<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 1999 COMMISSION FILE NO. 1-12504
THE MACERICH COMPANY
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 95-4448705
- ------------------------------ ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
401 Wilshire Boulevard, Suite 700, Santa Monica, CA 90401
- -------------------------------------------------------------------------------
(Address of principal executive office)(Zip code)
Registrant's telephone number, including area code (310) 394-6000
-------------------
N/A
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Number of shares outstanding of each of the registrant's
classes of common stock, as of August 9, 1999.
Common stock, par value $.01 per share: 34,031,501 shares
- -------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or such shorter period that the Registrant was
required to file such report) and (2) has been subject to such filing
requirements for the past ninety (90) days.
YES X NO
----------- ----------
<PAGE>
THE MACERICH COMPANY (The Company)
Form 10-Q
INDEX
Page
----------
Part I: Financial Information
Item 1. Financial Statements
Consolidated balance sheets of the Company as
of June 30, 1999 and December 31, 1998 1
Consolidated statements of operations of
the Company for the periods from January 1
through June 30, 1999 and 1998 2
Consolidated statements of operations of the
Company for the periods from April 1 through
June 30, 1999 and 1998. 3
Consolidated statements of cash flows of the
Company for the periods from January 1 through
June 30, 1999 and 1998 4
Notes to condensed and consolidated financial
statements 5 to 24
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 25 to 37
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 38 to 39
Part II: Other Information 40 to 43
<PAGE>
THE MACERICH COMPANY (The Company)
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------------- ---------------
<S> <C> <C>
ASSETS:
Property, net $1,973,543 $1,966,845
Cash and cash equivalents 24,610 25,143
Tenant receivables, net, including accrued overage rents of
$4,692 in 1999 and $5,917 in 1998 33,335 37,373
Due from affiliates 78,322 -
Deferred charges and other assets, net 56,470 62,673
Investments in joint ventures and the Management Companies 300,390 230,022
------------------- ---------------
Total assets $2,466,670 $2,322,056
=================== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Mortgage notes payable:
Related parties $134,250 $134,625
Others 1,146,509 1,074,093
------------------- ---------------
Total 1,280,759 1,208,718
Bank and other notes payable 251,087 137,000
Convertible debentures 161,400 161,400
Accounts payable and accrued expenses 17,480 27,701
Due to affiliates - 2,953
Other accrued liabilities 28,123 36,927
Preferred stock dividend payable 4,420 4,420
------------------- ---------------
Total liabilities 1,743,269 1,579,119
------------------- ---------------
Minority interest in Operating Partnership 160,618 165,524
------------------- ---------------
Commitments and contingencies (Note 9)
Stockholders' equity:
Series A cumulative convertible redeemable preferred stock, $.01 par
value, 3,627,131 shares authorized, issued and outstanding
at June 30, 1999 and December 31, 1998 36 36
Series B cumulative convertible redeemable preferred stock, $.01 par value,
5,487,471 shares authorized, issued and outstanding
at June 30, 1999 and December 31, 1998 55 55
Common stock, $.01 par value, 100,000,000 shares
authorized, 34,007,000 and 33,901,963 shares issued and
outstanding at June 30, 1999 and December 31, 1998, respectively 340 338
Additional paid in capital 570,782 581,508
Accumulated earnings - -
Unamortized restricted stock (8,430) (4,524)
------------------- ---------------
------------------- ---------------
Total stockholders' equity 562,783 577,413
------------------- ---------------
Total liabilities and stockholders' equity $2,466,670 $2,322,056
=================== ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
- 1 -
<PAGE>
THE MACERICH COMPANY (The Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------------------
1999 1998
--------------------- ---------------------
<S> <C> <C>
REVENUES:
Minimum rents $101,905 $79,629
Percentage rents 7,148 4,250
Tenant recoveries 47,276 36,822
Other 3,195 1,881
--------------------- ---------------------
Total revenues 159,524 122,582
--------------------- ---------------------
EXPENSES:
Shopping center expenses 47,221 38,001
General and administrative expense 2,843 2,177
Interest expense:
Related parties 5,053 5,083
Others 50,302 36,129
Depreciation and amortization 30,539 23,607
--------------------- ---------------------
Total expenses 135,958 104,997
--------------------- ---------------------
Equity in income of unconsolidated
joint ventures and the Management Companies 10,634 5,582
Gain on sale of assets - 9
--------------------- ---------------------
Income before extraordinary item and minority interest 34,200 23,176
Extraordinary loss on early extinguishment of debt (988) (90)
--------------------- ---------------------
Income of the Operating Partnership 33,212 23,086
Less minority interest in net income
of the Operating Partnership 6,488 6,190
--------------------- ---------------------
Net income 26,724 16,896
Less preferred dividends 8,841 2,706
--------------------- ---------------------
Net income - available to common stockholders $17,883 $14,190
===================== =====================
Earnings per common share - basic:
Income before extraordinary item $0.56 $0.49
Extraordinary item (0.03) 0.00
--------------------- ---------------------
Net income per share - available to common stockholders $0.53 $0.49
===================== =====================
Weighted average number of common shares
outstanding - basic 33,971,000 28,975,000
===================== =====================
Weighted average number of common shares
outstanding - basic, assuming full conversion of
Operating Partnership units outstanding 46,286,000 41,063,000
===================== =====================
Earnings per common share - diluted:
Income before extraordinary item $0.55 $0.49
Extraordinary item (0.02) 0.00
--------------------- ---------------------
Net income per share - available to common stockholders $0.53 $0.49
===================== =====================
Weighted average number of common shares
outstanding - diluted for EPS 46,721,000 41,682,000
===================== =====================
The accompanying notes are an integral part of these financial statements.
</TABLE>
- 2 -
<PAGE>
THE MACERICH COMPANY (The Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------------------------
1999 1998
-------------------- --------------------
<S> <C> <C>
REVENUES:
Minimum rents $51,313 $40,213
Percentage rents 3,206 1,080
Tenant recoveries 24,178 19,181
Other 1,978 933
-------------------- --------------------
Total revenues 80,675 61,407
-------------------- --------------------
EXPENSES:
Shopping center expenses 23,955 19,279
General and administrative expense 1,439 1,153
Interest expense:
Related parties 2,540 2,556
Others 26,062 18,080
Depreciation and amortization 15,285 11,894
-------------------- --------------------
Total expenses 69,281 52,962
-------------------- --------------------
Equity in income of unconsolidated
joint ventures and the Management Companies 5,286 4,152
Gain on sale of assets - 9
-------------------- --------------------
Income before extraordinary item and minority interest 16,680 12,606
Extraordinary loss on early extinguishment of debt (15) -
-------------------- --------------------
Income of the Operating Partnership 16,665 12,606
Less minority interest in net income
of the Operating Partnership 3,258 3,182
-------------------- --------------------
Net income 13,407 9,424
Less preferred dividends 4,421 2,057
-------------------- --------------------
Net income - available to common stockholders $8,986 $7,367
==================== ====================
Earnings per common share - basic:
Income before extraordinary item $0.26 $0.24
Extraordinary item 0.00 0.00
-------------------- --------------------
Net income per share - available to common stockholders $0.26 $0.24
==================== ====================
Weighted average number of common shares
outstanding - basic 33,980,000 30,765,000
==================== ====================
Weighted average number of common shares
outstanding - basic, assuming full conversion of
Operating Partnership units outstanding 46,291,000 42,853,000
==================== ====================
Earnings per common share - diluted:
Income before extraordinary item $0.26 $0.24
Extraordinary item 0.00 0.00
-------------------- --------------------
Net income per share - available to common stockholders $0.26 $0.24
==================== ====================
Weighted average number of common shares
outstanding - diluted for EPS 46,842,000 43,425,000
==================== ====================
The accompanying notes are an integral part of these financial statements.
</TABLE>
- 3 -
<PAGE>
THE MACERICH COMPANY (The Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
January 1 to June 30,
----------------------------------------------
1999 1998
---------------------- ---------------------
<S> <C> <C>
Cash flows from operating activities:
Net income - available to common stockholders $17,883 $14,190
Preferred dividends 8,841 2,706
---------------------- ---------------------
---------------------- ---------------------
Net income 26,724 16,896
---------------------- ---------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Extraordinary loss on early extinguishment of debt 988 90
Gain on sale of assets - (9)
Depreciation and amortization 30,539 23,607
Amortization of net discount (premium) on trust deed note payable 174 (34)
Minority interest in net income of the Operating Partnership 6,488 6,190
Changes in assets and liabilities:
Tenant receivables, net 4,038 (271)
Other assets 8,976 5,611
Accounts payable and accrued expenses (10,222) (3,307)
Preferred stock dividend payable - 2,057
Other liabilities (8,804) 397
---------------------- ---------------------
Total adjustments 32,177 34,331
---------------------- ---------------------
Net cash provided by operating activities 58,901 51,227
---------------------- ---------------------
Cash flows from investing activities:
Acquisitions of property and improvements (4,226) (88,840)
Renovations and expansions of centers (26,078) (14,103)
Additions to tenant improvements (2,762) (1,947)
Deferred charges (7,932) (6,359)
Equity in income of unconsolidated joint ventures
and the Management Companies (10,634) (5,582)
Distributions from joint ventures 10,390 2,586
Contributions to joint ventures (70,124) (268,938)
Loans to affiliates, net (81,275) (10,675)
---------------------- ---------------------
Net cash used in investing activities (192,641) (393,858)
---------------------- ---------------------
Cash flows from financing activities:
Proceeds from mortgages and notes payable 324,888 249,000
Payments on mortgages and notes payable (138,934) (213,251)
Net proceeds from equity offerings - 417,022
Dividends and distributions to partners (43,906) (36,222)
Dividends to preferred stockholders (8,841) (2,706)
---------------------- ---------------------
Net cash provided by financing activities 133,207 413,843
---------------------- ---------------------
Net (decrease) increase in cash (533) 71,212
Cash and cash equivalents, beginning of period 25,143 25,154
---------------------- ---------------------
Cash and cash equivalents, end of period $24,610 $96,366
====================== =====================
Supplemental cash flow information:
Cash payment for interest, net of amounts capitalized $54,380 $40,969
====================== =====================
Non-cash transactions:
Acquisition of property by assumption of debt - $30,116
====================== =====================
The accompanying notes are an integral part of these financial statements.
</TABLE>
- 4 -
<PAGE>
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
1. Interim Financial Statements and Basis of Presentation:
The accompanying consolidated financial statements of The Macerich
Company (the "Company") have been prepared in accordance with
generally accepted accounting principles ("GAAP") for interim
financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. They do not include all of the
information and footnotes required by GAAP for complete financial
statements and have not been audited by independent public
accountants.
The unaudited interim consolidated financial statements should be read
in conjunction with the audited consolidated financial statements and
related notes included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary for
a fair presentation of the financial statements for the interim
periods have been made. The results for interim periods are not
necessarily indicative of the results to be expected for a full year.
The accompanying consolidated balance sheet as of December 31, 1998
has been derived from the audited financial statements, but does not
include all disclosure required by GAAP.
Certain reclassifications have been made in the 1998 financial
statements to conform to the 1999 financial statement presentation.
