if the REIT provisions of the Code are changed so as to no longer
contain any ownership concentration limitation or if the ownership concentration
limitation is increased. Except as otherwise described above, any change in the
Ownership Limit would require an amendment to the Articles. Amendments to the
Articles require the affirmative vote of at least 66 2/3% of the shares entitled
to vote.
All certificates representing shares of Common Stock issued after the date
hereof will bear a legend referring to the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% of the outstanding capital stock must file an affidavit
with the Company containing the information specified in the Articles within 30
days after January 1 of each year. In addition, certain significant stockholders
shall upon demand be required to disclose to the Company in writing such
information with respect to the direct, indirect and constructive ownership of
shares as the Board of Directors deems necessary to comply with the provisions
of the Code applicable to a REIT or to comply with the requirements of any
taxing authority or governmental agency or to determine any such compliance.
PLAN OF DISTRIBUTION
The Company may sell the Securities to one or more underwriters for public
offering and sale by them or may sell the Securities to investors directly or
through agents. Any such underwriter or agent involved in the offer and sale of
Securities will be named in the applicable Prospectus Supplement. The Company
has reserved the right to sell Securities directly to investors on its own
behalf in those jurisdictions where and in such manner as it is authorized to do
so.
Underwriters may offer and sell Securities at a fixed price or prices, which
may be changed, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. The Company
also may offer and sell Securities in exchange for one or more of its
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outstanding issues of the Securities or other securities. The Company also may,
from time to time, authorize dealers, acting as the Company's agents, to offer
and sell Securities upon the terms and conditions as are set forth in the
applicable Prospectus Supplement. In connection with the sale of Securities,
underwriters may receive compensation from the Company in the form of
underwriting discounts or commissions and may also receive commissions from
purchasers of the Securities for whom they may act as agent. Underwriters may
sell Securities to or through dealers, and such dealers may receive compensation
in the form of discounts, concessions or commissions from the underwriters
and/or commissions from the purchasers for whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Securities, and any discounts, concessions or
commissions allowed by underwriters to participating dealers, will be set forth
in the applicable Prospectus Supplement. Dealers and agents participating in the
distribution of Securities may be deemed to be underwriters, and any discounts
and commissions received by them and any profit realized by them on resale of
the Securities may be deemed to be underwriting discounts and commissions.
Underwriters, dealers and agents may be entitled, under agreements entered into
with the Company, to indemnification against and contribution toward certain
civil liabilities, including liabilities under the Securities Act of 1933, as
amended.
Securities may also be offered and sold, if so indicated in the Prospectus
Supplement, in connection with a remarketing upon their purchase, in accordance
with a redemption or repayment pursuant to their terms, or otherwise, by one or
more firms ("remarketing firms"), acting as principals for their own accounts or
as agents for the Company. Any remarketing firm will be identified and the terms
of its agreement, if any, with the Company and its compensation will be
described in the applicable Prospectus Supplement. Remarketing firms may be
deemed to be underwriters in connection with the Securities remarketed thereby.
Remarketing firms may be entitled under agreements which may be entered into
with the Company to indemnification by the Company against and contribution
toward certain civil liabilities, including liabilities under the Securities Act
of 1933, as amended, and may be customers of, engage in transactions with or
perform services for the Company in the ordinary course of business.
If so indicated in the Prospectus Supplement, the Company will authorize
dealers acting as the Company's agents to solicit offers by certain institutions
to purchase the Securities from the Company at the public offering price set
forth in the applicable Prospectus Supplement pursuant to delayed delivery
contracts ("Contracts") providing for payment and delivery on the date or dates
stated in such Prospectus Supplement. Each Contract will be for an amount not
less than, and the aggregate principal amount of the Securities sold pursuant to
Contracts shall be not less nor more than, the respective amounts stated in the
applicable Prospectus Supplement. Institutions with whom Contracts, when
authorized, may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions, and other institutions but will in all cases be subject to the
approval of the Company. Contracts will not be subject to any conditions except
(i) the purchase by an institution of the Securities covered by its Contract
shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject, and (ii)
if the Securities are being sold to underwriters, the Company shall have sold to
such underwriters the total principal amount of such Securities less the
principal amount thereof covered by Contracts.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for, the Company in the ordinary
course of business.
