Securities and Exchange Commission Washington, D.C. 20549 FORM 10-K |
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Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2005 |
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Commission File No. 1-12504 | ||
The Macerich Company (Exact name of registrant as specified in its charter) |
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Maryland (State or other jurisdiction of incorporation or organization) |
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401 Wilshire Boulevard, Suite 700, Santa Monica, California 90401 (Address of principal executive offices, including zip code) |
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95-4448705 (I.R.S. Employer Identification Number) |
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Registrant's telephone number, including area code: (310) 394-6000 |
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Securities registered pursuant to Section 12(b) of the Act |
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Title of each class Common Stock, $0.01 Par Value Preferred Share Purchase Rights |
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Name of each exchange on which registered New York Stock Exchange New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None |
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Indicate by check mark if the registrant is well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes ý No o |
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act Yes o No ý |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o |
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment on to this Form 10-K. o |
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. Large accelerated filer ý Accelerated filer o Non-accelerated filer o |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý |
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The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant was approximately $2.4 billion as of the last business day of the registrant's most recent completed second quarter based upon the price at which the common shares were last sold on that day. |
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Number of shares outstanding of the registrant's common stock, as of February 24, 2006: 71,423,917 shares |
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DOCUMENTS INCORPORATED BY REFERENCE Portions of the proxy statement for the annual stockholders meeting to be held in 2006 are incorporated by reference into Part III of this Form 10-K |
THE MACERICH COMPANY
Annual Report on Form 10-K
For the Year Ended December 31, 2005
INDEX
Item No. |
Page No. |
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Part I |
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1. | Business | 1 | ||
1A. | Risk Factors | 15 | ||
1B. | Unresolved Staff Comments | 23 | ||
2. | Properties | 24 | ||
3. | Legal Proceedings | 34 | ||
4. | Submission of Matters to a Vote of Securities Holders | 34 | ||
Part II |
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5. | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 35 | ||
6. | Selected Financial Data | 37 | ||
7. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 40 | ||
7A. | Quantitative and Qualitative Disclosures About Market Risk | 57 | ||
8. | Financial Statements and Supplementary Data | 59 | ||
9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | 59 | ||
9A. | Controls and Procedures | 59 | ||
9B. | Other Information | 62 | ||
Part III |
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10. | Directors and Executive Officers of the Registrant | 63 | ||
11. | Executive Compensation | 63 | ||
12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 63 | ||
13. | Certain Relationships and Related Transactions | 64 | ||
14. | Principal Accountant Fees and Services | 65 | ||
Part IV |
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15. | Exhibits and Financial Statement Schedules | 66 | ||
Signatures |
145 |
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General
The Macerich Company (the "Company") is involved in the acquisition, ownership, development, 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"). As of December 31, 2005, the Operating Partnership owned or had an ownership interest in 75 regional shopping centers, 20 community shopping centers and two development properties aggregating approximately 78.9 million square feet of gross leasable area ("GLA"). These 97 regional, community and development 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 management companies, Macerich Property Management Company, LLC, a single-member Delaware limited liability company, Macerich Management Company, a California corporation, Westcor Partners, LLC, a single member Arizona limited liability company, Macerich Westcor Management, LLC, a single member Delaware limited liability company and Westcor Partners of Colorado, LLC, a Colorado limited liability company. As part of the Wilmorite acquisition (See Recent DevelopmentsAcquisitions), the Company acquired MACW Mall Management, Inc., a New York corporation and MACW Property Management, LLC, a New York limited liability company. These two management companies are collectively referred to herein as the "Wilmorite Management Companies." The three Westcor management companies are collectively referred herein as the "Westcor Management Companies." All seven of the management companies are collectively referred to herein as the "Management Companies."
The Company was organized as a Maryland corporation in September 1993 to continue and expand the shopping center operations of Mace Siegel, Arthur M. Coppola, Dana K. Anderson and Edward C. Coppola (the "principals") and certain of their business associates.
All references to the Company in this Form 10-K include the Company, those entities owned or controlled by the Company and predecessors of the Company, unless the context indicates otherwise.
Recent Developments
Equity Offering
On January 19, 2006, the Company issued 10,952,381 common shares for net proceeds of $747.0 million. The proceeds from issuance of the shares were used to pay off the $619.0 million acquisition loan from the Wilmorite acquisition and to pay down a portion of the Company's line of credit pending use to pay part of the purchase price for Valley River Center (See Acquisitions).
Acquisitions
On February 1, 2006, the Company acquired Valley River Center, a 916,000 square foot super-regional mall in Eugene, Oregon. The total purchase price was $187.5 million and concurrent with the acquisition, the
The Macerich Company 1
Company placed a $100.0 million loan bearing interest at a fixed rate of 5.58% on the property. The balance of the purchase price was funded by cash and borrowings under the Company's line of credit.
On January 11, 2005, the Company became a 15% owner in a joint venture that acquired Metrocenter, a 1.3 million square foot super-regional mall in Phoenix, Arizona. The total purchase price was $160 million and concurrently with the acquisition, the joint venture placed a $112 million floating rate loan on the property. The Company's share of the purchase price, net of the debt, was $7.2 million which was funded by cash and borrowings under the Company's line of credit.
On January 21, 2005, the Company formed a 50/50 joint venture with a private investment company. The joint venture acquired a 49% interest in Kierland Commons, a 437,000 square foot mixed use center in Phoenix, Arizona. The joint venture's purchase price for the interest in the property was $49.0 million. The Company assumed its share of the underlying property debt and funded the remainder of its share of the purchase price by cash and borrowings under the Company's line of credit.
On April 8, 2005, the Company acquired Ridgmar Mall, a 1.3 million square foot super-regional mall in Fort Worth, Texas. The acquisition was completed in a 50/50 joint venture with an affiliate of Walton Street Capital, LLC. The purchase price was $71.1 million. Concurrent with the closing, a $57.4 million loan bearing interest at a fixed rate of 6.07% was placed on the property. The balance of the purchase price was funded by borrowings under the Company's line of credit.
On April 25, 2005, the Company and the Operating Partnership completed its acquisition of Wilmorite Properties, Inc., a Delaware corporation ("Wilmorite") and Wilmorite Holdings, L.P., a Delaware limited partnership ("Wilmorite Holdings"). Wilmorite's portfolio includes interests in 11 regional malls and two open-air community shopping centers with 13.4 million square feet of space located in Connecticut, New York, New Jersey, Kentucky and Virginia. The total purchase price was approximately $2.333 billion, plus adjustments for working capital, including the assumption of approximately $877.2 million of existing debt with an average interest rate of 6.43% and the issuance of $234 million of convertible preferred units ("CPUs") and $5.8 million of common units in Wilmorite Holdings. The balance of the consideration to the equity holders of Wilmorite and Wilmorite Holdings was paid in cash, which was provided primarily by a five-year, $450 million term loan bearing interest at LIBOR plus 1.50% and a $650 million acquisition loan with a term of up to two years and bearing interest initially at LIBOR plus 1.60%. An affiliate of the Operating Partnership is the general partner and, together with other affiliates, own approximately 83% of Wilmorite Holdings, with the remaining 17% held by those limited partners of Wilmorite Holdings who elected to receive CPUs or common units in Wilmorite Holdings rather than cash. Approximately $213 million of the CPUs can be redeemed, subject to certain conditions, for the portion of the Wilmorite portfolio generally located in the area of Rochester, New York.
Financing Activity
Concurrent with the Wilmorite closing, the Company modified its $250 million unsecured term loan. The interest rate was reduced from LIBOR plus 2.50% to LIBOR plus 1.50%.
Concurrent with the Wilmorite closing, the Company obtained a five-year $450 million term loan bearing interest at LIBOR plus 1.50% and a $650 million acquisition loan with a term of up to two years and bearing
2 The Macerich Company
interest initially at LIBOR plus 1.60%. The outstanding $619.0 million balance of this acquisition loan was paid off in full with the net proceeds of the Company's common stock offering on January 19, 2006 (See Equity Offering). The $450 million term loan has an interest rate swap agreement which effectively fixes the interest rate at 6.296% (4.796% swap rate plus 1.50%) from December 1, 2005 to April 15, 2010.
On May 20, 2005, the Company's joint venture in Lakewood Mall refinanced the loan on the property. The original loan of $127 million at an average interest rate of 7.1% was replaced with a ten-year $250 million loan bearing interest at 5.41%. The Company's share of the loan proceeds were used to pay down its line of credit.
On October 3, 2005, the Company obtained a 10-year $37 million fixed rate loan bearing interest at 4.97% at Flagstaff Mall. The proceeds were used to payoff the existing $13.0 million loan which had an interest rate of 7.8%. The balance of the loan proceeds were used to pay down the Company's line of credit.
On October 4, 2005, the Company's joint venture in Camelback Colonnade obtained a $41.5 million two-year loan bearing interest at LIBOR plus 0.69% on the property. The proceeds were used to pay off the existing $30.7 million loan which had an interest rate of 7.5%. The Company's share of the remaining loan proceeds were used to pay down the Company's line of credit.
On November 9, 2005, the Company refinanced the $72.0 million loan on Greece Ridge Mall. The interest rate was reduced from LIBOR plus 2.625% to LIBOR plus 0.65%.
On September 22, 2005, the Company's joint venture in Scottsdale 101 modified its construction loan and obtained an additional $16.0 million advance, increasing the loan to a $56 million floating-rate loan on the property at a rate of LIBOR plus 1.25%. The Company's share of the loan proceeds were used to pay down the Company's line of credit.
On December 29, 2005, the Company refinanced the loan on Valley View Mall. The old loan of $51.0 million with a fixed rate of 7.89% was replaced with a $125.0 million, five-year fixed rate loan bearing interest at 5.72%. The excess proceeds were used to pay down the Company's line of credit and used for general corporate purposes.
Redevelopment and Development Activity
At Washington Square in suburban Portland, Oregon, the Company had a grand opening on November 18, 2005 of a lifestyle oriented expansion project which consists of the addition of 76,000 square feet of shop space. In addition, an agreement has been reached with Mervyn's to recapture its 100,000 square foot location. The Company plans to recycle that square footage over the next two years.
At Fresno Fashion Fair, an 87,000 square foot lifestyle center expansion to the existing mall continues on schedule. The first phase, which included The Cheesecake Factory, opened on December 3, 2005. Completion of the balance of the project is expected in Summer 2006.
Construction continues on the Twenty Ninth Street project, a signature, outdoor retail development on 62 acres in the heart of Boulder, Colorado. Retail tenants include Ann Taylor Loft, Apple, Bath and Body Works,
The Macerich Company 3
Clark's Shoes, Puma, JJill, Victoria Secret, and White House/Black Market joining anchors Macy's department store, Wild Oats, Home Depot, and Century Theatres and an array of additional specialty stores and restaurants. Twenty Ninth Street is scheduled to open in phases starting in the Fall 2006.
Construction will begin in the first quarter of 2006 on the SanTan Village regional shopping center in Gilbert, Arizona. The center is an outdoor open air streetscape project planned to contain in excess of 1.5 million square feet on 120 acres. The center will be anchored by Dillard's, Harkins Theatres and will contain a lifestyle shopping district featuring retail, office, residential and restaurants. It is also anticipated that an additional department store will also anchor this center. The project is scheduled to open in phases starting in Fall 2007 with all phases completed by 2008.
Dispositions
On January 5, 2005, the Company sold the Arizona Lifestyle Galleries for $4.3 million. The sale resulted in a gain on sale of asset of $0.3 million.
General
There are several types of retail shopping centers, which are differentiated primarily based on size and marketing strategy. Regional shopping centers generally contain in excess of 400,000 square feet of GLA and are typically anchored by two or more department or large retail stores ("Anchors") and are referred to as "Regional Shopping Centers" or "Malls". Regional Shopping Centers also typically contain numerous diversified retail stores ("Mall Stores"), most of which are national or regional retailers typically located along corridors connecting the Anchors. Community Shopping Centers, also referred to as "strip centers" or "urban villages" or "specialty centers" are retail shopping centers that are designed to attract local or neighborhood customers and are typically anchored by one or more supermarkets, discount department stores and/or drug stores. Community Shopping Centers typically contain 100,000 square feet to 400,000 square feet of GLA. In addition, freestanding retail stores are located along the perimeter of the shopping centers ("Freestanding Stores"). Anchors, Mall and Freestanding Stores and other tenants typically contribute funds for the maintenance of the common areas, property taxes, insurance, advertising and other expenditures related to the operation of the shopping center.
Regional Shopping Centers
A Regional Shopping Center draws from its trade area by offering a variety of fashion merchandise, hard goods and services and entertainment, often in an enclosed, climate controlled environment with convenient parking. Regional Shopping Centers provide an array of retail shops and entertainment facilities and often serve as the town center and the preferred gathering place for community, charity, and promotional events.
Regional Shopping Centers have generally provided owners with relatively stable growth in income despite the cyclical nature of the retail business. This stability is due both to the diversity of tenants and to the typical dominance of Regional Shopping Centers in their trade areas.
Regional Shopping Centers have different strategies with regard to price, merchandise offered and tenant mix, and are generally tailored to meet the needs of their trade areas. Anchor tenants are located along common
4 The Macerich Company
areas in a configuration designed to maximize consumer traffic for the benefit of the Mall Stores. Mall GLA, which generally refers to gross leasable area contiguous to the Anchors for tenants other than Anchors, is leased to a wide variety of smaller retailers. Mall Stores typically account for the majority of the revenues of a Regional Shopping Center.
The Company has a four-pronged business strategy which focuses on the acquisition, leasing and management, redevelopment and development of Regional Shopping Centers.
Acquisitions. The Company focuses on well-located, quality regional shopping centers that are, or it believes can be dominant in their trade area and have strong revenue enhancement potential. The Company subsequently seeks to improve operating performance and returns from these properties through leasing, management and redevelopment. Since its initial public offering, the Company has acquired interests in shopping centers nationwide. The Company believes that it is geographically well positioned to cultivate and maintain ongoing relationships with potential sellers and financial institutions and to act quickly when acquisition opportunities arise. (See "Recent DevelopmentsAcquisitions").
Leasing and Management. The Company believes that the shopping center business requires specialized skills across a broad array of disciplines for effective and profitable operations. For this reason, the Company has developed a fully integrated real estate organization with in-house acquisition, accounting, development, finance, leasing, legal, marketing, property management and redevelopment expertise. In addition, the Company emphasizes a philosophy of decentralized property management, leasing and marketing performed by on-site professionals. The Company believes that this strategy results in the optimal operation, tenant mix and drawing power of each Center as well as the ability to quickly respond to changing competitive conditions of the Center's trade area.
The Company believes that on-site property managers can most effectively operate the Centers. Each Center's property manager is responsible for overseeing the operations, marketing, maintenance and security functions at the Center. Property managers focus special attention on controlling operating costs, a key element in the profitability of the Centers, and seek to develop strong relationships with and to be responsive to the needs of retailers.
Similarly, the Company generally utilizes on-site and regionally located leasing managers to better understand the market and the community in which a Center is located. Leasing managers are charged with more than the responsibility of leasing space. The Company continually assesses and fine tunes each Center's tenant mix, identifies and replaces underperforming tenants and seeks to optimize existing tenant sizes and configurations.
On a selective basis, the Company also does property management and leasing for third parties. The Company currently manages three malls for third party owners on a fee basis. In addition, the Company manages four community centers for a related party. (See"Item 13Certain Relationships and Related Transactions").
Redevelopment. One of the major components of the Company's growth strategy is its ability to redevelop acquired properties. For this reason, the Company has built a staff of redevelopment professionals who have primary responsibility for identifying redevelopment opportunities that will result in enhanced long-term
The Macerich Company 5
financial returns and market position for the Centers. The redevelopment professionals oversee the design and construction of the projects in addition to obtaining required governmental approvals. (See "Recent DevelopmentsRedevelopment and Development Activity").
Development. The Company is pursuing ground-up development projects on a selective basis. The Company believes it can supplement its strong acquisition, operations and redevelopment skills with its ground-up development expertise to further increase growth opportunities. (See "Recent DevelopmentsRedevelopment and Development Activity").
The Centers
As of December 31, 2005, the Centers consist of 75 Regional Shopping Centers, 20 Community Shopping Centers and two development properties aggregating approximately 78.9 million square feet of GLA. The 75 Regional Shopping Centers in the Company's portfolio average approximately 972,126 square feet of GLA and range in size from 2.2 million square feet of GLA at Tyson's Corner Center to 323,449 square feet of GLA at Panorama Mall. The Company's 20 Community Shopping Centers have an average of 250,511 square feet of GLA. The Centers presently include 310 Anchors totaling approximately 42.0 million square feet of GLA and approximately 10,000 Mall and Freestanding Stores totaling approximately 36.9 million square feet of GLA.
Competition
There are numerous owners and developers of real estate that compete with the Company in its trade areas. There are seven other publicly traded mall companies and several large private mall companies, any of which under certain circumstances could compete against the Company for an acquisition, an Anchor or a tenant. This results in competition for both acquisition of centers and for tenants or Anchors to occupy space. The existence of competing shopping centers could have a material impact on the Company's ability to lease space and on the level of rent that can be achieved. There is also increasing competition from other retail formats and technologies, such as lifestyle centers, power centers, internet shopping and home shopping networks, factory outlet centers, discount shopping clubs and mail-order services that could adversely affect the Company's revenues.
Major Tenants
The Centers derived approximately 94.0% of their total rents for the year ended December 31, 2005 from Mall and Freestanding Stores. One tenant accounted for approximately 4.1% of minimum rents of the Company, and no other single tenant accounted for more than 3.6% as of December 31, 2005.
6 The Macerich Company
The following tenants (including their subsidiaries) represent the 10 largest tenants in the Company's portfolio (including joint ventures) based upon minimum rents in place as of December 31, 2005:
Tenant |
Primary DBA's |
Number of Locations in the Portfolio |
% of Total Minimum Rents as of December 31, 2005 |
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Limited Brands, Inc. | Victoria's Secret, Bath and Body | 220 | 4.1% | |||
The Gap, Inc. | Gap, Old Navy, Banana Republic | 123 | 3.6% | |||
Foot Locker, Inc. | Footlocker, Lady Footlocker | 166 | 2.2% | |||
Luxottica Group S.P.A. | Lenscrafters, Sunglass Hut | 218 | 1.8% | |||
Cingular Wireless, LLC(1) | Cingular Wireless | 31 | 1.6% | |||
Zale Corporation | Zales | 133 | 1.5% | |||
Sun Capital Partners, Inc.(2) | Anchor Blue, Mervyn's, Sam Goody and Suncoast Motion Pictures | 107 | 1.4% | |||
Federated Department Stores, Inc.(3) |
Macy's, Robinsons-May, Foley's | 90 | 1.2% | |||
J.C. Penney Company, Inc. | J.C. Penney | 53 | 1.1% | |||
Abercrombie & Fitch Co. | Abercrombie & Fitch, Hollister | 50 | 1.1% | |||
Mall and Freestanding Stores
Mall and Freestanding Store leases generally provide for tenants to pay rent comprised of a fixed base (or "minimum") rent and a percentage rent based on sales. In some cases, tenants pay only a fixed minimum rent, and in some cases, tenants pay only percentage rents. Historically, most leases for Mall and Freestanding Stores contain provisions that allow the Centers to recover their costs for maintenance of the common areas, property taxes, insurance, advertising and other expenditures related to the operations of the Center. The Company generally enters into leases which require tenants to pay a stated amount for such operating expenses, generally excluding property taxes, regardless of the expenses the Company actually incurs at any Center.
Tenant space of 10,000 square feet and under in the portfolio at December 31, 2005 comprises 68.9% of all Mall and Freestanding Store space. The Company uses tenant spaces of 10,000 square feet and under for comparing rental rate activity. The Company believes that to include space over 10,000 square feet would provide a less meaningful comparison.
The Macerich Company 7
When an existing lease expires, the Company is often able to enter into a new lease with a higher base rent component. The average base rent for new Mall and Freestanding Store leases at the consolidated Centers, 10,000 square feet and under, commencing during 2005 was $35.60 per square foot, or 15.9% higher than the average base rent for all Mall and Freestanding Stores at the consolidated Centers, 10,000 square feet and under, expiring during 2005 of $30.71 per square foot.
The following tables set forth for the Centers, the average base rent per square foot of Mall and Freestanding GLA, for tenants 10,000 square feet and under, as of December 31 for each of the past three years:
Consolidated Centers: For the Year Ended December 31, |
Average Base Rent Per Square Foot(1) |
Avg. Base Rent Per Sq. Ft. on Leases Commencing During the Year(2) |
Avg. Base Rent Per Sq. Ft. on Leases Expiring During the Year(3) |
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2003 | $31.71 | $36.77 | $29.93 | |||
2004 | $32.60 | $35.31 | $28.84 | |||
2005 | $34.23 | $35.60 | $30.71 | |||
Joint Venture Centers: For the Year Ended December 31, |
Average Base Rent Per Square Foot(1) |
Avg. Base Rent Per Sq. Ft. on Leases Commencing During the Year(2) |
Avg. Base Rent Per Sq. Ft. on Leases Expiring During the Year(3) |
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2003 | $31.29 | $37.00 | $27.83 | |||
2004 | $33.39 | $36.86 | $29.32 | |||
2005 | $36.35 | $39.08 | $30.18 | |||
Cost of Occupancy
The Company's management believes that in order to maximize the Company's operating cash flow, the Centers' Mall Store tenants must be able to operate profitably. A major factor contributing to tenant
8 The Macerich Company
profitability is cost of occupancy. The following tables summarize occupancy costs for Mall Store tenants in the Centers as a percentage of total Mall Store sales for the last three years:
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For Years ended December 31, |
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Consolidated Centers: |
2003 |
2004 |
2005 |
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Minimum Rents | 8.7% | 8.3% | 8.3% | |||
Percentage Rents | 0.3% | 0.4% | 0.5% | |||
Expense Recoveries(1) | 3.8% | 3.7% | 3.6% | |||
12.8% | 12.4% | 12.4% | ||||
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For Years ended December 31, |
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Joint Venture Centers: |
2003 |
2004 |
2005 |
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Minimum Rents | 8.1% | 7.7% | 7.4% | |||
Percentage Rents | 0.4% | 0.5% | 0.5% | |||
Expense Recoveries(1) | 3.2% | 3.2% | 3.0% | |||
11.7% | 11.4% | 10.9% | ||||
Lease Expirations
The following tables show scheduled lease expirations (for Centers owned as of December 31, 2005) of Mall and Freestanding Stores (10,000 square feet and under) for the next ten years, assuming that none of the tenants exercise renewal options:
Consolidated Centers: Year Ending December 31, |
Number of Leases Expiring |
Approximate GLA of Leases Expiring(1) |
% of Total Leased GLA Represented by Expiring Leases(2) |
Ending Base Rent per Square Foot of Expiring Leases(1) |
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2006 | 547 | 1,151,106 | 13.27% | $31.92 | ||||
2007 | 433 | 959,315 | 11.06% | $31.45 | ||||
2008 | 403 | 800,201 | 9.22% | $35.90 | ||||
2009 | 355 | 713,211 | 8.22% | $35.59 | ||||
2010 | 473 | 977,999 | 11.27% | $38.36 | ||||
2011 | 409 | 1,100,180 | 12.68% | $37.40 | ||||
2012 | 284 | 781,858 | 9.01% | $35.16 | ||||
2013 | 201 | 494,677 | 5.70% | $39.62 | ||||
2014 | 264 | 602,204 | 6.94% | $47.56 | ||||
2015 | 280 | 743,851 | 8.57% | $45.17 | ||||
The Macerich Company 9
Joint Venture Centers (at Company's pro rata share): Year Ending December 31, |
Number of Leases Expiring |
Approximate GLA of Leases Expiring(1) |
% of Total Leased GLA Represented by Expiring Leases(2) |
Ending Base Rent per Square Foot of Expiring Leases(1) |
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---|---|---|---|---|---|---|---|---|
2006 | 433 | 415,258 | 10.91% | $36.19 | ||||
2007 | 383 | 432,169 | 11.36% | $33.42 | ||||
2008 | 418 | 434,656 | 11.42% | $36.95 | ||||
2009 | 401 | 430,567 | 11.32% | $36.43 | ||||
2010 | 400 | 414,615 | 10.90% | $39.43 | ||||
2011 | 317 | 387,525 | 10.19% | $38.84 | ||||
2012 | 251 | 269,831 | 7.09% | $42.82 | ||||
2013 | 223 | 244,582 | 6.43% | $41.87 | ||||
2014 | 214 | 262,849 | 6.91% | $40.93 | ||||
2015 | 220 | 283,424 | 7.45% | $41.55 | ||||
Anchors
Anchors have traditionally been a major factor in the public's identification with Regional Shopping Centers. Anchors are generally department stores whose merchandise appeals to a broad range of shoppers. Although the Centers receive a smaller percentage of their operating income from Anchors than from Mall and Freestanding Stores, strong Anchors play an important part in maintaining customer traffic and making the Centers desirable locations for Mall and Freestanding Store tenants.
Anchors either own their stores, the land under them and in some cases adjacent parking areas, or enter into long-term leases with an owner at rates that are lower than the rents charged to tenants of Mall and Freestanding Stores. Each Anchor, which owns its own store, and certain Anchors which lease their stores, enter into reciprocal easement agreements with the owner of the Center covering among other things, operational matters, initial construction and future expansion.
Anchors accounted for approximately 6.0% of the Company's total rent for the year ended December 31, 2005.
10 The Macerich Company
The following table identifies each Anchor, each parent company that owns multiple Anchors and the number of square feet owned or leased by each such Anchor or parent company in the Company's portfolio at December 31, 2005:
Name |
Number of Anchor Stores |
GLA Owned by Anchor |
GLA Leased by Anchor |
Total GLA Occupied by Anchor |
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Federated Department Stores, Inc.(1) | ||||||||||
Macy's | 30 | 3,443,795 | 1,363,651 | 4,807,446 | ||||||
Robinsons-May | 17 | 1,901,396 | 1,084,491 | 2,985,887 | ||||||
Foley's | 7 | 1,379,668 | | 1,379,668 | ||||||
Kaufmann's | 5 | 495,816 | 149,009 | 644,825 | ||||||
Hecht's | 3 | 140,000 | 380,502 | 520,502 | ||||||
Meier & Frank | 2 | 242,505 | 200,000 | 442,505 | ||||||
Lord & Taylor | 4 | 209,422 | 199,372 | 408,794 | ||||||
Filene's | 2 | | 288,879 | 288,879 | ||||||
Bloomingdale's | 1 | | 255,888 | 255,888 | ||||||
Marshall Field's | 2 | 115,193 | 100,790 | 215,983 | ||||||
Famous-Barr | 1 | 180,000 | | 180,000 | ||||||
Total | 74 | 8,107,795 | 4,022,582 | 12,130,377 | ||||||
Sears Holdings Corporation | ||||||||||
Sears | 53 | 4,800,780 | 2,240,500 | 7,041,280 | ||||||
Great Indoors, The | 1 | | 131,051 | 131,051 | ||||||
K-Mart | 1 | | 86,479 | 86,479 | ||||||
Total | 55 | 4,800,780 | 2,458,030 | 7,258,810 | ||||||
J.C. Penney | 51 | 2,757,645 | 4,010,957 | 6,768,602 | ||||||
Dillard's(2) | 29 | 3,693,812 | 1,052,582 | 4,746,394 | ||||||
Nordstrom(3) | 11 | 699,127 | 1,128,369 | 1,827,496 | ||||||
The Bon-Ton Stores Inc.(4) | ||||||||||
Younkers(4) | 6 | | 609,177 | 609,177 | ||||||
Bon-Ton, The | 6 | 263,534 | 335,184 | 598,718 | ||||||
Herberger's(4) | 5 | 269,969 | 214,573 | 484,542 | ||||||
Total | 17 | 533,503 | 1,158,934 | 1,692,437 | ||||||
Sun Capital Partners, Inc. | ||||||||||
Mervyn's(5) | 19 | 888,611 | 627,412 | 1,516,023 | ||||||
Target(6) | 12 | 920,541 | 564,279 | 1,484,820 | ||||||
Gottschalk's | 8 | 332,638 | 608,772 | 941,410 | ||||||
Home Depot (Expo Design Center)(7) | 4 | 132,003 | 375,404 | 507,407 | ||||||
Neiman Marcus | 3 | 120,000 | 321,450 | 441,450 | ||||||
Wal-Mart(8) | 2 | 371,527 | | 371,527 | ||||||
Burlington Coat Factory | 4 | 186,570 | 172,838 | 359,408 | ||||||
Boscov's | 2 | | 314,717 | 314,717 | ||||||
Steve & Barry's University Sportswear | 2 | 148,750 | 157,000 | 305,750 | ||||||
Von Maur | 3 | 186,686 | 59,563 | 246,249 | ||||||
Belk, Inc. | ||||||||||
Belk | 3 | | 200,925 | 200,925 | ||||||
Lowe's | 1 | 135,197 | | 135,197 | ||||||
Best Buy | 2 | 129,441 | | 129,441 | ||||||
Wegmans Food Markets, Inc. | ||||||||||
Chase-Pitkin Home & Garden | 1 | | 124,832 | 124,832 | ||||||
Kohl's | 1 | | 114,359 | 114,359 | ||||||
Dick's Sporting Goods | 1 | | 97,241 | 97,241 | ||||||
Saks Fifth Avenue | 1 | | 92,000 | 92,000 | ||||||
L.L. Bean | 1 | | 75,778 | 75,778 | ||||||
Gordmans | 1 | | 60,000 | 60,000 | ||||||
Peebles | 1 | | 42,090 | 42,090 | ||||||
Beall's | 1 | | 40,000 | 40,000 | ||||||
310 | 24,144,626 | 17,880,114 | 42,024,740 | |||||||
The Macerich Company 11
Environmental Matters
Each of the Centers has been subjected to a Phase I audit (which involves review of publicly available information and general property inspections, but does not involve soil sampling or ground water analysis) completed by an environmental consultant.
Based on these audits, and on other information, the Company is aware of the following environmental issues that may reasonably result in costs associated with future investigation or remediation, or in environmental liability:
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
12 The Macerich Company
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 the 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. In 1998, DTSC issued an order to multiple responsible parties regarding this contamination. The Company has retained an environmental consultant and has initiated extensive testing of the site. The joint venture agreed (between itself and the buyer) that it would be responsible for continuing to pursue the investigation and remediation of impacted soil and groundwater resulting from releases of PCE from the former dry cleaner. A total of $0.1 million and $0.1 million have already been incurred by the joint venture for remediation, professional and legal fees for the years ended December 31, 2005 and 2004, respectively. The Company has been sharing costs with former owners of the property. A minimal amount remains reserved at December 31, 2005.