In March 1998, the Financial Accounting Standards Board ("FASB"),
through its Emerging Issues Task Force ("EITF"), concluded based on
EITF 97-11, "Accounting for Internal Costs Relating to Real Estate
Property Acquisitions," that all internal costs to source, analyze and
close acquisitions should be expensed as incurred. The Company had
historically capitalized these costs in accordance with GAAP. The
Company adopted the FASB's interpretation effective March 19, 1998.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities," which will be effective for the
Company's consolidated financial statements for periods beginning
January 1, 2000. The new standard requires companies to record
derivatives on the balance sheet, measured at fair value. Changes in
the fair value of those derivatives will be accounted for based on the
use of the derivative and whether it qualifies for hedge accounting.
The key criteria for use of hedge accounting is whether the hedging
relationship is highly effective in achieving offsetting changes in
fair value or cash flows. The Company has not yet determined when it
will implement SFAS 133 nor has it completed the complex analysis
required to determine the impact of SFAS 133 on its consolidated
financial statements.
In June 1999, the FASB issued SFAS 137, "Accounting for Derivative
Instruments and Hedging Activities - - Deferral of the Effective Date
of FASB Statement No. 133," which delays the implementation of SFAS
133 for the Company's consolidated financial statements to January 1,
2001.
- 5 -
<PAGE>
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
Earnings Per Share ("EPS")
During 1998, the Company implemented SFAS No. 128, "Earnings per
Share." The computation of basic earnings per share is based on net
income and the weighted average number of common shares outstanding
for the six and three months ending June 30, 1999 and 1998. The
computation of diluted earnings per share includes the effect of
outstanding restricted stock and common stock options calculated using
the treasury stock method. The convertible debentures and convertible
preferred stock were not included in the calculation since the effect
of their inclusion would be anti-dilutive. The Operating Partnership
units ("OP units") not held by the Company have been included in the
diluted EPS calculation since they are redeemable on a one-for-one
basis for common stock. The following table reconciles the basic and
diluted earnings per share calculation:
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------------------------------------------------
---------------------------------- ---------------------------------------
1999 1998
---------------------------------- ---------------------------------------
Net Net
Income Shares Per Share Income Shares Per Share
----------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(In thousands, except per share data)
Net income $26,724 $16,896
Less: Preferred stock dividends 8,841 2,706
------------- -------------
Basic EPS:
Net income - available to common stockholders 17,883 33,971 $0.53 14,190 28,975 $0.49
Diluted EPS:
Effect of dilutive securities:
Conversion of OP units 6,488 12,315 6,190 12,088
Employee stock options and restricted stock 611 435 256 619
Convertible preferred stock n/a - antidilutive for EPS n/a - antidilutive for EPS
Convertible debentures n/a - antidilutive for EPS n/a - antidilutive for EPS
------------------------------------- ---------------------------------------
Net income - available to common stockholders $24,982 46,721 $0.53 $20,636 41,682 $0.49
===================================== =======================================
For the Three Months Ended June 30,
-----------------------------------------------------------------------------
------------------------------------- --------------------------------------
1999 1998
------------------------------------- --------------------------------------
Net Net
Income Shares Per Share Income Shares Per Share
------------------------------------- --------------------------------------
(In thousands, except per share data)
Net income $13,407 $9,424
Less: Preferred stock dividends 4,421 2,057
------------- -------------
Basic EPS:
Net income - available to common stockholders 8,986 33,980 $0.26 7,367 30,765 $0.24
Diluted EPS:
Effect of dilutive securities:
Conversion of OP units 3,258 12,311 3,182 12,088
Employee stock options and restricted stock 368 551 - 572
Convertible preferred stock n/a - antidilutive for EPS n/a - antidilutive for EPS
Convertible debentures n/a - antidilutive for EPS n/a - antidilutive for EPS
------------------------------------- --------------------------------------
Net income - available to common stockholders $12,612 46,842 $0.26 $10,549 43,425 $0.24
===================================== ======================================
</TABLE>
- 6 -
<PAGE>
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
2. Organization:
The Macerich Company (the "Company") is involved in the acquisition,
ownership, redevelopment, management and leasing of regional and
community shopping centers located throughout the United States. The
Company is the sole general partner of, and owns a majority of the
ownership interests in, The Macerich Partnership, L.P., a Delaware
limited partnership (the "Operating Partnership"). The Operating
Partnership owns or has an ownership interest in 47 regional shopping
centers and seven community shopping centers aggregating approximately
41 million square feet of gross leasable area. These 54 regional and
community shopping centers are referred to hereinafter as the
"Centers", unless the context otherwise requires. The Company is a
self-administered and self-managed real estate investment trust
("REIT") and conducts all of its operations through the Operating
Partnership and the Company's three management companies, Macerich
Property Management Company, a California corporation, Macerich
Manhattan Management Company, a California corporation, and Macerich
Management Company, a California corporation (collectively, the
"Management Companies").
The Company was organized to qualify as a REIT under the Internal
Revenue Code of 1986, as amended. The 22% limited partnership interest
of the Operating Partnership not owned by the Company is reflected in
these financial statements as minority interest.
3. Investments in Unconsolidated Joint Ventures and the Management
Companies:
The following are the Company's investments in various real estate
joint ventures which own regional retail and community shopping
centers. The Operating Partnership's interest in each joint venture as
of June 30, 1999 is as follows:
The Operating Partnership's
Joint Venture Ownership %
----------------- -------------------------------
Macerich Northwestern Associates 50%
Manhattan Village, LLC 10%
Pacific Premier Retail Trust 51%
Panorama City Associates 50%
SDG Macerich Properties, L.P. 50%
West Acres Development 19%
The Operating Partnership also owns the non-voting preferred stock of
Macerich Management Company and Macerich Property Management Company
and is entitled to receive 95% of the distributable cash flow of these
two entities. Macerich Manhattan Management Company is a 100%
subsidiary of Macerich Management Company.
The following are the Management Companies' ownership interests in
entities which own regional retail and community shopping centers as
of June 30, 1999:
Management Companies'
Entity Ownership %
--------- -------------------------
Macerich Cerritos, LLC 100%
PPR Albany Plaza, LLC 51%
PPR Eastland Plaza, LLC 51%
- 7 -
<PAGE>
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
3. Investments in Unconsolidated Joint Ventures and the Management
Companies, Continued:
The Company accounts for the Management Companies and joint ventures
using the equity method of accounting.
On February 27, 1998, the Company, through SDG Macerich Properties,
L.P., a 50/50 joint venture with an affiliate of Simon Property Group,
Inc., acquired a portfolio of twelve regional malls. The properties in
the portfolio comprise 10.7 million square feet and are located in
eight states. The total purchase price was $974,500, which included
$485,000 of assumed debt, at market value. The Company's share of the
cash component of the purchase price was funded by issuing $100,000 of
Series A cumulative convertible preferred stock ("Series A Preferred
Stock"), $80,000 of common stock and borrowing the balance from the
Company's line of credit. Each of the joint venture partners have
assumed leasing and management responsibilities for six of the
regional malls.
On February 18, 1999, the Company, through a 51/49 joint venture with
Ontario Teachers' Pension Plan Board closed on the first phase of a
two phase acquisition of a portfolio of properties. The phase one
closing included the acquisition of three regional malls, the retail
component of a mixed-use development, five contiguous properties and
two non-contiguous community shopping centers comprising approximately
3.6 million square feet for a total purchase price of approximately
$427,000. The purchase price was funded with a $120,000 loan placed
concurrently with the closing, $140,400 of debt from an affiliate of
the seller, and $39,400 of assumed debt. The balance of the purchase
price was paid in cash. The Company's share of the cash component was
funded with the proceeds from two refinancings of Centers and
borrowings under the Company's line of credit. On July 12, 1999, the
Company closed on the second phase of the acquisition. The second
phase consisted of the acquisition of the office component of the
mixed-use development for a purchase price of approximately $111,000.
The purchase price was funded with a $76,700 loan placed concurrently
with the closing and the balance was paid in cash. The Company's share
of the cash component was funded from borrowings under the Company's
line of credit.
On June 2, 1999, Macerich Cerritos, LLC, a wholly-owned subsidiary of
Macerich Management Company, acquired Los Cerritos Center in Cerritos,
California. The total purchase price was $188,000, which was funded
with $120,000 of debt placed concurrently with the closing and a
$70,800 loan from the Company. The Company funded this loan from
borrowings under a $60,000 bank loan agreement and the balance from
the Company's line of credit.
The results of these joint ventures and the Management Companies are
included for the period subsequent to their respective dates of
acquisition.
Combined and condensed balance sheets and statements of operations are
presented below for all unconsolidated joint ventures and the
Management Companies, followed by information regarding the Operating
Partnership's beneficial interest in the combined operations.
Beneficial interest is calculated based on the Operating Partnership's
ownership interests in the joint ventures and the Management
Companies.