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FEDERAL INCOME TAX CONSIDERATIONS
THE FOLLOWING SUMMARY OF MATERIAL FEDERAL INCOME TAX CONSIDERATIONS TO THE
COMPANY IS BASED ON CURRENT LAW AND DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF
TAXATION THAT MAY BE RELEVANT TO PARTICULAR HOLDERS OF SECURITIES IN LIGHT OF
THEIR PERSONAL INVESTMENT OR TAX CIRCUMSTANCES, OR TO CERTAIN TYPES OF
SECURITIESHOLDERS (INCLUDING INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS,
FINANCIAL INSTITUTIONS OR BROKER-DEALERS, FOREIGN CORPORATIONS AND PERSONS WHO
ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES) SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
RELEVANT TO HOLDERS OF THE SECURITIES WILL BE PROVIDED IN THE APPLICABLE
PROSPECTUS SUPPLEMENT RELATING THERETO.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS
SUPPLEMENT, AS WELL AS HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES TO HIM OR HER OF THE PURCHASE, OWNERSHIP AND SALE OF SECURITIES IN
AN ENTITY ELECTING TO BE TAXED AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
GENERAL
The Company has made an election to be taxed as a REIT under Sections 856
through 860 of the Code, commencing with its taxable year ending December
31,1994. The Company believes that it is organized and has operated in such a
manner as to qualify for taxation as a REIT under the Code and intends to
continue to operate in such a manner. No assurances, however, can be given that
it has operated in a manner so as to qualify as a REIT or that it will continue
to operate in such a manner in the future. Qualification and taxation as a REIT
depends on the Company's ability to meet on a continuing basis, through actual
annual operating results, distribution levels and diversity of stock ownership,
the various qualification tests imposed under the Code on REITs, some of which
are summarized below. While the Company intends to operate so that it qualifies
as a REIT, given the highly complex nature of the rules governing REITs, the
ongoing importance of factual determinations, and the possibility of future
changes in circumstances of the Company, no assurance can be given that the
Company satisfies the REIT tests or will continue to do so. See "Failure to
Qualify" below.
The sections of the Code relating to qualification and operation as a REIT,
and the federal income tax treatment of a REIT and its securityholders, are
highly technical and complex. The following discussion sets forth only the
material aspects of those sections. This summary is qualified in its entirety by
the applicable Code provisions, rules and regulations promulgated thereunder,
and administrative and judicial interpretations thereof.
TAXATION OF THE COMPANY
In any year in which the Company qualifies as a REIT, in general, it will
not be subject to federal income tax on that portion of its taxable income or
capital gain which is distributed to stockholders. The Company will, however, be
subject to tax at normal corporate rates upon any taxable income or capital gain
not distributed.
Notwithstanding its qualification as a REIT, the Company may also be subject
to taxation in certain other circumstances. If the Company should fail to
satisfy the 75% or the 95% gross income test (as discussed below), and
nonetheless maintains its qualification as a REIT because certain other
requirements are met, it will be subject to a 100% tax on the greater of the
amount by which the Company fails either the 75% or the 95% test, multiplied by
a fraction intended to reflect the Company's profitability. The Company will
also be subject to a tax of 100% on net income from "prohibited transactions"
(which are, in general, certain sales or other dispositions of property held
primarily for sale to customers in the ordinary course of business, other than
foreclosure property) and, if the Company has (i) net income from the sale or
other disposition of "foreclosure property" (generally, property acquired by
reason of a default on indebtedness or a lease) which is held primarily
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for sale to customers in the ordinary course of business or (ii) other
non-qualifying income from foreclosure property, it will be subject to tax on
such income from foreclosure property at the highest corporate rate. In
addition, if the Company should fail to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of
its REIT capital gain net income for such year, and (iii) any undistributed
taxable income from prior years, the Company would be subject to a 4% excise tax
on the excess of such required distribution over the amounts actually
distributed. The Company may also be subject to the corporate "alternative
minimum tax," on its items of tax preference, as well as tax in certain
situations not presently contemplated. Each of the Management Companies is taxed
on its income at regular corporate rates. The Company uses the calendar year for
federal income tax purposes and for financial reporting purposes.
REQUIREMENTS FOR QUALIFICATION
To qualify as a REIT, the Company must elect to be so treated and must meet
the requirements, discussed below, relating to the Company's organization,
sources of income, nature of assets, and distributions of income to
stockholders.
ORGANIZATIONAL REQUIREMENTS. The Code defines a REIT as a corporation,
trust or association (1) which is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation, but for Sections 856 through 860 of the Code; (4) which
is neither a financial institution nor an insurance company subject to certain
provisions of the Code; (5) the beneficial ownership of which is held by 100 or
more persons; (6) during the last half of each taxable year not more than 50% in
value of the outstanding stock of which is owned, directly or indirectly, by
five or fewer individuals (as defined in the Code); and (7) which meets certain
other tests, described below, regarding the nature of its income and assets. The
Code provides that conditions (1) to (4), inclusive, must be met during the
entire taxable year and that condition (5) must be met during at least 335 days
of a taxable year of 12 months, or during a proportionate part of a taxable year
of less than 12 months. The Articles provide for restrictions regarding transfer
of its capital stock, in order to assist the Company in continuing to satisfy
the share ownership requirements described in (5) and (6) above. Such transfer
restrictions are described in "Restrictions on Transfer."
