UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

Commission File No. 1-12504

THE MACERICH COMPANY

(Exact name of registrant as specified in its charter)

MARYLAND

 

95-4448705

(State or other jurisdiction of incorporation
or organization)

 

(I.R.S. Employer Identification Number)

 

401 Wilshire Boulevard, Suite 700, Santa Monica, California 90401

(Address of principal executive office, including zip code)

(310) 394-6000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or such shorter period that the Registrant was required to file such report) and (2) has been subject to such filing requirements for the past ninety (90) days.

YES  x    NO  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated filer x

 

Accelerated filer o

 

Non-accelerated filer 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  x

Number of shares outstanding of the registrant’s common stock, as of November 1, 2007 Common Stock, par value $.01 per share: 72,518,069 shares

 




THE MACERICH COMPANY

FORM 10-Q

INDEX

 

 

Page

Part I

 

Financial Information

 

 

 

 

Item 1.

 

Financial Statements

 

 

 

 

 

 

Consolidated Balance Sheets of the Company as of September 30, 2007 and December 31, 2006

 

3

 

 

 

 

Consolidated Statements of Operations of the Company for the three and nine months ended September 30, 2007 and 2006

 

4

 

 

 

 

Consolidated Statement of Common Stockholders’ Equity of the Company for the nine months ended September 30, 2007

 

5

 

 

 

 

Consolidated Statements of Cash Flows of the Company for the nine months ended September 30, 2007 and 2006

 

6

 

 

 

 

Notes to Consolidated Financial Statements

 

7

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

32

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

46

 

 

Item 4.

 

Controls and Procedures

 

47

 

 

Item 4T.

 

Controls and Procedures

 

48

 

 

Part II

 

Other Information

 

49

 

 

Item 1.

 

Legal Proceedings

 

49

 

 

Item 1A.

 

Risk Factors

 

49

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

49

 

 

Item 3.

 

Defaults Upon Senior Securities

 

49

 

 

Item 4.

 

Submission of Matters to a Vote of Security Holders

 

49

 

 

Item 5.

 

Other Information

 

49

 

 

Item 6.

 

Exhibits

 

49

 

 

Signature

 

51

 

 

 

2




THE MACERICH COMPANY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share amounts)

 

 

September 30,

 

December 31,

 

 

 

2007

 

2006

 

 

 

(Unaudited)

 

 

 

ASSETS:

 

 

 

 

 

 

 

 

 

Property, net

 

 

$

6,045,958

 

 

 

$

5,755,283

 

 

Cash and cash equivalents

 

 

42,850

 

 

 

269,435

 

 

Restricted cash

 

 

69,209

 

 

 

66,376

 

 

Marketable securities

 

 

29,368

 

 

 

30,019

 

 

Tenant receivables, net

 

 

127,868

 

 

 

117,855

 

 

Deferred charges and other assets, net

 

 

323,233

 

 

 

307,825

 

 

Loans to unconsolidated joint ventures

 

 

488

 

 

 

708

 

 

Due from affiliates

 

 

2,263

 

 

 

4,282

 

 

Investments in unconsolidated joint ventures

 

 

818,723

 

 

 

1,010,380

 

 

Total assets

 

 

$

7,459,960

 

 

 

$

7,562,163

 

 

LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

 

Mortgage notes payable:

 

 

 

 

 

 

 

 

 

Related parties

 

 

$

226,745

 

 

 

$

151,311

 

 

Others

 

 

3,073,368

 

 

 

3,179,787

 

 

Total

 

 

3,300,113

 

 

 

3,331,098

 

 

Bank and other notes payable

 

 

1,824,366

 

 

 

1,662,781

 

 

Accounts payable and accrued expenses

 

 

92,523

 

 

 

86,127

 

 

Other accrued liabilities

 

 

250,464

 

 

 

212,249

 

 

Preferred stock dividends payable

 

 

6,804

 

 

 

6,199

 

 

Total liabilities

 

 

5,474,270

 

 

 

5,298,454

 

 

Minority interest

 

 

330,573

 

 

 

387,183

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Class A participating convertible preferred units

 

 

213,786

 

 

 

213,786

 

 

Class A non-participating convertible preferred units

 

 

16,459

 

 

 

21,501

 

 

Series A cumulative convertible redeemable preferred stock, $.01 par value, 3,627,131 shares authorized, issued and outstanding at September 30, 2007 and December 31, 2006, respectively

 

 

98,934

 

 

 

98,934

 

 

Common stockholders’ equity:

 

 

 

 

 

 

 

 

 

Common stock, $.01 par value, 145,000,000 shares authorized, 71,712,556 and 71,567,908 shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively

 

 

716

 

 

 

716

 

 

Additional paid-in capital

 

 

1,630,093

 

 

 

1,717,498

 

 

Accumulated deficit

 

 

(298,095

)

 

 

(178,249

)

 

Accumulated other comprehensive (loss) income

 

 

(6,776

)

 

 

2,340

 

 

Total common stockholders’ equity

 

 

1,325,938

 

 

 

1,542,305

 

 

Total liabilities, preferred stock and common stockholders’ equity

 

 

$

7,459,960

 

 

 

$

7,562,163

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

3




THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)

 

 

For the Three Months

 

For the Nine Months

 

 

 

Ended September 30,

 

Ended September 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

Revenues:

 

 

 

 

 

 

 

 

 

Minimum rents

 

$

130,371

 

$

115,877

 

$

380,256

 

$

354,555

 

Percentage rents

 

4,992

 

4,702

 

11,620

 

9,618

 

Tenant recoveries

 

70,623

 

64,250

 

206,416

 

187,219

 

Management Companies

 

9,242

 

8,023

 

27,595

 

22,650

 

Other

 

8,756

 

9,225

 

25,554

 

21,814

 

Total revenues

 

223,984

 

202,077

 

651,441

 

595,856

 

Expenses:

 

 

 

 

 

 

 

 

 

Shopping center and operating expenses

 

73,831

 

67,478

 

211,224

 

193,321

 

Management Companies’ operating expenses

 

17,908

 

14,455

 

54,182

 

41,295

 

REIT general and administrative expenses

 

1,992

 

2,551

 

11,777

 

9,540

 

Depreciation and amortization

 

60,171

 

53,542

 

177,665

 

168,965

 

 

 

153,902

 

138,026

 

454,848

 

413,121

 

Interest expense:

 

 

 

 

 

 

 

 

 

Related parties

 

3,772

 

2,730

 

9,634

 

8,142

 

Other

 

56,210

 

64,623

 

180,165

 

196,141

 

 

 

59,982

 

67,353

 

189,799

 

204,283

 

Total expenses

 

213,884

 

205,379

 

644,647

 

617,404

 

Minority interest in consolidated joint ventures

 

(721

)

(870

)

(2,237

)

(1,872

)

Equity in income of unconsolidated joint ventures

 

18,648

 

18,490

 

52,128

 

57,367

 

Income tax (provision) benefit

 

(429

)

(535

)

478

 

(219

)

Gain on sale of assets

 

147

 

538

 

4,181

 

37

 

Loss on early extinguishment of debt

 

 

(29

)

(877

)

(1,811

)

Income from continuing operations

 

27,745

 

14,292

 

60,467

 

31,954

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

(Loss) gain on sale of assets

 

(905

)

46,214

 

(2,325

)

72,167

 

Income from discontinued operations

 

237

 

1,562

 

60

 

9,241

 

Total (loss) income from discontinued operations

 

(668

)

47,776

 

(2,265

)

81,408

 

Income before minority interest and preferred dividends

 

27,077

 

62,068

 

58,202

 

113,362

 

Less: minority interest in Operating Partnership

 

3,070

 

8,901

 

5,935

 

15,131

 

Net income

 

24,007

 

53,167

 

52,267

 

98,231

 

Less: preferred dividends

 

6,727

 

6,199

 

18,971

 

18,139

 

Net income available to common stockholders

 

$

17,280

 

$

46,968

 

$

33,296

 

$

80,092

 

Earnings per common share—basic:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.25

 

$

0.10

 

$

0.49

 

$

0.16

 

Discontinued operations

 

(0.01

)

0.56

 

(0.03

)

0.97

 

Net income

 

$

0.24

 

$

0.66

 

$

0.46

 

$

1.13

 

Earnings per common share—diluted:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.25

 

$

0.10

 

$

0.49

 

$

0.16

 

Discontinued operations

 

(0.01

)

0.56

 

(0.03

)

0.97

 

Net income

 

$

0.24

 

$

0.66

 

$

0.46

 

$

1.13

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

71,674,000

 

71,479,000

 

71,625,000

 

70,587,000

 

Diluted

 

84,529,000

 

85,021,000

 

84,706,000

 

84,216,000

 

 

The accompanying notes are an integral part of these consolidated financial statements.