- 8 -
<PAGE>
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
3. Investments in Unconsolidated Joint Ventures and the Management
Companies, Continued:
COMBINED AND CONDENSED BALANCE SHEETS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------------- ------------------
<S> <C> <C>
Assets:
Properties, net $1,741,131 $1,141,984
Other assets 51,056 38,103
---------------- ------------------
Total assets $1,792,187 $1,180,087
---------------- ------------------
---------------- ------------------
Liabilities and partners' capital:
Mortgage notes payable $1,008,315 $618,384
Notes to affiliates 76,937 -
Other liabilities 46,931 42,048
The Company's capital 300,390 230,022
Outside partners' capital 359,614 289,633
---------------- ------------------
Total liabilities and partners' capital $1,792,187 $1,180,087
---------------- ------------------
---------------- ------------------
</TABLE>
- 9 -
<PAGE>
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
3. Investments in Unconsolidated Joint Ventures and the Management
Companies - Continued:
COMBINED STATEMENTS OF OPERATIONS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
--------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
----------------- ----------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues:
Minimum rents $42,548 $13,581 $12,563 $1,399 $70,091
Percentage rents 3,554 931 951 12 5,448
Tenant recoveries 19,612 4,279 5,665 341 29,897
Management fee - - - 4,098 4,098
Other 931 167 576 215 1,889
----------------- ----------------- ---------------- --------------- --------------
Total revenues 66,645 18,958 19,755 6,065 111,423
Expenses:
Shopping center expenses 24,288 5,507 6,390 373 36,558
Interest expense 15,189 6,399 3,794 1,019 26,401
Management company expense - - - 5,718 5,718
Depreciation and amortization 10,566 3,525 2,141 698 16,930
----------------- ----------------- ---------------- --------------- --------------
Total operating expenses 50,043 15,431 12,325 7,808 85,607
----------------- ----------------- ---------------- --------------- --------------
Gain on sale of assets 5 - 983 300 1,288
----------------- ----------------- ---------------- --------------- --------------
Net income (loss) $16,607 $3,527 $8,413 ($1,443) $27,104
================= ================= ================ =============== ==============
</TABLE>
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF OPERATIONS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
Six Months Ended June 30, 1998
---------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
------------------ ------------------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues:
Minimum rents $27,887 - $12,471 - $40,358
Percentage rent 1,507 - 559 - 2,066
Tenant recoveries 11,538 - 5,439 - 16,977
Management fee - - - $2,944 2,944
Other 821 - 436 174 1,431
------------------ ------------------- ----------------- ------------- ---------------
Total revenues 41,753 - 18,905 3,118 63,776
Expenses:
Shopping center expenses 14,563 - 6,426 - 20,989
Interest expense 10,323 - 3,163 (191) 13,295
Management company expense - - - 4,114 4,114
Depreciation and amortization 6,866 - 2,057 312 9,235
------------------ ------------------- ----------------- ------------- ---------------
Total operating expenses 31,752 - 11,646 4,235 47,633
------------------ ------------------- ----------------- ------------- ---------------
Gain (loss) on sale of assets - - 126 (197) (71)
------------------ ------------------- ----------------- ------------- ---------------
Net income (loss) $10,001 - $7,385 ($1,314) $16,072
================== =================== ================= ============= ===============
</TABLE>
- 10 -
<PAGE>
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
3. Investments in Unconsolidated Joint Ventures and the Management
Companies - Continued:
COMBINED STATEMENTS OF OPERATIONS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999
--------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
----------------- ----------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues:
Minimum rents $21,422 $9,317 $6,274 $1,399 $38,412
Percentage rents 1,684 616 391 12 2,703
Tenant recoveries 9,586 3,068 2,899 341 15,894
Management fee - - - 2,089 2,089
Other 362 91 282 61 796
----------------- ----------------- ---------------- --------------- --------------
Total revenues 33,054 13,092 9,846 3,902 59,894
Expenses:
Shopping center expenses 12,155 3,963 3,269 373 19,760
Interest expense 7,562 4,324 1,888 1,124 14,898
Management company expense - - - 2,974 2,974
Depreciation and amortization 5,388 2,533 1,075 614 9,610
----------------- ----------------- ---------------- --------------- --------------
Total operating expenses 25,105 10,820 6,232 5,085 47,242
----------------- ----------------- ---------------- --------------- --------------
Gain on sale of assets 2 - 983 288 1,273
----------------- ----------------- ---------------- --------------- --------------
Net income (loss) $7,951 $2,272 $4,597 ($895) $13,925
================= ================= ================ =============== ==============
</TABLE>
- 11-
<PAGE>
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
3. Investments in Unconsolidated Joint Ventures and the Management
Companies - Continued:
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF OPERATIONS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
Three Months Ended June 30, 1998
--------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
----------------- ----------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues:
Minimum rents $20,987 - $6,222 - $27,209
Percentage rents 954 - 364 - 1,318
Tenant recoveries 9,357 - 2,596 - 11,953
Management fee - - - $1,661 1,661
Other 512 - 229 134 875
----------------- ----------------- ---------------- --------------- --------------
Total revenues 31,810 - 9,411 1,795 43,016
Expenses:
Shopping center expenses 11,706 - 3,142 - 14,848
Interest expense 7,576 - 1,597 (112) 9,061
Management company expense - - - 2,446 2,446
Depreciation and amortization 5,109 - 1,009 164 6,282
----------------- ----------------- ---------------- --------------- --------------
Total operating expenses 24,391 - 5,748 2,498 32,637
----------------- ----------------- ---------------- --------------- --------------
Gain on sale of assets - - 127 191 318
----------------- ----------------- ---------------- --------------- --------------
Net income (loss) $7,419 - $3,790 ($512) $10,697
================= ================= ================ =============== ==============
</TABLE>
Significant accounting policies used by the unconsolidated joint
ventures and the Management Companies are similar to those used by the
Company.
Included in mortgage notes payable are amounts due to affiliates of
Northwestern Mutual Life ("NML") of $73,999 and $74,612 for the
periods ended June 30, 1999 and December 31, 1998, respectively. NML
is considered a related party because it is a joint venture partner
with the Company in Macerich Northwestern Associates. Interest expense
incurred on these borrowings amounted to $2,465 and $1,483 for the six
months ended June 30, 1999 and 1998, respectively; and $1,234 and $749
for the three months ended June 30, 1999 and 1998, respectively.
- 12 -
<PAGE>
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
3. Investments in Unconsolidated Joint Ventures and the Management
Companies - Continued:
PRO RATA SHARE OF COMBINED AND CONDENSED STATEMENTS OF
OPERATIONS OF JOINT VENTURES AND THE MANAGEMENT COMPANIES
The following tables set forth the Operating Partnership's beneficial
interest in the joint ventures and the Management Companies:
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
------------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
------------------- -------------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Minimun rents $21,274 $6,926 $3,860 $1,329 $33,389
Percentage rents 1,777 475 300 11 2,563
Tenant recoveries 9,806 2,182 1,591 324 13,903
Management fee - - - 3,893 3,893
Other 466 85 117 204 872
------------------- -------------------- ----------------- ------------ ------------
Total revenues 33,323 9,668 5,868 5,761 54,620
------------------- -------------------- ----------------- ------------ ------------
Expenses:
Shopping center expenses 12,144 2,808 1,948 354 17,254
Interest expense 7,594 3,263 1,485 968 13,310
Management company expense - - - 5,431 5,431
Depreciation and amortization 5,283 1,798 722 662 8,465
------------------- -------------------- ----------------- ------------ ------------
Total operating expenses 25,021 7,869 4,155 7,415 44,460
------------------- -------------------- ----------------- ------------ ------------
Gain on sale of assets 2 - 188 284 474
------------------- -------------------- ----------------- ------------ ------------
Net income (loss) $8,304 $1,799 $1,901 ($1,370) $10,634
=================== ==================== ================= ============ ============
</TABLE>
- 13 -
<PAGE>
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
3. Investments in Unconsolidated Joint Ventures and the Management
Companies - Continued:
PRO RATA SHARE OF COMBINED AND CONDENSED STATEMENTS OF OPERATIONS
OF JOINT VENTURES AND THE MANAGEMENT COMPANIES CONTINUED:
The following tables set forth the Operating Partnership's beneficial
interest in the joint ventures and the Management Companies:
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998
------------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
------------------- -------------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Minimun rents $13,943 - $3,806 - $17,749
Percentage rents 753 - 178 - 931
Tenant recoveries 5,769 - 1,463 - 7,232
Management fee - - - $2,796 2,796
Other 411 - 97 166 674
------------------- -------------------- ----------------- ------------ ------------
Total revenues 20,876 - 5,544 2,962 29,382
------------------- -------------------- ----------------- ------------ ------------
Expenses:
Shopping center expenses 7,281 - 1,977 - 9,258
Interest expense 5,162 - 1,060 (181) 6,041
Management company expense - - - 3,910 3,910
Depreciation and amortization 3,433 - 699 295 4,427
------------------- -------------------- ----------------- ------------ ------------
Total operating expenses 15,876 - 3,736 4,024 23,636
------------------- -------------------- ----------------- ------------ ------------
Gain (loss) on sale of assets - - 24 (188) (164)
------------------- -------------------- ----------------- ------------ ------------
Net income (loss) $5,000 - $1,832 ($1,250) $5,582
=================== ==================== ================= ============ ============
</TABLE>
- 14 -
<PAGE>
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
3. Investments in Unconsolidated Joint Ventures and the Management
Companies - Continued:
PRO RATA SHARE OF COMBINED AND CONDENSED STATEMENTS OF OPERATIONS
OF JOINT VENTURES AND THE MANAGEMENT COMPANIES CONTINUED:
The following tables set forth the Operating Partnership's beneficial
interest in the joint ventures and the Management Companies:
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999
------------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
----------------- ------------------- ------------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Minimum rents $10,712 $4,751 $1,915 $1,329 $18,707
Percentage rents 842 314 102 11 1,269
Tenant recoveries 4,793 1,564 829 324 7,510
Management fee - - - 1,985 1,985
Other 180 47 57 57 341
----------------- ------------------- ------------------ ------------ -------------
Total revenues 16,527 6,676 2,903 3,706 29,812
----------------- ------------------- ------------------ ------------ -------------
Expenses:
Shopping center expenses 6,077 2,021 984 354 9,436
Interest expense 3,780 2,205 742 1,068 7,795
Management company expense - - - 2,825 2,825
Depreciation and amortization 2,694 1,292 364 583 4,933
----------------- ------------------- ------------------ ------------ -------------
Total operating expenses 12,551 5,518 2,090 4,830 24,989
----------------- ------------------- ------------------ ------------ -------------
Gain on sale of assets 1 - 188 274 463
----------------- ------------------- ------------------ ------------ -------------
Net income (loss) $3,977 $1,158 $1,001 ($850) $5,286
================= =================== ================== ============ =============
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998
------------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
------------------- -------------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Minimun rents $10,493 - $1,896 - $12,389
Percentage rents 477 - 97 - 574
Tenant recoveries 4,678 - 711 - 5,389
Management fee - - - $1,578 1,578
Other 256 - 48 127 431
------------------- -------------------- ----------------- ------------ ------------
Total revenues 15,904 - 2,752 1,705 20,361
------------------- -------------------- ----------------- ------------ ------------
Expenses:
Shopping center expenses 5,853 - 959 - 6,812
Interest expense 3,788 - 535 (103) 4,220
Management company expense - - - 2,325 2,325
Depreciation and amortization 2,555 - 347 155 3,057
------------------- -------------------- ----------------- ------------ ------------
Total operating expenses 12,196 - 1,841 2,377 16,414
------------------- -------------------- ----------------- ------------ ------------
Gain on sale of assets - - 24 181 205
------------------- -------------------- ----------------- ------------ ------------
