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TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2009
Commission File No. 1-12504
THE MACERICH COMPANY
(Exact name of registrant as specified in its charter)
MARYLAND (State or other jurisdiction of incorporation or organization) |
95-4448705 (I.R.S. Employer Identification Number) |
|
401 Wilshire Boulevard, Suite 700, Santa Monica, California 90401 (Address of principal executive office, including zip code) |
||
(310) 394-6000 (Registrant's telephone number, including area code) |
||
N/A (Former name, former address and former fiscal year, if changed since last report) |
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 ninety (90) days.
YES ý NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding twelve (12) months (or for such shorter period that the registrant was required to submit and post such files).
YES o NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
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
Number of shares outstanding as of November 6, 2009 of the registrant's common stock, par value $.01 per share: 94,757,688 shares
THE MACERICH COMPANY
FORM 10-Q
INDEX
2
THE MACERICH COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value and share amounts)
(Unaudited)
|
September 30, 2009 |
December 31, 2008 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
ASSETS: |
||||||||||
Property, net |
$ | 5,692,278 | $ | 6,371,319 | ||||||
Cash and cash equivalents |
79,558 | 66,529 | ||||||||
Restricted cash |
68,185 | 61,707 | ||||||||
Marketable securities |
27,539 | 27,943 | ||||||||
Tenant and other receivables, net |
100,973 | 118,374 | ||||||||
Deferred charges and other assets, net |
285,117 | 339,662 | ||||||||
Loans to unconsolidated joint ventures |
1,236 | 932 | ||||||||
Due from affiliates |
9,870 | 9,124 | ||||||||
Investments in unconsolidated joint ventures |
1,054,671 | 1,094,845 | ||||||||
Total assets |
$ | 7,319,427 | $ | 8,090,435 | ||||||
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY: |
||||||||||
Mortgage notes payable: |
||||||||||
Related parties |
$ | 197,825 | $ | 306,859 | ||||||
Others |
3,037,180 | 3,373,116 | ||||||||
Total |
3,235,005 | 3,679,975 | ||||||||
Bank and other notes payable |
1,733,048 | 2,260,443 | ||||||||
Accounts payable and accrued expenses |
79,763 | 114,502 | ||||||||
Other accrued liabilities |
255,513 | 289,146 | ||||||||
Investments in unconsolidated joint ventures |
68,150 | 80,915 | ||||||||
Co-venture obligation |
168,154 | | ||||||||
Preferred dividends payable |
207 | 243 | ||||||||
Total liabilities |
5,539,840 | 6,425,224 | ||||||||
Redeemable noncontrolling interests |
23,327 | 23,327 | ||||||||
Commitments and contingencies |
||||||||||
Equity: |
||||||||||
Stockholders' equity: |
||||||||||
Common stock, $.01 par value, 250,000,000 and 145,000,000 shares authorized, 80,976,775 and 76,883,634 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively |
810 | 769 | ||||||||
Additional paid-in capital |
1,803,372 | 1,721,256 | ||||||||
Accumulated deficit |
(275,337 | ) | (274,834 | ) | ||||||
Accumulated other comprehensive loss |
(33,121 | ) | (53,425 | ) | ||||||
Total stockholders' equity |
1,495,724 | 1,393,766 | ||||||||
Noncontrolling interests |
260,536 | 248,118 | ||||||||
Total equity |
1,756,260 | 1,641,884 | ||||||||
Total liabilities, redeemable noncontrolling interests and equity |
$ | 7,319,427 | $ | 8,090,435 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share amounts)
(Unaudited)
|
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | 2009 | 2008 | |||||||||||
Revenues: |
|||||||||||||||
Minimum rents |
$ | 119,489 | $ | 131,083 | $ | 367,245 | $ | 388,072 | |||||||
Percentage rents |
3,909 | 4,114 | 9,402 | 9,772 | |||||||||||
Tenant recoveries |
59,809 | 69,417 | 186,974 | 203,040 | |||||||||||
Management Companies |
10,449 | 10,261 | 28,335 | 30,334 | |||||||||||
Other |
6,640 | 7,386 | 21,537 | 20,420 | |||||||||||
Total revenues |
200,296 | 222,261 | 613,493 | 651,638 | |||||||||||
Expenses: |
|||||||||||||||
Shopping center and operating expenses |
64,952 | 73,201 | 201,837 | 211,680 | |||||||||||
Management Companies' operating expenses |
16,400 | 19,014 | 58,702 | 57,886 | |||||||||||
REIT general and administrative expenses |
7,085 | 2,883 | 16,989 | 11,419 | |||||||||||
Depreciation and amortization |
61,815 | 65,937 | 189,293 | 183,107 | |||||||||||
|
150,252 | 161,035 | 466,821 | 464,092 | |||||||||||
Interest expense: |
|||||||||||||||
Related parties |
4,405 | 5,002 | 16,449 | 12,381 | |||||||||||
Other |
61,374 | 68,885 | 191,182 | 207,918 | |||||||||||
|
65,779 | 73,887 | 207,631 | 220,299 | |||||||||||
Loss (gain) on early extinguishment of debt |
455 | | (29,145 | ) | | ||||||||||
Total expenses |
216,486 | 234,922 | 645,307 | 684,391 | |||||||||||
Equity in income of unconsolidated joint ventures |
19,165 | 19,928 | 49,647 | 67,172 | |||||||||||
Income tax (provision) benefit |
(302 | ) | 362 | 878 | 750 | ||||||||||
Gain (loss) on sale or write down of assets |
157,612 | (4,217 | ) | 159,776 | (3,054 | ) | |||||||||
Income from continuing operations |
160,285 | 3,412 | 178,487 | 32,115 | |||||||||||
Discontinued operations: |
|||||||||||||||
Gain (loss) on sale of assets |
3,968 | (961 | ) | (23,045 | ) | 98,189 | |||||||||
Income from discontinued operations |
118 | 1,947 | 982 | 5,787 | |||||||||||
Total income (loss) from discontinued operations |
4,086 | 986 | (22,063 | ) | 103,976 | ||||||||||
Net income |
164,371 | 4,398 | 156,424 | 136,091 | |||||||||||
Less net income attributable to noncontrolling interests |
21,533 | 925 | 21,306 | 20,994 | |||||||||||
Net income attributable to the Company |
142,838 | 3,473 | 135,118 | 115,097 | |||||||||||
Less preferred dividends |
| 835 | | 4,124 | |||||||||||
Net income available to common stockholders |
$ | 142,838 | $ | 2,638 | $ | 135,118 | $ | 110,973 | |||||||
Earnings per common share attributable to Companybasic: |
|||||||||||||||
Income from continuing operations |
$ | 1.71 | $ | 0.02 | $ | 1.96 | $ | 0.29 | |||||||
Discontinued operations |
0.04 | 0.01 | (0.25 | ) | 1.21 | ||||||||||
Net income available to common stockholders |
$ | 1.75 | $ | 0.03 | $ | 1.71 | $ | 1.50 | |||||||
Earnings per common share attributable to Companydiluted: |
|||||||||||||||
Income from continuing operations |
$ | 1.71 | $ | 0.02 | $ | 1.96 | $ | 0.29 | |||||||
Discontinued operations |
0.04 | 0.01 | (0.25 | ) | 1.21 | ||||||||||
Net income available to common stockholders |
$ | 1.75 | $ | 0.03 | $ | 1.71 | $ | 1.50 | |||||||
Weighted average number of common shares outstanding: |
|||||||||||||||
Basic |
79,496,000 | 74,931,000 | 77,898,000 | 73,688,000 | |||||||||||
Diluted |
79,694,000 | 87,439,000 | 77,898,000 | 86,483,000 | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in thousands, except per share data)
(Unaudited)
|
Stockholders' Equity | |
|
|
|||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Shares | Par Value |
Additional Paid-in Capital |
Accumulated Deficit |
Accumulated Other Comprehensive Loss |
Total Stockholders' Equity |
Noncontrolling Interests |
Total Equity |
Redeemable Noncontrolling Interests |
||||||||||||||||||||
Balance January 1, 2009 |
76,883,634 | $ | 769 | $ | 1,721,256 | $ | (274,834 | ) | $ | (53,425 | ) | $ | 1,393,766 | $ | 248,118 | $ | 1,641,884 | $ | 23,327 | ||||||||||
Comprehensive income: |
|||||||||||||||||||||||||||||
Net income |
| | | 135,118 | | 135,118 | 20,869 | 155,987 | 437 | ||||||||||||||||||||
Interest rate swap/cap agreements |
| | | | 20,304 | 20,304 | | 20,304 | | ||||||||||||||||||||
Total comprehensive income |
| | | 135,118 | 20,304 | 155,422 | 20,869 | 176,291 | 437 | ||||||||||||||||||||
Amortization of share and unit-based plans |
174,962 | 2 | 13,359 | | | 13,361 | | 13,361 | | ||||||||||||||||||||
Employee stock purchases |
23,202 | | 368 | | | 368 | | 368 | | ||||||||||||||||||||
Distributions paid ($2.00) per share |
| | | (135,621 | ) | | (135,621 | ) | | (135,621 | ) | | |||||||||||||||||
Distributions to noncontrolling interests |
| | | | | | (22,124 | ) | (22,124 | ) | (437 | ) | |||||||||||||||||
Issuance of common shares |
3,894,977 | 39 | 68,079 | | | 68,118 | | 68,118 | | ||||||||||||||||||||
Issuance of stock warrants |
| | 14,564 | | | 14,564 | | 14,564 | | ||||||||||||||||||||
Contributions from noncontrolling interests |
| | | | | | 8,665 | 8,665 | | ||||||||||||||||||||
Other |
| | (9,069 | ) | | | (9,069 | ) | | (9,069 | ) | | |||||||||||||||||
Redemption of noncontrolling interests |
| | | | | | (177 | ) | (177 | ) | | ||||||||||||||||||
Adjustment of noncontrolling interest in Operating Partnership |
| | (5,185 | ) | | | (5,185 | ) | 5,185 | | | ||||||||||||||||||
Balance September 30, 2009 |
80,976,775 | $ | 810 | $ | 1,803,372 | $ | (275,337 | ) | $ | (33,121 | ) | $ | 1,495,724 | $ | 260,536 | $ | 1,756,260 | $ | 23,327 | ||||||||||
5
THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF EQUITY (Continued)
(Dollars in thousands, except per share data)
(Unaudited)
|
Stockholders' Equity | |
|
|
|||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Shares | Par Value |
Additional Paid-in Capital |
Accumulated Deficit |
Accumulated Other Comprehensive Loss |
Total Common Stockholders' Equity |
Noncontrolling Interests |
Total Equity |
Redeemable Noncontrolling Interest |
||||||||||||||||||||
Balance January 1, 2008 |
72,311,763 | 723 | 1,428,124 | (203,505 | ) | (24,508 | ) | 1,200,834 | 230,529 | 1,431,363 | 322,619 | ||||||||||||||||||
Comprehensive income: |
|||||||||||||||||||||||||||||
Net income |
| | | 115,097 | | 115,097 | 20,557 | 135,654 | 437 | ||||||||||||||||||||
Reclassification of deferred losses |
| | | | 285 | 285 | | 285 | | ||||||||||||||||||||
Interest rate swap/cap agreements |
| | | | 248 | 248 | | 248 | | ||||||||||||||||||||
Total comprehensive income |
| | | 115,097 | 533 | 115,630 | 20,557 | 136,187 | 437 | ||||||||||||||||||||
Amortization of share and unit-based plans |
186,917 | 2 | 15,959 | | | 15,961 | | 15,961 | | ||||||||||||||||||||
Exercise of stock options |
362,888 | 4 | 8,568 | | | 8,572 | | 8,572 | | ||||||||||||||||||||
Employee stock purchases |
6,494 | | 363 | | | 363 | | 363 | | ||||||||||||||||||||
Distributions paid ($2.40) per share |
| | | (176,329 | ) | | (176,329 | ) | | (176,329 | ) | | |||||||||||||||||
Distributions to noncontrolling interests |
| | | | | | (33,108 | ) | (33,108 | ) | (437 | ) | |||||||||||||||||
Preferred dividends |
| | (4,124 | ) | | | (4,124 | ) | | (4,124 | ) | | |||||||||||||||||
Contributions from noncontrolling interests |
| | | | | | 11,602 | 11,602 | | ||||||||||||||||||||
Conversion of noncontrolling interests to common shares |
150,674 | 2 | 5,546 | | | 5,548 | (5,548 | ) | | | |||||||||||||||||||
Conversion of preferred shares to common shares |
3,067,131 | 30 | 83,465 | | | 83,495 | | 83,495 | | ||||||||||||||||||||
Redemption of noncontrolling interests |
| | | | | | (489 | ) | (489 | ) | (96,564 | ) | |||||||||||||||||
Reversal of adjustments to redemption value of redeemable noncontrolling interests |
| | 202,728 | | | 202,728 | | 202,728 | (202,728 | ) | |||||||||||||||||||
Other |
| | 1,585 | | | 1,585 | 3,047 | 4,632 | | ||||||||||||||||||||
Adjustment of noncontrolling interest in Operating Partnership |
| | (57,299 | ) | | | (57,299 | ) | 57,299 | | | ||||||||||||||||||
Balance September 30, 2008 |
76,085,867 | $ | 761 | $ | 1,684,915 | $ | (264,737 | ) | $ | (23,975 | ) | $ | 1,396,964 | $ | 283,889 | $ | 1,680,853 | $ | 23,327 | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
|
For the Nine Months Ended September 30, |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | ||||||||
Cash flows from operating activities: |
||||||||||
Net income |
$ | 156,424 | $ | 136,091 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||
Gain on early extinguishment of debt |
(29,145 | ) | | |||||||
(Gain) loss on sale or write down of assets |
(159,776 | ) | 3,054 | |||||||
Loss (gain) on sale of assets of discontinued operations |
23,045 | (98,189 | ) | |||||||
Depreciation and amortization |
199,180 | 186,456 | ||||||||
Amortization of net discount on mortgage and bank and other notes payable |
392 | 4,103 | ||||||||
Amortization of share and unit-based plans |
5,719 | 8,402 | ||||||||
Equity in income of unconsolidated joint ventures |
(49,647 | ) | (67,172 | ) | ||||||
Distributions of income from unconsolidated joint ventures |
7,981 | 18,900 | ||||||||
Changes in assets and liabilities, net of acquisitions and dispositions: |
||||||||||
Tenant and other receivables, net |
3,519 | 20,800 | ||||||||
Other assets |
11,537 | (1,890 | ) | |||||||
Accounts payable and accrued expenses |
(46,365 | ) | (27,142 | ) | ||||||
Due from affiliates |
(746 | ) | 826 | |||||||
Other accrued liabilities |
(48,383 | ) | (8,409 | ) | ||||||
Net cash provided by operating activities |
73,735 | 175,830 | ||||||||
Cash flows from investing activities: |
||||||||||
Acquisitions of property, development, redevelopment and property improvements |
(133,686 | ) | (453,001 | ) | ||||||
Redemption of Rochester Properties |
| (18,794 | ) | |||||||
Maturities of marketable securities |
638 | 807 | ||||||||
Deferred leasing costs |
(22,218 | ) | (24,165 | ) | ||||||
Distributions from unconsolidated joint ventures |
137,112 | 119,090 | ||||||||
Contributions to unconsolidated joint ventures |
(41,421 | ) | (148,102 | ) | ||||||
Proceeds from loans to unconsolidated joint ventures |
(304 | ) | 148 | |||||||
Proceeds from sale of assets |
342,109 | 3,742 | ||||||||
Restricted cash |
(9,239 | ) | 2,233 | |||||||
Net cash provided by (used in) investing activities |
272,991 | (518,042 | ) | |||||||
Cash flows from financing activities: |