GROSS INCOME TESTS. In order for the Company to maintain its qualification
as a REIT, there are three requirements relating to the Company's gross income
that must be satisfied annually. First, at least 75% of the Company's gross
income (excluding gross income from prohibited transactions) for each taxable
year must consist of defined types of income derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or temporary
investment income. Second, at least 95% of the Company's gross income (excluding
gross income from prohibited transactions) for each taxable year must be derived
from such real property and from dividends, other types of interest and gain
from the sale or disposition of stock or securities or from any combination of
the foregoing. Third, short-term gain from the sale or other disposition of
stock or securities, gain from prohibited transactions and gain on the sale or
other disposition of real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property) must represent less
than 30% of the Company's gross income (including gross income from prohibited
transactions) for each taxable year.
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership will retain the same character in the
hands of the REIT for federal income tax purposes. Thus, the Company's
proportionate share of the assets, liabilities and items of income of the
Operating Partnership and the Property Partnerships will be treated as assets,
liabilities and items of income of the Company for purposes of applying the REIT
requirements described herein.
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Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. An amount received or accrued
generally will not be excluded from the term "rents from real property" solely
by reason of being based on a fixed percentage or percentages of receipts or
sales. Second, the Code provides that rents received from a tenant will not
qualify as "rents from real property" in satisfying the gross income tests if
the REIT, or an owner of 10% or more of the REIT, directly or constructively,
owns 10% or more of such tenant. Third, if rent attributable to personal
property, leased in connection with a lease of real property, is greater than
15% of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as "rents from real
property." Finally, for rents received to qualify as "rents from real property,"
the REIT generally must not operate or manage the property or furnish or render
services to the tenants of such property, other than through an independent
contractor from whom the REIT derives no revenue, except that the Company may
directly perform certain services other than services which are not "usually or
customarily rendered" in connection with the rental space for occupancy only and
are considered "rendered to the occupant" of the property.
The Management Companies (which will not satisfy the independent contractor
standard) as manager for the Operating Partnership and Property Partnerships
(other than West Acres Mall), will provide certain services with respect to the
Centers (other than West Acres Mall) and any newly-acquired property of the
Operating Partnership or a Property Partnership. The Company believes that all
services provided by the Management Companies to the Operating Partnership or
Property Partnerships will be of the type usually or customarily rendered in
connection with the rental of space for occupancy only, and therefore, that the
provision of such services will not cause the rents received with respect to the
Centers or newly-acquired centers to fail to qualify as rents from real property
for purposes of the 75% and 95% gross income tests. If the Operating Partnership
or a Property Partnership contemplates providing services in the future that
reasonably might be expected not to meet the "usual or customary" standard, it
will arrange to have such services provided by an independent contractor from
which neither the Operating Partnership nor the Property Partnership receives
any income.
Any gross income derived from a prohibited transaction is taken into account
in applying the 30% income test necessary to qualify as a REIT (and the net
income from that transaction is subject to a 100% tax). The term "prohibited
transaction" generally includes a sale or other disposition of property (other
than foreclosure property) that is held primarily for sale to customers in the
ordinary course of a trade or business. The Operating Partnership and the
Company believe that no asset owned by the Operating Partnership, the Property
Partnerships or the Company is held for sale to customers and that sale of any
Center and associated property will not be in the ordinary course of business of
the Operating Partnership, the relevant Property Partnership or the Company.
Whether property is held "primarily for sale to customers in the ordinary course
of a trade or business" depends, however, on the facts and circumstances in
effect from time to time, including those related to a particular property.
Nevertheless, the Company and the Operating Partnership will attempt to comply
with the terms of safe-harbor provisions in the Code prescribing when asset
sales will not be characterized as prohibited transactions. Complete assurance
cannot be given, however, that the Company can comply with the safe-harbor
provisions of the Code or avoid owning property that may be characterized as
property held "primarily for sale to customers in the ordinary course of
business."
It is anticipated that, for purposes of the gross income tests, the
Company's investment in the Centers through the Operating Partnership and
Property Partnerships will in major part give rise to qualifying income in the
form of rents and gains on the sales of Centers. Moreover, substantially all
income derived from the Company from the Management Companies will be in the
form of dividends on the stock of such entities owned by the Operating
Partnership. Although such dividends will satisfy
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the 95%, but not the 75% gross income test (as discussed above), the Company
anticipates that non-qualifying income on its investments (including such
dividend income) will not result in the Company failing any of the three gross
income tests.
Even if the Company fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code.
These relief provisions will be generally available if the Company's failure to
meet such tests is due to reasonable cause and not due to willful neglect, the
Company attaches a schedule of the sources of its income to its return, and any
incorrect information on the schedule was not due to fraud with intent to evade
tax. It is not possible, however, to state whether in all circumstances the
Company would be entitled to the benefit of these relief provisions. As
discussed above in "Federal Income Tax Consideration -- Taxation of the
Company," even if these relief provisions apply, a tax would be imposed with
respect to the excess of 75% or 95% of the Company's gross income over the
Company's qualifying income in the relevant category, whichever is greater,
reduced by approximated expenses. There is no comparable relief provision which
could mitigate the consequences of a failure to satisfy the 30% gross income
limitation.