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 indicates that the fireproofing is largely inaccessible to building occupants and is well adhered to the structural members. Additionally, airborne concentrations of asbestos were well within OSHA's permissible exposure limit of .1 fcc. The accounting at acquisition included a reserve of $3.3 million to cover future removal of this asbestos, as necessary. The Center was recently renovated and a substantial amount of the asbestos was removed. The Company incurred $0.5 million and $0.1 million in remediation costs for the years ended December 31, 2005 and 2004, respectively. An additional $1.2 million remains reserved at December 31, 2005.
Insurance
Each of the Centers has comprehensive liability, fire, extended coverage and rental loss insurance with insured limits customarily carried for similar properties. The Company does not insure certain types of losses (such as losses from wars), because they are either uninsurable or not economically insurable. In addition, while the Company or the relevant joint venture, as applicable, carries earthquake insurance on the Centers located in California, the policies are subject to a deductible equal to 5% of the total insured value of each Center, a $100,000 per occurrence minimum and a combined annual aggregate loss limit of $200 million on these Centers. While the Company or the relevant joint venture also carries terrorism insurance on the Centers, the policies are subject to a $10,000 deductible and a combined annual aggregate loss of $800 million for both certified and non-certified acts of terrorism. Each Center has environmental insurance covering eligible third-party losses, remediation and non-owned disposal sites, subject to a $100,000 deductible and a $10 million three-year aggregate limit. Some environmental losses are not covered by this insurance because they are uninsurable or not economically insurable. Furthermore, the Company carries title insurance on substantially all of the Centers for less than their full value.
Qualification as a Real Estate Investment Trust
The Company elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"), commencing with its first taxable year ended December 31, 1994, and intends to conduct its operations so as to continue to qualify as a REIT under the Code. As a REIT, the Company generally will not be subject to federal and state income taxes on its net taxable income that it currently distributes to
The Macerich Company 13
stockholders. Qualification and taxation as a REIT depends on the Company's ability to meet certain dividend distribution tests, share ownership requirements and various qualification tests prescribed in the Code.
Employees
As of December 31, 2005, the Company and the management companies employ 2,787 persons, including executive officers (8), personnel in the areas of acquisitions and business development (13), property management (477), leasing (135), redevelopment/development (104), financial services (247) and legal affairs (59). In addition, in an effort to minimize operating costs, the Company generally maintains its own security and guest services staff (1,680) and in some cases maintenance staff (64). The Company primarily engages a third party to handle maintenance at the Centers. Unions represent 18 of these employees. The Company believes that relations with its employees are good.
Available Information; Website Disclosure; Corporate Governance Documents
The Company's corporate website address is www.macerich.com. The Company makes available free-of-charge through this website its reports on Forms 10-K, 10-Q and 8-K and all amendments thereto, as soon as reasonably practicable after the reports have been filed with, or furnished to, the Securities and Exchange Commission. These reports are available under the heading "InvestingSEC Filings," through a free hyperlink to a third-party service.
The following documents relating to Corporate Governance are available on the Company's website at www.macerich.com under "InvestingCorporate Governance":
Guidelines
on Corporate Governance
Code of Business Conduct and Ethics
Code of Ethics for CEO and Senior Financial Officers
Audit Committee Charter
Compensation Committee Charter
Executive Committee Charter
Nominating and Corporate Governance Committee Charter
You may also request copies of any of these documents by writing to:
Attention:
Corporate Secretary
The Macerich Company
401 North Wilshire Blvd., Suite 700
Santa Monica, CA 90401
14 The Macerich Company
We invest primarily in shopping centers, which are subject to a number of significant risks that are beyond our control.
Real property investments are subject to varying degrees of risk that may affect the ability of our Centers to generate sufficient revenues to meet operating and other expenses, including debt service, lease payments, capital expenditures and tenant improvements, and to make distributions to us and our stockholders. Centers wholly owned by us are referred to as "Wholly Owned Centers" and Centers that are partly but not wholly owned by us are referred to as "Joint Venture Centers." A number of factors may decrease the income generated by the Centers, including:
Income from shopping center properties and shopping center values are also affected by applicable laws and regulations, including tax, environmental, safety and zoning laws, and by interest rate levels and the availability and cost of financing. In addition, the number of prospective buyers interested in purchasing shopping centers is limited. Therefore, if we were to sell one or more of our Centers, we may receive less money than we originally invested in the Center.
Some of our Centers are geographically concentrated and, as a result, are sensitive to local economic and real estate conditions.
A significant percentage of our Centers are located in California and Arizona and 12 Centers in the aggregate are located in New York, New Jersey and Connecticut. To the extent that weak economic or real estate conditions, including as a result of the factors described in the preceding risk factor, or other factors affect California, Arizona, New York, New Jersey or Connecticut (or their respective regions) more severely than other areas of the country, our financial performance could be negatively impacted.
Our Centers must compete with other retail centers and retail formats for tenants and customers.
There are numerous shopping facilities that compete with the Centers in attracting tenants to lease space, and an increasing number of new retail formats and technologies other than retail shopping centers compete with the Centers for retail sales. Competing retail formats include lifestyle centers, factory outlet centers, power
The Macerich Company 15
centers, discount shopping clubs, mail-order services, internet shopping and home shopping networks. Our revenues may be reduced as a result of increased competition.
Our Centers depend on tenants to generate rental revenues.
Our revenues and funds available for distribution will be reduced if:
A decision by an Anchor, or other significant tenant to cease operations at a Center could also have an adverse effect on our financial condition. The closing of an Anchor or other significant tenant may allow other Anchors and/or other tenants to terminate their leases, seek rent relief and/or cease operating their stores at the Center or otherwise adversely affect occupancy at the Center. In addition, Anchors and/or tenants at one or more Centers might terminate their leases as a result of mergers, acquisitions, consolidations, dispositions or bankruptcies in the retail industry. The bankruptcy and /or closure of retail stores, or sale of an Anchor or store to a less desirable retailer, may reduce occupancy levels, customer traffic and rental income, or otherwise adversely affect our financial performance. Furthermore, if the store sales of retailers operating in the Centers decline sufficiently, tenants might be unable to pay their minimum rents or expense recovery charges. In the event of a default by a lessee, the affected Center may experience delays and costs in enforcing its rights as lessor.
For example, on October 24, 2005, Federated Department Stores, Inc. disclosed that it has identified 82 duplicate locations in certain malls which will be divested during 2006. Eleven of the identified stores are located in 10 of our Centers. On February 1, 2006, Musicland Holding Corp. announced the closure of 341 of its low performing Sam Goody and Suncoast Picture Stores which include 26 stores located in the Centers. Retail Brand Alliance has recently closed 26 of its Casual Corner, Petite Sophisticate and August Max stores located in the Centers. No assurances can be given regarding the impact on us of those divestitures or closures if or when they occur.
Our acquisition and real estate development strategies may not be successful.
Our historical growth in revenues, net income and funds from operations has been closely tied to the acquisition and redevelopment of shopping centers. Many factors, including the availability and cost of capital, our total amount of debt outstanding, interest rates and the availability of attractive acquisition targets, among others, will affect our ability to acquire and redevelop additional properties in the future. We may not be successful in pursuing acquisition opportunities, and newly acquired properties may not perform as well as expected. Expenses arising from our efforts to complete acquisitions, redevelop properties or increase our market penetration may have a material adverse effect on our business, financial condition and results of operations. We face competition for acquisitions primarily from other REITs, as well as from private
16 The Macerich Company
real estate companies and financial buyers. Some of our competitors have greater financial and other resources. Increased competition for shopping center acquisitions may impact adversely our ability to acquire additional properties on favorable terms. We cannot guarantee that we will be able to implement our growth strategy successfully or manage our expanded operations effectively and profitably.
We may not be able to achieve the anticipated financial and operating results from newly acquired assets. Some of the factors that could affect anticipated results are:
Our business strategy also includes the selective development and construction of retail properties. Any development, redevelopment and construction activities that we may undertake will be subject to the risks of real estate development, including lack of financing, construction delays, environmental requirements, budget overruns, sunk costs and lease-up. Furthermore, occupancy rates and rents at a newly completed property may not be sufficient to make the property profitable. Real estate development activities are also subject to risks relating to the inability to obtain, or delays in obtaining, all necessary zoning, land-use, building, and occupancy and other required governmental permits and authorizations. If any of the above events occur, our ability to pay dividends to our stockholders and service our indebtedness could be adversely affected.
U.S. federal income tax developments could affect the desirability of investing in us for individual taxpayers.
In May 2003, U.S. federal legislation was enacted that reduced the maximum tax rate for dividends payable to individual taxpayers generally from 38.6% to 15% (from January 1, 2003 through 2008). However, dividends payable by REITs are not eligible for such treatment, except in limited circumstances which we do not expect to occur. Although this legislation did not have a directly adverse effect on the taxation of REITs or dividends paid by REITs, the more favorable treatment for non-REIT dividends could cause individual investors to consider investments in non-REIT corporations as more attractive relative to an investment in a REIT.
Certain individuals have substantial influence over the management of both us and the Operating Partnership, which may create conflicts of interest.
Under the limited partnership agreement of the Operating Partnership, we, as the sole general partner, are responsible for the management of the Operating Partnership's business and affairs. Each of the principals serve as our executive officers and are members of our board of directors. Accordingly, these principals have substantial influence over our management and the management of the Operating Partnership.
The tax consequences of the sale of some of the Centers may create conflicts of interest.
The Macerich Company 17
The principals will experience negative tax consequences if some of the Centers are sold. As a result, the principals may not favor a sale of these Centers even though such a sale may benefit our other stockholders.
The guarantees of indebtedness by and certain holdings of the principals may create conflicts of interest.
The principals have guaranteed mortgage loans encumbering one of the Centers. As of December 31, 2005, the principals have guaranteed an aggregate principal amount of approximately $21.8 million. The existence of guarantees of these loans by the principals could result in the principals having interests that are inconsistent with the interests of our stockholders.
The principals may have different interests than our stockholders because they are significant holders of the Operating Partnership.
If we were to fail to qualify as a REIT, we will have reduced funds available for distributions to our stockholders.
We believe that we currently qualify as a REIT. No assurance can be given that we will remain qualified as a REIT. Qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which there are only limited judicial or administrative interpretations. The complexity of these provisions and of the applicable income tax regulations is greater in the case of a REIT structure like ours that holds assets in partnership form. The determination of various factual matters and circumstances not entirely within our control, including determinations by our partners in the Joint Venture Centers, may affect our continued qualification as a REIT. In addition, legislation, new regulations, administrative interpretations or court decisions could significantly change the tax laws with respect to our qualification as a REIT or the U.S. federal income tax consequences of that qualification.
If in any taxable year we were to fail to qualify as a REIT, we will suffer the following negative results:
In addition, if we were to lose our REIT status, we will be prohibited from qualifying as a REIT for the four taxable years following the year during which the qualification was lost, absent relief under statutory provisions. As a result, net income and the funds available for distributions to our stockholders would be reduced for at least five years and the fair market value of our shares could be materially adversely affected. Furthermore, the Internal Revenue Service could challenge our REIT status for past periods, which if successful could result in us owing a material amount of tax for prior periods. It is possible that future economic, market, legal, tax or other considerations might cause our board of directors to revoke our REIT election.
18 The Macerich Company
Even if we remain qualified as a REIT, we might face other tax liabilities that reduce our cash flow. Further, we might be subject to federal, state and local taxes on our income and property. Any of these taxes would decrease cash available for distributions to stockholders.
Complying with REIT requirements might cause us to forego otherwise attractive opportunities.
In order to qualify as a REIT for U.S. federal income tax purposes, we must satisfy tests concerning, among other things, our sources of income, the nature of our assets, the amounts we distribute to our stockholders and the ownership of our stock. We may also be required to make distributions to our stockholders at disadvantageous times or when we do not have funds readily available for distribution. Thus, compliance with REIT requirements may cause us to forego opportunities we would otherwise pursue.
In addition, the REIT provisions of the Internal Revenue Code impose a 100% tax on income from "prohibited transactions." Prohibited transactions generally include sales of assets that constitute inventory or other property held for sale in the ordinary course of business, other than foreclosure property. This 100% tax could impact our desire to sell assets and other investments at otherwise opportune times if we believe such sales could be considered a prohibited transaction.
Complying with REIT requirements may force us to borrow to make distributions to our stockholders.
As a REIT, we generally must distribute 90% of our annual taxable income (subject to certain adjustments) to our stockholders. From time to time, we might generate taxable income greater than our net income for financial reporting purposes, or our taxable income might be greater than our cash flow available for distributions to our stockholders. If we do not have other funds available in these situations, we might be unable to distribute 90% of our taxable income as required by the REIT rules. In that case, we would need to borrow funds, sell a portion of our investments (potentially at disadvantageous prices) or find another alternative source of funds. These alternatives could increase our costs or reduce our equity and reduce amounts for investments.
Outside partners in Joint Venture Centers result in additional risks to our stockholders.
We own partial interests in property partnerships that own 44 Joint Venture Centers as well as fee title to a site that is ground leased to a property partnership that owns a Joint Venture Center and several development sites. We may acquire partial interests in additional properties through joint venture arrangements. Investments in Centers that are not Wholly Owned Centers involve risks different from those of investments in Wholly Owned Centers.
We may have fiduciary responsibilities to our partners that could affect decisions concerning the Joint Venture Centers. Third parties may share control of major decisions relating to the Joint Venture Centers, including decisions with respect to sales, refinancings and the timing and amount of additional capital contributions, as
The Macerich Company 19
well as decisions that could have an adverse impact on our status. For example, we may lose our management rights relating to the Joint Venture Centers if:
In addition, some of our outside partners control the day-to-day operations of eight Joint Venture Centers (NorthPark Center, West Acres Center, Eastland Mall, Granite Run Mall, Lake Square Mall, NorthPark Mall, South Park Mall and Valley Mall). We, therefore, do not control cash distributions from these Centers, and the lack of cash distributions from these Centers could jeopardize our ability to maintain our qualification as a REIT.
Our holding company structure makes it dependent on distributions from the Operating Partnership.
Because we conduct our operations through the Operating Partnership, our ability to service our debt obligations and pay dividends to our stockholders is strictly dependent upon the earnings and cash flows of the Operating Partnership and the ability of the Operating Partnership to make distributions to us. Under the Delaware Revised Uniform Limited Partnership Act, the Operating Partnership is prohibited from making any distribution to us to the extent that at the time of the distribution, after giving effect to the distribution, all liabilities of the Operating Partnership (other than some non-recourse liabilities and some liabilities to the partners) exceed the fair value of the assets of the Operating Partnership.
Possible environmental liabilities could adversely affect us.
Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in that real property. These laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of hazardous or toxic substances. The costs of investigation, removal or remediation of hazardous or toxic substances may be substantial. In addition, the presence of hazardous or toxic substances, or the failure to remedy environmental hazards properly, may adversely affect the owner's or operator's ability to sell or rent affected real property or to borrow money using affected real property as collateral.
Persons or entities that arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of hazardous or toxic substances at the disposal or treatment facility, whether or not that facility is owned or operated by the person or entity arranging for the disposal or treatment of hazardous or toxic substances. Laws exist that impose liability for release of ACMs into the air, and third parties may seek recovery from owners or operators of real property for personal injury associated with exposure to ACMs. In connection with our ownership, operation, management, development and
20 The Macerich Company
redevelopment of the Centers, or any other centers or properties we acquire in the future, we may be potentially liable under these laws and may incur costs in responding to these liabilities.
Uninsured losses could adversely affect our financial condition.
Each of our Centers has comprehensive liability, fire, extended coverage and rental loss insurance with insured limits customarily carried for similar properties. We do not insure certain types of losses (such as losses from wars), because they are either uninsurable or not economically insurable. In addition, while we or the relevant joint venture, as applicable, carry earthquake insurance on the Centers located in California, the policies are subject to a deductible equal to 5% of the total insured value of each Center, a $100,000 per occurrence minimum and a combined annual aggregate loss limit of $200 million on these Centers. While we or the relevant joint venture also carries terrorism insurance on the Centers, the policies are subject to a $10,000 deductible and a combined annual aggregate loss limit of $800 million for both certified and non-certified acts of terrorism. Each Center has environmental insurance covering eligible third-party losses, remediation and non-owned disposal sites, subject to a $100,000 deductible and a $10 million three-year aggregate limit. Some environmental losses are not covered by this insurance because they are uninsurable or not economically insurable. Furthermore, we carry title insurance on many of the Centers for less than their full value. If an uninsured loss or a loss in excess of insured limits occurs, the entity that owns the affected Center could lose its capital invested in the Center, as well as the anticipated future revenue from the Center, while remaining obligated for any mortgage indebtedness or other financial obligations related to the Center. An uninsured loss or loss in excess of insured limits may negatively impact our financial condition.
As the general partner of the Operating Partnership and certain of the property partnerships, we are generally liable for any of its unsatisfied obligations other than non-recourse obligations.
An ownership limit and certain anti-takeover defenses could inhibit a change of control of us or reduce the value of our common stock.
The Ownership Limit. In order for us to maintain our qualification as a REIT, not more than 50% in value of our outstanding stock (after taking into account options to acquire stock) may be owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include some entities that would not ordinarily be considered "individuals") during the last half of a taxable year. Our Charter restricts ownership of more than 5% (the "Ownership Limit") of the lesser of the number or value of our outstanding shares of stock by any single stockholder (with limited exceptions for some holders of limited partnership interests in the Operating Partnership, and their respective families and affiliated entities, including all four principals). In addition to enhancing preservation of our status as a REIT, the Ownership Limit may:
The Macerich Company 21
Our board of directors, in its sole discretion, may waive or modify (subject to limitations) the Ownership Limit with respect to one or more of our stockholders, if it is satisfied that ownership in excess of this limit will not jeopardize our status as a REIT.
Stockholder Rights Plan and Selected Provisions of our Charter and Bylaws. Agreements to which we are a party, as well as some of the provisions of our Charter and bylaws, may have the effect of delaying, deferring or preventing a third party from making an acquisition proposal for us and may inhibit a change in control that some, or a majority, of our stockholders might believe to be in their best interest or that could give our stockholders the opportunity to realize a premium over the then-prevailing market prices for our shares. These agreements and provisions include the following:
Selected Provisions of Maryland Law. The Maryland General Corporation Law prohibits business combinations between a Maryland corporation and an interested stockholder (which includes any person who beneficially holds 10% or more of the voting power of the corporation's shares) or its affiliates for five years following the most recent date on which the interested stockholder became an interested stockholder and, after the five-year period, requires the recommendation of the board of directors and two super-majority stockholder votes to approve a business combination unless the stockholders receive a minimum price determined by the statute. As permitted by Maryland law, our Charter exempts from these provisions any business combination between us and the principals and their respective affiliates and related persons. Maryland law also allows the board of directors to exempt particular business combinations before the interested stockholder becomes an interested stockholder. Furthermore, a person is not an interested
22 The Macerich Company
stockholder if the transaction by which he or she would otherwise have become an interested stockholder is approved in advance by the board of directors.
The Maryland General Corporation Law also provides that the acquirer of certain levels of voting power in electing directors of a Maryland corporation (one-tenth or more but less than one-third, one-third or more but less than a majority and a majority or more) is not entitled to vote the shares in excess of the applicable threshold, unless voting rights for the shares are approved by holders of two thirds of the disinterested shares or unless the acquisition of the shares has been specifically or generally approved or exempted from the statute by a provision in our Charter or bylaws adopted before the acquisition of the shares. Our Charter exempts from these provisions voting rights of shares owned or acquired by the principals and their respective affiliates and related persons. Our bylaws also contain a provision exempting from this statute any acquisition by any person of shares of our common stock. There can be no assurance that this bylaw will not be amended or eliminated in the future. The Maryland General Corporation Law and our Charter also contain supermajority voting requirements with respect to our ability to amend our Charter, dissolve, merge, or sell all or substantially all of our assets.
Item 1B. Unresolved Staff Comments
Not Applicable
The Macerich Company 23
Company's Ownership |
Name of Center/ Location(1) |
Year of Original Construction/ Acquisition |
Year of Most Recent Expansion/ Renovation |
Total GLA(2) |
Mall and Freestanding GLA |
Percentage of Mall and Freestanding GLA Leased |
Anchors |
Sales Per Square Foot(3) |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
WHOLLY OWNED CENTERS: |
||||||||||||||||
100% | Capitola Mall(4) Capitola, California |
1977/1995 | 1988 | 586,595 | 196,878 | 97.2% | Gottschalks, Macy's, Mervyn's, Sears | $338 | ||||||||
100% | Chandler Fashion Center Chandler, Arizona |
2001/2002 | | 1,321,556 | 636,396 | 94.8% | Dillard's, Robinsons-May, Nordstrom, Sears | 560 | ||||||||
100% | Chesterfield Towne Center Richmond, Virginia |
1975/1994 | 2000 | 969,716 | 424,490 | 94.5% | Dillard's, Hecht's, Sears, J.C. Penney | 325 | ||||||||
100% | Citadel, The Colorado Springs, Colorado |
1972/1997 | 1995 | 1,095,053 | 453,348 | 94.7% | Dillard's, Foley's, J.C. Penney, Mervyn's | 336 | ||||||||
100% | Crossroads Mall Oklahoma City, Oklahoma |
1974/1994 | 1991 | 1,268,116 | 551,859 | 87.1% | Dillard's, Foley's, J.C. Penney, Steve & Barry's University Sportswear | 258 | ||||||||
100% | Danbury Fair Mall Danbury, Connecticut |
1986/2005 | 1991 | 1,291,603 | 495,395 | 96.7% | Filene's(5), J.C. Penney, Lord & Taylor, Macy's, Sears | 591 | ||||||||
100% | Eastview Mall Victor, New York |
1971/2005 | 2003 | 1,695,666 | 798,584 | 97.9% | The Bon-Ton, Home Depot, J.C. Penney, Kaufmann's, Lord & Taylor, Sears, Target | 353 | ||||||||
100% | Fiesta Mall Mesa, Arizona |
1979/2004 | 1999 | 1,036,578 | 313,022 | 94.6% | Dillard's, Macy's, Robinsons-May(5), Sears | 380 | ||||||||
100% | Flagstaff Mall Flagstaff, Arizona |