||||||||||
Proceeds from mortgages, bank and other notes payable |
412,245 | 1,442,366 | ||||||||
Payments on mortgages, bank and other notes payable |
(778,852 | ) | (925,760 | ) | ||||||
Repurchase of Senior Notes |
(55,029 | ) | | |||||||
Deferred financing costs |
(5,872 | ) | (9,724 | ) | ||||||
Proceeds from share and unit-based plans |
368 | 8,935 | ||||||||
Proceeds from issuance of warrants to purchase common stock |
14,564 | | ||||||||
Contributions from co-venture partner |
165,716 | | ||||||||
Dividends and distributions |
(86,837 | ) | (199,312 | ) | ||||||
Dividends to preferred stockholders / preferred unitholders |
| (10,744 | ) | |||||||
Net cash (used in) provided by financing activities |
(333,697 | ) | 305,761 | |||||||
Net increase (decrease) in cash |
13,029 | (36,451 | ) | |||||||
Cash and cash equivalents, beginning of period |
66,529 | 85,273 | ||||||||
Cash and cash equivalents, end of period |
$ | 79,558 | $ | 48,822 | ||||||
7
THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
(Unaudited)
|
For the Nine Months Ended September 30, |
|||||||
---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | ||||||
Supplemental cash flow information: |
||||||||
Cash payments for interest, net of amounts capitalized |
$ | 207,833 | $ | 220,718 | ||||
Non-cash transactions: |
||||||||
Acquisition of noncontrolling interests in properties |
$ | | $ | 205,520 | ||||
Deposits contributed to unconsolidated joint ventures and the purchase of properties |
$ | | $ | 51,943 | ||||
Accrued development costs included in accounts payable and accrued expenses and other accrued liabilities |
$ | 35,501 | $ | 57,045 | ||||
Accrued preferred dividend payable |
$ | 207 | $ | 276 | ||||
Acquisition of property by assumption of mortgage note payable |
$ | | $ | 15,789 | ||||
Stock dividend |
$ | 68,117 | $ | | ||||
Conversion of Series A cumulative convertible preferred stock to common stock |
$ | | $ | 83,495 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
8
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
1. Organization:
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 on March 16, 1994. As of September 30, 2009, the Company was the sole general partner of and held an 87% ownership interest in The Macerich Partnership, L.P. (the "Operating Partnership"). The Company was organized to qualify as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended.
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 ("MMC"), a California corporation, Westcor Partners, L.L.C., a single member Arizona limited liability company, Macerich Westcor Management LLC, a single member Delaware limited liability company, Westcor Partners of Colorado, LLC, a Colorado limited liability company, MACW Mall Management, Inc., a New York corporation, and MACW Property Management, LLC, a single member New York limited liability company. These last 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."
2. Summary of Significant Accounting Policies:
Basis of Presentation:
The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements and have not been audited by independent public accountants.
The accompanying consolidated financial statements include the accounts of the Company and the Operating Partnership. Investments in entities that are controlled by the Company or 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."
The unaudited interim consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Current Report on Form 8-K filed May 27, 2009. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial statements for the interim periods have been made. The preparation of consolidated 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
9
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
2. Summary of Significant Accounting Policies: (Continued)
the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The accompanying consolidated balance sheet as of December 31, 2008 has been derived from the audited financial statements, but does not include all disclosures required by GAAP.
All intercompany accounts and transactions have been eliminated in the consolidated financial statements.
Tenant and Other Receivables, net:
Included in tenant and other receivables, net, is an allowance for doubtful accounts of $5,760 and $3,754 at September 30, 2009 and December 31, 2008, respectively.
Included in tenant and other receivables, net, are the following notes receivable:
On March 31, 2006, the Company received a note receivable that is secured by a deed of trust, bears interest at 5.5% and matures on March 31, 2031. At September 30, 2009 and December 31, 2008, the note had a balance of $9,283 and $9,450, respectively.
On January 1, 2008, as part of the Rochester Redemption (See Note 17Discontinued Operations), the Company received an unsecured note receivable that bears interest at 9.0% and matures on June 30, 2011. The balance on the note at September 30, 2009 and December 31, 2008 was $11,763.
On August 16, 2009, the Company received a $1,800 note receivable from J&R Holdings XV, LLC ("Pederson") that bears interest at 10% and matures August 14, 2014. Pederson is considered a related party because it has an ownership interest in Promenade at Casa Grande. The note is secured by Pederson's interest in Promenade at Casa Grande. Interest income on the note was $22 for the three and nine months ended September 30, 2009.
Recent Accounting Pronouncements Adopted:
In June 2009, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 168, "The FASB Accounting Standards Codification ("FASB Codification") and the Hierarchy of Generally Accepted Accounting Principles." This pronouncement establishes the FASB Codification as the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. The Company adopted this pronouncement on July 1, 2009 and has updated its references to specific GAAP literature to reflect the codification.
The following are recent accounting pronouncements adopted on April 1, 2009:
SFAS No. 165, "Subsequent Events," which was superseded by the FASB Codification and is now included in ASC 855, establishes principles and requirements for evaluating and reporting subsequent events and distinguishes which subsequent events should be recognized in the financial statements versus which subsequent events should be disclosed in the financial statements. The adoption of this pronouncement did not have a material impact on the Company's consolidated financial statements.
FSP SFAS 141(R)-1, "Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies," which was superseded by the FASB Codification and is now included in ASC 805-20, addresses application issues on the accounting for contingencies in a
10
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
2. Summary of Significant Accounting Policies: (Continued)
business combination. The adoption of this pronouncement did not have any impact on the Company's consolidated financial statements.
The following are recent accounting pronouncements adopted on January 1, 2009:
FSP SFAS No. 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly," which was superseded by the FASB Codification and is now included in ASC 820-10, reaffirmed the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive. The adoption of this pronouncement did not have a material impact on the Company's consolidated financial statements.
SFAS No. 141(R), "Business Combinations," which was superseded by the FASB Codification and is now included in ASC 805, requires an acquiring entity to recognize acquired assets and assumed liabilities in a transaction at fair value as of the acquisition date and changes the accounting treatment for certain items, including acquisition costs, which will be required to be expensed as incurred. The adoption of this pronouncement did not have a material impact on the Company's consolidated financial statements.
SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133," which was superseded by the FASB Codification and is now included in ASC 815-10, requires qualitative disclosures about objectives and strategies for using derivatives and quantitative disclosures about the fair value of and gains and losses on derivative instruments. As a result of the Company's adoption of this pronouncement, the Company has expanded its disclosures concerning its derivative instruments and hedging activities in Note 5Derivative Instruments and Hedging Activities.
Emerging Issues Task Force ("EITF") No. 07-5, "Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock," which was superseded by the FASB Codification and is now included in ASC 815-40, provides a two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer's own stock and thus able to qualify for the scope exception for classification as a derivative. The adoption of this pronouncement did not have a material impact on the Company's consolidated financial statements.
SFAS No. 160, "Noncontrolling Interests in Consolidated Financial StatementsAn Amendment of ARB No. 51," which was superseded by the FASB Codification and is now included in ASC 810-10-45, requires that noncontrolling interests be presented as a component of consolidated stockholders' equity and eliminates "minority interest accounting" such that the amount of net income attributable to the noncontrolling interests will be presented as part of consolidated net income on the consolidated statements of operations. See Note 22Cumulative Effect of Adoption of Accounting Principles for a summary of the impact of the adoption of this pronouncement on the Company's consolidated financial statements.
FSP APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled In Cash Upon Conversion (Including Partial Cash Settlement)," which was superseded by the FASB Codification and is now included in ASC 470, requires the initial proceeds from convertible debt that may be settled in cash to be bifurcated between a liability component and an equity component. The objective of the guidance is to require the liability and equity components of convertible debt to be separately
11
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
2. Summary of Significant Accounting Policies: (Continued)
accounted for in a manner such that the interest expense recorded on the convertible debt would not equal the contractual rate of interest on the convertible debt, but instead would be recorded at a rate that would reflect the issuer's conventional non-convertible debt borrowing rate at the date of issuance. This is accomplished through the creation of a discount on the debt that would be accreted using the effective interest method as additional non-cash interest expense over the period the debt is expected to remain outstanding. See Note 22Cumulative Effect of Adoption of Accounting Principles for a summary of the impact of the adoption of this pronouncement on the Company's consolidated financial statements.
FSP EITF No. 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities," which was superseded by the FASB Codification and is now included in ASC 260-10-45, provides that instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. See Note 22Cumulative Effect of Adoption of Accounting Principles for a summary of the impact of the adoption of this pronouncement on the Company's consolidated financial statements.
FSP SFAS 107-1 and APB 28-1, "Interim Disclosures about Fair Value of Financial Instruments," which was superseded by the FASB Codification and is now included in ASC 825-10-50, requires disclosures on a quarterly basis that provide qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value. The Company has provided these disclosures in Note 10Mortgage Notes Payable and Note 11Bank and Other Notes Payable.
FSP SFAS No. 115-2 and SFAS No. 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments," which was superseded by the FASB Codification and is now included in ASC 320-10-35, requires increased and more timely disclosures regarding expected cash flows, credit losses, and an aging of securities with unrealized losses. The adoption of this pronouncement did not have a material impact on the Company's consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted:
In June 2009, the FASB issued SFAS No. 166, "Accounting for Transfers of Financial Assetsan amendment of FASB No. 140," which was superseded by the FASB Codification and is now included in ASC 860. ASC 860 removes the concept of a qualifying special-purpose entity and requires a transferor to consider all arrangements or agreements made contemporaneously with, or in contemplation of, a transfer of a financial asset in order to determine whether a transferor and all of the entities included in the transferor's financial statements being presented have surrendered control of the transferred financial asset. The Company is required to adopt this pronouncement prospectively starting January 1, 2010 and does not believe that this pronouncement will have a material impact on its results of operations or financial condition.
In June 2009, the FASB issued SFAS No. 167, "Amendments to FASB Interpretation No. 46(R)," which was superseded by the FASB Codification and is now included in ASC 810. The provision of ASC 810 provides guidance for determining whether an entity is the primary beneficiary in a variable interest entity. It also requires ongoing reassessments and additional disclosures about an entity's involvement in variable interest entities. The Company is required to adopt this pronouncement on
12
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
2. Summary of Significant Accounting Policies: (Continued)
January 1, 2010 and is currently evaluating the impact of the adoption of this pronouncement on its results of operations and financial condition.