Net income (loss) $3,708 - $935 ($491) $4,152
=================== ==================== ================= ============ ============
</TABLE>
- 15 -
<PAGE>
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
4. Property:
Property is comprised of the following at:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------------- --------------------
<S> <C> <C>
Land $428,099 $422,592
Building improvements 1,687,217 1,684,188
Tenant improvements 50,843 47,808
Equipment & furnishings 9,645 9,097
Construction in progress 70,388 49,440
-------------------- --------------------
2,246,192 2,213,125
Less, accumulated depreciation (272,649) (246,280)
-------------------- --------------------
$1,973,543 $1,966,845
-------------------- --------------------
-------------------- --------------------
</TABLE>
- 16 -
<PAGE>
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
5. Mortgage Notes Payable:
Mortgage notes payable at June 30, 1999 and December 31, 1998 consist
of the following:
<TABLE>
<CAPTION>
Carrying Amount of Notes
------------------------------------------------------------
----------------------------- ------------------------------
1999 1998
----------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Property Pledged Related Related Interest Payment Maturity
As Collateral Other Party Other Party Rate Terms Date
- ---------------- ------------- ------------- --------------- ------------- ------------ --------------- -------------
Wholly Owned Centers:
Capitola Mall ---- $37,163 ---- $37,345 9.25% 316(d) 2001
Carmel Plaza (i) $28,984 ---- $25,000 ---- 8.18% 202(d) 2009
Chesterfield Towne Center 64,719 ---- 65,064 ---- 9.07% 548(e) 2024
Chesterfield Towne Center 3,217 ---- 3,266 ---- 8.54% 31(d) 1999
Citadel 73,987 ---- 74,575 ---- 7.20% 554(d) 2008
Corte Madera, Village at (j) 60,000 ---- 60,000 ---- 7.28% interest only 1999
Crossroads Mall-Boulder (a) ---- 35,087 ---- 35,280 7.08% 244(d) 2010
Fresno Fashion Fair 69,000 ---- 69,000 ---- 6.52% interest only 2008
Greeley Mall 16,650 ---- 17,055 ---- 8.50% 187(d) 2003
Green Tree Mall/Crossroads - OK/
Salisbury (b) 117,714 ---- 117,714 ---- 7.23% interest only 2004
Holiday Village ---- 17,000 ---- 17,000 6.75% interest only 2001
Lakewood Mall (c) 127,000 ---- 127,000 ---- 7.20% interest only 2005
Northgate Mall ---- 25,000 ---- 25,000 6.75% interest only 2001
Northwest Arkansas Mall 62,589 ---- 63,000 ---- 7.33% 434(d) 2009
Parklane Mall ---- 20,000 ---- 20,000 6.75% interest only 2001
Queens Center (f) 100,000 ---- 65,100 ---- 6.88% 633(d) 2009
Rimrock Mall 30,729 ---- 31,002 ---- 7.70% 244(d) 2003
South Plains Mall (h) 64,881 ---- 28,795 ---- 8.22% 454(d) 2009
South Towne Center 64,000 ---- 64,000 ---- 6.61% interest only 2008
Valley View Center 51,000 ---- 51,000 ---- 7.89% interest only 2006
Villa Marina Marketplace 58,000 ---- 58,000 ---- 7.23% interest only 2006
Vintage Faire Mall (g) 54,039 ---- 54,522 ---- 7.65% 427(d) 2003
Westside Pavilion 100,000 ---- 100,000 ---- 6.67% interest only 2008
--------------- ------------- --------------- -------------
--------------- ------------- --------------- -------------
Total - Wholly Owned
Centers $1,146,509 $134,250 $1,074,093 $134,625
--------------- ------------- --------------- -------------
</TABLE>
- 17 -
<PAGE>
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
5. Mortgage Notes Payable, Continued:
Mortgage notes payable at June 30, 1999 and December 31, 1998 consist
of the following:
<TABLE>
<CAPTION>
Carrying Amount of Notes
-------------------------------------------------------------
----------------------------- ------------------------------
1999 1998
----------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Property Pledged Related Related Interest Payment Maturity
As Collateral Other Party Other Party Rate Terms Date
- ---------------------- --------------- ------------- --------------- ------------- ------------ --------------- -----------
Joint Venture/Management Companies (at pro rata share):
Broadway Plaza (50%)(k) - $37,000 - $37,306 6.68% 257 (d) 2008
Macerich Cerritos LLC (95%) (k) $114,000 - - - 7.13% 785 (d) 2006
Pacific Premier Retail Trust
(51%) (k):
Cascade Mall 14,111 - - - 6.50% 122 (d) 2014
Kitsap Mall 20,840 - - - 6.50% (l) 178 (d) 2000
North Point 1,922 - - - 6.50% 16 (d) 2015
Redmond Town Center 33,016 - - - 6.50% 224 (d) 2011
Washington Square 60,961 - - - 6.70% 421 (d) 2009
Washington Square Too 6,635 - - - 6.50% 53 (d) 2016
SDG Macerich Properties
L.P. (50%) (k) 159,867 - $160,434 - 6.23(m) 926 (d) 2006
SDG Macerich Properties
L.P. (50%) (k) 92,500 - 92,500 - 6.15(m) interest only 2003
West Acres Center (19%)(k)(n) 7,600 - 7,202 - 6.52% interest only 2019
--------------- ------------- --------------- -------------
Total - Joint Venture/
Management Companies 511,452 37,000 260,136 37,306
--------------- ------------- --------------- -------------
=============== ============= =============== =============
Total - All Centers $1,657,961 $171,250 $1,334,229 $171,931
=============== ============= =============== =============
Weighted average interest rate at June 30, 1999 - Wholly Owned Centers 7.36%
============
Weighted average interest rate at December 31, 1998 - Wholly Owned Centers 7.24%
============
</TABLE>
(a) This note was issued at a discount. The discount is being
amortized over the life of the loan using the effective interest
method. At June 30, 1999 and December 31, 1998 the unamortized
discount was $380 and $397, respectively.
(b) This loan is cross collateralized by Green Tree Mall, Crossroads
Mall-Oklahoma and the Centre at Salisbury.
(c) On August 15, 1995, the Company issued $127,000 of collateralized
floating rate notes (the "Notes"). The Notes bear interest at an
average fixed rate of 7.20% and mature in July 2005. The Notes require
the Company to deposit all cash flow from the property operations with
a trustee to meet its obligations under the Notes. Cash in excess of
the required amount, as defined, is released. Included in cash and
cash equivalents is $750 of restricted cash deposited with the trustee
at June 30, 1999 and at December 31, 1998.
- 18 -
<PAGE>
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
5. Mortgage Notes Payable, Continued:
(d) This represents the monthly payment of principal and interest.
(e) 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 $139 and $26 for the six and three
months ended June 30, 1999, respectively; and $0 for the six and three
months ended June 30, 1998.
(f) At December 31, 1998, a $65,100 loan was outstanding which bore
interest at LIBOR plus 0.45%. There was an interest rate protection
agreement in place on the first $10,200 of this debt with a LIBOR
ceiling of 5.88% through maturity with the remaining principal having
an interest rate cap with a LIBOR ceiling of 7.07% through 1997 and
7.7% thereafter. The $65,100 loan was paid in full on February 4, 1999
and refinanced with a new loan of $100,000, with interest at 6.88%,
maturing in 2009. The Company incurred a loss on early extinguishment
of the old debt in 1999 of $163.
(g) Included in cash and cash equivalents is $3,048 at June 30, 1999
and December 31, 1998, of cash restricted under the terms of this loan
agreement.
(h) The old note of $28,795 was assumed at acquisition. At the time of
acquisition in June 1998, this debt was recorded at fair market value
and the premium was being amortized as interest expense over the life
of the loan using the effective interest method. The monthly debt
service payment was $348 per month and was calculated based on a 12.5%
interest rate. At December 31, 1998, the unamortized premium was
$6,165. On February 17, 1999, the loan was paid in full and was
refinanced with a new loan of $65,000, with interest at 8.22%,
maturing in 2009. The Company incurred a loss on early extinguishment
of the old debt in 1999 of $810.
(i) On April 30, 1999, the old loan of $25,000 was paid in full and
was refinanced with a new loan of $29,000, with a fixed interest rate
of 8.18%, maturing May 1, 2009.
(j) The loan bears interest at LIBOR plus 2.0%.
(k) Reflects the Company's pro rata share of debt.
(l) In connection with the acquisition of this Center, the joint
venture assumed $39,425 of debt. At acquisition, this debt was
recorded at fair market value of $41,475, which included an
unamortized premium of $2,050. This premium is being amortized as
interest expense over the life of the loan using the effective
interest method. The joint venture's monthly debt service is $349 and
is calculated based on an 8.60% interest rate. At June 30, 1999, the
joint venture's unamortized premium was $1,706.
- 19 -
<PAGE>
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
5. Mortgage Notes Payable, Continued:
(m) In connection with the acquisition of these Centers, the joint
venture assumed $485,000 of mortgage notes payable which are secured
by the properties. At acquisition, this debt reflected a fair market
value of $322,700, which included an unamortized premium of $22,700.
This premium is being amortized as interest expense over the life of
the loan using the effective interest method. At June 30, 1999 and
December 31, 1998, the unamortized balance of the debt premium was
$19,737 and $20,900, respectively. This debt is due in May 2006 and
requires monthly payments of $926. $185,000 of this debt is due in May
2003 and requires monthly interest payments at a variable weighted
average rate (based on LIBOR) of 5.49% and 6.03% at June 30, 1999 and
December 31, 1998, respectively. This variable rate debt is covered by
an interest rate cap agreement which effectively prevents the interest
rate from exceeding 11.53%.
(n) On January 4, 1999, the joint venture replaced the old debt with a
new loan of $40,000. The loan is at an interest rate of 6.52% and
matures February 2019. The debt is interest only until January 2001 at
which time monthly payments of principal and interest will be due of
$299.
The Company periodically enters into treasury lock agreements in order
to hedge its exposure to interest rate fluctuations on anticipated
financings. Under these agreements, the Company pays or receives an
amount equal to the difference between the treasury lock rate and the
market rate on the date of settlement, based on the notional amount of
the hedge. The realized gain or loss on the contracts is recorded on
the balance sheet in other assets and amortized to interest expense
over the period of the hedged loans.
Certain mortgage loan agreements contain a prepayment penalty
provision for the early extinguishment of the debt.
Total interest capitalized during the six and three months ended June
30, 1999 was $2,739 and $1,773, respectively; and total interest
capitalized during the six and three months ended June 30, 1998 was
$1,471 and $810, respectively.
The market value of mortgage notes payable at June 30, 1999 and
December 31, 1998 is estimated to be approximately $1,275,489 and
$1,271,853, respectively, based on current interest rates for
comparable loans.
6. Bank and Other Notes Payable:
The Company has a credit facility of $150,000 with a maturity of
February 2000, which can be extended to February 2001, currently
bearing interest at LIBOR plus 1.15%. The interest rate on such credit
facility fluctuates between 0.95% and 1.15% over LIBOR. As of June 30,
1999 and December 31, 1998, $119,500 and $137,000 of borrowings were
outstanding under this line of credit at interest rates of 6.15% and
6.79%, respectively.
- 20 -
<PAGE>
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
6. Bank and Other Notes Payable, Continued:
On May 28, 1999, the Company entered into an agreement with a bank for
a term loan of $60,000. The interest rate on such loan is at LIBOR
plus 3.0% and matures with extension on February 26, 2000. As of June
30, 1999, $60,000 was outstanding at a total interest rate of 8.0%.
Additionally, the Company issued $776 in letters of credit
guaranteeing performance by the Company of certain obligations. The
Company does not believe that these letters of credit will result in a
liability to the Company.
During January 1999, the Company entered into a bank construction loan
agreement to fund $89,200 of costs related to the redevelopment of
Pacific View. The loan bears interest at LIBOR plus 2.25% and matures
in February 2001. Principal is drawn as construction costs are
incurred. As of June 30, 1999, $40,987 of principal has been drawn
under the loan.
In addition, the Company has a note payable of $30,600 due in February
2000 payable to the seller of the acquired portfolio. The note bears
interest at 6.5%.
7. Convertible Debentures:
During 1997, the Company issued and sold $161,400 of convertible
subordinated debentures (the "Debentures") due 2002. The Debentures,
which were sold at par, bear interest at 7.25% annually (payable
semi-annually) and are convertible at any time, on or after 60 days,
from the date of issue at a conversion price of $31.125 per share. The
Debentures mature on December 15, 2002 and are callable by the Company
after June 15, 2002 at par plus accrued interest.
8. Related-Party Transactions:
The Company engaged the Management Companies to manage the operations
of its properties and certain unconsolidated joint ventures. For the
six and three months ending June 30, 1999, management fees of $1,620
and $812 respectively, and for the six and three months ended June 30,
1998, management fees of $1,250 and $622, respectively, were paid to
the Management Companies by the Company.