1979/2002 | 1986 | 354,119 | 150,107 | 99.6% | Dillard's, J.C. Penney, Sears | 327 | ||||||||
100% | FlatIron Crossing Broomfield, Colorado |
2000/2002 | | 1,421,262 | 777,521 | 93.5% | Dillard's, Foley's, Nordstrom, Dick's Sporting Goods | 409 | ||||||||
100% | Freehold Raceway Mall Freehold, New Jersey |
1990/2005 | 2004 | 1,582,742 | 791,118 | 98.7% | J.C. Penney, Lord & Taylor, Macy's, Nordstrom, Sears | 461 | ||||||||
100% | Fresno Fashion Fair Fresno, California |
1970/1996 | 2006 | 927,361 | 366,480 | 97.2% | Gottschalks, J.C. Penney, Macy's (two) | 543 | ||||||||
100% | Great Northern Mall Clay, New York |
1988/2005 | | 896,297 | 566,309 | 97.7% | The Bon-Ton(6), Kaufmann's, Sears | 258 | ||||||||
100% | Greece Ridge Center Greece, New York |
1967/2005 | 1993 | 1,445,453 | 818,369 | 95.8% | Burlington Coat Factory, The Bon-Ton, J.C. Penney, Kaufmann's, Sears | 292 | ||||||||
100% | Greeley Mall Greeley, Colorado |
1973/1986 | 2003 | 564,236 | 294,332 | 90.1% | Dillard's (two), J.C. Penney, Sears | 271 | ||||||||
100% | Green Tree Mall Clarksville, Indiana |
1968/1975 | 2005 | 712,942 | 296,342 | 84.8% | Dillard's(7), J.C. Penney, Sears | 379 | ||||||||
100% | Holiday Village Mall(4) Great Falls, Montana |
1959/1979 | 1992 | 498,094 | 275,369 | 66.2% | Herberger's, J.C. Penney, Sears | 244 | ||||||||
24 The Macerich Company
100% | La Cumbre Plaza(4) Santa Barbara, California |
1967/2004 | 1989 | 495,096 | 178,096 | 94.4% | Robinsons-May, Sears | 383 | ||||||||
100% | Northgate Mall San Rafael, California |
1964/1986 | 1987 | 740,141 | 269,810 | 88.1% | Macy's, Mervyn's, Sears | $376 | ||||||||
100% | Northridge Mall Salinas, California |
1972/2003 | 1994 | 864,072 | 327,092 | 96.3% | J.C. Penney, Macy's, Mervyn's, Sears | 369 | ||||||||
100% | Northwest Arkansas Mall Fayetteville, Arkansas |
1972/1998 | 1997 | 820,581 | 306,911 | 91.4% | Dillard's (two), J.C. Penney, Sears | 368 | ||||||||
100% | Pacific View Ventura, California |
1965/1996 | 2001 | 1,044,943 | 411,129 | 89.3% | J.C. Penney, Macy's, Robinsons-May(5), Sears | 395 | ||||||||
100% | Panorama Mall Panorama, California |
1955/1979 | 2005 | 323,449 | 158,449 | 89.4% | Wal-Mart | 369 | ||||||||
100% | Paradise Valley Mall Phoenix, Arizona |
1979/2002 | 1990 | 1,222,642 | 417,214 | 91.3% | Dillard's, J.C. Penney, Macy's(5), Robinsons-May, Sears | 359 | ||||||||
100% | Prescott Gateway Prescott, Arizona |
2002/2002 | 2004 | 578,295 | 334,107 | 87.9% | Dillard's, Sears, J.C. Penney | 260 | ||||||||
100% | Queens Center(4) Queens, New York |
1973/1995 | 2004 | 962,798 | 408,031 | 96.3% | J.C. Penney, Macy's | 656 | ||||||||
100% | Rimrock Mall Billings, Montana |
1978/1996 | 1999 | 598,406 | 286,736 | 95.1% | Dillard's (two), Herberger's(6), J.C. Penney | 339 | ||||||||
100% | Rotterdam Square Schenectady, New York |
1980/2005 | 1990 | 582,164 | 272,389 | 91.4% | Filene's, K-Mart, Sears | 231 | ||||||||
100% | Salisbury, Centre at Salisbury, Maryland | 1990/1995 | 2005 | 847,875 | 350,459 | 86.7% | Boscov's, J.C. Penney, Hecht's, Sears | 354 | ||||||||
100% | Shoppingtown Mall Dewitt, New York |
1954/2005 | 2000 | 1,014,618 | 531,918 | 92.7% | The Bon-Ton(6), J.C. Penney, Kaufmann's, Sears | 263 | ||||||||
100% | Somersville Towne Center Antioch, California |
1966/1986 | 2004 | 501,359 | 173,137 | 89.6% | Sears, Gottschalks, Mervyn's, Macy's | 368 | ||||||||
100% | South Plains Mall Lubbock, Texas |
1972/1998 | 1995 | 1,143,279 | 401,492 | 92.0% | Beall's, Dillard's (two), J.C. Penney, Meryvn's, Sears | 340 | ||||||||
100% | South Towne Center Sandy, Utah |
1987/1997 | 1997 | 1,267,785 | 491,273 | 96.2% | Dillard's, J.C. Penney, Mervyn's, Target, Meier & Frank | 384 | ||||||||
100% | The Oaks Thousand Oaks, California |
1978/2002 | 1993 | 1,065,991 | 339,916 | 94.0% | J.C. Penney, Macy's (two)(5), Robinsons-May (two)(5) | 516 | ||||||||
100% | Towne Mall Elizabethtown, Kentucky |
1985/2005 | 1989 | 353,645 | 182,773 | 88.6% | J.C. Penney, Belk, Sears | 273 | ||||||||
100% | Valley View Center Dallas, Texas |
1973/1997 | 2004 | 1,633,286 | 575,389 | 93.6% | Dillard's, Foley's, J.C. Penney, Sears | 310 | ||||||||
100% | Victor Valley, Mall of Victorville, California | 1986/2004 | 2001 | 479,813 | 205,964 | 97.8% | Gottschalks, J.C. Penney, Mervyn's, Sears | 466 | ||||||||
100% | Vintage Faire Mall Modesto, California |
1977/1996 | 2001 | 1,084,494 | 384,575 | 96.8% | Gottschalks, J.C. Penney, Macy's (two), Sears | 547 | ||||||||
The Macerich Company 25
100% | Westside Pavilion Los Angeles, California |
1985/1998 | 2000 | 667,404 | 309,276 | 91.1% | Nordstrom, Robinsons-May | 473 | ||||||||
100% | Wilton Mall at Saratoga Saratoga Springs, New York |
1990/2005 | 1998 | 661,160 | 457,282 | 95.1% | The Bon-Ton, J.C. Penney, Sears | $302 | ||||||||
Total/Average Wholly Owned | 36,620,685 | 15,979,337 | 93.4% | $395 | ||||||||||||
JOINT VENTURE CENTERS (VARIOUS PARTNERS): |
||||||||||||||||
33.3% | Arrowhead Towne Center Glendale, Arizona |
1993/2002 | 2004 | 1,130,404 | 391,990 | 95.9% | Dillard's, Robinsons-May, J.C. Penney, Sears, Mervyn's | $547 | ||||||||
50% | Biltmore Fashion Park Phoenix, Arizona |
1963/2003 | 1993 | 593,429 | 288,429 | 94.6% | Macy's, Saks Fifth Avenue | 694 | ||||||||
50% | Broadway Plaza(4) Walnut Creek, California |
1951/1985 | 1994 | 698,069 | 252,572 | 99.6% | Macy's (two), Nordstrom | 763 | ||||||||
50.1% | Corte Madera, Village at Corte Madera, California |
1985/1998 | 2005 | 432,726 | 214,726 | 98.3% | Macy's, Nordstrom | 659 | ||||||||
50% | Desert Sky Mall Phoenix, Arizona |
1981/2002 | 1993 | 896,835 | 302,246 | 87.7% | Sears, Dillard's, Burlington Coat Factory, Mervyn's, Steve & Barry's University Sportswear | 332 | ||||||||
50% | Inland Center(4) San Bernardino, California |
1966/2004 | 2004 | 1,032,093 | 248,419 | 83.8% | Macy's(5), Robinsons-May, Sears, Gottschalks | 506 | ||||||||
37.5% | Marketplace Mall, The (4) Henrietta, New York | 1982/2005 | 1993 | 1,023,281 | 508,689 | 88.2% | The Bon-Ton, J.C. Penney, Kaufmann's, Sears | 298 | ||||||||
15% | Metrocenter (4) Phoenix, Arizona |
1973/2005 | 1996 | 1,282,348 | 599,099 | 86.0% | Dillard's, J.C. Penney, Robinsons-May, Sears | 343 | ||||||||
50% | NorthPark Center(4) Dallas, Texas |
1965/2004 | 2005 | 1,408,315 | 437,393 | 89.5% | Dillard's, Foley's, Nieman Marcus, Nordstrom(9) | 705 | ||||||||
50% | Ridgmar Fort Worth, Texas |
1976/2005 | 2000 | 1,269,135 | 395,162 | 81.6% | Dillard's, Foley's, J.C. Penney, Nieman Marcus, Sears | 311 | ||||||||
50% | Scottsdale Fashion Square Scottsdale, Arizona |
1961/2002 | 2003 | 2,050,596 | 849,177 | 96.6% | Dillard's, Robinsons-May, Macy's, Nordstrom, Neiman Marcus | 654 | ||||||||
33.3% | Superstition Springs Center(4) Mesa, Arizona |
1990/2002 | 2002 | 1,279,489 | 432,950 | 94.7% | Burlington Coat Factory, Dillard's, Robinsons-May, J.C. Penney, Sears, Mervyn's, Best Buy | 427 | ||||||||
50% | Tysons Corner Center (4) McLean, Virginia |
1990/2005 | 2003 | 2,168,567 | 1,280,325 | 97.7% | Bloomingdale's, Hecht's, L.L. Bean, Lord & Taylor, Nordstrom | 718 | ||||||||
19% | West Acres Fargo, North Dakota |
1972/1986 | 2001 | 949,532 | 396,977 | 98.4% | Marshall Field's, Herberger's, J.C. Penney, Sears | 431 | ||||||||
Total/Average Joint Ventures (Various Partners) | 16,214,819 | 6,598,154 | 93.0% | $536 | ||||||||||||
26 The Macerich Company
PACIFIC PREMIER RETAIL TRUST PROPERTIES: |
||||||||||||||||
51% | Cascade Mall Burlington, Washington |
1989/1999 | 1998 | 594,358 | 270,122 | 95.2% | Macy's (two), J.C. Penney, Sears, Target | $333 | ||||||||
51% | Kitsap Mall(4) Silverdale, Washington |
1985/1999 | 1997 | 847,180 | 337,197 | 96.7% | Macy's, J.C. Penney, Gottschalks, Mervyn's, Sears | $408 | ||||||||
51% | Lakewood Mall Lakewood, California |
1953/1975 | 2001 | 2,086,531 | 978,547 | 98.7% | Home Depot, Target, J.C. Penney, Macy's(5), Mervyn's, Robinsons-May | 412 | ||||||||
51% | Los Cerritos Center Cerritos, California |
1971/1999 | 1998 | 1,289,066 | 487,785 | 94.3% | Macy's, Mervyn's, Nordstrom, Robinsons-May(5), Sears | 522 | ||||||||
51% | Redmond Town Center(4)(10) Redmond, Washington |
1997/1999 | 2000 | 1,282,982 | 1,172,982 | 97.9% | Macy's | 355 | ||||||||
51% | Stonewood Mall(4) Downey, California |
1953/1997 | 1991 | 929,941 | 359,194 | 97.7% | J.C. Penney, Mervyn's, Robinsons-May, Sears | 421 | ||||||||
51% | Washington Square Portland, Oregon |
1974/1999 | 2005 | 1,455,049 | 520,713 | 97.6% | J.C. Penney, Meier & Frank, Mervyn's(8), Nordstrom, Sears | 627 | ||||||||
Total/Average Pacific Premier Retail Trust Properties | 8,485,107 | 4,126,540 | 97.3% | $450 | ||||||||||||
SDG MACERICH PROPERTIES, L.P. PROPERTIES: |
||||||||||||||||
50% | Eastland Mall(4) Evansville, Indiana |
1978/1998 | 1996 | 1,040,355 | 551,211 | 97.9% | Famous-Barr(5), J.C. Penney, Macy's | $376 | ||||||||
50% | Empire Mall(4) Sioux Falls, South Dakota |
1975/1998 | 2000 | 1,343,357 | 597,835 | 91.0% | Marshall Field's, J.C. Penney, Gordmans, Kohl's, Sears, Target, Younkers | 385 | ||||||||
50% | Granite Run Mall Media, Pennsylvania |
1974/1998 | 1993 | 1,046,506 | 545,697 | 91.3% | Boscov's, J.C. Penney, Sears | 264 | ||||||||
50% | Lake Square Mall Leesburg, Florida |
1980/1998 | 1995 | 560,782 | 264,745 | 87.0% | Belk, J.C. Penney, Sears, Target | 297 | ||||||||
50% | Lindale Mall Cedar Rapids, Iowa |
1963/1998 | 1997 | 689,248 | 383,685 | 95.1% | Sears, Von Maur, Younkers | 294 | ||||||||
50% | Mesa Mall Grand Junction, Colorado |
1980/1998 | 2003 | 852,456 | 411,248 | 91.6% | Herberger's, J.C. Penney, Mervyn's, Sears, Target | 330 | ||||||||
50% | NorthPark Mall Davenport, Iowa |
1973/1998 | 2001 | 1,075,664 | 424,131 | 90.5% | J.C. Penney, Dillard's, Sears, Von Maur, Younkers | 271 | ||||||||
50% | Rushmore Mall Rapid City, South Dakota |
1978/1998 | 1992 | 838,397 | 433,737 | 92.2% | Herberger's, J.C. Penney, Sears, Target | 332 | ||||||||
50% | Southern Hills Mall Sioux City, Iowa |
1980/1998 | 2003 | 796,937 | 483,360 | 93.1% | Sears, Younkers, J.C. Penney | 303 | ||||||||
50% | SouthPark Mall Moline, Illinois |
1974/1998 | 1990 | 1,025,836 | 447,780 | 83.0% | J.C. Penney, Sears, Younkers, Von Maur, Dillard's | 214 | ||||||||
50% | SouthRidge Mall Des Moines, Iowa |
1975/1998 | 1998 | 883,185 | 494,433 | 76.9% | Sears, Younkers, J.C. Penney, Target | 179 | ||||||||
50% | Valley Mall Harrisonburg, Virginia |
1978/1998 | 1992 | 509,202 | 194,124 | 93.8% | Belk, J.C. Penney, Peebles, Target(11) | 267 | ||||||||
The Macerich Company 27
Total/Average SDG Macerich Properties, L.P. Properties | 10,661,925 | 5,231,986 | 90.2% | $300 | ||||||||||||
Total/Average Joint Ventures | 35,361,851 | 15,956,680 | 93.2% | $440 | ||||||||||||
Total/Average before Community Centers | 71,982,536 | 31,936,017 | 93.3% | $417 | ||||||||||||
COMMUNITY/SPECIALTY CENTERS: |
||||||||||||||||
100% | Borgata, The Scottsdale, Arizona | 1981/2002 | | 79,326 | 79,326 | 75.9% | | $342 | ||||||||
50% | Boulevard Shops Chandler, Arizona |
2001/2002 | 2004 | 173,823 | 173,823 | 98.9% | | 419 | ||||||||
75% | Camelback Colonnade Phoenix, Arizona |
1961/2002 | 1994 | 624,131 | 544,131 | 98.0% | Mervyn's | 328 | ||||||||
100% | Carmel Plaza Carmel, California |
1974/1998 | 1993 | 95,571 | 95,571 | 93.5% | | 396 | ||||||||
50% | Chandler Festival Chandler, Arizona |
2001/2002 | | 503,735 | 368,538 | 99.1% | Lowe's | 310 | ||||||||
50% | Chandler Gateway Chandler, Arizona |
2001/2002 | 255,289 | 124,238 | 100.0% | The Great Indoors | 435 | |||||||||
50% | Chandler Village Center Chandler, Arizona |
2004/2002 | 2005 ongoing | 262,429 | 119,296 | 100.0% | Target | N/A | ||||||||
100% | Great Falls Marketplace Great Falls, Montana |
1997/1997 | | 215,024 | 215,024 | 97.5% | | 169 | ||||||||
50% | Hilton Village(4)(10) Scottsdale, Arizona |
1982/2002 | | 96,593 | 96,593 | 87.2% | | 508 | ||||||||
24.5% | Kierland Commons Phoenix, Arizona |
1999/2005 | 2003 | 437,189 | 437,189 | 95.3% | 710 | |||||||||
100% | La Encantada Tucson, Arizona |
2002/2002 | 2005 | 251,142 | 251,142 | 85.0% | | 462 | ||||||||
100% | Paradise Village Office Park II Phoenix, Arizona |
1982/2002 | | 46,834 | 46,834 | 98.4% | | N/A | ||||||||
63.6% | Pittsford Plaza Pittsford, New York |
1965/2005 | 1982 | 528,093 | 403,261 | 96.9% | Chase-Pitkin Home & Garden | 220 | ||||||||
46% | Scottsdale 101(4) Phoenix, Arizona |
2002/2002 | 2004 | 563,878 | 462,503 | 98.9% | Expo Design Center | 311 | ||||||||
100% | Village Center Phoenix, Arizona |
1985/2002 | | 170,801 | 59,055 | 90.4% | Target | 308 | ||||||||
100% | Village Crossroads Phoenix, Arizona |
1993/2002 | | 187,336 | 86,627 | 81.0% | Burlington Coat Factory | 372 | ||||||||
100% | Village Fair Phoenix, Arizona |
1989/2002 | | 271,417 | 207,817 | 94.6% | Best Buy | 231 | ||||||||
100% | Village Plaza Phoenix, Arizona |
1978/2002 | | 79,810 | 79,810 | 97.4% | | 280 | ||||||||
100% | Village Square I Phoenix, Arizona |
1978/2002 | | 21,606 | 21,606 | 100.0% | | 175 | ||||||||
100% | Village Square II Phoenix, Arizona |
1978/2002 | | 146,193 | 70,393 | 95.5% | Mervyn's | 201 | ||||||||
Total/Average Community/Specialty Centers | 5,010,220 | 3,942,777 | 95.6% | $408 | ||||||||||||
Total before major development and redevelopment properties and other assets | 76,992,756 | 35,878,794 | 93.5% | $416 | ||||||||||||
MAJOR DEVELOPMENT AND REDEVELOPMENT PROPERTIES: |
||||||||||||||||
100% | Park Lane Mall(4) Reno, Nevada |
1967/1978 | 1998 | 369,992 | 240,272 | (14) | Gottschalks | N/A | ||||||||
37.5% | SanTan Village Gilbert, Arizona |
2004/2004 | 2005 ongoing | 445,014 | 238,487 | (14) | Wal-Mart(12) | N/A | ||||||||
100% | Santa Monica Place Santa Monica, California |
1980/1999 | 1990 | 556,933 | 273,683 | (14) | Macy's, Robinsons-May(5) | N/A | ||||||||
28 The Macerich Company
100% | Twenty-Ninth Street(4) Boulder, Colorado |
1963/1979 | 2005 ongoing | 304,425 | 13,144 | (14) | Foley's, Home Depot(13) | N/A | ||||||||
100% | Westside Pavilion Adjacent Los Angeles, California |
1985/1998 | 2005 ongoing | 90,982 | 90,982 | (14) | | N/A | ||||||||
Total Major Development and Redevelopment Properties | 1,767,346 | 856,568 | ||||||||||||||
OTHER ASSETS: |
||||||||||||||||
100% | Paradise Village ground leases | /2002 | 169,238 | 169,238 | 90.2% | | N/A | |||||||||
Total Other Assets | 169,238 | 169,238 | 90.2% | |||||||||||||
Grand Total at December 31, 2005 | 78,929,340 | 36,904,600 |
The Macerich Company 29
Mortgage Debt
The following table sets forth certain information regarding the mortgages encumbering the Centers, including those Centers in which the Company has less than a 100% interest. The information set forth below is as of December 31, 2005, (dollars in thousands):
Property Pledged as Collateral |
Fixed or Floating |
Annual Interest Rate |
Carrying Amount(1) |
Annual Debt Service |
Maturity Date |
Balance Due on Maturity |
Earliest Date on which all Notes Can Be Defeased or Be Prepaid |
|||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Consolidated Centers: | ||||||||||||||
Borgata | Fixed | 5.39% | $15,422 | $1,380 | 10/11/07 | $14,352 | Any Time | |||||||
Capitola Mall | Fixed | 7.13% | 42,573 | 4,558 | 5/15/11 | 32,724 | Any Time | |||||||
Carmel Plaza | Fixed | 8.18% | 27,064 | 2,421 | 5/1/09 | 25,642 | Any Time | |||||||
Chandler Fashion Center | Fixed | 5.48% | 175,853 | 12,514 | 11/1/12 | 152,097 | Any Time | |||||||
Chesterfield Towne Center(2) | Fixed | 9.07% | 58,483 | 6,580 | 1/1/24 | 1,087 | 1/1/06 | |||||||
Citadel, The | Fixed | 7.20% | 64,069 | 6,528 | 1/1/08 | 59,962 | Any Time | |||||||
Danbury Fair Mall | Fixed | 4.64% | 189,137 | 14,698 | 2/1/11 | 155,173 | Any Time | |||||||
Eastview Commons | Fixed | 5.46% | 9,411 | 792 | 9/30/10 | 7,942 | Any Time | |||||||
Eastview Mall | Fixed | 5.10% | 104,654 | 7,107 | 1/18/14 | 87,927 | 10/19/06 | |||||||
Fiesta Mall | Fixed | 4.88% | 84,000 | 4,152 | 1/1/15 | 84,000 | 12/2/07 | |||||||
Flagstaff Mall | Fixed | 4.97% | 37,000 | 1,863 | 11/1/15 | 37,000 | 10/3/08 | |||||||
FlatIron Crossing | Fixed | 5.23% | 194,188 | 13,223 | 12/1/13 | 164,187 | Any Time | |||||||
Freehold Raceway | Fixed | 4.68% | 189,161 | 14,208 | 7/7/11 | 155,678 | Any Time | |||||||
Fresno Fashion Fair | Fixed | 6.52% | 65,535 | 5,244 | 8/10/08 | 62,974 | Any Time | |||||||
Great Northern | Fixed | 5.19% | 41,575 | 2,685 | 12/1/13 | 35,566 | 4/18/06 | |||||||
Greece Ridge(3) | Floating | 5.02% | 72,012 | 3,665 | 11/6/07 | 72,012 | Any Time | |||||||
Greeley Mall | Fixed | 6.18% | 28,849 | 2,359 | 9/1/13 | 23,446 | Any Time | |||||||
La Cumbre(4) | Floating | 5.25% | 30,000 | 1,597 | 8/9/07 | 30,000 | Any Time | |||||||
La Encantada(5) | Floating | 6.39% | 45,905 | 2,974 | 1/6/06 | 45,905 | Any Time | |||||||
Marketplace Mall | Fixed | 5.30% | 41,545 | 3,204 | 12/10/17 | 24,353 | Any Time | |||||||
Northridge(6) | Fixed | 4.84% | 83,840 | 5,438 | 7/1/09 | 70,991 | Any Time | |||||||
Northwest Arkansas Mall | Fixed | 7.33% | 54,442 | 5,209 | 1/10/09 | 48,343 | Any Time | |||||||
Oaks, The(7) | Floating | 5.34% | 108,000 | 5,847 | 7/1/06 | 108,000 | Any Time | |||||||
Pacific View | Fixed | 7.16% | 91,512 | 7,780 | 8/31/11 | 83,045 | Any Time | |||||||
Panorama Mall(8) | Floating | 4.90% | 32,250 | 1,580 | 1/31/06 | 32,250 | Any Time | |||||||
Paradise Valley Mall | Fixed | 5.39% | 76,930 | 6,068 | 1/1/07 | 74,889 | Any Time | |||||||
Paradise Valley Mall | Fixed | 5.89% | 23,033 | 2,193 | 5/1/09 | 19,863 | Any Time | |||||||
Pittsford Plaza | Fixed | 5.02% | 25,930 | 1,914 | 1/1/13 | 20,673 | 1/1/07 | |||||||
Prescott Gateway(9) | Floating | 6.03% | 35,280 | 2,127 | 7/31/07 | 35,280 | Any Time | |||||||
Paradise Village Ground Leases(10) | Fixed | 5.39% | 7,190 | 670 | 3/1/06 | 7,134 | Any Time | |||||||
Queens Center | Fixed | 6.88% | 93,461 | 7,595 | 3/1/09 | 88,651 | Any Time | |||||||
Queens Center(11) | Fixed | 7.00% | 223,916 | 18,013 | 3/31/13 | 204,203 | 2/19/08 | |||||||
Rimrock Mall | Fixed | 7.45% | 44,032 | 3,841 | 10/1/11 | 40,025 | Any Time | |||||||
Rotterdam Square(12) | Floating | 6.00% | 9,786 | 756 | 12/31/06 | 9,527 | Any Time | |||||||
Salisbury, Center at(13) | Floating | 4.75% | 79,875 | 3,794 | 2/20/06 | 79,875 | Any Time | |||||||
Santa Monica Place | Fixed | 7.70% | 81,052 | 7,272 | 11/1/10 | 75,544 | Any Time | |||||||
Scottsdale 101/Associates(14) | Floating | 5.62% | 56,000 | 3,147 | 9/16/08 | 56,000 | Any Time | |||||||
Shoppingtown Mall | Fixed | 5.01% | 47,752 | 3,828 | 5/11/11 | 38,968 | Any Time | |||||||
South Plains Mall | Fixed | 8.22% | 60,561 | 5,448 | 3/1/09 | 57,557 | Any Time | |||||||
South Towne Center | Fixed | 6.61% | 64,000 | 4,289 | 10/10/08 | 64,000 | Any Time | |||||||
Towne Mall | Fixed | 4.99% | 15,724 | 1,206 | 11/1/12 | 12,316 | Any Time | |||||||
Valley View Center | Fixed | 5.72% | 125,000 | 7,247 | 1/1/11 | 125,000 | 12/28/08 | |||||||
Victor Valley, Mall of | Fixed | 4.60% | 53,601 | 3,645 | 3/1/08 | 50,850 | Any Time | |||||||
Village Center(10) | Fixed | 5.39% | 6,877 | 744 | 4/1/06 | 6,782 | Any Time | |||||||
Village Fair North | Fixed | 5.89% | 11,524 | 983 | 7/15/08 | 10,710 | Any Time | |||||||
Village Plaza | Fixed | 5.39% | 5,024 | 566 | 11/1/06 | 4,757 | Any Time | |||||||
Vintage Faire Mall | Fixed | 7.89% | 66,266 | 6,099 | 9/1/10 | 61,372 | Any Time | |||||||
Westside Pavilion | Fixed | 6.67% | 94,895 | 7,538 | 7/1/08 | 91,133 | Any Time | |||||||
Wilton Mall | Fixed | 4.79% | 48,541 | 4,183 | 11/1/09 | 40,838 | Any Time | |||||||
$3,242,730 | ||||||||||||||
30 The Macerich Company
Joint Venture Centers (at Company's Pro Rata Share): | ||||||||||||||
Arrowhead Towne Center(33.3%) | Fixed | 6.38% | $27,601 | $2,240 | 10/1/11 | $24,256 | Any Time | |||||||
Biltmore Fashion Park(50%) | Fixed | 4.68% | 41,336 | 2,433 | 7/10/09 | 34,972 | Any Time | |||||||
Boulevard Shops(50%)(15) | Floating | 5.64% | 10,700 | 603 | 12/16/07 | 10,700 | Any Time | |||||||
Broadway Plaza(50%) | Fixed | 6.68% | 31,994 | 3,089 | 8/1/08 | 29,315 | Any Time | |||||||
Camelback Colonnade(75%)(16) | Floating | 5.02% | 31,125 | 1,584 | 10/9/07 | 31,125 | 11/29/07 | |||||||
Cascade(51%) | Fixed | 5.10% | 20,722 | 1,362 | 7/1/10 | 19,221 | 6/22/07 | |||||||
Chandler Festival(50%) | Fixed | 4.37% | 15,437 | 958 | 10/1/08 | 14,583 | 7/1/08 | |||||||
Chandler Gateway(50%) | Fixed | 5.19% | 9,700 | 658 | 10/1/08 | 9,223 | 7/1/08 | |||||||
Chandler Village Center(50%) | Floating | 6.19% | 8,312 | 510 | 12/19/06 | 8,312 | Any Time | |||||||
Corte Madera, The Village at(50.1%) | Fixed | 7.75% | 33,707 | 3,095 | 11/1/09 | 31,534 | Any Time | |||||||
Desert Sky Mall(50%)(17) | Fixed | 5.42% | 13,136 | 1,020 | 1/1/06 | 13,136 | Any Time | |||||||
East Mesa Land(50%)(18) | Floating | 5.31% | 2,066 | 120 | 11/15/06 | 2,041 | Any Time | |||||||
East Mesa Land(50%)(18) | Fixed | 5.39% | 618 | 36 | 11/15/06 | 611 | Any Time | |||||||
Hilton Village(50%) | Fixed | 5.39% | 4,186 | 415 | 1/1/07 | 3,949 | Any Time | |||||||
Inland Center(50%) | Fixed | 4.64% | 27,000 | 1,270 | 2/11/09 | 27,000 | 4/1/06 | |||||||
Kierland Greenway(24.5%) | Fixed | 5.85% | 16,602 | 1,144 | 1/1/13 | 13,679 | Anytime | |||||||
Kierland Main Street(24.5%) | Fixed | 4.99% | 3,821 | 251 | 1/2/13 | 3,502 | 11/3/07 | |||||||
Kitsap Mall/Place(51%) | Fixed | 8.06% | 29,947 | 2,755 | 6/1/10 | 28,143 | Any Time | |||||||
Lakewood (51%) | Fixed | 5.41% | 127,500 | 6,995 | 6/1/15 | 127,500 | 8/19/07 | |||||||
Los Cerritos Center(51%) | Fixed | 7.13% | 55,602 | 5,054 | 7/1/06 | 55,049 | Any Time | |||||||
Metrocenter(15%)(19) | Floating | 4.80% | 16,800 | 806 | 2/9/08 | 16,800 | 8/9/06 | |||||||
Metrocenter (15%)(20) | Floating | 7.82% | 726 | 57 | 2/9/08 | 726 | 8/9/06 | |||||||
NorthPark Center(50%)(21) | Fixed | 8.33% | 120,569 | 7,677 | 5/10/12 | 113,288 | Any Time | |||||||
NorthPark Center(50%)(21) | Fixed | 7.25% | 3,500 | 254 | 8/30/06 | 3,500 | Any Time | |||||||
Redmond-Office(51%) | Fixed | 6.77% | 37,722 | 4,443 | 7/10/09 | 30,285 | Any Time | |||||||
Redmond Retail(51%) | Fixed | 4.81% | 38,010 | 2,025 | 8/1/09 | 27,164 | 2/1/07 | |||||||
Ridgmar(50%) | Fixed | 6.07% | 28,700 | 1,800 | 4/11/10 | 28,700 | Any Time | |||||||
SDG Macerich Properties, LP(50%)(22) | Fixed | 6.54% | 179,215 | 13,476 | 5/15/06 | 178,550 | Any Time | |||||||
SDG Macerich Properties, LP(50%)(22) | Floating | 4.79% | 93,250 | 4,457 | 5/15/06 | 93,250 | Any Time | |||||||
SDG Macerich Properties, LP(50%)(22) | Floating | 4.74% | 40,700 | 1,917 | 5/15/06 | 40,700 | Any Time | |||||||
SanTan Village Phase II(37.5%)(23) | Floating | 6.57% | 8,061 | 530 | 11/2/07 | 8,061 | Any Time | |||||||
Scottsdale Fashion Square Series I(50%) | Fixed | 5.39% | 80,082 | 5,702 | 8/31/07 | 78,000 | Any Time | |||||||
Scottsdale Fashion Square Series II(50%) | Fixed | 5.39% | 34,667 | 2,904 | 8/31/07 | 33,250 | Any Time | |||||||
Stonewood Mall (51%) | Fixed | 7.41% | 38,592 | 3,298 | 12/11/10 | 36,244 | Any Time | |||||||
Superstition Springs(33.3%)(24) | Floating | 5.28% | 15,837 | 902 | 11/1/06 | 15,629 | Any Time | |||||||
Superstition Springs(33.3%)(24) | Fixed | 5.39% | 4,737 | 270 | 11/1/06 | 4,682 | Any Time | |||||||
Tyson's Corner Center(50%) | Fixed | 5.22% | 174,570 | 11,232 | 2/17/14 | 147,595 | 3/1/06 | |||||||
Washington Square(51%) | Fixed | 6.70% | 53,115 | 5,051 | 2/1/09 | 48,021 | Any Time | |||||||
Washington Square(51%)(25) | Floating | 6.25% | 17,411 | 1,088 | 2/1/09 | 16,012 | 11/1/06 | |||||||
West Acres(19%) | Fixed | 6.52% | 6,528 | 681 | 1/1/09 | 5,684 | Any Time | |||||||
West Acres(19%) | Fixed | 9.17% | 1,708 | 212 | 9/30/09 | 1,461 | Any Time | |||||||
$1,505,612 | ||||||||||||||
The Macerich Company 31
The debt premiums (discounts) as of December 31, 2005 consist of the following:
Consolidated Centers
Property Pledged as Collateral |
|
|||
---|---|---|---|---|
Borgata | $538 | |||
Danbury Fair Mall | 21,862 | |||
Eastview Commons | 979 | |||
Eastview Mall | 2,300 | |||
Freehold Raceway | 19,239 | |||
Great Northern | (218 | ) | ||
Marketplace Mall | 1,976 | |||
Paradise Valley Mall | 789 | |||
Paradise Valley Mall | 978 | |||
Pittsford Plaza | 1,192 | |||
Paradise Village Ground Leases | 30 | |||
Rotterdam Square | 110 | |||
Shoppingtown Mall | 5,896 | |||
Towne Mall | 652 | |||
Victor Valley, Mall at | 699 | |||
Village Center | 35 | |||
Village Fair North | 243 | |||
Village Plaza | 130 | |||
Wilton Mall | 5,661 | |||
$ | 63,091 | |||
Joint Venture Centers (at Company's Pro Rata Share)
Property Pledged as Collateral |
|
||
---|---|---|---|
Arrowhead Towne Center | $635 | ||
Biltmore Fashion Park | 3,586 | ||
Kierland Greenway | 1,020 | ||
Hilton Village | 120 | ||
Scottsdale Fashion Square Series I | 2,082 | ||
Scottsdale Fashion Square Series II | 1,414 | ||
SDG Macerich Properties, L.P. | 665 | ||
Tysons Corner Center | 4,570 | ||
$ | 14,092 | ||
32 The Macerich Company
On April 12, 2000, the joint venture issued $138.5 million of additional mortgage notes, which are collateralized by the properties and are due in May 2006. $57.1 million of this debt requires fixed monthly interest payments of $0.4 million at a weighted average rate of 8.13% while the floating rate notes of $81.4 million require monthly interest payments at a floating weighted average rate (based on LIBOR) of 4.74% at December 31, 2005. This floating rate debt is covered by an interest rate cap agreement which effectively prevents LIBOR from exceeding 11.83%.
The Macerich Company 33
$184.5 million of this debt was refinanced in May 2003 with a new loan of $186.5 million that requires monthly interest payments at a floating weighted average rate (based on LIBOR) of 4.79% at December 31, 2005. This floating rate debt is covered by interest rate cap agreements, which effectively prevent LIBOR from exceeding 10.63%.
Management of the joint venture anticipates it will successfully refinance the existing debt, all of which matures in May 2006, with debt having similar terms to the current debt.
None of the Company, the Operating Partnership, Macerich Property Management Company, LLC, Macerich Management Company, the Westcor Management Companies, Wilmorite Management Companies or their respective affiliates are currently involved in any material litigation nor, to the Company's knowledge, is any material litigation currently threatened against such entities or the Centers, other than routine litigation arising in the ordinary course of business, most of which is expected to be covered by liability insurance. For information about certain environmental matters, see "BusinessEnvironmental Matters."
Item 4. Submission of Matters to a Vote of Securities Holders
None
34 The Macerich Company
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The common stock of the Company is listed and traded on the New York Stock Exchange under the symbol "MAC". The common stock began trading on March 10, 1994 at a price of $19 per share. In 2005, the Company's shares traded at a high of $71.22 and a low of $53.10.
As of February 24, 2006, there were approximately 961 stockholders of record. The following table shows high and low closing prices per share of common stock during each quarter in 2004 and 2005 and dividends/distributions per share of common stock declared and paid by quarter:
|
Market Quotation Per Share |
|
||||
---|---|---|---|---|---|---|
|
Dividends/ Distributions Declared/Paid |
|||||
Quarter Ended |
High |
Low |
||||
March 31, 2004 | $53.90 | $43.60 | $0.61 | |||
June 30, 2004 | 54.30 | 39.75 | 0.61 | |||
September 30, 2004 | 55.79 | 46.60 | 0.61 | |||
December 31, 2004 | 64.66 | 54.10 | 0.65 | |||
March 31, 2005 | 62.15 | 53.28 | 0.65 | |||
June 30, 2005 | 67.32 | 54.00 | 0.65 | |||
September 30, 2005 | 71.19 | 62.15 | 0.65 | |||
December 31, 2005 | 68.58 | 60.91 | 0.68 | |||
The Company issued 3,627,131 shares of its Series A cumulative convertible redeemable preferred stock ("Series A Preferred Stock"). There is no established public trading market for the Series A Preferred Stock. The Series A Preferred Stock was issued on February 25, 1998. Preferred stock dividends are accrued quarterly and paid in arrears. The Series A 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 have not been declared and/or paid. The
The Macerich Company 35
following table shows the dividends per share of preferred stock declared and paid for each quarter in 2004 and 2005:
|
Series A Preferred Stock Dividend |
|||
---|---|---|---|---|
Quarter Ended |
Declared |
Paid |
||
March 31, 2004 | $0.61 | $0.61 | ||
June 30, 2004 | 0.61 | 0.61 | ||
September 30, 2004 | 0.65 | 0.61 | ||
December 31, 2004 | 0.65 | 0.65 | ||
March 31, 2005 | 0.65 | 0.65 | ||
June 30, 2005 | 0.65 | 0.65 | ||
September 30, 2005 | 0.68 | 0.65 | ||
December 31, 2005 | 0.68 | 0.68 | ||
The Company's existing financing agreements limit, and any other financing agreements that the Company enters into in the future will likely limit, the Company's ability to pay cash dividends. Specifically, the Company may pay cash dividends and make other distributions based on a formula derived from Funds from Operations (See Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsFunds From Operations) and only if no event of default under the financing agreements has occurred, unless, under certain circumstances, payment of the distribution is necessary to enable the Company to qualify as a REIT under the Internal Revenue Code.