3. Earnings per Share ("EPS"):
The following table reconciles the numerator and denominator used in the computation of earnings per share for the three and nine months ended September 30, 2009 and 2008.
|
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | 2009 | 2008 | ||||||||||
Numerator |
||||||||||||||
Income from continuing operations |
$ | 160,285 | $ | 3,412 | $ | 178,487 | $ | 32,115 | ||||||
Income (loss) from discontinued operations |
4,086 | 986 | (22,063 | ) | 103,976 | |||||||||
Income attributable to noncontrolling interests |
(21,533 | ) | (925 | ) | (21,306 | ) | (20,994 | ) | ||||||
Net income attributable to the Company |
142,838 | 3,473 | 135,118 | 115,097 | ||||||||||
Preferred dividends |
| (835 | ) | | (4,124 | ) | ||||||||
Allocation of earnings to participating securities |
(3,347 | ) | (216 | ) | (2,241 | ) | (694 | ) | ||||||
Numerator for basic earnings per sharenet income |
||||||||||||||
available to common stockholders |
139,491 | 2,422 | 132,877 | 110,279 | ||||||||||
Effect of assumed conversions: |
||||||||||||||
Partnership units |
| 386 | | 19,051 | ||||||||||
Convertible non-participating preferred units |
208 | | | | ||||||||||
Numerator for diluted earnings per sharenet income |
||||||||||||||
available to common stockholders |
$ | 139,699 | $ | 2,808 | $ | 132,877 | $ | 129,330 | ||||||
Denominator |
||||||||||||||
Denominator for basic earnings per shareweighted average number of common shares outstanding |
79,496 | 74,931 | 77,898 | 73,688 | ||||||||||
Effect of dilutive securities:(1) |
||||||||||||||
Partnership units(2) |
| 12,493 | | 12,528 | ||||||||||
Convertible non-participating preferred units(3) |
198 | | | | ||||||||||
Share and unit-based plans(4) |
| 15 | | 267 | ||||||||||
Denominator for diluted earnings per shareweighted average number of common shares outstanding |
79,694 | 87,439 | 77,898 | 86,483 | ||||||||||
Earnings per common sharebasic: |
||||||||||||||
Income from continuing operations |
$ | 1.71 | $ | 0.02 | $ | 1.96 | $ | 0.29 | ||||||
Discontinued operations |
0.04 | 0.01 | (0.25 | ) | 1.21 | |||||||||
Net income available to common stockholders |
$ | 1.75 | $ | 0.03 | $ | 1.71 | $ | 1.50 | ||||||
Earnings per common sharediluted: |
||||||||||||||
Income from continuing operations |
$ | 1.71 | $ | 0.02 | $ | 1.96 | $ | 0.29 | ||||||
Discontinued operations |
0.04 | 0.01 | (0.25 | ) | 1.21 | |||||||||
Net income available to common stockholders |
$ | 1.75 | $ | 0.03 | $ | 1.71 | $ | 1.50 | ||||||
13
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
3. Earnings per Share ("EPS"): (Continued)
The then-outstanding convertible preferred stock (See Note 14Cumulative Convertible Redeemable Preferred Stock) was convertible on a one-for-one basis for common stock. The convertible preferred stock was excluded from diluted EPS for the three and nine months ended September 30, 2008 as its effect would be antidilutive to net income available to common stockholders.
The noncontrolling interests of the Operating Partnership as reflected in the Company's consolidated statements of operations have been allocated for EPS calculations as follows:
|
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | 2009 | 2008 | |||||||||||
Income from continuing operations |
$ | 21,003 | $ | 784 | $ | 24,194 | $ | 5,886 | |||||||
Discontinued operations: |
|||||||||||||||
Gain (loss) on sale or write-down of assets |
515 | (137 | ) | (3,017 | ) | 14,267 | |||||||||
Income from discontinued operations |
15 | 278 | 129 | 841 | |||||||||||
Total |
$ | 21,533 | $ | 925 | $ | 21,306 | $ | 20,994 | |||||||
14
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
4. Investments in Unconsolidated Joint Ventures:
The following are the Company's investments in various joint ventures or properties jointly owned with third parties. The Company and Operating Partnership's interest in each joint venture as of September 30, 2009 is as follows:
Joint Venture
|
Ownership %(1) | |||
---|---|---|---|---|
Biltmore Shopping Center Partners LLC |
50.0 | % | ||
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 | % | ||
Corte Madera Village, LLC |
50.1 | % | ||
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 | % | ||
FlatIron Property Holding,L.L.C. |
25.0 | % | ||
Jaren Associates #4 |
12.5 | % | ||
Kierland Tower Lofts, LLC |
15.0 | % | ||
Macerich Northwestern AssociatesBroadway Plaza |
50.0 | % | ||
Macerich SanTan Phase 2 SPE LLCSanTan Village Power Center |
34.9 | % | ||
MetroRising AMS Holding LLCMetrocenter Mall |
15.0 | % | ||
New River AssociatesArrowhead Towne Center |
33.3 | % | ||
North Bridge Chicago LLC |
50.0 | % | ||
NorthPark Land Partners, LP |
50.0 | % | ||
NorthPark Partners, LP |
50.0 | % | ||
One Scottsdale Investors LLC |
50.0 | % | ||
Pacific Premier Retail Trust |
51.0 | % | ||
PHXAZ/Kierland Commons, L.L.C. |
24.5 | % | ||
Propcor Associates |
25.0 | % | ||
Propcor II Associates, LLCBoulevard Shops |
50.0 | % | ||
Queens Mall Limited Partnership |
51.0 | % | ||
Queens Mall Expansion Limited Partnership |
51.0 | % | ||
Scottsdale Fashion Square Partnership |
50.0 | % | ||
SDG Macerich Properties, L.P. |
50.0 | % | ||
The Market at Estrella Falls LLC |
35.1 | % | ||
Tysons Corner Holdings LLC |
50.0 | % | ||
Tysons Corner LLC |
50.0 | % | ||
Tysons Corner Property Holdings II LLC |
50.0 | % | ||
Tysons Corner Property Holdings LLC |
50.0 | % | ||
Tysons Corner Property LLC |
50.0 | % | ||
WM Inland, L.L.C. |
50.0 | % | ||
West Acres Development, LLP |
19.0 | % | ||
Westcor/Gilbert, L.L.C. |
50.0 | % | ||
Westcor/Queen Creek Commercial LLC |
37.9 | % | ||
Westcor/Queen Creek LLC |
37.8 | % | ||
Westcor/Queen Creek Medical LLC |
37.7 | % | ||
Westcor/Queen Creek Residential LLC |
37.7 | % | ||
Westcor/Surprise Auto Park LLC |
33.3 | % | ||
Westpen Associates |
50.0 | % | ||
Wilshire BuildingTenants in Common |
30.0 | % | ||
WM Ridgmar, L.P. |
50.0 | % |
15
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
4. Investments in Unconsolidated Joint Ventures: (Continued)
The Company generally accounts for its investments in joint ventures using the equity method unless the Company has a controlling interest in the joint venture or is the primary beneficiary in a variable interest entity. Although the Company has a greater than 50% interest in Pacific Premier Retail Trust, Camelback Colonnade SPE LLC, Corte Madera Village, LLC, Queens Mall Limited Partnership and Queens Mall Expansion Limited Partnership, the Company shares management control with the partners in these joint ventures and, therefore, accounts for these joint ventures using the equity method of accounting.
The Company has recently made the following investments and dispositions in unconsolidated joint ventures:
On January 10, 2008, the Company, in a 50/50 joint venture, acquired The Shops at North Bridge, a 680,933 square foot urban shopping center in Chicago, Illinois, for a total purchase price of $515,000. The Company's share of the purchase price was funded by the assumption of a pro rata share of the $205,000 fixed rate mortgage on the Center and by borrowings under the Company's line of credit. The results of The Shops at North Bridge are included below for the period subsequent to its date of acquisition.
On June 11, 2008, the Company became a 50% owner in a joint venture that acquired One Scottsdale, which plans to develop a mixed-use property in Scottsdale, Arizona. The Company's share of the purchase price was $52,500, which was funded by borrowings under the Company's line of credit. The results of One Scottsdale are included below for the period subsequent to its date of acquisition.
On December 19, 2008, the Company sold a fee and/or ground leasehold interest in three freestanding Mervyn's department stores to Pacific Premier Retail Trust, one of the Company's joint ventures, for $43,405, resulting in a gain on sale of assets of $1,511. The Company's pro rata share of the proceeds was used to pay down the Company's line of credit. See Mervyn's in Note 16Acquisitions and in Note 17Discontinued Operations.
On July 30, 2009, the Company sold a 49% ownership interest in Queens Center to a third party for $152,654, resulting in a gain on sale of assets of $153,907. See Note 7Property. The Company used the proceeds from the sale of the ownership interest in the property to pay down the Term Loan (see "Term Loan" in Note 11Bank and Other Notes Payable) and for general corporate purposes. The results of Queens Center are included below for the period subsequent to the sale of the ownership interest.
On September 3, 2009, the Company formed a joint venture with a third party whereby the Company sold a 75% interest in FlatIron Crossing. As part of this transaction, the Company issued three warrants for an aggregate of 1,250,000 shares of common stock of the Company (See Note 15Stockholders' Equity). The Company received $123,750 in cash proceeds for the overall transaction, of which $8,068 was attributed to the warrants. The proceeds attributable to the interest sold exceeded the Company's carrying value in the interest sold by $28,720. However, due to certain contractual rights afforded to the buyer of the interest in FlatIron Crossing, the Company has only recognized a gain on sale of $2,654. The remaining net cash proceeds in excess of the Company's carrying value in the interest sold has been included in other accrued liabilities and will not be recognized until dissolution of the joint venture or disposition of the Company's or buyer's interest in the joint venture. The
16
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
4. Investments in Unconsolidated Joint Ventures: (Continued)
Company used the proceeds from the sale of the ownership interest to pay down the Term Loan and for general corporate purposes. The results of FlatIron Crossing are included below for the period subsequent to the sale of the ownership interest.
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:
|
September 30, 2009 |
December 31, 2008 |
||||||
---|---|---|---|---|---|---|---|---|
Assets(1): |
||||||||
Properties, net |
$ | 5,312,813 | $ | 4,706,823 | ||||
Other assets |
509,814 | 531,976 | ||||||
Total assets |
$ | 5,822,627 | $ | 5,238,799 | ||||
Liabilities and partners' capital(1): |
||||||||
Mortgage notes payable(2) |
$ | 4,803,054 | $ | 4,244,270 | ||||
Other liabilities |
225,248 | 215,975 | ||||||
Company's capital |
384,922 | 434,504 | ||||||
Outside partners' capital |
409,403 | 344,050 | ||||||
Total liabilities and partners' capital |
$ | 5,822,627 | $ | 5,238,799 | ||||
Investment in unconsolidated joint ventures: |
||||||||
Company's capital |
$ | 384,922 | $ | 434,504 | ||||
Basis adjustment(3) |
601,599 | 579,426 | ||||||
Investments in unconsolidated joint ventures |
$ | 986,521 | $ | 1,013,930 | ||||
AssetsInvestments in unconsolidated joint ventures |
$ |
1,054,671 |
$ |
1,094,845 |
||||
LiabilitiesInvestments in unconsolidated joint ventures |
(68,150 | ) | (80,915 | ) | ||||
|
$ | 986,521 | $ | 1,013,930 | ||||
|
SDG Macerich Properties, L.P. |
Pacific Premier Retail Trust |
Tysons Corner LLC |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
As of September 30, 2009: |
||||||||||
Total Assets |
$ | 855,958 | $ | 1,118,972 | $ | 323,575 | ||||
Total Liabilities |
$ | 817,257 | $ | 1,039,695 | $ | 333,370 | ||||
As of December 31, 2008: |
||||||||||
Total Assets |
$ | 882,117 | $ | 1,148,831 | $ | 328,064 | ||||
Total Liabilities |
$ | 823,550 | $ | 976,506 | $ | 333,307 |
17
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
4. Investments in Unconsolidated Joint Ventures: (Continued)
Included in mortgage notes payable are amounts due to affiliates of Northwestern Mutual Life ("NML") of $583,821 and $211,098 as of September 30, 2009 and December 31, 2008, respectively. NML is considered a related party because it is a joint venture partner with the Company in Macerich Northwestern Associates. Interest expense incurred on these borrowings amounted to $9,384 and $2,923 for the three months ended September 30, 2009 and 2008, respectively, and $16,895 and $7,082 for the nine months ended September 30, 2009 and 2008, respectively.