4




THE MACERICH COMPANY
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS’ EQUITY
(Dollars in thousands, except per share data)
(Unaudited)

 

 

 

 

 

 

 

 

 

 

Accumulated

 

Total

 

 

 

 

Common Stock

 

Additional

 

 

 

Other

 

Common

 

 

 

 

 

 

Par

 

Paid-in

 

Accumulated

 

Comprehensive

 

Stockholders’

 

 

 

 

Shares

 

Value

 

Capital

 

Deficit

 

(Loss) income

 

Equity

 

 

Balance January 1, 2007

 

71,567,908

 

 

$

716

 

 

$

1,717,498

 

 

$

(178,249

)

 

 

$

2,340

 

 

 

$

1,542,305

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

52,267

 

 

 

 

 

 

52,267

 

 

Reclassification of deferred
losses

 

 

 

 

 

 

 

 

 

 

723

 

 

 

723

 

 

Interest rate swap/cap
agreements

 

 

 

 

 

 

 

 

 

 

(9,839

)

 

 

(9,839

)

 

Total comprehensive income

 

 

 

 

 

 

 

52,267

 

 

 

(9,116

)

 

 

43,151

 

 

Amortization of share and unit-based plans

 

213,996

 

 

2

 

 

15,859

 

 

 

 

 

 

 

 

15,861

 

 

Exercise of stock options

 

13,500

 

 

 

 

387

 

 

 

 

 

 

 

 

387

 

 

Employee stock purchases

 

8,113

 

 

 

 

557

 

 

 

 

 

 

 

 

557

 

 

Distributions paid ($2.13) per
share

 

 

 

 

 

 

 

(153,142

)

 

 

 

 

 

(153,142

)

 

Preferred dividends

 

 

 

 

 

 

 

(18,971

)

 

 

 

 

 

(18,971

)

 

Conversion of partnership units and Class A non-participating convertible preferred units

 

716,039

 

 

6

 

 

19,322

 

 

 

 

 

 

 

 

19,328

 

 

Repurchase of common shares

 

(807,000

)

 

(8

)

 

(74,962

)

 

 

 

 

 

 

 

(74,970

)

 

Purchase of capped calls on convertible senior notes

 

 

 

 

 

(59,850

)

 

 

 

 

 

 

 

(59,850

)

 

Change in accounting principle due to adoption of FIN 48

 

 

 

 

 

(1,574

)

 

 

 

 

 

 

 

(1,574

)

 

Adjustment to reflect minority interest on a pro rata basis for period end ownership percentage of Operating Partnership units

 

 

 

 

 

12,856

 

 

 

 

 

 

 

 

12,856

 

 

Balance September 30, 2007

 

71,712,556

 

 

$

716

 

 

$

1,630,093

 

 

$

(298,095

)

 

 

$

(6,776

)

 

 

$

1,325,938

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

5




THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

 

 

For the Nine Months
Ended September 30,

 

 

 

2007

 

2006

 

Cash flows from operating activities:

 

 

 

 

 

Net income available to common stockholders

 

$

33,296

 

$

80,092

 

Preferred dividends

 

 

18,971

 

 

18,139

 

Net income

 

 

52,267

 

 

98,231

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Loss on early extinguishment of debt

 

 

877

 

 

1,811

 

Gain on sale of assets

 

 

(4,181

)

 

(37

)

Loss (gain) on sale of assets of discontinued operations

 

 

2,325

 

 

(72,167

)

Depreciation and amortization

 

 

177,665

 

 

179,070

 

Amortization of net premium on mortgage and bank and other notes payable

 

 

(7,668

)

 

(9,014

)

Amortization of share and unit-based plans

 

 

11,119

 

 

6,533

 

Minority interest in Operating Partnership

 

 

5,935

 

 

15,131

 

Minority interest in consolidated joint ventures

 

 

2,237

 

 

2,284

 

Equity in income of unconsolidated joint ventures

 

 

(52,128

)

 

(57,367

)

Distributions of income from unconsolidated joint ventures

 

 

4,118

 

 

3,213

 

Changes in assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

Tenant receivables, net

 

 

(10,371

)

 

(5,982

)

Other assets

 

 

(16,867

)

 

(466

)

Accounts payable and accrued expenses

 

 

8,925

 

 

(5,653

)

Due from affiliates

 

 

1,989

 

 

(260

)

Other accrued liabilities

 

 

31,829

 

 

(16,422

)

Net cash provided by operating activities

 

 

208,071

 

 

138,905

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Acquisitions of property, development, redevelopment and property improvements

 

 

(434,133

)

 

(492,578

)

Issuance of note receivable

 

 

 

 

(10,000

)

Purchase of marketable securities

 

 

 

 

(30,307

)

Maturities of marketable securities

 

 

912

 

 

184

 

Deferred leasing costs

 

 

(24,359

)

 

(20,359

)

Distributions from unconsolidated joint ventures

 

 

248,176

 

 

162,519

 

Contributions to unconsolidated joint ventures

 