36 The Macerich Company
Item 6. Selected Financial Data
The following sets forth selected financial data for the Company on a historical basis. The following data should be read in conjunction with the financial statements (and the notes thereto) of the Company and "Management's Discussion and Analysis of Financial Condition and Results of Operations" each included elsewhere in this Form 10-K. All amounts in thousands except per share data.
|
Years Ended December 31, |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2005 |
2004 |
2003 |
2002 |
2001 |
||||||||
OPERATING DATA: |
|||||||||||||
Revenues: | |||||||||||||
Minimum rents(1) | $461,428 | $329,689 | $286,298 | $219,537 | $189,838 | ||||||||
Percentage rents | 26,085 | 17,654 | 12,427 | 10,735 | 11,976 | ||||||||
Tenant recoveries | 229,463 | 159,005 | 152,696 | 115,993 | 104,019 | ||||||||
Management Companies(2) | 26,128 | 21,549 | 14,630 | 4,826 | 312 | ||||||||
Other | 24,281 | 19,169 | 17,526 | 11,819 | 11,263 | ||||||||
Total revenues | 767,385 | 547,066 | 483,577 | 362,910 | 317,408 | ||||||||
Shopping center and operating expenses | 243,767 | 164,465 | 151,325 | 113,808 | 97,094 | ||||||||
Management Companies' operating expenses(2) | 52,839 | 44,080 | 32,031 | 12,881 | 8,515 | ||||||||
REIT general and administrative expenses | 12,106 | 11,077 | 8,482 | 7,435 | 6,780 | ||||||||
Depreciation and amortization | 206,083 | 142,096 | 104,920 | 74,504 | 62,595 | ||||||||
Interest expense | 249,910 | 146,327 | 130,707 | 120,288 | 107,560 | ||||||||
Income from continuing operations before minority interest, equity in income of unconsolidated joint ventures and management companies, income tax benefit (provision), gain (loss) on sale or write-down of assets and loss on early extinguishment of debt | 2,680 | 39,021 | 56,112 | 33,994 | 34,864 | ||||||||
Minority interest(3) | (12,450) | (19,870) | (28,907) | (20,189) | (19,001) | ||||||||
Equity in income of unconsolidated joint ventures and management companies(2) | 76,303 | 54,881 | 59,348 | 43,049 | 32,930 | ||||||||
Income tax benefit (provision)(4) | 2,031 | 5,466 | 444 | (300) | | ||||||||
Gain (loss) on sale or write down of assets | 1,288 | 927 | 12,420 | (3,820) | 24,491 | ||||||||
Loss on early extinguishment of debt | (1,666) | (1,642) | (170) | (3,605) | (2,034) | ||||||||
Discontinued operations:(5) | |||||||||||||
Gain on sale of assets | 242 | 7,114 | 22,031 | 26,073 | | ||||||||
Income from discontinued operations | 3,258 | 5,736 | 6,756 | 6,180 | 6,473 | ||||||||
Net income | 71,686 | 91,633 | 128,034 | 81,382 | 77,723 | ||||||||
Less preferred dividends/preferred units | 19,098 | 9,140 | 14,816 | 20,417 | 19,688 | ||||||||
Net income available to common stockholders | $52,588 | $82,493 | $113,218 | $60,965 | $58,035 | ||||||||
Earnings per share ("EPS")basic: | |||||||||||||
Income from continuing operations | $0.84 | $1.23 | $1.68 | $0.98 | $1.58 | ||||||||
Discontinued operations | 0.05 | 0.18 | 0.43 | 0.65 | 0.14 | ||||||||
Net income per sharebasic | $0.89 | $1.41 | $2.11 | $1.63 | $1.72 | ||||||||
EPSdiluted:(6)(7) | |||||||||||||
Income from continuing operations | $0.83 | $1.22 | $1.71 | $0.98 | $1.58 | ||||||||
Discontinued operations | 0.05 | 0.18 | 0.38 | 0.64 | 0.14 | ||||||||
Net income per sharediluted | $0.88 | $1.40 | $2.09 | $1.62 | $1.72 | ||||||||
The Macerich Company 37
|
As of December 31, |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2005 |
2004 |
2003 |
2002 |
2001 |
|||||
BALANCE SHEET DATA |
||||||||||
Investment in real estate (before accumulated depreciation) | $6,160,595 | $4,149,776 | $3,662,359 | $3,251,674 | $2,227,833 | |||||
Total assets | $7,178,944 | $4,637,096 | $4,145,593 | $3,662,080 | $2,294,502 | |||||
Total mortgage, notes and debentures payable | $5,424,730 | $3,230,120 | $2,682,598 | $2,291,908 | $1,523,660 | |||||
Minority interest(3) | $284,809 | $221,315 | $237,615 | $221,497 | $113,986 | |||||
Class A participating convertible preferred units | $213,786 | $ | $ | $ | $ | |||||
Class A non-participating convertible preferred units | $21,501 | $ | $ | $ | $ | |||||
Series A and Series B Preferred Stock | $98,934 | $98,934 | $98,934 | $247,336 | $247,336 | |||||
Common stockholders' equity | $827,108 | $913,533 | $953,485 | $797,798 | $348,954 |
|
Years Ended December 31, |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2005 |
2004 |
2003 |
2002 |
2001 |
|||||||
OTHER DATA: |
|||||||||||
Funds from operations ("FFO")-diluted(8) | $336,831 | $299,172 | $269,132 | $194,643 | $173,372 | ||||||
Cash flows provided by (used in): | |||||||||||
Operating activities | $235,296 | $213,197 | $215,752 | $163,176 | $140,506 | ||||||
Investing activities | $(131,948) | $(489,822) | $(341,341) | $(875,032) | $(57,319) | ||||||
Financing activities | $(20,349) | $308,383 | $115,703 | $739,122 | $(92,990) | ||||||
Number of centers at year end | 97 | 84 | 78 | 79 | 50 | ||||||
Weighted average number of shares outstandingEPS basic | 59,279 | 58,537 | 53,669 | 37,348 | 33,809 | ||||||
Weighted average number of shares outstandingEPS diluted(6)(7) | 73,573 | 73,099 | 75,198 | 50,066 | 44,963 | ||||||
Cash distribution declared per common share | $2.63 | $2.48 | $2.32 | $2.22 | $2.14 |
The Company sold Boulder Plaza on March 19, 2002 and in accordance with SFAS No. 144, the results of Boulder Plaza for the periods from January 1, 2002 to March 19, 2002 and for the years ended December 31, 2001 and 2000 have been classified as discontinued operations. Total revenues associated with Boulder Plaza were approximately $0.5 million for the period January 1, 2002 to March 19, 2002 and $2.1 million for the year ended December 31, 2001.
Additionally, the Company sold its 67% interest in Paradise Village Gateway on January 2, 2003 (acquired in July 2002), and the loss on sale of $0.2 million has been classified as discontinued operations in 2003. Total revenues associated with Paradise Village Gateway for the period ending December 31, 2002 were $2.4 million. The Company sold Bristol Center on August 4, 2003, and the results for the period January 1, 2003 to August 4, 2003 and for the years ended December 31, 2002, and 2001 have been classified as discontinued operations. The sale of Bristol Center resulted in a gain on sale of asset of $22.2 million in
38 The Macerich Company
2003. Total revenues associated with Bristol Center were approximately $2.5 million for the period January 1, 2003 to August 4, 2003 and $4.0 million and $3.3 million for the years ended December 31, 2002 and 2001, respectively.
The Company sold Westbar on December 16, 2004, and the results for the period January 1, 2004 to December 16, 2004 and for the year ended December 31, 2003 and for the period July 26, 2002 to December 31, 2002 have been classified as discontinued operations. The sale of Westbar resulted in a gain on sale of asset of $6.8 million. Total revenues associated with Westbar were approximately $4.8 million for the period January 1, 2004 to December 17, 2004 and $5.7 million for the year ended December 31, 2003 and $2.1 million for the period July 26, 2002 to December 31, 2002.
On January 5, 2005, the Company sold Arizona Lifestyle Galleries. The sale of this property resulted in a gain on sale of $0.3 million and the impact on the results of operations for the years ended December 31, 2004, 2003 and 2002 were insignificant.
Additionally, the results of Crossroads Mall in Oklahoma for the years ended December 31, 2005, 2004, 2003, 2002 and 2001 have been classified as discontinued operations. The Company has identified this asset for disposition. Total revenues associated with Crossroads Mall were approximately $10.9 million, $11.2 million, $12.2 million, $11.8 million and $12.0 million for the years ended December 31, 2005, 2004, 2003, 2002, and 2001, respectively.
The computation of FFO-diluted includes the effect of outstanding common stock options and restricted stock using the treasury method. It also assumes the conversion of MACWH, LP units to the extent that they are dilutive to the FFO computation (See Note 15Wilmorite Acquisition of the Company's Notes to the Consolidated Financial Statements). The Company had $125.1 million of convertible subordinated debentures (the "Debentures") which matured December 15, 2002. The Debentures were dilutive for the twelve month periods ending December 31, 2002 and 2001 and were included in the FFO calculation. The Debentures were paid off in full on December 13, 2002. On February 25, 1998, the Company sold $100 million of its Series A Preferred Stock. On June 16, 1998, the Company sold $150 million of its Series B Preferred Stock. The Preferred Stock can be converted on a one-for-one basis for common stock. The Series A and Series B Preferred Stock then outstanding was dilutive to FFO in 2005, 2004, 2003, 2002 and 2001 and was dilutive to net income in 2003. All of the Series B Preferred Stock was converted to common stock on September 9, 2003.
The Macerich Company 39
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
This Annual Report on Form 10-K contains or incorporates statements that constitutes forward-looking statements. Those statements appear in a number of places in this Form 10-K and include statements regarding, among other matters, the Company's growth, acquisition, redevelopment and development opportunities, the Company's acquisition and other strategies, regulatory matters pertaining to compliance with governmental regulations and other factors affecting the Company's financial condition or results of operations. Words such as "expects," "anticipates," "intends," "projects," "predicts," "plans," "believes," "seeks," "estimates," and "should" and variations of these words and similar expressions, are used in many cases to identify these forward-looking statements. Stockholders are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company or industry to vary materially from the Company's future results, performance or achievements, or those of the industry, expressed or implied in such forward-looking statements. Such factors include the matters described herein and under "Item 1A. Risk Factors," among others. The Company will not update any forward-looking information to reflect actual results or changes in the factors affecting the forward-looking information.
Management's Overview and Summary
The Macerich Company (the "Company") is involved in the acquisition, ownership, development, 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"). As of December 31, 2005, the Operating Partnership owned or had an ownership interest in 75 regional shopping centers, 20 community shopping centers and two development properties aggregating approximately 78.9 million square feet of gross leasable area ("GLA"). These 97 regional, community and development 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 management companies.
The following discussion is based primarily on the consolidated financial statements of the Company for the years ended December 31, 2005, 2004 and 2003. The following discussion compares the activity for the year ended December 31, 2005 to results of operations for the year ended December 31, 2004. Also included is a comparison of the activities for the year ended December 31, 2004 to the results for the year ended December 31, 2003. This information should be read in conjunction with the accompanying consolidated financial statements and notes thereto.
Acquisitions and dispositions
The financial statements reflect the following acquisitions, dispositions and changes in ownership subsequent to the occurrence of each transaction.
On January 2, 2003, the Company sold its 67% interest in Paradise Village Gateway, a 296,153 square foot Phoenix area urban village, for approximately $29.4 million. The proceeds from the sale were used to repay a portion of the term loan. The sale resulted in a loss on sale of asset of $0.2 million.
40 The Macerich Company
On January 31, 2003, the Company purchased its joint venture partner's 50% interest in FlatIron Crossing. The purchase price consisted of approximately $68.3 million in cash plus the assumption of the joint venture partner's share of debt of $90.0 million.
On May 15, 2003, the Company sold 49.9% of its partnership interest in the Village at Corte Madera for a total purchase price of approximately $65.9 million, which included the assumption of a proportionate amount of the partnership debt in the amount of approximately $34.7 million. The Company retained a 50.1% partnership interest and has continued leasing and managing the asset. The sale resulted in a gain on sale of asset of $8.8 million.
On June 6, 2003, the Shops at Gainey Village, a 138,000 square foot Phoenix area specialty center, was sold for $55.7 million. The Company, which owned 50% of this property, received total proceeds of $15.8 million and recorded a gain on sale of asset of $2.8 million.
On August 4, 2003, the Company sold Bristol Center, a 161,000 square foot community center in Santa Ana, California. The sales price was approximately $30.0 million and the Company recorded a gain on sale of asset of $22.2 million which is reflected in discontinued operations.
On September 15, 2003, the Company acquired Northridge Mall, an 864,000 square foot super-regional mall in Salinas, California. The total purchase price was $128.5 million and was funded by sale proceeds from Bristol Center and borrowings under the Company's line of credit. Northridge Mall is referred herein as the "2003 Acquisition Center."
On December 18, 2003, the Company acquired Biltmore Fashion Park, a 600,000 square foot regional mall in Phoenix, Arizona. The total purchase price was $158.5 million, which included the assumption of $77.4 million of debt. The Company also issued 705,636 partnership units of the Operating Partnership at a price of $42.80 per unit. The balance of the Company's 50% share of the purchase price of $10.5 million was funded by cash and borrowings under the Company's line of credit. The mall is owned in a 50/50 joint venture with an institutional partner.
On January 30, 2004, the Company, in a 50/50 joint venture with a private investment company, acquired Inland Center, a 1 million square foot super-regional mall in San Bernardino, California. The total purchase price was $63.3 million and concurrently with the acquisition, the joint venture placed a $54.0 million fixed rate loan on the property. The Company's share of the remainder of the purchase price was funded by cash and borrowings under the Company's line of credit.
On May 11, 2004, the Company acquired an ownership interest in NorthPark Center, a 1.4 million square foot regional mall in Dallas, Texas. The Company's initial investment in the property was $30.0 million which was funded by borrowings under the Company's line of credit. In addition, the Company assumed a pro rata share of debt of $86.6 million and funded an additional $45.0 million post-closing.
On July 1, 2004, the Company acquired the Mall of Victor Valley in Victorville, California and on July 20, 2004, the Company acquired La Cumbre Plaza in Santa Barbara, California. The Mall of Victor Valley is a 480,000 square foot regional mall and La Cumbre Plaza is a 495,000 square foot regional mall. The
The Macerich Company 41
combined total purchase price was $151.3 million. The purchase price for the Mall of Victor Valley included the assumption of an existing fixed rate loan of $54.0 million at 5.25% maturing in March, 2008. Concurrent with the closing of La Cumbre Plaza, a $30.0 million floating rate loan was placed on the property with an initial interest rate of 2.29%. The balance of the purchase price was paid in cash and borrowings from the Company's revolving line of credit.
On November 16, 2004, the Company acquired Fiesta Mall, a 1 million square foot super regional mall in Mesa, Arizona. The total purchase price was $135.2 million which was funded by borrowings under the Company's line of credit. On December 2, 2004, the Company placed a ten year $84.0 million fixed rate loan at 4.88% on the property.
On December 16, 2004, the Company sold the Westbar property, a Phoenix area property that consisted of a collection of ground leases, a shopping center, and land for $47.5 million. The sale resulted in a gain on sale of asset of $6.8 million.
On December 30, 2004, the Company purchased the unaffiliated owners' 50% tenants in common interest in Paradise Village Ground Leases, Village Center, Village Crossroads, Village Fair and Paradise Village Office Park II. All of these assets are located in Phoenix, Arizona. The total purchase price was $50.0 million which included the assumption of the unaffiliated owners' share of debt of $15.2 million. The balance of the purchase price was paid in cash and borrowings from the Company's line of credit. Accordingly, the Company now owns 100% of these assets.
On January 5, 2005, the Company sold Arizona Lifestyle Galleries for $4.3 million. The sale resulted in a gain on sale on asset of $0.3 million.
On January 11, 2005, the Company became a 15% owner in a joint venture that acquired Metrocenter, a 1.3 million square foot super-regional mall in Phoenix, Arizona. The total purchase price was $160 million and concurrently with the acquisition, the joint venture placed a $112 million loan on the property. The Company's share of the purchase price, net of the debt, was $7.2 million which was funded by cash and borrowings under the Company's line of credit.
On January 21, 2005, the Company formed a 50/50 joint venture with a private investment company. The joint venture acquired a 49% interest in Kierland Commons, a 437,000 square foot mixed use center in Phoenix, Arizona. The joint venture's purchase price for the interest in the center was $49.0 million. The Company assumed its share of the underlying property debt and funded the remainder of its share of the purchase price by cash and borrowings under the Company's line of credit.
On April 8, 2005, the Company acquired Ridgmar Mall, a 1.3 million square foot super-regional mall in Fort Worth, Texas. The acquisition was completed in a 50/50 joint venture with an affiliate of Walton Street Capital, LLC. The purchase price was $71.1 million. Concurrent with the closing, a $57.4 million loan bearing interest at a fixed rate of 6.0725% was placed on the property. The balance of the purchase price was funded by borrowings under the Company's line of credit.
42 The Macerich Company
On April 25, 2005, the Company and the Operating Partnership completed its acquisition of Wilmorite Properties, Inc., a Delaware corporation ("Wilmorite") and Wilmorite Holdings, L.P., a Delaware limited partnership ("Wilmorite Holdings"). Wilmorite's portfolio includes interests in 11 regional malls and two open-air community shopping centers with 13.4 million square feet of space located in Connecticut, New York, New Jersey, Kentucky and Virginia. The total purchase price was approximately $2.333 billion, plus adjustments for working capital, including the assumption of approximately $877.2 million of existing debt with an average interest rate of 6.43% and the issuance of $234 million of convertible preferred units ("CPUs") and $5.8 million of common units in Wilmorite Holdings. The balance of the consideration to the equity holders of Wilmorite and Wilmorite Holdings was paid in cash, which was provided primarily by a five-year, $450 million term loan bearing interest at LIBOR plus 1.50% and a $650 million acquisition loan with a term of up to two years and bearing interest initially at LIBOR plus 1.60%. An affiliate of the Operating Partnership is the general partner and, together with other affiliates, own approximately 83% of Wilmorite Holdings, with the remaining 17% held by those limited partners of Wilmorite Holdings who elected to receive CPUs or common units in Wilmorite Holdings rather than cash. Approximately $213 million of the CPUs can be redeemed, subject to certain conditions, for the portion of the Wilmorite portfolio generally located in the area of Rochester, New York. The Wilmorite portfolio, exclusive of Tysons Corner Center and Tysons Corner Office (collectively referred herein as "Tysons Center"), are referred to herein as the "2005 Wilmorite Centers."
The Mall of Victor Valley, La Cumbre Plaza, Fiesta Mall, Paradise Village Ground Leases, Village Center, Village Crossroads, Village Fair and Paradise Village Office Park II are referred to herein as the "2004 Acquisition Centers."
Biltmore Fashion Park, Inland Center, Kierland Commons, Metrocenter, NorthPark Center, Ridgmar Mall and Tysons Center are joint ventures and these properties are reflected using the equity method of accounting. The Company's share of the results of these acquisitions are reflected in the consolidated results of operations of the Company in the income statement line item entitled "Equity in income of unconsolidated joint ventures."
Many of the variations in the results of operations, discussed below, occurred due to the transactions described above including the acquisition of the 2005 Wilmorite Centers and the 2004 Acquisition Centers. Kierland Commons, Metrocenter, Ridgmar Mall and Tysons Center are referred to herein as the "2005 Joint Venture Acquisition Centers." Biltmore Fashion Park, Inland Center and NorthPark Center are referred to herein as the "2004 Joint Venture Acquisition Centers." 29th Street, Parklane Mall, Santa Monica Place and Queens Center were under redevelopment during all or a portion of the reporting periods and are referred to herein as the "Redevelopment Centers." La Encantada and Scottsdale 101 were under development during all or a portion of the reporting periods and are referred to herein as the "Development Properties." All other Centers, excluding the Redevelopment Centers, the Development Properties, the 2005 Wilmorite Centers, the 2004 Acquisition Centers, the 2005 Joint Venture Acquisition Centers and the 2004 Acquisition Centers, are referred to herein as the "Same Centers," unless the context otherwise requires.
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
The Macerich Company 43
term. These rent increases are either in fixed increments or based on using an annual multiple of increases in the Consumer Price Index ("CPI"). In addition, about 6%-13% of the leases expire each year, 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, historically the majority of the leases require the tenants to pay their pro rata share of operating expenses. In January 2005, the Company began entering into leases that require tenants to pay a stated amount for operating expenses, generally excluding property taxes, regardless of the expenses actually incurred at any center. This change shifts the burden of cost control to the Company.
Seasonality
The shopping center industry is seasonal in nature, particularly in the fourth quarter during the holiday season when retailer occupancy and retail sales are typically at their highest levels. In addition, shopping malls achieve a substantial portion of their specialty (temporary retailer) rents during the holiday season and the majority of percentage rent is recognized in the fourth quarter.
The Securities and Exchange Commission ("SEC") defines "critical accounting policies" as those that require application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Some of these estimates and assumptions include judgments on revenue recognition, estimates for common area maintenance and real estate tax accruals, provisions for uncollectible accounts, impairment of long-lived assets, the allocation of purchase price between tangible and intangible assets, and estimates for environmental matters. The Company's significant accounting policies are described in more detail in Note 2 to the Consolidated Financial Statements. However, the following policies are deemed to be critical.
Revenue Recognition
Minimum rental revenues are recognized on a straight-line basis over the terms of the related lease. The difference between the amount of rent due in a year and the amount recorded as rental income is referred to as the "straight lining of rent adjustment." Currently, 37% of the mall and freestanding leases contain provisions for CPI rent increases periodically throughout the term of the lease. The Company believes that using an annual multiple of CPI increases, rather than fixed contractual rent increases, results in revenue recognition that more closely matches the cash revenue from each lease and will provide more consistent rent growth throughout the term of the leases. Percentage rents are recognized when the tenants' specified sales targets have been met. Estimated recoveries from tenants for real estate taxes, insurance and other shopping center operating expenses are recognized as revenues in the period the applicable expenses are incurred.
44 The Macerich Company
Property
Costs related to the development, redevelopment, construction and improvement of properties are capitalized. Interest incurred or imputed on development, redevelopment and construction projects is capitalized until construction is substantially complete.
Maintenance and repairs expenses are charged to operations as incurred. Costs for major replacements and betterments, which includes HVAC equipment, roofs, parking lots, etc. are capitalized and depreciated over their estimated useful lives. Gains and losses are recognized upon disposal or retirement of the related assets and are reflected in earnings.
Property is recorded at cost and is depreciated using a straight-line method over the estimated useful lives of the assets as follows:
Buildings and improvements | 5-40 years | |
Tenant improvements | initial term of related lease | |
Equipment and furnishings | 5-7 years | |
Accounting for Acquisitions
The Company accounts for all acquisitions entered into subsequent to June 30, 2001 in accordance with Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations." The Company will first determine the value of the land and buildings utilizing an "as if vacant" methodology. The Company will then assign a fair value to any debt assumed at acquisition. The balance of the purchase price will be allocated to tenant improvements and identifiable intangible assets or liabilities. Tenant improvements represent the tangible assets associated with the existing leases valued on a fair market value basis at acquisition date prorated over the remaining lease terms. The tenant improvements are classified as an asset under real estate investments and are depreciated over the remaining lease terms. Identifiable intangible assets and liabilities relate to the value of in-place operating leases which come in three forms: (i) origination value, which represents the value associated with "cost avoidance" of acquiring in-place leases, such as lease commissions paid under terms generally experienced in our markets; (ii) value of in-place leases, which represents the estimated loss of revenue and of costs incurred for the period required to lease the "assumed vacant" property to the occupancy level when purchased; and (iii) above or below market value of in-place leases, which represents the difference between the contractual rents and market rents at the time of the acquisition, discounted for tenant credit risks. Origination value is recorded as an other asset and is amortized over the remaining lease terms. Value of in-place leases is recorded as another asset and amortized over the remaining lease term plus an estimate of renewal of the acquired leases. Above or below market leases are classified as an other asset or liability, depending on whether the contractual terms are above or below market, and the asset or liability is amortized to rental revenue over the remaining terms of the leases.
When the Company acquires real estate properties, the Company allocates the purchase price to the components of these acquisitions using relative fair values computed using its estimates and assumptions. These estimates and assumptions impact the amount of costs allocated between various components as well as the amount of costs assigned to individual properties in multiple property acquisitions. These allocations also impact depreciation expense and gains or loses recorded on future sales of properties.
The Macerich Company 45
Generally, the Company engages a valuation firm to assist with the allocation.
Asset Impairment
The Company assesses whether there has been impairment in the value of its long-lived assets by considering factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other economic factors. Such factors include the tenant's ability to perform their duties and pay rent under the terms of the leases. The Company may recognize impairment losses if the cash flows are not sufficient to cover its investment. Such a loss would be determined as the difference between the carrying value and the fair value of a center.
Deferred Charges
Costs relating to obtaining tenant leases are deferred and amortized over the initial term of the agreement using the straight-line method. Cost relating to financing of shopping center properties are deferred and amortized over the life of the related loan using the straight-line method, which approximates the effective interest method. In-place lease values are amortized over the remaining lease term plus an estimate of renewal. Leasing commissions and legal costs are amortized on a straight-line basis over the individual remaining lease years. The range of the terms of the agreements are as follows:
Deferred lease costs | 1-15 years | |
Deferred financing costs | 1-15 years | |
In-place lease values | Remaining lease term plus an estimate for renewal | |
Leasing commissions and legal costs | 5-10 years | |
Comparison of Years Ended December 31, 2005 and 2004
Revenues
Minimum and percentage rents increased by 40.4% to $487.5 million in 2005 from $347.3 million in 2004. Approximately $92.9 million of the increase relates to the 2005 Wilmorite Centers, $1.6 million relates to the Same Centers, $21.6 million relates to the 2004 Acquisition Centers and $24.1 million primarily relates to Queens Center and the Development Properties.
The amount of straight-lined rents, included in minimum rent, was $6.7 million in 2005 compared to $1.0 million in 2004. This increase in straight-lining of rents relates to the 2005 Wilmorite Centers and the 2004 Acquisition Centers which is offset by decreases resulting from the Company structuring the majority of its new leases using an annual multiple of CPI increases, which generally do not require straight-lining treatment.
The amortization of above and below market leases, which is recorded in minimum rents, increased to $11.6 million in 2005 from $9.2 million in 2004. The increase is primarily due to the 2005 Wilmorite Centers and the 2004 Acquisition Centers.
Tenant recoveries increased to $229.5 million in 2005 from $159.0 million in 2004. Approximately $52.9 million of the increase relates to the 2005 Wilmorite Centers, $5.3 million relates to Queens Center
46 The Macerich Company
and the Development Properties, $9.2 million relates to the 2004 Acquisition Centers and $3.1 million relates to the Same Centers.
Management Companies' revenues increased by 21.4% to $26.1 million in 2005 from $21.5 million in 2004 primarily due to increased management fees received from the 2005 and 2004 Joint Venture Acquisition Centers and third party management contracts.
Shopping Center and Operating Expenses
Shopping center and operating expenses increased to $243.8 million in 2005 compared to $164.5 million in 2004. This increase is a result of $54.9 million of expenses from the 2005 Wilmorite Centers, $10.5 million from the 2004 Acquisition Centers, $5.5 million from Queens Center and the Development Properties and $2.0 million from increased operating and ground rent expenses at the Same Centers. In addition, there was a write-off of a contingent compensation liability of $6.4 million in 2004.
Management Companies' Operating Expenses
Management Companies' operating expenses increased by 19.7% to $52.8 million in 2005 from $44.1 million in 2004, primarily due to higher compensation expense in 2005 compared to 2004.
REIT General and Administrative Expenses
REIT general and administrative expenses increased to $12.1 million in 2005 from $11.1 million in 2004, primarily due to increases in stock-based compensation expense compared to 2004.
Depreciation and Amortization
Depreciation and amortization increased to $206.1 million in 2005 from $142.1 million in 2004. Approximately $60.6 million relates to the 2005 Wilmorite Centers, $3.0 million relates to the 2004 Acquisition Centers and $3.6 million relates to Queens Center and the Development Properties. This is offset by a $3.2 million decrease relating to the Same Centers.
Interest Expense
Interest expense increased to $249.9 million in 2005 from $146.3 million in 2004. Approximately $26.6 million relates to the assumed debt from the 2005 Wilmorite Centers, $39.8 million relates to the term and acquisition loans for the Wilmorite Acquisition, $19.8 million relates to increased borrowings and higher interest rates under the Company's line of credit, $2.0 million relates to the Northridge Center loan which closed on June 30, 2004, $5.9 million relates to the 2004 Acquisition Centers, $10.6 million relates to Queens Center and the Development Properties and $4.5 million relates to an increase in interest rates on floating rate debt at the Same Centers. These increases are offset in part by a $4.6 million decrease related to the payoff of the $250 million term loan on July 30, 2004. Additionally, capitalized interest was $10.0 million in 2005, down from $8.9 million in 2004.
Minority Interest
The minority interest represents the 19.0% weighted average interest of the Operating Partnership not owned by the Company during 2005. This compares to 19.5% not owned by the Company during 2004.
The Macerich Company 47
Equity in Income from Unconsolidated Joint Ventures
The equity in income from unconsolidated joint ventures was $76.3 million for 2005, compared to $54.9 million in 2004. This primarily relates to increased net income from the 2005 and 2004 Joint Venture Acquisition Centers of $13.7 million. Included in the equity in income from unconsolidated joint ventures is the Company's pro rata share of straight-line rents, which increased to $4.8 million in 2005 from $1.0 million in 2004.
Income Tax Benefit
Income tax benefit from taxable REIT subsidiaries ("TRSs") decreased by $3.4 million in 2005 compared to 2004 primarily due to the tax effects of state taxes for states in which the TRSs are combined with the Company, the tax effect of stock-based compensation and the tax effects related to certain acquired assets in 2004.
Gain on Sale of Assets
In 2005, a gain of $1.3 million was recorded relating to land sales compared to a $0.9 million gain on land sales in 2004.
Loss on Early Extinguishment of Debt
In 2005, the Company recorded a loss from early extinguishment of debt of $1.7 million related to the refinancing of the Valley View Mall loan. In 2004, the Company recorded a loss from early extinguishment of debt of $1.6 million related to the payoff of a loan at one of the Redevelopment Centers and the payoff of the $250 million term loan on July 30, 2004.
Discontinued Operations
The gain on sale of $0.2 million in 2005 relates primarily to the sale of Arizona Lifestyle Galleries on January 5, 2005. In 2004, the gain on sale primarily related to the $6.8 million gain from the sale of the Westbar property on December 16, 2004. The decrease in income from discontinued operations relates to the Westbar property.
Funds From Operations
Primarily as a result of the factors mentioned above, Funds from Operations ("FFO")Diluted increased 12.6% to $336.8 million in 2005 from $299.2 million in 2004. For the reconciliation of FFO and FFO-diluted to net income available to common stockholders, see "Funds from Operations."
Operating Activities
Cash flow from operations was $235.3 million in 2005 compared to $213.2 million in 2004. The increase is primarily due to the foregoing results at the Centers and offset by a decrease in distributions of income from unconsolidated joint ventures in 2005 compared to 2004.
Investing Activities
Cash used in investing activities was $131.9 million in 2005 compared to $489.8 million in 2004. The change resulted primarily from increases in distributions of capital from unconsolidated joint ventures. This is offset by the joint venture acquisitions of Metrocenter and Kierland Commons, the Company's additional contributions to NorthPark Center and the decreased development, redevelopment, expansion and
48 The Macerich Company
renovation of Centers in 2005 compared to 2004 due to completion of the Queens Center and La Encantada projects.