18
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
4. Investments in Unconsolidated Joint Ventures: (Continued)
Combined and Condensed Statements of Operations of Unconsolidated Joint Ventures:
|
SDG Macerich Properties, L.P. |
Pacific Premier Retail Trust |
Tysons Corner LLC |
Other Joint Ventures |
Total | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Three Months Ended September 30, 2009 |
||||||||||||||||||
Revenues: |
||||||||||||||||||
Minimum rents |
$ | 22,393 | $ | 34,087 | $ | 14,415 | $ | 81,922 | $ | 152,817 | ||||||||
Percentage rents |
911 | 1,154 | 298 | 3,924 | 6,287 | |||||||||||||
Tenant recoveries |
12,450 | 12,257 | 9,735 | 39,761 | 74,203 | |||||||||||||
Other |
838 | 1,088 | 616 | 6,728 | 9,270 | |||||||||||||
Total revenues |
36,592 | 48,586 | 25,064 | 132,335 | 242,577 | |||||||||||||
Expenses: |
||||||||||||||||||
Shopping center and operating expenses |
14,261 | 13,729 | 7,923 | 48,826 | 84,739 | |||||||||||||
Interest expense |
11,768 | 13,159 | 3,923 | 34,342 | 63,192 | |||||||||||||
Depreciation and amortization |
7,918 | 9,294 | 4,482 | 27,391 | 49,085 | |||||||||||||
Total operating expenses |
33,947 | 36,182 | 16,328 | 110,559 | 197,016 | |||||||||||||
Loss on sale of assets |
| | | (1,962 | ) | (1,962 | ) | |||||||||||
Net income |
$ | 2,645 | $ | 12,404 | $ | 8,736 | $ | 19,814 | $ | 43,599 | ||||||||
Company's equity in net income |
$ | 1,322 | $ | 6,359 | $ | 4,368 | $ | 7,116 | $ | 19,165 | ||||||||
Three Months Ended September 30, 2008 |
||||||||||||||||||
Revenues: |
||||||||||||||||||
Minimum rents |
$ | 22,772 | $ | 33,138 | $ | 14,116 | $ | 73,095 | $ | 143,121 | ||||||||
Percentage rents |
1,012 | 1,102 | 556 | 3,664 | 6,334 | |||||||||||||
Tenant recoveries |
12,899 | 13,085 | 9,531 | 33,988 | 69,503 | |||||||||||||
Other |
676 | 967 | 534 | 5,192 | 7,369 | |||||||||||||
Total revenues |
37,359 | 48,292 | 24,737 | 115,939 | 226,327 | |||||||||||||
Expenses: |
||||||||||||||||||
Shopping center and operating expenses |
14,573 | 13,892 | 7,743 | 44,351 | 80,559 | |||||||||||||
Interest expense |
11,768 | 11,384 | 4,108 | 30,177 | 57,437 | |||||||||||||
Depreciation and amortization |
7,840 | 8,208 | 4,753 | 25,595 | 46,396 | |||||||||||||
Total operating expenses |
34,181 | 33,484 | 16,604 | 100,123 | 184,392 | |||||||||||||
Gain on sale of assets |
403 | | | 1,575 | 1,978 | |||||||||||||
Net income |
$ | 3,581 | $ | 14,808 | $ | 8,133 | $ | 17,391 | $ | 43,913 | ||||||||
Company's equity in net income |
$ | 1,790 | $ | 7,523 | $ | 4,066 | $ | 6,549 | $ | 19,928 | ||||||||
19
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
4. Investments in Unconsolidated Joint Ventures: (Continued)
|
SDG Macerich Properties, L.P. |
Pacific Premier Retail Trust |
Tysons Corner LLC |
Other Joint Ventures |
Total | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nine Months Ended September 30, 2009 |
||||||||||||||||||
Revenues: |
||||||||||||||||||
Minimum rents |
$ | 67,872 | $ | 98,888 | $ | 43,561 | $ | 219,638 | $ | 429,959 | ||||||||
Percentage rents |
2,155 | 2,571 | 680 | 7,192 | 12,598 | |||||||||||||
Tenant recoveries |
36,583 | 36,709 | 28,353 | 107,325 | 208,970 | |||||||||||||
Other |
2,524 | 3,058 | 1,501 | 16,527 | 23,610 | |||||||||||||
Total revenues |
109,134 | 141,226 | 74,095 | 350,682 | 675,137 | |||||||||||||
Expenses: |
||||||||||||||||||
Shopping center and operating expenses |
42,228 | 40,698 | 23,627 | 132,116 | 238,669 | |||||||||||||
Interest expense |
34,925 | 37,838 | 11,885 | 90,079 | 174,727 | |||||||||||||
Depreciation and amortization |
22,942 | 27,136 | 13,436 | 79,690 | 143,204 | |||||||||||||
Total operating expenses |
100,095 | 105,672 | 48,948 | 301,885 | 556,600 | |||||||||||||
Gain (loss) on sale of assets |
44 | | (1,845 | ) | (1,801 | ) | ||||||||||||
Net income |
$ | 9,083 | $ | 35,554 | $ | 25,147 | $ | 46,952 | $ | 116,736 | ||||||||
Company's equity in net income |
$ | 4,541 | $ | 18,133 | $ | 12,574 | $ | 14,399 | $ | 49,647 | ||||||||
Nine Months Ended September 30, 2008 |
||||||||||||||||||
Revenues: |
||||||||||||||||||
Minimum rents |
$ | 69,357 | $ | 97,121 | $ | 44,266 | $ | 212,051 | $ | 422,795 | ||||||||
Percentage rents |
2,543 | 2,805 | 1,677 | 8,581 | 15,606 | |||||||||||||
Tenant recoveries |
37,176 | 38,001 | 27,766 | 101,782 | 204,725 | |||||||||||||
Other |
2,653 | 3,161 | 1,507 | 34,580 | 41,901 | |||||||||||||
Total revenues |
111,729 | 141,088 | 75,216 | 356,994 | 685,027 | |||||||||||||
Expenses: |
||||||||||||||||||
Shopping center and operating expenses |
44,311 | 40,355 | 22,953 | 125,675 | 233,294 | |||||||||||||
Interest expense |
35,028 | 34,278 | 12,350 | 88,490 | 170,146 | |||||||||||||
Depreciation and amortization |
22,998 | 24,129 | 14,033 | 75,059 | 136,219 | |||||||||||||
Total operating expenses |
102,337 | 98,762 | 49,336 | 289,224 | 539,659 | |||||||||||||
Gain on sale of assets |
389 | | | 16,361 | 16,750 | |||||||||||||
Net income |
$ | 9,781 | $ | 42,326 | $ | 25,880 | $ | 84,131 | $ | 162,118 | ||||||||
Company's equity in net income |
$ | 4,890 | $ | 21,526 | $ | 12,940 | $ | 27,816 | $ | 67,172 | ||||||||
Significant accounting policies used by the unconsolidated joint ventures are similar to those used by the Company.
20
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
5. 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 interest rate swap and cap agreements (collectively, "interest rate agreements") in the normal course of business to manage or reduce its exposure to adverse fluctuations in interest rates. The Company designs its hedges to be effective in reducing the risk exposure that they are designated to hedge. Any instrument that meets the cash flow hedging criteria is formally designated as a cash flow hedge at the inception of the derivative contract. On an ongoing quarterly basis, the Company adjusts its balance sheet to reflect the current fair value of its derivatives. To the extent they are effective, changes in fair value of derivatives are recorded in comprehensive income. Ineffective portions, if any, are included in net income. No ineffectiveness was recorded in net income during the three or nine months ended September 30, 2009 or 2008. If any derivative instrument used for risk management does not meet the hedging criteria, it is marked-to-market each period in the consolidated statements of operations. As of September 30, 2009, one of the Company's derivative instruments was not designated as a cash flow hedge. Changes in the market value of this derivative instrument is recorded in the consolidated statements of operations. As of September 30, 2009, the Company's derivative instruments did not contain any credit risk related contingent features or collateral arrangements.
The Company reclassified $0 and $285 for the three and nine months ended September 30, 2008, respectively, related to treasury rate lock transactions settled in prior years from accumulated other comprehensive income to earnings.
Amounts paid (received) as a result of interest rate agreements are recorded as an addition (reduction) of interest expense. The Company recorded other comprehensive income related to the marking-to-market of interest rate agreements of $2,815 and $449 for the three months ended September 30, 2009 and 2008, respectively and $20,304 and $248 for the nine months ended September 30, 2009 and 2008, respectively. The amount expected to be reclassified to interest expense in the next 12 months is immaterial.
The following derivatives were outstanding at September 30, 2009:
Property/Entity
|
Notional Amount |
Product | Rate | Maturity | Fair Value |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Panorama Mall(1)(2) |
50,000 | Cap | 6.65 | % | 3/1/2010 | | |||||||||
Paradise Valley Mall(2) |
85,000 | Cap | 5.00 | % | 9/12/2011 | 107 | |||||||||
The Oaks(2) |
150,000 | Cap | 6.25 | % | 7/1/2010 | | |||||||||
The Operating Partnership(3) |
450,000 | Swap | 4.80 | % | 4/15/2010 | (10,777 | ) | ||||||||
The Operating Partnership(3) |
400,000 | Swap | 5.08 | % | 4/25/2011 | (25,221 | ) | ||||||||
Westside Pavilion(2) |
175,000 | Cap | 5.50 | % | 6/1/2010 | |
21
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
5. Derivative Instruments and Hedging Activities: (Continued)
|
Asset Derivatives | Liability Derivatives | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
September 30, 2009 |
December 31, 2008 |
|
September 30, 2009 |
December 31, 2008 |
||||||||||||
|
Balance Sheet Location |
Fair Value |
Fair Value |
Balance Sheet Location |
Fair Value |
Fair Value |
||||||||||||
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
||||||||||||
Interest rate cap agreements |
Other assets | $ | 107 | $ | 2 | Other liabilities | $ | | $ | | ||||||||
Interest rate swap agreements |
Other assets | | | Other liabilities | 35,998 | 56,434 | ||||||||||||
Total derivatives designated as hedging instruments |
107 | 2 | 35,998 | 56,434 | ||||||||||||||
Derivatives not designated as hedging instruments |
||||||||||||||||||
Interest rate cap agreements |
Other assets | | | Other liabilities | | | ||||||||||||
Interest rate swap agreements |
Other assets | | | Other liabilities | | | ||||||||||||
Total derivatives not designated as hedging instruments |
| | | | ||||||||||||||
Total derivatives |
$ | 107 | $ | 2 | $ | 35,998 | $ | 56,434 | ||||||||||
6. Fair Value:
The fair values of interest rate agreements are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates fell below or rose above the strike rate of the interest rate agreements. The variable interest rates used in the calculation of projected receipts on the interest rate agreements are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty's nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of September 30, 2009 and December 31, 2008, the Company has assessed the significance of the impact of the credit valuation adjustments on the
22
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
6. Fair Value: (Continued)
overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
The following table presents certain of the Company's derivative instruments measured at fair value as of September 30, 2009:
|
Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets |
|||||||||||||
Derivative instruments |
$ | | $ | 107 | $ | | $ | 107 | |||||
Liabilities |
|||||||||||||
Derivative instruments |
| 35,998 | | 35,998 |
7. Property:
Property consists of the following:
|
September 30, 2009 |
December 31, 2008 |
|||||
---|---|---|---|---|---|---|---|
Land |
$ | 1,080,375 | $ | 1,135,013 | |||
Building improvements |
4,638,867 | 5,190,049 | |||||
Tenant improvements |
324,614 | 327,877 | |||||
Equipment and furnishings |
106,218 | 101,991 | |||||
Construction in progress |
549,356 | 600,773 | |||||
|
6,699,430 | 7,355,703 | |||||
Less accumulated depreciation |
(1,007,152 | ) | (984,384 | ) | |||
|
$ | 5,692,278 | $ | 6,371,319 | |||
Depreciation expense was $51,356 and $48,308 for the three months ended September 30, 2009 and 2008, respectively, and $156,555 and $139,280 for the nine months ended September 30, 2009 and 2008, respectively.
The Company recognized a gain (loss) on sale or write down of assets of $157,612 and ($4,217) for the three months ended September 30, 2009 and 2008, respectively, and $159,776 and ($3,054) for the nine months ended September 30, 2009 and 2008, respectively.
The gain (loss) on sale or write down of assets includes a gain on the sale of land of $792 and $224 for the three months ended September 30, 2009 and 2008, respectively, and $3,599 and $1,387 for the nine months ended September 30, 2009 and 2008, respectively. The Company wrote off development costs of $592 and $1,235 for the three and nine months ended September 30, 2009,
23
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
7. Property: (Continued)
respectively. In addition, the Company wrote down $4,441 of assets related to Mervyn's for the three and nine months ended September 30, 2008.
The gain on sale of assets also includes a gain on the sale of a 49% interest in Queens Center of $153,907 during the three and nine months ended September 30, 2009. In addition, the Company also recorded a gain of $2,654 on the sale of a 75% interest in FlatIron Crossing. See Note 4Investment in Unconsolidated Joint Ventures.
