UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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)
Registrant's telephone number, including area code (310) 394-6000
Securities registered pursuant to Section 12(b) of the Act
Title of each class | Name of each exchange on which registered | |
---|---|---|
Common Stock, $0.01 Par Value | New York Stock Exchange |
Indicate by check mark if the registrant is well-known seasoned issuer, as defined in Rule 405 of the Securities Act
YES ý NO o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act
YES o NO ý
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 12 months (or for such shorter period that the registrant was required to file such report) and (2) has been subject to such filing requirements for the past 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 (§ 232.405 of this chapter) during the preceding 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment on to this Form 10-K. ý
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. (Check one):
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
The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant was approximately $1.4 billion as of the last business day of the registrant's most recent completed second fiscal quarter based upon the price at which the common shares were last sold on that day.
Number of shares outstanding of the registrant's common stock, as of February 16, 2010: 96,652,642 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual stockholders meeting to be held in 2010 are incorporated by reference into Part III of this Form 10-K
THE MACERICH COMPANY
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2009
INDEX
IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K of The Macerich Company (the "Company") contains or incorporates by reference 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-K and include statements regarding, among other matters:
Stockholders are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company or the industry to differ materially from the Company's future results, performance or achievements, or those of the industry, expressed or implied in such forward-looking statements. You are urged to carefully review the disclosures we make concerning risks and other factors that may affect our business and operating results, including those made in "Item 1A. Risk Factors" of this Annual Report on Form 10-K, as well as our other reports filed with the Securities and Exchange Commission ("SEC"). You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document. The Company does not intend, and undertakes no obligation, to update any forward-looking information to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, unless required by law to do so.
General
The Company is involved in the acquisition, ownership, development, redevelopment, management and leasing of regional and community shopping centers located throughout the United States. The Company is the sole general partner of, and owns a majority of the ownership interests in, The Macerich Partnership, L.P., a Delaware limited partnership (the "Operating Partnership"). As of December 31, 2009, the Operating Partnership owned or had an ownership interest in 72 regional shopping centers and 14 community shopping centers totaling approximately 75 million square feet of gross leasable area ("GLA"). These 86 regional and community shopping centers are referred to herein as the "Centers," and consist of consolidated Centers ("Consolidated Centers") and unconsolidated joint venture Centers ("Unconsolidated Joint Venture Centers") as set forth in "Item 2Properties," unless the context otherwise requires. The Company is a self-administered and self-managed real estate
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investment trust ("REIT") and conducts all of its operations through the Operating Partnership and the Company's management companies, Macerich Property Management Company, LLC, a single member Delaware limited liability company, Macerich Management Company, a California corporation, Westcor Partners, 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. All seven of the management companies are collectively referred to herein as the "Management Companies."
The Company was organized as a Maryland corporation in September 1993. All references to the Company in this Annual Report on Form 10-K include the Company, those entities owned or controlled by the Company and predecessors of the Company, unless the context indicates otherwise.
Financial information regarding the Company for each of the last three fiscal years is contained in the Company's Consolidated Financial Statements included in Item 15. Exhibits and Financial Statement Schedules.
Recent Developments
Acquisitions and Dispositions:
On July 30, 2009, the Company sold a 49% ownership interest in Queens Center to a third party for approximately $152.7 million, resulting in a gain on sale of assets of $154.2 million. The Company used the proceeds from the sale of the ownership interest in the property to pay down the Company's term loan and for general corporate purposes. As of the date of the sale, the Company has accounted for the operations of Queens Center under the equity method of accounting.
On September 3, 2009, the Company formed a joint venture with a third party, whereby the Company sold a 75% interest in FlatIron Crossing and received approximately $123.8 million in cash proceeds for the overall transaction. The Company used the proceeds from the sale of the ownership interest in the property to pay down the Company's term loan and for general corporate purposes. 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 in the Company's Notes to the Consolidated Financial Statements). As of the date of the sale, the Company has accounted for the operations of FlatIron Crossing under the equity method of accounting.
On September 29, 2009, the Company sold a leasehold interest in a former Mervyn's store for $4.5 million, resulting in a gain on sale of assets of $4.1 million. The Company used the proceeds from the sale to pay down the Company's line of credit and for general corporate purposes.
On September 30, 2009, the Company formed a joint venture with a third party, whereby the third party acquired a 49.9% interest in Freehold Raceway Mall and Chandler Fashion Center. The Company received approximately $174.6 million in cash proceeds for the overall transaction. The Company used the proceeds from this transaction to pay down the Company's line of credit and for general corporate purposes. As part of this transaction, the Company issued a warrant for an aggregate of 935,358 shares of common stock of the Company. (See Note 15Stockholders' Equity in the Company's Notes to the Consolidated Financial Statements). 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 was established for the amount of $168.2 million representing the net cash proceeds received from the third party less the value allocated to the warrant.
In addition, in 2009 the Company sold six non-core community centers for $83.2 million and sold five former Mervyn's stores for approximately $52.7 million. The Company used the proceeds from
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these sales to pay down the Company's line of credit and term loan and for general corporate purposes.
Financing Activity:
On February 2, 2009, the Company refinanced the existing loan on Queens Center with a $130.0 million loan that bears interest at a rate of 7.78% and matures on March 1, 2013. The Company used the net loan proceeds to pay down the Company's line of credit and for general corporate purposes. On July 30, 2009, 49.0% of the loan balance on Queens Center was assumed by a third party in connection with the sale to that party of a 49.0% interest in the underlying property. See "Recent DevelopmentsAcquisitions and Dispositions."
On May 1, 2009, the Company paid off the existing loan on Paradise Valley Mall. On August 31, 2009, the Company placed a new $85.0 million loan on the property that bears interest at LIBOR plus 4.0% with a total interest rate floor of 5.50% and matures on August 31, 2012 with two one-year extension options.
On May 11, 2009, Pacific Premier Retail Trust, one of the Company's joint ventures, replaced the existing loan on the Redmond Office with a new $62.0 million loan that bears interest at 7.52% and matures on May 15, 2014. The Company used its pro rata share of the net loan proceeds to pay down the Company's line of credit and for general corporate purposes.
On June 10, 2009, the Company's joint venture in The Shops at North Bridge replaced its existing loan with a new $205.0 million loan that bears interest at 7.52% and matures on June 15, 2016.
On August 21, 2009, Pacific Premier Retail Trust, one of the Company's joint ventures, replaced the existing loan on Redmond Town Center with a $74.0 million draw on a credit facility that is cross-collateralized by Redmond Town Center, Cross Court Plaza and Northpoint Plaza, bears interest at LIBOR plus 4.0% with a 2.0% LIBOR floor and matures on August 21, 2011, with a one-year extension option. On February 1, 2010, the joint venture borrowed an additional $81.0 million under the facility and paid off the existing loans on Cascade Mall, Kitsap Mall and Kitsap Place and added those properties as collateral.
On September 3, 2009, 75.0% of the loan balance on FlatIron Crossing was assumed by a third party in connection with the sale to that party of a 75.0% interest in the underlying property. See "Recent DevelopmentsAcquisitions and Dispositions."
On September 10, 2009, the Company's joint venture refinanced the existing loan on Biltmore Fashion Park, a $60.0 million loan that bears interest at 8.25% and matures on October 1, 2014.
On September 30, 2009, 49.9% of the loan balances on Freehold Raceway Mall and Chandler Fashion Center were assumed by a third party in connection with the Company entering into a co-venture arrangement with that party. See "Recent DevelopmentsAcquisitions and Dispositions."
On October 27, 2009, the Company completed an offering of 12,000,000 newly issued shares of its common stock, as well as an additional 1,800,000 newly issued shares of common stock in connection with the underwriters' exercise of its over-allotment option. 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 $383.4 million after deducting underwriting discounts, commissions and other transaction costs. The Company used the net proceeds of the offering to pay down its line of credit.
On October 29, 2009, the Company's joint venture in Corte Madera replaced the existing loan on the property with a new $80.0 million loan that bears interest at 7.27% and matures on November 1, 2016. The Company used its pro rata share of the net loan proceeds to pay down the Company's line of credit and for general corporate purposes.
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On December 29, 2009, the Company placed a construction loan on Northgate Mall that allows for borrowings of up to $60.0 million, bears interest at LIBOR plus 4.5% with a total interest rate floor of 6.0% and matures on January 1, 2013, with two one-year extension options. The loan also includes a provision that allows for additional borrowings of up to $20.0 million, depending on certain conditions. The net loan proceeds were used to pay down the Company's line of credit and for general corporate purposes.
During the year ended December 31, 2009, the Company paid off its $446.3 million term loan that was scheduled to mature on April 26, 2010. As a result, the Company recognized a loss of $0.7 million on the early extinguishment of debt. The repayment was funded from the proceeds from the sale of the ownership interests in Queens Center and FlatIron Crossing, and through additional borrowings under the Company's line of credit.
During the year ended December 31, 2009, the Company repurchased and retired $89.1 million of convertible senior notes ("Senior Notes") for $53.4 million. This early retirement of debt resulted in a gain of $29.8 million on early extinguishment of debt. The repurchases were funded through additional borrowings under the Company's line of credit.
Redevelopment and Development Activity:
Northgate Mall, the Company's 712,771 square foot regional mall in Marin County, California, opened the first phase of its redevelopment on November 12, 2009. New anchor Kohl's was joined by retailers H&M, BJ's Restaurant, Children's Place, Chipotle, Gymboree, Hot Topic, PacSun, Panera Bread, See's Candies, Sunglass Hut, Tilly's and Vans. As of December 31, 2009, the Company incurred approximately $66.5 million of redevelopment costs for this Center and is estimating it will incur approximately $12.5 million of additional costs in 2010.
Santa Monica Place in Santa Monica, California, is scheduled to open in August 2010 with anchors Bloomingdale's and Nordstrom. The Company recently announced deals with Tony Burch, Ben Bridge Jewelers and Charles David. As of December 31, 2009, the Company incurred approximately $163.2 million of redevelopment costs for this Center and is estimating it will incur approximately $101.8 million of additional costs in 2010.
The Shopping Center Industry
General
There are several types of retail shopping centers, which are differentiated primarily based on size and marketing strategy. Regional shopping centers generally contain in excess of 400,000 square feet of GLA and are typically anchored by two or more department or large retail stores ("Anchors") and are referred to as "Regional Shopping Centers" or "Malls." Regional Shopping Centers also typically contain numerous diversified retail stores ("Mall Stores"), most of which are national or regional retailers typically located along corridors connecting the Anchors. Community Shopping Centers, also referred to as "strip centers", "urban villages" or "specialty centers," are retail shopping centers that are designed to attract local or neighborhood customers and are typically anchored by one or more supermarkets, discount department stores and/or drug stores. Community Shopping Centers typically contain 100,000 square feet to 400,000 square feet of GLA. In addition, freestanding retail stores are located along the perimeter of the shopping centers ("Freestanding Stores"). Mall Stores and Freestanding Stores over 10,000 square feet are also referred to as "Big Box." Anchors, Mall Stores and Freestanding Stores and other tenants typically contribute funds for the maintenance of the common areas, property taxes, insurance, advertising and other expenditures related to the operation of the shopping center.
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Regional Shopping Centers:
A Regional Shopping Center draws from its trade area by offering a variety of fashion merchandise, hard goods and services and entertainment, often in an enclosed, climate controlled environment with convenient parking. Regional Shopping Centers provide an array of retail shops and entertainment facilities and often serve as the town center and the preferred gathering place for community, charity, and promotional events.
Regional Shopping Centers have generally provided owners with relatively stable income despite the cyclical nature of the retail business. This stability is due both to the diversity of tenants and to the typical dominance of Regional Shopping Centers in their trade areas.
Regional Shopping Centers have different strategies with regard to price, merchandise offered and tenant mix, and are generally tailored to meet the needs of their trade areas. Anchor tenants are located along common areas in a configuration designed to maximize consumer traffic for the benefit of the Mall Stores. Mall GLA, which generally refers to GLA contiguous to the Anchors for tenants other than Anchors, is leased to a wide variety of smaller retailers. Mall Stores typically account for the majority of the revenues of a Regional Shopping Center.
Business of the Company
Strategy:
The Company has a long-term four-pronged business strategy that focuses on the acquisition, leasing and management, redevelopment and development of Regional Shopping Centers.
Acquisitions. The Company focuses on well-located, quality Regional Shopping Centers that can be dominant in their trade area and have strong revenue enhancement potential. The Company subsequently seeks to improve operating performance and returns from these properties through leasing, management and redevelopment. Since its initial public offering, the Company has acquired interests in shopping centers nationwide. The Company believes that it is geographically well positioned to cultivate and maintain ongoing relationships with potential sellers and financial institutions and to act quickly when acquisition opportunities arise. (See "Recent DevelopmentsAcquisitions and Dispositions").
Leasing and Management. The Company believes that the shopping center business requires specialized skills across a broad array of disciplines for effective and profitable operations. For this reason, the Company has developed a fully integrated real estate organization with in-house acquisition, accounting, development, finance, leasing, legal, marketing, property management and redevelopment expertise. In addition, the Company emphasizes a philosophy of decentralized property management, leasing and marketing performed by on-site professionals. The Company believes that this strategy results in the optimal operation, tenant mix and drawing power of each Center, as well as the ability to quickly respond to changing competitive conditions of the Center's trade area.
The Company believes that on-site property managers can most effectively operate the Centers. Each Center's property manager is responsible for overseeing the operations, marketing, maintenance and security functions at the Center. Property managers focus special attention on controlling operating costs, a key element in the profitability of the Centers, and seek to develop strong relationships with and to be responsive to the needs of retailers.
Similarly, the Company generally utilizes on-site and regionally located leasing managers to better understand the market and the community in which a Center is located. The Company continually assesses and fine tunes each Center's tenant mix, identifies and replaces underperforming tenants and seeks to optimize existing tenant sizes and configurations.
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On a selective basis, the Company provides property management and leasing services for third parties. The Company currently manages five malls and three community centers for third party owners on a fee basis.
Redevelopment. One of the major components of the Company's growth strategy is its ability to redevelop acquired properties. For this reason, the Company has built a staff of redevelopment professionals who have primary responsibility for identifying redevelopment opportunities that they believe will result in enhanced long-term financial returns and market position for the Centers. The redevelopment professionals oversee the design and construction of the projects in addition to obtaining required governmental approvals. (See "Recent DevelopmentsRedevelopment and Development Activity").
Development. The Company pursues ground-up development projects on a selective basis. The Company has supplemented its strong acquisition, operations and redevelopment skills with its ground-up development expertise to further increase growth opportunities. (See "Recent DevelopmentsRedevelopment and Development Activity").
The Centers
As of December 31, 2009, the Centers consist of 72 Regional Shopping Centers and 14 Community Shopping Centers totaling approximately 75 million square feet of GLA. The 72 Regional Shopping Centers in the Company's portfolio average approximately 955,000 square feet of GLA and range in size from 2.2 million square feet of GLA at Tysons Corner Center to 314,305 square feet of GLA at Panorama Mall. The Company's 14 Community Shopping Centers have an average of approximately 276,000 square feet of GLA. As of December 31, 2009, the Centers included 300 Anchors totaling approximately 39.4 million square feet of GLA and approximately 8,500 Mall Stores and Freestanding Stores totaling approximately 35.2 million square feet of GLA.
Competition
There are numerous owners and developers of real estate that compete with the Company in its trade areas. There are six other publicly traded mall companies in the United States and several large private mall companies, any of which under certain circumstances could compete against the Company for an acquisition, an Anchor or a tenant. In addition, private equity firms compete with the Company in terms of acquisitions. This results in competition for both acquisition of centers and for tenants or Anchors to occupy space. The existence of competing shopping centers could have a material adverse impact on the Company's ability to lease space and on the level of rent that can be achieved. There is also increasing competition from other retail formats and technologies, such as lifestyle centers, power centers, Internet shopping, home shopping networks, factory outlet centers, discount shopping clubs and mail-order services that could adversely affect the Company's revenues.
In making leasing decisions, the Company believes that retailers consider the following material factors relating to a center: quality, design and location, including consumer demographics; rental rates; type and quality of Anchors and retailers at the center; and management and operational experience and strategy of the center. The Company believes it is able to compete effectively for retail tenants in its local markets based on these criteria in light of the overall size, quality and diversity of its portfolio of Centers.
Major Tenants
The Centers derived approximately 79% of their total rents for the year ended December 31, 2009 from Mall Stores and Freestanding Stores under 10,000 square feet. Big Box and Anchor tenants accounted for 21.0% of total rents for the year ended December 31, 2009. One tenant accounted for
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approximately 2.5% of total rents of the Company, and no other single tenant accounted for more than 2.4% of total rents as of December 31, 2009.