Financing Activities
Cash flow used in financing activities was $20.3 million in 2005 compared to cash flow provided by financing activities of $308.4 million in 2004. The 2005 decrease compared to 2004 resulted primarily from fewer refinancings for 2005 than 2004 and increased dividend payments to common stockholders. Additionally, the funding of the Queens construction loan was $65.7 million less in 2005 compared to 2004 due to the substantial completion of the expansion project.
Comparison of Years Ended December 31, 2004 and 2003
Revenues
Minimum and percentage rents increased by 16.3% to $347.3 million in 2004 from $298.7 million in 2003. Approximately $11.7 million of the increase relates to the Same Centers, $0.8 million of the increase relates to the Company acquiring 50% of its joint venture partner's interest in FlatIron Crossing, $7.4 million relates to the 2003 Acquisition Center, $10.1 million relates to the 2004 Acquisition Centers and $22.0 million relates to the Redevelopment and Development Centers, primarily Queens Center, La Encantada and Scottsdale 101 where phases of the developments have been completed. Additionally, these increases in minimum and percentage rents are offset by decreasing revenues of $3.4 million related to the Company's sale of a 49.9% interest in the Village at Corte Madera.
The amortization of above and below market leases, which is recorded in minimum rents, increased to $9.2 million in 2004 from $6.1 million in 2003. The increase is primarily due to the 2003 Acquisition Center, 2004 Acquisition Centers and the Company acquiring 50% of its joint venture partner's interest in FlatIron Crossing.
The amount of straight-lined rents, included in minimum rent, was $1.0 million in 2004 as compared to $2.9 million in 2003. The decrease is due to the structuring of new leases with rent increases based upon annual multiples of CPI rather than fixed contractual rent increases.
Tenant recoveries increased to $159.0 million in 2004 from $152.7 in 2003. Approximately $0.1 million relates to the Company acquiring 50% of its joint venture partner's interest in FlatIron Crossing, $3.4 million relates to the Redevelopment and Development Centers, primarily Queens Center, La Encantada and Scottsdale 101, $4.4 million relates to the 2003 Acquisition Center and $3.7 million relates to the 2004 Acquisition Centers. This is offset by a $3.8 million decrease due to a change in estimated recovery rates at the Same Centers and a $1.1 million decrease relating to the Company's sale of a 49.9% partnership interest in the Village at Corte Madera.
Management Companies' revenues increased by 47.3% to $21.5 million in 2004 compared to $14.6 million in 2003 primarily due to consolidating Macerich Management Company effective July 1, 2003 in accordance with FIN 46. Prior to July 1, 2003, the Macerich Management Company was accounted for using the equity method of accounting.
The Macerich Company 49
Shopping Center and Operating Expenses
Shopping center and operating expenses increased to $164.5 million in 2004 compared to $151.3 million in 2003. The increase is a result of $4.6 million related to the 2003 Acquisition Center, $4.2 million due to the 2004 Acquisition Centers, $7.3 million related to the Redevelopment and Development Centers, primarily Queens Center, La Encantada and Scottsdale 101, $0.1 million related to the Company acquiring 50% of its joint venture partner's interest in FlatIron Crossing and $5.3 million relating to the Same Centers due to increases in recoverable and non-recoverable expenses. This is offset by a decrease of non-recoverable expenses due to a write-off of a $6.4 million compensation liability and a $1.4 million decrease related to the Company's sale of a 49.9% partnership interest in the Village at Corte Madera.
Management Companies' Operating Expenses
Expenses increased by 37.8% to $44.1 million in 2004 from $32.0 million in 2003 primarily due to consolidating Macerich Management Company effective July 1, 2003 in accordance with FIN 46. Prior to July 1, 2003, the Macerich Management Company was accounted for using the equity method of accounting.
REIT General and Administrative Expenses
REIT general and administrative expenses increased to $11.1 million in 2004 from $8.5 million in 2003, primarily due to increases in professional services and stock-based compensation expense.
Depreciation and Amortization
Depreciation and amortization increased to $142.1 million in 2004 from $104.9 million in 2003. Approximately $3.3 million of the increase relates to the 2003 Acquisition Center, $7.8 million relates to the 2004 Acquisition Centers, $2.0 million relates to consolidating Macerich Management Company effective July 1, 2003, $3.8 million relates to additional capital expenditures at the Same Centers and $8.5 million relates to Queens Center, La Encantada and Scottsdale 101. Additionally, $12.9 million of depreciation and amortization was recorded for the year ended December 31, 2004 compared to the same period in 2003 due to the 2002, 2003 and 2004 acquisitions. This is offset by a $1.1 million decrease relating to the sale of 49.9% of the partnership interest in the Village at Corte Madera.
50 The Macerich Company
Interest Expense
Interest expense increased to $146.3 million in 2004 from $130.7 million in 2003. Approximately $4.5 million of the increase relates to the refinancing of FlatIron Crossing on November 4, 2003, $4.8 million relates to the $250 million of unsecured notes issued on May 13, 2003, $5.3 million relates to increased borrowings on the Company's line of credit, $2.0 million relates to the 2003 Acquisition Center, $2.0 million relates to the 2004 Acquisition Centers and $8.7 million relates primarily to Queens Center, La Encantada and Scottsdale 101. These increases are offset by $2.0 million, which relates to the Company's sale of a 49.9% partnership interest in the Village at Corte Madera, $4.1 million relates to the payoff of the $196.5 million term loan on July 30, 2004, $2.5 million relates to the payoff of the 29th Street loan on February 3, 2004 and $5.9 million relates to other financing activity at the Same Centers. Capitalized interest was $8.9 million in 2004, down from $12.1 million in 2003.
Minority Interest
The minority interest represents the 19.5% weighted average interest of the Operating Partnership not owned by the Company during 2004. This compares to 20.74% not owned by the Company during 2003.
Equity in Income from Unconsolidated Joint Ventures and Macerich Management Company
The income from unconsolidated joint ventures and the Macerich Management Company was $54.9 million for 2004, compared to income of $59.3 million in 2003. This decrease is primarily due to increased depreciation relating to SFAS No. 141 on the 2004 Joint Venture Acquisition Centers and consolidating Macerich Management Company effective July 1, 2003 in accordance with FIN 46. Prior to July 1, 2003, the Macerich Management Company was accounted for using the equity method of accounting.
Income Tax Benefit
Income tax benefit from TRSs increased by $5.0 million in 2004 compared to 2003 primarily due to the tax effects of state taxes for states in which the TRSs are combined with the Company, the change in tax rates applicable to certain acquired assets, the tax effect of stock-based compensation and the release of a valuation allowance in 2003.
Gain on Sale of Assets
In 2004, a gain of $0.9 million was recorded relating to land sales compared to $1.0 million of land sales in 2003. A gain of $12.4 million in 2003 represents primarily the Company's sale of 49.9% of its partnership interest in the Village at Corte Madera on May 15, 2003 and the sale of the Shops at Gainey Village.
Loss on Early Extinguishment of Debt
In 2004, the Company recorded a loss from early extinguishment of debt of $1.6 million related to the payoff of a loan at one of the Redevelopment Centers and the payoff of the $196.8 million term loan.
Discontinued Operations
In 2004, the $7.1 million gain on sale relates primarily to the sale of the Westbar property. The gain on sale of $22.0 million in 2003 relates primarily to the sale of Bristol Center on August 4, 2003.
The Macerich Company 51
Net Income Available to Common Stockholders
Primarily as a result of the sale of Bristol Center in 2003, the purchase of the 2003 Acquisition Center and the 2004 Acquisition Centers, the sale of 49.9% of the partnership interest in the Village at Corte Madera, the Company acquiring 50% of its joint venture partner's interest in FlatIron Crossing, the change in depreciation expense due to SFAS No. 141, the redevelopment of Queens Center, the developments of La Encantada and Scottsdale 101 and the foregoing results, net income available to common stockholders decreased to $82.5 million in 2004 from $113.2 million in 2003.
Operating Activities
Cash flow from operations was $213.2 million in 2004 compared to $215.7 million in 2003. The decrease is primarily due to the foregoing results at the Centers as mentioned above.
Investing Activities
Cash used in investing activities was $489.8 million in 2004 compared to cash used in investing activities of $341.3 million in 2003. The change resulted primarily from the proceeds of $107.2 million received in 2003 from the sale of Paradise Village Gateway, the Shops at Gainey Village, Bristol Center and the 49.9% interest in the Village at Corte Madera which is offset by increased contributions to joint ventures and acquisitions of joint ventures, $291.5 million relating to the 2004 Acquisition Centers and by the Company's purchase of its joint venture partner's 50% interest in FlatIron Crossing on January 31, 2003.
Financing Activities
Cash flow provided by financing activities was $308.4 million in 2004 compared to cash flow provided by financing activities of $115.7 million in 2003. The 2004 increase compared to 2003 resulted primarily from $94.1 million of additional funding relating to Queens construction loan, the $85.0 million Northridge loan, the new $84.0 million loan at Fiesta Mall and increased borrowings under the Company's line of credit, which is offset by the Company acquiring 50% of its joint venture partner's interest in FlatIron Crossing in January 2003, the $32.3 million funding of the Panorama loan in the first quarter of 2003 and increased dividends being paid in 2004 compared to 2003.
Funds From Operations
Primarily as a result of the factors mentioned above, Funds from OperationsDiluted increased 11.1% to $299.2 million in 2004 from $269.1 million in 2003. For the reconciliation of FFO and FFO-diluted to net income available to common stockholders, see "Funds from Operations."
Liquidity and Capital Resources
The Company intends to meet its short term liquidity requirements through cash generated from operations, working capital reserves, property secured borrowings, unsecured corporate borrowings and borrowings under the revolving line of credit. 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
52 The Macerich Company
reimbursed by tenants, other than non-recurring capital expenditures. The following tables summarize capital expenditures (in millions) incurred at the Centers for the years ending December 31:
Consolidated Centers: |
2005 |
2004 |
2003 |
||||
---|---|---|---|---|---|---|---|
Acquisitions of property and equipment | $1,767.2 | $301.1 | $359.2 | ||||
Development, redevelopment and expansion of Centers | 77.2 | 139.3 | 166.3 | ||||
Renovations of Centers | 51.1 | 21.2 | 21.7 | ||||
Tenant allowances | 21.8 | 10.9 | 7.3 | ||||
Deferred leasing charges | 21.8 | 16.8 | 15.2 | ||||
Total | $1,939.1 | $489.3 | $569.7 | ||||
Joint Venture Centers (at Company's pro rata share): |
|||||||
Acquisitions of property and equipment(1) | $736.4 | $41.1 | $(19.2) | ||||
Development, redevelopment and expansion of Centers | 79.4 | 6.6 | 17.6 | ||||
Renovations of Centers | 32.2 | 10.1 | 2.8 | ||||
Tenant allowances | 8.9 | 10.5 | 4.7 | ||||
Deferred leasing charges | 5.1 | 3.7 | 3.3 | ||||
Total | $862.0 | $72.0 | $9.2 | ||||
Management expects similar levels to be incurred in future years for tenant allowances and deferred leasing charges and to incur between $250 million to $350 million in 2006 for development, redevelopment, expansion and renovations. Capital for major expenditures or major developments and redevelopments has been, and is expected to continue to be, obtained from equity or debt financings which include borrowings under the Company's line of credit and construction loans. However, many factors impact the Company's ability to access capital, such as its overall debt level, interest rates, interest coverage ratios and prevailing market conditions.
The Company believes that it will have access to the capital necessary to expand its business in accordance with its strategies for growth and maximizing FFO. The Company presently intends to obtain additional capital necessary for these purposes through a combination of debt or equity financings, joint ventures and the sale of non-core assets. The Company believes joint venture arrangements have in the past and may in the future provide an attractive alternative to other forms of financing, whether for acquisitions or other business opportunities.
The Company's total outstanding loan indebtedness at December 31, 2005 was $6.9 billion (including $1.5 billion of 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 56.0% at December 31, 2005. The majority of the Company's debt consists of fixed-rate conventional mortgages payable collateralized by individual properties.
The Macerich Company 53
The Company filed a shelf registration statement, effective June 6, 2002, to sell securities. The shelf registration was for a total of $1.0 billion of common stock, common stock warrant or common stock rights. The Company sold a total of 15.2 million shares of common stock under this shelf registration on November 27, 2002. The aggregate offering price of this transaction was approximately $440.2 million, leaving approximately $559.8 million available under the shelf registration statement. In addition, the Company filed another shelf registration statement, effective October 27, 2003, to sell up to $300 million of preferred stock. On January 12, 2006, the Company filed a shelf registration statement registering an unspecified amount of Common Stock as may from time to time be offered.
On January 19, 2006, the Company issued 10.9 million shares of common stock for net proceeds of $747.0 million. The net proceeds were used to pay off the $619.0 million acquisition loan (See Note 15 of the Company's Notes to Consolidated Financial Statements) and to pay down the line of credit pending use to pay part of the purchase price for Valley River Center (See Recent DevelopmentsAcquisitions).
The Company had a $425.0 million revolving line of credit. This revolving line of credit had a three-year term through July 26, 2005 with a one-year extension option. The interest rate fluctuated from LIBOR plus 1.75% to LIBOR plus 3.00% depending on the Company's overall leverage level. On July 30, 2004, the Company amended and expanded the revolving line of credit to $1.0 billion and extended the maturity to July 30, 2007 plus a one-year extension. In April 2005, the interest rate on the facility was reduced to 1.50% over LIBOR based on the Company's current leverage level. The interest rate fluctuates from LIBOR plus 1.15% to LIBOR plus 1.70% depending on the Company's overall leverage level. As of December 31, 2005, $863.0 million of borrowings were outstanding at an average interest rate of 5.93%.
On May 13, 2003, the Company issued $250.0 million in unsecured notes maturing in May 2007 with a one-year extension option bearing interest at LIBOR plus 2.50%. The proceeds were used to pay down and create more availability under the Company's line of credit. At December 31, 2005 and December 31, 2004, the entire $250.0 million of notes were outstanding at an interest rate of 6.0% and 4.45%, respectively. The Company had an interest rate swap agreement which effectively fixed the interest rate at 4.45% from November 2003 to October 13, 2005. Concurrently with the Wilmorite closing, the Company modified these unsecured notes. The interest rate was reduced to LIBOR plus 1.50%.
At December 31, 2005, the Company had cash and cash equivalents available of $155.1 million.
Off-Balance Sheet Arrangements
The Company has an ownership interest in a number of joint ventures as detailed in Note 3 to the Company's Consolidated Financial Statements included herein. The Company accounts for those investments using the equity method of accounting and those investments are reflected on the Consolidated Balance Sheets of the Company as "Investments in Unconsolidated Joint Ventures." A pro rata share of the mortgage debt on these properties is shown in Item 2. PropertiesMortgage Debt.
In addition, certain joint ventures also have debt that could become recourse debt to the Company or its subsidiaries, in excess of it's pro rata share, should the joint ventures be unable to discharge the obligations
54 The Macerich Company
of the related debt. The following reflects the maximum amount of debt principal that could recourse to the Company at December 31, 2005 (in thousands):
Property Name |
Recourse Debt |
Maturity Date |
||
---|---|---|---|---|
Boulevard Shops | $4,280 | 12/16/2007 | ||
Chandler Village Center | 16,624 | 12/19/2006 | ||
Metrocenter | 726 | 2/9/2008 | ||
$21,630 | ||||
The above amounts decreased $2.5 million from December 31, 2004.
Additionally, as of December 31, 2005, the Company is contingently liable for $5.6 million in letters of credit guaranteeing performance by the Company of certain obligations relating to the Centers. The Company does not believe that these letters of credit will result in a liability to the Company.
Long-term contractual obligations
The following is a schedule of long-term contractual obligations (as of December 31, 2005) for the consolidated Centers over the periods in which they are expected to be paid (in thousands):
|
Payment Due by Period |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Contractual Obligations |
Total |
Less than 1 year |
1 - 3 years |
3 - 5 years |
More than five years |
|||||
Long-term debt obligations (includes expected interest payments) | $6,547,117 | $1,257,222 | $2,167,317 | $1,316,588 | $1,805,990 | |||||
Operating lease obligations | 420,378 | 5,941 | 12,099 | 12,687 | 389,651 | |||||
Purchase obligations | 22,073 | 22,073 | | | | |||||
Other long-term liabilities | 308,076 | 308,076 | | | | |||||
$7,297,644 | $1,593,312 | $2,179,416 | $1,329,275 | $2,195,641 | ||||||
Funds From Operations
The Company uses Funds from Operations ("FFO") in addition to net income to report its operating and financial results and considers FFO and FFO-diluted as supplemental measures for the real estate industry and a supplement to Generally Accepted Accounting Principles ("GAAP") measures. The National Association of Real Estate Investment Trusts ("NAREIT") defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from extraordinary items and sales of depreciated operating properties, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. FFO and FFO on a fully diluted basis are useful to investors in comparing operating and financial results between periods. This is especially true since FFO excludes real estate depreciation and amortization, as the Company believes real estate values fluctuate based on market conditions rather than depreciating in value ratably on a straight-line basis over time.
The Macerich Company 55
FFO on a fully diluted basis is one of the measures investors find most useful in measuring the dilutive impact of outstanding convertible securities. FFO does not represent cash flow from operations as defined by GAAP, should not be considered as an alternative to net income as defined by GAAP and is not indicative of cash available to fund all cash flow needs. FFO, as presented, may not be comparable to similarly titled measures reported by other real estate investment trusts. The reconciliation of FFO and FFO-diluted to net income available to common stockholders is provided below.
The inclusion of gains (losses) on sales of peripheral land included in FFO for the years ended December 31, 2005, 2004, 2003, 2002 and 2001 were $3.4 million (including $2.1 million from joint ventures at pro rata), $4.4 million (including $3.5 million from joint ventures at pro rata), $1.4 million (including $0.4 million from joint ventures at pro rata), $2.5 million (including $2.4 million from joint ventures at pro rata), $0.3 million (including $0.1 million from joint ventures at pro rata), respectively.
The following reconciles net income available to common stockholders to FFO and FFO-diluted (dollars in thousands):
|
2005 |
2004 |
2003 |
2002 |
2001 |
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
|||||||||||
Net incomeavailable to common stockholders | 73,250 | $52,588 | 72,715 | $82,493 | 67,332 | $113,218 | 49,611 | $60,965 | 44,963 | $58,035 | |||||||||||
Adjustments to reconcile net income to FFObasic: | |||||||||||||||||||||
Minority interest | | 12,450 | | 19,870 | | 28,907 | | 20,189 | | 19,001 | |||||||||||
Gain on sale or write-down of wholly-owned assets | | (1,530) | | (8,041) | | (34,451) | | (22,253) | | (24,491) | |||||||||||
Add: Gain on land salesconsolidated assets | | 1,307 | | 939 | | 1,054 | | 128 | | 215 | |||||||||||
Less: Impairment write-down of consolidated assets | | | | | | | | (3,029) | | | |||||||||||
(Gain) loss on sale or write-down of assets from unconsolidated entities (pro rata) | | (1,954) | | (3,353) | | (155) | | 8,021 | | (191) | |||||||||||
Add: Gain on land sales from unconsolidated entities (pro rata) | | 2,092 | | 3,464 | | 387 | | 2,403 | | 123 | |||||||||||
Less: Impairment write-down of pro rata unconsolidated entities | | | | | | | | (10,237) | | | |||||||||||
Depreciation and amortization on wholly-owned centers | | 203,065 | | 144,828 | | 109,569 | | 78,837 | | 65,983 | |||||||||||
Depreciation and amortization on joint ventures and from management companies (pro rata) | | 73,247 | | 61,060 | | 45,133 | | 37,355 | | 28,077 | |||||||||||
Cumulative effect of change in accounting principlepro rata unconsolidated entities | | | | | | | | | | 128 | |||||||||||
Less: depreciation on personal property and amortization of loan costs and interest rate caps | | (14,724) | | (11,228) | | (9,346) | | (7,463) | | (4,969) | |||||||||||
FFObasic(1) | 73,250 | 326,541 | 72,715 | 290,032 | 67,332 | 254,316 | 49,611 | 164,916 | 44,963 | 141,911 | |||||||||||
Additional adjustments to arrive at FFOdiluted: | |||||||||||||||||||||
Impact of convertible preferred stock | 3,627 | 9,648 | 3,627 | 9,140 | 7,386 | 14,816 | 9,115 | 20,417 | 9,115 | 19,688 | |||||||||||
Impact of non-participating convertible preferred units | 197 | 642 | | | | | | | | | |||||||||||
Impact of stock options using the treasury method | 323 | | 385 | | 480 | | 456 | | | | |||||||||||
Impact of convertible debentures | | | | | | | 3,833 | 9,310 | 4,824 | 11,773 | |||||||||||
FFOdiluted(2) | 77,397 | $336,831 | 76,727 | $299,172 | 75,198 | $269,132 | 63,015 | $194,643 | 58,902 | $173,372 | |||||||||||
56 The Macerich Company
September 9, 2003, 5.5 million shares of Series B Preferred Stock were converted into common shares. The preferred stock can be converted on a one-for-one basis for common stock. The then outstanding preferred shares are assumed converted for purposes of 2005, 2004, 2003, 2002 and 2001 FFO-diluted as they are dilutive to that calculation.
Item 7A. 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 ratio of fixed rate, long-term debt to total debt such that floating rate exposure is kept at an acceptable level, (2) reducing interest rate exposure on certain long-term floating rate debt through the use of interest rate caps and/or swaps 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 December 31, 2005 concerning the Company's long term debt obligations, including principal cash flows by scheduled maturity, weighted average interest rates and estimated fair value ("FV") (dollars in thousands):
|
For the Years Ended December 31, |
|
|
|
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2006 |
2007 |
2008 |
2009 |
2010 |
Thereafter |
Total |
FV |
|||||||||
CONSOLIDATED CENTERS: | |||||||||||||||||
Long term debt: | |||||||||||||||||
Fixed rate | $57,653 | $130,515 | $378,414 | $399,629 | $627,505 | $1,630,016 | $3,223,732 | $2,872,260 | |||||||||
Average interest rate | 5.60% | 5.60% | 5.50% | 5.60% | 5.70% | 6.30% | 5.70% | ||||||||||
Floating rate | 894,706 | 1,178,292 | 56,000 | | | 72,000 | 2,200,998 | 2,200,998 | |||||||||
Average interest rate | 5.90% | 5.80% | 5.20% | 5.00% | 5.80% | ||||||||||||
Total debtConsolidated Centers | $952,359 | $1,308,807 | $434,414 | $399,629 | $627,505 | $1,702,016 | $5,424,730 | $5,073,258 | |||||||||
JOINT VENTURE CENTERS: | |||||||||||||||||
Long term debt (at Company's pro rata share:) | |||||||||||||||||
Fixed rate | $262,023 | $132,294 | $66,263 | $227,644 | $118,381 | $448,664 | $1,255,269 | $1,340,256 | |||||||||
Average interest rate | 6.60% | 6.90% | 6.30% | 6.90% | 6.30% | 6.20% | 6.60% | ||||||||||
Floating rate | 165,943 | 50,327 | 17,984 | 16,089 | | | 250,343 | 250,343 | |||||||||
Average interest rate | 5.10% | 5.20% | 5.50% | 6.30% | 5.20% | ||||||||||||
Total debtJoint Venture Centers | $427,966 | $182,621 | $84,247 | $243,733 | $118,381 | $448,664 | $1,505,612 | $1,590,599 | |||||||||
The consolidated Centers' total fixed rate debt was $3.2 billion and $1.8 billion at December 31, 2005 and 2004, respectively. The average interest rate was 5.70% and 6.42% and December 31, 2005 and 2004, respectively.
The consolidated Centers' total floating rate debt was $2.2 billion and $1.5 billion at December 31, 2005 and 2004, respectively. The average interest rate was 5.80% and 3.89% at December 31, 2005 and 2004, respectively.
The Company's pro rata share of the Joint Venture Centers' fixed rate debt was $1.3 billion and $956.4 million at December 31, 2005 and 2004, respectively. The average interest rate increased to 6.60% at December 31, 2005 from 6.46% at December 31, 2004. The Company's pro rata share of the Joint Venture Centers' floating rate debt was $250.3 million and $190.9 million at December 31, 2005 and 2004, respectively. The average interest rate increased from 3.02% at December 31, 2004 to 5.20% at December 31, 2005.
The Macerich Company 57
The Company uses derivative financial instruments in the normal course of business to manage or hedge interest rate risk and records all derivatives on the balance sheet at fair value in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." (See "Notes to Consolidated Financial StatementsFair Value of Financial Instruments")
The Company's $450.0 million term loan has an interest rate swap agreement which effectively fixed the interest rate at 6.296% (4.796% Swap rate plus 1.50%) from December 1, 2005 to April 15, 2010. The fair value of this swap agreement at December 31, 2005 was ($0.9) million.
The Company has an interest rate cap from July 9, 2004 to August 9, 2007 with a notional amount of $30.0 million on the loan at La Cumbre Plaza. This interest rate cap prevents the LIBOR interest rate from exceeding 7.12%. The fair value of this cap agreement at December 31, 2005 and December 31, 2004 was zero.
The Company's East Mesa Land and Superstition Springs joint venture have an interest rate swap through February 15, 2007, which converts $3.4 million of floating rate debt with a weighted average interest rate of 3.97% to a fixed rate of 5.39%. This swap has been designated as a hedge in accordance with SFAS No. 133. Additionally, interest rate caps were simultaneously sold to offset the effect of the interest rate cap agreements. These interest rate caps do not qualify for hedge accounting in accordance with SFAS No.133.
The Company's Metrocenter joint venture has an interest rate swap agreement which effectively converts the Company's $16.8 million share of floating rate debt to a fixed interest rate of 4.80% from January 2005 to February 2008. The fair value of this swap agreement is reflected in other comprehensive income and the Company's share of the fair value of this swap agreement at December 31, 2005 was $0.3 million.
The Company has an interest cap from September 9, 2005 to December 15, 2007 with a notional amount of $72.0 million on its Greece Ridge loan. The interest rate cap prevents the LIBOR interest rate from exceeding 6.625% through September 15, 2006 and 7.95% through December 15, 2007. The fair value of this cap agreement at December 31, 2005 was zero.
The Company's Camelback Colonnade joint venture has an interest cap from September 30, 2005 to November 17, 2008 with a notional amount of $41.5 million on the loan the property. The interest rate cap prevents the LIBOR interest rate from exceeding 8.54%. The fair value of this cap agreement at December 31, 2005 was zero.
In addition, the Company has assessed the market risk for its floating rate debt and believes that a 1% increase in interest rates would decrease future earnings and cash flows by approximately $24.5 million per year based on $2.5 billion outstanding of floating rate debt at December 31, 2005.
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.
58 The Macerich Company
Item 8. Financial Statements and Supplementary Data
Refer to the Index to Financial Statements and Financial Statement Schedules for the required information appearing in Item 15.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
Based on their evaluation as of December 31, 2005, the Company's Chief Executive Officer and Chief Financial Officer, have concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is (a) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (b) accumulated and communicated to the Company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management, including our Chief Executive Officer and Chief Financial Officer, does not expect that its disclosure controls and procedures or its internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
Management's Report on Internal Control over Financial Reporting
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). The Company's management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2005. In making this assessment, the Company's management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal ControlIntegrated Framework. The Company's management has concluded that, as of December 31, 2005, its internal control over financial reporting is effective based on these criteria. The Company's independent registered public accounting firm, Deloitte and Touche LLP, has issued an audit report on management's assessment of our internal control over financial reporting, which is included herein.
The Macerich Company 59
Report of Independent Registered Public Accounting Firm
To
the Board of Directors and Stockholders of
The Macerich Company
Santa Monica, California
We have audited management's assessment, included in the accompanying Management's Report on Internal Control over Financial Reporting, that The Macerich Company and its subsidiaries (the "Company") maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
60 The Macerich Company
In our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2005, of the Company and our report dated March 9, 2006 expressed an unqualified opinion on those financial statements and financial statement schedules.
Deloitte &
Touche LLP
Los Angeles, California
March 9, 2006
The Macerich Company 61
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting during the quarter ended December 31, 2005 that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.
None
62 The Macerich Company
Item 10. Directors and Executive Officers of the Registrant
There is hereby incorporated by reference the information which appears under the captions "Information Regarding Nominees and Directors," "Executive Officers," "Section 16(a) Beneficial Ownership Reporting Compliance," "Audit Committee Matters" and "Codes of Ethics" in the Company's definitive proxy statement for its 2006 Annual Meeting of Stockholders and is responsive to the information required by this Item.
Item 11. Executive Compensation
There is hereby incorporated by reference the information which appears under the caption "Election of Directors" in the Company's definitive proxy statement for its 2006 Annual Meeting of Stockholders and is responsive to the information required by this Item. Notwithstanding the foregoing, the Report of the Compensation Committee on executive compensation and the Stock Performance Graph set forth therein shall not be incorporated by reference herein, in any of the Company's prior or future filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent the Company specifically incorporates such report or stock performance graph by reference therein and shall not be otherwise deemed filed under either of such Acts.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters
There is hereby incorporated by reference the information which appears under the captions "Principal Stockholders," "Information Regarding Nominees and Directors" and "Executive Officers" in the Company's definitive proxy statement for its 2006 Annual Meeting of Stockholders and is responsive to the information required by this Item.
Equity Compensation Plan Information
The Company currently maintains two equity compensation plans for the granting of equity awards to directors, officers and employees: the 2003 Equity Incentive Plan ("2003 Plan") and the Eligible Directors' Deferred Compensation/Phantom Stock Plan ("Director Phantom Stock Plan"). Certain of the Company's outstanding stock awards were granted under other equity compensation plans which are no longer available for stock awards: the 1994 Eligible Directors' Stock Option Plan (the "Director Plan"), the Amended and Restated 1994 Incentive Plan (the "1994 Plan") and the 2000 Incentive Plan (the "2000 Plan").
Summary Table. The following table sets forth, for the Company's equity compensation plans, the number of shares of Common Stock subject to outstanding options, warrants and rights, the weighted-average exercise
The Macerich Company 63
price of outstanding options, and the number of shares remaining available for future award grants as of December 31, 2005.
Plan Category |
Number of shares of Common Stock to be issued upon exercise of outstanding options, warrants and rights (a) |
Weighted average exercise price of outstanding options, warrants and rights(1) (b) |
Number of shares of Common Stock remaining available for future issuance under equity compensation plans (excluding shares reflected in column(a)) (c) |
|||||
---|---|---|---|---|---|---|---|---|
Equity Compensation Plans approved by stockholders | 524,097 | (2) | $23.89 | 6,412,052 | (3) | |||
Equity Compensation Plans not approved by stockholders | 20,000 | (4) | $30.75 | | ||||
Total | 544,097 | 6,412,052 | ||||||
Item 13. Certain Relationships and Related Transactions
There is hereby incorporated by reference the information which appears under the captions "Certain Transactions" in the Company's definitive proxy statement for its 2006 Annual Meeting of Stockholders.