8. Marketable Securities:
Marketable Securities consists of the following:
|
September 30, 2009 |
December 31, 2008 |
|||||
---|---|---|---|---|---|---|---|
Government debt securities, at par value |
$ | 28,470 | $ | 29,108 | |||
Less discount |
(931 | ) | (1,165 | ) | |||
|
27,539 | 27,943 | |||||
Unrealized gain |
2,993 | 4,347 | |||||
Fair value |
$ | 30,532 | $ | 32,290 | |||
Future contractual maturities of marketable securities at September 30, 2009 are as follows:
1 year or less |
$ | 1,299 | ||
2 to 5 years |
27,171 | |||
|
$ | 28,470 | ||
The proceeds from maturities and interest receipts from the marketable securities are restricted to the service of the Greeley Note (See Note 11Bank and Other Notes Payable). The Company accounts for its investments in marketable securities as held-to-maturity debt securities as the Company has the intent and the ability to hold these securities until maturity. Accordingly, investments in marketable securities are carried at their amortized cost. The discount on marketable securities is amortized into interest income on a straight-line basis over the term of the securities, which approximates the effective interest method.
24
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
9. Deferred Charges And Other Assets, net:
Deferred charges and other assets, net consists of the following:
|
September 30, 2009 |
December 31, 2008 |
||||||
---|---|---|---|---|---|---|---|---|
Leasing |
$ | 144,688 | $ | 139,374 | ||||
Financing |
48,006 | 54,256 | ||||||
Intangible assets: |
||||||||
In-place lease values |
139,335 | 175,428 | ||||||
Leasing commissions and legal costs |
48,377 | 57,832 | ||||||
|
380,406 | 426,890 | ||||||
Less accumulated amortization(1) |
(175,520 | ) | (181,579 | ) | ||||
|
204,886 | 245,311 | ||||||
Other assets |
80,231 | 94,351 | ||||||
|
$ | 285,117 | $ | 339,662 | ||||
The allocated values of above-market leases included in deferred charges and other assets, net, and below-market leases included in other accrued liabilities, consist of the following:
|
September 30, 2009 |
December 31, 2008 |
|||||
---|---|---|---|---|---|---|---|
Above-Market Leases |
|||||||
Original allocated value |
$ | 51,964 | $ | 71,808 | |||
Less accumulated amortization |
(33,837 | ) | (49,014 | ) | |||
|
$ | 18,127 | $ | 22,794 | |||
Below-Market Leases |
|||||||
Original allocated value |
$ | 125,014 | $ | 185,976 | |||
Less accumulated amortization |
(71,431 | ) | (108,197 | ) | |||
|
$ | 53,583 | $ | 77,779 | |||
25
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
10. Mortgage Notes Payable:
Mortgage notes payable consists of the following:
|
Carrying Amount of Mortgage Notes(a) | |
|
|
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
September 30, 2009 | December 31, 2008 | |
|
|
|||||||||||||||||
Property Pledged as Collateral
|
Other | Related Party | Other | Related Party | Interest Rate |
Monthly Payment(b) |
Maturity Date |
|||||||||||||||
Capitola Mall |
$ | | $ | 36,051 | $ | | $ | 37,497 | 7.13 | % | 380 | 2011 | ||||||||||
Cactus Power Center(c) |
| | 654 | | | | ||||||||||||||||
Carmel Plaza(d) |
25,443 | | 25,805 | | 7.45 | % | 202 | 2010 | ||||||||||||||
Chandler Fashion Center(e) |
163,913 | 166,500 | | 5.50 | % | 435 | 2012 | |||||||||||||||
Chesterfield Towne Center(f) |
52,819 | | 54,111 | | 9.07 | % | 548 | 2024 | ||||||||||||||
Danbury Fair Mall |
164,840 | | 169,889 | | 4.64 | % | 1,225 | 2011 | ||||||||||||||
Deptford Mall |
172,500 | | 172,500 | | 5.41 | % | 778 | 2013 | ||||||||||||||
Deptford Mall |
15,501 | | 15,642 | | 6.46 | % | 101 | 2016 | ||||||||||||||
Fiesta Mall |
84,000 | | 84,000 | | 4.98 | % | 341 | 2015 | ||||||||||||||
Flagstaff Mall |
37,000 | | 37,000 | | 5.03 | % | 153 | 2015 | ||||||||||||||
FlatIron Crossing(g) |
| | 184,248 | | | | | |||||||||||||||
Freehold Raceway Mall(e) |
167,118 | | 171,726 | | 4.68 | % | 1,184 | 2011 | ||||||||||||||
Fresno Fashion Fair |
84,017 | 84,018 | 84,706 | 84,705 | 6.76 | % | 1,104 | 2015 | ||||||||||||||
Great Northern Mall |
39,044 | | 39,591 | | 5.11 | % | 234 | 2013 | ||||||||||||||
Hilton Village |
8,560 | | 8,547 | | 5.27 | % | 37 | 2012 | ||||||||||||||
La Cumbre Plaza(h) |
30,000 | | 30,000 | | 1.62 | % | 28 | 2009 | ||||||||||||||
Northridge Mall(i) |
71,726 | | 79,657 | | 8.20 | % | 453 | 2011 | ||||||||||||||
Oaks, The(j) |
165,000 | | 165,000 | | 2.37 | % | 284 | 2011 | ||||||||||||||
Oaks, The(k) |
88,106 | | 65,525 | | 2.99 | % | 176 | 2011 | ||||||||||||||
Pacific View |
86,204 | | 87,382 | | 7.20 | % | 602 | 2011 | ||||||||||||||
Panorama Mall(l) |
50,000 | | 50,000 | | 1.31 | % | 46 | 2010 | ||||||||||||||
Paradise Valley Mall(m) |
85,000 | | 20,259 | | 6.30 | % | 390 | 2012 | ||||||||||||||
Prescott Gateway |
60,000 | | 60,000 | | 5.86 | % | 289 | 2011 | ||||||||||||||
Promenade at Casa Grande(n) |
86,617 | | 97,209 | | 1.74 | % | 122 | 2010 | ||||||||||||||
Queens Center(o) |
| | 88,913 | | | | | |||||||||||||||
Queens Center(o) |
| | 106,657 | 106,657 | | | | |||||||||||||||
Rimrock Mall |
41,617 | | 42,155 | | 7.57 | % | 320 | 2011 | ||||||||||||||
Salisbury, Center at |
115,000 | | 115,000 | | 5.83 | % | 555 | 2016 | ||||||||||||||
Santa Monica Place |
76,974 | | 77,888 | | 7.79 | % | 606 | 2010 | ||||||||||||||
SanTan Village Regional Center(p) |
135,646 | | 126,573 | | 2.98 | % | 287 | 2011 | ||||||||||||||
Shoppingtown Mall |
41,805 | | 43,040 | | 5.01 | % | 319 | 2011 | ||||||||||||||
South Plains Mall(q) |
55,360 | | 57,721 | | 9.49 | % | 454 | 2029 | ||||||||||||||
South Towne Center |
89,126 | | 89,915 | | 6.39 | % | 554 | 2015 | ||||||||||||||
Towne Mall |
13,996 | | 14,366 | | 4.99 | % | 100 | 2012 | ||||||||||||||
Tucson La Encantada |
| 77,756 | | 78,000 | 5.84 | % | 363 | 2012 | ||||||||||||||
Twenty Ninth Street(r) |
106,710 | | 115,000 | | 5.45 | % | 467 | 2011 | ||||||||||||||
Valley River Center |
120,000 | | 120,000 | | 5.59 | % | 558 | 2016 | ||||||||||||||
Valley View Center |
125,000 | | 125,000 | | 5.81 | % | 596 | 2011 | ||||||||||||||
Victor Valley, Mall of(s) |
100,000 | | 100,000 | | 2.16 | % | 158 | 2011 | ||||||||||||||
Vintage Faire Mall |
62,480 | | 63,329 | | 7.92 | % | 508 | 2010 | ||||||||||||||
Westside Pavilion(t) |
175,000 | | 175,000 | | 2.96 | % | 330 | 2011 | ||||||||||||||
Wilton Mall |
41,058 | | 42,608 | | 4.79 | % | 349 | 2029 | ||||||||||||||
|
$ | 3,037,180 | $ | 197,825 | $ | 3,373,116 | $ | 306,859 | ||||||||||||||
26
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
10. Mortgage Notes Payable: (Continued)
Debt premiums (discounts) consist of the following:
Property Pledged as Collateral |
September 30, 2009 |
December 31, 2008 |
|||||
---|---|---|---|---|---|---|---|
Danbury Fair Mall |
$ | 6,004 | $ | 9,166 | |||
Deptford Mall |
(37 | ) | (41 | ) | |||
Freehold Raceway Mall |
6,365 | 8,940 | |||||
Great Northern Mall |
(116 | ) | (137 | ) | |||
Hilton Village |
(40 | ) | (53 | ) | |||
Paradise Valley Mall |
| 99 | |||||
Shoppingtown Mall |
1,838 | 2,648 | |||||
Towne Mall |
300 | 371 | |||||
Wilton Mall |
163 | 1,263 | |||||
|
$ | 14,477 | $ | 22,256 | |||
27
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
10. Mortgage Notes Payable: (Continued)
Most of the mortgage loan agreements contain a prepayment penalty provision for the early extinguishment of the debt.
The Company expects all 2009 loan maturities will be refinanced, extended and/or paid-off from the Company's line of credit.
Total interest expense capitalized was $5,400 and $10,421 for the three months ended September 30, 2009 and 2008, respectively, and $15,223 and $26,058 for the nine months ended September 30, 2009 and 2008, respectively.
Related party mortgage notes payable are amounts due to affiliates of NML. See Note 19Related Party Transactions, for interest expense associated with loans from NML.
The fair value of mortgage notes payable at September 30, 2009 and December 31, 2008 was $2,927,402 and $3,529,762, respectively, based on current interest rates for comparable loans. The method for computing fair value was determined using a present value model and an interest rate that included a credit value adjustment based on the estimated value of the property that serves as collateral for the underlying debt.
11. Bank and Other Notes Payable:
Bank and other notes payable consist of the following:
Convertible Senior Notes ("Senior Notes"):
The Senior Notes bear interest at 3.25%, payable semiannually, are senior unsecured debt of the Company and are guaranteed by the Operating Partnership. Prior to December 14, 2011, upon the occurrence of certain specified events, the Senior Notes will be convertible at the option of the holder into cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the election of the Company, at an initial conversion rate of
28
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
11. Bank and Other Notes Payable: (Continued)
8.9702 shares per $1 principal amount. On and after December 15, 2011, the Senior Notes will be convertible at any time prior to the second business day preceding the maturity date at the option of the holder at the initial conversion rate. The initial conversion price of approximately $111.48 per share represented a 20% premium over the closing price of the Company's common stock on March 12, 2007, the date of issuance of the Senior Notes. The initial conversion rate is subject to adjustment under certain circumstances. Holders of the Senior Notes do not have the right to require the Company to repurchase the Senior Notes prior to maturity except in connection with the occurrence of certain fundamental change transactions.
The Company purchased two capped calls ("Capped Calls") from affiliates of the initial purchasers of the Senior Notes that effectively increased the conversion price to approximately $130.06 per common share, which represents a 40% premium to the March 12, 2007 closing price of $92.90 per common share of the Company. The Capped Calls are expected to generally reduce the potential dilution upon exchange of the Senior Notes in the event the market value per share of the Company's common stock, as measured under the terms of the relevant settlement date, is greater than the strike price of the Capped Calls. If, however, the market value per share of the Company's common stock exceeds $130.06 per common share, then the dilution mitigation under the Capped Calls will be capped, which means there would be dilution from exchange of the Senior Notes to the extent that the market value per share of the Company's common stock exceeds $130.06.
During the nine months ended September 30, 2009, the Company repurchased and retired $89,065 of the Senior Notes for $54,135 and recorded a gain on extinguishment of $29,801. The repurchase was funded by borrowings under the Company's line of credit.
The carrying value of the Senior Notes at September 30, 2009 and December 31, 2008 was $611,519 and $687,654, respectively, which included an unamortized discount of $26,581 and $39,511, respectively. As of September 30, 2009 and December 31, 2008, the effective interest rate was 5.41%. The fair value of the Senior Notes at September 30, 2009 and December 31, 2008 was $575,885 and $379,435, respectively, based on the quoted market price on each date.
Line of Credit:
The Company has a $1,500,000 revolving line of credit that matures on April 25, 2010 with a one-year extension option. The interest rate fluctuates from LIBOR plus 0.75% to LIBOR plus 1.10% depending on the Company's overall leverage. The Company has an existing interest rate swap agreement that effectively fixed the interest rate on $400,000 of the outstanding balance of the line of credit at 6.23% until April 25, 2011. Concurrent with the payoff of the Term Loan, the Company applied the interest payments associated with the interest rate swap agreement from that loan to a portion of the outstanding line of credit balance. As a result, the interest rate swap agreement from the Term Loan effectively fixed the interest rate on $450,000 of the outstanding balance of the line of credit at 6.30% until April 25, 2010. See Note 5Derivative Instruments and Hedging Activities.
As of September 30, 2009 and December 31, 2008, borrowings outstanding were $1,095,000 and $1,099,500, at an average interest rate, excluding the $850,000 swapped portion, of 3.83% and 3.19%, respectively. The fair value of the Company's line of credit at September 30, 2009 and December 31,
29
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
11. Bank and Other Notes Payable: (Continued)
2008 was $1,084,388 and $1,067,631, respectively, based on a present value model using current interest rate spreads offered to the Company for comparable debt.