 

(18,532

)

 

(24,681

)

Repayments of loans to unconsolidated joint ventures

 

 

220

 

 

600

 

Proceeds from sale of assets

 

 

15,814

 

 

237,938

 

Restricted cash

 

 

(2,833

)

 

(7,769

)

Net cash used in investing activities

 

 

(214,735

)

 

(184,453

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from mortgages and bank and other notes payable

 

 

1,648,068

 

 

1,451,321

 

Payments on mortgages and bank and other notes payable

 

 

(1,527,438

)

 

(2,013,456

)

Deferred financing costs

 

 

(1,919

)

 

(6,559

)

Purchase of Capped Calls

 

 

(59,850

)

 

 

Repurchase of common stock

 

 

(74,970

)

 

 

Proceeds from share and unit-based plans

 

 

944

 

 

408

 

Net proceeds from stock offering

 

 

 

 

746,804

 

Dividends and distributions

 

 

(186,390

)

 

(208,126

)

Dividends to preferred stockholders / preferred unit holders

 

 

(18,366

)

 

(17,910

)

Net cash used in financing activities

 

 

(219,921

)

 

(47,518

)

Net decrease in cash

 

 

(226,585

)

 

(93,066

)

Cash and cash equivalents, beginning of period

 

 

269,435

 

 

155,113

 

Cash and cash equivalents, end of period

 

$

42,850

 

$

62,047

 

Supplemental cash flow information:

 

 

 

 

 

 

 

Cash payments for interest, net of amounts capitalized

 

$

210,803

 

$

230,547

 

Non-cash transactions:

 

 

 

 

 

 

 

Increase in other accrued liabilities and additional paid-in capital recorded upon adoption of FIN 48

 

$

1,574

 

$

 

Acquisition of property by assumption of mortgage note payable

 

$

4,300

 

$

 

Reclassification from other accrued liabilities to additional paid-in capital recorded upon adoption of SFAS
No. 123(R)

 

$

 

$

6,000

 

Accrued development costs included in accounts payable and accrued expenses and other accrued liabilities

 

$

30,259

 

$

7,334

 

 

The accompanying notes are an integral part of these consolidated financial statements.

6




THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)

1. Organization:

The Macerich Company (the “Company”) is involved in the acquisition, ownership, development, redevelopment, management and leasing of regional and community shopping centers (the “Centers”) located throughout the United States.

The Company commenced operations effective with the completion of its initial public offering on March 16, 1994. As of September 30, 2007, the Company is the sole general partner of and holds an 85% ownership interest in The Macerich Partnership, L.P. (the “Operating Partnership”). The interests in the Operating Partnership are known as OP Units. OP Units not held by the Company are redeemable, subject to certain restrictions, on a one-for-one basis for the Company’s common stock or cash at the Company’s option.

The Company is organized to qualify as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended. The 15% limited partnership interest of the Operating Partnership not owned by the Company is reflected in these financial statements as minority interest in the Operating Partnership.

The property management, leasing and redevelopment of the Company’s portfolio is provided by the Company’s management companies, Macerich Property Management Company, LLC, (“MPMC, LLC”) a single member Delaware limited liability company, Macerich Management Company (“MMC”), a California corporation, Westcor Partners, L.L.C., a single member Arizona limited liability company, Macerich Westcor Management LLC, a single member Delaware limited liability company, Westcor Partners of Colorado, LLC, a Colorado limited liability company, MACW Mall Management, Inc., a New York corporation and MACW Property Management, LLC, a single member New York limited liability company. The two MACW management companies are collectively referred to herein as the “Wilmorite Management Companies.” The three Westcor management companies are collectively referred to herein as the “Westcor Management Companies.” All seven of the management companies are collectively referred to herein as the “Management Companies.”

2. Basis of Presentation:

The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements and have not been audited by independent public accountants.

The accompanying consolidated financial statements include the accounts of the Company and the Operating Partnership. Investments in entities that are controlled by the Company or meet the definition of a variable interest entity in which an enterprise absorbs the majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity are consolidated; otherwise they are accounted for under the equity method and are reflected as “Investments in unconsolidated joint ventures.”

The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. In the opinion of management, all adjustments

7




THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)

2. Basis of Presentation: (Continued)

(consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements for the interim periods have been made. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The accompanying consolidated balance sheet as of December 31, 2006 has been derived from the audited financial statements, but does not include all disclosures required by GAAP.

All intercompany accounts and transactions have been eliminated in the consolidated financial statements.