ASSET TESTS. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets must be represented by real
estate assets (including (i) its allocable share of real estate assets held by
partnerships in which the Company owns an interest and (ii) stock or debt
instruments held for not more than one year purchased with the proceeds of a
stock offering or long-term (at least five years) debt offering of the Company),
cash, cash items and government securities. Second, not more than 25% of the
Company's total assets may be represented by securities other than those in the
75% asset class. Third, of the investments included in the 25% asset class, the
value of any one issuer's securities owned by the Company may not exceed 5% of
the value of the Company's total assets and the Company may not own more than
10% of any one issuer's outstanding voting securities. The Company's investment
in the Centers through its interests in the Operating Partnership and Property
Partnerships will constitute qualified assets for purposes of the 75% asset
test.
The Operating Partnership owns 100% of the non-voting preferred stock of
each of the Management Companies. By virtue of its partnership interest in the
Operating Partnership, the Company will be deemed to own its pro rata share of
the assets of the Operating Partnership, including the securities of such
entities.
Because the Operating Partnership will not own any of the voting securities
of the entities that constitute the Management Companies, the 10% limitation on
holdings of the voting securities of any one issuer will not be violated. In
addition, based upon a comparison of the total estimated value of the securities
of such entities to be owned by the Operating Partnership to the estimated value
of the total assets to be owned by the Operating Partnership and the Company,
the Company has represented that the Company's pro rata share of the value of
the securities of each such entity has not exceeded, and is not expected to
exceed in the future, 5% by value of the total assets owned by the Company. This
5% limitation must be satisfied not only on the date that the Company (directly
or through the Operating Partnership) acquires securities of such entities, but
also at the end of any quarter in which the Company so increases its interest in
such entities or so acquires other property. In this respect, if any limited
partner of the Operating Partnership exercises its rights to redeem OP Units and
the Company satisfies the Operating Partnership's obligation upon such exercise
with shares of Common Stock, the Company will thereby increase its proportionate
(indirect) ownership interest in such entities, thus requiring the Company to
meet the 5% test in any quarter in which such rights are exercised. Although the
Company plans to take steps to ensure that it satisfies the 5% value test for
any quarter with respect to which retesting is to occur, there can be no
assurance that such steps will always be successful or will not require a
reduction in the Operating Partnership's overall interest in the Management
Companies.
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ANNUAL DISTRIBUTION REQUIREMENTS. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its stockholders in an amount at least equal to (A) the sum of (i) 95% of the
Company's REIT taxable income (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (ii) 95% of the net income
(after tax), if any, from foreclosure property, minus (B) the sum of certain
items of noncash income. Such distributions must be paid in the taxable year to
which they relate, or in the following taxable year if declared before the
Company timely files its tax return for such year and if paid on or before the
first regular dividend payment after such declaration. To the extent that the
Company does not distribute all of its net capital gain or distributes at least
95%, but less than 100%, of its REIT taxable income, as adjusted, it will be
subject to tax on the undistributed amount at regular ordinary and capital gains
corporate tax rates. Furthermore, if the Company should fail to distribute
during each calendar year at least the sum of (i) 85% of its REIT ordinary
income for such year, (ii) 95% of its REIT capital gain net income for such
year, and (iii) any undistributed taxable income from prior periods, the Company
would be subject to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed. The Company has made and intends to make
timely distributions sufficient to satisfy all annual distribution requirements.
It is possible that, from time to time, the Company may experience timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of that income and deduction of such
expenses in arriving at the Company's taxable income. Further, it is possible
that, from time to time, the Company may be allocated a share of net capital
gain attributable to the sale of depreciated property which exceeds its
allocable share of cash attributable to that sale. As such, the Company may have
less cash available for distribution than is necessary to meet its annual 95%
distribution requirement or to avoid tax with respect to capital gain or the
excise tax imposed on certain undistributed income. To meet the 95% distribution
requirement necessary to qualify as a REIT or to avoid tax with respect to
capital gain or the excise tax imposed on certain undistributed income, the
Company may find it appropriate to arrange for short-term (or possibly
long-term) borrowings or to pay distributions in the form of taxable stock
dividends. Any such borrowings for the purpose of making distributions to
stockholders are required to be arranged through the Operating Partnership.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in the Company's deduction
for dividends paid for the earlier year. Thus, the Company may be able to avoid
being taxed on amounts distributed as deficiency dividends; however, the Company
will be required to pay interest based upon the amount of any deduction taken
for deficiency dividends.