Term Loan:
The Company had a five-year term loan that bore interest at LIBOR plus 1.50%. The loan had a balance of $446,250 at December 31, 2008. Concurrent with the payoff of this loan during the three months ended September 30, 2009, the Company applied the interest payments associated with the interest rate swap agreement from this loan to a portion of the outstanding line of credit balance.
Greeley Note:
On July 27, 2006, concurrent with the sale of Greeley Mall, the Company provided marketable securities to replace Greeley Mall as collateral for the mortgage note payable on the property (See Note 8Marketable Securities). As a result of this transaction, the debt was reclassified to bank and other notes payable. This note bears interest at an effective rate of 6.34% and matures in September 2013. As of September 30, 2009 and December 31, 2008, the note had a balance outstanding of $26,529 and $27,038, respectively. The fair value of the note at September 30, 2009 and December 31, 2008 was $19,794 and $19,074, respectively, based on current interest rates for comparable loans. The method for computing fair value was determined using a present value model and an interest rate that included a credit value adjustment based on the estimated value of the property that serves as collateral for the underlying debt.
As of September 30, 2009 and December 31, 2008, the Company was in compliance with all applicable loan covenants under its debt agreements.
12. Co-Venture Arrangement:
On September 30, 2009, the Company formed a joint venture with Heitman, a Chicago-based real estate management firm, whereby Heitman acquired a 49.9% interest in Freehold Raceway Mall and Chandler Fashion Center. As part of this transaction, the Company issued a warrant in favor of a Heitman entity to purchase 935,358 shares of common stock of the Company at an exercise price of $46.68 per share. See "Warrants" in Note 15Stockholders' Equity. The Company received approximately $174,650 in cash proceeds for the overall transaction, of which $6,496 was attributed to the warrants. The Company used the proceeds from this transaction to pay down the line of credit.
As a result of the Company having certain rights under the agreement to repurchase the assets after the seventh year of the venture formation, the transaction did not qualify for sale treatment. The Company, however, is not obligated to repurchase the assets. The transaction has been accounted for as a profit-sharing arrangement, and accordingly the assets, liabilities and operations of the properties remain on the books of the Company and a co-venture obligation has been established for the amount of $168,154, representing the net cash proceeds received from Heitman less costs allocated to the warrant.
30
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
13. Noncontrolling Interests:
The Company allocates net income to the Operating Partnership based on the weighted average ownership interest during the period. The 13% limited partnership interest of the Operating Partnership not owned by the Company at September 30, 2009 is reflected in these consolidated financial statements as permanent equity.
The interests in the Operating Partnership are known as OP Units. OP Units not held by the Company are redeemable at the election of the holder, and the Company may redeem them for the Company's stock or cash, at the Company's option. The redemption value for each OP Unit as of any balance sheet date is the amount equal to the average of the closing price per share of the Company's common stock, par value $0.01 per share, as reported on the New York Stock Exchange for the ten trading days ending on the respective balance sheet date. Accordingly, as of September 30, 2009 and December 31, 2008, the aggregate redemption value of the then-outstanding OP Units not owned by the Company was $384,162 and $227,091, respectively.
The Company issued common and preferred units of MACWH, LP in April 2005 in connection with the acquisition of the Wilmorite portfolio. The common and preferred units of MACWH, LP are redeemable at the election of the holder and the Company may redeem them for cash or shares of the Company's stock at the Company's option and are classified as permanent equity.
Included in permanent equity are outside ownership interests in various consolidated joint ventures. The joint ventures do not have rights that require the Company to redeem the ownership interests in either cash or stock.
The outside ownership interests in the Company's joint venture in Shoppingtown Mall have a purchase option for $24,000. In addition, under certain conditions as defined by the partnership agreement, these partners have the right to "put" their partnership interests to the Company. Due to the redemption feature of the ownership interest in Shoppingtown Mall, these noncontrolling interests have been included in temporary equity.
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 was convertible 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.
The holder of the Series A Preferred Stock had redemption rights if a change in control of the Company occurred, as defined under the Articles Supplementary. Under such circumstances, the holder of the Series A Preferred Stock was entitled to require the Company to redeem its shares, to the extent the Company had funds legally available therefor, at a price equal to 105% of its liquidation preference plus accrued and unpaid dividends. The Series A Preferred Stock holder also had the right to require the Company to repurchase its shares if the Company failed 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 were legally available therefor.
31
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
14. Cumulative Convertible Redeemable Preferred Stock: (Continued)
No dividends could be declared or paid on any class of common or other junior stock to the extent that dividends on Series A Preferred Stock had not been declared and/or paid.
On October 18, 2007, the holder of the Series A Preferred Stock converted 560,000 shares to common shares. On May 6, 2008, the holder of the Series A Preferred Stock converted 684,000 shares to common shares. On May 8, 2008, the holder of the Series A Preferred Stock converted 1,338,860 shares to common shares. On September 17, 2008, the holder of the Series A Preferred Stock converted the remaining 1,044,271 shares to common shares.
15. Stockholders' Equity:
Authorized Shares:
On June 8, 2009, the Company amended its articles of incorporation to increase the number of common shares authorized from 145,000,000 common shares to 250,000,000 common shares.
Stock Dividends:
On June 22, 2009, the Company issued 2,236,954 common shares to its common stockholders and OP Unit holders in connection with a declaration of a quarterly dividend of $0.60 per share of common stock on May 1, 2009, consisting of a combination of cash and shares of the Company's common stock. The cash component of the dividend (not including cash paid in lieu of fractional shares) was 10% in the aggregate, or $0.06 per share, with the balance paid in shares of the Company's common stock.
On September 21, 2009, the Company issued 1,658,023 common shares to its common stockholders and OP Unit holders in connection with a declaration of a quarterly dividend of $0.60 per share of common stock on August 12, 2009, consisting of a combination of cash and shares of the Company's common stock. The cash component of the dividend (not including cash paid in lieu of fractional shares) was 10% in the aggregate, or $0.06 per share, with the balance paid in shares of the Company's common stock.
In accordance with the provisions of Internal Revenue Service Revenue Procedure 2009-15, stockholders were asked to make an election to receive the dividends all in cash or all in shares. To the extent that more than 10% of cash was elected in the aggregate, the cash portion was prorated. Stockholders who elected to receive the dividends in cash received a cash payment of at least $0.06 per share. Stockholders who did not make an election received 10% in cash and 90% in shares of common stock. The number of shares issued on June 22, 2009 as a result of the dividend was calculated based on the volume weighted average trading prices of the Company's common stock on the New York Stock Exchange on June 10, 2009 through June 12, 2009 of $19.9927. The number of shares issued on September 21, 2009 as a result of the dividend was calculated based on the volume weighted average trading prices of the Company's common stock on the New York Stock Exchange on September 9, 2009 through September 11, 2009 of $28.5100.
The Company has elected to account for the stock portion of its distributions as stock issuances as opposed to a stock dividend. Accordingly, the impact of the shares issued is reflected in the Company's earnings per share calculation on a prospective basis. The issuance of the stock dividend resulted in a
32
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
15. Stockholders' Equity: (Continued)
reduction of $0.01 and $0.03 on both basic and diluted earnings per share for the three and nine months ended September 30, 2009.
Warrants:
On September 3, 2009, the Company issued three warrants in connection with the sale of a 75% ownership interest in FlatIron Crossing. See Note 4Investments in Unconsolidated Joint Ventures. The warrants provide for a purchase in the aggregate of 1,250,000 shares of the Company's common stock. The warrants were valued at $8,068 and recorded as a credit to additional paid-in capital. Each warrant has a three-year term and was immediately exercisable upon its issuance, has an exercise price of approximately $30.62 per share until September 3, 2011 and an exercise price of approximately $34.79 from September 4, 2011 until September 3, 2012, with such prices subject to anti-dilutive adjustments. The warrants allow for either gross or net issue settlement at the option of the warrant holder. In the event that the warrant holder elects a net issue settlement, the Company may elect to settle the warrants in cash or shares. In addition, the Company has entered into registration rights agreements with the warrant holders requiring the Company to provide certain registration rights regarding the resale of shares of common stock underlying each warrant.
On September 30, 2009, the Company issued a warrant in connection with its formation of a co-venture to own and operate Freehold Raceway Mall and Chandler Fashion Center. See Note 12Co-Venture Arrangement. The warrant provides for the purchase of 935,358 shares of the Company's common stock. The warrant was valued at $6,496 and recorded as a credit to additional paid-in capital. The warrant was immediately exercisable upon its issuance and will expire 30 days after the refinancing or repayment of each loan encumbering the Centers has closed. The warrant has an exercise price of $46.68 per share, with such price subject to anti-dilutive adjustments. The warrant allows for either gross or net issue settlement at the option of the warrant holder. In the event that the warrant holder elects a net issue settlement, the Company may elect to settle the warrant in cash or shares; provided, however, that in the event the Company elects to deliver cash, the holder may elect to instead have the exercise of the warrant satisfied in shares. In addition, the Company has entered into a registration rights agreement with the warrant holders requiring the Company to provide certain registration rights regarding the resale of shares of common stock underlying the warrant.
The issuance of the warrants was exempt from registration under the Securities Act of 1933, as amended ("Securities Act"), pursuant to Section 4(2) of the Securities Act. Each investor represented that it was an accredited investor, as defined in Rule 501 of Regulation D, and that it was acquiring the securities for its own account, not as nominee or agent, and not with a view to the resale or distribution of any part thereof in violation of the Securities Act.
16. Acquisitions:
The Company has completed the following acquisitions:
Mervyn's:
On December 17, 2007, the Company purchased a portfolio of ground leasehold and/or fee simple interests in 39 Mervyn's department stores for $400,160. The Company purchased an additional ground
33
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
16. Acquisitions: (Continued)
leasehold interest on January 31, 2008 for $13,182 and a fee simple interest on February 29, 2008 for $19,338. All of the purchased properties are located in the southwest United States. The purchase price was funded by cash and borrowings under the Company's line of credit. Concurrent with each acquisition, the Company entered into individual agreements to lease back the properties to Mervyn's for terms of 14 to 20 years. In connection with the acquisition of the Mervyn's portfolio, the Company recorded intangible assets of $110.7 million and intangible liabilities of $59.0 million. The results of operations include these properties since the acquisition date.
Boscov's:
On May 20, 2008, the Company purchased a fee simple interest in a 161,350 square foot Boscov's department store at Deptford Mall in Deptford, New Jersey. The total purchase price of $23,500 was funded by the assumption of the existing mortgage note on the property and by borrowings under the Company's line of credit. The results of operations have included this property since the date of acquisition.
17. Discontinued Operations:
The following operations were recently discontinued:
Mervyn's:
In July 2008, Mervyn's filed for bankruptcy protection and in October 2008 announced its plans to liquidate all merchandise, auction its store leases and wind down its business. The Company had 45 former Mervyn's stores in its portfolio. The Company owned the ground leasehold and/or fee simple interest in 44 of those stores and the remaining store was owned by a third party but was located at one of the Centers.
In September 2008, the Company recorded a write-down of $5,214 due to the anticipated rejection of six of the Company's leases by Mervyn's. In addition, the Company terminated its former plan to sell the 29 Mervyn's stores located at shopping centers not owned or managed by the Company. The Company's decision was based on current conditions in the credit market and the assumption that a better return could be obtained by holding and operating the assets. As a result of the change in plans to sell, the Company recorded a loss of $5,347 in (loss) gain on sale or write-down of assets in order to adjust the carrying value of these assets for depreciation expense that otherwise would have been recognized had these assets been continuously classified as held and used.
In December 2008, Kohl's and Forever 21 assumed a total of 23 of the Mervyn's leases and the remaining 22 leases were rejected by Mervyn's under the bankruptcy laws. As a result, the Company wrote off the unamortized intangible assets and liabilities related to the rejected and unassumed leases in December 2008. The Company wrote off $27,655 of unamortized intangible assets related to lease in place values, leasing commissions and legal costs to depreciation and amortization. Unamortized intangible assets of $14,881 relating to above market leases and unamortized intangible liabilities of $24,523 relating to below market leases were written off to minimum rents.
34
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
17. Discontinued Operations: (Continued)
On December 19, 2008, the Company sold a fee and/or ground leasehold interest in three freestanding Mervyn's department stores to Pacific Premier Retail Trust, one of the Company's joint ventures, for $43,405, resulting in a gain on sale of assets of $1,511. The Company's pro rata share of the proceeds was used to pay down the Company's line of credit.
In June 2009, the Company recorded an impairment charge of $25,958, as it relates to the fee and/or ground leasehold interests in five former Mervyn's stores due to the anticipated loss on the sale of these properties in July 2009. The Company subsequently sold the properties during the third quarter for $52,689 in total proceeds, resulting in an additional $403 loss related to transaction costs. The Company used the proceeds from the sales to pay down the Company's Term loan and for general corporate purposes.