Recent Accounting Pronouncements:

In February 2006, the Financial Accounting Standards Board (“FASB”) issued Statement on Financial Accounting Standards (“SFAS”) No. 155, “Accounting for Certain Hybrid Financial Instruments—An Amendment of FASB Statements No. 133 and 140.” This statement amended SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS No. 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. This statement also established a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation. The adoption of this statement on January 1, 2007 did not have a material effect on the Company’s results of operations or financial condition.

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”). This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition of previously recognized income tax benefits, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company adopted this statement on January 1, 2007. See Note 18—Income Taxes for the impact of the adoption of FIN 48 on the Company’s results of operations or financial condition.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The Company is required to adopt SFAS No. 157 for the year 2008 and does not expect its adoption to have a material effect on the Company’s results of operations or financial condition.

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) No. 108. SAB No. 108 establishes a framework for quantifying materiality of financial statement

8




THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)

2. Basis of Presentation: (Continued)

misstatements. The adoption of SAB No. 108 on January 1, 2007 did not have a material impact on the Company’s consolidated results of operations or financial condition.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115.” SFAS No. 159 allows for the measurement of many financial instruments and certain other items at fair value. The Company is required to adopt SFAS No. 159 for the year 2008. The Company is currently evaluating the impact of adoption of this statement on its results of operations or financial condition.

Fair Value of Financial Instruments

The Company calculates the fair value of financial instruments and includes this additional information in the notes to consolidated financial statements when the fair value is different than the carrying value of those financial instruments. When the fair value reasonably approximates the carrying value, no additional disclosure is made. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

3. Earnings per Share:

The computation of basic earnings per share (“EPS”) is based on net income available to common stockholders and the weighted average number of common shares outstanding for the three and nine months ended September 30, 2007 and 2006. The computation of diluted earnings per share includes the effect of dilutive securities using the “if-converted” method and dilutive effect of employee stock options calculated using the treasury stock method. The OP Units and MACWH, LP common units not held by the Company have been included in the diluted EPS since they may be redeemed on a one-for-one basis for common stock or cash, at the Company’s option. The following table computes the basic and diluted earnings per share calculation (dollars and shares in thousands):

 

 

For the Three Months Ended September 30,

 

 

 

2007

 

2006

 

 

 

Net
Income

 

Shares

 

Per
Share

 

Net
Income

 

Shares

 

Per
Share

 

Net income

 

$

24,007

 

 

 

 

 

$

53,167

 

 

 

 

 

Less: preferred dividends(1)

 

6,727

 

 

 

 

 

6,199

 

 

 

 

 

Basic EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to common stockholders

 

17,280

 

71,674

 

$

0.24

 

46,968

 

71,479

 

$

0.66

 

Diluted EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of partnership units

 

3,070

 

12,546

 

 

 

8,901

 

13,247

 

 

 

Employee stock options

 

 

309

 

 

 

 

295

 

 

 

Net income available to common stockholders

 

$

20,350

 

84,529

 

$

0.24

 

$

55,869

 

85,021

 

$

0.66

 

 

9




THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)

3. Earnings per Share: (Continued)

 

 

For the Nine Months Ended September 30,

 

 

 

2007

 

2006

 

 

 

Net
Income

 

Shares

 

Per
Share

 

Net
Income

 

Shares

 

Per
Share

 

Net income

 

$

52,267

 

 

 

 

 

$

98,231

 

 

 

 

 

Less: preferred dividends(1)

 

18,971

 

 

 

 

 

18,139

 

 

 

 

 

Basic EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to common stockholders

 

33,296

 

71,625

 

$

0.46

 

80,092

 

70,587

 

$

1.13

 

Diluted EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of partnership units

 

5,935

 

12,775

 

 

 

15,131

 

13,337

 

 

 

Employee stock options

 

 

306

 

 

 

 

292

 

 

 

Net income available to common stockholders

 

$

39,231

 

84,706

 

$

0.46

 

$

95,223

 

84,216

 

$

1.13

 


(1)          Preferred dividends include convertible preferred unit dividends of $3,825 and $3,624 for the three months ended September 30, 2007 and 2006, and $10,919 and $10,631 for the nine months ended September 30, 2007 and 2006, respectively.