Certain mortgage notes are held by one of the Company's joint venture
partners. Interest expense in connection with these notes was $5,053
and $4,875 for the six months ended June 30, 1999 and 1998,
respectively; and $2,540 and $2,348 for the three months ending June
30, 1999 and 1998, respectively. Included in accounts payable and
accrued expenses is interest payable to these partners of $486 and
$512 at June 30, 1999 and December 31, 1998, respectively.
Additionally, the Company has notes receivable due from the Management
Companies of $76,937 related to acquisitions made by the Management
Companies in 1999. These notes are interest only at a rate of 7.0% and
mature in 2009. These notes receivable are included in due from
affiliates at June 30, 1999.
- 21 -
<PAGE>
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
8. Related-Party Transactions, Continued:
In 1997, certain executive officers received loans from the Company
totaling $5,500. These loans are full recourse to the executives.
$5,000 of the loans were issued under the terms of the employee stock
incentive plan, bear interest at 7%, are due in 2007 and are secured
by Company common stock owned by the executives. The remaining loan is
non interest bearing and is forgiven ratably over a five year term.
These loans receivable are included in other assets at June 30, 1999
and December 31, 1998.
Certain Company officers and affiliates have guaranteed mortgages of
$21,750 at one of the Company's joint venture properties and $2,000 at
Greeley Mall.
9. Commitments and Contingencies:
The Company has certain properties subject to noncancellable operating
ground leases. The leases expire at various times through 2070,
subject in some cases to options to extend the terms of the lease.
Certain leases provide for contingent rent payments based on a
percentage of base rental income, as defined. Ground rent expenses
were $456 and $644 for the six months ended June 30, 1999 and 1998,
respectively; and $257 and $427 for the three months ended June 30,
1999 and 1998, respectively. There were no contingent rents in either
period.
Perchloroethylene (PCE) has been detected in soil and groundwater in
the vicinity of a dry cleaning establishment at North Valley Plaza,
formerly owned by a joint venture of which the Company was a 50%
member. The property was sold on December 18, 1997. The California
Department of Toxic Substances Control (DTSC) advised the Company in
1995 that very low levels of Dichloroethylene (1,2 DCE), a degradation
byproduct of PCE, had been detected in a municipal water well located
1/4 mile west of the dry cleaners, and that the dry cleaning facility
may have contributed to the introduction of 1,2 DCE into the water
well. According to DTSC, the maximum contaminant level (MCL) for 1,2
DCE which is permitted in drinking water is 6 parts per billion (ppb).
The 1,2 DCE was detected in the water well at a concentration of 1.2
ppb, which is below the MCL. The Company has retained an environmental
consultant and has initiated extensive testing of the site.
Remediation began in October 1997. The joint venture agreed (between
itself and the buyer) that it would be responsible for continuing to
pursue the investigation and remediation of impacted soil and
groundwater resulting from releases of PCE from the former dry
cleaner. $71 and $65 have already been incurred by the joint venture
for remediation, and professional and legal fees for the periods
ending June 30, 1999 and 1998, respectively. An additional $336
remains reserved by the joint venture as of June 30, 1999. The joint
venture has been sharing costs on a 50/50 basis with a former owner of
the property and intends to look to additional responsible parties for
recovery.
Low levels of toluene, a petroleum constituent, were detected in one
of three groundwater dewatering system holding tanks at Queens Center.
Although the Company believes that no remediation will be required,
the Company established a $150 reserve in 1996 to cover professional
fees and testing costs. The Company incurred costs of $0 and $1 during
the six months ending June 30, 1999 and 1998, respectively. The
Company intends to look to the responsible parties if remediation is
required.
- 22 -
<PAGE>
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
9. Commitments and Contingencies, Continued:
The Company acquired Fresno Fashion Fair in December 1996. Asbestos
was detected in structural fireproofing throughout much of the Center.
Testing data conducted by professional environmental consulting firms
indicate that the fireproofing is largely inaccessible to building
occupants and is well adhered to the structural members. Additionally,
airborne concentrations of asbestos are well within OSHA's permissible
exposure limit (PEL) of .1 fcc. The accounting for this acquisition
includes a reserve of $3,300 to cover future removal of this asbestos,
as necessary. The Company incurred $82 and $134 in remediation costs
for the six months ending June 30, 1999 and 1998, respectively.
10. Pro Forma Information:
On February 18, 1999, through a 51/49 joint venture with Ontario
Teachers' Pension Plan Board, the Company closed on the first phase of
a two phase acquisition of a portfolio of properties. The phase one
closing included the acquisition of three regional malls, the retail
component of a mixed-use development, five contiguous properties and
two non-contiguous community shopping centers comprising approximately
3.6 million square feet for a total purchase price of approximately
$427,000. The purchase price was funded with a $120,000 loan placed
concurrently with the closing, $140,400 of debt from an affiliate of
the seller, and $39,400 of assumed debt. The balance of the purchase
price was paid in cash. The Company's share of the cash component was
funded with the proceeds from two refinancings of Centers and
borrowings under the Company's line of credit. On July 12, 1999, the
Company closed on the second phase of the acquisition. The second
phase consisted of the acquisition of the office component of the
mixed-use development for a purchase price of approximately $111,000.
The purchase price was funded with a $76,700 loan placed concurrently
with the closing and the balance was paid in cash. The Company's share
of the cash component was funded from borrowings under the Company's
line of credit.
On June 2, 1999, Macerich Cerritos, LLC, a wholly-owned subsidiary of
Macerich Management Company, acquired Los Cerritos Center in Cerritos,
California. The total purchase price was $188,000, which was funded
with $120,000 of debt placed concurrently with the closing and a
$70,800 loan from the Company. The Company funded this loan from
borrowings under a $60,000 bank loan agreement and the balance from
the Company's line of credit.
On a pro forma basis, reflecting these acquisitions as if they had
occurred on January 1, 1999 and 1998, the Company would have reflected
net income - available to common stockholders of $17,018 and $13,496
for the six months ended June 30, 1999 and 1998, respectively. Net
income - available to common stockholders on a diluted per share basis
would be $0.50 and $0.47 for the six months ended June 30, 1999 and
1998, respectively.
11. Preferred Stock:
On February 25, 1998, the Company issued 3,627,131 shares of Series A
Preferred Stock for proceeds totaling $100,000 in a private placement.
The preferred stock can be converted on a one for one basis into
common stock and will pay a quarterly dividend equal to the greater of
$0.46 per share, or the dividend then payable on a share of common
stock.
- 23 -
<PAGE>
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
11. Preferred Stock, Continued:
On June 17, 1998, the Company issued 5,487,471 shares of Series B
cumulative convertible preferred stock ("Series B Preferred Stock")
for proceeds totaling $150,000 in a private placement. The preferred
stock can be converted on a one for one basis into common stock and
will pay a quarterly dividend equal to the greater of $0.46 per share,
or the dividend then payable on a share of common stock.
No dividends will be declared or paid on any class of common or other
junior stock to the extent that dividends on Series A Preferred Stock
and Series B Preferred Stock have not been declared and/or paid.
12. Subsequent Events:
On August 11, 1999, a dividend\distribution of $0.485 per share was
declared for common stockholders and OP unit holders of record on
August 19, 1999. In addition, the Company declared a dividend of
$0.485 on the Company's Series A Preferred Stock and a dividend of
$0.485 on the Company's Series B Preferred Stock. All
dividends/distributions will be payable on September 7, 1999.
- 24 -
<PAGE>
THE MACERICH COMPANY (The Company)
Item II
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion is based primarily on the consolidated
balance sheet of The Macerich Company as of June 30, 1999, and also
compares the activities for the six and three months ended June 30,
1999 to the activities for the six and three months ended June 30,
1998.
This information should be read in conjunction with the accompanying
consolidated financial statements and notes thereto. These financial
statements include all adjustments, which are, in the opinion of
management, necessary to reflect the fair statement of the results for
the interim periods presented, and all such adjustments are of a
normal recurring nature.
Forward-Looking Statements
This quarterly report on Form 10-Q contains or incorporates statements
that constitute forward-looking statements. Those statements appear in
a number of places in this Form 10-Q and include statements regarding,
among other matters, the Company's growth and acquisition
opportunities, the Company's acquisition strategy, regulatory matters
pertaining to compliance with governmental regulations and other
factors affecting the Company's financial condition or results of
operations. Words such as "expects," "anticipates," "intends,"
"projects," "predicts," "plans," "believes," "seeks," "estimates," and
"should" and variations of these words and similar expressions, are
used in many cases to identify these forward-looking statements.
Stockholders are cautioned that any such forward-looking statements
are not guarantees of future performance and involve risks,
uncertainties and other factors that may cause actual results,
performance or achievements of the Company or the industry to vary
materially from the Company's future results, performance or
achievements, or those of the industry, expressed or implied in such
forward-looking statements. Such factors include, among others,
general industry economic and business conditions, which will, among
other things, affect demand for retail space or retail goods,
availability and creditworthiness of current and prospective tenants,
lease rents, availability and cost of financing and operating
expenses; adverse changes in the real estate markets including, among
other things, competition with other companies, retail formats and
technology, risks of real estate development and acquisition;
governmental actions and initiatives; environmental and safety
requirements; and Year 2000 compliance issues of the Company and third
parties and related service interruptions or payment delays. The
Company will not update any forward-looking information to reflect
actual results or changes in the factors affecting the forward-looking
information.
- 25 -
<PAGE>
THE MACERICH COMPANY (The Company)
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Continued:
The following table reflects the Company's acquisitions in 1998 and 1999:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Date
Acquired Location
"1998 Acquisition Centers"
SDG Macerich Properties, L.P. (*) February 27, 1998 Twelve properties in eight states
South Plains Mall June 19, 1998 Lubbock, Texas
Westside Pavilion July 1, 1998 Los Angeles, California
Village at Corte Madera June-July 1998 Corte Madera, California
Carmel Plaza August 10, 1998 Carmel, California
Northwest Arkansas Mall December 15, 1998 Fayetteville, Arkansas
"1999 Acquisition Centers"
Pacific Premier Retail Trust (*) February 18, 1999 Three regional malls, retail component of a
mixed-use development and five contiguous
properties in Washington and Oregon. The office
component of the mixed-used development was
acquired July 12, 1999.
PPR Albany Plaza LLC (**) February 18, 1999 Two non-contiguous community shopping
PPR Eastland Plaza LLC (**) Centers in Oregon and Ohio.
Los Cerritos Center (**) June 2, 1999 Cerritos, California
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(*) denotes the Company owns its interests in these Centers through a
joint venture entity.
(**) denotes the Company owns its interests in these Centers through
one of the Management Companies.
The financial statements include the results of these Centers for
periods subsequent to their acquisition.
The properties acquired by SDG Macerich Properties, L.P., Pacific
Premier Retail Trust and the Management Companies ("Joint Venture
Acquisitions") are reflected using the equity method of accounting.
The results of these acquisitions are reflected in the consolidated
results of operations of the Company in equity in income of
unconsolidated joint ventures and the Management Companies.