Pursuant to applicable Treasury Regulations, in order to be able to elect to
be taxed as a REIT, the Company must maintain certain records and request
certain information from its stockholders designed to disclose the actual
ownership of its stock. The Company has complied and intends to continue to
comply with such requirements.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. In such event, to the extent of current and accumulated
earnings and profits, all distributions to stockholders will be taxable as
ordinary income, and, subject to certain limitations of the Code, corporate
distributees may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, the Company will also be
disqualified from taxation as a REIT for the four taxable years following the
year during which the Company ceased to qualify as a REIT. It is not possible to
state whether in all circumstances the Company would be entitled to such
statutory relief.
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TAXATION OF STOCKHOLDERS
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS. As long as the Company qualifies
as a REIT, distributions made to the Company's taxable U.S. stockholders out of
current or accumulated earnings and profits (and not designated as capital gain
dividends) will be taken into account by such U.S. stockholders as ordinary
income and will not be eligible for the dividends received deduction for
corporations. Distributions that are designated as capital gain dividends will
be taxed as long-term capital gains (to the extent they do not exceed the
Company's actual net capital gain for the taxable year) without regard to the
period for which the stockholder has held its stock. However, corporate
stockholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions in excess of current and accumulated
earnings and profits will not be taxable to a stockholder to the extent that
they do not exceed the adjusted basis of the stockholder's shares, but rather
will reduce the adjusted basis of such shares. To the extent that distributions
in excess of current and accumulated earnings and profits exceed the adjusted
basis of a stockholder's shares, such distributions will be included in income
as long-term capital gain (or short-term capital gain if the shares have been
held for one year or less) assuming the shares are a capital asset in the hands
of the stockholder. In addition, any distribution declared by the Company in
October, November or December of any year payable to a stockholder of record on
a specified date in any such month shall be treated as both paid by the Company
and received by the stockholder on December 31 of such year, provided that the
distribution is actually paid by the Company during January of the following
calendar year. Stockholders may not include in their individual income tax
returns any net operating losses or capital losses of the Company.
In general, any loss upon a sale or exchange of shares by a stockholder who
has held such shares for six months or less (after applying certain holding
period rules), will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such stockholder as
long-term capital gain.
BACKUP WITHHOLDING. The Company will report to its U.S. stockholders and
the IRS the amount of distributions paid during each calendar year, and the
amount of tax withheld, if any. Under the backup withholding rules, a
stockholder may be subject to backup withholding at the rate of 31% with respect
to distributions paid unless such holder (a) is a corporation or comes within
certain other exempt categories and when required, demonstrates this fact, or
(b) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. A stockholder that does not
provide the Company with his correct taxpayer identification number may also be
subject to penalties imposed by the IRS. Any amount paid as backup withholding
will be creditable against the stockholder's income tax liability. In addition,
the Company may be required to withhold a portion of capital gain distributions
to any stockholders who fail to certify their nonforeign status to the Company.
See "Federal Income Tax Consideration -- Taxation of Stockholder Taxation of
Foreign Stockholders."
TREATMENT OF TAX-EXEMPT STOCKHOLDERS. Distributions from the Company to a
tax-exempt employee pension trust or other domestic tax-exempt stockholder
generally will not constitute "unrelated business taxable income" ("UBTI")
unless the stockholder has borrowed to acquire or carry the Common Stock. For
taxable years beginning after December 31, 1993, however, qualified trusts that
hold more than 10% (by value) of certain REITs may be required to treat a
certain percentage of such a REIT's distributions as UBTI. This requirement will
apply only if (i) the REIT would not qualify for federal income tax purposes but
for the application of a "look-through" exception to the "five or fewer"
requirement applicable to shares held by qualified trusts and (ii) the REIT is
"predominantly held" by qualified trusts. A REIT is predominantly held if either
(i) a single qualified trust holds more than 25% by value of the REIT interests
or (ii) one or more qualified trusts, each owning more than 10% by value of the
REIT interests, hold in the aggregate more than 50% of the REIT interests. The
percentage of any REIT dividend treated as UBTI is equal to the ratio of (a) the
UBTI earned by the REIT (treating the REIT as if it were a qualified trust and
therefore subject to tax on UBTI) to (b) the total gross income (less certain
associated expenses) of the REIT. A DE MINIMIS exception applies
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where the ratio set forth in the preceding sentence is less than 5% for any
year. For those purposes, a qualified trust is any trust described in section
401(a) of the Code and exempt from tax under section 501(a) of the Code. The
provisions requiring qualified trusts to treat a portion of REIT distributions
as UBTI will not apply if the REIT is able to satisfy the "five or fewer"
requirement without relying upon the "look-through" exception. The restrictions
on ownership of the Common Stock in the Articles will prevent application of the
provisions treating a portion of REIT distributions as UBTI to tax-exempt
entities purchasing the Common Stock, absent approval by the Board of Directors.
TAXATION OF FOREIGN STOCKHOLDERS. The rules governing United States federal
income taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign stockholders (collectively. "Non-U.S.