64 The Macerich Company
Item 14. Principal Accountant Fees and Services
There is hereby incorporated by reference the information which appears under the captions "Principal Accountant Fees and Services" and "Audit Committee Pre-Approval Policy" in the Company's definitive proxy statement for its 2006 Annual Meeting of Stockholders.
The Macerich Company 65
Item 15. Exhibits and Financial Statement Schedules
|
|
|
Page |
|||
---|---|---|---|---|---|---|
(a) and (c) | 1. | Financial Statements of the Company | ||||
Report of Independent Registered Public Accounting Firm |
68 |
|||||
Report of Independent Registered Public Accounting Firm |
69 |
|||||
Consolidated balance sheets of the Company as of December 31, 2005 and 2004 |
70 |
|||||
Consolidated statements of operations of the Company for the years ended December 31, 2005, 2004 and 2003 |
71 |
|||||
Consolidated statements of common stockholders' equity of the Company for the years ended December 31, 2005, 2004 and 2003 |
72 |
|||||
Consolidated statements of cash flows of the Company for the years ended December 31, 2005, 2004 and 2003 |
73 |
|||||
Notes to consolidated financial statements |
74 |
|||||
2. |
Financial Statements of Pacific Premier Retail Trust |
|||||
Report of Independent Registered Public Accounting Firm |
110 |
|||||
Report of Independent Auditors |
111 |
|||||
Consolidated balance sheets of Pacific Premier Retail Trust as of December 31, 2005 and 2004 |
112 |
|||||
Consolidated statements of operations of Pacific Premier Retail Trust for the years ended December 31, 2005, 2004 and 2003 |
113 |
|||||
Consolidated statements of stockholders' equity of Pacific Premier Retail Trust for the years ended December 31, 2005, 2004 and 2003 |
114 |
|||||
Consolidated statements of cash flows of Pacific Premier Retail Trust for the years ended December 31, 2005, 2004 and 2003 |
115 |
|||||
Notes to consolidated financial statements |
116 |
|||||
3. |
Financial Statements of SDG Macerich Properties, L.P. |
|||||
Report of Independent Registered Public Accounting Firm |
127 |
|||||
Balance sheets of SDG Macerich Properties, L.P. as of December 31, 2005 and 2004 |
128 |
|||||
Statements of operations of SDG Macerich Properties, L.P. for the years ended December 31, 2005, 2004 and 2003 |
129 |
|||||
Statements of cash flows of SDG Macerich Properties, L.P. for the years ended December 31, 2005, 2004 and 2003 |
130 |
|||||
66 The Macerich Company
Statements of partners' equity of SDG Macerich Properties, L.P. for the years ended December 31, 2005, 2004 and 2003 |
131 |
|||||
Notes to financial statements |
132 |
|||||
4. |
Financial Statement Schedules |
|||||
Schedule IIIReal estate and accumulated depreciation of the Company |
138 |
|||||
Schedule IIIReal estate and accumulated depreciation of Pacific Premier Retail Trust |
141 |
|||||
Schedule IIIReal estate and accumulated depreciation of SDG Macerich Properties, L.P |
143 |
|||||
(b) |
1. |
Exhibits |
||||
The Exhibit Index attached hereto is incorporated by reference under this item |
147 |
The Macerich Company 67
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of
The Macerich Company
Santa Monica, California
We have audited the accompanying consolidated balance sheets of The Macerich Company and subsidiaries (the "Company") as of December 31, 2005 and 2004, and the related consolidated statements of operations, common stockholders' equity, and cash flows for each of the years then ended. Our audits also included the Company's consolidated financial statement schedules listed in the Index at Item 15(a)(4) as of and for the years ended December 31, 2005 and 2004. These consolidated financial statements and consolidated financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and consolidated financial statement schedules based on our audits. The consolidated financial statements and the consolidated financial statement schedules of the Company for the year ended December 31, 2003 were audited by other auditors whose report, dated March 11, 2004, except for Note 2, "Accounting for the Impairment or Disposal of Long Lived Assets" as to which the date is March 11, 2005 expressed an unqualified opinion on those statements. We did not audit the consolidated financial statements of SDG Macerich Properties, L.P. (the "Partnership"), the Company's investment in which is reflected in the accompanying consolidated financial statements using the equity method of accounting. The Company's equity of $142,102,000 and $147,915,000 in the Partnership's net assets at December 31, 2005 and 2004, respectively, and $15,537,000 and $16,499,000 in the Partnership's net income for the two years ended December 31, 2005 are included in the accompanying consolidated financial statements. Such financial statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the Partnership, is based solely on the report of such other auditors.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, such 2005 and 2004 consolidated financial statements present fairly, in all material respects, the financial position of The Macerich Company and subsidiaries at December 31, 2005 and 2004, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, based on our audits and the report of the other auditors, such consolidated financial statement schedules as of and for the years ended December 31, 2005 and 2004, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9, 2006 expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
Deloitte & Touche LLP Los Angeles, California |
|
March 9, 2006 |
68 The Macerich Company
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of The Macerich Company:
In our opinion, based on our audit and the report of other auditors, the consolidated financial statements listed in the accompanying index appearing under Item 15(a)(1) present fairly, in all material respects, the results of operations and cash flows of The Macerich Company (the "Company") for the year ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index appearing under Item 15(a)(4) present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. We did not audit the financial statements of SDG Macerich Properties, L.P. (the "Partnership"), the investment in which is reflected in the accompanying consolidated financial statements using the equity method of accounting. The investment in the Partnership represents approximately 3.7% of the Company's consolidated total assets at December 31, 2003 and the equity in income, net of minority interest, represents approximately 12.5% of the related consolidated net income for the year ended December 31, 2003. Those statements were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for the Partnership, is based solely on the report of the other auditors. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
PricewaterhouseCoopers
LLP
Los Angeles, CA
March 11, 2004 except for Note 2, "Accounting for the
Impairment or Disposal of Long Lived Assets" as to
which the date is March 11, 2005
The Macerich Company 69
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
|
December 31, |
||||||
---|---|---|---|---|---|---|---|
|
2005 |
2004 |
|||||
ASSETS | |||||||
Property, net | $5,438,496 | $3,574,553 | |||||
Cash and cash equivalents | 155,113 | 72,114 | |||||
Restricted cash | 54,659 | 12,351 | |||||
Tenant receivables, net | 89,165 | 68,716 | |||||
Deferred charges and other assets, net | 360,217 | 280,694 | |||||
Loans to unconsolidated joint ventures | 1,415 | 6,643 | |||||
Due from affiliates | 4,258 | 3,502 | |||||
Investments in unconsolidated joint ventures | 1,075,621 | 618,523 | |||||
Total assets | $7,178,944 | $4,637,096 | |||||
LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY: |
|||||||
Mortgage notes payable: | |||||||
Related parties | $154,531 | $141,782 | |||||
Others | 3,088,199 | 2,195,338 | |||||
Total | 3,242,730 | 2,337,120 | |||||
Bank notes payable | 2,182,000 | 893,000 | |||||
Accounts payable and accrued expenses | 75,121 | 47,755 | |||||
Other accrued liabilities | 226,985 | 123,081 | |||||
Preferred stock dividend payable | 5,970 | 2,358 | |||||
Total liabilities | 5,732,806 | 3,403,314 | |||||
Minority interest | 284,809 | 221,315 | |||||
Commitments and contingencies | |||||||
Class A participating convertible preferred units | 213,786 | | |||||
Class A non-participating convertible preferred units | 21,501 | | |||||
Series A cumulative convertible redeemable preferred stock, $.01 par value, 3,627,131 shares authorized, issued and outstanding at December 31, 2005 and 2004 | 98,934 | 98,934 | |||||
Common stockholders' equity: | |||||||
Common stock, $.01 par value, 145,000,000 shares authorized, 59,941,552 and 58,785,694 shares issued and outstanding at December 31, 2005 and 2004, respectively | 599 | 586 | |||||
Additional paid-in capital | 1,050,891 | 1,029,940 | |||||
Accumulated deficit | (209,005) | (103,489) | |||||
Accumulated other comprehensive income | 87 | 1,092 | |||||
Unamortized restricted stock | (15,464) | (14,596) | |||||
Total common stockholders' equity | 827,108 | 913,533 | |||||
Total liabilities, preferred stock and common stockholders' equity | $7,178,944 | $4,637,096 | |||||
The accompanying notes are an integral part of these financial statements.
70 The Macerich Company
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share amounts)
|
For the years ended December 31, |
|||||||
---|---|---|---|---|---|---|---|---|
|
2005 |
2004 |
2003 |
|||||
REVENUES: | ||||||||
Minimum rents | $461,428 | $329,689 | $286,298 | |||||
Percentage rents | 26,085 | 17,654 | 12,427 | |||||
Tenant recoveries | 229,463 | 159,005 | 152,696 | |||||
Management Companies | 26,128 | 21,549 | 14,630 | |||||
Other | 24,281 | 19,169 | 17,526 | |||||
Total revenues | 767,385 | 547,066 | 483,577 | |||||
EXPENSES: |
||||||||
Shopping center and operating expenses | 243,767 | 164,465 | 151,325 | |||||
Management Companies' operating expenses | 52,839 | 44,080 | 32,031 | |||||
REIT general and administrative expenses | 12,106 | 11,077 | 8,482 | |||||
308,712 | 219,622 | 191,838 | ||||||
Interest expense: | ||||||||
Related parties | 9,638 | 5,800 | 5,689 | |||||
Others | 240,272 | 140,527 | 125,018 | |||||
Total interest expense | 249,910 | 146,327 | 130,707 | |||||
Depreciation and amortization | 206,083 | 142,096 | 104,920 | |||||
Equity in income of unconsolidated joint ventures and the management companies | 76,303 | 54,881 | 59,348 | |||||
Income tax benefit | 2,031 | 5,466 | 444 | |||||
Gain on sale of assets | 1,288 | 927 | 12,420 | |||||
Loss on early extinguishment of debt | (1,666) | (1,642) | (170) | |||||
Income from continuing operations | 80,636 | 98,653 | 128,154 | |||||
Discontinued operations: | ||||||||
Gain on sale of assets | 242 | 7,114 | 22,031 | |||||
Income from discontinued operations | 3,258 | 5,736 | 6,756 | |||||
Total from discontinued operations | 3,500 | 12,850 | 28,787 | |||||
Income before minority interest | 84,136 | 111,503 | 156,941 | |||||
Less: Minority interest | 12,450 | 19,870 | 28,907 | |||||
Net income | 71,686 | 91,633 | 128,034 | |||||
Less: Preferred dividends | 19,098 | 9,140 | 14,816 | |||||
Net income available to common stockholders | $52,588 | $82,493 | $113,218 | |||||
Earnings per common sharebasic: | ||||||||
Income from continuing operations | $0.84 | $1.23 | $1.68 | |||||
Discontinued operations | 0.05 | 0.18 | 0.43 | |||||
Net income per share available to common stockholders | $0.89 | $1.41 | $2.11 | |||||
Earnings per common sharediluted: | ||||||||
Income from continuing operations | $0.83 | $1.22 | $1.71 | |||||
Discontinued operations | 0.05 | 0.18 | 0.38 | |||||
Net income per share available to common stockholders | $0.88 | $1.40 | $2.09 | |||||
Weighted average number of common shares outstanding | ||||||||
Basic | 59,279,000 | 58,537,000 | 53,669,000 | |||||
Diluted | 73,573,000 | 73,099,000 | 75,198,000 | |||||
The accompanying notes are an integral part of these financial statements.
The Macerich Company 71
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
|
Common Stock |
|
|
|
|
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Additional Paid-in Capital |
|
Accumulated Other Comprehensive Income (Loss) |
Unamortized Restricted Stock |
Total Common Stockholders' Equity |
||||||||||
|
Shares |
Par Value |
Accumulated Deficit |
||||||||||||
Balance December 31, 2002 | 51,490,929 | $514 | $835,900 | $(23,870) | $(4,811) | $(9,935) | $797,798 | ||||||||
Comprehensive income: | |||||||||||||||
Net income | | | | 128,034 | | | 128,034 | ||||||||
Reclassification of deferred losses | | | | | 1,328 | | 1,328 | ||||||||
Interest rate swap/cap agreements | | | | | 1,148 | | 1,148 | ||||||||
Total comprehensive income | | | | 128,034 | 2,476 | | 130,510 | ||||||||
Issuance costs | | | (254) | | | | (254) | ||||||||
Issuance of restricted stock | 374,846 | 4 | 12,262 | | | | 12,266 | ||||||||
Unvested restricted stock | (374,846) | (4) | | | | (12,262) | (12,266) | ||||||||
Vested restricted stock | 214,641 | 2 | | | | 7,492 | 7,494 | ||||||||
Exercise of stock options | 519,954 | 5 | 10,981 | | | | 10,986 | ||||||||
Distributions paid ($2.32) per share | | | | (127,889) | | | (127,889) | ||||||||
Preferred dividends | | | | (14,816) | | | (14,816) | ||||||||
Conversion of OP Units | 190,000 | 2 | 6,937 | | | | 6,939 | ||||||||
Conversion of Series B Preferred Stock | 5,487,000 | 55 | 148,347 | | | | 148,402 | ||||||||
Adjustment to reflect minority interest on a pro rata basis per year end ownership percentage of OP units | | | (5,685) | | | | (5,685) | ||||||||
Balance December 31, 2003 | 57,902,524 | 578 | 1,008,488 | (38,541) | (2,335) | (14,705) | 953,485 | ||||||||
Comprehensive income: | |||||||||||||||
Net income | | | | 91,633 | | | 91,633 | ||||||||
Reclassification of deferred losses | | | | | 1,351 | | 1,351 | ||||||||
Interest rate swap/cap agreements | | | | | 2,076 | | 2,076 | ||||||||
Total comprehensive income | | | | 91,633 | 3,427 | | 95,060 | ||||||||
Issuance of restricted stock | 153,692 | 2 | 8,282 | | | | 8,284 | ||||||||
Unvested restricted stock | (153,692) | (2) | | | | (8,282) | (8,284) | ||||||||
Vested restricted stock | 320,114 | 3 | | | | 8,391 | 8,394 | ||||||||
Issuance of phantom stock | 17,862 | | 795 | | | | 795 | ||||||||
Exercise of stock options | 465,984 | 5 | 9,509 | | | | 9,514 | ||||||||
Distributions paid ($2.48) per share | | | | (147,441) | | | (147,441) | ||||||||
Preferred dividends | | | | (9,140) | | | (9,140) | ||||||||
Conversion of OP Units | 79,210 | | 1,785 | | | | 1,785 | ||||||||
Adjustment to reflect minority interest on a pro rata basis per year end ownership percentage of OP units | | | 1,081 | | | | 1,081 | ||||||||
Balance December 31, 2004 | 58,785,694 | 586 | 1,029,940 | (103,489) | 1,092 | (14,596) | 913,533 | ||||||||
Comprehensive income: | |||||||||||||||
Net income | | | | 71,686 | | | 71,686 | ||||||||
Reclassification of deferred losses | | | | | 1,351 | | 1,351 | ||||||||
Interest rate swap/cap agreements | | | | | (2,356) | | (2,356) | ||||||||
Total comprehensive income | | | | 71,686 | (1,005) | | 70,681 | ||||||||
Issuance of restricted stock | 260,898 | 3 | 12,393 | | | | 12,396 | ||||||||
Unvested restricted stock | (260,898) | (3) | | | | (12,393) | (12,396) | ||||||||
Vested restricted stock | 247,371 | 3 | | | | 11,525 | 11,528 | ||||||||
Issuance of phantom stock | | | | | | | | ||||||||
Exercise of stock options | 182,237 | 2 | 4,595 | | | | 4,597 | ||||||||
Distributions paid ($2.63) per share | | | | (158,104) | | | (158,104) | ||||||||
Preferred dividends | | | | (19,098) | | | (19,098) | ||||||||
Conversion of OP Units | 726,250 | 8 | 21,587 | | | | 21,595 | ||||||||
Adjustment to reflect minority interest on a pro rata basis per year end ownership percentage of OP units | | | (17,624) | | | | (17,624) | ||||||||
Balance December 31, 2005 | 59,941,552 | $599 | $1,050,891 | $(209,005) | $87 | $(15,464) | $827,108 | ||||||||
The accompanying notes are an integral part of these financial statements.
72 The Macerich Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
|
For the years ended December 31, |
||||||||
---|---|---|---|---|---|---|---|---|---|
|
2005 |
2004 |
2003 |
||||||
Cash flows from operating activities: | |||||||||
Net income available to common stockholders | $52,588 | $82,493 | $113,218 | ||||||
Preferred dividends | 19,098 | 9,140 | 14,816 | ||||||
Net income | 71,686 | 91,633 | 128,034 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||
Loss on early extinguishment of debt | 1,666 | 1,642 | 155 | ||||||
Gain on sale of assets | (1,288) | (927) | (12,420) | ||||||
Discontinued operations gain on sale of assets | (242) | (7,114) | (22,031) | ||||||
Depreciation and amortization | 208,932 | 146,378 | 109,029 | ||||||
Amortization of net premium on trust deed note payable | (10,193) | (805) | (2,235) | ||||||
Amortization of restricted stock grants | 8,286 | 6,236 | | ||||||
Minority interest | 12,450 | 19,870 | 28,907 | ||||||
Equity in income of unconsolidated joint ventures | (76,303) | (54,881) | (59,348) | ||||||
Distributions of income from unconsolidated joint ventures | 9,010 | 12,728 | 12,969 | ||||||
Changes in assets and liabilities, net of acquisitions: | |||||||||
Tenant receivables, net | (6,400) | (951) | (21,207) | ||||||
Other assets | 31,517 | (12,162) | (7,573) | ||||||
Accounts payable and accrued expenses | 5,181 | (3,678) | 20,267 | ||||||
Due to affiliates | (14,276) | 1,904 | (4,088) | ||||||
Other accrued liabilities | (4,730) | 13,324 | 48,276 | ||||||
Accrued preferred stock dividend | | | (2,983) | ||||||
Net cash provided by operating activities | 235,296 | 213,197 | 215,752 | ||||||
Cash flows from investing activities: | |||||||||
Acquisitions of property and property improvements | (171,842) | (538,529) | (362,935) | ||||||
Deferred leasing charges | (21,837) | (16,822) | (15,214) | ||||||
Distributions from unconsolidated joint ventures | 155,537 | 80,303 | 46,856 | ||||||
Contributions to unconsolidated joint ventures | (58,381) | (41,913) | (44,714) | ||||||
Acquisitions of unconsolidated joint ventures | (43,048) | (36,538) | (68,320) | ||||||
Repayments from (loans to) unconsolidated joint ventures | 5,228 | 22,594 | (704) | ||||||
Proceeds from sale of assets | 6,945 | 46,630 | 107,177 | ||||||
Restricted cash | (4,550) | (5,547) | (3,487) | ||||||
Net cash used in investing activities | (131,948) | (489,822) | (341,341) | ||||||
Cash flows from financing activities: | |||||||||
Proceeds from mortgages and notes payable | 483,127 | 770,306 | 646,429 | ||||||
Payments on mortgages and notes payable | (286,369) | (276,003) | (373,965) | ||||||
Deferred financing costs | (4,141) | (8,723) | (3,326) | ||||||
Exercise of common stock options and employee stock purchases | 4,597 | 9,514 | 10,986 | ||||||
Dividends and distributions | (202,078) | (177,717) | (149,605) | ||||||
Dividends to preferred stockholders/preferred unitholders | (15,485) | (8,994) | (14,816) | ||||||
Net cash (used in) provided by financing activities | (20,349) | 308,383 | 115,703 | ||||||
Net increase (decrease) in cash | 82,999 | 31,758 | (9,886) | ||||||
Cash and cash equivalents, beginning of period | 72,114 | 40,356 | 50,242 | ||||||
Cash and cash equivalents, end of period | $155,113 | $72,114 | $40,356 | ||||||
Supplemental cash flow information: | |||||||||
Cash payment for interest, net of amounts capitalized | $244,474 | $140,552 | $138,067 | ||||||
Non-cash transactions: | |||||||||
Acquisition of property by issuance of convertible preferred units and common units | $241,103 | $ | $ | ||||||
Acquisition of property by issuance of bank notes payable | $1,198,503 | $ | $ | ||||||
Acquisition of property by assumption of mortgage notes payable | $809,542 | $54,023 | $ | ||||||
Acquisition of property by issuance of operating partnership units | $ | $ | $30,201 | ||||||
Acquisition of property by assumption of joint venture debt | $ | $ | $180,000 | ||||||
The accompanying notes are an integral part of these financial statements.
The Macerich Company 73
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
1. Organization and Basis of Presentation:
The Macerich Company (the "Company") is involved in the acquisition, ownership, development, redevelopment, management and leasing of regional and community shopping centers (the "Centers") located throughout the United States.
The Company commenced operations effective with the completion of its initial public offering (the "IPO") on March 16, 1994. As of December 31, 2005, the Company is the sole general partner of and assuming conversion of the preferred units holds an 82% ownership interest in The Macerich Partnership, L. P. (the "Operating Partnership"). The interests in the Operating Partnership are known as OP Units. OP Units not held by the Company are redeemable, subject to certain restrictions, on a one-for-one basis for the Company's common stock or cash at the Company's option.
The Company was organized to qualify as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended. The 18% limited partnership interest of the Operating Partnership not owned by the Company is reflected in these financial statements as minority interest.
The property management, leasing and redevelopment of the Company's portfolio is provided by the Company's management companies, Macerich Property Management Company, LLC, ("MPMC, LLC") a single-member Delaware limited liability company, Macerich Management Company, a California corporation, Westcor Partners, LLC, a single member Arizona limited liability company, Macerich Westcor Management, LLC, a single member Delaware limited liability company and Westcor Partners of Colorado, LLC, a Colorado limited liability company. As part of the Wilmorite closing (See Note 15Wilmorite Acquisition), the Company acquired MACW Mall Management, Inc., a New York corporation and MACW Property Management, LLC, a New York limited liability company. These two management companies are collectively referred to herein as the "Wilmorite Management Companies." The three Westcor management companies are collectively referred to herein as the "Westcor Management Companies." All seven of the management companies are collectively referred to herein as the "Management Companies."
Basis of Presentation:
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements include the accounts of the Company and the Operating Partnership. Investments in entities that meet the definition of a variable interest entity in which an enterprise absorbs the majority of the entity's expected losses, receives a majority of the entity's expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity are consolidated; otherwise they are accounted for under the equity method and are reflected as "Investments in Unconsolidated Joint Ventures". Effective July 1, 2003, the Company began consolidating the accounts of Macerich Management Company, in accordance with FIN 46 (See Note 2Summary of Significant Accounting Policies). Prior to July 1, 2003,
74 The Macerich Company
the Company accounted for Macerich Management Company under the equity method of accounting. The use of the term "Macerich Management Company" refers to Macerich Management Company prior to July 1, 2003 when their accounts were reflected in the Company's consolidated financial statements under the equity method of accounting.
A reclassification has been made to the 2004 and 2003 Consolidated Statements of Cash Flows to reclassify $12,728 and $12,969, respectively of distributions from joint ventures from net cash used in investing activities to net cash provided from operating activities as a return on investment of joint ventures.
All intercompany accounts and transactions have been eliminated in the consolidated financial statements.
2. Summary of Significant Accounting Policies:
Cash and Cash Equivalents:
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents, for which cost approximates fair value. Restricted cash includes impounds of property taxes and other capital reserves required under the loan agreements.
Tenant Receivables:
Included in tenant receivables are allowances for doubtful accounts of $4,588 and $5,604 at December 31, 2005 and 2004, respectively. Also included in tenant receivables are accrued percentage rents of $11,423 and $7,174 at December 31, 2005 and 2004, respectively.
Revenues:
Minimum rental revenues are recognized on a straight-line basis over the terms of the related lease. The difference between the amount of rent due in a year and the amount recorded as rental income is referred to as the "straight-lining of rent adjustment." Rental income was increased by $5,666 in 2005, decreased by $1,864 in 2004 and increased by $2,887 in 2003 due to the straight-lining of rent adjustment. Percentage rents are recognized and accrued when tenants' specified sales targets have been met.
Estimated recoveries from tenants for real estate taxes, insurance and other shopping center operating expenses are recognized as revenues in the period the applicable expenses are incurred.
The management companies provide property management, leasing, corporate, development, redevelopment and acquisition services to affiliated and non-affiliated shopping centers. In consideration for these services, the management companies receive monthly management fees generally ranging from 1.5% to 6% of the gross monthly rental revenue of the properties managed.
The Macerich Company 75
Property:
Costs related to the development, redevelopment, construction and improvement of properties are capitalized. Interest incurred or imputed on development, redevelopment and construction projects is capitalized until construction is substantially complete.
Maintenance and repairs expenses are charged to operations as incurred. Costs for major replacements and betterments, which includes HVAC equipment, roofs, parking lots, etc. are capitalized and depreciated over their estimated useful lives. Gains and losses are recognized upon disposal or retirement of the related assets and are reflected in earnings.
Property is recorded at cost and is depreciated using a straight-line method over the estimated useful lives of the assets as follows:
Buildings and improvements | 5-40 years | |
Tenant improvements | initial term of related lease | |
Equipment and furnishings | 5-7 years | |
The Company accounts for all acquisitions in accordance with Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations." The Company determines the value of the land and buildings utilizing an "as if vacant" methodology. The Company then assigns a fair value to any debt assumed at acquisition. The balance of the purchase price is allocated to tenant improvements and identifiable intangible assets or liabilities. Tenant improvements represent the tangible assets associated with the existing leases valued on a fair market value basis at acquisition date prorated and depreciated over the remaining lease terms. Identifiable intangible assets and liabilities relate to the value of in-place operating leases, including ground leases, which come in three forms: (i) origination value, which represents the value associated with "cost avoidance" of acquiring in-place leases, such as lease commissions paid under terms generally experienced in our markets; (ii) value of in-place leases, which represents the estimated loss of revenue and of costs incurred for the period required to lease the "assumed vacant" property to the occupancy level when purchased; and (iii) above or below market value of in-place leases, which represents the difference between the contractual rents and market rents at the time of the acquisition, discounted for tenant credit risks. Origination value is recorded as an other asset and is amortized over the remaining lease terms. Value of in-place leases is recorded as an other asset and amortized over the remaining lease term plus an estimate of renewal of the acquired leases. Above or below market leases are classified as an other asset or liability, depending on whether the contractual terms are above or below market, and the asset or liability is amortized to rental revenue over the remaining terms of the leases.
76 The Macerich Company
When the Company acquires real estate properties, the Company allocates the purchase price to the components of these acquisitions using relative fair values computed using its estimates and assumptions. These estimates and assumptions impact the amount of costs allocated between various components as well as the amount of costs assigned to individual properties in multiple property acquisitions. These allocations also impact depreciation expense, rental revenues and gains or losses recorded on future sales of properties. Generally, the Company engages a valuation firm to assist with the allocation.
The Company assesses whether there has been impairment in the value of its long-lived assets by considering expected future operating income, trends and prospects, as well as the effects of demand, competition and other economic factors. Such factors include the tenants' ability to perform their duties and pay rent under the terms of the leases. The determination of recoverability is made based upon the estimated undiscounted future net cash flows, excluding interest expense. The amount of impairment loss, if any, is determined by comparing the fair value, as determined by a discounted cash flows analysis, with the carrying value of the related assets. Long-lived assets classified as held for sale are measured at the lower of the carrying amount or fair value less cost to sell. Management believes no such impairment has occurred in its net property carrying values at December 31, 2005 and 2004.
Deferred Charges:
Costs relating to obtaining tenant leases are deferred and amortized over the initial term of the agreement using the straight-line method. Cost relating to financing of shopping center properties are deferred and amortized over the life of the related loan using the straight-line method, which approximates the effective interest method. In-place lease values are amortized over the remaining lease term plus an estimate of renewal. Leasing commissions and legal costs are amortized on a straight-line basis over the individual lease years. The range of the terms of the agreements are as follows:
Deferred lease costs | 1-15 years | |
Deferred financing costs | 1-15 years | |
In-place lease values | Remaining lease term plus an estimate for renewal | |
Leasing commissions and legal costs | 5-10 years | |
Income Taxes:
The Company elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, commencing with its taxable year ended December 31, 1994. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it distribute at least 90% of its taxable income to its stockholders. It is management's current intention to adhere to these requirements and maintain the Company's REIT status. As a REIT, the Company generally will not be subject to corporate level federal income tax on net income it distributes currently to its stockholders. If the Company fails to qualify as a REIT in any taxable year, then it will be subject to federal income taxes
The Macerich Company 77
at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property and to federal income and excise taxes on its undistributed taxable income, if any.
Each partner is taxed individually on its share of partnership income or loss, and accordingly, no provision for federal and state income tax is provided for the Operating Partnership in the consolidated financial statements.
The following table reconciles net income available to common stockholders to taxable income available to common stockholders for the years ended December 31:
|
2005 |
2004 |
2003 |
|||||
---|---|---|---|---|---|---|---|---|
Net income available to common stockholders | $52,588 | $82,493 | $113,218 | |||||
Add: Book depreciation and amortization available to common stockholders | 197,861 | 117,882 | 73,343 | |||||
Less: Tax depreciation and amortization available to common stockholders | (161,108) | (101,122) | (90,989) | |||||
Book/tax difference on gain on divestiture of real estate | 253 | (3,383) | (19,255) | |||||
Book/tax difference related to SFAS 141 purchase price allocation and market value debt adjustment (excluding SFAS 141 depreciation and amortization) | (16,962) | (12,436) | (7,523) | |||||
Other book/tax differences, net(1) | 5,798 | (3,529) | 1,571 | |||||
Taxable income available to common stockholders | $78,430 | $79,905 | $70,365 | |||||
For income tax purposes, distributions paid to common stockholders consist of ordinary income, capital gains, unrecaptured Section 1250 gain and return of capital or a combination thereof. The following table details the components of the distributions, on a per share basis, for the years ended December 31:
|
2005 |
2004 |
2003 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Ordinary income | $1.41 | 53.6% | $1.58 | 63.7% | $1.57 | 67.7% | ||||||
Qualified dividends | 0.07 | 2.7% | | 0.0% | | 0.0% | ||||||
Capital gains | 0.03 | 1.1% | 0.03 | 1.2% | 0.04 | 1.6% | ||||||
Unrecaptured Section 1250 gain | | 0.0% | | 0.0% | 0.08 | 3.3% | ||||||
Return of capital | 1.12 | 42.6% | 0.87 | 35.1% | 0.63 | 27.4% | ||||||
Dividends paid | $2.63 | 100.0% | $2.48 | 100.0% | $2.32 | 100.0% | ||||||
78 The Macerich Company
The Company has made Taxable REIT Subsidiary elections for all of its corporate subsidiaries other than its Qualified REIT Subsidiaries. The elections, effective for the year beginning January 1, 2001 and future years, were made pursuant to section 856(l) of the Internal Revenue Code. The Company's Taxable REIT Subsidiaries ("TRSs") are subject to corporate level income taxes which are provided for in the Company's consolidated financial statements. The Company's primary TRSs include Macerich Management Company, Westcor Partners, LLC and Westcor TRS, LLC.
The income tax benefit of the TRSs for the years ended December 31, 2005, 2004 and 2003 is as follows:
|
2005 |
2004 |
2003 |
|||
---|---|---|---|---|---|---|
Current | $1,171 | $570 | $207 | |||
Deferred | (3,202) | (6,036) | (651) | |||
Total income tax benefit | $(2,031) | $(5,466) | $(444) | |||
Income tax benefit of the TRSs for the years ended December 31, 2005, 2004 and 2003 are reconciled to the amount computed by applying the Federal corporate tax rate as follows:
|
2005 |
2004 |
2003 |
|||
---|---|---|---|---|---|---|
Book (loss) income for TRSs | $(3,729) | $2,595 | $5,279 | |||
Tax at statutory rate on earnings from continuing operations before income taxes | $(1,267) | $882 | $1,795 | |||
Stock-based compensation | (844) | (1,753) | (944) | |||
Reduction in valuation allowance | | | (1,208) | |||
Change in tax rate relating to change in tax status | | (2,964) | | |||
Change in state tax rate | | (394) | | |||
Tax at statutory rate on earnings not subject to federal income taxes and other | 80 | (1,237) | (87) | |||
Income tax benefit | $(2,031) | $(5,466) | $(444) | |||
SFAS No. 109 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The deferred tax assets and liabilities of the TRSs relate primarily to differences in the book and tax bases of property and to operating loss carryforwards for federal income tax purposes. A valuation allowance for deferred tax assets is provided if the Company believes it is more likely than not that all or some portion of the deferred tax assets will not be realized. Realization of
The Macerich Company 79
deferred tax assets is dependent on the Company generating sufficient taxable income in future periods. The net operating loss carryforwards are currently scheduled to expire through 2025, beginning in 2011.
The tax effects of temporary differences and carryforwards of the TRSs included in the net deferred tax assets at December 31, 2005 and 2004 are summarized as follows:
|
2005 |
2004 |
||
---|---|---|---|---|
Net operating loss carryforwards | $14,146 | $13,876 | ||
Property, primarily differences in depreciation and amortization, the tax basis of land assets and treatment of certain other costs | (5,033) | (7,061) | ||
Other | 1,143 | 915 | ||
Net deferred tax assets | $10,256 | $7,730 | ||
Accounting for the Impairment or Disposal of Long-Lived Assets:
The Company sold Paradise Village Gateway on January 2, 2003 and recorded a loss on sale of $161 for the year ended December 31, 2003. Additionally, the Company sold Bristol Center on August 4, 2003, and the results from the period January 1, 2003 to August 4, 2003, have been classified as discontinued operations. The sale of Bristol Center resulted in a gain of $22,206 in 2003. Total revenues associated with Bristol Center were $2,523 for the period from January 1, 2003 to August 4, 2003.
The Company sold Westbar on December 16, 2004, and the results for the period January 1, 2004 to December 16, 2004 and for the year ended December 31, 2003 have been classified as discontinued operations. The sale of Westbar resulted in a gain on sale of asset of $6,781. Total revenues associated with Westbar were approximately $4,784 for the period January 1, 2004 to December 16, 2004 and $5,738 for the year ended December 31, 2003.
On January 5, 2005, the Company sold Arizona Lifestyle Galleries for $4,300. The sale of this property resulted in a gain on sale of asset of $297 and the impact on the results for the years ended December 31, 2005, 2004 and 2003 were insignificant.
The Company has identified the Crossroads Mall in Oklahoma as an asset for sale and has therefore, classified the properties results of operations for the years ended December 31, 2005, 2004 and 2003 as discontinued operations. Total revenues associated with Crossroads Mall were approximately $10,921, $11,227 and $12,249 for the years ended December 31, 2005, 2004 and 2003, respectively.
The carrying amounts of the properties sold or held for sale include property of $54,853 and $59,371 at December 31, 2005 and 2004, respectively.
80 The Macerich Company
Variable Interest Entities
The Company consolidates all variable interest entities ("VIEs") in which it is deemed to be the primary beneficiary in accordance with Financial Accounting Standards Board Interpretation No. 46R, "Consolidation of Variable Interest Entities" ("FIN 46R"). As of December 31, 2005, the Company consolidated three VIEs in connection with its assessment of FIN 46R. The impact of consolidating the VIEs was insignificant at December 31, 2005.
Fair Value of Financial Instruments
The Company calculates the fair value of financial instruments and includes this additional information in the notes to consolidated financial statements when the fair value is different than the carrying value of those financial instruments. When the fair value reasonably approximates the carrying value, no additional disclosure is made. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
In accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", the Company recognizes all derivatives in the consolidated financial statements and measures the derivatives at fair value. The Company uses derivative financial instruments in the normal course of business to manage or hedge interest rate risk. The Company requires that hedging derivative instruments are effective in reducing the risk exposure that they are designated to hedge. For derivative instruments associated with the hedge of an anticipated transaction, hedge effectiveness criteria also require that it be probable that the underlying transaction occurs. Any instrument that meets these cash flow hedging criteria, and other criteria required by SFAS No. 133, is formally designated as a hedge at the inception of the derivative contract. The Company designs its hedges to be perfectly effective. When the terms of an underlying transaction are modified resulting in some ineffectiveness, the portion of the change in the derivative fair value related to ineffectiveness from period to period will be included in net income. If any derivative instrument used for risk management does not meet the hedging criteria, it is marked-to-market each period in the statement of operations. Three of the Company's six derivative instruments are designated as cash flow hedges defined by SFAS No. 133.
On an ongoing quarterly basis, the Company adjusts its balance sheet to reflect the current fair value of its derivatives. Changes in the fair value of derivatives are recorded each period in income or comprehensive income, depending on whether the derivative is designated and effective as part of a hedged transaction. To the extent that the change in value of a derivative does not perfectly offset the change in value of the instrument being hedged, the ineffective portion of the hedge is immediately recognized in income. There
The Macerich Company 81
were no ineffective portions during the years ended December 31, 2005, 2004 and 2003. Over time, the unrealized gains and losses held in accumulated other comprehensive income will be reclassified to income. This reclassification occurs when the hedged items are also recognized in income. The Company has a policy of only entering into contracts with major financial institutions based upon their credit ratings and other factors.
To determine the fair value of derivative instruments, the Company uses standard market conventions and techniques such as discounted cash flow analysis, option pricing models, and termination cost at each balance sheet date. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.
As of December 31, 2005 and December 31, 2004, the Company had $2,762 and $4,109 reflected in other comprehensive income related to treasury rate locks settled in prior years, respectively. The Company reclassified $1,351 for the years ended December 31, 2005 and 2004, and $1,328 for the year ended December 31, 2003, related to treasury rate lock transactions settled in prior years from accumulated other comprehensive income to earnings. It is anticipated that a similar amount will be reclassified in 2006.
Interest rate swap and cap agreements are purchased by the Company from third parties to hedge the risk of interest rate increases on some of the Company's floating rate debt. Payments received as a result of the cap agreements are recorded as a reduction of interest expense. The fair value of the cap agreements are included in deferred charges. The fair value of these caps will vary with fluctuations in interest rates and will either be recorded in income or other comprehensive income depending on its effectiveness. The Company will be exposed to credit loss in the event of nonperformance by the counter parties to the financial instruments; however, management does not anticipate nonperformance by the counter parties. Additionally, the Company recorded other comprehensive (loss) income of ($2,356), $2,076 and $1,148 related to the mark to market of interest rate swap/cap agreements for the years ended December 31, 2005, 2004, and 2003, respectively. The interest rate caps and interest rate swap transactions are described below.
The Company had an interest rate swap agreement on its $250,000 term note (SeeNote 7Bank Notes Payable) which effectively fixed the interest rate at 4.45% from November 2003 to its maturity date of October 13, 2005. The fair value of this swap was reflected in other comprehensive income and had a fair value at December 31, 2004 of $1,900.
The $450,000 term loan (See Note 7Bank Notes Payable) has an interest rate swap agreement which effectively fixes the interest rate at 6.296% (4.796% swap rate plus 1.50%) from December 1, 2005 to April 15, 2010. The fair value of the swap at December 31, 2005 was ($927).
82 The Macerich Company
The Company has an interest rate cap from July 9, 2004 to August 9, 2007 with a notional amount of $30,000 on its loan at La Cumbre Plaza (SeeNote 6Mortgage Notes Payable). This interest rate cap prevents the LIBOR rate from exceeding 7.12%. The fair value of this cap agreement at December 31, 2005 and December 31, 2004 was zero.
The Company has an interest cap from September 9, 2005 to December 15, 2007 with a notional amount of $72,000 on its Greece Ridge loan. The interest rate cap prevents the LIBOR interest rate from exceeding 6.625% through September 15, 2006 and 7.95% through December 15, 2007. The fair value of this cap agreement at December 31, 2005 was zero.
The Company has three interest rate cap agreements that are stand-alone derivative instruments and do not qualify for hedge accounting under SFAS No. 133. Changes in the market value of these instruments would be recorded in the statement of operations.
Earnings per Share ("EPS"):
The computation of basic earnings per share is based on net income and the weighted average number of common shares outstanding for the years ended December 31, 2005, 2004 and 2003. The computation of diluted earnings per share includes the effect of dilutive securities calculated using the Treasury stock method. The OP Units and the Westcor partnership units not held by the Company have been included in the diluted EPS calculation since they may be redeemable on a one-for-one basis, at the Company's option. The Westcor partnership units were converted to OP Units on July 27, 2004 which were subsequently redeemed for common stock on October 4, 2005. The following table reconciles the basic and diluted earnings per share calculation:
|
2005 |
2004 |
2003 |
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net income |
Shares |
Per share |
Net income |
Shares |
Per share |
Net income |
Shares |
Per share |
||||||||||
Net income | $71,686 | $91,633 | $128,034 | ||||||||||||||||
Less: Preferred dividends(1) | 19,098 | 9,140 | 14,816 | ||||||||||||||||
Basic EPS: | |||||||||||||||||||
Net income available to common stockholders | 52,588 | 59,279 | $0.89 | 82,493 | 58,537 | $1.41 | 113,218 | 53,669 | $2.11 | ||||||||||
Diluted EPS: | |||||||||||||||||||
Conversion of OP units | 12,450 | 13,971 | 19,870 | 14,178 | 28,907 | 13,663 | |||||||||||||
Employee stock options | | 323 | | 384 | | 480 | |||||||||||||
Convertible preferred stock/preferred units | n/aantidilutive | n/aantidilutive | 14,816 | 7,386 | |||||||||||||||
Net income available to common stockholders | $65,038 | 73,573 | $0.88 | $102,363 | 73,099 | $1.40 | $156,941 | 75,198 | $2.09 | ||||||||||
The Macerich Company 83
The minority interest as reflected in the Company's consolidated statements of operations has been allocated for EPS calculations as follows:
|
2005 |
2004 |
2003 |
||||
---|---|---|---|---|---|---|---|
Income from continuing operations | $11,785 | $17,364 | $23,066 | ||||
Discontinued operations: | |||||||
Gain on sale of assets | 46 | 1,387 | 4,470 | ||||
Income from discontinued operations | 619 | 1,119 | 1,371 | ||||
$12,450 | $19,870 | $28,907 | |||||
Concentration of Risk:
The Company maintains its cash accounts in a number of commercial banks. Accounts at these banks are guaranteed by the Federal Deposit Insurance Corporation ("FDIC") up to $100. At various times during the year, the Company had deposits in excess of the FDIC insurance limit.
No Center or tenant generated more than 10% of total revenues during 2005, 2004 or 2003.
The Centers derived approximately 94.0%, 93.8% and 93.6% of their total minimum rents for the years ended December 31, 2005, 2004 and 2003, respectively, from Mall and Freestanding Stores. The Limited represented 4.1%, 3.6% and 4.3% of total minimum rents in place as of December 31, 2005, 2004 and 2003, respectively, and no other retailer represented more than 3.6%, 3.2% and 3.2% of total minimum rents as of December 31, 2005, 2004 and 2003, respectively.
Management Estimates:
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the year ending December 31, 2004, the Company changed its estimate for common area expense recoveries applicable to prior periods. This change in estimate resulted in a $4,129 charge for the year ending December 31, 2004.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123 (revised), "Share-Based Payment" SFAS No. 123(R) requires that all share-based payments to employees, including grants of employee stock options, be recognized in the income statement based on their fair values. The Company will adopt the new statement as of January 1, 2006. The adoption of this statement will not have a material effect on the Company's results of operations or financial condition.
84 The Macerich Company
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assetsan amendment of Accounting Principle Board ("APB") Opinion No. 29." The guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. SFAS No. 153 amends Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 became effective in the first reporting period ending after June 15, 2005. The adoption of this statement did not have a material effect on the Company's results of operations or financial condition.
On February 7, 2005, the Securities and Exchange Commission ("SEC") staff published certain views concerning the accounting by lessees for leasehold improvements, rent holidays, lessor funding of lessee expenditures and other tenant inducements. Although the application of these views to lessors was not specified by the SEC and a formal accounting standard modifying existing practice on these items has not been issued or proposed, the Company has conducted a detailed evaluation of its accounting relative to such items. The Company believes that its leases with its tenants that provide for leasehold improvements funded by the Company represent fixed assets that the Company owns and controls and that leases with such arrangements are properly accounted for as commencing at the completion of construction of such assets. On tenant leases that do not provide for landlord funding but rather provide for tenant funded construction and furnishing of the leased premises prior to the formal commencement of the lease, the Company has concluded that the cumulative incremental straight-line rental revenue that would have been recognized on such leases if it had commenced with the turn-over of such space rather than the lease-specified commencement date to be immaterial. Beginning on January 1, 2005, the Company began recognizing straight-line rental revenue on this accelerated basis for all new leases. This is not expected to have a material effect on future periods and will have no effect on periodic or cumulative cash flows to be received pursuant to a tenant lease.
In June 2005, a consensus was reached by FASB related to Issue No. 04-5, "Determining Whether a General Partner, or the General Partners as a Group, controls a Limited Partnership or Similar Entity When the Limited Partners have Certain Rights." Effective for general partners of all new limited partnerships formed and for existing limited partnerships for which the partnership agreements are modified, the guidance in this Issue became effective after June 29, 2005. For general partners in all other limited partnerships, the guidance in this Issue will become effective no later than the beginning of the first reporting period in fiscal years beginning after December 15, 2005, and that application of either one of two transition methods described in the Issue would be acceptable. This adoption of this Issue is not expected to have a material effect on the Company's results of operations or financial condition.
The Macerich Company 85
In March 2005, FASB issued FIN No. 47, "Accounting for Conditional Asset Retirement Obligationsan interpretation of SFAS No. 143." FIN No. 47, requires that a liability be recognized for the fair value of a conditional asset retirement obligation if the fair value can be reasonably estimated. As a result of the Company's evaluation of FIN No. 47, the Company recorded an additional liability of $615 in 2005. As of December 31, 2005 and 2004, the Company's liability for retirement obligations was $1,163 and $619, respectively.
In May 2005, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 154, "Accounting Changes and Error Corrections" ("SFAS 154"), to replace APB Opinion No. 20, "Reporting Accounting Changes in Interim Financial Statements" ("APB 20"). SFAS 154 changes the requirements for the accounting for and reporting of a change in accounting principle and requires retrospective application to prior periods' financial statements, unless it is impracticable to determine period specific effects or the cumulative effect of the change. SFAS 154 will be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of this statement is not expected to have a material effect on the Company's results of operations or financial condition.
In June 2005, the Financial Accounting Standards Board issued Emerging Issues Task Force Abstract No. 05-06, "Determining the Amortization Period for Leasehold Improvements Purchased after Lease Inception or Acquired in a Business Combination," ("EITF 05-06") to address issues related to the amortization period for leasehold improvements acquired in a business combination or placed in service after and not contemplated at the beginning of the lease term. The Task Force reached a consensus that these types of leasehold improvements should be amortized over the shorter of the useful life of the assets or a term that includes required lease periods and renewals that are deemed to be reasonably assured at the date of the acquisition or the date the leasehold improvements are purchased. This consensus does not apply to preexisting leasehold improvements, but should be applied to leasehold improvements that are purchased or acquired in reporting periods beginning after June 29, 2005. The application of this consensus did not have a material impact on the Company's results of operations or financial condition.
86 The Macerich Company
3. Investments in Unconsolidated Joint Ventures and the Macerich Management Company:
The following are the Company's investments in various joint ventures or properties jointly owned with third parties. The Operating Partnership's interest in each joint venture as of December 31, 2005 is as follows:
Joint Venture |
Partnership's Ownership % |
||
---|---|---|---|
SDG Macerich Properties, L.P. | 50.0% | ||
Pacific Premier Retail Trust | 51.0% | ||
Westcor Joint Ventures: |
|||
Camelback Colonnade SPE LLC | 75.0% | ||
Chandler Festival SPE LLC | 50.0% | ||
Chandler Gateway SPE LLC | 50.0% | ||
Chandler Village Center, LLC | 50.0% | ||
Coolidge Holding LLC | 37.5% | ||
Desert Sky MallTenants in Common | 50.0% | ||
East Mesa Land, L.L.C. | 50.0% | ||
East Mesa Mall, L.L.C.Superstition Springs Center | 33.3% | ||
Jaren Associates #4 | 12.5% | ||
New River AssociatesArrowhead Towne Center | 33.3% | ||
Propcor Associates | 25.0% | ||
Propcor II Associates, LLCBoulevard Shops | 50.0% | ||
Russ Lyon Realty/Westcor Venture I | 50.0% | ||
SanTan Village Phase 2 LLC | 37.5% | ||
Scottsdale Fashion Square Partnership | 50.0% | ||
Westcor/Gilbert, L.L.C. | 50.0% | ||
Westcor/Goodyear, L.L.C. | 50.0% | ||
Westcor/Queen Creek LLC | 37.5% | ||
Westcor/Queen Creek Commercial LLC | 37.5% | ||
Westcor/Queen Creek Medical LLC | 37.5% | ||
Westcor/Queen Creek Residential LLC | 37.5% | ||
Westcor/Surprise LLC | 33.3% | ||
Westlinc AssociatesHilton Village | 50.0% | ||
Westpen Associates | 50.0% | ||
Other Joint Ventures: |
|||
Biltmore Shopping Center Partners LLC | 50.0% | ||
Corte Madera Village, LLC | 50.1% | ||
The Macerich Company 87
Macerich Northwestern Associates | 50.0% | ||
MetroRising AMS Holding LLC | 15.0% | ||
NorthPark Land Partners, LP | 50.0% | ||
NorthPark Partners, LP | 50.0% | ||
PHXAZ/Kierland Commons, L.L.C. | 24.5% | ||
Tysons Corner Holdings LLC | 50.0% | ||
Tysons Corner Property Holdings LLC | 50.0% | ||
Tysons Corner LLC | 50.0% | ||
Tysons Corner Property Holdings II LLC | 50.0% | ||
Tysons Corner Property LLC | 50.0% | ||
West Acres Development, LLP | 19.0% | ||
W.M. Inland, L.L.C. | 50.0% | ||
WM Ridgmar, L.P. | 50.0% |
The Company accounts for unconsolidated joint ventures using the equity method of accounting. In accordance with FIN 46, effective July 1, 2003, the Company began consolidating the accounts of MMC. Prior to July 1, 2003, the Company accounted for MMC under the equity method of accounting.
Although the Company has a greater than 50% interest in Pacific Premier Retail Trust, Camelback Colonnade SPE LLC and Corte Madera Village, LLC, the Company shares management control with these joint venture partners and accounts for these joint ventures using the equity method of accounting.
On January 31, 2003, the Company purchased its joint venture partner's 50% interest in FlatIron Crossing. Accordingly, the Company now owns 100% of FlatIron Crossing. The purchase price consisted of approximately $68,300 in cash plus the assumption of the joint venture partner's share of debt of $90,000. The results of FlatIron Crossing prior to January 31, 2003 were accounted for using the equity method of accounting.
On May 15, 2003, the Company sold 49.9% of its partnership interest in the Village at Corte Madera for a total purchase price of approximately $65,868, which included the assumption of a proportionate amount of the partnership debt in the amount of approximately $34,709. The Company retained a 50.1% partnership interest and has continued leasing and managing the asset. Effective May 16, 2003, the Company began accounting for this property under the equity method of accounting.
88 The Macerich Company
On June 6, 2003, the Shops at Gainey Village, a 138,000 square foot Phoenix area specialty center, was sold for $55,724. The Company, which owned 50% of this property, received total proceeds of $15,816 and recorded a gain on sale of asset of $2,788.
On December 18, 2003, the Company acquired Biltmore Fashion Park, a 600,000 square foot regional mall in Phoenix, Arizona. The total purchase price was $158,543, which included the assumption of $77,381 of debt. The Company also issued 705,636 partnership units of the Operating Partnership at a price of $42.80 per unit. The balance of the Company's 50% share of the purchase price of $10,500 was funded by cash and borrowings under the Company's line of credit. Biltmore Fashion Park is owned in a 50/50 partnership with an institutional partner. The results of Biltmore Fashion Park are included below for the period subsequent to its date of acquisition.
On January 30, 2004, the Company, in a 50/50 joint venture with a private investment company, acquired Inland Center, a 1 million square foot super-regional mall in San Bernardino, California. The total purchase price was $63,300 and concurrently with the acquisition, the joint venture placed a $54,000 fixed rate loan on the property. The balance of the Company's pro rata share of the purchase price was funded by cash and borrowings under the Company's line of credit. The results of Inland Center are included below for the period subsequent to its date of acquisition.
On May 11, 2004, the Company acquired an ownership interest in NorthPark Center, a 1.4 million square foot regional mall in Dallas, Texas. The Company's initial investment in the property was $30,005 which was funded by borrowings under the Company's line of credit. In addition, the Company assumed a pro rata share of debt of $86,599 and funded an additional $45,000 post-closing. The results of NorthPark Center are included below for the period subsequent to its date of acquisition.
On January 11, 2005, the Company became a 15% owner in a joint venture that acquired Metrocenter, a 1.3 million square foot super-regional mall in Phoenix, Arizona. The total purchase price was $160,000 and concurrently with the acquisition, the joint venture placed a $112,000 floating rate loan on the property. The Company's share of the purchase price, net of the debt, was $7,200 which was funded by cash and borrowings under the Company's line of credit. The results of Metrocenter are included below for the period subsequent to its date of acquisition.
On January 21, 2005, the Company formed a 50/50 joint venture with a private investment company. The joint venture acquired a 49% interest in Kierland Commons, a 437,000 square foot mixed use center in Phoenix, Arizona. The joint venture's purchase price for the interest in the center was $49,000. The Company assumed its share of the underlying property debt and funded the remainder of its share of the
The Macerich Company 89
purchase price by cash and borrowings under the Company's line of credit. The results of Kierland Commons are included below for the period subsequent to its date of acquisition.
On April 8, 2005, the Company in a 50/50 joint venture with an affiliate of Walton Street Capital, LLC, acquired Ridgmar Mall, a 1.3 million square foot super-regional mall in Fort Worth, Texas. The total purchase price was $71,075 and concurrently with the transaction, the joint venture placed a $57,400 fixed rate loan of 6.0725% on the property. The balance of the Company's pro rata share, $6,838, of the purchase price was funded by borrowings under the Company's line of credit. The results of Ridgmar Mall are included below for the period subsequent to its date of acquisition.
On April 25, 2005, as part of the Wilmorite acquisition (See Note 15Wilmorite Acquisition), the Company became a 50% joint venture partner in Tyson's Corner, a 2.2 million square foot super-regional mall in McLean, Virginia. The results of Tyson's Corner are included below for the period subsequent to its date of acquisition.
Combined and condensed balance sheets and statements of operations are presented below for all unconsolidated joint ventures.
Combined and Condensed Balance Sheets of Unconsolidated Joint Ventures:
|
2005 |
2004 |
|||
---|---|---|---|---|---|
Assets: | |||||
Properties, net | $4,127,540 | $3,076,115 | |||
Other assets | 333,022 | 214,526 | |||
Total assets | $4,460,562 | $3,290,641 | |||
Liabilities and partners' capital: | |||||
Mortgage notes payable(1) | $3,077,018 | $2,326,198 | |||
Other liabilities | 169,253 | 85,956 | |||
The Company's capital(2) | 618,803 | 455,669 | |||
Outside partners' capital | 595,488 | 422,818 | |||
Total liabilities and partners' capital | $4,460,562 | $3,290,641 | |||
90 The Macerich Company
Combined and Condensed Statements of Operations of Unconsolidated Joint Ventures and Macerich Management Company
|
SDG Macerich Properties |
Pacific Premier Retail Trust |
Westcor Joint Ventures |
Other Joint Ventures |
Total |
||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Year Ended December 31, 2005 |
|||||||||||
Revenues: | |||||||||||
Minimum rents | $96,509 | $116,421 | $91,488 | $124,587 | $429,005 | ||||||
Percentage rents | 4,783 | 7,171 | 5,774 | 10,794 | 28,522 | ||||||
Tenant recoveries | 50,381 | 42,455 | 39,814 | 58,683 | 191,333 | ||||||
Other | 3,753 | 3,852 | 6,041 | 12,692 | 26,338 | ||||||
Total revenues | 155,426 | 169,899 | 143,117 | 206,756 | 675,198 | ||||||
Expenses: | |||||||||||
Shopping center and operating expenses | 62,466 | 46,682 | 44,866 | 72,827 | 226,841 | ||||||
Interest expense | 34,758 | 49,476 | 33,562 | 45,172 | 162,968 | ||||||
Depreciation and amortization | 27,128 | 27,567 | 30,569 | 41,372 | 126,636 | ||||||
Total operating expenses | 124,352 | 123,725 | 108,997 | 159,371 | 516,445 | ||||||
Gain on sale of assets | | | 14,920 | 597 | 15,517 | ||||||
Loss on early extinguishment of debt | | (13) | | | (13) | ||||||
Net income | $31,074 | $46,161 | $49,040 | $47,982 | $174,257 | ||||||
Company's equity in net income | $15,537 | $23,583 | $16,230 | $20,953 | $76,303 | ||||||
Year Ended December 31, 2004 |
|||||||||||
Revenues: | |||||||||||
Minimum rents | $94,243 | $111,303 | $85,191 | $63,347 | $354,084 | ||||||
Percentage rents | 5,377 | 6,711 | 4,134 | 7,152 | 23,374 | ||||||
Tenant recoveries | 50,698 | 42,660 | 37,025 | 29,385 | 159,768 | ||||||
Other | 2,223 | 2,893 | 7,540 | 2,573 | 15,229 | ||||||
Total revenues | 152,541 | 163,567 | 133,890 | 102,457 | 552,455 | ||||||
Expenses: | |||||||||||
Shopping center and operating expenses | 62,209 | 47,984 | 44,892 | 39,446 | 194,531 | ||||||
Interest expense | 29,923 | 46,212 | 32,977 | 27,993 | 137,105 | ||||||
Depreciation and amortization | 27,410 | 26,009 | 24,394 | 19,483 | 97,296 | ||||||
Total operating expenses | 119,542 | 120,205 | 102,263 | 86,922 | 428,932 | ||||||
Gain (loss) on sale of assets | | (11) | 10,116 | (70) | 10,035 | ||||||
Loss on early extinguishment of debt | | (1,036) | | | (1,036) | ||||||
Net income | $32,999 | $42,315 | $41,743 | $15,465 | $132,522 | ||||||
Company's equity in net income | $16,499 | $21,563 | $10,454 | $6,365 | $54,881 | ||||||
The Macerich Company 91
Combined and Condensed Statements of Operations of Unconsolidated Joint Ventures and Macerich Management Company (Continued)
|
SDG Macerich Properties |
Pacific Premier Retail Trust |
Westcor Joint Ventures |
Other Joint Ventures |
Macerich Mgmt Company |
Total |
|||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Year Ended December 31, 2003 |
|||||||||||||
Revenues: | |||||||||||||
Minimum rents | $95,628 | $107,442 | $95,757 | $26,539 | $ | $325,366 | |||||||
Percentage rents | 5,126 | 6,126 | 3,420 | 1,680 | | 16,352 | |||||||
Tenant recoveries | 51,023 | 41,358 | 40,588 | 9,885 | | 142,854 | |||||||
Management fee | | | | | 5,526 | 5,526 | |||||||
Other | 1,484 | 2,611 | 3,327 | 967 | 370 | 8,759 | |||||||
Total revenues | 153,261 | 157,537 | 143,092 | 39,071 | 5,896 | 498,857 | |||||||
Expenses: | |||||||||||||
Management fee | | | | | 3,173 | 3,173 | |||||||
Shopping center and operating expenses | 62,095 | 46,357 | 47,112 | 11,184 | | 166,748 | |||||||
Interest expense | 29,096 | 47,549 | 36,261 | 11,393 | (207) | 124,092 | |||||||
Depreciation and amortization | 26,675 | 24,610 | 25,637 | 5,385 | 1,300 | 83,607 | |||||||
Total operating expenses | 117,866 | 118,516 | 109,010 | 27,962 | 4,266 | 377,620 | |||||||
Gain on sale of assets | | 74 | 5,786 | | | 5,860 | |||||||
Net income | $35,395 | $39,095 | $39,868 | $11,109 | $1,630 | $127,097 | |||||||
Company's equity in net income and the management company | $17,698 | $19,940 | $16,198 | $3,964 | $1,548 | $59,348 | |||||||
Significant accounting policies used by the unconsolidated joint ventures and the Macerich Management Company are similar to those used by the Company. Included in mortgage notes payable are amounts due to affiliates of Northwestern Mutual Life ("NML") of $137,954 and $143,364 as of December 31, 2005 and 2004, respectively. NML is considered a related party because they are a joint venture partner with the Company in Macerich Northwestern Associates. Interest expense incurred on these borrowings amounted to $9,422, $9,814 and $10,146 for the years ended December 31, 2005, 2004 and 2003, respectively.
92 The Macerich Company
4. Property:
Property at December 31, 2005 and December 31, 2004 consists of the following:
|
2005 |
2004 |
||
---|---|---|---|---|
Land | $1,095,180 | $642,392 | ||
Building improvements | 4,604,803 | 3,213,355 | ||
Tenant improvements | 222,619 | 140,893 | ||
Equipment and furnishings | 75,836 | 64,907 | ||
Construction in progress | 162,157 | 88,229 | ||
6,160,595 | 4,149,776 | |||
Less, accumulated depreciation | (722,099) | (575,223) | ||
$5,438,496 | $3,574,553 | |||
Depreciation expense for the years ended December 31, 2005, 2004 and 2003 was $148,116, $104,431 and $83,523, respectively.
On July 1, 2004, the Company acquired the Mall of Victor Valley in Victorville, California and on July 20, 2004, the Company acquired La Cumbre Plaza in Santa Barbara, California. The Mall of Victor Valley is a 480,000 square foot regional mall and La Cumbre Plaza is a 495,000 square foot regional mall. The combined total purchase price was $151,300. The purchase price for the Mall of Victor Valley included the assumption of an existing fixed rate loan of $54,000 bearing interest at 5.25% maturing in March, 2008. Concurrent with the closing of La Cumbre Plaza, a $30,000 floating rate loan was placed on the property with an initial interest rate of 2.29%. The balance of the purchase price was paid in cash and borrowings from the Company's revolving line of credit.
On November 16, 2004, the Company acquired Fiesta Mall, a 1 million square foot super regional mall in Mesa, Arizona. The total purchase price was $135,250 which was funded by borrowings under the Company's line of credit. On December 2, 2004, the Company placed a ten year $84,000 fixed rate loan bearing interest at 4.88% on the property.
On December 16, 2004, the Company sold Westbar, a Phoenix area property that consisted of a collection of ground leases, a shopping center and land for $47,500. The sale of Westbar resulted in a gain on sale of asset of $6,781.
On December 30, 2004, the Company purchased the unaffiliated owners' 50% tenants in common interest in Paradise Village Ground Leases, Village Center, Village Crossroads, Village Fair and Paradise Village Office Park II. The total purchase price was $50,000 which included the assumption of the unaffiliated
The Macerich Company 93
owners' share of debt of $15,200. The balance of the purchase price was paid in cash and borrowings from the Company's line of credit. Accordingly, the Company now owns 100% of these assets.
On January 5, 2005, the Company sold Arizona Lifestyle Galleries for $4,300. The sale of this property resulted in a gain on sale of asset of $297.
During 2005, the Company had gain on land sales of $1,308.
Additionally, the above schedule includes consolidated properties purchased in connection with the acquisition of Wilmorite (See Note 15Wilmorite Acquisition).
94 The Macerich Company
5. Deferred Charges And Other Assets:
Deferred charges and other assets at December 31, 2005 and December 31, 2004 consist of the following:
|
2005 |
2004 |
|||
---|---|---|---|---|---|
Leasing | $117,060 | $93,869 | |||
Financing | 39,323 | 29,410 | |||
Intangible assets resulting from SFAS No. 141 allocations (1) | |||||
In-place lease values | 218,488 | 146,455 | |||
Leasing commissions and legal costs | 36,732 | 12,617 | |||
411,603 | 282,351 | ||||
Less, accumulated amortization(2) | (142,747) | (86,298) | |||
268,856 | 196,053 | ||||
Other assets | 91,361 | 84,641 | |||
$360,217 | $280,694 | ||||
Year ending December 31, |
|
|
---|---|---|
2006 | $34,712 | |
2007 | 23,917 | |
2008 | 20,112 | |
2009 | 17,177 | |
2010 | 14,467 | |
Thereafter | 80,439 | |
$190,824 | ||
Additionally, as it relates to SFAS No. 141, a deferred credit representing the allocated value to below market leases of $84,241 and $34,399 is recorded in "Other accrued liabilities" of the Company, as of December 31, 2005 and 2004, respectively. Included in "Other assets" of the Company is an allocated value of above market leases of $28,660 and zero, as of December 31, 2005 and 2004, respectively. Accordingly, the allocated values of below and above market leases will be amortized into minimum rents
The Macerich Company 95
on a straight-line basis over the individual remaining lease terms. The estimated amortization of these values for the next five years and subsequent years is as follows:
Year ending December 31, |
Below Market |
Above Market |
||||
---|---|---|---|---|---|---|
2006 | $ | 18,387 | $6,996 | |||
2007 | 14,430 | 5,599 | ||||
2008 | 11,856 | 4,572 | ||||
2009 | 9,485 | 3,726 | ||||
2010 | 8,008 | 2,906 | ||||
Thereafter | 22,075 | 4,861 | ||||
$ | 84,241 | $ | 28,660 | |||
96 The Macerich Company
6. Mortgage Notes Payable:
Mortgage notes payable at December 31, 2005 and December 31, 2004 consist of the following:
|
Carrying Amount of Mortage Notes(1) |
|
|
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2005 |
2004 |
|
Monthly Payment Term(a) |
|
|||||||||||||
|
Interest Rate |
Maturity Date |
||||||||||||||||
Property Pledged as Collateral |
Other |
Related Party |
Other |
Related Party |
||||||||||||||
Borgata | $15,422 | | $15,941 | | 5.39% | $115 | 2007 | |||||||||||
Capitola Mall | | $42,573 | | $44,038 | 7.13% | 380 | 2011 | |||||||||||
Carmel Plaza | 27,064 | | 27,426 | | 8.18% | 202 | 2009 | |||||||||||
Chandler Fashion Center | 175,853 | 178,646 | 5.48% | 1,043 | 2012 | |||||||||||||
Chesterfield Towne Center(b) | 58,483 | | 59,696 | | 9.07% | 548 | 2024 | |||||||||||
Citadel, The | 64,069 | | 65,911 | | 7.20% | 544 | 2008 | |||||||||||
Danbury Fair Mall | 189,137 | | | | 4.64% | 1,225 | 2011 | |||||||||||
Eastview Commons | 9,411 | | | | 5.46% | 66 | 2010 | |||||||||||
Eastview Mall | 104,654 | | | | 5.10% | 592 | 2014 | |||||||||||
Fiesta Mall | 84,000 | | 84,000 | | 4.88% | 346 | 2015 | |||||||||||
Flagstaff Mall(c) | 37,000 | | 13,668 | | 4.97% | 155 | 2015 | |||||||||||
FlatIron Crossing | 194,188 | | 197,170 | | 5.23% | 1,102 | 2013 | |||||||||||
Freehold Raceway | 189,161 | | | | 4.68% | 1,184 | 2011 | |||||||||||
Fresno Fashion Fair | 65,535 | | 66,415 | | 6.52% | 437 | 2008 | |||||||||||
Great Northern | 41,575 | | | | 5.19% | 224 | 2013 | |||||||||||
Greece Ridge(d) | 72,012 | | | | 5.02% | 305 | 2007 | |||||||||||
Greeley Mall | 28,849 | | 29,382 | | 6.18% | 197 | 2013 | |||||||||||
La Cumbre(e) | 30,000 | | 30,000 | | 5.25% | 133 | 2007 | |||||||||||
La Encantada(f) | 45,905 | | 42,648 | | 6.39% | 248 | 2006 | |||||||||||
Marketplace Mall | 41,545 | | | | 5.30% | 267 | 2017 | |||||||||||
Northridge(g) | 83,840 | | 85,000 | | 4.84% | 453 | 2009 | |||||||||||
Northwest Arkansas Mall | 54,442 | | 55,937 | | 7.33% | 434 | 2009 | |||||||||||
Oaks, The(h) | 108,000 | | 108,000 | 5.34% | 487 | 2006 | ||||||||||||
Pacific View | 91,512 | | 92,703 | 7.16% | 648 | 2011 | ||||||||||||
Panorama Mall(i) | 32,250 | | 32,250 | | 4.90% | 132 | 2006 | |||||||||||
Paradise Valley Mall | 76,930 | | 78,797 | | 5.39% | 506 | 2007 | |||||||||||
Paradise Valley Mall | 23,033 | | 23,870 | | 5.89% | 183 | 2009 | |||||||||||
Pittsford Plaza | 25,930 | | | | 5.02% | 160 | 2013 | |||||||||||
Prescott Gateway(j) | 35,280 | | 35,280 | | 6.03% | 177 | 2007 | |||||||||||
Paradise Village Ground Leases(k) | 7,190 | | 7,463 | | 5.39% | 56 | 2006 | |||||||||||
Queens Center | 93,461 | | 94,792 | | 6.88% | 633 | 2009 | |||||||||||
Queens Center(l) | 111,958 | 111,958 | 97,743 | 97,744 | 7.00% | 1,501 | 2013 | |||||||||||
Rimrock Mall | 44,032 | | 44,571 | | 7.45% | 320 | 2011 | |||||||||||
Rotterdam Square(m) | 9,786 | | | | 6.00% | 63 | 2006 | |||||||||||
Salisbury, Center at(n) | 79,875 | | 79,875 | | 4.75% | 316 | 2006 | |||||||||||
Santa Monica Place | 81,052 | | 81,958 | | 7.70% | 606 | 2010 | |||||||||||
Scottsdale 101/Associates(o) | 56,000 | | 38,056 | | 5.62% | 262 | 2008 | |||||||||||
Shoppingtown Mall | 47,752 | | | | 5.01% | 319 | 2011 | |||||||||||
South Plains Mall | 60,561 | | 61,377 | | 8.22% | 454 | 2009 | |||||||||||
South Towne Center | 64,000 | | 64,000 | | 6.61% | 357 | 2008 | |||||||||||
Towne Mall | 15,724 | | | | 4.99% | 101 | 2012 | |||||||||||
Valley View Center(p) | 125,000 | | 51,000 | | 5.72% | 604 | 2011 | |||||||||||
Victor Valley, Mall of | 53,601 | | 54,729 | | 4.60% | 304 | 2008 | |||||||||||
Village Center(k) | 6,877 | | 7,248 | | 5.39% | 62 | 2006 | |||||||||||
Village Crossroads | | | 4,695 | 4.81% | | (q) | ||||||||||||
Village Fair North | 11,524 | | 11,823 | | 5.89% | 82 | 2008 | |||||||||||
Village Plaza | 5,024 | | 5,316 | | 5.39% | 47 | 2006 | |||||||||||
Village Square I and II | | | 4,659 | | 5.39% | | (r) | |||||||||||
Vintage Faire Mall | 66,266 | | 67,101 | | 7.89% | 508 | 2010 | |||||||||||
Westside Pavilion | 94,895 | | 96,192 | | 6.67% | 628 | 2008 | |||||||||||
Wilton Mall | 48,541 | | | | 4.79% | 349 | 2009 | |||||||||||
$ | 3,088,199 | $ | 154,531 | $ | 2,195,338 | $ | 141,782 | |||||||||||
The Macerich Company 97
Debt premiums (discounts) as of December 31, 2005 and 2004 consist of the following:
Property Pledged as Collateral |
2005 |
2004 |
||||
---|---|---|---|---|---|---|
Borgata | $538 | $831 | ||||
Danbury Fair Mall | 21,862 | | ||||
Eastview Commons | 979 | | ||||
Eastview Mall | 2,300 | | ||||
Flagstaff Mall | | 308 | ||||
Freehold Raceway | 19,239 | | ||||
Great Northern | (218) | | ||||
Marketplace Mall | 1,976 | | ||||
Paradise Valley Mall | 789 | 1,576 | ||||
Paradise Valley Mall | 978 | 1,271 | ||||
Pittsford Plaza | 1,192 | | ||||
Paradise Village Ground Leases | 30 | 152 | ||||
Rotterdam Square | 110 | | ||||
Shoppingtown Mall | 5,896 | | ||||
Towne Mall | 652 | | ||||
Victor Valley, Mall at | 699 | 1,022 | ||||
Village Center | 35 | 174 | ||||
Village Crossroads | | 88 | ||||
Village Fair North | 243 | 340 | ||||
Village Plaza | 130 | 284 | ||||
Village Square I and II | | 101 | ||||
Wilton Mall | 5,661 | | ||||
$ | 63,091 | $ | 6,147 | |||
98 The Macerich Company
Most of the mortgage loan agreements contain a prepayment penalty provision for the early extinguishment of the debt.
Total interest expense capitalized during 2005, 2004 and 2003 was $9,994, $8,953 and $12,132, respectively.
Related party mortgage notes payable are amounts due to affiliates of NML.
The Macerich Company 99
The fair value of mortgage notes payable is estimated to be approximately $3,341,000 and $2,479,148, at December 31, 2005 and December 31, 2004, respectively, based on current interest rates for comparable loans.
The above debt matures as follows:
Year Ending December 31, |
Amount |
|
---|---|---|
2006 | $333,359 | |
2007 | 195,807 | |
2008 | 434,414 | |
2009 | 399,629 | |
2010 | 177,505 | |
Thereafter | 1,702,016 | |
$3,242,730 | ||
7. Bank Notes Payable:
The Company had a $425,000 revolving line of credit. This revolving line of credit had a three-year term through July 26, 2005 with a one-year extension option. The interest rate fluctuated from LIBOR plus 1.75% to LIBOR plus 3.00% depending on the Company's overall leverage level. On July 30, 2004, the Company amended and expanded the revolving line of credit to $1,000,000 and extended the maturity to July 30, 2007 plus a one-year extension. The interest rate has been reduced to 1.50% over LIBOR based on the Company's current leverage level. The interest rate fluctuates from LIBOR plus 1.15% to LIBOR plus 1.70% depending on the Company's overall leverage level. As of December 30, 2005, 2004, $863,000 and $643,000 of borrowings were outstanding at a weighted average interest rate of 5.93% and 3.81%, respectively.
On May 13, 2003, the Company issued $250,000 in unsecured notes maturing in May 2007 with a one-year extension option bearing interest at LIBOR plus 2.50%. The proceeds were used to pay down and create more availability under the Company's line of credit. As of December 31, 2005 and 2004, $250,000 was outstanding at an interest rate of 6.0% and 4.45%, respectively. In October 2003, the Company entered into an interest rate swap agreement which effectively fixed the interest rate at 4.45% from November 2003 to October 13, 2005. Concurrent with the Wilmorite closing (See Note 15Wilmorite Acquisition), the Company modified these unsecured notes. The interest rate was reduced from LIBOR plus 2.5% to LIBOR plus 1.5%.
Concurrent with the Wilmorite closing, the Company obtained a five year, $450,000 term loan bearing interest at LIBOR plus 1.50% and a $650,000 acquisition loan with a term of up to two years and bearing interest initially at LIBOR plus 1.60%. In November 2005, the Company entered into an interest rate swap agreement which effectively fixed the interest rate of the $450,000 term loan at 6.30% from December 1,
100 The Macerich Company
2005 to April 15, 2010. As of December 31, 2005, the entire term loan and $619,000 of the acquisition loan were outstanding at interest rates of 6.30% and 6.04%, respectively. On January 19, 2006, the entire $619,000 acquisition loan was paid in full. (See Note 18Subsequent Events).
As of December 31, 2005 and 2004, the Company was in compliance with all applicable loan covenants.
8. Related-Party Transactions:
The Company has engaged MMC, certain of the Westcor Management Companies and the Wilmorite Management Companies to manage the operations of certain properties and unconsolidated joint ventures. Under these arrangements, MMC, the Westcor Management Companies and the Wilmorite Management Companies are reimbursed for compensation paid to on-site employees, leasing agents and project managers at the Centers, as well as insurance costs and other administrative expenses. During the years ended December 31, 2005, 2004, and 2003, management fees of $11,096, $9,678 and $8,434 respectively, were paid to MMC by the joint ventures. During the years ended December 31, 2005, 2004, and 2003, development and leasing fees of $1,866, $868 and $284, respectively, were paid to MMC by the joint ventures. During the years ended December 31, 2005, 2004, and 2003, management fees of $6,163, $5,008 and $4,674, respectively, were paid to the Westcor Management Companies by the joint ventures. During the years ended December 31, 2005, 2004, and 2003, developing and leasing fees of $2,295, $2,296 and $1,734, respectively, were paid to the Westcor Management Companies by the joint ventures. For the period of April 26, 2005 to December 31, 2005, a management fee of $747 was paid by the joint ventures to the Wilmorite Management Companies. For the period of April 26, 2005 to December 31, 2005, a development fee of $772 was paid by the joint ventures to the Wilmorite Management Companies.
Certain mortgage notes are held by one of the Company's joint venture partners. NML is considered a related party because they are a joint venture partner with the Company in Macerich Northwestern Associates. Interest expense in connection with these notes was $9,638, $5,800 and $5,689 for the years ended December 31, 2005, 2004 and 2003, respectively. Included in accounts payables and accrued expense is interest payable to these partners of $782 and $535 at December 31, 2005 and 2004, respectively.
As of December 31, 2005 and 2004, the Company has loans to unconsolidated joint ventures of $1,415 and $6,643, respectively. Interest income in connection with these notes was $452 and $426 for the years ended December 31, 2005 and 2004. These loans represent initial funds advanced to development stage projects prior to construction loan funding. Correspondingly, loans payable from unconsolidated joint ventures in this same amount have been accrued as an obligation of various joint ventures.
Certain Company officers and affiliates have guaranteed mortgages of $21,750 at one of the Company's joint venture properties.
The Macerich Company 101
9. Future Rental Revenues:
Under existing non-cancelable operating lease agreements, tenants are committed to pay the following minimum rental payments to the Company:
Year Ending December 31, |
|
|
---|---|---|
2006 | $403,280 | |
2007 | 349,476 | |
2008 | 317,275 | |
2009 | 285,146 | |
2010 | 248,045 | |
Thereafter | 781,924 | |
$2,385,146 | ||
10. Commitments and Contingencies:
The Company has certain properties subject to non-cancelable operating ground leases. The leases expire at various times through 2098, 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 $3,860, $2,530 and $1,350 for the years ended December 31, 2005, 2004 and 2003, respectively. No contingent rent was incurred for the years ended December 31, 2005, 2004 and 2003.
Minimum future rental payments required under the leases are as follows:
Year Ending December 31, |
|
|
---|---|---|
2006 | $5,941 | |
2007 | 6,015 | |
2008 | 6,084 | |
2009 | 6,326 | |
2010 | 6,361 | |
Thereafter | 389,651 | |
$420,378 | ||
As of December 31, 2005 and 2004, the Company is contingently liable for $5,616 and $6,934, respectively, in letters of credit guaranteeing performance by the Company of certain obligations relating to the Centers. The Company does not believe that these letters of credit will result in a liability to the Company. In addition, the Company has a $24,000 letter of credit that serves as collateral to a liability assumed in the acquisition of Wilmorite (See Note 15Wilmorite Acquisition).
102 The Macerich Company
11. Profit Sharing Plan/Employee Stock Purchase Plan:
MMC and the Company have a retirement profit sharing plan that was established in 1984 covering substantially all of their eligible employees. The plan is qualified in accordance with section 401(a) of the Internal Revenue Code. Effective January 1, 1995, this plan was modified to include a 401(k) plan whereby employees can elect to defer compensation subject to Internal Revenue Service withholding rules. This plan was further amended effective February 1, 1999, to add the Macerich Company Common Stock Fund as a new investment alternative under the plan. A total of 150,000 shares of common stock were reserved for issuance under the plan. Contributions by MMC to the plan were made at the discretion of the Board of Directors and were based upon a specified percentage of employee compensation. MMC and the Company contributed $1,694 and $1,195 to the plan during the years ended December 31, 2004 and 2003, respectively. On January 1, 2004, the plan adopted the "Safe Harbor" provision under Sections 401(k)(12) and 401(m)(11) of the Internal Revenue Code. In accordance with these newly adopted provisions, the Company began matching contributions equal to 100 percent of the first three percent of compensation deferred by a participant and 50 percent of the next two percent of compensation deferred by a participant. During 2005, these matching contributions made by MMC and the Company totaled $1,984. Contributions are recognized as compensation in the periods they are made.
The Board of Directors and stockholders of the Company approved an Employee Stock Purchase Plan ("ESPP") in 2003. Under the ESPP, shares of the Company's Common Stock are available for purchase by eligible employees who elect to participate in the ESPP. Eligible employees will be entitled to purchase limited amounts of the Company's Common Stock during periodic offering periods. The shares are offered at up to a 10% discount from their fair market value as of specified dates. Initially, the 10% discount is applied against the lower of the stock value at the beginning or the end of each six-month offering period under the ESPP. A maximum of 750,000 shares of Common Stock is available for delivery under the ESPP. A total of 10,170 and 3,644 shares were issued under the ESPP during 2005 and 2004, respectively.
12. Stock Plans:
The Company has established employee stock incentive plans under which stock options, restricted stock and/or other stock awards may be awarded for the purpose of attracting and retaining executive officers, directors and key employees. The Company has issued options to employees and directors to purchase shares of the Company under the stock incentive plans. The term of these options is ten years from the grant date. These options generally vest 331/3% per year and were issued and are exercisable at the market value of the common stock at the grant date.
In addition, in 2003 the Company's Board of Directors and stockholders approved a 2003 Equity Incentive Plan (the "2003 Plan"). The aggregate number of shares of Common Stock that may be issued pursuant to the 2003 Plan is six million shares. The 2003 Plan authorizes the grant of stock options, stock
The Macerich Company 103
appreciation rights, restricted stock, stock units, stock bonuses, performance based awards, dividend equivalent rights and operating partnerships units or other convertible or exchangeable units. Any option granted under the 2003 Plan will have a term not to exceed 10 years.
The Company issued 1,743,344 shares of restricted stock under stock incentive plans, net of forfeitures, to executives and directors as of December 31, 2005. These awards were generally granted based on certain performance criteria for the Company and the employees. The restricted stock vests over three years and the compensation expense related to these grants is determined by the market value at the grant date and is amortized over the vesting period on a straight-line basis. As of December 31, 2005, 2004 and 2003, 1,219,667, 1,001,664 and 681,550 shares, respectively, of restricted stock had vested. A total of 260,898 shares at a weighted average price of $53.28 were issued in 2005, a total of 153,692 shares at a weighted average price of $53.90 were issued in 2004, and a total of 374,846 shares at a weighted average price of $32.71 were issued in 2003. Restricted stock is subject to restrictions determined by the Company's compensation committee. Restricted stock has the same dividend and voting rights as common stock and is considered issued when vested. Compensation expense for restricted stock was $11,528, $8,394 and $7,492 in 2005, 2004 and 2003, respectively.
Approximately 5,541,349 and 5,802,247 of additional shares were reserved and were available for issuance under the 2003 Plan at December 31, 2005 and 2004, respectively. The 2003 Plan allows for, among other things, granting options or restricted stock at market value.
In addition, the Company established a Director Phantom Stock Plan which offers eligible non-employee directors the opportunity to defer cash compensation for up to three years and to receive that compensation in shares of Common Stock rather than in cash after termination of service or a predetermined period. Deferred amounts are credited as stock units at the beginning of the applicable deferrable period based on the then current market price of the Common Stock. Stock unit balances are credited with dividend equivalents (priced at market) and are ultimately paid out in shares on a 1:1 basis. A maximum of 250,000 shares of Common Stock may be issued in total under the Director Phantom Stock Plan. As of December 31, 2005 and 2004, 97,621 and 92,292 stock units had been credited to the accounts of the Company's non-employee directors, respectively. Additionally, a liability of $6,000 and $4,876 is included in the Company's consolidated financial statements as of December 31, 2005 and 2004, respectively.
104 The Macerich Company
The following table summarizes all stock options granted, exercised or forfeited under the employee and director plans over the last three years:
|
|
|
|
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Weighted Average Exercise Price On Exercisable Options At Year End |
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Incentive Stock Option Plans |
Non-Employee Director Plan |
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# of Options Exercisable At Year End |
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Shares |
Option Price Per Share |
Shares |
Option Price Per Share |
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Shares outstanding at December 31, 2002 | 1,602,870 | 43,000 | 1,599,165 | $22.07 | |||||||||||
Granted | 2,500 | $39.43 | | ||||||||||||
Exercised | (503,454) | $ | 19.00-$27.38 | (16,500 | ) | $ | 19.00-$26.60 | ||||||||
Forfeited | (43,192) | | |||||||||||||
Shares outstanding at December 31, 2003 | 1,058,724 | 26,500 | 1,085,224 | $22.38 | |||||||||||
Granted | | | |||||||||||||
Exercised | (455,984) | $ | 19.00-$27.38 | (10,000 | ) | $ | 19.19-$28.50 | ||||||||
Forfeited | | | |||||||||||||
Shares outstanding at December 31, 2004 | 602,740 | 16,500 | 619,240 | $23.70 | |||||||||||
Granted | | | |||||||||||||
Exercised | (169,764) | $ | 21.63-$27.25 | (3,000 | ) | $ | 20.00-$28.50 | ||||||||
Forfeited | | | |||||||||||||
Shares outstanding at December 31, 2005 | 432,976 | 13,500 | 446,476 | $24.20 | |||||||||||
The Company recorded options granted using APB Opinion No, 25, "Accounting for Stock Issued to Employees and Related Interpretations" through December 31, 2001. Effective January 1, 2002, the Company adopted the fair value provisions of SFAS No. 123 and prospectively expenses all stock options issued subsequent to January 1, 2002. No stock options were granted by the Company in 2005 or 2004. On October 8, 2003, the Company granted 2,500 stock options. The expense as determined under SFAS No. 123 was not material to the Company's consolidated financial statements for the year ended December 31, 2003.
The weighted average exercise price for options granted in 2003 was $39.43. The weighted average remaining contractual life for options outstanding and exercisable at December 31, 2005 was 5 years.
The Macerich Company 105
The weighted average fair value of options granted during 2003 was $3.37. The fair value of each option grant issued in 2003 was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: (a) dividend yield of 4.7%, (b) expected volatility of the Company's stock of 37.2%, (c) a risk-free interest rate based on U.S. Zero Coupon Bonds with time of maturity approximately equal to the options' expected time to exercise and (d) expected option life of five years.
13. Deferred Compensation Plans:
The Company has established deferred compensation plans under which key executives of the Company may elect to defer receiving a portion of their cash compensation otherwise payable in one calendar year until a later year. The Company may, as determined by the Board of Directors at its sole discretion, credit a participant's account with an amount equal to a percentage of the participant's deferral. The Company contributed $595, $632 and $547 to the plans during the years ended December 31, 2005, 2004 and 2003, respectively. Contributions are recognized as compensation in the periods they are made.
In addition, certain executives have split dollar life insurance agreements with the Company whereby the Company generally pays annual premiums on a life insurance policy in an amount equal to the executives deferral under one of the Company's deferred compensation plans. Since July 30, 2002, the effective date of the Sarbanes-Oxley Act of 2002, the Company has not made any premium payments on the policies.
14. Cumulative Convertible Redeemable Preferred Stock:
On February 25, 1998, the Company issued 3,627,131 shares of Series A cumulative convertible redeemable preferred stock ("Series A Preferred Stock") for proceeds totaling $100,000 in a private placement. The preferred stock can be converted on a one for one basis into common stock and will pay a quarterly dividend equal to the greater of $0.46 per share, or the dividend then payable on a share of common stock.
On June 16, 1998, the Company issued 5,487,471 shares of Series B cumulative convertible redeemable preferred stock ("Series B Preferred Stock") for proceeds totaling $150,000 in a private placement. The preferred stock could have been converted on a one for one basis into common stock and paid a quarterly dividend equal to the greater of $0.46 per share, or the dividend then payable on a share of common stock. On September 9, 2003, all of the shares of Series B Preferred Stock were converted to 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 has not been declared and/or paid.
106 The Macerich Company
The holders of Series A Preferred Stock have redemption rights if a change of control of the Company occurs, as defined under the respective Articles Supplementary for each series. Under such circumstances, the holders of the Series A Preferred Stock are entitled to require the Company to redeem their shares, to the extent the Company has funds legally available therefore, at a price equal to 105% of their respective liquidation preference plus accrued and unpaid dividends. The Series A Preferred Stock holder also has the right to require the Company to repurchase its shares if the Company fails to be taxed as a REIT for federal tax purposes at a price equal to 115% of its liquidation preference plus accrued and unpaid dividends, to the extent funds are legally available therefore.
15. Wilmorite Acquisition:
On April 25, 2005, the Company and the Operating Partnership completed its acquisition of Wilmorite Properties, Inc., a Delaware corporation ("Wilmorite") and Wilmorite Holdings, L.P., a Delaware limited partnership ("Wilmorite Holdings"). The results of Wilmorite and Wilmorite Holding's operations have been included in the Company's consolidated financial statements since that date. Wilmorite's portfolio includes interests in 11 regional malls and two open-air community shopping centers with 13.4 million square feet of space located in Connecticut, New York, New Jersey, Kentucky and Virginia.
The total purchase price was approximately $2,333,333, plus adjustments for working capital, including the assumption of approximately $877,174 of existing debt with an average interest rate of 6.43% and the issuance of $234,169 of convertible preferred units ("CPUs") and $5,815 of common units in Wilmorite Holdings. The balance of the consideration to the equity holders of Wilmorite and Wilmorite Holdings was paid in cash, which was provided primarily by a five-year, $450,000 term loan bearing interest at LIBOR plus 1.50% and a $650,000 acquisition loan with a term of up to two years and bearing interest initially at LIBOR plus 1.60%. An affiliate of the Operating Partnership is the general partner, and together with other affiliates, own approximately 83% of Wilmorite Holdings, with the remaining 17% held by those limited partners of Wilmorite Holdings who elected to receive CPUs or common units in Wilmorite Holdings rather than cash. Approximately $212,668 of the CPUs can be redeemed, subject to certain conditions, for the portion of the Wilmorite portfolio that consists of Eastview Mall, Eastview Commons, Greece Ridge Center, Marketplace Mall and Pittsford Plaza. That right is exercisable during a period of three months beginning on August 31, 2007.
On an unaudited pro forma basis, reflecting the acquisition of Wilmorite as if it had occurred on January 1, 2005 and 2004, the Company would have reflected net income available to common stockholders of $41,962 and $52,808, respectively, for the years ended December 31, 2005 and 2004. Net income available to common stockholders on a diluted per share basis would have been $0.71 and $0.90 for the years ended December 31, 2005 and 2004. Total consolidated revenues of the Company would have been $832,152 and $750,205 for the years ended December 31, 2005 and 2004.
The Macerich Company 107
The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of acquisition:
Assets: | |||
Property | $1,798,487 | ||
Investments in unconsolidated joint ventures | 443,681 | ||
Other assets | 225,275 | ||
Total assets | 2,467,443 | ||
Liabilities: | |||
Mortgage notes payable | 809,542 | ||
Other liabilities | 130,191 | ||
Minority interest | 96,196 | ||
Total liabilities | 1,035,929 | ||
Net assets acquired | $1,431,514 | ||
16. Quarterly Financial Data (Unaudited):
The following is a summary of quarterly results of operations for 2005 and 2004:
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2005 Quarter Ended |
2004 Quarter Ended |
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Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
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Revenues(1) | $ | 224,202 | $ | 205,423 | $ | 186,384 | $ | 151,376 | $ | 162,980 | $ | 130,007 | $ | 130,088 | $ | 123,991 | ||||||||
Net income available to common stockholders | $ | 23,637 | $ | 4,064 | $ | 6,747 | $ |