Many of the variations in the results of operations discussed below
occurred due to the addition of these properties to the portfolio
during 1999 and 1998. Many factors impact the Company's ability to
acquire additional properties; including the availability and cost of
capital, the overall debt to market capitalization level, interest
rates and availability of potential acquisition targets that meet the
Company's criteria. Accordingly, management is uncertain whether
during the balance of 1999, and in future years, there will be similar
acquisitions and corresponding increases in revenues, net income and
Funds from Operations that occurred as a result of the 1999 and 1998
Acquisition Centers. Pacific View (formerly known as Buenaventura
Mall), Crossroads Mall-Boulder, Huntington Center and Parklane Mall
are currently under redevelopment and are referred to herein as the
"Redevelopment Centers." All other Centers are referred to herein as
the "Same Centers."
- 26 -
<PAGE>
THE MACERICH COMPANY (The Company)
Management's Discussion and Analysis of Financial Condition and
Results of Operations, Continued:
The bankruptcy and/or closure of an Anchor, or its sale to a less
desirable retailer, could adversely affect customer traffic in a
Center and thereby reduce the income generated by that Center.
Furthermore, the closing of an Anchor could, under certain
circumstances, allow certain other Anchors or other tenants to
terminate their leases or cease operating their stores at the Center
or otherwise adversely affect occupancy at the Center.
In addition, the Company's success in the highly competitive real
estate shopping center business depends upon many other factors,
including general economic conditions, the ability of tenants to make
rent payments, increases or decreases in operating expenses, occupancy
levels, changes in demographics, competition from other centers and
forms of retailing and the ability to renew leases or relet space upon
the expiration or termination of leases.
Results of Operations
Comparison of Six Months Ended June 30, 1999 and 1998
Revenues
Minimum and percentage rents increased by 30% to $109.1 million in
1999 from $83.9 million in 1998. Approximately $21.8 million of the
increase resulted from the 1998 Acquisition Centers and $4.7 million
of the increase was attributable to the Same Centers. In May 1998, the
FASB, through the EITF, modified the timing of recognition of revenue
for percentage rent received from tenants in EITF 98-9, "Accounting
for Contingent Rent in Interim Financial Periods." The Company applied
this accounting change as of April 1, 1998. The accounting change had
the effect of deferring $1.3 million of percentage rent in the second
quarter of 1998 attributable to the Same Centers into the fourth
quarter of 1998. During the fourth quarter of 1998, the FASB reversed
EITF 98-9. Accordingly, the Company has resumed accounting for
percentage rent on the accrual basis effective January 1, 1999. These
increases were partially offset by revenue decreases at the
Redevelopment Centers of $1.3 million in 1999.
Tenant recoveries increased to $47.3 million in 1999 from $36.8
million in 1998. The 1998 Acquisition Centers generated $11.5 million
of this increase and $0.1 million of the increase was from the Same
Centers. These increases were partially offset by revenue decreases at
the Redevelopment Centers of $1.1 million in 1999.
Other income increased to $3.2 million in 1999 from $1.9 million in
1998. Approximately $0.3 million of the increase related to the 1998
Acquisition Centers and $1.0 million of the increase was attributable
to the Same Centers.
- 27 -
<PAGE>
THE MACERICH COMPANY (The Company)
Results of Operations - Continued:
Comparison of Six Months Ended June 30, 1999 and 1998, Continued:
Expenses
Shopping center expenses increased to $47.2 million in 1999 compared
to $38.0 million in 1998. Approximately $9.8 million of the increase
resulted from the 1998 Acquisition Centers. The other Centers had a
net decrease of $0.6 million in shopping center expenses resulting
primarily from decreased property taxes and recoverable expenses.
General and administrative expenses increased to $2.8 million in 1999
from $2.2 million in 1998 primarily due to the accounting change
required by EITF 97-11, "Accounting for Internal Costs Relating to
Real Estate Property Acquisitions," which requires the expensing of
internal acquisition costs. Previously in accordance with GAAP,
certain internal acquisition costs were capitalized. The increase is
also partially attributable to higher executive and director
compensation expense.
Interest Expense
Interest expense increased to $55.4 million in 1999 from $41.2 million
in 1998. This increase of $14.2 million is primarily attributable to
the acquisition activity in 1998 and 1999, which was partially funded
with secured debt and borrowings under the Company's line of credit.
Depreciation and Amortization
Depreciation increased to $30.5 million from $23.6 million in 1998.
This increase relates primarily to the 1998 Acquisition Centers.
Income From Unconsolidated Joint Ventures and Management Companies
The income from unconsolidated joint ventures and the Management
Companies was $10.6 million for 1999, compared to income of $5.6
million in 1998. A total of $3.3 million of the change is attributable
to the 1998 acquisitions by SDG Macerich Properties, L.P. and $1.8
million of the change is attributable to the 1999 acquisition by
Pacific Premier Retail Trust. These increases are partially offset by
a decrease of $0.1 million at the Management Companies.
Extraordinary Loss from Early Extinguishment of Debt
In 1999, the Company wrote off $1.0 million of unamortized financing
costs, compared to $0.1 million written off in 1998.
Net Income Available to Common Stockholders
As a result of the foregoing, net income available to common
stockholders increased to $17.9 million in 1999 from $14.2 million in
1998.
- 28 -
<PAGE>
Results of Operations - Continued:
Comparison of Six Months Ended June 30, 1999 and 1998, Continued:
Operating Activities
Cash flow from operations was $58.9 million in 1999 compared to $51.2
million in 1998. The increase is primarily because of increased net
operating income from the 1998 and 1999 Acquisition Centers.
Investing Activities
Cash flow used in investing activities was $192.6 million in 1999
compared to $393.9 million in 1998. The change resulted primarily from
the cash contributions required by the Company for the joint venture
acquisitions of $268.9 million in 1998 compared to $70.1 million in
1999.
Financing Activities
Cash flow from financing activities was $133.2 million in 1999
compared to $413.8 million in 1998. The decrease resulted from no
equity offerings in the six months ended June 30, 1999 compared to
6,520,181 shares of common stock sold in the six months ended June 30,
1998. Additionally, 9,114,602 shares of preferred stock were sold in
the first and second quarters of 1998.
Funds From Operations
Primarily because of the factors mentioned above, Funds from
Operations - Diluted increased 56% to $77.5 million from $49.7 million
in 1998.
Results of Operations
Comparison of Three Months Ended June 30, 1999 and 1998
Revenues
Minimum and percentage rents increased by 32% to $54.5 million in 1999
from $41.3 million in 1998. Approximately $10.7 million of the
increase resulted from the 1998 Acquisition Centers and $3.1 million
of the increase was attributable to the Same Centers. In May 1998, the
FASB, through the EITF, modified the timing of recognition of revenue
for percentage rent received from tenants in EITF 98-9, "Accounting
for Contingent Rent in Interim Financial Periods." The Company applied
this accounting change as of April 1, 1998. The accounting change had
the effect of deferring $1.3 million of percentage rent in the second
quarter of 1998 attributable to the Same Centers into the fourth
quarter of 1998. During the fourth quarter of 1998, the FASB reversed
EITF 98-9. Accordingly, the Company has resumed accounting for
percentage rent on the accrual basis effective January 1, 1999. These
increases were partially offset by revenue decreases at the
Redevelopment Centers of $0.6 million in 1999.
- 29 -
<PAGE>
THE MACERICH COMPANY (The Company)
Results of Operations - Continued:
Comparison of Three Months Ended June 30, 1999 and 1998, Continued:
Tenant recoveries increased to $24.2 million in 1999 from $19.2
million in 1998. The 1998 Acquisition Centers generated $6.1 million
of this increase. This increase was partially offset by revenue
decreases at the Same Centers of $0.3 million and the Redevelopment
Centers of $0.8 million in 1999.
Other income increased to $2.0 million in 1999 from $0.9 million in
1998. Approximately $0.1 million of the increase related to the 1998
Acquisition Centers, $0.9 million of the increase was attributable to
the Same Centers and $0.1 million to the Redevelopment Centers.
Expenses
Shopping center expenses increased to $24.0 million in 1999 compared
to $19.3 million in 1998. Approximately $4.7 million of the increase
resulted from the 1998 Acquisition Centers and $0.6 million of the
increase was from the Same Centers. The Redevelopment Centers had a
net decrease of $0.8 million in shopping center expenses resulting
primarily from decreased property taxes and recoverable expenses.
General and administrative expenses increased to $1.4 million in 1999
from $1.1 million in 1998 primarily due to higher executive and
director compensation expense.
Interest Expense
Interest expense increased to $28.6 million in 1999 from $20.6 million
in 1998. This increase of $8.0 million is primarily attributable to
the acquisition activity in 1998 and 1999, which was partially funded
with secured debt and borrowings under the Company's line of credit.
Depreciation and Amortization
Depreciation increased to $15.3 million from $11.9 million in 1998.
This increase relates primarily to the 1998 Acquisition Centers.
Income From Unconsolidated Joint Ventures and Management Companies
The income from unconsolidated joint ventures and the Management
Companies was $5.3 million for 1999, compared to income of $4.2
million in 1998. A total of $0.3 million of the change is attributable
to the 1998 acquisitions by SDG Macerich Properties, L.P. and $1.2
million of the change is attributable to the 1999 acquisition by
Pacific Premier Retail Trust. These increases are partially offset by
a decrease of $0.4 million at the Management Companies.
Net Income Available to Common Stockholders
As a result of the foregoing, net income available to common
stockholders increased to $9.0 million in 1999 from $7.4 million in
1998.
- 30 -
<PAGE>
THE MACERICH COMPANY (The Company)
Results of Operations - Continued:
Comparison of Three Months Ended June 30, 1999 and 1998, Continued:
Funds From Operations
Primarily because of the factors mentioned above, Funds from
Operations - Diluted increased 47% to $38.9 million from $26.4 million
in 1998.
Liquidity and Capital Resources
The Company intends to meet its short term liquidity requirements
through cash generated from operations and working capital reserves.
The Company anticipates that revenues will continue to provide
necessary funds for its operating expenses and debt service
requirements, and to pay dividends to stockholders in accordance with
REIT requirements. The Company anticipates that cash generated from
operations, together with cash on hand, will be adequate to fund
capital expenditures which will not be reimbursed by tenants, other
than non-recurring capital expenditures. Capital for major
expenditures or major redevelopments has been, and is expected to
continue to be, obtained from equity or debt financings which include
borrowings under the Company's line of credit and construction loans.
However, many factors impact the Company's ability to access capital,
such as its overall debt to market capitalization level, interest
rates, interest coverage ratios and prevailing market conditions. The
Company currently is undertaking a $90 million redevelopment of
Pacific View. The Company has a bank construction loan agreement to
fund $89.2 million of these construction costs.
The Company believes that it will have access to the capital necessary
to expand its business in accordance with its strategies for growth
and maximizing Funds from Operations. The Company presently intends to
obtain additional capital necessary to expand its business through a
combination of additional public and private equity offerings, debt
financings and/or joint ventures. During 1998 and 1999, the Company
acquired two portfolios through joint ventures with another party. The
Company believes such joint venture arrangements provide an attractive
alternative to other forms of financing.
The Company's total outstanding loan indebtedness at June 30, 1999 was
$2.2 billion (including its pro rata share of joint venture debt).
This equated to a debt to Total Market Capitalization (defined as
total debt of the Company, including its pro rata share of joint
venture debt, plus aggregate market value of outstanding shares of
common stock, assuming full conversion of OP Units and preferred stock
into common stock) ratio of approximately 61% at June 30, 1999. The
Company's debt consists primarily of fixed-rate conventional mortgages
payable secured by individual properties.