Stockholders") are complex and no attempt will be made herein to provide more
than a summary of such rules. Prospective Non-U.S. Stockholders should consult
with their own tax advisors to determine the impact of federal, state and local
income tax laws with regard to an investment in shares, including any reporting
requirements.
Distributions that are not attributable to gain from sales or exchanges by
the Company of United States real property interests and not designated by the
Company as capital gains dividends will be treated as dividends of ordinary
income to the extent that they are made out of current or accumulated earnings
and profits of the Company. Such distributions will ordinarily be subject to a
withholding tax equal to 30% of the gross amount of the distribution unless a
applicable tax treaty reduces or eliminates that tax. However, if income from
the investment in the shares is treated as effectively connected with the
Non-U.S. Stockholders's conduct of a United States trade or business, the Non-
U.S. Stockholder generally will be subject to a tax at graduated rates, in the
same manner as U.S. stockholders are taxed with respect to such distributions
(and may also be subject to the 30% branch profits tax in the case of a
stockholder that is a foreign corporation). The Company expects to withhold
United States income tax at the rate of 30% on the gross amount of any such
distributions made to a Non-U.S. Stockholder unless (i) a lower treaty rate
applies or (ii) the Non-U.S. Stockholder files an IRS Form 4224 with the Company
claiming that the distribution is effectively connected income. Distributions in
excess of current and accumulated earnings and profits of the Company will not
be taxable to a stockholder to the extent that such distributions do not exceed
the adjusted basis of a stockholder's shares, but rather will reduce the
adjusted basis of such shares. To the extent that distributions in excess of
current accumulated earnings and profits exceed the adjusted basis of a Non-U.S.
Stockholder's shares, such distributions will give rise to tax liability if the
Non-U.S. Stockholder would otherwise be subject to tax on any gain from the sale
or disposition of his shares in the Company, as described below. If it cannot be
determined at the time a distribution is made whether or not such distribution
will be in excess of current and accumulated earnings and profits, the
distributions will be subject to withholding at the same rate as dividends.
However, amounts thus withheld are refundable if it is subsequently determined
that such distribution was, in fact, in excess of current and accumulated
earnings and profits of the Company.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of United States
real property interests will be taxed to a Non-U.S. Stockholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, distributions attributable to gain from sales of
United States real property interests are taxed to a Non-U.S. Stockholder as if
such gain were effectively connected with a United States business. Non-U.S.
Stockholders would thus be taxed at the normal capital gain rates applicable to
U.S. stockholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals). Also,
distributions subject to FIRPTA may be subject to a 30% branch profits tax in
the hands of a foreign corporate stockholder not entitled to treaty exemption.
The Company is required by applicable Treasury Regulations to withhold 35% of
any distribution that could be designated by the Company as a capital gains
dividend. This amount is creditable against the Non-U.S. Stockholder FIRPTA tax
liability.
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Gain recognized by a Non-U.S. Stockholder upon a sale of shares generally
will not be taxed under FIRPTA if the Company is a "domestically controlled
Company" defined generally as a REIT in which at all times during a specified
testing period less than 50% in value of the stock was held directly or
indirectly by foreign persons. It is currently anticipated that the Company will
be a "domestically controlled Company," and therefore the sale of shares will
not be subject to taxation under FIRPTA. However, gain not subject to FIRPTA
will be taxable to a Non-U.S. Stockholder if (i) investment in the shares is
effectively connected with the Non-U.S. Stockholder's United States trade or
business, in which case the Non-U.S. Stockholder will be subject to the same
treatment as U.S. stockholders with respect to such gain, or (in) the Non-U.S.
Stockholder is a nonresident alien individual who was present in the United
States for more than 182 days during the taxable year and has a "tax home" in
the United States, in which case the nonresident alien individual will be
subject to a 30% tax on the individual's capital gains. If the gain on the sale
of shares were to be subject to taxation under FIRPTA the Non-U.S. Stockholder
will be subject to the same treatment a U.S stockholders with respect to such
gain (subject to applicable alternative minimum tax and a special alternative
minimum tax in the case of nonresident alien individuals).
If the proceeds of a sale of shares are paid by or through a U.S. office of
a broker, the payment is subject to information reporting and to backup
withholding unless the disposing Non-U.S. Stockholder certifies as to his name,
address and non-U.S. status or otherwise establishes an exemption. Generally,
U.S. information reporting and backup withholding will not apply to a payment of
disposition proceeds if the payment is made outside the U.S. through a non-U.S.
office of a non-US. broker. U.S. information reporting requirements (but not
backup withholding) will apply, however, to a payment of disposition proceeds
outside the U.S. if: (i) the payment is made through an office outside the U.S.
of a broker that is: (a) a U.S. person; (b)a foreign person that derives 50% or
more of its gross income for certain periods from the conduct of a trade or
business in the U.S.; or (c) a "controlled foreign corporation" for U.S. federal
income tax purposes; and (ii) the broker fails to initiate documentary evidence
that the shareholder is a Non-U.S. Stockholder and that certain conditions are
met or that the Non-U.S. Stockholder otherwise is entitled to a exemption.