The following retailers (including their subsidiaries) represent the 10 largest rent payers in the Company's portfolio (including joint ventures) based upon total rents in place as of December 31, 2009:
Tenant
|
Primary DBA's | Number of Locations in the Portfolio |
% of Total Rents(1) |
||||||
---|---|---|---|---|---|---|---|---|---|
Gap Inc. |
Gap, Banana Republic, Old Navy | 94 | 2.5 | % | |||||
Limited Brands, Inc. |
Victoria Secret, Bath and Body | 144 | 2.4 | % | |||||
Forever 21, Inc. |
Forever 21, XXI Forever | 48 | 1.9 | % | |||||
Foot Locker, Inc. |
Footlocker, Champs Sports, Lady Footlocker | 143 | 1.7 | % | |||||
Abercrombie & Fitch Co. |
Abercrombie & Fitch, Abercrombie, Hollister | 81 | 1.6 | % | |||||
AT&T Mobility LLC(2) |
AT&T Wireless, Cingular Wireless | 29 | 1.3 | % | |||||
Luxottica Group |
Lenscrafters, Sunglass Hut | 156 | 1.3 | % | |||||
American Eagle Outfitters, Inc. |
American Eagle Outfitters | 66 | 1.3 | % | |||||
Macy's, Inc. |
Macy's, Bloomingdale's | 65 | 1.0 | % | |||||
Signet Group PLC |
Kay Jewelers, Weisfield Jewelers | 76 | 1.0 | % |
Mall Stores and Freestanding Stores
Mall Store and Freestanding Store leases generally provide for tenants to pay rent comprised of a base (or "minimum") rent and a percentage rent based on sales. In some cases, tenants pay only minimum rent, and in other cases, tenants pay only percentage rent. Historically, most leases for Mall Stores and Freestanding Stores contained provisions that allowed the Centers to recover their costs for maintenance of the common areas, property taxes, insurance, advertising and other expenditures related to the operations of the Center. Since January 2005, the Company generally began entering into leases that require tenants to pay a stated amount for such operating expenses, generally excluding property taxes, regardless of the expenses the Company actually incurs at any Center.
Tenant space of 10,000 square feet and under in the portfolio at December 31, 2009 comprises 69.1% of all Mall Store and Freestanding Store space. The Company uses tenant spaces of 10,000 square feet and under for comparing rental rate activity. Mall Store and Freestanding Store space greater than 10,000 square feet is inconsistent in size and configuration throughout the Company's portfolio and as a result does not lend itself to a meaningful comparison of rental rate activity with the Company's other space. Most of the non-anchor space over 10,000 square feet is not physically connected to the mall, does not share the same common area amenities and does not benefit from the foot traffic in the mall. As a result, space greater than 10,000 square feet has a unique rent structure that is inconsistent with mall space under 10,000 square feet. Mall Store and Freestanding Store space under 10,000 square feet is more consistent in terms of shape and configuration and, as such, the Company is able to provide a meaningful comparison of rental rate activity for this space.
When an existing lease expires, the Company is often able to enter into a new lease with a higher base rent component. The average base rent for new Mall Store and Freestanding Store leases at the Consolidated Centers, 10,000 square feet and under, executed during 2009 was $38.15 per square foot, or 11.9% higher than the average base rent for all Mall Stores and Freestanding Stores at the Consolidated Centers, 10,000 square feet and under, expiring during 2009 of $34.10 per square foot.
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The following tables set forth the average base rent per square foot for the Centers, as of December 31 for each of the past five years:
For the Years Ended December 31,
|
Average Base Rent Per Square Foot(1) |
Avg. Base Rent Per Sq.Ft. on Leases Executed During the Year(2) |
Avg. Base Rent Per Sq. Ft. on Leases Expiring During the Year(3) |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Consolidated Centers: |
||||||||||
2009 |
$ | 37.77 | $ | 38.15 | $ | 34.10 | ||||
2008 |
$ | 41.39 | $ | 42.70 | $ | 35.14 | ||||
2007 |
$ | 38.49 | $ | 43.23 | $ | 34.21 | ||||
2006 |
$ | 37.55 | $ | 38.40 | $ | 31.92 | ||||
2005 |
$ | 34.23 | $ | 35.60 | $ | 30.71 | ||||
Unconsolidated Joint Venture Centers: |
||||||||||
2009 |
$ | 45.56 | $ | 43.52 | $ | 37.56 | ||||
2008 |
$ | 42.14 | $ | 49.74 | $ | 37.61 | ||||
2007 |
$ | 38.72 | $ | 47.12 | $ | 34.87 | ||||
2006 |
$ | 37.94 | $ | 41.43 | $ | 36.19 | ||||
2005 |
$ | 36.35 | $ | 39.08 | $ | 30.18 |
For the Years Ended December 31,
|
Average Base Rent Per Square Foot(1) |
Avg. Base Rent Per Sq.Ft. on Leases Executed During the Year(2) |
Number of Leases Executed during the Year |
Avg. Base Rent Per Sq. Ft. on Leases Expiring During the Year(3) |
Number of Leases Expiring during the Year |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Consolidated Centers: |
||||||||||||||||
2009 |
$ | 9.66 | $ | 10.13 | 19 | $ | 20.84 | 5 | ||||||||
2008 |
$ | 9.53 | $ | 11.44 | 26 | $ | 9.21 | 18 | ||||||||
2007 |
$ | 9.08 | $ | 18.51 | 17 | $ | 20.13 | 3 | ||||||||
2006 |
$ | 8.36 | $ | 13.06 | 15 | $ | 8.47 | 4 | ||||||||
2005 |
$ | 7.81 | $ | 10.70 | 18 | $ | 17.91 | 2 | ||||||||
Unconsolidated Joint Venture Centers: |
||||||||||||||||
2009 |
$ | 11.60 | $ | 31.73 | 16 | $ | 19.98 | 16 | ||||||||
2008 |
$ | 11.16 | $ | 14.38 | 14 | $ | 10.59 | 5 | ||||||||
2007 |
$ | 10.89 | $ | 18.21 | 13 | $ | 11.03 | 5 | ||||||||
2006 |
$ | 9.69 | $ | 15.90 | 14 | $ | 7.53 | 2 | ||||||||
2005 |
$ | 9.32 | $ | 20.17 | 11 | $ | 2.27 | 1 |
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under redevelopment. The leases for Promenade at Casa Grande, SanTan Village Power Center and SanTan Village Regional Center were excluded for 2007 and 2008 because they were under development. The leases for The Market at Estrella Falls and Santa Monica Place were excluded for 2008 and 2009 because they were under development and redevelopment, respectively.
Cost of Occupancy
A major factor contributing to tenant profitability is cost of occupancy, which consists of tenant occupancy costs charged by the Company. Tenant expenses included in this calculation are minimum rents, percentage rents and recoverable expenditures, which consist primarily of property operating expenses, real estate taxes and repair and maintenance expenditures. These tenant charges are collectively referred to as tenant occupancy costs. These tenant occupancy costs are compared to tenant sales. A low cost of occupancy percentage shows more capacity for the Company to increase rents at the time of lease renewal than a high cost of occupancy percentage. The following table summarizes occupancy costs for Mall Store and Freestanding Store tenants in the Centers as a percentage of total Mall Store sales for the last five years:
|
For Years Ended December 31, | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||
Consolidated Centers: |
||||||||||||||||
Minimum rents |
9.1 | % | 8.9 | % | 8.0 | % | 8.1 | % | 8.3 | % | ||||||
Percentage rents |
0.4 | % | 0.4 | % | 0.4 | % | 0.4 | % | 0.5 | % | ||||||
Expense recoveries(1) |
4.7 | % | 4.4 | % | 3.8 | % | 3.7 | % | 3.6 | % | ||||||
|
14.2 | % | 13.7 | % | 12.2 | % | 12.2 | % | 12.4 | % | ||||||
Unconsolidated Joint Venture Centers: |
||||||||||||||||
Minimum rents |
9.4 | % | 8.2 | % | 7.3 | % | 7.2 | % | 7.4 | % | ||||||
Percentage rents |
0.4 | % | 0.4 | % | 0.5 | % | 0.6 | % | 0.5 | % | ||||||
Expense recoveries(1) |
4.3 | % | 3.9 | % | 3.2 | % | 3.1 | % | 3.0 | % | ||||||
|
14.1 | % | 12.5 | % | 11.0 | % | 10.9 | % | 10.9 | % | ||||||
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Lease Expirations
The following tables show scheduled lease expirations (for Centers owned as of December 31, 2009) for the next ten years, assuming that none of the tenants exercise renewal options:
I. Mall Stores and Freestanding Stores under 10,000 square feet:
Consolidated Centers:
Year Ending December 31,
|
Number of Leases Expiring |
Approximate GLA of Leases Expiring(1) |
% of Total Leased GLA Represented by Expiring Leases(1) |
Ending Base Rent per Square Foot of Expiring Leases(1) |
% of Base Rent Represented by Expiring Leases(1) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
405 | 734,699 | 11.33 | % | $ | 37.02 | 10.91 | % | ||||||||
2011 |
393 | 811,159 | 12.51 | % | $ | 37.01 | 12.04 | % | ||||||||
2012 |
317 | 722,842 | 11.15 | % | $ | 35.29 | 10.23 | % | ||||||||
2013 |
273 | 606,831 | 9.36 | % | $ | 37.15 | 9.04 | % | ||||||||
2014 |
237 | 510,594 | 7.88 | % | $ | 35.87 | 7.34 | % | ||||||||
2015 |
209 | 519,385 | 8.01 | % | $ | 37.53 | 7.81 | % | ||||||||
2016 |
220 | 543,483 | 8.38 | % | $ | 40.11 | 8.74 | % | ||||||||
2017 |
292 | 754,655 | 11.64 | % | $ | 40.57 | 12.28 | % | ||||||||
2018 |
256 | 636,338 | 9.81 | % | $ | 40.79 | 10.41 | % | ||||||||
2019 |
180 | 468,021 | 7.22 | % | $ | 43.21 | 8.11 | % |
Unconsolidated Joint Venture Centers (at the Company's pro rata share):
Year Ending December 31,
|
Number of Leases Expiring |
Approximate GLA of Leases Expiring(1) |
% of Total Leased GLA Represented by Expiring Leases(1) |
Ending Base Rent per Square Foot of Expiring Leases(1) |
% of Base Rent Represented by Expiring Leases(1) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
536 | 531,222 | 13.76 | % | $ | 38.39 | 11.35 | % | ||||||||
2011 |
451 | 489,538 | 12.68 | % | $ | 39.20 | 10.68 | % | ||||||||
2012 |
360 | 370,953 | 9.61 | % | $ | 42.13 | 8.70 | % | ||||||||
2013 |
330 | 360,034 | 9.33 | % | $ | 46.77 | 9.37 | % | ||||||||
2014 |
318 | 371,575 | 9.63 | % | $ | 49.41 | 10.22 | % | ||||||||
2015 |
301 | 372,277 | 9.65 | % | $ | 53.50 | 11.09 | % | ||||||||
2016 |
298 | 357,090 | 9.25 | % | $ | 51.54 | 10.24 | % | ||||||||
2017 |
256 | 363,346 | 9.41 | % | $ | 45.78 | 9.26 | % | ||||||||
2018 |
211 | 275,964 | 7.15 | % | $ | 50.79 | 7.80 | % | ||||||||
2019 |
195 | 234,524 | 6.08 | % | $ | 58.75 | 7.67 | % |
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II. Big Box and Anchors:
Consolidated Centers:
Year Ending December 31,
|
Number of Leases Expiring |
Approximate GLA of Leases Expiring(1) |
% of Total Leased GLA Represented by Expiring Leases(1) |
Ending Base Rent per Square Foot of Expiring Leases(1) |
% of Base Rent Represented by Expiring Leases(1) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
10 | 313,587 | 3.66 | % | $ | 10.64 | 4.40 | % | ||||||||
2011 |
13 | 585,637 | 6.84 | % | $ | 6.87 | 5.30 | % | ||||||||
2012 |
29 | 1,769,667 | 20.68 | % | $ | 5.99 | 13.97 | % | ||||||||
2013 |
11 | 336,464 | 3.93 | % | $ | 10.72 | 4.75 | % | ||||||||
2014 |
18 | 827,491 | 9.67 | % | $ | 7.39 | 8.05 | % | ||||||||
2015 |
14 | 916,199 | 10.70 | % | $ | 5.26 | 6.35 | % | ||||||||
2016 |
12 | 715,430 | 8.36 | % | $ | 6.08 | 5.73 | % | ||||||||
2017 |
16 | 382,273 | 4.47 | % | $ | 15.01 | 7.56 | % | ||||||||
2018 |
20 | 377,204 | 4.41 | % | $ | 15.01 | 7.46 | % | ||||||||
2019 |
16 | 355,612 | 4.15 | % | $ | 13.83 | 6.48 | % |
Unconsolidated Joint Venture Centers (at the Company's pro rata share):
Year Ending December 31,
|
Number of Leases Expiring |
Approximate GLA of Leases Expiring(1) |
% of Total Leased GLA Represented by Expiring Leases(1) |
Ending Base Rent per Square Foot of Expiring Leases(1) |
% of Base Rent Represented by Expiring Leases(1) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
26 | 476,985 | 7.75 | % | $ | 15.63 | 8.69 | % | ||||||||
2011 |
18 | 350,072 | 5.69 | % | $ | 7.30 | 2.98 | % | ||||||||
2012 |
27 | 627,269 | 10.20 | % | $ | 12.94 | 9.47 | % | ||||||||
2013 |
28 | 523,790 | 8.51 | % | $ | 21.26 | 12.98 | % | ||||||||
2014 |
34 | 737,573 | 11.99 | % | $ | 14.65 | 12.59 | % | ||||||||
2015 |
36 | 890,264 | 14.47 | % | $ | 12.49 | 12.97 | % | ||||||||
2016 |
27 | 461,563 | 7.50 | % | $ | 17.43 | 9.38 | % | ||||||||
2017 |
14 | 197,687 | 3.21 | % | $ | 23.22 | 5.35 | % | ||||||||
2018 |
10 | 366,694 | 5.96 | % | $ | 4.47 | 1.91 | % | ||||||||
2019 |
7 | 72,030 | 1.17 | % | $ | 46.90 | 3.94 | % |
Anchors
Anchors have traditionally been a major factor in the public's identification with Regional Shopping Centers. Anchors are generally department stores whose merchandise appeals to a broad range of shoppers. Although the Centers receive a smaller percentage of their operating income from Anchors than from Mall Stores and Freestanding Stores, strong Anchors play an important part in maintaining customer traffic and making the Centers desirable locations for Mall Store and Freestanding Store tenants.
Anchors either own their stores, the land under them and in some cases adjacent parking areas, or enter into long-term leases with an owner at rates that are lower than the rents charged to tenants of Mall Stores and Freestanding Stores. Each Anchor, that owns its own store, and certain Anchors that lease their stores, enter into reciprocal easement agreements with the owner of the Center covering, among other things, operational matters, initial construction and future expansion.
Anchors accounted for approximately 6.9% of the Company's total minimum rent for the year ended December 31, 2009.
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The following table identifies each Anchor, each parent company that owns multiple Anchors and the number of square feet owned or leased by each such Anchor or parent company in the Company's portfolio at December 31, 2009:
Name
|
Number of Anchor Stores |
GLA Owned by Anchor |
GLA Leased by Anchor |
Total GLA Occupied by Anchor |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Macy's Inc. |
|||||||||||||||
Macy's |
53 | 5,212,558 | 3,421,845 | 8,634,403 | |||||||||||
Bloomingdale's(1) |
2 | 255,888 | 102,000 | 357,888 | |||||||||||
Total |
55 | 5,468,446 | 3,523,845 | 8,992,291 | |||||||||||
Sears Holdings Corporation |
|||||||||||||||
Sears |
48 | 3,303,956 | 3,238,020 | 6,541,976 | |||||||||||
Great Indoors, The |
1 | 131,051 | | 131,051 | |||||||||||
K-Mart |
1 | 86,479 | | 86,479 | |||||||||||
Total |
50 | 3,521,486 | 3,238,020 | 6,759,506 | |||||||||||
J.C. Penney |
45 | 4,145,973 | 1,869,157 | 6,015,130 | |||||||||||
Dillard's |
24 | 636,569 | 3,444,317 | 4,080,886 | |||||||||||
Nordstrom(2) |
14 | 1,351,723 | 995,691 | 2,347,414 | |||||||||||
Target |
11 | 664,110 | 811,905 | 1,476,015 | |||||||||||
The Bon-Ton Stores, Inc. |
|||||||||||||||
Younkers |
6 | 397,119 | 212,058 | 609,177 | |||||||||||
Bon-Ton, The |
1 | 71,222 | | 71,222 | |||||||||||
Herberger's |
4 | 402,573 | | 402,573 | |||||||||||
Total |
11 | 870,914 | 212,058 | 1,082,972 | |||||||||||
Forever 21(3) |
9 | 542,551 | 324,601 | 867,152 | |||||||||||
Kohl's |
6 | 279,400 | 239,902 | 519,302 | |||||||||||
Boscov's |
3 | 301,350 | 174,717 | 476,067 | |||||||||||
Neiman Marcus |
3 | 220,071 | 221,379 | 441,450 | |||||||||||
Home Depot |
3 | 274,402 | 120,530 | 394,932 | |||||||||||
Wal-Mart |
2 | | 371,527 | 371,527 | |||||||||||
Costco |
2 | 166,718 | 154,701 | 321,419 | |||||||||||
Lord & Taylor |
3 | 320,007 | | 320,007 | |||||||||||
Burlington Coat Factory |
3 | 74,585 | 186,570 | 261,155 | |||||||||||
Dick's Sporting Goods |
3 | 257,241 | | 257,241 | |||||||||||
Von Maur |
3 | 246,249 | | 246,249 | |||||||||||
Belk |
3 | 51,240 | 149,685 | 200,925 | |||||||||||
La Curacao |
1 | | 164,656 | 164,656 | |||||||||||
Barneys New York |
2 | 62,046 | 81,398 | 143,444 | |||||||||||
Lowe's |
1 | | 135,197 | 135,197 | |||||||||||
Saks Fifth Avenue |
1 | 92,000 | | 92,000 | |||||||||||
L.L. Bean |
1 | 75,778 | | 75,778 | |||||||||||
Cabela's(4) |
1 | | 75,000 | 75,000 | |||||||||||
Best Buy |
1 | | 65,841 | 65,841 | |||||||||||
Richman Gordman 1/2 Price |
1 | 60,000 | | 60,000 | |||||||||||
Sports Authority |
1 | 52,250 | | 52,250 | |||||||||||
Bealls |
1 | 40,000 | | 40,000 | |||||||||||
Vacant Anchors(5) |
12 | 1,173,543 | | 1,173,543 | |||||||||||
Total |
276 | 20,948,652 | 16,560,697 | 37,509,349 | |||||||||||
Anchors at centers not owned by the Company(6) |
|||||||||||||||
Forever 21 |
6 | | 479,726 | 479,726 | |||||||||||
Kohl's |
3 | | 270,390 | 270,390 | |||||||||||
Burlington Coat Factory(7) |
1 | | 83,232 | 83,232 | |||||||||||
Vacant Anchors(6) |
14 | | 1,081,415 | 1,081,415 | |||||||||||
Total |
300 | 20,948,652 | 18,475,460 | 39,424,112 | |||||||||||
12
Environmental Matters
Each of the Centers has been subjected to an Environmental Site AssessmentPhase I (which involves review of publicly available information and general property inspections, but does not involve soil sampling or ground water analysis) completed by an environmental consultant.