The Company has filed a shelf registration statement, effective
December 8, 1997, to sell securities. The shelf registration is for a
total of $500 million of common stock, common stock warrants or common
stock rights. During 1998, the Company sold a total of 7,920,181
shares of common stock under this shelf registration. The aggregate
offering price of these transactions was approximately $212.9 million,
leaving approximately $287.1 million available under the shelf
registration statement.
- 31 -
<PAGE>
THE MACERICH COMPANY (The Company)
Liquidity and Capital Resources, Continued:
The Company has an unsecured line of credit for up to $150.0 million.
There was $119.5 million of borrowings outstanding at June 30, 1999.
At June 30, 1999, the Company had cash and cash equivalents available
of $24.6 million.
Year 2000 Readiness Disclosure
The information provided below contains Year 2000 statements and is a
Year 2000 Readiness Disclosure pursuant to Pub. L. No. 105-271.
Year 2000 Issues
The Year 2000 issue is the result of many existing computer programs
and embedded technology using two digits rather than four to define
the applicable year. The Company's computer equipment and software and
devices with embedded technology that are time-sensitive may recognize
a date using "00" as the year 1900 rather than the year 2000. This
could result in system failure or erroneous data which would cause
disruptions of operations.
The Company has initiated a Year 2000 compliance program consisting of
the following phases: (1) identification of Year 2000 issues; (2)
assessment of Year 2000 compliance of systems; (3) remediation or
replacement of non-compliant systems; (4) testing to verify
compliance; and (5) contingency planning, as appropriate. This program
includes a review of both information technology ("IT") and non-IT
systems of the centers in which the Company has an ownership interest
and manages. The Company's Year 2000 team which consists of management
as well as operational and IT staff members is supervising this
program.
IT Systems
The Company has reviewed its core computer hardware systems and
software programs to determine if such systems and programs will
properly process dates in the Year 2000 and thereafter. Based on
manufacturer or vendor information, the Company presently believes
most of its critical computer hardware systems and software programs
are substantially Year 2000 compliant. One critical hardware system
needed a Year 2000 upgrade which the Company recently installed at a
cost of approximately $13,100. The Company continues to conduct its
own evaluation and testing to verify compliance of its critical
hardware systems and software and expects to conclude such testing by
October 1, 1999.
The most important software program to the Company's operations is its
property management and accounting software. The Company has been
advised by its independent software vendor that it has completed its
evaluation, testing and modification of this program and the necessary
changes have been completed to achieve Year 2000 compliance. The
Company recently completed its own evaluation and testing and based
upon such testing, the Company believes that this software is
substantially Year 2000 compliant.
- 32 -
<PAGE>
THE MACERICH COMPANY (The Company)
Year 2000 Readiness Disclosure - Continued:
IT Systems, Continued:
The Company completed its assessment of the Year 2000 compliance of
its non-critical computer hardware systems and software programs by
its target date of December 31, 1998. Based on manufacturer or vendor
information, the Company presently believes that substantially all of
its non-critical hardware systems and software programs are Year 2000
compliant.
Non-IT Systems
Part of the Company's Year 2000 program also includes a review of the
various operating systems of each of its centers in which the Company
has an ownership interest and manages. The main offices of the Company
are also being reviewed for Year 2000 compliance issues. These
operating systems typically include embedded technology which
complicates the Company's Year 2000 efforts. Examples of these types
of systems include energy management systems, telecommunication
systems, elevators, security systems and copiers. The various
operating systems have been assigned priorities based on the
importance of the system to each property's operations and the
potential impact of non-compliance.
All of the Company's properties have substantially completed their
initial assessment of each system and are continuing the process of
verifying Year 2000 compliance through the manufacturers and/or
vendors of the systems. Approximately 80% of the critical operating
systems at the centers for which the Company has received information
from manufacturers or vendors are substantially Year 2000 compliant as
reported by such entities. Certain critical systems, eleven energy
management systems, three telephone systems, two fire alarm systems,
one security alarm system, one CCTV system and one elevator intercom
system, will need Year 2000 upgrades and the Company is in the process
of obtaining such upgrades at an aggregate cost of approximately
$55,000. Other non-compliant critical systems are being upgraded by
the manufacturer at no cost to the Company or were previously
scheduled for replacement or upgrades prior to January 1, 2000. With
respect to approximately 18% of its critical operating systems at the
centers, the Company has not received the necessary information to
assess the Year 2000 compliance of such systems or the necessary
remediation steps. The Company continues to contact these
manufacturers/vendors to obtain the information necessary to complete
its Year 2000 compliance assessment. The Company is also beginning the
process of assessing the risk to the center assuming the system is not
compliant and developing contingency plans, as appropriate.
Each property is preparing remediation and testing recommendations and
time lines based on the importance of each system to the property's
operations and information received from the manufacturer/vendor. The
Company is coordinating the testing phase with the
manufacturers/vendors of the systems, as appropriate. The Company has
revised its target date to complete the remediation and testing phases
for the critical operating systems at each center to October 1, 1999.
The Company will need the cooperation of its manufacturers/vendors in
providing information and testing assistance to meet this timeline for
its critical operating systems. If such cooperation is not provided,
completion of these phases will be delayed. The Company expects the
Year 2000 program to continue beyond January 1, 2000 with respect to
non-critical operating systems and issues.
- 33 -
<PAGE>
THE MACERICH COMPANY (The Company)
Year 2000 Readiness Disclosure - Continued:
Non-IT Systems, Continued:
Material Third Parties
The Company mailed surveys to its material vendors, utilities and
tenants about their plans and progress in addressing the Year 2000
issue. Those entities surveyed include the utilities for each center
(i.e., electric, gas, water, telephone and waste management
companies), the largest tenants of the Company based on the amount of
their 1998 rent payments and certain Anchor tenants. As of this date,
the Company has received responses from approximately 80% of those
entities surveyed. Generally, the responses received state that the
entity is in the process of addressing the Year 2000 compliance issues
and expects to achieve compliance prior to January 1, 2000.
Approximately 12% of those entities have indicated their mission
critical systems are Year 2000 compliant.
Costs
Because the Company's assessment, remediation and testing efforts are
ongoing, the Company is unable to estimate the actual costs of
achieving Year 2000 compliance for its IT and non-IT systems. Based on
information received from manufacturers/vendors, the Company presently
anticipates that the assessment and remediation costs will not be
material. As of June 30, 1999, the Company has not expended
significant amounts since its evaluation of Year 2000 issues has been
primarily conducted by its own personnel. The Company does not
separately record the internal costs incurred for its Year 2000
compliance program. Such costs are primarily the related payroll costs
for its personnel who are part of the Year 2000 program. Independent
electricians conducted Year 2000 compliance reviews of the electrical
infrastructure at each center for an aggregate cost of approximately
$13,000.
Risks
As is true of most businesses, the Company is vulnerable to external
forces that might generally effect industry and commerce, such as
utility company Year 2000 compliance failures and related service
interruptions. In addition, failure of information and operating
systems of tenants and/or failure of their respective material vendors
to provide products and services may delay or otherwise adversely
impact the payment of rent to the Company or impair the ability of a
tenant to operate. Although a formal contingency plan has not yet been
developed for dealing with the most reasonably likely worst case
scenario, the Company has focused on the power companies servicing
each center and is preparing security contingency plans in case a
center does not receive power. The Company will continue to evaluate
other potential areas of risk and develop contingency plans, as
appropriate.
Based on currently available information, the Company believes that
the Year 2000 issue will not pose significant operational problems for
the Company. However, if all Year 2000 issues are not properly
identified, or assessment, remediation and testing are not effected in
a timely manner, there can be no assurance that the Year 2000 issue
will not adversely affect the Company's results of operations or its
relationships with tenants or other third parties. Additionally, there
can be no assurance that the Year 2000 issues of third parties will
not have an adverse impact on the Company's results of operations.
- 34 -
<PAGE>
THE MACERICH COMPANY (The Company)
Management's Discussion and Analysis of Financial Condition and
Results of Operations, Continued:
Funds From Operations
The Company believes that the most significant measure of its
performance is Funds from Operations ("FFO"). FFO is defined by the
National Association of Real Estate Investment Trusts ("NAREIT") to
be: Net income (loss) (computed in accordance with GAAP), excluding
gains (or losses) from debt restructuring and sales or write-down of
assets, plus depreciation and amortization (excluding depreciation on
personal property and amortization of loan and financial instrument
costs) and after adjustments for unconsolidated entities. Adjustments
for unconsolidated entities are calculated on the same basis. FFO does
not represent cash flow from operations, as defined by GAAP, and is
not necessarily indicative of cash available to fund all cash flow
needs. The following reconciles net income available to common
stockholders to FFO:
<TABLE>
<CAPTION>
Six months ended June 30,
1999 1998
------------------------ --------------------------
Shares Amount Shares Amount
----------- ----------- ---------- --------------
(amounts in thousands)
<S> <C> <C> <C> <C>
Net income - available to common stockholders $17,883 $14,190
Adjustments to reconcile net income to FFO - basic:
Minority interest 6,488 6,190
Depreciation and amortization on wholly owned centers 30,539 23,607
Pro rata share of unconsolidated entities' depreciation and
amortization 8,465 4,427
Gain on sale of assets - (9)
Extraordinary loss on early extinguishment of debt 988 90
Pro rata share of (gain) loss on sale of assets
from unconsolidated entities (474) 164
Amortization of financing costs (1,685) (1,502)
Depreciation of personal property (422) (366)
----------- --------------
FFO - basic (1) 46,286 61,782 41,063 46,791
Additional adjustments to arrive at FFO - diluted:
Impact of convertible preferred stock 9,115 8,841 2,949 2,706
Impact of stock options and restricted stock using
the treasury method 435 611 619 256
Impact of convertible debentures 5,186 6,276 (n/a anti-dilutive)
----------- ----------- --------------------------
FFO - diluted (2) 61,022 $77,510 44,631 $49,753
=========== =========== ========== ==============
</TABLE>
- 35 -
<PAGE>
THE MACERICH COMPANY (The Company)
Management's Discussion and Analysis of Financial Condition and
Results of Operations, Continued:
<TABLE>
<CAPTION>
Three months ended June 30,
1999 1998
------------------------ --------------------------
Shares Amount Shares Amount
----------- ----------- ---------- --------------
(amounts in thousands)
<S> <C> <C> <C> <C>
Net income - available to common stockholders $8,986 $7,367
Adjustments to reconcile net income to FFO - basic:
Minority interest 3,258 3,182
Depreciation and amortization on wholly owned centers 15,285 11,894
Pro rata share of unconsolidated entities' depreciation and
amortization 4,933 3,057
Gain on sale of assets - (9)
Extraordinary loss on early extinguishment of debt 15 -
Pro rata share of (gain) loss on sale of assets
from unconsolidated entities (463) (205)
Amortization of financing costs (776) (716)
Depreciation of personal property (275) (192)
----------- --------------
FFO - basic (1) 46,291 30,963 42,853 24,378
Additional adjustments to arrive at FFO - diluted:
Impact of convertible preferred stock 9,115 4,421 4,471 2,057
Impact of stock options and restricted stock using
the treasury method 551 368 572 -
Impact of convertible debentures 5,186 3,161 (n/a anti-dilutive)
----------- ----------- --------------------------
FFO - diluted (2) 61,143 $38,913 47,896 $26,435
=========== =========== ========== ==============
</TABLE>
1) Calculated based upon basic net income as adjusted to reach basic
FFO. Weighted average number of shares includes the weighted average
number of shares of common stock outstanding for 1999 and 1998
assuming the conversion of all outstanding OP units.