TAX ASPECTS OF THE COMPANY'S INVESTMENTS IN PARTNERSHIPS
GENERAL. The Company holds direct or indirect interests in the Operating
Partnership and the Property Partnerships (each individually a "Partnership"
and, collectively, the "Partnerships"). In general, partnerships are
"pass-through" entities which are not subject to federal income tax. Rather,
partners are allocated their proportionate shares of the items of income, gain,
loss, deduction and credit of a partnership, and are potentially subject to tax
thereon, without regard to whether the partners receive a distribution from the
partnership. The Company will include its proportionate share of the foregoing
items of the Partnerships for purposes of the various REIT income tests and in
the computation of its REIT taxable income. See "Federal Income Tax
Consideration -- Requirements for Qualification -- Gross Income Tests." Any
resultant increase in the Company's REIT taxable income will increase its
distribution requirements (see "Federal Income Tax Consideration -- Requirements
or Qualification -- Annual Distribution Requirements"), but will not be subject
to federal income tax in the hands of the Company provided that such income is
distributed by the Company to its stockholders. Moreover, for purposes of the
REIT asset tests (see "Federal Income Tax Consideration -- Requirements for
Qualification -- Asset Tests"), the Company will include its proportionate share
of assets held by the Partnerships.
ENTITY CLASSIFICATION. The Company's interests in the Partnerships involve
special tax considerations, including the possibility of a challenge by the IRS
of the status of the Partnerships as partnerships (as opposed to associations
taxable as corporations) for federal income tax purposes. If any of the
Partnerships were to be treated as an association, it would be taxable as a
corporation and therefore subject to an entity-level tax on its income. In such
a situation, the character of the Company's assets and items of gross income
would change, which would preclude the Company from satisfying the asset tests
and possibly the income tests (see "Federal Income Tax Consideration --
Requirements for Qualification -- Asset Tests" and "Gross Income Tests"), and in
turn would
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prevent the Company from qualifying as a REIT. See "Federal Income Tax
Consideration -- Failure to Qualify" above for a discussion of the effect of the
Company's failure to meet such tests for a taxable year. The Company believes
each of the Partnerships will be treated for federal income tax purposes as a
partnership (and not an association taxable as a corporation). No assurance can
be given that the IRS will not challenge the tax status of the Partnerships or
that administrative or judicial changes would not modify the partnership status
of each of the Partnerships.
TAX ALLOCATIONS WITH RESPECT TO CONTRIBUTED PROPERTIES. Pursuant to Section
704(c) of the Code, income, gain, loss and deduction attributable to appreciated
or depreciated property that is contributed to a partnership in exchange for an
interest in the partnership, must be allocated in a manner such that the
contributing partner is charged with, or benefits from, respectively, the
unrealized gain or unrealized loss associated with the property at the time of
the contribution. The amount of such unrealized gain or unrealized loss is
generally equal to the difference between the fair market value of contributed
property at the time of contribution, and the adjusted tax basis of such
property at the time of contribution (a "Book-Tax Difference"). Such allocations
are solely for federal income tax purposes and do not affect the book capital
accounts or other economic or legal arrangements among the partners. The
Operating Partnership was formed principally by way of contributions of
appreciated property. Consequently, the Partnership Agreement requires such
allocation to be made in a manner consistent with Section 704(c) of the Code.
In general, the limited partners of the Operating Partnership will be
allocated lower amounts of depreciation deductions for tax purposes and
increased taxable income and gain on sale by the Partnerships of the contributed
assets. This will tend to eliminate the Book-Tax Difference over the life of the
Partnerships. However, the special allocation rules of Section 704(c) do not
always rectify the Book-Tax Difference on an annual basis or with respect to a
specific taxable transaction such as a sale. Under the applicable Treasury
Regulations, such special allocations of income and gain and depreciation
deductions must be made on a property-by-property basis. Depreciation deductions
resulting from the carryover basis of a contributed property are used to
eliminate the Book-Tax Difference by allocating such deductions to the
non-contributing partners (i.e., the REIT and the other non-contributing
partners) up to the amount of their share of book depreciation. Any remaining
tax depreciation for the contributed property would be allocated to the partners
that contributed the property. The Operating Partnership intends to elect the
traditional method of rectifying the Book-Tax Difference under the applicable
Treasury Regulations, pursuant to which, if depreciation deductions are less
than the non-contributing partners' share of book depreciation, then the
non-contributing partners lose the benefit of these deductions ("ceiling rule").