The minority interest in the Operating Partnership as reflected in the Company’s consolidated statements of operations has been allocated for EPS calculations as follows:

 

 

For the Three
Months Ended

 

For the Nine
Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

Income from continuing operations

 

$

3,170

 

$

1,429

 

$

6,278

 

$

2,196

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

(Loss) gain on sale of assets

 

(135

)

7,228

 

(352

)

11,467

 

Income from discontinued operations

 

35

 

244

 

9

 

1,468

 

Total

 

$

3,070

 

$

8,901

 

$

5,935

 

$

15,131

 

 

10




THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)

4. Investments in Unconsolidated Joint Ventures:

The following are the Company’s investments in unconsolidated joint ventures. The Operating Partnership’s interest in each joint venture property as of September 30, 2007 was as follows:

 

 

Partnership’s

 

Joint Venture

 

 

 

Ownership % (1)

 

Biltmore Shopping Center Partners LLC

 

 

50.0

%

 

Camelback Colonnade SPE LLC

 

 

75.0

%

 

Chandler Festival SPE, LLC

 

 

50.0

%

 

Chandler Gateway SPE LLC

 

 

50.0

%

 

Chandler Village Center, LLC

 

 

50.0

%

 

Coolidge Holding LLC

 

 

37.5

%

 

Corte Madera Village, LLC

 

 

50.1

%

 

Desert Sky Mall—Tenants in Common

 

 

50.0

%

 

East Mesa Land, L.L.C.

 

 

50.0

%

 

East Mesa Mall, L.L.C.—Superstition Springs Center

 

 

33.3

%

 

Jaren Associates #4

 

 

12.5

%

 

Kierland Tower Lofts, LLC

 

 

15.0

%

 

Macerich Northwestern Associates

 

 

50.0

%

 

MetroRising AMS Holding LLC

 

 

15.0

%

 

New River Associates—Arrowhead Towne Center

 

 

33.3

%

 

NorthPark Land Partners, LP

 

 

50.0

%

 

NorthPark Partners, LP

 

 

50.0

%

 

Pacific Premier Retail Trust

 

 

51.0

%

 

PHXAZ/Kierland Commons, L.L.C.

 

 

24.5

%

 

Propcor Associates

 

 

25.0

%

 

Propcor II Associates, LLC—Boulevard Shops

 

 

50.0

%

 

SanTan Village Phase 2 LLC

 

 

34.9

%

 

Scottsdale Fashion Square Partnership

 

 

50.0

%

 

SDG Macerich Properties, L.P.

 

 

50.0

%

 

The Market at Estrella Falls LLC

 

 

35.1

%

 

Tysons Corner Holdings LLC

 

 

50.0

%

 

Tysons Corner LLC

 

 

50.0

%

 

Tysons Corner Property Holdings II LLC

 

 

50.0

%

 

Tysons Corner Property Holdings LLC

 

 

50.0

%

 

Tysons Corner Property LLC

 

 

50.0

%

 

W.M. Inland, L.L.C.

 

 

50.0

%

 

West Acres Development, LLP

 

 

19.0

%

 

Westcor/Gilbert, L.L.C.

 

 

50.0

%

 

Westcor/Goodyear, L.L.C.

 

 

50.0

%

 

Westcor/Queen Creek Commercial LLC

 

 

37.6

%

 

Westcor/Queen Creek LLC

 

 

37.6

%

 

Westcor/Queen Creek Medical LLC

 

 

37.6

%

 

 

11




THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)

4. Investments in Unconsolidated Joint Ventures: (Continued)

 

 

Partnership’s

 

Joint Venture

 

 

 

Ownership % (1)

 

Westcor/Queen Creek Residential LLC

 

 

37.6

%

 

Westcor/Surprise Auto Park LLC

 

 

33.3

%

 

Westcor/Surprise LLC

 

 

33.3

%

 

Westpen Associates

 

 

50.0

%

 

WM Ridgmar, L.P.

 

 

50.0

%

 


(1)          The Operating Partnership’s ownership interest in this table reflects its legal ownership interest but may not reflect its economic interest since each joint venture has various agreements regarding cash flow, profits and losses, allocations, capital requirements and other matters.

The Company generally accounts for its investments in joint ventures using the equity method of accounting unless the Company has a controlling interest in the joint venture or is the primary beneficiary in a variable interest entity. Although the Company has a greater than 50% interest in Pacific Premier Retail Trust, Camelback Colonnade SPE LLC and Corte Madera Village, LLC, the Company shares management control with the partners in these joint ventures and accounts for these joint ventures using the equity method of accounting.