2) The computation of FFO - diluted and diluted average number of
shares outstanding includes the effect of outstanding common stock
options and restricted stock using the treasury method. Convertible
debentures are dilutive for the six and three months ending June 30,
1999 and therefore assumed converted to equity to calculate FFO -
diluted in 1999. The debentures are anti-dilutive for the six and
three months ending June 30, 1998 and therefore are not assumed
converted to equity for the period ended June 30, 1998. On February
25, 1998, the Company sold $100 million of its Series A Preferred
Stock. On June 17, 1998, the Company sold $150 million of its Series B
Preferred Stock Each series of preferred stock can be converted on a
one for one basis for common stock. These preferred shares are not
assumed converted for purposes of net income per share as they would
be anti-dilutive to that calculation. The preferred shares are assumed
converted for purposes of FFO diluted per share as they are dilutive
to that calculation.
- 36 -
<PAGE>
THE MACERICH COMPANY (The Company)
Management's Discussion and Analysis of Financial Condition and
Results of Operations, Continued:
Included in minimum rents were rents attributable to the accounting
practice of straight-lining of rents. The amount of straight-lining of
rents that impacted minimum rents was $1.3 million and $1.8 million
for the six months ended June 30, 1999 and 1998, respectively; and
$0.7 million and $0.9 million for the three months ended June 30, 1999
and 1998, respectively.
Inflation
In the last three years, inflation has not had a significant impact on
the Company because of a relatively low inflation rate. Most of the
leases at the Centers have rent adjustments periodically through the
lease term. These rent increases are either in fixed increments or
based on increases in the Consumer Price Index. In addition, many of
the leases are for terms of less than ten years, which enables the
Company to replace existing leases with new leases at higher base
rents if the rents of the existing leases are below the then existing
market rate. Additionally, most of the leases require the tenants to
pay their pro rata share of operating expenses. This reduces the
Company's exposure to increases in costs and operating expenses
resulting from inflation.
Seasonality
The shopping center industry is seasonal in nature, particularly in
the fourth quarter during the holiday season when retailer occupancy
and retail sales are typically at their highest levels. In addition,
shopping malls achieve a substantial portion of their specialty
(temporary retailer) rents during the holiday season. As a result of
the above, earnings are generally highest in the fourth quarter of
each year.
New Accounting Pronouncements Issued
In March 1998, the FASB, through its EITF, concluded based on EITF
97-11, "Accounting for Internal Costs Relating to Real Estate Property
Acquisitions," that all internal costs to source, analyze and close
acquisitions should be expensed as incurred. The Company had
historically capitalized these costs in accordance with GAAP. The
Company adopted the FASB's interpretation effective March 19, 1998.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities," which will be effective for the
Company's consolidated financial statements for periods beginning
January 1, 2000. The new standard requires companies to record
derivatives on the balance sheet, measured at fair value. Changes in
the fair value of those derivatives will be accounted for based on the
use of the derivative and whether it qualifies for hedge accounting.
The key criteria for hedge accounting is whether the hedging
relationship is highly effective in achieving offsetting changes in
fair value or cash flows. The Company has not yet determined when it
will implement SFAS 133 nor has it completed the complex analysis
required to determine the impact of SFAS 133 on its consolidated
financial statements.
In June 1999, the FASB issued SFAS 137, "Accounting for Derivative
Instruments and Hedging Activities - - Deferral of the Effective Date
of FASB Statement No. 133," which delays the implementation of SFAS
133 for the Company's consolidated financial statements to January 1,
2001.
- 37 -
<PAGE>
Item III
Quantitative and Qualitative Disclosures About Market Risk
The Company's primary market risk exposure is interest rate risk. The
Company has managed and will continue to manage interest rate risk by
(1) maintaining a conservative ratio of fixed rate, long-term debt to
total debt such that variable rate exposure is kept at an acceptable
level, (2) reducing interest rate exposure on certain long-term
variable rate debt through the use of interest rate caps with
appropriately matching maturities, (3) using treasury rate locks where
appropriate to fix rates on anticipated debt transactions, and (4)
taking advantage of favorable market conditions for long-term debt
and/or equity.
The following table sets forth information as of June 30, 1999
concerning the Company's long term debt obligations, including
principal cash flows by scheduled maturity, weighted average interest
rates and estimated fair value ("FV").
<TABLE>
<CAPTION>
For the Years Ended December 31,
(dollars in thousands)
1999 2000 2001 2002 2003 Thereafter Total FV
----------- ----------- ------------ ----------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Wholly Owned Centers:
Long term debt:
Fixed rate $9,697 $38,628 $107,338 $10,255 $98,498 $986,943 $1,251,359 $1,245,942
Average interest rate 7.35% 7.34% 7.36% 7.33% 7.33% 7.28% 7.33% -
Fixed rate - Debentures - - - 161,400 - - 161,400 156,553
Average interest rate - - - 7.25% - - 7.25% -
Variable rate 60,000 60,000 160,487 - - - 280,487 280,487
Average interest rate 7.28% 8.0% 6.56% - - - 6.97% -
----------- ----------- ------------ ----------- ------------ ------------- ------------- -------------
Total debt - Wholly
owned Centers $69,697 $98,628 $267,825 $171,655 $98,498 $986,943 $1,693,246 $1,682,982
----------- ----------- ------------ ----------- ------------ ------------- ------------- -------------
Joint Venture Centers:
(at Company's pro rata share)
Fixed rate $4,363 $26,210 $6,114 $6,532 $6,981 $405,752 $455,952 $433,734
Average interest rate 6.60% 6.60% 6.61% 6.61% 6.61% 6.61% 6.61% -
Variable rate - - - - 92,500 - 92,500 92,500
Average interest rate - - - - 6.15% - 6.15% -
----------- ----------- ------------ ----------- ------------ ------------- ------------- -------------
Total debt - All Centers $74,060 $124,838 $273,939 $178,187 $197,979 $1,392,695 $2,241,698 $2,209,216
=========== =========== ============ =========== ============ ============= ============= =============
</TABLE>
Of the total variable rate debt maturing in 1999, the Company is
currently in negotiations to refinance the $60.0 million with fixed
rate debt. The $60.0 million of floating rate debt maturing in 2000,
matures February 26, 2000 and is a loan from the Company's lead bank.
Of the $160.5 million of variable rate debt maturing in 2001, $119.5
million represents the outstanding borrowings under the Company's
credit facility. The credit facility matures in February 2000, with a
one year option to extend the maturity date to February 2001. The
table reflects the Company extending the maturity date to February
2001. The balance of $41.0 million represents outstanding borrowings
under the Pacific View construction loan.
In addition, the Company has assessed the market risk for its variable
rate debt and believes that a 1% increase in interest rates would
decrease future earnings and cash flows by approximately $3.7 million
per year based on $373.0 million outstanding at June 30, 1999.
- 38 -
<PAGE>
THE MACERICH COMPANY (The Company)
Quantitative and Qualitative Disclosures About Market Risk, Continued:
The fair value of the Company's long term debt is estimated based on
discounted cash flows at interest rates that management believes
reflect the risks associated with long term debt of similar risk and
duration.
- 39 -
<PAGE>
THE MACERICH COMPANY (The Company)
PART II
Other Information
Item 1 Legal Proceedings
During the ordinary course of business, the Company, from time to
time, is threatened with, or becomes a party to, legal actions
and other proceedings. Management is of the opinion that the
outcome of currently known actions and proceedings to which it is
a party will not, singly or in the aggregate, have a material
adverse effect on the Company.
Item 2 Changes in Securities and Use of Proceeds
None
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
The following matters were voted upon at the Annual Meeting held
on May 20, 1999:
A. The following three persons were elected as directors of the
Company to serve until the annual meeting of stockholders in 2002
and until their respective successors are duly elected and
qualify: Number of Shares
<TABLE>
<CAPTION>
For Against Authority Withheld
------ ----------- -----------------------
<S> <C> <C> <C>
Dana K. Anderson 29,863,351 - 0 - 154,946
Theodore S. Hochstim 29,837,413 - 0 - 180,884
Stanley A. Moore 29,847,418 - 0 - 170,879
</TABLE>
B. The ratification of the selection of PricewaterhouseCoopers
LLP as independent public accountants for the fiscal year ending
December 31, 1999.
Votes:
For: 28,495,432
Against: 7,135
Abstain: 1,515,730
Item 5 Other Information
None
- 40 -
<PAGE>
THE MACERICH COMPANY (The Company)
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
None
(b) Reports on Form 8-K
A report on Form 8-K/A, Amendment No. 1, dated April 21, 1999,
event date February 18, 1999, was filed with the Securities and
Exchange Commission for the purpose of disclosing certain
financial statements and pro forma financial information
regarding the acquisition of three regional malls, the retail
component of one mixed-use development and five contiguous
properties by Pacific Premier Retail Trust.
A report on Form 8-K dated June 14, 1999, event date June 14,
1999, was filed with the Securities and Exchange Commission for
the purpose of disclosing the acquisition of Los Cerritos Center.
A report on Form 8-K/A, Amendment No. 2, dated July 30, 1999,
event date July 12, 1999, was filed with the Securities and
Exchange Commission for the purpose of disclosing the acquisition
of the office component of Redmond Town Center, a mixed-use
development, by Pacific Premier Retail Trust.
- 41 -
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
The Macerich Company
By: /s/ Thomas E. O'Hern
Thomas E. O'Hern
Executive Vice President and
Chief Financial Officer
Date: August 13, 1999
- 42 -
<PAGE>
Exhibit Index
Exhibit No. Page
- ----------- ------
(a) Exhibits
Number Description
-------- -------------
None
- 43 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 1 AND 2 OF THE COMPANY'S FORM 10Q FOR THE YEAR.
</LEGEND>
<CIK> 0000912242
<NAME> THE MACERICH COMPANY
<MULTIPLIER> 1,000
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 24,610
<SECURITIES> 0
<RECEIVABLES> 33,335
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,246,192
<DEPRECIATION> (272,649)
<TOTAL-ASSETS> 2,466,670
<CURRENT-LIABILITIES> 50,023
<BONDS> 1,693,246
91
0
<COMMON> 340
<OTHER-SE> 562,352
<TOTAL-LIABILITY-AND-EQUITY> 2,466,670
<SALES> 0
<TOTAL-REVENUES> 159,524
<CGS> 0
<TOTAL-COSTS> 50,064
<OTHER-EXPENSES> 26,393
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,355
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 18,871
<DISCONTINUED> 0
<EXTRAORDINARY> (988)
<CHANGES> 0
<NET-INCOME> 17,883
<EPS-BASIC> 0.53
<EPS-DILUTED> 0.53
</TABLE>