When the property is sold, the resulting tax gain is used to the extent possible
to eliminate the Book-Tax Difference (reduced by any previous book
depreciation). Because of the application of the ceiling rule it is anticipated
that tax depreciation will be allocated substantially in accordance with the
percentages of OP Units held by the Company and the limited partners of the
Operating Partnership, notwithstanding Section 704(c) of the Code. Thus, the
carryover basis of the contributed assets in the hands of the Partnerships will
cause the Company to be allocated lower depreciation and other deductions, and
possibly greater amounts of taxable income in the event of a sale of such
contributed assets in excess of the economic or book depreciation allocated to
it, and possibly the economic and book income or gain allocated to it as a
result of such sale. This may cause the Company to recognize taxable income in
excess of cash proceeds, which might adversely affect the Company's ability to
comply with the REIT distribution requirements. See "Federal Income Tax
Consideration -- Requirements for Qualification -- Annual Distribution
Requirements."
OTHER TAX CONSIDERATIONS
THE MANAGEMENT COMPANIES. A portion of the cash to be used by the Operating
Partnership to fund distributions to partners, including the Company, is
expected to come from the Management Companies through dividends on the stock
that will be held by the Operating Partnership. The Management Companies will
receive income from the Operating Partnership, the Property Partnerships (other
than West Acres Mall) and unrelated third parties. Because the Company, the
Operating
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Partnership and the Management Companies are related through stock ownership,
income of the Management Companies from services performed for the Company and
the Operating Partnership may be subject to certain rules under which additional
income may be allocated to the Management Companies. The Management Companies
will pay federal and state income tax at the full applicable corporate rates on
its income prior to payment of any dividends. The Management Companies will
attempt to minimize the amount of such taxes, but there can be no assurance
whether or the extent to which measures taken to minimize taxes will be
successful. To the extent that the Management Companies are required to pay
federal, state, or local taxes, the cash available for distribution by the
Company to stockholders will be reduced accordingly.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING TAX
CONSEQUENCES. Prospective holders of Securities should recognize that the
present federal income tax treatment of investment in the Company may be
modified by legislative, judicial or administrative action at any time and that
any such action may affect investments and commitments previously made. The
rules dealing with federal income taxation are constantly under review by
persons involved in the legislative process and by the IRS and the Treasury
Department, resulting in revisions of regulations and revised interpretations of
established concepts as well as statutory changes. Revisions in federal tax laws
and interpretations thereof could adversely affect the tax consequences of
investment in the Company.
STATE AND LOCAL TAXES. The Company and its holders of Securities may be
subject to state or local taxation in various jurisdictions, including those in
which it or they transact business or reside. The state and local tax treatment
of the Company and its holders of Securities may not conform to the federal
income tax consequences discussed above. Consequently, prospective holders of
Securities should consult their own tax advisors regarding the effect of state
and local tax laws on an investment in any Securities.
LEGAL MATTERS
The validity of the Offered Securities and certain tax matters will be
passed upon for the Company by O'Melveny & Myers. O'Melveny & Myers will rely as
to certain matters of Maryland law on the opinion of Ballard Spahr Andrews &
Ingersoll.
EXPERTS
The financial statements and financial statement schedule of the Company
incorporated in this Prospectus by reference to its 1994 Annual Report on Form
10-K, the Statement of Revenues and Certain Expenses of The Centre at Salisbury
for the year ended December 31, 1994 and the Statement of Revenues and Certain
Expenses of Capitola Mall for the year ended December 31, 1994, incorporated in
this Prospectus by reference to Current Reports on Form 8-K, have been audited
by Coopers & Lybrand L.L.P., independent accountants, as indicated in each of
their reports with respect thereto, and are incorporated herein by reference in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT IN CONNECTION WITH THE
OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY AGENT, DEALER OR UNDERWRITER. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT DOES NOT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Supplement Summary..................... S-2
Incorporation of Certain Documents by Reference... S-8
The Company....................................... S-8
Recent Developments............................... S-10
Use of Proceeds................................... S-12
Price Range of Common Stock and Distribution
History.......................................... S-13
Selected Financial Data........................... S-14
Properties........................................ S-18
Underwriting...................................... S-23
Legal Matters..................................... S-23
Experts........................................... S-24
PROSPECTUS
Available Information............................. 2
Incorporation of Certain Documents by Reference... 2
The Company....................................... 3
Risk Factors...................................... 3
Use of Proceeds................................... 9
Description of Common Stock....................... 9
Description of Securities Warrants................ 9
Description of Rights............................. 12
Restrictions on Transfer.......................... 12
Plan of Distribution.............................. 14
Federal Income Tax Considerations................. 16
Legal Matters..................................... 25
Experts........................................... 25
</TABLE>
5,000,000 SHARES
[LOGO]
THE MACERICH COMPANY
COMMON STOCK
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PROSPECTUS SUPPLEMENT
NOVEMBER 1, 1996
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LEHMAN BROTHERS
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