On September 29, 2009, the Company sold a leasehold interest in a former Mervyn's location for $4,510, resulting in a gain on sale of $4,197. The Company used the proceeds from the sale to pay down the Company's line of credit and for general corporate purposes.
Rochester Redemption:
On January 1, 2008, a subsidiary of the Operating Partnership, at the election of the holders, redeemed the 3,426,609 participating convertible preferred units ("PCPUs"). As a result of the redemption, the Company received the 16.32% noncontrolling interest in the portion of the Wilmorite portfolio that included Danbury Fair Mall, Freehold Raceway Mall, Great Northern Mall, Rotterdam Square, Shoppingtown Mall, Towne Mall, Tysons Corner Center and Wilton Mall, collectively referred to as the "Non-Rochester Properties," for total consideration of $224,393, in exchange for the Company's ownership interest in the portion of the Wilmorite portfolio that consisted of Eastview Commons, Eastview Mall, Greece Ridge Center, Marketplace Mall and Pittsford Plaza, collectively referred to as the "Rochester Properties," including approximately $18,000 in cash held at those properties. Included in the redemption consideration was the assumption of the remaining 16.32% interest in the indebtedness of the Non-Rochester Properties, which had an estimated fair value of $105,962. In addition, the Company also received additional consideration of $11,763, in the form of a note, for certain working capital adjustments, extraordinary capital expenditures, leasing commissions, tenant allowances, and decreases in indebtedness during the Company's period of ownership of the Rochester Properties. The Company recognized a gain of $99,082 on the exchange based on the difference between the fair value of the additional interest acquired in the Non-Rochester Properties and the carrying value of the Rochester Properties, net of noncontrolling interest. This exchange is referred to herein as the "Rochester Redemption."
35
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
17. Discontinued Operations: (Continued)
The Company determined the fair value of the debt using a present value model based upon the terms of equivalent debt and upon credit spreads made available to the Company. The following table represents the debt measured at fair value on January 1, 2008:
|
Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Balance at January 1, 2008 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Liabilities |
|||||||||||||
Debt on Non-Rochester Properties |
$ | | $ | 71,032 | $ | 34,930 | $ | 105,962 |
The source of the Level 2 inputs involved the use of the nominal weekly average of the U.S. treasury rates. The source of the Level 3 inputs was based on comparable credit spreads on the estimated value of the property that serves as the underlying collateral of the debt.
As a result of the Rochester Redemption, the Company recorded a credit to additional paid-in capital of $172,805 due to the reversal of adjustments to noncontrolling interests for the redemption value on the Rochester Properties over the Company's historical cost. In addition, the Company recorded a step-up in the basis of approximately $218,812 in the remaining portion of the Non-Rochester Properties.
Other Dispositions:
In June 2009, the Company recorded an impairment charge of $1,037, as it related to the anticipated loss on the sale of Village Center, a 170,801 square foot urban village property, in July 2009. The Company subsequently sold the property on July 14, 2009 for $11,912 in total proceeds, resulting in a gain of $172 related to a change in estimate in transaction costs. The Company used the proceeds from the sale to pay down the Term loan and for general corporate purposes.
The Company has classified the results of operations and gain or loss on sale for the three and nine months ended September 30, 2009 and 2008 for all of the above dispositions as discontinued operations.
36
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
17. Discontinued Operations: (Continued)
Revenues and income from discontinued operations consist of the following:
|
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | 2009 | 2008 | ||||||||||
Revenues: |
||||||||||||||
Scottsdale/101 |
$ | | $ | | $ | | $ | 10 | ||||||
Holiday Village |
| | | 338 | ||||||||||
Great Falls Marketplace |
| | | (21 | ) | |||||||||
Mervyn's |
369 | 3,117 | 2,938 | 9,155 | ||||||||||
Village Center |
(2 | ) | 429 | 925 | 1,463 | |||||||||
|
$ | 367 | $ | 3,546 | $ | 3,863 | $ | 10,945 | ||||||
Income from discontinued operations: |
||||||||||||||
Scottsdale/101 |
$ | | $ | (1 | ) | $ | (8 | ) | $ | (2 | ) | |||
Holiday Village |
| | (9 | ) | 338 | |||||||||
Great Falls Marketplace |
| | | (33 | ) | |||||||||
Mervyn's |
77 | 1,759 | 591 | 5,179 | ||||||||||
Village Center |
41 | 189 | 408 | 305 | ||||||||||
|
$ | 118 | $ | 1,947 | $ | 982 | $ | 5,787 | ||||||
18. Commitments and Contingencies:
The Company has certain properties subject to non-cancelable operating ground leases. The leases expire at various times through 2107, 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 in the lease. Ground rent expenses were $2,015 and $1,821 for the three months ended September 30, 2009 and 2008, respectively and $6,102 and $5,456 for the nine months ended September 30, 2009 and 2008, respectively. No contingent rent was incurred during the three or nine months ended September 30, 2009 and 2008.
As of September 30, 2009 and December 31, 2008, the Company was contingently liable for $26,302 and $19,699, 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 for a liability assumed in the acquisition of a property.
The Company has entered into a number of construction agreements related to its redevelopment and development activities. Obligations under these agreements are contingent upon the completion of the services within the guidelines specified in the agreement. At September 30, 2009, the Company had $76,202 in outstanding obligations under these construction agreements which it believes will be settled in 2009.
37
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
19. Related-Party Transactions:
Certain unconsolidated joint ventures and third-parties have engaged the Management Companies to manage the operations of the Centers. Under these arrangements, the 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.
The following are fees charged to unconsolidated joint ventures and third-party managed properties:
|
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | 2009 | 2008 | |||||||||
Management Fees |
|||||||||||||
MMC |
$ | 3,547 | $ | 3,083 | $ | 9,450 | $ | 8,968 | |||||
Westcor Management Companies |
1,904 | 2,019 | 5,769 | 5,734 | |||||||||
Wilmorite Management Companies |
427 | 433 | 1,254 | 1,266 | |||||||||
|
$ | 5,878 | $ | 5,535 | $ | 16,473 | $ | 15,968 | |||||
Development and Leasing Fees |
|||||||||||||
MMC |
$ | 156 | $ | 261 | $ | 1,717 | $ | 456 | |||||
Westcor Management Companies |
1,386 | 2,207 | 3,711 | 6,808 | |||||||||
Wilmorite Management Companies |
251 | 438 | 776 | 1,314 | |||||||||
|
$ | 1,793 | $ | 2,906 | $ | 6,204 | $ | 8,578 | |||||
Certain mortgage notes on the properties are held by NML (See Note 10Mortgage Notes Payable). Interest expense in connection with these notes was $4,405 and $5,002 for the three months ended September 30, 2009 and 2008, respectively, and $16,449 and $12,381 for the nine months ended September 30, 2009 and 2008, respectively. Included in accounts payable and accrued expenses is interest payable to these partners of $938 and $1,609 at September 30, 2009 and December 31, 2008, respectively.
As of September 30, 2009 and December 31, 2008, the Company had loans to unconsolidated joint ventures of $1,236 and $932, respectively. Interest income associated with these notes was $11 and $10 for the three months ended September 30, 2009 and 2008, respectively, and $24 and $31 for the nine months ended September 30, 2009 and 2008, respectively. These loans represent initial funds advanced for development stage projects prior to construction loan funding. Correspondingly, loan payables in the same amount have been accrued as an obligation by the various joint ventures.
Due from affiliates of $9,870 and $9,124 at September 30, 2009 and December 31, 2008, respectively, represents unreimbursed costs and fees due from unconsolidated joint ventures under management agreements.
38
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
20. Share and Unit-Based Plans:
The Company has established share and unit-based compensation plans for the purpose of attracting and retaining executive officers, directors and key employees. In addition, the Company has established an Employee Stock Purchase Plan to allow employees to purchase the Company's common stock at a discount.
On February 25, 2009, the Company reduced its workforce by 142 employees out of a total of approximately 2,845 regular and temporary employees. This reduction in workforce was a result of the Company's review and realignment of its strategic priorities, including its expectation of reduced development and redevelopment activity in the near future. As part of the plan, the Company accelerated the vesting of the share and unit-based awards of certain terminated employees. As a result of the modification of the awards, the Company recorded a reduction in compensation cost of $487.
On March 6, 2009, the Company granted 1,600,002 restricted stock units ("RSUs") to certain officers of the Company as an additional component of compensation. The outstanding RSUs vest over three years and the compensation cost related to the grants is determined by the market value at the grant date and is amortized over the vesting period on a straight-line basis. RSUs are subject to restrictions determined by the Company's compensation committee.
The Company records compensation expense on a straight-line basis for awards, with the exception of the market-indexed awards granted under the Long-Term Incentive Plan ("LTIP"). The following summarizes the compensation cost under the share and unit-based plans:
|
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | 2009 | 2008 | |||||||||
LTIP units |
$ | 916 | $ | 1,416 | $ | 2,883 | $ | 4,401 | |||||
Stock awards |
1,568 | 2,812 | 5,261 | 8,805 | |||||||||
Stock units |
954 | | 2,168 | | |||||||||
Stock options |
150 | 150 | 445 | 446 | |||||||||
Stock appreciation rights ("SARs") |
749 | 805 | 2,117 | 1,819 | |||||||||
Phantom stock units |
166 | 162 | 487 | 490 | |||||||||
|
$ | 4,503 | $ | 5,345 | $ | 13,361 | $ | 15,961 | |||||
The Company capitalized share and unit-based compensation costs of $3,768 and $2,636 for the three months ended September 30, 2009 and 2008, respectively, and $7,642 and $7,559 for the nine months ended September 30, 2009 and 2008, respectively.
39
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
20. Share and Unit-Based Plans: (Continued)
The following table summarizes the activity of the other non-vested share and unit based plans:
|
LTIP Units | Stock Awards | Phantom Stock | SARs | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Units | Weighted Average Grant Date Fair Value |
Shares | Weighted Average Grant Date Fair Value |
Units | Weighted Average Grant Date Fair Value |
Units | Weighted Average Grant Date Fair Value |
||||||||||||||||||
Balance at January 1, 2009 |
299,350 | $ | 57.02 | 275,181 | $ | 74.68 | 3,209 | $ | 83.88 | 1,228,384 | $ | 7.68 | ||||||||||||||
Granted |
| | 6,500 | 8.21 | 22,369 | 12.79 | 29,000 | 1.17 | ||||||||||||||||||
Vested |
(46,410 | ) | 65.29 | (151,829 | ) | 76.34 | (24,717 | ) | 19.71 | (91,050 | ) | 7.68 | ||||||||||||||
Forfeited |
| | (460 | ) | 70.19 | | | | | |||||||||||||||||
Balance at September 30, 2009 |
252,940 | $ | 55.50 | 129,392 | $ | 69.41 | 861 | $ | 83.88 | 1,166,334 | $ | 7.51 | ||||||||||||||
21. 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 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 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 and Westcor Partners, L.L.C.
40
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
21. Income Taxes: (Continued)
The income tax benefit (provision) of the TRSs is as follows:
|
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | 2009 | 2008 | |||||||||
Current |
$ | 89 | $ | | $ | | $ | | |||||
Deferred |
(391 | ) | 362 | 878 | 750 | ||||||||
Total income tax (provision) benefit |
$ | (302 | ) | $ | 362 | $ | 878 | $ | 750 | ||||
Deferred tax assets and liabilities are recognized 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 and state 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 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 2028, beginning in 2012. Net deferred tax assets of $6,188 and $13,830 were included in deferred charges and other assets, net at September 30, 2009 and December 31, 2008, respectively.
The tax years 2006-2008 remain open to examination by the taxing jurisdictions to which the Company is subject. The Company does not expect that the total amount of unrecognized tax benefit will materially change within the next 12 months.
22. Cumulative Effect of Adoption of Accounting Principles:
Retrospective Adjustments Related to Convertible Debt:
On January 1, 2009, the Company adopted new accounting pronouncements that impacted the accounting for the Company's Senior Notes. Under these new accounting provisions the Company was required to retrospectively allocate the initial proceeds from the issuance of the Senior Notes between a liability component and an equity component based on the fair value calculated based on the present value of contractual cash flows discounted at an appropriate comparable non-convertible debt borrowing rate at the date of issuance of the Senior Notes. As a result, the Company allocated $869,351 of the initial $940,500 proceeds to the liability component and the remaining $71,149 of proceeds to the equity component at the date of issuance of the Senior Notes.
Retrospective Adjustments Related to Noncontrolling Interests:
On January 1, 2009, the Company adopted new accounting pronouncements that require the noncontrolling interest in a subsidiary to be reported as equity and the amount of consolidated net income specifically attributable to the noncontrolling interest to be included within consolidated net
41
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
22. Cumulative Effect of Adoption of Accounting Principles: (Continued)
income. The new pronouncements also require consistency in the manner of reporting changes in the parent's ownership interest and require fair value measurement of any noncontrolling equity investment retained in a deconsolidation.