Based on these assessments, and on other information, the Company is aware of the following environmental issues that may reasonably result in costs associated with future investigation or remediation, or in environmental liability:
See "Risk FactorsPossible environmental liabilities could adversely affect us."
Insurance
Each of the Centers has comprehensive liability, fire, extended coverage and rental loss insurance with insured limits customarily carried for similar properties. The Company does not insure certain types of losses (such as losses from wars) because they are either uninsurable or not economically
13
insurable. In addition, while the Company or the relevant joint venture, as applicable, further carries specific earthquake insurance on the Centers located in California, the policies are subject to a deductible equal to 5% of the total insured value of each Center, a $100,000 per occurrence minimum and a combined annual aggregate loss limit of $150 million on these Centers. The Company or the relevant joint venture, as applicable, carries specific earthquake insurance on the Centers located in the Pacific Northwest. However, the policies are subject to a deductible equal to 2% of the total insured value of each Center, a $50,000 per occurrence minimum and a combined annual aggregate loss limit of $800 million on these Centers. While the Company or the relevant joint venture also carries terrorism insurance on the Centers, the policies are subject to a $50,000 deductible and a combined annual aggregate loss of $800 million. Each Center has environmental insurance covering eligible third-party losses, remediation and non-owned disposal sites, subject to a $100,000 deductible and a $20 million five-year aggregate limit. Some environmental losses are not covered by this insurance because they are uninsurable or not economically insurable. Furthermore, the Company carries title insurance on substantially all of the Centers for less than their full value.
Qualification as a Real Estate Investment Trust
The Company elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"), commencing with its first taxable year ended December 31, 1994, and intends to conduct its operations so as to continue to qualify as a REIT under the Code. As a REIT, the Company generally will not be subject to federal and state income taxes on its net taxable income that it currently distributes to stockholders. Qualification and taxation as a REIT depends on the Company's ability to meet certain dividend distribution tests, share ownership requirements and various qualification tests prescribed in the Code.
Employees
As of December 31, 2009, the Company and the Management Companies had 2,749 regular and temporary employees, including executive officers (9), personnel in the areas of acquisitions and business development (39), property management/marketing (419), leasing (133), redevelopment/development (98), financial services (286) and legal affairs (61). In addition, in an effort to minimize operating costs, the Company generally maintains its own security and guest services staff (1,685) and in some cases maintenance staff (19). Unions represent twenty-two of these employees. The Company primarily engages a third party to handle maintenance at the Centers. The Company believes that relations with its employees are good.
Seasonality
For a discussion of the extent to which the Company's business may be seasonal, see "Item 7Management's Discussion and Analysis of Financial Condition and Results of OperationsManagement's Overview and SummarySeasonality."
Available Information; Website Disclosure; Corporate Governance Documents
The Company's corporate website address is www.macerich.com. The Company makes available free-of-charge through this website its reports on Forms 10-K, 10-Q and 8-K and all amendments thereto, as soon as reasonably practicable after the reports have been filed with, or furnished to, the SEC. These reports are available under the heading "InvestingSEC Filings", through a free hyperlink to a third-party service. Information provided on our website is not incorporated by reference into this Form 10-K.
14
The following documents relating to Corporate Governance are available on the Company's website at www.macerich.com under "InvestingCorporate Governance":
Guidelines
on Corporate Governance
Code of Business Conduct and Ethics
Code of Ethics for CEO and Senior Financial Officers
Audit Committee Charter
Compensation Committee Charter
Executive Committee Charter
Nominating and Corporate Governance Committee Charter
You may also request copies of any of these documents by writing to:
Attention:
Corporate Secretary
The Macerich Company
401 Wilshire Blvd., Suite 700
Santa Monica, CA 90401
The following factors, among others, could cause our actual results to differ materially from those contained in forward-looking statements made in this Annual Report on Form 10-K and presented elsewhere by our management from time to time. These factors, among others, may have a material adverse effect on our business, financial condition, operating results and cash flows, and you should carefully consider them. It is not possible to predict or identify all such factors. You should not consider this list to be a complete statement of all potential risks or uncertainties, and we may update them in our future periodic reports.
We invest primarily in shopping centers, which are subject to a number of significant risks that are beyond our control.
Real property investments are subject to varying degrees of risk that may affect the ability of our Centers to generate sufficient revenues to meet operating and other expenses, including debt service, lease payments, capital expenditures and tenant improvements, and to make distributions to us and our stockholders. For purposes of this "Risk Factor" section, Centers wholly owned by us are referred to as "Wholly Owned Centers" and Centers that are partly but not wholly owned by us are referred to as "Joint Venture Centers." A number of factors may decrease the income generated by the Centers, including:
Income from shopping center properties and shopping center values are also affected by applicable laws and regulations, including tax, environmental, safety and zoning laws.
15
A continuation or worsening of recent adverse economic conditions and disruptions in the capital and credit markets could harm our business, results of operations and financial condition.
The U.S. economy, the real estate industry as a whole, and the local markets in which our Centers are located have in recent years experienced adverse economic conditions, resulting in an economic recession as well as disruptions in the capital and credit markets. These adverse economic conditions have caused dramatic declines in the stock and housing markets, increases in foreclosures, unemployment and living costs as well as limited access to credit, which have adversely impacted consumer spending levels and the operating results of our tenants. If these conditions continue or worsen, or if similar conditions occur in the future, our tenants may also have difficulties obtaining capital at adequate or historical levels to finance their ongoing business and operations. These events could impact our tenants' ability to meet their lease obligations due to poor operating results, lack of liquidity, bankruptcy or other reasons. Our ability to lease space and negotiate rents at advantageous rates has been and, may continue to be, adversely affected in this type of economic environment, and more tenants may seek rent relief. Any of these events could harm our business, results of operations and financial condition.
Some of our Centers are geographically concentrated and, as a result, are sensitive to local economic and real estate conditions.
A significant percentage of our Centers are located in California and Arizona, and eight Centers in the aggregate are located in New York, New Jersey and Connecticut. Many of these states have been more adversely affected by weak economic and real estate conditions than have other states. To the extent that weak economic or real estate conditions, including as a result of the factors described in the preceding risk factors, or other factors continue to affect or affect California, Arizona, New York, New Jersey or Connecticut (or their respective regions) more severely than other areas of the country, our financial performance could be negatively impacted.
We are in a competitive business.
There are numerous owners and developers of real estate that compete with us in our trade areas. There are six other publicly traded mall companies in the United States and several large private mall companies, any of which under certain circumstances could compete against us for an acquisition of an Anchor or a tenant. In addition, other REITs, private real estate companies, and financial buyers compete with us in terms of acquisitions. This results in competition for both the acquisition of properties or centers and for tenants or Anchors to occupy space. Competition for property acquisitions may result in increased purchase prices and may adversely affect our ability to make suitable property acquisitions on favorable terms. The existence of competing shopping centers could have a material adverse impact on our ability to lease space and on the level of rents that can be achieved. There is also increasing competition from other retail formats and technologies, such as lifestyle centers, power centers, Internet shopping, home shopping networks, factory outlet centers, discount shopping clubs and mail-order services that could adversely affect our revenues.
Our Centers depend on tenants to generate rental revenues.
Our revenues and funds available for distribution will be reduced if:
16
A decision by an Anchor or other significant tenant to cease operations at a Center could also have an adverse effect on our financial condition. The closing of an Anchor or other significant tenant may allow other Anchors and/or other tenants to terminate their leases, seek rent relief and/or cease operating their stores at the Center or otherwise adversely affect occupancy at the Center. In addition, Anchors and/or tenants at one or more Centers might terminate their leases as a result of mergers, acquisitions, consolidations, dispositions or bankruptcies in the retail industry. The bankruptcy and/or closure of retail stores, or sale of an Anchor or store to a less desirable retailer, may reduce occupancy levels, customer traffic and rental income, or otherwise adversely affect our financial performance. Furthermore, if the store sales of retailers operating in the Centers decline sufficiently due to adverse economic conditions or for any other reason, tenants might be unable to pay their minimum rents or expense recovery charges. In the event of a default by a lessee, the affected Center may experience delays and costs in enforcing its rights as lessor.
Given current economic conditions, we believe there is an increased risk that store sales of Anchors and/or tenants operating in our Centers may decrease in future periods, which may negatively affect our Anchors' and/or tenants' ability to satisfy their lease obligations and may increase the possibility of consolidations, dispositions or bankruptcies of our tenants and/or closure of their stores.
Our acquisition and real estate development strategies may not be successful.
Our historical growth in revenues, net income and funds from operations has been in part tied to the acquisition and redevelopment of shopping centers. Many factors, including the availability and cost of capital, our total amount of debt outstanding, our ability to obtain financing on attractive terms, if at all, interest rates and the availability of attractive acquisition targets, among others, will affect our ability to acquire and redevelop additional properties in the future. We may not be successful in pursuing acquisition opportunities, and newly acquired properties may not perform as well as expected. Expenses arising from our efforts to complete acquisitions, redevelop properties or increase our market penetration may have a material adverse effect on our business, financial condition and results of operations. We face competition for acquisitions primarily from other REITs, as well as from private real estate companies and financial buyers. Some of our competitors have greater financial and other resources. Increased competition for shopping center acquisitions may result in increased purchase prices and may impact adversely our ability to acquire additional properties on favorable terms. We cannot guarantee that we will be able to implement our growth strategy successfully or manage our expanded operations effectively and profitably.
We may not be able to achieve the anticipated financial and operating results from newly acquired assets. Some of the factors that could affect anticipated results are:
Our business strategy also includes the selective development and construction of retail properties. Any development, redevelopment and construction activities that we may undertake will be subject to the risks of real estate development, including lack of financing, construction delays, environmental requirements, budget overruns, sunk costs and lease-up. Furthermore, occupancy rates and rents at a newly completed property may not be sufficient to make the property profitable. Real estate development activities are also subject to risks relating to the inability to obtain, or delays in obtaining, all necessary zoning, land-use, building, and occupancy and other required governmental permits and authorizations. If any of the above events occur, our ability to pay dividends to our stockholders and service our indebtedness could be adversely affected.
17
We may be unable to sell properties quickly because real estate investments are relatively illiquid.
Investments in real estate are relatively illiquid, which limits our ability to adjust our portfolio in response to changes in economic or other conditions. Moreover, there are some limitations under federal income tax laws applicable to REITs that limit our ability to sell assets. In addition, because our properties are generally mortgaged to secure our debts, we may not be able to obtain a release of a lien on a mortgaged property without the payment of the associated debt and/or a substantial prepayment penalty, which restricts our ability to dispose of a property, even though the sale might otherwise be desirable. Furthermore, the number of prospective buyers interested in purchasing shopping centers is limited. Therefore, if we want to sell one or more of our Centers, we may not be able to dispose of it in the desired time period and may receive less consideration than we originally invested in the Center.
We have substantial debt that could affect our future operations.
Our total outstanding loan indebtedness at December 31, 2009 was $6.8 billion (which includes $1.3 billion of unsecured debt and $2.3 billion of our pro rata share of joint venture debt). Approximately $247.2 million of such indebtedness matures in 2010 (excluding loans with extensions and refinancing transactions that have recently closed). As a result of this substantial indebtedness, we are required to use a material portion of our cash flow to service principal and interest on our debt, which limits the cash flow available for other business opportunities. We are also subject to the risks normally associated with debt financing, including the risk that our cash flow from operations will be insufficient to meet required debt service and that rising interest rates could adversely affect our debt service costs. In addition, our use of interest rate hedging arrangements may expose us to additional risks, including that the counterparty to the arrangement may fail to honor its obligations and that termination of these arrangements typically involves costs such as transaction fees or breakage costs. Furthermore, a majority of our Centers are mortgaged to secure payment of indebtedness, and if income from the Center is insufficient to pay that indebtedness, the Center could be foreclosed upon by the mortgagee resulting in a loss of income and a decline in our total asset value.
We are obligated to comply with financial and other covenants that could affect our operating activities.
Our unsecured credit facilities contain financial covenants, including interest coverage requirements, as well as limitations on our ability to incur debt, make dividend payments and make certain acquisitions. These covenants may restrict our ability to pursue certain business initiatives or certain transactions that might otherwise be advantageous. In addition, failure to meet certain of these financial covenants could cause an event of default under and/or accelerate some or all of such indebtedness which could have a material adverse effect on us.
We depend on external financings for our growth and ongoing debt service requirements.
We depend primarily on external financings, principally debt financings, to fund the growth of our business and to ensure that we can meet ongoing maturities of our outstanding debt. Our access to financing depends on the willingness of banks, lenders and other institutions to lend to us based on their underwriting criteria which can fluctuate with market conditions and on conditions in the capital markets in general. Recently, turmoil in the capital and credit markets has significantly limited access to debt and equity financing for many companies. We cannot assure you that we will be able to obtain the financing we need for future growth or to meet our debt service as obligations mature, or that the financing will be available to us on acceptable terms, or at all. Any such refinancing could also impose more restrictive terms.
18
Inflation may adversely affect our financial condition and results of operations.
If inflation increases in the future, we may experience any or all of the following:
Certain individuals have substantial influence over the management of both us and the Operating Partnership, which may create conflicts of interest.
Under the limited partnership agreement of the Operating Partnership, we, as the sole general partner, are responsible for the management of the Operating Partnership's business and affairs. Three of the principals of the Operating Partnership serve as executive officers of us, and each principal is a member of our board of directors. Accordingly, these principals have substantial influence over our management and the management of the Operating Partnership. As a result, certain decisions concerning our operations or other matters affecting us may present conflicts of interest for these individuals.
The tax consequences of the sale of some of the Centers and certain holdings of the principals may create conflicts of interest.
The principals will experience negative tax consequences if some of the Centers are sold. As a result, the principals may not favor a sale of these Centers even though such a sale may benefit our other stockholders. In addition, the principals may have different interests than our stockholders because they are significant holders of the Operating Partnership.
If we were to fail to qualify as a REIT, we will have reduced funds available for distributions to our stockholders.
We believe that we currently qualify as a REIT. No assurance can be given that we will remain qualified as a REIT. Qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which there are only limited judicial or administrative interpretations. The complexity of these provisions and of the applicable income tax regulations is greater in the case of a REIT structure like ours that holds assets in partnership form. The determination of various factual matters and circumstances not entirely within our control, including determinations by our partners in the Joint Venture Centers, may affect our continued qualification as a REIT. In addition, legislation, new regulations, administrative interpretations or court decisions could significantly change the tax laws with respect to our qualification as a REIT or the U.S. federal income tax consequences of that qualification.
If in any taxable year we were to fail to qualify as a REIT, we will suffer the following negative results:
In addition, if we were to lose our REIT status, we will be prohibited from qualifying as a REIT for the four taxable years following the year during which the qualification was lost, absent relief under statutory provisions. As a result, net income and the funds available for distributions to our
19
stockholders would be reduced for at least five years and the fair market value of our shares could be materially adversely affected. Furthermore, the Internal Revenue Service could challenge our REIT status for past periods, which if successful could result in us owing a material amount of tax for prior periods. It is possible that future economic, market, legal, tax or other considerations might cause our board of directors to revoke our REIT election.
Even if we remain qualified as a REIT, we might face other tax liabilities that reduce our cash flow. Further, we might be subject to federal, state and local taxes on our income and property. Any of these taxes would decrease cash available for distributions to stockholders.
Complying with REIT requirements might cause us to forego otherwise attractive opportunities.
In order to qualify as a REIT for U.S. federal income tax purposes, we must satisfy tests concerning, among other things, our sources of income, the nature of our assets, the amounts we distribute to our stockholders and the ownership of our stock. We may also be required to make distributions to our stockholders at disadvantageous times or when we do not have funds readily available for distribution. Thus, compliance with REIT requirements may cause us to forego opportunities we would otherwise pursue.
In addition, the REIT provisions of the Internal Revenue Code impose a 100% tax on income from "prohibited transactions." Prohibited transactions generally include sales of assets that constitute inventory or other property held for sale in the ordinary course of business, other than foreclosure property. This 100% tax could impact our desire to sell assets and other investments at otherwise opportune times if we believe such sales could be considered a prohibited transaction.
Complying with REIT requirements may force us to borrow or take other measures to make distributions to our stockholders.
As a REIT, we generally must distribute 90% of our annual taxable income (subject to certain adjustments) to our stockholders. From time to time, we might generate taxable income greater than our net income for financial reporting purposes, or our taxable income might be greater than our cash flow available for distributions to our stockholders. If we do not have other funds available in these situations, we might be unable to distribute 90% of our taxable income as required by the REIT rules. In that case, we would need to borrow funds, liquidate or sell a portion of our properties or investments (potentially at disadvantageous or unfavorable prices), in certain limited cases distribute a combination of cash and stock (at our stockholders' election but subject to an aggregate cash limit established by the Company) or find another alternative source of funds. These alternatives could increase our costs or reduce our equity. In addition, to the extent we borrow funds to pay distributions, the amount of cash available to us in future periods will be decreased by the amount of cash flow we will need to service principal and interest on the amounts we borrow, which will limit cash flow available to us for other investments or business opportunities.
Outside partners in Joint Venture Centers result in additional risks to our stockholders.
We own partial interests in property partnerships that own 47 Joint Venture Centers as well as fee title to a site that is ground-leased to a property partnership that owns a Joint Venture Center and several development sites. We may acquire partial interests in additional properties through joint venture arrangements. Investments in Joint Venture Centers involve risks different from those of investments in Wholly Owned Centers.
We may have fiduciary responsibilities to our partners that could affect decisions concerning the Joint Venture Centers. Third parties may share control of major decisions relating to the Joint Venture Centers, including decisions with respect to sales, refinancings and the timing and amount of additional
20
capital contributions, as well as decisions that could have an adverse impact on our status. For example, we may lose our management and other rights relating to the Joint Venture Centers if:
In addition, some of our outside partners control the day-to-day operations of eight Joint Venture Centers (NorthPark Center, West Acres Center, Eastland Mall, Granite Run Mall, Lake Square Mall, NorthPark Mall, South Park Mall and Valley Mall). We, therefore, do not control cash distributions from these Centers, and the lack of cash distributions from these Centers could jeopardize our ability to maintain our qualification as a REIT. Furthermore, certain Joint Venture Centers have debt that could become recourse debt to us if the Joint Venture Center is unable to discharge such debt obligation.
Our holding company structure makes us dependent on distributions from the Operating Partnership.
Because we conduct our operations through the Operating Partnership, our ability to service our debt obligations and pay dividends to our stockholders is strictly dependent upon the earnings and cash flows of the Operating Partnership and the ability of the Operating Partnership to make distributions to us. Under the Delaware Revised Uniform Limited Partnership Act, the Operating Partnership is prohibited from making any distribution to us to the extent that at the time of the distribution, after giving effect to the distribution, all liabilities of the Operating Partnership (other than some non-recourse liabilities and some liabilities to the partners) exceed the fair value of the assets of the Operating Partnership. An inability to make cash distributions from the Operating Partnership could jeopardize our ability to maintain qualification as a REIT.
Possible environmental liabilities could adversely affect us.
Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in that real property. These laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of hazardous or toxic substances. The costs of investigation, removal or remediation of hazardous or toxic substances may be substantial. In addition, the presence of hazardous or toxic substances, or the failure to remedy environmental hazards properly, may adversely affect the owner's or operator's ability to sell or rent affected real property or to borrow money using affected real property as collateral.
Persons or entities that arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of hazardous or toxic substances at the disposal or treatment facility, whether or not that facility is owned or operated by the person or entity arranging for the disposal or treatment of hazardous or toxic substances. Laws exist that impose liability for release of asbestos containing materials ("ACMs") into the air, and third parties may seek recovery from owners or operators of real property for personal injury associated with exposure to ACMs. In connection with our ownership, operation, management, development and redevelopment of the Centers, or any other centers or properties we acquire in the future, we may be potentially liable under these laws and may incur costs in responding to these liabilities.
Some of our properties are subject to potential natural or other disasters.
Some of our Centers are located in areas that are subject to natural disasters, including our Centers in California or in other areas with higher risk of earthquakes, our Centers in flood plains or
21
in areas that may be adversely affected by tornados, as well as our Centers in coastal regions that may be adversely affected by increases in sea levels or in the frequency or severity of hurricanes and tropical storms.
Uninsured losses could adversely affect our financial condition.
Each of our Centers has comprehensive liability, fire, extended coverage and rental loss insurance with insured limits customarily carried for similar properties. We do not insure certain types of losses (such as losses from wars), because they are either uninsurable or not economically insurable. In addition, while we or the relevant joint venture, as applicable, carries specific earthquake insurance on the Centers located in California, the policies are subject to a deductible equal to 5% of the total insured value of each Center, a $100,000 per occurrence minimum and a combined annual aggregate loss limit of $150 million on these Centers. We or the relevant joint venture, as applicable, carries specific earthquake insurance on the Centers located in the Pacific Northwest. However, the policies are subject to a deductible equal to 2% of the total insured value of each Center, a $50,000 per occurrence minimum and a combined annual aggregate loss limit of $800 million on these Centers. While we or the relevant joint venture also carries terrorism insurance on the Centers, the policies are subject to a $50,000 deductible and a combined annual aggregate loss of $800 million. Each Center has environmental insurance covering eligible third-party losses, remediation and non-owned disposal sites, subject to a $100,000 deductible and a $20 million five-year aggregate limit. Some environmental losses are not covered by this insurance because they are uninsurable or not economically insurable. Furthermore, we carry title insurance on substantially all of the Centers for less than their full value.
If an uninsured loss or a loss in excess of insured limits occurs, we could lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenue from the property, but may remain obligated for any mortgage debt or other financial obligations related to the property.
An ownership limit and certain anti-takeover defenses could inhibit a change of control or reduce the value of our common stock.
The Ownership Limit. In order for us to maintain our qualification as a REIT, not more than 50% in value of our outstanding stock (after taking into account options to acquire stock) may be owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include some entities that would not ordinarily be considered "individuals") during the last half of a taxable year. Our Charter restricts ownership of more than 5% (the "Ownership Limit") of the lesser of the number or value of our outstanding shares of stock by any single stockholder or a group of stockholders (with limited exceptions for some holders of limited partnership interests in the Operating Partnership, and their respective families and affiliated entities, including all three principals). In addition to enhancing preservation of our status as a REIT, the Ownership Limit may:
Our board of directors, in its sole discretion, may waive or modify (subject to limitations) the Ownership Limit with respect to one or more of our stockholders, if it is satisfied that ownership in excess of this limit will not jeopardize our status as a REIT.
Selected Provisions of our Charter and Bylaws. Some of the provisions of our Charter and bylaws may have the effect of delaying, deferring or preventing a third party from making an acquisition proposal for us and may inhibit a change in control that some, or a majority, of our stockholders might
22
believe to be in their best interest or that could give our stockholders the opportunity to realize a premium over the then-prevailing market prices for our shares. These provisions include the following:
Selected Provisions of Maryland Law. The Maryland General Corporation Law prohibits business combinations between a Maryland corporation and an interested stockholder (which includes any person who beneficially holds 10% or more of the voting power of the corporation's outstanding voting stock or any affiliate or associate of ours who was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the corporation's outstanding stock at any time within the two year period prior to the date in question) or its affiliates for five years following the most recent date on which the interested stockholder became an interested stockholder and, after the five-year period, requires the recommendation of the board of directors and two super-majority stockholder votes to approve a business combination unless the stockholders receive a minimum price determined by the statute. As permitted by Maryland law, our Charter exempts from these provisions any business combination between us and the principals and their respective affiliates and related persons. Maryland law also allows the board of directors to exempt particular business combinations before the interested stockholder becomes an interested stockholder. Furthermore, a person is not an interested stockholder if the transaction by which he or she would otherwise have become an interested stockholder is approved in advance by the board of directors.
The Maryland General Corporation Law also provides that the acquirer of certain levels of voting power in electing directors of a Maryland corporation (one-tenth or more but less than one-third, one-third or more but less than a majority and a majority or more) is not entitled to vote the shares in excess of the applicable threshold, unless voting rights for the shares are approved by holders of two-thirds of the disinterested shares or unless the acquisition of the shares has been specifically or generally approved or exempted from the statute by a provision in our Charter or bylaws adopted before the acquisition of the shares. Our Charter exempts from these provisions voting rights of shares owned or acquired by the principals and their respective affiliates and related persons. Our bylaws also contain a provision exempting from this statute any acquisition by any person of shares of our common stock. There can be no assurance that this bylaw will not be amended or eliminated in the future. The Maryland General Corporation Law and our Charter also contain supermajority voting requirements with respect to our ability to amend our Charter, dissolve, merge, or sell all or substantially all of our assets.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
23
The following table sets forth certain information regarding the Centers and other locations that are wholly owned or partly owned by the Company:
Company's Ownership(1) |
Name of Center/Location(2) |
Year of Original Construction/ Acquisition |
Year of Most Recent Expansion/ Renovation |
Total GLA(3) |
Mall and Freestanding GLA |
Percentage of Mall and Freestanding GLA Leased |
Anchors | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
CONSOLIDATED CENTERS: |
|||||||||||||||||||
100% |
Capitola Mall(4) |
1977/1995 |
1988 |
487,970 |
196,373 |
87.8 |
% |
Macy's, Kohl's, Sears |
|||||||||||
50.1% |
Chandler Fashion Center |
2001/2002 | | 1,325,543 | 640,383 | 97.1 | % | Dillard's, Macy's, Nordstrom, Sears |
|||||||||||
100% |
Chesterfield Towne Center(5) |
1975/1994 | 2000 | 1,032,283 | 423,548 | 86.9 | % | J.C. Penney, Macy's, Sears |
|||||||||||
100% |
Danbury Fair(5) |
1986/2005 | 1991 | 1,292,176 | 495,968 | 97.3 | % | J.C. Penney, Lord & Taylor, Macy's, Sears |
|||||||||||
100% |
Deptford Mall |
1975/2006 | 1990 | 1,039,120 | 342,678 | 99.6 | % | Boscov's, J.C. Penney, Macy's, Sears |
|||||||||||
100% |
Fiesta Mall |
1979/2004 | 2009 | 926,325 | 408,134 | 91.3 | % | Dillard's, Macy's, Sears |
|||||||||||
100% |
Flagstaff Mall |
1979/2002 | 2007 | 347,076 | 143,064 | 91.4 | % | Dillard's, J.C. Penney, Sears |
|||||||||||
50.1% |
Freehold Raceway Mall |
1990/2005 | 2007 | 1,665,399 | 873,775 | 96.8 | % | J.C. Penney, Lord & Taylor, Macy's, Nordstrom, Sears |
|||||||||||
100% |
Fresno Fashion Fair |
1970/1996 | 2006 | 956,296 | 395,415 | 95.9 | % | Forever 21(6), J.C. Penney, Macy's (two) |
|||||||||||
100% |
Great Northern Mall(5) |
1988/2005 | | 894,061 | 564,073 | 89.4 | % | Macy's, Sears |
|||||||||||
100% |
Green Tree Mall |
1968/1975 | 2005 | 791,448 | 285,863 | 68.1 | % | Burlington Coat Factory, Dillard's J.C. Penney, Sears |
|||||||||||
100% |
La Cumbre Plaza(4) |
1967/2004 | 1989 | 491,716 | 174,716 | 86.1 | % | Macy's, Sears |
|||||||||||
100% |
Northridge Mall |
1972/2003 | 1994 | 892,824 | 355,844 | 93.9 | % | Forever 21, J.C. Penney, Macy's, Sears |
|||||||||||
100% |
Oaks, The |
1978/2002 | 2009 | 1,104,132 | 546,639 | 98.1 | % | J.C. Penney, Macy's (two), Nordstorm |
|||||||||||
100% |
Pacific View |
1965/1996 | 2001 | 970,424 | 321,610 | 91.2 | % | J.C. Penney, Macy's, Sears, Target |
|||||||||||
100% |
Panorama Mall |
1955/1979 | 2005 | 314,305 | 149,305 | 99.4 | % | Wal-Mart |
|||||||||||
100% |
Paradise Valley Mall |
1979/2002 | 2009 | 1,152,333 | 372,204 | 88.0 | % | Costco, Dillard's, J.C. Penney, Macy's, Sears |
|||||||||||
100% |
Prescott Gateway |
2002/2002 | 2004 | 589,854 | 345,666 | 84.6 | % | Dillard's, J.C. Penney, Sears |
|||||||||||
51.3% |
Promenade at Casa Grande |
2007/ | 2009 | 926,155 | 488,782 | 91.3 | % | Dillard's, J.C.Penney, Kohl's, Target |
|||||||||||
100% |
Rimrock Mall |
1978/1996 | 1999 | 600,839 | 289,169 | 90.1 | % | Dillard's (two), Herberger's, J.C. Penney |
|||||||||||
100% |
Rotterdam Square |
1980/2005 | 1990 | 581,326 | 271,551 | 85.5 | % | K-Mart, Macy's, Sears |
|||||||||||
100% |
Salisbury, Centre at |
1990/1995 | 2005 | 856,895 | 359,479 | 94.4 | % | Boscov's, J.C. Penney, Macy's, Sears |
|||||||||||
84.9% |
SanTan Village Regional Center |
2007/ | 2009 | 946,855 | 626,855 | 98.7 | % | Dillard's, Macy's |
|||||||||||
100% |
Somersville Towne Center |
1966/1986 | 2004 | 349,274 | 176,089 | 92.7 | % | Macy's, Sears |
|||||||||||
100% |
South Plains Mall(5) |
1972/1998 | 1995 | 1,164,443 | 422,656 | 85.2 | % | Bealls, Dillard's (two), J.C. Penney, Sears |
|||||||||||
100% |
South Towne Center |
1987/1997 | 1997 | 1,278,378 | 501,866 | 95.8 | % | Dillard's, Forever 21, J.C. Penney, Macy's, Target |
|||||||||||
100% |
Towne Mall |
1985/2005 | 1989 | 352,029 | 181,157 | 75.2 | % | Belk, J.C. Penney, Sears |
|||||||||||
100% |
Twenty Ninth Street(4) |
1963/1979 | 2007 | 830,159 | 538,505 | 84.6 | % | Home Depot, Macy's |
|||||||||||
100% |
Valley River Center(5) |
1969/2006 | 2007 | 916,134 | 340,070 | 91.6 | % | J.C. Penney, Macy's, Sports Authority |
24
Company's Ownership(1) |
Name of Center/Location(2) |
Year of Original Construction/ Acquisition |
Year of Most Recent Expansion/ Renovation |
Total GLA(3) |
Mall and Freestanding GLA |
Percentage of Mall and Freestanding GLA Leased |
Anchors | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
100% |
Valley View Center |
1973/1996 | 2004 | 1,032,480 | 577,047 | 73.8 | % | J.C. Penney, Sears |
|||||||||||
100% |
Victor Valley, Mall of(5) |
1986/2004 | 2001 | 544,534 | 270,685 | 95.9 | % | Forever 21, J.C. Penney, Sears |
|||||||||||
100% |
Vintage Faire Mall |
1977/1996 | 2008 | 1,124,710 | 424,361 | 91.9 | % | Forever 21, J.C. Penney, Macy's (two), Sears |
|||||||||||
100% |
Westside Pavilion |
1985/1998 | 2007 | 739,822 | 381,694 | 97.5 | % | Macy's, Nordstrom |
|||||||||||
100% |
Wilton Mall(5) |
1990/2005 | 1998 | 740,824 | 455,220 | 92.6 | % | The Bon-Ton, J.C. Penney, Sears |
|||||||||||
|
Total/Average Consolidated Centers |
29,258,142 | 13,340,444 | 91.2 | % | ||||||||||||||
UNCONSOLIDATED JOINT VENTURE CENTERS (VARIOUS PARTNERS): |
|||||||||||||||||||
33.3% |
Arrowhead Towne Center |
1993/2002 |
2004 |
1,196,849 |
389,072 |
95.8 |
% |
Dick's Sporting Goods, Dillard's, Forever 21, J.C. Penney, Macy's, Sears |
|||||||||||
50% |
Biltmore Fashion Park |
1963/2003 | 2006 | 578,992 | 273,992 | 84.2 | % | Macy's, Saks Fifth Avenue |
|||||||||||
50% |
Broadway Plaza(4) |
1951/1985 | 1994 | 662,439 | 216,942 | 97.6 | % | Macy's (two), Nordstrom |
|||||||||||
50.1% |
Corte Madera, Village at |
1985/1998 | 2005 | 440,131 | 222,131 | 92.3 | % | Macy's, Nordstrom |
|||||||||||
50% |
Desert Sky Mall(5) |
1981/2002 | 2007 | 892,642 | 282,147 | 79.3 | % | Burlington Coat Factory, Dillard's, La Curacao, Sears |
|||||||||||
25% |
FlatIron Crossing |
2000/2002 | 2009 | 1,467,566 | 823,825 | 97.2 | % | Dick's Sporting Goods, Dillard's, Macy's, Nordstrom |
|||||||||||
50% |
Inland Center(4) |
1966/2004 | 2004 | 932,759 | 204,888 | 94.7 | % | Forever 21, Macy's, Sears |
|||||||||||
15% |
Metrocenter Mall(4) |
1973/2005 | 2006 | 1,121,718 | 594,469 | 77.7 | % | Dillard's, Macy's, Sears |
|||||||||||
50% |
North Bridge, The Shops at(4) |
1998/2008 | | 679,639 | 419,639 | 91.6 | % | Nordstrom |
|||||||||||
50% |
NorthPark Center(4) |
1965/2004 | 2005 | 1,947,956 | 895,636 | 95.0 | % | Barneys New York, Dillard's, Macy's, Neiman Marcus, Nordstrom |
|||||||||||
51% |
Queens Center(4) |
1973/1995 | 2004 | 967,840 | 411,116 | 98.1 | % | J.C. Penney, Macy's |
|||||||||||
50% |
Ridgmar |
1976/2005 | 2000 | 1,273,501 | 399,528 | 89.9 | % | Dillard's, J.C. Penney, Macy's, Neiman Marcus, Sears |
|||||||||||
50% |
Scottsdale Fashion Square |
1961/2002 | 2009 | 1,939,632 | 955,306 | 90.4 | % | Barneys New York, Dillard's, Macy's, Neiman Marcus, Nordstrom |
|||||||||||
33.3% |
Superstition Springs Center(4) |
1990/2002 | 2002 | 1,204,759 | 441,465 | 95.0 | % | Best Buy, Burlington Coat Factory, Dillard's, J.C. Penney, Macy's, Sears |
|||||||||||
50% |
Tysons Corner Center(4) |
1968/2005 | 2005 | 2,207,342 | 1,319,100 | 97.3 | % | Bloomingdale's, L.L. Bean, Lord & Taylor, Macy's, Nordstrom |
|||||||||||
19% |
West Acres |
1972/1986 | 2001 | 970,334 | 417,779 | 96.2 | % | Herberger's, J.C. Penney, Macy's, Sears |
|||||||||||
|
Total/Average Unconsolidated Joint Venture Centers (Various Partners) |
18,484,099 | 8,267,035 | 92.7 | % | ||||||||||||||
PACIFIC PREMIER RETAIL TRUST(7): |
|||||||||||||||||||
51% |
Cascade Mall |
1989/1999 |
1998 |
586,585 |
262,349 |
87.8 |
% |
J.C. Penney, Macy's (two), Sears, Target |
|||||||||||
51% |
Kitsap Mall |
1985/1999 | 1997 | 849,053 | 389,070 | 91.0 | % | J.C. Penney, Kohl's, Macy's, Sears |
|||||||||||
51% |
Lakewood Center |
1953/1975 | 2001 | 2,033,670 | 968,323 | 92.4 | % | Costco, Forever 21, Home Depot, J.C. Penney, Macy's, Target |
|||||||||||
51% |
Los Cerritos Center |
1971/1999 | ongoing | 1,143,613 | 488,010 | 98.4 | % | Forever 21, Macy's, Nordstrom, Sears |
25
Company's Ownership(1) |
Name of Center/Location(2) |
Year of Original Construction/ Acquisition |
Year of Most Recent Expansion/ Renovation |
Total GLA(3) |
Mall and Freestanding GLA |
Percentage of Mall and Freestanding GLA Leased |
Anchors | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
51% |
Redmond Town Center(4) |
1997/1999 | 2004 | 1,276,583 | 1,166,583 | 94.6 | % | Macy's |
|||||||||||
51% |
Stonewood Mall(4) |
1953/1997 | 1991 | 930,093 | 356,333 | 94.6 | % | J.C. Penney, Kohl's, Macy's, Sears |
|||||||||||
51% |
Washington Square |
1974/1999 | 2005 | 1,458,734 | 523,707 | 84.9 | % | Dick's Sporting Goods, J.C. Penney, Macy's, Nordstrom, Sears |
|||||||||||
|
Total/Average Pacific Premier Retail Trust |
8,278,331 | 4,154,375 | 92.5 | % | ||||||||||||||
SDG MACERICH PROPERTIES, L.P.(7): |
|||||||||||||||||||
50% |
Eastland Mall(4) |
1978/1998 |
1996 |
1,040,949 |
551,805 |
95.6 |
% |
Dillard's, J.C. Penney, Macy's |
|||||||||||
50% |
Empire Mall(4) |
1975/1998 | 2000 | 1,364,921 | 619,399 | 96.4 | % | J.C. Penney, Kohl's, Macy's, Richman Gordman 1/2 Price, Sears, Target, Younkers |
|||||||||||
50% |
Granite Run Mall |
1974/1998 | 1993 | 1,032,675 | 531,866 | 86.7 | % | Boscov's, J.C. Penney, Sears |
|||||||||||
50% |
Lake Square Mall |
1980/1998 | 1995 | 559,088 | 263,051 | 80.2 | % | Belk, J.C. Penney, Sears, Target |
|||||||||||
50% |
Lindale Mall |
1963/1998 | 1997 | 688,616 | 383,053 | 92.1 | % | Sears, Von Maur, Younkers |
|||||||||||
50% |
Mesa Mall |
1980/1998 | 2003 | 848,369 | 407,161 | 92.2 | % | Cabela's(8), Herberger's, J.C. Penney, Sears, Target |
|||||||||||
50% |
NorthPark Mall |
1973/1998 | 2001 | 1,072,428 | 421,972 | 88.5 | % | Dillard's, J.C. Penney, Sears, Von Maur, Younkers |
|||||||||||
50% |
Rushmore Mall |
1978/1998 | 1992 | 725,403 | 422,302 | 86.5 | % | Herberger's, J.C. Penney, Sears |
|||||||||||
50% |
Southern Hills Mall |
1980/1998 | 2003 | 792,737 | 479,160 | 86.5 | % | J.C. Penney, Sears, Younkers |
|||||||||||
50% |
SouthPark Mall |
1974/1998 | 1990 | 1,017,106 | 439,050 | 83.1 | % | Dillard's, J.C. Penney, Sears, Von Maur, Younkers |
|||||||||||
50% |
SouthRidge Mall |
1975/1998 | 1998 | 859,748 | 470,996 | 74.6 | % | J.C. Penney, Sears, Target, Younkers |
|||||||||||
50% |
Valley Mall(5) |
1978/1998 | 1992 | 506,333 | 191,255 | 85.9 | % | Belk, J.C. Penney, Target |
|||||||||||
|
Total/Average SDG Macerich Properties, L.P. |
10,508,373 | 5,181,070 | 88.0 | % | ||||||||||||||
|
Total/Average Unconsolidated Joint Venture Centers |
37,270,803 | 17,602,480 | 91.3 | % | ||||||||||||||
|
Total/Average before Community Centers |
66,528,945 | 30,942,924 | 91.3 | % | ||||||||||||||
COMMUNITY / SPECIALTY CENTERS: |
|||||||||||||||||||
100% |
Borgata, The(9) |
1981/2002 |
2006 |
93,706 |
93,706 |
72.2 |
% |
|
|||||||||||
50% |
Boulevard Shops(7) |
2001/2002 | 2004 | 184,822 | 184,822 | 98.4 | % | |
|||||||||||
75% |
Camelback Colonnade(5)(7) |
1961/2002 | 1994 | 619,101 | 539,101 | 97.0 | % | |
|||||||||||
100% |
Carmel Plaza(9) |
1974/1998 | 2006 | 110,954 | 110,954 | 67.7 | % | |
|||||||||||
50% |
Chandler Festival(7) |
2001/2002 | | 503,572 | 368,375 | 94.4 | % | Lowe's |
|||||||||||
50% |
Chandler Gateway(7) |
2001/2002 | | 255,289 | 124,238 | 60.5 | % | The Great Indoors |
|||||||||||
50% |
Chandler Village Center(7) |
2004/2002 | 2006 | 273,418 | 130,285 | 95.7 | % | Target |
|||||||||||
32.9% |
Estrella Falls, The Market at(7) |
2009/ | 2009 | 233,692 | 233,692 | 91.9 | % | |
|||||||||||
100% |
Flagstaff Mall, The Marketplace at(4)(9) |
2007/ | | 267,527 | 146,997 | 72.6 | % | Home Depot |
|||||||||||
100% |
Hilton Village(4)(9) |
1982/2002 | | 96,956 | 96,956 | 86.4 | % | |
|||||||||||
24.5% |
Kierland Commons(7) |
1999/2005 | 2003 | 436,783 | 436,783 | 95.9 | % | |
26
Company's Ownership(1) |
Name of Center/Location(2) |
Year of Original Construction/ Acquisition |
Year of Most Recent Expansion/ Renovation |
Total GLA(3) |
Mall and Freestanding GLA |
Percentage of Mall and Freestanding GLA Leased |
Anchors | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
100% |
Paradise Village Office Park II(9) |
1982/2002 | | 46,834 | 46,834 | 100.0 | % | |
|||||||||||
34.9% |
SanTan Village Power Center(7) |
2004/ | 2007 | 491,037 | 284,510 | 86.1 | % | Wal-Mart |
|||||||||||
100% |
Tucson La Encantada(9) |
2002/2002 | 2005 | 249,890 | 249,890 | 88.8 | % | |
|||||||||||
|
Total/Average Community / Specialty Centers |
3,863,581 | 3,047,143 | 89.7 | % | ||||||||||||||
|
Total before major development and redevelopment properties and other assets |
70,392,526 | 33,990,067 | 91.1 | % | ||||||||||||||
MAJOR DEVELOPMENT AND REDEVELOPMENT PROPERTIES(9): |
|||||||||||||||||||
100% |
Northgate Mall |
1964/1986 |
2009 ongoing |
712,771 |
242,440 |
(10 |
) |
Kohl's, Macy's, Sears |
|||||||||||
100% |
Santa Monica Place |
1980/1999 | 2009 ongoing | 524,000 | 300,000 | (10 | ) | Bloomingdale's(11), Nordstrom(11) |
|||||||||||
100% |
Shoppingtown Mall |
1954/2005 | 2000 | 967,186 | 554,627 | (10 | ) | J.C. Penney, Macy's, Sears |
|||||||||||
|
Total Major Development and Redevelopment Properties |
2,203,957 | 1,097,067 | ||||||||||||||||
OTHER ASSETS: |
|||||||||||||||||||
100% |
Former Mervyn's(9)(12) |
Various/2007 |
|
1,081,415 |
|
|
|
||||||||||||
100% |
Forever 21(9)(12) |
Various/2007 | | 479,726 | | | |
||||||||||||
100% |
Kohl's(9)(12) |
Various/2007 | | 270,390 | | | |
||||||||||||
100% |
Burlington Coat Factory(9)(12)(13) |
Various/2007 | | 83,232 | | | |
||||||||||||
100% |
Paradise Village ground leases |
Various/2002 | | 89,359 | 89,359 | 46.4 | % | |
|||||||||||
30% |
Wilshire Boulevard(7) |
1978/2007 | | 40,000 | 40,000 | 100.0 | % | |
|||||||||||
|
Total Other Assets |
2,044,122 | 129,359 | ||||||||||||||||
|
Grand Total at December 31, 2009 |
74,640,605 | 35,216,493 | ||||||||||||||||
27
Mortgage Debt
The following table sets forth certain information regarding the mortgages encumbering the Centers, including those Centers in which the Company has less than a 100% interest. The information set forth below is as of December 31, 2009 (dollars in thousands):
Property Pledged as Collateral
|
Fixed or Floating |
Annual Interest Rate(1) |
Carrying Amount(1) |
Annual Debt Service |
Maturity Date |
Balance Due on Maturity |
Earliest Date Notes Can Be Defeased or Be Prepaid |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Consolidated Centers: |
|||||||||||||||||||
Capitola Mall(2) |
Fixed | 7.13 | % | $ | 35,550 | $ | 4,560 | 5/15/11 | $ | 32,724 | Any Time | ||||||||
Carmel Plaza(3) |
Fixed | 8.15 | % | 24,309 | 2,424 | 5/1/10 | 24,109 | Any Time | |||||||||||
Chandler Fashion Center(4) |
Fixed | 5.50 | % | 163,028 | 12,514 | 11/1/12 | 152,097 | Any Time | |||||||||||
Chesterfield Towne Center(5) |
Fixed | 9.07 | % | 52,369 | 6,576 | 1/1/24 | 1,087 | Any Time | |||||||||||
Danbury Fair Mall |
Fixed | 4.64 | % | 163,111 | 14,700 | 2/1/11 | 155,205 | Any Time | |||||||||||
Deptford Mall |
Fixed | 5.41 | % | 172,500 | 9,336 | 1/15/13 | 172,500 | Any Time | |||||||||||
Deptford Mall |
Fixed | 6.46 | % | 15,451 | 1,212 | 6/1/16 | 13,877 | Any Time | |||||||||||
Fiesta Mall |
Fixed | 4.98 | % | 84,000 | 4,092 | 1/1/15 | 84,000 | Any Time | |||||||||||
Flagstaff Mall |
Fixed | 5.03 | % | 37,000 | 1,836 | 11/1/15 | 37,000 | Any Time | |||||||||||
Freehold Raceway Mall(4) |
Fixed | 4.68 | % | 165,546 | 14,208 | 7/7/11 | 155,522 | Any Time | |||||||||||
Fresno Fashion Fair(6) |
Fixed | 6.76 | % | 167,561 | 13,248 | 8/1/15 | 154,596 | Any Time | |||||||||||
Great Northern Mall |
Fixed | 5.11 | % | 38,854 | 2,808 | 12/1/13 | 35,566 | Any Time | |||||||||||
Hilton Village |
Fixed | 5.27 | % | 8,564 | 444 | 2/1/12 | 8,600 | Any Time | |||||||||||
La Cumbre Plaza(7) |
Floating | 2.11 | % | 30,000 | 336 | 12/9/10 | 30,000 | Any Time | |||||||||||
Northgate, The Mall at(8) |
Floating | 6.90 | % | 8,844 | 528 | 1/1/13 | 8,844 | Any Time | |||||||||||
Northridge Mall(9) |
Fixed | 8.20 | % | 71,486 | 5,436 | 1/1/11 | 70,481 | Any Time | |||||||||||
Oaks, The(10) |
Floating | 2.28 | % | 165,000 | 3,276 | 7/10/11 | 165,000 | Any Time | |||||||||||
Oaks, The(11) |
Fixed | 6.90 | % | 88,297 | 2,071 | 7/10/11 | 88,297 | Any Time | |||||||||||
Oaks, The(11) |
Floating | 2.83 | % | 3,927 | 77 | 7/10/11 | 3,297 | Any Time | |||||||||||
Pacific View |
Fixed | 7.20 | % | 85,797 | 7,224 | 8/31/11 | 83,046 | Any Time | |||||||||||
Panorama Mall(12) |
Floating | 1.31 | % | 50,000 | 552 | 2/28/10 | 50,000 | Any Time | |||||||||||
Paradise Valley Mall(13) |
Floating | 6.30 | % | 85,000 | 4,680 | 8/31/12 | 82,250 | Any Time | |||||||||||
Prescott Gateway |
Fixed | 5.86 | % | 60,000 | 3,468 | 12/1/11 | 60,000 | Any Time | |||||||||||
Promenade at Casa Grande(14) |
Floating | 1.70 | % | 86,617 | 1,428 | 8/16/10 | 86,617 | Any Time | |||||||||||
Rimrock Mall |
Fixed | 7.57 | % | 41,430 | 3,840 | 10/1/11 | 40,025 | Any Time | |||||||||||
Salisbury, Center at |
Fixed | 5.83 | % | 115,000 | 6,660 | 5/1/16 | 115,000 | Any Time | |||||||||||
Santa Monica Place |
Fixed | 7.79 | % | 76,652 | 7,272 | 11/1/10 | 75,544 | Any Time | |||||||||||
SanTan Village Regional Center(15) |
Floating | 2.93 | % | 136,142 | 3,408 | 6/13/11 | 136,142 | Any Time | |||||||||||
Shoppingtown Mall |
Fixed | 5.01 | % | 41,381 | 3,828 | 5/11/11 | 38,968 | Any Time | |||||||||||
South Plains Mall(16) |
Fixed | 9.49 | % | 53,936 | 5,448 | 3/1/29 | | Any Time | |||||||||||
South Towne Center |
Fixed | 6.39 | % | 88,854 | 6,648 | 11/5/15 | 81,161 | Any Time | |||||||||||
Towne Mall |
Fixed | 4.99 | % | 13,869 | 1,200 | 11/1/12 | 12,316 | Any Time | |||||||||||
Tucson La Encantada(2) |
Fixed | 5.84 | % | 77,497 | 4,344 | 6/1/12 | 74,931 | Any Time | |||||||||||
Twenty Ninth Street(17) |
Fixed | 10.02 | % | 106,703 | 5,604 | 3/25/11 | 104,425 | Any Time | |||||||||||
Valley River Center |
Fixed | 5.59 | % | 120,000 | 6,696 | 2/1/16 | 120,000 | Any Time | |||||||||||
Valley View Center |
Fixed | 5.81 | % | 125,000 | 7,152 | 1/1/11 | 125,000 | Any Time | |||||||||||
Victor Valley, Mall of(18) |
Floating | 2.09 | % | 100,000 | 1,836 | 5/6/11 | 100,000 | Any Time | |||||||||||
Vintage Faire Mall |
Fixed | 7.92 | % | 62,186 | 6,096 | 9/1/10 | 61,372 | Any Time | |||||||||||
Westside Pavilion(19) |
Floating | 3.24 | % | 175,000 | 3,912 | 6/5/11 | 175,000 | Any Time | |||||||||||
Wilton Mall(20) |
Fixed | 11.08 | % | 39,575 | 4,188 | 11/1/29 | | Any Time | |||||||||||
|
$ | 3,236,036 | |||||||||||||||||
28
Property Pledged as Collateral
|
Fixed or Floating |
Annual Interest Rate(1) |
Carrying Amount(1) |
Annual Debt Service |
Maturity Date |
Balance Due on Maturity |
Earliest Date Notes Can Be Defeased or Be Prepaid |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Unconsolidated Joint Venture Centers (at Company's Pro Rata Share): |
|||||||||||||||||||
Arrowhead Towne Center (33.3%) |
Fixed | 6.38 | % | $ | 25,416 | $ | 2,217 | 10/1/11 | $ | 24,060 | Any Time | ||||||||
Biltmore Fashion Park (50%) |
Fixed | 8.25 | % | 29,967 | 2,641 | 10/1/14 | 28,725 | 4/1/12 | |||||||||||
Boulevard Shops (50%)(21) |
Floating | 1.15 | % | 10,700 | 123 | 12/17/10 | 10,700 | Any Time | |||||||||||
Broadway Plaza (50%)(2) |
Fixed | 6.12 | % | 73,785 | 5,460 | 8/15/15 | 67,443 | Any Time | |||||||||||
Camelback Colonnade (75%)(22) |
Floating | 1.11 | % | 31,125 | 293 | 10/9/10 | 31,125 | Any Time | |||||||||||
Cascade (51%)(23) |
Fixed | 5.28 | % | 19,435 | 1,362 | 7/1/10 | 19,342 | Any Time | |||||||||||
Chandler Festival (50%) |
Fixed | 6.39 | % | 14,850 | 1,086 | 11/1/15 | 14,145 | Any Time | |||||||||||
Chandler Gateway (50%) |
Fixed | 6.37 | % | 9,450 | 691 | 11/1/15 | 9,001 | Any Time | |||||||||||
Chandler Village Center (50%)(24) |
Floating | 1.43 | % | 8,643 | 112 | 1/15/11 | 8,643 | Any Time | |||||||||||
Corte Madera, The Village at (50.1%) |
Fixed | 7.27 | % | 40,048 | 3,265 | 11/1/16 | 36,696 | 11/1/12 | |||||||||||
Desert Sky Mall (50%)(25) |
Floating | 1.33 | % | 25,750 | 343 | 3/4/10 | 25,750 | Any Time | |||||||||||
Eastland Mall (50%) |
Fixed | 5.80 | % | 84,000 | 4,867 | 6/1/16 | 84,000 | Any Time | |||||||||||
Empire Mall (50%) |
Fixed | 5.81 | % | 88,150 | 5,104 | 6/1/16 | 88,150 | Any Time | |||||||||||
Estrella Falls, The Market at (32.9%)(26) |
Floating | 2.52 | % | 11,590 | 231 | 6/1/11 | 11,590 | Any Time | |||||||||||
FlatIron Crossing (25%)(27) |
Fixed | 5.26 | % | 45,144 | 3,306 | 12/1/13 | 41,047 | Any Time | |||||||||||
Granite Run (50%) |
Fixed | 5.84 | % | 58,291 | 4,311 | 6/1/16 | 51,604 | Any Time | |||||||||||
Inland Center (50%) |
Fixed | 5.06 | % | 25,602 | 1,280 | 2/11/11 | 25,602 | Any Time | |||||||||||
Kierland Greenway (24.5%) |
Fixed | 6.02 | % | 15,035 | 1,144 | 1/1/13 | 13,679 | Any Time | |||||||||||
Kierland Main Street (24.5%) |
Fixed | 4.99 | % | 3,696 | 184 | 1/2/13 | 3,507 | Any Time | |||||||||||
Kierland Tower Lofts (15%)(28) |
Floating | 3.25 | % | 1,049 | 56 | 11/18/10 | 1,049 | Any Time | |||||||||||
Kitsap Mall/Place (51%)(23) |
Fixed | 8.14 | % | 28,342 | 2,755 | 6/1/10 | 28,143 | Any Time | |||||||||||
Lakewood Center (51%) |
Fixed | 5.43 | % | 127,500 | 6,899 | 6/1/15 | 127,500 | Any Time | |||||||||||
Los Cerritos Center (51%)(29) |
Floating | 1.12 | % | 102,000 | 951 | 7/1/11 | 102,000 | Any Time | |||||||||||
Mesa Mall (50%) |
Fixed | 5.82 | % | 43,625 | 2,528 | 6/1/16 | 43,625 | Any Time | |||||||||||
Metrocenter Mall (15%)(30) |
Floating | 1.71 | % | 16,800 | 197 | 2/9/10 | 16,800 | Any Time | |||||||||||
Metrocenter Mall (15%)(31) |
Floating | 3.68 | % | 3,240 | 119 | 2/9/10 | 3,240 | Any Time | |||||||||||
North Bridge, The Shops at (50%)(2) |
Fixed | 7.52 | % | 102,037 | 8,600 | 6/15/16 | 94,258 | Any Time | |||||||||||
NorthPark Center (50%)(32) |
Fixed | 8.33 | % | 40,514 | 3,996 | 5/10/12 | 38,919 | Any Time | |||||||||||
Northpark Center (50%)(32) |
Fixed | 5.97 | % | 90,660 | 6,409 | 5/10/12 | 86,928 | Any Time | |||||||||||
NorthPark Land (50%) |
Fixed | 8.33 | % | 39,133 | 3,860 | 5/10/12 | 37,592 | Any Time | |||||||||||
Pacific Premier Retail Trust (51%)(23) |
Floating | 7.28 | % | 37,740 | 2,264 | 8/21/11 | 37,740 | Any Time | |||||||||||
Queens Center (51%)(33) |
Fixed | 7.78 | % | 65,602 | 5,879 | 3/1/13 | 62,186 | Any Time | |||||||||||
Queens Center (51%)(6)(33) |
Fixed | 7.00 | % | 106,708 | 9,736 | 3/1/13 | 99,094 | Any Time | |||||||||||
Redmond Office (51%) |
Fixed | 7.52 | % | 31,213 | 3,057 | 5/15/14 | 27,561 | Any Time | |||||||||||
Ridgmar (50%) |
Fixed | 6.11 | % | 28,700 | 1,743 | 4/11/10 | 28,700 | Any Time | |||||||||||
Rushmore (50%) |
Fixed | 5.82 | % | 47,000 | 2,723 | 6/1/16 | 47,000 | Any Time | |||||||||||
SanTan Village Power Center (34.9%) |
Fixed | 5.33 | % | 15,705 | 837 | 2/1/12 | 15,705 | Any Time | |||||||||||
Scottsdale Fashion Square (50%) |
Fixed | 5.66 | % | 275,000 | 15,565 | 7/8/13 | 275,000 | Any Time | |||||||||||
Southern Hills (50%) |
Fixed | 5.82 | % | 50,750 | 2,940 | 6/1/16 | 50,750 | Any Time | |||||||||||
Stonewood Mall (51%) |
Fixed | 7.44 | % | 36,749 | 3,298 | 12/11/10 | 36,244 | Any Time | |||||||||||
Superstition Springs Center (33.3%)(34) |
Floating | 0.60 | % | 22,498 | 136 | 9/9/10 | 22,498 | Any Time | |||||||||||
Tyson's Corner Center (50%) |
Fixed | 4.78 | % | 162,411 | 11,232 | 2/17/14 | 146,711 | Any Time | |||||||||||
Valley Mall (50%) |
Fixed | 5.85 | % | 22,670 | 118 | 6/1/16 | 20,085 | Any Time | |||||||||||
Washington Square (51%) |
Fixed | 6.04 | % | 115,983 | 8,439 | 1/1/16 | 105,324 | Any Time | |||||||||||
Washington Square (51%) |
Fixed | 6.00 | % | 10,085 | 734 | 1/1/16 | 9,159 | Any Time | |||||||||||
West Acres (19%) |
Fixed | 6.41 | % | 12,543 | 1,069 | 10/1/16 | 10,316 | Any Time | |||||||||||
Wilshire Building (30%) |
Fixed | 6.35 | % | 1,804 | 154 | 1/1/33 | | Any Time | |||||||||||
|
$ | 2,258,738 | |||||||||||||||||
29
The debt premiums (discounts) as of December 31, 2009 consisted of the following (dollars in thousands):
Consolidated Centers
Property Pledged as Collateral
|
|
|||
---|---|---|---|---|
Danbury Fair Mall |
$ | 4,938 | ||
Deptford Mall |
(36 | ) | ||
Freehold Raceway Mall |
5,507 | |||
Great Northern Mall |
(110 | ) | ||
Hilton Village |
(36 | ) | ||
Shoppingtown Mall |
1,565 | |||
Towne Mall |
277 | |||
|
$ | 12,105 | ||
Unconsolidated Joint Venture Centers (at Company's Pro Rata Share)
Property Pledged as Collateral
|
|
|||
---|---|---|---|---|
Arrowhead Towne Center |
$ | 191 | ||
Kierland Greenway |
444 | |||
Tysons Corner |
2,366 | |||
Wilshire Building |
(121 | ) | ||
|
$ | 2,880 | ||
30
31
None of the Company, the Operating Partnership, the Management Companies or their respective affiliates are currently involved in any material legal proceedings nor, to the Company's knowledge, are any material legal proceedings currently threatened against such entities or the Centers, other than routine litigation arising in the ordinary course of business, most of which is expected to be covered by liability insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
32
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The common stock of the Company is listed and traded on the New York Stock Exchange under the symbol "MAC". The common stock began trading on March 10, 1994 at a price of $19 per share. In 2009, the Company's shares traded at a high of $38.22 and a low of $5.45.
As of February 16, 2010, there were approximately 754 stockholders of record. The following table shows high and low closing prices per share of common stock during each quarter in 2009 and 2008 and dividends/distributions per share of common stock declared and paid by quarter:
|
Market Quotation Per Share |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Dividends/ Distributions Declared/Paid |
|||||||||
Quarter Ended
|
High | Low | ||||||||
March 31, 2009 |
$ | 20.45 | $ | 5.45 | $ | 0.80 | ||||
June 30, 2009 |
21.81 | 5.95 | 0.60 | (1) | ||||||
September 30, 2009 |
35.60 | 14.46 | 0.60 | (1) | ||||||
December 31, 2009 |
38.22 | 26.67 | 0.60 | (1) | ||||||
March 31, 2008 |
72.38 |
57.50 |
0.80 |
|||||||
June 30, 2008 |
76.50 | 60.52 | 0.80 | |||||||
September 30, 2008 |
70.98 | 51.52 | 0.80 | |||||||
December 31, 2008 |
62.70 | 8.31 | 0.80 |
At December 31, 2008, the stockholders had converted all of the Company's outstanding shares of its Series A cumulative convertible redeemable preferred stock ("Series A Preferred Stock"). There was no established public trading market for the Series A Preferred Stock. The Series A Preferred Stock was issued on February 25, 1998. Preferred stock dividends were accrued quarterly and paid in arrears. The Series A 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. 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. The following table shows the dividends per share of Series A Preferred Stock declared and paid by quarter in 2008:
|
Series A Preferred Stock Dividend |
||||||
---|---|---|---|---|---|---|---|
Quarter Ended
|
Declared | Paid | |||||
March 31, 2008 |
$ | 0.80 | $ | 0.80 | |||
June 30, 2008 |
0.80 | 0.80 | |||||
September 30, 2008 |
0.80 | 0.80 | |||||
December 31, 2008 |
N/A | 0.80 |
To maintain its qualification as a REIT, the Company is required each year to distribute to stockholders at least 90% of its net taxable income after certain adjustments. Beginning during the second quarter of 2009, the Company paid its quarterly dividends in a combination of cash and shares of common stock, with the cash limited to 10% of the total dividend. Paying all or a portion of the dividend in a combination of cash and common stock would allow the Company to satisfy its REIT taxable income distribution requirement under existing requirements of the Code, while enhancing the Company's financial flexibility and balance sheet strength. The decision to declare and pay dividends on
33
common stock in the future, as well as the timing, amount and composition of future dividends, will be determined in the sole discretion of the Company's board of directors and will depend on actual and projected cash flow, financial condition, funds from operations, earnings, capital requirements, the annual REIT distribution requirements, contractual prohibitions or other restrictions, applicable law and such other factors as the board of directors deems relevant. For example, under the Company's existing financing arrangements, the Company may pay cash dividends and make other distributions based on a formula derived from funds from operations (See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsFunds From Operations") and only if no default under the financing agreements has occurred, unless, under certain circumstances, payment of the distribution is necessary to enable the Company to continue to qualify as a REIT under the Code.
34
Stock Performance Graph
The following graph provides a comparison, from December 31, 2004 through December 31, 2009, of the yearly percentage change in the cumulative total stockholder return (assuming reinvestment of dividends) of the Company, the Standard & Poor's ("S&P") 500 Index, the S&P Midcap 400 Index and the FTSE NAREIT Equity Index, an industry index of publicly-traded REITs (including the Company). The Company is providing the S&P Midcap 400 Index since it is a company within such index.
The graph assumes that the value of the investment in each of the Company's common stock and the indices was $100 at the beginning of the period. The graph further assumes the reinvestment of dividends.
Upon written request directed to the Secretary of the Company, the Company will provide any stockholder with a list of the REITs included in the FTSE NAREIT Equity Index. The historical information set forth below is not necessarily indicative of future performance. Data for the FTSE NAREIT Equity Index, the S&P 500 Index and the S&P Midcap 400 Index were provided to the Company by Research Data Group, Inc.
Copyright© 2010 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
|
12/31/04 | 12/31/05 | 12/31/06 | 12/31/07 | 12/31/08 | 12/31/09 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
The Macerich Company |
$ | 100.00 | $ | 111.47 | $ | 149.27 | $ | 126.74 | $ | 34.88 | $ | 79.81 | |||||||
S&P 500 Index |
100.00 | 104.91 | 121.48 | 128.16 | 80.74 | 102.11 | |||||||||||||
S&P Midcap 400 Index |
100.00 | 112.55 | 124.17 | 134.08 | 85.50 | 117.46 | |||||||||||||
FTSE NAREIT Equity Index |
100.00 | 112.16 | 151.49 | 127.72 | 79.53 | 101.79 |
Recent Sales of Unregistered Securities
On December 4, 2009, the Company, as general partner of the Operating Partnership, issued 6,963 shares of common stock of the Company upon the redemption of 6,963 common partnership units of the Operating Partnership. These shares of common stock were issued in a private placement to two limited partners of the Operating Partnership, each an accredited investor, pursuant to Section 4(2) of the Securities Act of 1933, as amended.
35
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth selected financial data for the Company on a historical basis. The following data should be read in conjunction with the consolidated financial statements (and the notes thereto) of the Company and "Management's Discussion and Analysis of Financial Condition and Results of Operations," each included elsewhere in this Form 10-K. All amounts are in thousands except per share data.
|
Years Ended December 31, | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||
OPERATING DATA: |
||||||||||||||||||
Revenues: |
||||||||||||||||||
Minimum rents(1) |
$ | 474,261 | $ | 528,571 | $ | 466,071 | $ | 429,343 | $ | 383,856 | ||||||||
Percentage rents |
16,631 | 19,048 | 25,917 | 23,817 | 23,596 | |||||||||||||
Tenant recoveries |
244,101 | 262,238 | 242,012 | 224,340 | 192,769 | |||||||||||||
Management Companies |
40,757 | 40,716 | 39,752 | 31,456 | 26,128 | |||||||||||||
Other |
29,904 | 30,298 | 27,090 | 28,355 | 22,287 | |||||||||||||
Total revenues |
805,654 | 880,871 | 800,842 | 737,311 | 648,636 | |||||||||||||
Shopping center and operating expenses |
258,174 | 281,613 | 253,258 | 230,463 | 200,305 | |||||||||||||
Management Companies' operating expenses |
79,305 | 77,072 | 73,761 | 56,673 | 52,840 | |||||||||||||
REIT general and administrative expenses |
25,933 | 16,520 | 16,600 | 13,532 | 12,106 | |||||||||||||
Depreciation and amortization |
262,063 | 269,938 | 209,101 | 193,589 | 168,917 | |||||||||||||
Interest expense |
267,045 | 295,072 | 260,862 | 259,958 | 226,432 | |||||||||||||
(Gain) loss on early extinguishment of debt(2) |
(29,161 | ) | (84,143 | ) | 877 | 1,835 | 1,666 | |||||||||||
Total expenses |
863,359 | 856,072 | 814,459 | 756,050 | 662,266 | |||||||||||||
Equity in income of unconsolidated joint ventures(3) |
68,160 | 93,831 | 81,458 | 86,053 | 76,303 | |||||||||||||
Co-venture expense(4) |
(2,262 | ) | | | | | ||||||||||||
Income tax benefit (provision)(5) |
4,761 | (1,126 | ) | 470 | (33 | ) | 2,031 | |||||||||||
Gain (loss) on sale or write down of assets |
161,937 | (30,911 | ) | 12,146 | (84 | ) | 1,253 | |||||||||||
Income from continuing operations |
174,891 | 86,593 | 80,457 | 67,197 | 65,957 | |||||||||||||
Discontinued operations:(6) |
||||||||||||||||||
(Loss) gain on sale or write down of assets |
(40,171 | ) | 99,625 | (2,376 | ) | 241,816 | 277 | |||||||||||
Income from discontinued operations |
4,530 | 8,797 | 27,981 | 31,546 | 21,468 | |||||||||||||
Total (loss) income from discontinued operations |
(35,641 | ) | 108,422 | 25,605 | 273,362 | 21,745 | ||||||||||||
Net income |
139,250 | 195,015 | 106,062 | 340,559 | 87,702 | |||||||||||||
Less net income (loss) attributable to noncontrolling interests |
18,508 | 28,966 | 29,827 | 96,010 | (11,953 | ) | ||||||||||||
Net income attributable to the Company |
120,742 | 166,049 | 76,235 | 244,549 | 99,655 | |||||||||||||
Less preferred dividends |
| 4,124 | 10,058 | 10,083 | 9,649 | |||||||||||||
Less adjustment to redemption value of redeemable noncontrolling interests |
| | 2,046 | 17,062 | 183,620 | |||||||||||||
Net income (loss) available to common stockholders |
$ | 120,742 | $ | 161,925 | $ | 64,131 | $ | 217,404 | $ | (93,614 | ) | |||||||
Earnings per common share ("EPS") attributable to the Companybasic: |
||||||||||||||||||
Income from continuing operations |
$ | 1.83 | $ | 0.92 | $ | 0.79 | $ | 0.64 | $ | 0.73 | ||||||||
Discontinued operations |
(0.38 | ) | 1.25 | 0.09 | 2.41 | (2.33 | ) | |||||||||||
Net income (loss) available to common stockholders |
$ | 1.45 | $ | 2.17 | $ | 0.88 | $ | 3.05 | $ | (1.60 | ) | |||||||
EPS attributable to the Companydiluted:(7)(8) |
||||||||||||||||||
Income from continuing operations |
$ | 1.83 | $ | 0.92 | $ | 0.79 | $ | 0.72 | $ | 0.73 | ||||||||
Discontinued operations |
(0.38 | ) | 1.25 | 0.09 | 2.31 | (2.33 | ) | |||||||||||
Net income (loss) available to common stockholders |
$ | 1.45 | $ | 2.17 | $ | 0.88 | $ | 3.03 | $ | (1.60 | ) | |||||||
36
|
As of December 31, | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||
BALANCE SHEET DATA: |
|||||||||||||||||
Investment in real estate (before accumulated depreciation) |
$ | 6,697,259 | $ | 7,355,703 | $ | 7,078,802 | $ | 6,356,156 | $ | 6,017,546 | |||||||
Total assets |
$ | 7,252,471 | $ | 8,090,435 | $ | 7,937,097 | $ | 7,373,676 | $ | 6,986,005 | |||||||
Total mortgage and notes payable |
$ | 4,531,634 | $ | 5,940,418 | $ | 5,703,180 | $ | 4,993,879 | $ | 5,424,730 | |||||||
Redeemable noncontrolling interests(9) |
$ | 20,591 | $ | 23,327 | $ | 322,619 | $ | 322,710 | $ | 306,700 | |||||||
Series A preferred stock(10) |
$ | | $ | | $ | 83,495 | $ | 98,934 | $ | 98,934 | |||||||
Equity(11) |
$ | 2,128,466 | $ | 1,641,884 | $ | 1,434,701 | $ | 1,653,578 | $ | 847,568 | |||||||
OTHER DATA: |
|||||||||||||||||
Funds from operations ("FFO")diluted(12) |
$ | 344,108 | $ | 461,515 | $ | 396,556 | $ | 383,122 | $ | 336,831 | |||||||
Cash flows provided by (used in): |
|||||||||||||||||
Operating activities |
$ | 120,890 | $ | 251,947 | $ | 326,070 | $ | 211,850 | $ | 235,296 | |||||||
Investing activities |
$ | 302,356 | $ | (558,956 | ) | $ | (865,283 | ) | $ | (126,736 | ) | $ | (131,948 | ) | |||
Financing activities |
$ | (396,520 | ) | $ | 288,265 | $ | 355,051 | $ | 29,208 | $ | (20,349 | ) | |||||
Number of Centers at year end |
86 | 92 | 94 | 91 | 97 | ||||||||||||
Regional Mall portfolio occupancy |
91.3 | % | 92.3 | % | 93.1 | % | 93.4 | % | 93.3 | % | |||||||
Regional Mall portfolio sales per square foot(13) |
$ | 407 | $ | 441 | $ | 467 | $ | 452 | $ | 417 | |||||||
Weighted average number of shares outstandingEPS basic |
81,226 |
74,319 |
71,768 |
70,826 |
59,279 |
||||||||||||
Weighted average number of shares outstandingEPS diluted(8)(9) |
81,226 | 86,794 | 84,760 | 88,058 | 73,573 | ||||||||||||
Distributions declared per common share |
$ | 2.60 | $ | 3.20 | $ | 2.93 | $ | 2.75 | $ | 2.63 |
37
for general corporate purposes. As part of this transaction, the Company issued a warrant for an aggregate of approximately 0.9 million shares of common stock of the Company. (See Note 15Stockholders' Equity in the Notes to the Company's Consolidated Financial Statements). 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 was established for the amount of $168.2 million representing the net cash proceeds received from the third party less costs allocated to the warrant.
38
costs. The Company used the proceeds from the sales to pay down the Company's term loan and for general corporate purposes.
39
|
Years Ended December 31, | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions) |
2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||
Revenues: |
||||||||||||||||||
Scottsdale/101 |
$ | | $ | | $ | 0.1 | $ | 4.7 | $ | 9.8 | ||||||||
Park Lane Mall |
| | | 1.5 | 3.1 | |||||||||||||
Holiday Village |
| 0.3 | 0.2 | 2.9 | 5.2 | |||||||||||||
Greeley Mall |
| | | 4.3 | 7.0 | |||||||||||||
Great Falls Marketplace |
| | | 1.8 | 2.7 | |||||||||||||
Citadel Mall |
| | | 15.7 | 15.3 | |||||||||||||
Northwest Arkansas Mall |
| | | 12.9 | 12.6 | |||||||||||||
Crossroads Mall |
| | | 11.5 | 10.9 | |||||||||||||
Mervyn's |
3.0 | 11.8 | 0.5 | | | |||||||||||||
Rochester Properties |
| | 83.1 | 80.0 | 51.7 | |||||||||||||
Village Center |
0.9 | 2.0 | 2.1 | 1.9 | 1.9 | |||||||||||||
Village Plaza |
1.8 | 2.1 | 2.1 | 2.1 | 1.9 | |||||||||||||
Village Crossroads |
2.1 | 2.6 | 2.7 | 2.2 | 1.8 | |||||||||||||
Village Square I |
0.6 | 0.7 | 0.7 | 0.7 | 0.7 | |||||||||||||
Village Square II |
1.3 | 1.9 | 1.9 | 1.8 | 1.8 | |||||||||||||
Village Fair North |
3.3 | 3.6 | 3.7 | 3.5 | 3.4 | |||||||||||||
Total |
$ | 13.0 | $ | 25.0 | $ | 97.1 | $ | 147.5 | $ | 129.8 | ||||||||
Income from operations: |
||||||||||||||||||
Scottsdale/101 |
$ | | $ | | $ | | $ | 0.8 | $ | 0.2 | ||||||||
Park Lane Mall |
| | | | 0.8 | |||||||||||||
Holiday Village |
| 0.3 | 0.2 | 1.2 | 2.8 | |||||||||||||
Greeley Mall |
| | (0.1 | ) | 0.6 | 0.9 | ||||||||||||
Great Falls Marketplace |
| | | 1.1 | 1.7 | |||||||||||||
Citadel Mall |
| | (0.1 | ) | 2.5 | 1.8 | ||||||||||||
Northwest Arkansas Mall |
| | | 3.4 | 2.9 | |||||||||||||
Crossroads Mall |
| | | 2.3 | 3.2 | |||||||||||||
Mervyn's |
| 2.5 | 0.2 | | | |||||||||||||
Rochester Properties |
| | 21.9 | 14.5 | 3.9 | |||||||||||||
Village Center |
0.4 | 0.6 | 0.6 | 0.6 | 0.2 | |||||||||||||
Village Plaza |
0.8 | 1.3 | 1.1 | 1.1 | 0.7 | |||||||||||||
Village Crossroads |
1.1 | 1.4 | 1.5 | 1.1 | 0.6 | |||||||||||||
Village Square I |
0.2 | 0.3 | 0.4 | 0.4 | 0.2 | |||||||||||||
Village Square II |
0.4 | 0.8 | 0.9 | 0.9 | 0.5 | |||||||||||||
Village Fair North |
1.6 | 1.6 | 1.4 | 1.0 | 1.1 | |||||||||||||
Total |
$ | 4.5 | $ | 8.8 | $ | 28.0 | $ | 31.5 | $ | 21.5 | ||||||||
40
41
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Overview and Summary
The Company is involved in the acquisition, ownership, development, redevelopment, management and leasing of regional and community shopping centers located throughout the United States. The Company is the sole general partner of, and owns a majority of the ownership interests in, the Operating Partnership. As of December 31, 2009, the Operating Partnership owned or had an ownership interest in 72 regional shopping centers and 14 community shopping centers totaling approximately 75 million square feet of GLA. These 86 regional and community shopping centers are referred to hereinafter as the "Centers," unless the context otherwise requires. The Company is a self-administered and self-managed REIT and conducts all of its operations through the Operating Partnership and the Company's Management Companies.
The following discussion is based primarily on the consolidated financial statements of the Company for the years ended December 31, 2009, 2008 and 2007. It compares the results of operations and cash flows for the year ended December 31, 2009 to the results of operations and cash flows for the year ended December 31, 2008. Also included is a comparison of the results of operations and cash flows for the year ended December 31, 2008 to the results of operations and cash flows for the year ended December 31, 2007. This information should be read in conjunction with the accompanying consolidated financial statements and notes thereto.
Acquisitions and Dispositions:
The financial statements reflect the following acquisitions, dispositions and changes in ownership subsequent to the occurrence of each transaction.
On September 5, 2007, the Company purchased the remaining 50% outside ownership interest in Hilton Village, a 96,985 square foot specialty center in Scottsdale, Arizona. The total purchase price of $13.5 million was funded by cash, borrowings under the Company's line of credit and the assumption of a mortgage note payable. The Center was previously accounted for under the equity method as an investment in unconsolidated joint ventures.
On December 17, 2007, the Company purchased a portfolio of ground leasehold interest and/or fee interests in 39 freestanding Mervyn's stores located in the Southwest United States. The purchase price of $400.2 million was funded by cash and borrowings under the Company's line of credit.
On January 1, 2008, a subsidiary of the Operating Partnership, at the election of the holders, redeemed its 3.4 million Class A 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 acquired on April 25, 2005 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 $224.4 million, in exchange for the Company's ownership interest in the portion of the Wilmorite portfolio that consisted of Eastview Mall, Eastview Commons, Greece Ridge Center, Marketplace Mall and Pittsford Plaza, collectively referred to as the "Rochester Properties." Included in the redemption consideration was the assumption of the remaining 16.32% noncontrolling interest in the indebtedness of the Non-Rochester Properties, which had an estimated fair value of $106.0 million. In addition, the Company also received additional consideration of $11.8 million, 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 $99.1 million on the exchange. This exchange is referred to herein as the "Rochester Redemption."
42
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 $515.0 million. The Company's share of the purchase price was funded by the assumption of a pro rata share of the $205.0 million fixed rate mortgage on the Center and by borrowings under the Company's line of credit.
On January 31, 2008, the Company purchased a ground leasehold interest in a freestanding Mervyn's store located in Hayward, California. The purchase price of $13.2 million was funded by cash and borrowings under the Company's line of credit.
On February 29, 2008, the Company purchased a fee simple interest in a freestanding Mervyn's store located in Monrovia, California. The purchase price of $19.3 million was funded by cash and borrowings under the Company's line of credit.
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 $23.5 million was funded by the assumption of the existing $15.2 million mortgage note on the property and by borrowings under the Company's line of credit. This transaction is referred to herein as the "2008 Acquisition Property."
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 $52.5 million, which was funded by borrowings under the Company's line of credit.
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 $43.4 million, resulting in a gain on sale of assets of $1.5 million. The proceeds were used to pay down the Company's line of credit.
In June 2009, the Company recorded an impairment charge of $1.0 million, 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 $11.9 million in total proceeds, resulting in a gain of $0.1 million 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.
On July 30, 2009, the Company sold a 49% ownership interest in Queens Center to a third party for approximately $152.7 million, resulting in a gain on sale of assets of $154.2 million. The Company used the proceeds from the sale of the ownership interest in the property to pay down the Company's term loan and for general corporate purposes. As of the date of the sale, the Company has accounted for the operations of Queens Center under the equity method of accounting.
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 in the Notes to Company's Consolidated Financial Statements.) The Company received $123.8 million in cash proceeds for the overall transaction, of which $8.1 million was attributed to the warrants. The proceeds attributable to the interest sold exceeded the Company's carrying value in the interest sold by $28.7 million. 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 $2.5 million. The Company used the proceeds from the sale of the ownership interest to pay down the term loan and for general corporate purposes. As of the date of the sale, the Company has accounted for the operations of FlatIron Crossing under the equity method of accounting.
Queens Center and FlatIron Crossing are referred to herein as the "Joint Venture Centers."
43
On September 30, 2009, the Company formed a joint venture with a third party, whereby the third party acquired a 49.9% interest in Freehold Raceway Mall and Chandler Fashion Center. The Company received approximately $174.6 million in cash proceeds for the overall transaction. The Company used the proceeds from this transaction to pay down the Company's line of credit and for general corporate purposes. As part of this transaction, the Company issued a warrant for an aggregate of 935,358 shares of common stock of the Company. (See Note 15Stockholders' Equity in the Company's Notes to Consolidated Financial Statements). 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 $168.2 million representing the net cash proceeds received from the third party less costs allocated to the warrant.
During the fourth quarter of 2009, the Company sold five non-core community centers for $71.3 million, resulting in aggregate loss on sales of $16.9 million. The Company used the proceeds from these sales to pay down the Company's line of credit and for general corporate purposes.
Mervyn's:
In July 2008, Mervyn's filed for bankruptcy protection and announced in October 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 is located at one of the Centers.
In September 2008, the Company recorded a write-down of $5.2 million 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. (See Note 17Discontinued Operations in the Company's Notes to the Consolidated Financial Statements). 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 $5.3 million 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 $27.7 million of unamortized intangible assets related to lease in place values, leasing commissions and legal costs to depreciation and amortization. Unamortized intangible assets of $14.9 million relating to above market leases and unamortized intangible liabilities of $24.5 million relating to below market leases were written off to minimum rents.
On December 19, 2008, the Company sold a fee and/or ground leasehold interest in three former Mervyn's stores to Pacific Premier Retail Trust, one of its joint ventures, for $43.4 million, resulting in a gain on sale of assets of $1.5 million. 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 $26.0 million, 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 in July 2009 for $52.7 million in total proceeds, resulting in an additional $0.5 million 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.
44
On September 29, 2009, the Company sold a leasehold interest in a former Mervyn's store for $4.5 million, resulting in a gain on sale of $4.1 million. The Company used the proceeds from the sale to pay down the Company's line of credit and for general corporate purposes.
The Mervyn's stores acquired in 2007 and 2008 are referred to herein as the "Mervyn's Properties."
Redevelopment and Development Activity:
Northgate Mall, the Company's 712,771 square foot regional mall in Marin County, California, opened the first phase of its redevelopment on November 12, 2009. New anchor Kohl's was joined by retailers H&M, BJ's Restaurant, Children's Place, Chipotle, Gymboree, Hot Topic, PacSun, Panera Bread, See's Candies, Sunglass Hut, Tilly's and Vans. As of December 31, 2009, the Company incurred approximately $66.5 million of redevelopment costs for this Center and is estimating it will incur approximately $12.5 million of additional costs in 2010.
Santa Monica Place in Santa Monica, California, is scheduled to open in August 2010 with anchors Bloomingdale's and Nordstrom. The Company recently announced deals with Tony Burch, Ben Bridge Jewelers and Charles David. As of December 31, 2009, the Company incurred approximately $163.2 million of redevelopment costs for this Center and is estimating it will incur approximately $101.8 million of additional costs in 2010.
Inflation:
In the last three years, inflation has not had a significant impact on the Company because of a relatively low inflation rate. Most of the leases at the Centers have rent adjustments periodically through the lease term. These rent increases are either in fixed increments or based on using an annual multiple of increases in the Consumer Price Index ("CPI"). In addition, about 6%-13% of the leases expire each year, which enables the Company to replace existing leases with new leases at higher base rents if the rents of the existing leases are below the then existing market rate. Additionally, historically the majority of the leases required the tenants to pay their pro rata share of operating expenses. In January 2005, the Company began entering into leases that require tenants to pay a stated amount for operating expenses, generally excluding property taxes, regardless of the expenses actually incurred at any Center. This change shifts the burden of cost control to the Company.
Seasonality:
The shopping center industry is seasonal in nature, particularly in the fourth quarter during the holiday season when retailer occupancy and retail sales are typically at their highest levels. In addition, shopping malls achieve a substantial portion of their specialty (temporary retailer) rents during the holiday season and the majority of percentage rent is recognized in the fourth quarter. As a result of the above, earnings are generally higher in the fourth quarter.
Critical Accounting Policies
The preparation of financial statements in conformity with generally accepted accounting principles ("GAAP") in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Some of these estimates and assumptions include judgments on revenue recognition, estimates for common area maintenance and real estate tax accruals, provisions for uncollectible accounts, impairment of long-lived assets, the allocation of purchase price between tangible and intangible assets, and estimates for environmental matters. The Company's significant accounting policies are described
45
in more detail in Note 2Summary of Significant Accounting Policies in the Company's Notes to the Consolidated Financial Statements. However, the following policies are deemed to be critical.
Revenue Recognition:
Minimum rental revenues are recognized on a straight-line basis over the term of the related lease. The difference between the amount of rent due in a year and the amount recorded as rental income is referred to as the "straight line rent adjustment." Currently, 57% of the mall and freestanding leases contain provisions for CPI rent increases periodically throughout the term of the lease. The Company believes that using an annual multiple of CPI increases, rather than fixed contractual rent increases, results in revenue recognition that more closely matches the cash revenue from each lease and will provide more consistent rent growth throughout the term of the leases. Percentage rents are recognized when the tenants' specified sales targets have been met. Estimated recoveries from certain tenants for their pro rata share of real estate taxes, insurance and other shopping center operating expenses are recognized as revenues in the period the applicable expenses are incurred. Other tenants pay a fixed rate and these tenant recoveries' revenues are recognized on a straight-line basis over the term of the related leases.
Property:
The Company capitalizes costs incurred in redevelopment and development of properties. The costs of land and buildings under development include specifically identifiable costs. The capitalized costs include pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes, salaries and related costs and other costs incurred during the period of development. Capitalized costs are allocated to the specific components of a project that are benefited. The Company considers a construction project as completed and held available for occupancy and ceases capitalization of costs when the areas under development have been substantially completed.
Maintenance and repair expenses are charged to operations as incurred. Costs for major replacements and betterments, which includes HVAC equipment, roofs, parking lots, etc., are capitalized and depreciated over their estimated useful lives. Gains and losses are recognized upon disposal or retirement of the related assets and are reflected in earnings.
Property is recorded at cost and is depreciated using a straight-line method over the estimated useful lives of the assets as follows:
Buildings and improvements |
5-40 years | |
Tenant improvements |
5-7 years | |
Equipment and furnishings |
5-7 years |
Accounting for Acquisitions:
The Company first determines the value of land and buildings utilizing an "as if vacant" methodology. The Company then assigns a fair value to any debt assumed at acquisition. The balance of the purchase price is allocated to tenant improvements and identifiable intangible assets or liabilities. Tenant improvements represent the tangible assets associated with the existing leases valued on a fair market value basis at the acquisition date prorated over the remaining lease terms. The tenant improvements are classified as an asset under property and are depreciated over the remaining lease terms. Identifiable intangible assets and liabilities relate to the value of in-place operating leases which come in three forms: (i) leasing commissions and legal costs, which represent the value associated with "cost avoidance" of acquiring in-place leases, such as lease commissions paid under terms generally experienced in the Company's markets; (ii) value of in-place leases, which represents the estimated loss of revenue and of costs incurred for the period required to lease the "assumed vacant" property to the
46
occupancy level when purchased; and (iii) above or below market value of in-place leases, which represents the difference between the contractual rents and market rents at the time of the acquisition, discounted for tenant credit risks. Leasing commissions and legal costs are recorded in deferred charges and other assets and are amortized over the remaining lease terms. The value of in-place leases are recorded in deferred charges and other assets and amortized over the remaining lease terms plus an estimate of renewal of the acquired leases. Above or below market leases are classified in deferred charges and other assets or in other accrued liabilities, depending on whether the contractual terms are above or below market, and the asset or liability is amortized to minimum rents over the remaining terms of the leases.
Asset Impairment:
The Company assesses whether there has been impairment in the value of its long-lived assets by considering factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other economic factors. Such factors include the tenant's ability to perform their duties and pay rent under the terms of the leases. The Company may recognize impairment losses if the cash flows are not sufficient to cover its investment. Such a loss would be determined as the difference between the carrying value and the fair value of a center.
The Company reviews its investments in unconsolidated joint ventures for a series of operating losses and other factors that may indicate that a decrease in the value of its investments has occurred which is other-than-temporary. The investment in each unconsolidated joint venture is evaluated periodically, and as deemed necessary, for recoverability and valuation declines that are other than temporary.
Fair Value of Financial Instruments:
The fair value hierarchy distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity and the reporting entity's own assumptions about market participant assumptions.
Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity's own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
The Company calculates the fair value of financial instruments and includes this additional information in the notes to consolidated financial statements when the fair value is different than the carrying value of those financial instruments. When the fair value reasonably approximates the carrying value, no additional disclosure is made.
Deferred Charges:
Costs relating to obtaining tenant leases are deferred and amortized over the initial term of the agreement using the straight-line method. Costs relating to financing of shopping center properties are
47
deferred and amortized over the life of the related loan using the straight-line method, which approximates the effective interest method. In-place lease values are amortized over the remaining lease term plus an estimate of the renewal term. Leasing commissions and legal costs are amortized on a straight-line basis over the individual remaining lease years. The ranges of the terms of the agreements are as follows:
Deferred lease costs | 1-15 years | |
Deferred financing costs | 1-15 years | |
In-place lease values | Remaining lease term plus an estimate for renewal | |
Leasing commissions and legal costs | 5-10 years |
Results of Operations
Many of the variations in the results of operations, discussed below, occurred due to the transactions described above including the 2008 Acquisition Property, the Joint Venture Centers, the Mervyn's Properties and the Redevelopment Centers. For the comparison of the year ended December 31, 2009 to the year ended December 31, 2008, the "Same Centers" include all Consolidated Centers, excluding the 2008 Acquisition Property, the Mervyn's Properties, the Joint Venture Centers and the Redevelopment Centers as defined below. For the comparison of the year ended December 31, 2008 to the year ended December 31, 2007, the "Same Centers" include all consolidated Centers, excluding the 2008 Acquisition Property, the Mervyn's Properties and the Redevelopment Centers.
For the comparison of the year ended December 31, 2009 to the year ended December 31, 2008, the "Redevelopment Centers" include The Oaks, Northgate Mall, Santa Monica Place and Shoppingtown Mall. For the comparison of the year ended December 31, 2008 to the year ended December 31, 2007, the "Redevelopment Centers" include The Oaks, Northgate Mall, Santa Monica Place, Shoppingtown Mall, Westside Pavilion, The Marketplace at Flagstaff, SanTan Village Regional Center and Promenade at Casa Grande.
The U.S. economy, the real estate industry as a whole, and the local markets in which the Centers are located have in recent years experienced adverse economic conditions, resulting in an economic recession as well as disruptions in the capital and credit markets. These difficult economic conditions have adversely impacted consumer spending levels and the operating results of the Company's tenants. Regional Mall sales per square foot for 2009 declined by approximately 8% from 2008 to a level of $407 per square foot, continuing the downward trend that began in 2007. Regional Mall portfolio occupancy also has declined since 2007, with occupancy at December 31, 2009 at 91.3% compared to 92.3% at December 31, 2008. The Company's ability to lease space and negotiate rents at advantageous rates has been, and may continue to be, adversely affected in this type of economic environment, and more tenants may seek rent relief. The spread between rents on executed leases and expiring leases remains positive but decreased in 2009 compared to 2008. While the Company cannot predict how long these adverse conditions will continue, a further continuation could harm the Company's business, results of operations and financial condition.
Comparison of Years Ended December 31, 2009 and 2008
Revenues:
Minimum and percentage rents (collectively referred to as "rental revenue") decreased by $56.7 million, or 10.4%, from 2008 to 2009. The decrease in rental revenue is attributed to a decrease of $32.1 million from the Joint Venture Centers, $26.9 million from the Mervyn's Properties and $7.4 million from the Same Centers which is offset in part by an increase of $8.9 million from the Redevelopment Centers and $0.8 million from the 2008 Acquisition Property. The decrease in rental
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revenue from the Mervyn's Properties is due to the rejection of 22 leases by Mervyn's under the bankruptcy laws in 2008, offset in part by the assumption of 23 of the Mervyn's leases by Kohls and Forever 21 as well as the sale of six of the Mervyn's stores in 2009. The Company is currently seeking replacement tenants for the remainder of the vacant Mervyn's spaces. If these spaces are not leased, this trend will continue throughout 2010. The decrease in Same Centers rental revenue is primarily attributed to a decrease in occupancy, a decrease in amortization of above and below market leases and a decrease in percentage rents due to a decrease in retail sales.
Rental revenue includes the amortization of above and below market leases, the amortization of straight-line rents and lease termination income. The amortization of above and below market leases decreased from $22.5 million in 2008 to $9.6 million in 2009. The amortization of straight-lined rents increased from $4.5 million in 2008 to $6.5 million in 2009. Lease termination income increased from $9.6 million in 2008 to $16.2 million in 2009. The decrease in the amortization of above and below market leases is primarily due to the early termination of Mervyn's leases in 2008 (See "Management's Overview and SummaryMervyn's.").
Tenant recoveries decreased $18.1 million, or 6.9%, from 2008 to 2009. The decrease in tenant recoveries is attributed to a decrease of $12.7 million from the Joint Venture Centers, $4.3 million from the Same Centers and $4.0 million from the Mervyn's Properties offset in part by an increase of $2.7 million from the Redevelopment Centers and $0.2 million from the 2008 Acquisition Property. The decrease in Same Centers is due to a decrease in recoverable operating expenses, utilities and property taxes.
Shopping Center and Operating Expenses:
Shopping center and operating expenses decreased $23.4 million, or 8.3%, from 2008 to 2009. The decrease in shopping center and operating expenses is attributed to a decrease of $15.1 million from the Joint Venture Centers and $10.1 million from the Same Centers offset in part by an increase of $1.5 million from the Redevelopment Centers and $0.3 million from the 2008 Acquisition Property. The decrease in Same Centers is due to a decrease in recoverable operating expenses, utilities and property taxes.
Management Companies' Operating Expenses:
Management Companies' operating expenses increased $2.2 million from 2008 to 2009 due to severance costs paid in connection with the implementation of the Company's workforce reduction plan in 2009.
REIT General and Administrative Expenses:
REIT general and administrative expenses increased by $9.4 million from 2008 to 2009. The increase is primarily due to $7.3 million in transaction and other related costs relating to the Chandler Fashion Center and Freehold Raceway Mall transaction (See "Management Overview and SummaryAcquisitions and Dispositions") and $1.5 million in other compensation costs incurred in 2009.
Depreciation and Amortization:
Depreciation and amortization decreased $7.9 million from 2008 to 2009. The decrease in depreciation and amortization is primarily attributed to a decrease of $11.4 million from the Mervyn's Properties and $8.5 million from the Joint Venture Centers offset in part by an increase of $4.6 million from the Same Centers, $2.9 million from the Redevelopment Centers and $0.3 million from the 2008 Acquisition Property. Included in the decrease of depreciation and amortization of Mervyn's Properties is the write-off of intangible assets as a result of the early termination of Mervyn's leases in 2008 (See "Management's Overview and SummaryMervyn's.")
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Interest Expense:
Interest expense decreased $28.0 million from 2008 to 2009. The decrease in interest expense was primarily attributed to a decrease of $12.1 million from the Senior Notes, $10.9 million from the Joint Venture Centers, $10.8 million from borrowings under the Company's line of credit and $9.0 million from the term loan offset in part by an increase of $8.5 million from the Redevelopment Centers, $5.7 million from the Same Centers and $0.6 million from the 2008 Acquisition Property.
The decrease in interest expense on the Senior Notes is due to a reduction of weighted average outstanding principal balance from 2008 to 2009. The decrease in interest expense on the Company's line of credit was due to a decrease in average outstanding borrowings during 2009, due in part, to the proceeds from sale of the 2009 joint venture transactions (See "Management's Overview and SummaryAcquisitions and Dispositions") and the equity offering in 2009. (See "Liquidity and Capital Resources".)
The above interest expense items are net of capitalized interest, which decreased from $33.3 million in 2008 to $21.3 million in 2009 due to a decrease in redevelopment activity in 2009 and a reduction in the cost of borrowing.
Gain on Early Extinguishment of Debt:
Gain on early extinguishment of debt decreased from $84.1 million in 2008 to $29.2 million in 2009. The reduction in gain reflects a decrease in the amount of Senior Notes repurchased in 2009 compared to 2008. (See "Liquidity and Capital Resources").
Equity in Income of Unconsolidated Joint Ventures:
Equity in income of unconsolidated joint ventures decreased $25.7 million from 2008 to 2009. The decrease in equity in income from joint ventures is primarily attributed to $9.1 million of termination fee income received in 2008 and $7.6 million related to a write-down of assets at certain joint venture Centers in 2009.
Gain (loss) on Sale or Write-down of Assets:
The gain (loss) on sale or write-down of assets increased from a loss of $30.9 million in 2008 to a gain of $161.9 million in 2009. The gain is primarily attributed to the gain of $156.7 million related to the sale of ownership interests in the Joint Venture Centers (See "Management's Overview and SummaryAcquisitions and Dispositions"), the impairment charge of $19.2 million in 2008 to reduce the carrying value of land held for development and a $5.3 million adjustment in 2008 to reduce the carrying value of Mervyn's stores that the Company had previously classified as held for sale (See "Management's Overview and SummaryMervyn's").
Discontinued Operations:
The Company recorded a loss from discontinued operations of $35.6 million in 2009 compared to income of $108.4 million in 2008. The reduction in income is primarily attributed to the $99.1 million gain from the Rochester Redemption in 2008 (See "Management's Overview and SummaryAcquisitions and Dispositions") and the loss on sale or write-down of assets of $40.2 million in 2009.
Net Income Attributable to Noncontrolling Interests:
Net income attributable to noncontrolling interests decreased from $29.0 million in 2008 to $18.5 million in 2009. The decrease in net income from noncontrolling interests is attributable to $16.3 million from the Rochester Redemption in 2008 and an increase in income from continuing operations.
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Funds From Operations:
Primarily as a result of the factors mentioned above, FFOdiluted decreased 25.4% from $461.5 million in 2008 to $344.1 million in 2009. For disclosure of net income, the most directly comparable GAAP financial measure, for the periods and a reconciliation of FFO and FFOdiluted to net income available to common stockholders, see "Funds from Operations."
Operating Activities:
Cash provided by operations decreased from $251.9 million in 2008 to $120.9 million in 2009. The decrease was primarily due to changes in assets and liabilities in 2008 compared to 2009, an increase in accounts payable and other accrued liabilities and the results at the Centers as discussed above.
Investing Activities:
Cash from investing activities increased from a deficit of $559.0 million in 2008 to a surplus of $302.4 million in 2009. The increase in cash provided by investing activities was primarily due to an increase in proceeds from the sale of assets of $370.3 million, a decrease in capital expenditures of $337.8 million, a decrease in contributions to unconsolidated joint ventures of $110.7 million and an increase in distributions from unconsolidated joint ventures of $27.4 million.
The increase in proceeds from the sale of assets is due to the sale of the ownership interests in the Joint Venture Centers. The decrease in capital expenditures is primarily due to the purchase of a ground leasehold and fee simple interest in two Mervyn's stores in 2008 and the decrease in development activity in 2009. The decrease in contributions to unconsolidated joint ventures is primarily due to the Company's purchase of a pro rata share of The Shops at North Bridge for $155.0 million in 2008. See "Management's Overview and SummaryAcquisitions and Dispositions" for a discussion of the acquisition of The Shops at North Bridge, the Joint Venture Centers and Mervyn's.
Financing Activities:
Cash flows from financing activities decreased from a surplus of $288.3 million in 2008 to a deficit of $396.5 million in 2009. The decrease in cash from financing activities was primarily attributed to decreases in cash provided by mortgages, bank and other notes payable of $1.3 billion and cash payments on mortgages, bank and other notes payable of $177.8 million offset in part by the net proceeds from the common stock offering in 2009 of $343.5 million, the decrease in dividends and distributions (See "Liquidity and Capital Resources") of $179.0 million and the contribution from a co-venture partner of $168.2 million. (See "Management's Overview and SummaryAcquisitions and Dispositions.")
Comparison of Years Ended December 31, 2008 and 2007
Revenues:
Rental revenue increased by $55.6 million, or 11.3%, from 2007 to 2008. The increase in rental revenue is attributed to an increase of $37.4 million from the Mervyn's Properties, $13.9 million from the Redevelopment Centers, $3.0 million from the Same Centers and $1.3 million from the 2008 Acquisition Property. The increase in the revenues from the Same Centers is primarily due to rent escalations and lease renewals at higher rents, which was offset by decreases in lease termination income, amortization of straight-line rents and amortization of above and below market leases. The increase in the revenues from the Same Centers was also offset by a decrease of $6.3 million in percentage rents due to a decrease in retail sales.
The amortization of above and below market leases increased from $10.3 million in 2007 to $22.5 million in 2008. The amortization of straight-lined rents decreased from $6.7 million in 2007 to
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$4.5 million in 2008. Lease termination income decreased from $9.7 million in 2007 to $9.6 million in 2008. The increase in above and below market leases is primarily due to the early termination of Mervyn's leases in 2008 (See "Management's Overview and SummaryMervyn's").
Tenant recoveries increased $20.2 million, or 8.4%, from 2007 to 2008. The increase in tenant recoveries is attributed to an increase of $9.7 million from the Same Centers, $5.5 million from the Mervyn's Properties, $4.7 from the Redevelopment Centers and $0.3 million from the 2008 Acquisition Property.
Management Companies' revenues increased by $1.0 million from 2007 to 2008, primarily due to increased management fees received from the joint ventures, additional third party management contracts and increased development fees from joint ventures.
Shopping Center and Operating Expenses:
Shopping center and operating expenses increased $28.4 million, or 11.2%, from 2007 to 2008. The increase in shopping center and operating expenses is attributed to an increase of $13.1 million from the Same Centers, $10.0 million from the Mervyn's Properties, $5.0 million from the Redevelopment Centers and $0.3 million from the 2008 Acquisition Property. The increase in Same Centers is primarily due to an increase in recoverable utility expenses and property taxes and a $2.0 million increase in bad debt expense.
Management Companies' Operating Expenses:
Management Companies' operating expenses increased $3.3 million from 2007 to 2008, in part as a result of the additional costs of managing the joint ventures and third party managed properties.
REIT General and Administrative Expenses:
REIT general and administrative expenses decreased by $0.1 million from 2007 to 2008. The decrease is primarily due to a decrease in share and unit-based compensation expense in 2008.
Depreciation and Amortization:
Depreciation and amortization increased $60.8 million from 2007 to 2008. The increase in depreciation and amortization is primarily attributed to an increase of $37.7 million from the Mervyn's Properties, $12.0 million from the Redevelopment Centers, $6.8 million from the Same Centers and $0.6 million from the 2008 Acquisition Property. Included in the increase of depreciation and amortization of Mervyn's Properties is the write-off of $32.9 million of intangible assets as a result of the early termination of Mervyn's leases. (See "Management's Overview and SummaryMervyn's".)
Interest Expense:
Interest expense increased $34.2 million from 2007 to 2008. The increase in interest expense was primarily attributed to an increase of $17.9 million from borrowings under the Company's line of credit, $7.8 million from the Senior Notes, $6.3 million from the Redevelopment Centers, and $5.5 million from the Same Centers. The increase in interest expense was offset in part by a decrease of $3.8 million from term loans.
The increase in interest expense on the Company's line of credit was due to an increase in average outstanding borrowings during 2008, in part, because of the purchase of The Shops at North Bridge, the Mervyn's Properties and the 2008 Acquisition Property and the repurchase and retirement of Senior Notes in 2008, which is offset in part by lower LIBOR rates and spreads. The increase in interest expense on the Senior Notes is due to a full year of interest expense in 2008 compared to
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2007. The decrease in interest expense on term loans was due to the repayment of the $250 million loan in 2007.