12




THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)

4. Investments in Unconsolidated Joint Ventures: (Continued)

Combined and Condensed Balance Sheets of Unconsolidated Joint Ventures:

 

 

September 30,

 

December 31,

 

 

 

2007

 

2006

 

Assets(1):

 

 

 

 

 

 

 

 

 

Properties, net

 

 

$

4,249,548

 

 

 

$

4,251,765

 

 

Other assets

 

 

440,670

 

 

 

429,028

 

 

Total assets

 

 

$

4,690,218

 

 

 

$

4,680,793

 

 

Liabilities and partners’ capital(1):

 

 

 

 

 

 

 

 

 

Mortgage notes payable(2)

 

 

$

3,859,229

 

 

 

$

3,515,154

 

 

Other liabilities

 

 

175,032

 

 

 

140,889

 

 

The Company’s capital(3)

 

 

379,758

 

 

 

559,172

 

 

Outside partners’ capital

 

 

276,199

 

 

 

465,578

 

 

Total liabilities and partners’ capital

 

 

$

4,690,218

 

 

 

$

4,680,793

 

 


(1)          These amounts include the assets and liabilities of the following significant joint ventures:

 

 

 

 

Pacific

 

 

 

 

 

SDG

 

Premier

 

Tysons

 

 

 

Macerich

 

Retail

 

Corner

 

 

 

Properties, L.P.

 

Trust

 

LLC

 

As of September 30, 2007:

 

 

 

 

 

 

 

 

 

Total Assets

 

 

$

901,080

 

 

$

1,021,317

 

$

637,255

 

Total Liabilities

 

 

$

822,213

 

 

$

850,050

 

$

364,316

 

As of December 31, 2006:

 

 

 

 

 

 

 

 

 

Total Assets

 

 

$

924,720

 

 

$

1,027,132

 

$

644,545

 

Total Liabilities

 

 

$

823,327

 

 

$

848,070

 

$

371,360

 

 

(2)          Certain joint ventures have debt that could become recourse debt to the Company should the joint venture be unable to discharge the obligations of the related debt. As of September 30, 2007 and December 31, 2006, the total amount of debt that could become recourse to the Company was $8,602 and $8,570, respectively.

(3)          The Company’s investment in unconsolidated joint ventures was $438,965 and $451,208 more than the underlying equity as reflected in the joint ventures’ financial statements as of September 30, 2007 and December 31, 2006, respectively. This represents the difference between the cost of the investment and the book value of the underlying equity of the joint venture. The Company is amortizing this difference into income on a straight-line basis, consistent with the depreciable lives on property. The amortization of this difference was $2,407 and $5,024 for the three months ended September 30, 2007 and 2006, and $8,859 and $12,039 for the nine months ended September 30, 2007 and 2006, respectively.

13




THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)

4. Investments in Unconsolidated Joint Ventures: (Continued)

Combined and Condensed Statements of Operations of Unconsolidated Joint Ventures:

 

 

SDG

 

Pacific

 

Tysons

 

Other

 

 

 

 

 

Macerich

 

Premier

 

Corner

 

Joint

 

 

 

 

 

Properties, L.P.

 

Retail Trust

 

LLC

 

Ventures

 

Total

 

Three Months Ended September 30, 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Minimum rents

 

 

$

23,189

 

 

 

$

30,894

 

 

$

17,157

 

$

60,695

 

$

131,935

 

Percentage rents

 

 

1,166

 

 

 

1,546

 

 

560

 

4,019

 

7,291

 

Tenant recoveries

 

 

12,591

 

 

 

13,411

 

 

7,808

 

30,069

 

63,879

 

Other

 

 

1,017

 

 

 

1,033

 

 

495

 

8,804

 

11,349

 

Total revenues

 

 

37,963

 

 

 

46,884

 

 

26,020

 

103,587

 

214,454

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shopping center and operating expenses

 

 

14,506

 

 

 

14,019

 

 

6,833

 

37,423

 

72,781

 

Interest expense

 

 

11,716

 

 

 

12,367

 

 

4,129

 

28,125

 

56,337

 

Depreciation and amortization

 

 

7,987

 

 

 

8,184

 

 

5,036

 

20,424

 

41,631

 

Total operating expenses

 

 

34,209

 

 

 

34,570

 

 

15,998

 

85,972

 

170,749

 

Loss on sale of assets

 

 

 

 

 

 

 

 

(9

)

(9

)

Net income

 

 

$

3,754

 

 

 

$

12,314

 

 

$

10,022

 

$

17,606

 

$

43,696

 

Company’s equity in net income

 

 

$

1,877

 

 

 

$

6,267

 

 

$

5,011

 

$

5,493

 

$

18,648

 

Three Months Ended September 30, 2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Minimum rents

 

 

$

23,063

 

 

 

$

30,482

 

 

$

14,752

 

$

63,275

 

$

131,572

 

Percentage rents

 

 

796

 

 

 

1,429

 

 

540

 

4,538

 

7,303

 

Tenant recoveries

 

 

12,732

 

 

 

12,532

 

 

7,228

 

29,520

 

62,012

 

Other

 

 

1,218

 

 

 

1,047

 

 

487

 

5,791

 

8,543

 

Total revenues

 

 

37,809

 

 

 

45,490

 

 

23,007

 

103,124

 

209,430

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shopping center and operating expenses

 

 

14,149

 

 

 

13,896

 

 

6,228

 

36,879

 

71,152

 

Interest expense

 

 

11,869

 

 

 

12,742

 

 

4,310

 

24,711

 

53,632

 

Depreciation and amortization

 

 

7,195

 

 

 

7,385

 

 

4,728

 

22,936

 

42,244

 

Total operating expenses

 

 

33,213

 

 

 

34,023

 

 

15,266

 

84,526

 

167,028

 

Gain (loss) on sale of assets

 

 

2

 

 

 

 

 

 

(4

)

(2

)

Net income

 

 

$

4,598

 

 

 

$

11,467

 

 

$

7,741

 

$

18,594

 

$

42,400

 

Company’s equity in net income

 

 

$

2,300

 

 

 

$

5,838

 

 

$

3,870

 

$

6,482

 

$

18,490

 

 

14




THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)

4. Investments in Unconsolidated Joint Ventures: (Continued)

 

 

SDG

 

Pacific

 

Tysons

 

Other

 

 

 

 

 

Macerich

 

Premier

 

Corner

 

Joint

 

 

 

 

 

Properties, L.P.

 

Retail Trust

 

LLC

 

Ventures

 

Total

 

Nine Months Ended September 30, 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Minimum rents

 

 

$

69,116

 

 

 

$

92,602

 

 

$

47,857

 

$

181,731

 

$

391,306

 

Percentage rents

 

 

2,892

 

 

 

4,003

 

 

646

 

8,655

 

16,196

 

Tenant recoveries

 

 

36,308

 

 

 

38,213

 

 

23,424

 

88,257

 

186,202

 

Other

 

 

2,805

 

 

 

2,981

 

 

1,412

 

17,315

 

24,513

 

Total revenues

 

 

111,121

 

 

 

137,799

 

 

73,339

 

295,958

 

618,217

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shopping center and operating expenses

 

 

43,647

 

 

 

39,490

 

 

19,435

 

105,357

 

207,929

 

Interest expense

 

 

34,775

 

 

 

36,984

 

 

12,498

 

78,334

 

162,591

 

Depreciation and amortization

 

 

22,707

 

 

 

23,504

 

 

15,401

 

67,691

 

129,303

 

Total operating expenses

 

 

101,129

 

 

 

99,978

 

 

47,334

 

251,382

 

499,823

 

(Loss) gain on sale of assets

 

 

(4,751

)

 

 

 

 

 

763

 

(3,988

)

Net income

 

 

$

5,241

 

 

 

$

37,821

 

 

$

26,005

 

$

45,339

 

$

114,406

 

Company’s equity in net income

 

 

$

2,621

 

 

 

$

19,254

 

 

$

13,002

 

$

17,251

 

$

52,128

 

Nine Months Ended September 30, 2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Minimum rents

 

 

$

70,296

 

 

 

$

92,376

 

 

$

43,252

 

$

165,355

 

$

371,279

 

Percentage rents

 

 

2,405

 

 

 

4,085

 

 

780

 

9,386

 

16,656

 

Tenant recoveries

 

 

35,371

 

 

 

36,598

 

 

21,742

 

81,211

 

174,922

 

Other

 

 

2,830

 

 

 

2,915

 

 

1,454

 

15,552

 

22,751

 

Total revenues

 

 

110,902

 

 

 

135,974

 

 

67,228

 

271,504

 

585,608

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shopping center and operating expenses

 

 

43,179

 

 

 

38,146

 

 

18,646

 

97,865

 

197,836

 

Interest expense

 

 

32,312

 

 

 

38,426

 

 

12,816

 

62,714

 

146,268

 

Depreciation and amortization

 

 

21,719

 

 

 

21,876

 

 

15,016

 

56,262

 

114,873

 

Total operating expenses

 

 

97,210

 

 

 

98,448

 

 

46,478

 

216,841

 

458,977

 

Gain on sale of assets

 

 

2

 

 

 

 

 

 

901

 

903

 

Net income

 

 

$

13,694

 

 

 

$

37,526

 

 

$

20,750

 

$

55,564

 

$

127,534

 

Company’s equity in net income

 

 

$

6,847

 

 

 

$

19,030

 

 

$

10,375

 

$

21,115

 

$

57,367

 

 

Significant accounting policies used by the unconsolidated joint ventures are similar to those used by the Company.

Included in mortgage notes payable are amounts due to affiliates of Northwestern Mutual Life (“NML”) of $127,576 and $132,170 as of September 30, 2007 and December 31, 2006, respectively. NM