As a result of the adoption, the Company classified its redeemable equity interest in one of its consolidated joint ventures as temporary equity due to the possibility that the Company could be required to redeem this interest for cash upon the occurrence of certain events outside the control of the Company. The carrying amount of the redeemable equity interest is equal to its liquidation value, which is the amount payable upon the occurrence of such event.
In addition, the Company reclassified the OP Units and the common and preferred units of MACWH, LP to permanent equity. The OP Units and the common and preferred units of MACWH, LP are redeemable at the election of the holder and the Company may redeem them for cash or shares of stock of the Company at the Company's election. In addition, the Company reclassified outside ownership interests in various consolidated joint ventures to permanent equity.
Further, as a result of the adoption, net income attributable to noncontrolling interests is now excluded from the determination of consolidated net income. In addition, the individual components of other comprehensive income are now presented in the aggregate, with the portion attributable to noncontrolling interests deducted from comprehensive income attributable to common stockholders. Corresponding changes have also been made to the accompanying consolidated statements of cash flows.
42
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
22. Cumulative Effect of Adoption of Accounting Principles: (Continued)
The following is a summary of the impact of adoption of these standards on the financial statements of prior periods and includes reclassifications relating to discontinued operations (See Note 17Discontinued Operations):
|
As Previously Reported |
Adjustments for Convertible Debt |
Reclassification Adjustments(1) |
As Adjusted | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Consolidated Statement of Operations for the three months ended September 30, 2008 |
|||||||||||||||
Revenues: |
|||||||||||||||
Minimum rents |
$ | 133,985 | $ | | $ | (2,902 | ) | $ | 131,083 | ||||||
Tenant recoveries |
70,059 | | (642 | ) | 69,417 | ||||||||||
Other |
7,388 | | (2 | ) | 7,386 | ||||||||||
Total revenues |
225,807 | | (3,546 | ) | 222,261 | ||||||||||
Expenses: |
|||||||||||||||
Shopping center and operating expenses |
74,098 | | (897 | ) | 73,201 | ||||||||||
REIT general and administrative expenses |
2,881 | | 2 | 2,883 | |||||||||||
Depreciation and amortization |
66,637 | | (700 | ) | 65,937 | ||||||||||
Interest expense: |
|||||||||||||||
Other |
65,304 | 3,581 | | 68,885 | |||||||||||
Total expenses |
232,936 | 3,581 | (1,595 | ) | 234,922 | ||||||||||
Loss on sale or write down of assets |
(5,124 | ) | | 907 | (4,217 | ) | |||||||||
Income from continuing operations |
8,037 | (3,581 | ) | (1,044 | ) | 3,412 | |||||||||
Discontinued operations: |
|||||||||||||||
Loss on sale of assets |
(54 | ) | | (907 | ) | (961 | ) | ||||||||
(Loss) income from discontinued operations |
(2 | ) | | 1,949 | 1,947 | ||||||||||
Total (loss) income from discontinued operations |
(56 | ) | | 1,042 | 986 | ||||||||||
Net income |
7,981 | (3,581 | ) | (2 | ) | 4,398 | |||||||||
Less net income attributable to noncontrolling interests |
1,483 | (556 | ) | (2 | ) | 925 | |||||||||
Net income attributable to the Company |
6,498 | (3,025 | ) | | 3,473 | ||||||||||
Net income available to common stockholders |
5,663 | (3,025 | ) | | 2,638 | ||||||||||
Earnings per common share attributable to Companybasic: |
|||||||||||||||
Income from continuing operations |
0.08 | (0.05 | ) | (0.01 | ) | 0.02 | |||||||||
Discontinued operations |
| | 0.01 | 0.01 | |||||||||||
Net income available to common stockholders |
0.08 | (0.05 | ) | | 0.03 | ||||||||||
Earnings per common share attributable to Companydiluted: |
|||||||||||||||
Income from continuing operations |
0.08 | (0.05 | ) | (0.01 | ) | 0.02 | |||||||||
Discontinued operations |
| | 0.01 | 0.01 | |||||||||||
Net income available to common stockholders |
0.08 | (0.05 | ) | | 0.03 |
43
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
22. Cumulative Effect of Adoption of Accounting Principles: (Continued)
|
As Previously Reported |
Adjustments for Convertible Debt |
Reclassification Adjustments(1) |
As Adjusted | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Consolidated Statement of Operations for the nine months ended September 30, 2008 |
|||||||||||||||
Revenues: |
|||||||||||||||
Minimum rents |
$ | 396,745 | $ | | $ | (8,673 | ) | $ | 388,072 | ||||||
Tenant recoveries |
204,977 | | (1,937 | ) | 203,040 | ||||||||||
Other |
20,428 | | (8 | ) | 20,420 | ||||||||||
Total revenues |
662,256 | | (10,618 | ) | 651,638 | ||||||||||
Expenses: |
|||||||||||||||
Shopping center and operating expenses |
214,382 | | (2,702 | ) | 211,680 | ||||||||||
Depreciation and amortization |
185,538 | | (2,431 | ) | 183,107 | ||||||||||
Interest expense: |
|||||||||||||||
Other |
197,258 | 10,661 | (1 | ) | 207,918 | ||||||||||
Total expenses |
678,864 | 10,661 | (5,134 | ) | 684,391 | ||||||||||
Loss on sale or write down of assets |
(3,961 | ) | | 907 | (3,054 | ) | |||||||||
Income from continuing operations |
47,353 | (10,661 | ) | (4,577 | ) | 32,115 | |||||||||
Discontinued operations: |
|||||||||||||||
Gain on sale of assets |
99,096 | | (907 | ) | 98,189 | ||||||||||
Income from discontinued operations |
303 | | 5,484 | 5,787 | |||||||||||
Total income from discontinued operations |
99,399 | | 4,577 | 103,976 | |||||||||||
Net income |
146,752 | (10,661 | ) | | 136,091 | ||||||||||
Less net income attributable to noncontrolling interests |
22,543 | (1,549 | ) | | 20,994 | ||||||||||
Net income attributable to the Company |
124,209 | (9,112 | ) | | 115,097 | ||||||||||
Net income available to common stockholders |
120,085 | (9,112 | ) | | 110,973 | ||||||||||
Earnings per common share attributable to Companybasic: |
|||||||||||||||
Income from continuing operations |
0.48 | (0.13 | ) | (0.06 | ) | 0.29 | |||||||||
Discontinued operations |
1.15 | | 0.06 | 1.21 | |||||||||||
Net income available to common stockholders |
1.63 | (0.13 | ) | | 1.50 | ||||||||||
Earnings per common share attributable to Companydiluted: |
|||||||||||||||
Income from continuing operations |
0.48 | (0.13 | ) | (0.06 | ) | 0.29 | |||||||||
Discontinued operations |
1.15 | | 0.06 | 1.21 | |||||||||||
Net income available to common stockholders |
1.63 | (0.13 | ) | | 1.50 |
|
As Previously Reported |
Restatement Adjustment |
Reclassification Adjustments(1) |
As Restated | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Consolidated Statement of Cash Flows for the nine months ended September 30, 2008 |
|||||||||||||
Net income |
$ | 124,209 | $ | (10,661 | ) | $ | 22,543 | $ | 136,091 | ||||
Amortization of net premium on mortgage and bank and other notes payable |
(6,558 | ) | 10,661 | | 4,103 |
44
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
22. Cumulative Effect of Adoption of Accounting Principles: (Continued)
The following is the pro forma impact for the three and nine months ended September 30, 2009 had the Company not adopted the new standard on convertible debt:
|
Before Adoption |
As Reported |
Adjustment | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Consolidated Statement of Operations for the three months ended September 30, 2009 |
||||||||||||
Interest expense: |
||||||||||||
Other |
$ | 58,934 | $ | 61,374 | $ | 2,440 | ||||||
Gain on early extinguishment of debt |
260 | 455 | 195 | |||||||||
Total expenses |
213,851 | 216,486 | 2,635 | |||||||||
Income from continuing operations |
162,920 | 160,285 | (2,635 | ) | ||||||||
Net income |
167,006 | 164,371 | (2,635 | ) | ||||||||
Less net income attributable to noncontrolling interests |
21,875 | 21,533 | (342 | ) | ||||||||
Net income attributable to the Company |
145,131 | 142,838 | (2,293 | ) | ||||||||
Net income available to common stockholders |
145,131 | 142,838 | (2,293 | ) | ||||||||
Earnings per common share attributable to Companybasic: |
||||||||||||
Income from continuing operations |
1.74 | 1.71 | (0.03 | ) | ||||||||
Net income available to common stockholders |
1.78 | 1.75 | (0.03 | ) | ||||||||
Earnings per common share attributable to Companydiluted: |
||||||||||||
Income from continuing operations |
1.74 | 1.71 | (0.03 | ) | ||||||||
Net income available to common stockholders |
1.78 | 1.75 | (0.03 | ) |
|
As Computed Before Adoption |
As Reported |
Adjustment | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Consolidated Statement of Operations for the nine months ended September 30, 2009 |
||||||||||||
Interest expense: |
||||||||||||
Other |
$ | 183,906 | $ | 191,182 | $ | 7,276 | ||||||
Gain on early extinguishment of debt |
(33,158 | ) | (29,145 | ) | 4,013 | |||||||
Total expenses |
634,018 | 645,307 | 11,289 | |||||||||
Income from continuing operations |
189,776 | 178,487 | (11,289 | ) | ||||||||
Net income |
167,713 | 156,424 | (11,289 | ) | ||||||||
Less net income attributable to noncontrolling interests |
22,784 | 21,306 | (1,478 | ) | ||||||||
Net income attributable to the Company |
144,929 | 135,118 | (9,811 | ) | ||||||||
Net income available to common stockholders |
144,929 | 135,118 | (9,811 | ) | ||||||||
Earnings per common share attributable to Companybasic: |
||||||||||||
Income from continuing operations |
2.10 | 1.96 | (0.14 | ) | ||||||||
Net income available to common stockholders |
1.85 | 1.71 | (0.14 | ) | ||||||||
Earnings per common share attributable to Companydiluted: |
||||||||||||
Income from continuing operations |
2.10 | 1.96 | (0.14 | ) | ||||||||
Net income available to common stockholders |
1.85 | 1.71 | (0.14 | ) |
23. Subsequent Events:
On October 30, 2009, the Company announced a quarterly dividend of $0.60 per share of common stock, consisting of a combination of cash and shares of the Company's common stock. The dividend is payable on December 21, 2009 to stockholders of record at the close of business on November 12, 2009.
45
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
23. Subsequent Events: (Continued)
In order to comply with REIT taxable income distribution requirements, while retaining capital and enhancing the Company's financial flexibility, the Company has determined that the aggregate cash component of the dividend (other than cash paid in lieu of fractional shares) will not exceed 10% in the aggregate, or $0.06 per share, with the balance payable in shares of the Company's common stock.
In accordance with the provisions of IRS Revenue Procedure 2009-15, stockholders will be asked to make an election to receive the dividend all in cash or all in shares. To the extent that more than 10% of cash is elected in the aggregate, the cash portion will be prorated. Stockholders who elect to receive the dividend in cash will receive a cash payment of at least $0.06 per share. Stockholders who do not make an election will receive 10% in cash and 90% in shares of common stock. The number of shares issued as a result of the dividend will be calculated based on the volume weighted average trading prices of the Company's common stock on the New York Stock Exchange on December 9, 2009 through December 11, 2009.
The Company expects the dividend to be a taxable dividend to stockholders, regardless of whether a particular stockholder receives the dividend in the form of cash or shares. The Company reserves the right to pay the dividend entirely in cash.
The Company may again in the future distribute taxable dividends that are payable partially in stock. Taxable stockholders receiving such dividends are required to include the full amount of the dividend as income to the extent of the Company's current and accumulated earnings and profits for federal income tax purposes, and may therefore have a tax liability in excess of the cash they receive.
On October 27, 2009, the Company completed an offering of 12,000,000 newly issued shares of its common stock, as well as the closing of the underwriters' over-allotment option to purchase an additional 1,800,000 shares of common stock. The net proceeds of the offering, after giving effect to the issuance and sale of all 13,800,000 shares of common stock at an initial price to the public of $29.00 per share, were approximately $384,192 after deducting underwriting discounts and commissions. The Company used the net proceeds of the offering to pay down the line of credit.
The Company evaluated activity through November 6, 2009 (the issue date of these Consolidated Financial Statements) and concluded that no subsequent events other than the transactions noted above have occurred that would require recognition or additional disclosure.
46
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
IMPORTANT INFORMATION RELATED TO FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q of The Macerich Company (the "Company") contains or incorporates statements that constitute forward-looking statements within the meaning of the federal securities laws. Any statements that do not relate to historical or current facts or matters are forward-looking statements. You can identify some of the forward-looking statements by the use of forward-looking words, such as "may," "will," "could," "should," "expects," "anticipates," "intends," "projects," "predicts," "plans," "believes," "seeks," and "estimates" and variations of these words and similar expressions. Statements concerning current conditions may also be forward-looking if they imply a continuation of current conditions. Forward-looking statements appear in a number of places in this Form 10-Q and include statements regarding, among other matters: