MAC - 6.30.2015 - 10Q
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 June 30, 2015
Commission File No. 1-12504
THE MACERICH COMPANY
(Exact name of registrant as specified in its charter)
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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 for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past ninety (90) days.
YES x NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding twelve (12) months (or for such shorter period that the registrant was required to submit and post such files).
YES x NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer x | | 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 x
Number of shares outstanding as of August 3, 2015 of the registrant's common stock, par value $0.01 per share: 158,321,195 shares
THE MACERICH COMPANY
FORM 10-Q
INDEX
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Part I | | Financial Information | | |
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Part II | | Other Information | | |
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THE MACERICH COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Unaudited)
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| | | | | | | |
| June 30, 2015 | | December 31, 2014 |
ASSETS: | | | |
Property, net | $ | 11,046,427 |
| | $ | 11,067,890 |
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Cash and cash equivalents | 110,326 |
| | 84,907 |
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Restricted cash | 12,005 |
| | 13,530 |
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Tenant and other receivables, net | 118,398 |
| | 132,026 |
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Deferred charges and other assets, net | 731,857 |
| | 759,061 |
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Due from affiliates | 78,007 |
| | 80,232 |
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Investments in unconsolidated joint ventures | 1,263,356 |
| | 984,132 |
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Total assets | $ | 13,360,376 |
| | $ | 13,121,778 |
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LIABILITIES AND EQUITY: | | | |
Mortgage notes payable: | | | |
Related parties | $ | 284,641 |
| | $ | 289,039 |
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Others | 5,552,551 |
| | 5,115,482 |
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Total | 5,837,192 |
| | 5,404,521 |
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Bank and other notes payable | 902,016 |
| | 887,879 |
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Accounts payable and accrued expenses | 109,396 |
| | 115,406 |
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Other accrued liabilities | 528,407 |
| | 568,716 |
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Distributions in excess of investments in unconsolidated joint ventures | 26,857 |
| | 29,957 |
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Co-venture obligation | 71,861 |
| | 75,450 |
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Total liabilities | 7,475,729 |
| | 7,081,929 |
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Commitments and contingencies |
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Equity: | | | |
Stockholders' equity: | | | |
Common stock, $0.01 par value, 250,000,000 shares authorized, 158,512,821 and 158,201,996 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively | 1,585 |
| | 1,582 |
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Additional paid-in capital | 5,076,726 |
| | 5,041,797 |
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Retained earnings | 415,017 |
| | 596,741 |
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Total stockholders' equity | 5,493,328 |
| | 5,640,120 |
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Noncontrolling interests | 391,319 |
| | 399,729 |
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Total equity | 5,884,647 |
| | 6,039,849 |
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Total liabilities and equity | $ | 13,360,376 |
| | $ | 13,121,778 |
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The accompanying notes are an integral part of these consolidated financial statements.
THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
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| | | | | | | | | | | | | | | |
| For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Revenues: | | | | | | | |
Minimum rents | $ | 193,131 |
| | $ | 149,220 |
| | $ | 383,892 |
| | $ | 300,852 |
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Percentage rents | 2,576 |
| | 2,372 |
| | 5,824 |
| | 5,222 |
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Tenant recoveries | 105,592 |
| | 83,375 |
| | 211,290 |
| | 174,850 |
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Other | 15,321 |
| | 10,594 |
| | 28,324 |
| | 21,024 |
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Management Companies | 6,174 |
| | 8,776 |
| | 11,799 |
| | 16,897 |
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Total revenues | 322,794 |
| | 254,337 |
| | 641,129 |
| | 518,845 |
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Expenses: | | | | | | | |
Shopping center and operating expenses | 93,877 |
| | 81,865 |
| | 195,541 |
| | 172,225 |
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Management Companies' operating expenses | 20,239 |
| | 20,896 |
| | 46,707 |
| | 43,677 |
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REIT general and administrative expenses | 7,550 |
| | 5,123 |
| | 15,972 |
| | 12,006 |
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Costs related to unsolicited takeover offer | 11,423 |
| | — |
| | 24,995 |
| | — |
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Depreciation and amortization | 119,333 |
| | 87,801 |
| | 239,951 |
| | 176,457 |
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| 252,422 |
| | 195,685 |
| | 523,166 |
| | 404,365 |
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Interest expense: | | | | | | | |
Related parties | 2,709 |
| | 3,690 |
| | 5,438 |
| | 7,398 |
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Other | 52,187 |
| | 42,110 |
| | 102,744 |
| | 84,740 |
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| 54,896 |
| | 45,800 |
| | 108,182 |
| | 92,138 |
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Loss (gain) on extinguishment of debt, net | 1,609 |
| | — |
| | (636 | ) | | 358 |
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Total expenses | 308,927 |
| | 241,485 |
| | 630,712 |
| | 496,861 |
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Equity in income of unconsolidated joint ventures | 9,094 |
| | 13,903 |
| | 17,368 |
| | 27,672 |
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Co-venture expense | (2,813 | ) | | (2,212 | ) | | (4,943 | ) | | (4,032 | ) |
Income tax benefit | 283 |
| | 2,898 |
| | 1,218 |
| | 3,070 |
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Loss on sale or write down of assets, net | (4,671 | ) | | (9,455 | ) | | (3,736 | ) | | (11,065 | ) |
(Loss) gain on remeasurement of assets | (14 | ) | | — |
| | 22,089 |
| | — |
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Net income | 15,746 |
| | 17,986 |
| | 42,413 |
| | 37,629 |
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Less net income attributable to noncontrolling interests | 1,351 |
| | 1,898 |
| | 3,407 |
| | 3,722 |
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Net income attributable to the Company | $ | 14,395 |
| | $ | 16,088 |
| | $ | 39,006 |
| | $ | 33,907 |
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Earnings per common share—net income attributable to common stockholders: | | | | | | | |
Basic | $ | 0.09 |
| | $ | 0.11 |
| | $ | 0.24 |
| | $ | 0.24 |
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Diluted | $ | 0.09 |
| | $ | 0.11 |
| | $ | 0.24 |
| | $ | 0.24 |
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Weighted average number of common shares outstanding: | | | | | | | |
Basic | 158,501,000 |
| | 140,894,000 |
| | 158,419,000 |
| | 140,831,000 |
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Diluted | 158,633,000 |
| | 141,036,000 |
| | 158,587,000 |
| | 140,929,000 |
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The accompanying notes are an integral part of these consolidated financial statements.
THE MACERICH COMPANY
CONSOLIDATED STATEMENT OF EQUITY
(Dollars in thousands, except per share data)
(Unaudited)
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| Stockholders' Equity | | | | |
| Common Stock | | | | | | | | | | |
| Shares | | Par Value | | Additional Paid-in Capital | | Retained Earnings | | Total Stockholders' Equity | | Noncontrolling Interests | | Total Equity |
Balance at January 1, 2015 | 158,201,996 |
| | $ | 1,582 |
| | $ | 5,041,797 |
| | $ | 596,741 |
| | $ | 5,640,120 |
| | $ | 399,729 |
| | $ | 6,039,849 |
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Net income | — |
| | — |
| | — |
| | 39,006 |
| | 39,006 |
| | 3,407 |
| | 42,413 |
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Amortization of share and unit-based plans | 219,920 |
| | 2 |
| | 24,113 |
| | — |
| | 24,115 |
| | — |
| | 24,115 |
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Employee stock purchases | 11,349 |
| | — |
| | 745 |
| | — |
| | 745 |
| | — |
| | 745 |
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Distributions paid ($1.30) per share | — |
| | — |
| | — |
| | (220,730 | ) | | (220,730 | ) | | — |
| | (220,730 | ) |
Distributions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | (1,181 | ) | | (1,181 | ) |
Contributions from noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | 23 |
| | 23 |
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Other | — |
| | — |
| | (398 | ) | | — |
| | (398 | ) | | — |
| | (398 | ) |
Conversion of noncontrolling interests to common shares | 79,556 |
| | 1 |
| | 1,558 |
| | — |
| | 1,559 |
| | (1,559 | ) | | — |
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Redemption of noncontrolling interests | — |
| | — |
| | (145 | ) | | — |
| | (145 | ) | | (44 | ) | | (189 | ) |
Adjustment of noncontrolling interests in Operating Partnership | — |
| | — |
| | 9,056 |
| | — |
| | 9,056 |
| | (9,056 | ) | | — |
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Balance at June 30, 2015 | 158,512,821 |
| | $ | 1,585 |
| | $ | 5,076,726 |
| | $ | 415,017 |
| | $ | 5,493,328 |
| | $ | 391,319 |
| | $ | 5,884,647 |
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The accompanying notes are an integral part of these consolidated financial statements.
THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited) |
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| For the Six Months Ended June 30, |
| 2015 | | 2014 |
Cash flows from operating activities: | | | |
Net income | $ | 42,413 |
| | $ | 37,629 |
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Adjustments to reconcile net income to net cash provided by operating activities: | | | |
(Gain) loss on extinguishment of debt, net | (636 | ) | | 358 |
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Loss on sale or write down of assets, net | 3,736 |
| | 11,065 |
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Gain on remeasurement of assets | (22,089 | ) | | — |
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Depreciation and amortization | 243,526 |
| | 180,374 |
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Amortization of net premium on mortgage notes payable | (12,382 | ) | | (2,704 | ) |
Amortization of share and unit-based plans | 19,207 |
| | 20,839 |
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Straight-line rent adjustment | (1,663 | ) | | (3,098 | ) |
Amortization of above and below-market leases | (9,784 | ) | | (2,719 | ) |
Provision for doubtful accounts | 3,156 |
| | 3,430 |
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Income tax benefit | (1,218 | ) | | (3,070 | ) |
Equity in income of unconsolidated joint ventures | (17,368 | ) | | (27,672 | ) |
Distributions of income from unconsolidated joint ventures | — |
| | 177 |
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Co-venture expense | 4,943 |
| | 4,032 |
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Changes in assets and liabilities, net of acquisitions and dispositions: | | | |
Tenant and other receivables | 10,991 |
| | 10,966 |
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Other assets | (4,334 | ) | | 487 |
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Due from affiliates | 2,225 |
| | 940 |
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Accounts payable and accrued expenses | 7,756 |
| | (15,085 | ) |
Other accrued liabilities | 4,400 |
| | (25,377 | ) |
Net cash provided by operating activities | 272,879 |
| | 190,572 |
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Cash flows from investing activities: | | | |
Acquisitions of property | (26,250 | ) | | (15,233 | ) |
Development, redevelopment, expansion and renovation of properties | (132,212 | ) | | (82,457 | ) |
Property improvements | (16,851 | ) | | (14,597 | ) |
Proceeds from notes receivable | 909 |
| | — |
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Deferred leasing costs | (18,128 | ) | | (13,772 | ) |
Distributions from unconsolidated joint ventures | 46,326 |
| | 33,382 |
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Contributions to unconsolidated joint ventures | (312,367 | ) | | (108,316 | ) |
Loans to unconsolidated joint ventures, net | — |
| | (640 | ) |
Proceeds from sale of assets | 1,440 |
| | 25,414 |
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Restricted cash | (987 | ) | | 1,420 |
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Net cash used in investing activities | (458,120 | ) | | (174,799 | ) |
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THE MACERICH COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Dollars in thousands) (Unaudited) |
| For the Six Months Ended June 30, |
| 2015 | | 2014 |
Cash flows from financing activities: | | | |
Proceeds from mortgages, bank and other notes payable | 1,565,674 |
| | 301,655 |
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Payments on mortgages, bank and other notes payable | (1,120,090 | ) | | (121,571 | ) |
Deferred financing costs | (5,060 | ) | | (603 | ) |
Proceeds from share and unit-based plans | 745 |
| | 645 |
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Redemption of noncontrolling interests | (189 | ) | | (221 | ) |
Contribution from noncontrolling interests | 23 |
| | — |
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Payment of contingent consideration | — |
| | (9,000 | ) |
Dividends and distributions | (221,911 | ) | | (191,200 | ) |
Distributions to co-venture partner | (8,532 | ) | | (8,693 | ) |
Net cash provided by (used in) financing activities | 210,660 |
| | (28,988 | ) |
Net increase (decrease) in cash and cash equivalents | 25,419 |
| | (13,215 | ) |
Cash and cash equivalents, beginning of period | 84,907 |
| | 69,715 |
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Cash and cash equivalents, end of period | $ | 110,326 |
| | $ | 56,500 |
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Supplemental cash flow information: | | | |
Cash payments for interest, net of amounts capitalized | $ | 119,291 |
| | $ | 97,083 |
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Non-cash investing and financing transactions: | | | |
Accrued development costs included in accounts payable and accrued expenses and other accrued liabilities | $ | 43,085 |
| | $ | 24,933 |
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Assumption of mortgage note payable from unconsolidated joint venture | $ | 50,000 |
| | $ | — |
|
Mortgage note payable settled by deed-in-lieu of foreclosure | $ | 34,149 |
| | $ | — |
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Acquisition of property in exchange for investment in unconsolidated joint venture | $ | 76,250 |
| | $ | 15,767 |
|
Notes receivable issued in connection with sale of property | $ | — |
| | $ | 9,603 |
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Conversion of Operating Partnership Units to common stock | $ | 1,559 |
| | $ | 984 |
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The accompanying notes are an integral part of these consolidated financial statements.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
The Macerich Company (the "Company") is involved in the acquisition, ownership, development, redevelopment, management and leasing of regional and community/power 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 June 30, 2015, the Company was the sole general partner of and held a 94% ownership interest in The Macerich Partnership, L.P. (the "Operating Partnership"). The Company was organized to qualify as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code").
The property management, leasing and redevelopment of the Company's portfolio is provided by the Company's management companies, Macerich Property Management Company, LLC, a single member Delaware limited liability company, Macerich Management Company, a California corporation, Macerich Arizona Partners LLC, a single member Arizona limited liability company, Macerich Arizona Management LLC, a single member Delaware limited liability company, Macerich Partners of Colorado, LLC, a single member 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."
All references to the Company in this Quarterly Report on Form 10-Q include the Company, those entities owned or controlled by the Company and predecessors of the Company, unless the context indicates otherwise.
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2. | Summary of Significant Accounting Policies: |
Basis of Presentation:
The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States ("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 an independent registered public accounting firm.
The accompanying consolidated financial statements include the accounts of the Company and the Operating Partnership. Investments in entities in which the Company has a controlling financial interest or entities that meet the definition of a variable interest entity in which the Company has, as a result of ownership, contractual or other financial interests, both the power to direct activities that most significantly impact the economic performance of the variable interest entity and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the variable interest entity are consolidated; otherwise they are accounted for under the equity method of accounting and are reflected as investments in unconsolidated joint ventures.
All intercompany accounts and transactions have been eliminated in the consolidated financial statements.
The unaudited interim consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial statements for the interim periods have been made. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The accompanying consolidated balance sheet as of December 31, 2014 has been derived from the audited financial statements but does not include all disclosures required by GAAP.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
2. Summary of Significant Accounting Policies: (Continued)
Recent Accounting Pronouncements:
In February 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis,” which makes certain changes to both the variable interest model and the voting model, including changes to (1) the identification of variable interests (fees paid to a decision maker or service provider), (2) the variable interest entity characteristics for a limited partnership or similar entity and (3) the primary beneficiary determination. ASU 2015-02 is effective for the Company beginning January 1, 2016. Early adoption is permitted. The Company does not expect the adoption of this standard to have a significant impact on the consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected. ASU 2015-03 is effective for the Company beginning January 1, 2016. Early adoption is permitted. Upon adoption, the Company will apply the new standard on a retrospective basis and adjust the balance sheet of each individual period to reflect the period-specific effects of applying the new standard. The Company does not expect the adoption of this standard to have a significant impact on the consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, “Revenue From Contracts With Customers,” which outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU 2014-09 states that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” While ASU 2014-09 specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate or equipment. In July 2015, the FASB voted to defer the effective date of ASU 2014-09 by one year. Accordingly, ASU 2014-09 is effective for the Company beginning January 1, 2018, with early adoption permitted beginning January 1, 2017. The Company does not expect the adoption of this standard to have a significant impact on the consolidated financial statements.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
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3. | Earnings per Share ("EPS"): |
The following table reconciles the numerator and denominator used in the computation of earnings per share for the three and six months ended June 30, 2015 and 2014 (shares in thousands):
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| For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Numerator | | | | | | | |
Net income | $ | 15,746 |
| | $ | 17,986 |
| | $ | 42,413 |
| | $ | 37,629 |
|
Net income attributable to noncontrolling interests | (1,351 | ) | | (1,898 | ) | | (3,407 | ) | | (3,722 | ) |
Net income attributable to the Company | 14,395 |
| | 16,088 |
| | 39,006 |
| | 33,907 |
|
Allocation of earnings to participating securities | (147 | ) | | (120 | ) | | (295 | ) | | (248 | ) |
Numerator for basic and diluted earnings per share—net income attributable to common stockholders | $ | 14,248 |
| | $ | 15,968 |
| | $ | 38,711 |
| | $ | 33,659 |
|
Denominator | | | | | | | |
Denominator for basic earnings per share—weighted average number of common shares outstanding | 158,501 |
| | 140,894 |
| | 158,419 |
| | 140,831 |
|
Effect of dilutive securities:(1) | | | | | | | |
Share and unit-based compensation plans | 132 |
| | 142 |
| | 168 |
| | 98 |
|
Denominator for diluted earnings per share—weighted average number of common shares outstanding | 158,633 |
| | 141,036 |
| | 158,587 |
| | 140,929 |
|
Earnings per common share—net income attributable to common stockholders: | | | | | | | |
Basic | $ | 0.09 |
| | $ | 0.11 |
| | $ | 0.24 |
| | $ | 0.24 |
|
Diluted | $ | 0.09 |
| | $ | 0.11 |
| | $ | 0.24 |
| | $ | 0.24 |
|
| |
(1) | Diluted EPS excludes 138,759 and 184,304 convertible preferred units for the three months ended June 30, 2015 and 2014, respectively, and 139,620 and 184,304 convertible preferred units for the six months ended June 30, 2015 and 2014, respectively, as their impact was antidilutive. |
Diluted EPS excludes 10,577,945 and 10,113,486 Operating Partnership units ("OP Units") for the three months ended June 30, 2015 and 2014, respectively, and 10,547,401 and 10,052,805 OP Units for the six months ended June 30, 2015 and 2014, respectively, as their impact was antidilutive.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
| |
4. | Investments in Unconsolidated Joint Ventures: |
The Company has made the following recent investments and dispositions in its unconsolidated joint ventures:
On June 4, 2014, the Company acquired the remaining 49% ownership interest in Cascade Mall, a 589,000 square foot regional shopping center in Burlington, Washington, that it did not previously own for a cash payment of $15,233. The Company purchased Cascade Mall from its joint venture partner in Pacific Premier Retail LP. The cash payment was funded by borrowings under the Company's line of credit. Prior to the acquisition, the Company had accounted for its investment in Cascade Mall under the equity method of accounting. Since the date of acquisition, the Company has included Cascade Mall in its consolidated financial statements (See Note 13—Acquisitions).
On July 30, 2014, the Company formed a joint venture to redevelop Fashion Outlets of Philadelphia at Market East, a 1,376,000 square foot regional shopping center in Philadelphia, Pennsylvania. The Company invested $106,800 for a 50% interest in the joint venture, which was funded by borrowings under its line of credit.
On August 28, 2014, the Company sold its 30% ownership interest in Wilshire Boulevard, a 40,000 square foot freestanding store in Santa Monica, California, for a total sales price of $17,100, resulting in a gain on the sale of assets of $9,033, which was included in loss on sale or write down of assets, net. The sales price was funded by a cash payment of $15,386 and the assumption of the Company's share of the mortgage note payable on the property of $1,714. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes.
On November 13, 2014, the Company formed a joint venture to develop a 500,000 square foot outlet center at Candlestick Point in San Francisco, California. In connection with the formation of the joint venture, the Company issued a note receivable for $65,130 to its joint venture partner that bears interest at LIBOR plus 2.0% and matures upon the completion of certain milestones in connection with the development of Candlestick Point (See Note 16—Related Party Transactions).
On November 14, 2014, the Company acquired the remaining 49% ownership interest that it did not previously own in two separate joint ventures, Pacific Premier Retail LP and Queens JV LP, which together owned five Centers: Lakewood Center, a 2,075,000 square foot regional shopping center in Lakewood, California; Los Cerritos Center, a 1,287,000 square foot regional shopping center in Cerritos, California; Queens Center, a 966,000 square foot regional shopping center in Queens, New York; Stonewood Center, a 932,000 square foot regional shopping center in Downey, California; and Washington Square, a 1,444,000 square foot regional shopping center in Portland, Oregon (collectively referred to herein as the "PPRLP Queens Portfolio"). The total consideration of $1,838,886 was funded by the direct issuance of $1,166,777 of common stock of the Company (See Note 12—Stockholders' Equity) and the assumption of the third party's pro rata share of the mortgage notes payable on the properties of $672,109. Prior to the acquisition, the Company had accounted for its investment in these joint ventures under the equity method of accounting. Since the date of acquisition, the Company has included the PPRLP Queens Portfolio in its consolidated financial statements (See Note 13—Acquisitions).
On November 20, 2014, the Company purchased a 45% interest in 443 North Wabash Avenue, a 65,000 square foot undeveloped site adjacent to the Company's joint venture in The Shops at North Bridge in Chicago, Illinois, for a cash payment of $18,900. The cash payment was funded by borrowings under the Company's line of credit.
On February 17, 2015, the Company acquired the remaining 50% ownership interest in Inland Center, a 933,000 square foot regional shopping center in San Bernardino, California, that it did not previously own for $51,250. The purchase price was funded by a cash payment of $26,250 and the assumption of the third party's share of the mortgage note payable on the property of $25,000. Concurrent with the purchase of the joint venture interest, the Company paid off the $50,000 mortgage note payable on the property. The cash payment was funded by borrowings under the Company's line of credit. Prior to the acquisition, the Company had accounted for its investment in Inland Center under the equity method of accounting. Since the date of acquisition, the Company has included Inland Center in its consolidated financial statements (See Note 13—Acquisitions).
On April 30, 2015, the Company entered into a 50/50 joint venture with Sears to own nine freestanding stores located at Arrowhead Towne Center, Chandler Fashion Center, Danbury Fair Mall, Deptford Mall, Freehold Raceway Mall, Los Cerritos Center, South Plains Mall, Vintage Faire Mall and Washington Square. The Company invested $150,000 for a 50% interest in the joint venture, which was funded by borrowings under the Company's line of credit.
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 and statements of operations are presented below for all unconsolidated joint ventures.
Combined and Condensed Balance Sheets of Unconsolidated Joint Ventures:
|
| | | | | | | |
| June 30, 2015 | | December 31, 2014 |
Assets(1): | | | |
Properties, net | $ | 3,260,720 |
| | $ | 2,967,878 |
|
Other assets | 268,769 |
| | 208,726 |
|
Total assets | $ | 3,529,489 |
| | $ | 3,176,604 |
|
Liabilities and partners' capital(1): | | | |
Mortgage notes payable(2) | $ | 1,827,606 |
| | $ | 2,038,379 |
|
Other liabilities | 197,905 |
| | 195,766 |
|
Company's capital | 769,715 |
| | 489,349 |
|
Outside partners' capital | 734,263 |
| | 453,110 |
|
Total liabilities and partners' capital | $ | 3,529,489 |
| | $ | 3,176,604 |
|
Investments in unconsolidated joint ventures: | | | |
Company's capital | $ | 769,715 |
| | $ | 489,349 |
|
Basis adjustment(3) | 466,784 |
| | 464,826 |
|
| $ | 1,236,499 |
| | $ | 954,175 |
|
| | | |
Assets—Investments in unconsolidated joint ventures | $ | 1,263,356 |
| | $ | 984,132 |
|
Liabilities—Distributions in excess of investments in unconsolidated joint ventures | (26,857 | ) | | (29,957 | ) |
| $ | 1,236,499 |
| | $ | 954,175 |
|
| |
(1) | These amounts include the assets of Tysons Corner Center of $292,501 and $341,931 as of June 30, 2015 and December 31, 2014, respectively, and liabilities of Tysons Corner Center of $860,982 and $871,933 as of June 30, 2015 and December 31, 2014, respectively. |
| |
(2) | Certain mortgage notes payable could become recourse debt to the Company should the joint venture be unable to discharge the obligations of the related debt. As of June 30, 2015 and December 31, 2014, a total of $6,500 and $33,540, respectively, could become recourse debt to the Company. As of June 30, 2015 and December 31, 2014, the Company had an indemnity agreement from a joint venture partner for $3,250 and $16,770, respectively, of the guaranteed amount. |
Included in mortgage notes payable are amounts due to an affiliate of Northwestern Mutual Life ("NML") of $465,837 and $606,263 as of June 30, 2015 and December 31, 2014, respectively. NML is considered a related party because it is a joint venture partner with the Company in Macerich Northwestern Associates—Broadway Plaza. Interest expense on these borrowings was $8,083 and $9,623 for the three months ended June 30, 2015 and 2014, respectively, and $16,591 and $19,347 for the six months ended June 30, 2015 and 2014, respectively.
| |
(3) | The Company amortizes the difference between the cost of its investments in unconsolidated joint ventures and the book value of the underlying equity into income on a straight-line basis consistent with the lives of the underlying assets. The amortization of this difference was $260 and $855 for the three months ended June 30, 2015 and 2014, respectively, and $160 and $2,279 for the six months ended June 30, 2015 and 2014, respectively. |
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:
|
| | | | | | | | | | | | | | | |
| Pacific Premier Retail LP | | Tysons Corner LLC | | Other Joint Ventures | | Total |
Three Months Ended June 30, 2015 | | | | | | | |
Revenues: | | | | | | | |
Minimum rents | $ | — |
| | $ | 17,129 |
| | $ | 54,174 |
| | $ | 71,303 |
|
Percentage rents | — |
| | 90 |
| | 2,717 |
| | 2,807 |
|
Tenant recoveries | — |
| | 12,209 |
| | 19,131 |
| | 31,340 |
|
Other | — |
| | 798 |
| | 6,045 |
| | 6,843 |
|
Total revenues | — |
| | 30,226 |
| | 82,067 |
| | 112,293 |
|
Expenses: | | | | | | | |
Shopping center and operating expenses | — |
| | 9,569 |
| | 27,912 |
| | 37,481 |
|
Interest expense | — |
| | 8,373 |
| | 11,024 |
| | 19,397 |
|
Depreciation and amortization | — |
| | 5,576 |
| | 27,523 |
| | 33,099 |
|
Total operating expenses | — |
| | 23,518 |
| | 66,459 |
| | 89,977 |
|
Gain on sale or write down of assets, net | — |
| | — |
| | 423 |
| | 423 |
|
Net income | $ | — |
| | $ | 6,708 |
| | $ | 16,031 |
| | $ | 22,739 |
|
Company's equity in net income | $ | — |
| | $ | 1,828 |
| | $ | 7,266 |
| | $ | 9,094 |
|
Three Months Ended June 30, 2014 | | | | | | | |
Revenues: | | | | | | | |
Minimum rents | $ | 25,654 |
| | $ | 15,696 |
| | $ | 56,289 |
| | $ | 97,639 |
|
Percentage rents | 550 |
| | 180 |
| | 3,264 |
| | 3,994 |
|
Tenant recoveries | 11,379 |
| | 11,489 |
| | 24,260 |
| | 47,128 |
|
Other | 1,613 |
| | 929 |
| | 8,443 |
| | 10,985 |
|
Total revenues | 39,196 |
| | 28,294 |
| | 92,256 |
| | 159,746 |
|
Expenses: | | | | | | | |
Shopping center and operating expenses | 10,682 |
| | 9,521 |
| | 30,258 |
| | 50,461 |
|
Interest expense | 9,831 |
| | 7,653 |
| | 19,495 |
| | 36,979 |
|
Depreciation and amortization | 8,750 |
| | 4,756 |
| | 21,239 |
| | 34,745 |
|
Total operating expenses | 29,263 |
| | 21,930 |
| | 70,992 |
| | 122,185 |
|
Loss on sale or write down of assets, net | (6,226 | ) | | — |
| | (42 | ) | | (6,268 | ) |
Net income | $ | 3,707 |
| | $ | 6,364 |
| | $ | 21,222 |
| | $ | 31,293 |
|
Company's equity in net income | $ | 1,218 |
| | $ | 1,611 |
| | $ | 11,074 |
| | $ | 13,903 |
|
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
4. Investments in Unconsolidated Joint Ventures: (Continued)
|
| | | | | | | | | | | | | | | |
| Pacific Premier Retail LP | | Tysons Corner LLC | | Other Joint Ventures | | Total |
Six Months Ended June 30, 2015 | | | | | | | |
Revenues: | | | | | | | |
Minimum rents | $ | — |
| | $ | 34,157 |
| | $ | 104,668 |
| | $ | 138,825 |
|
Percentage rents | — |
| | 419 |
| | 4,011 |
| | 4,430 |
|
Tenant recoveries | — |
| | 24,471 |
| | 39,232 |
| | 63,703 |
|
Other | — |
| | 1,391 |
| | 13,042 |
| | 14,433 |
|
Total revenues | — |
| | 60,438 |
| | 160,953 |
| | 221,391 |
|
Expenses: | | | | | | | |
Shopping center and operating expenses | — |
| | 19,517 |
| | 60,142 |
| | 79,659 |
|
Interest expense | — |
| | 16,502 |
| | 23,278 |
| | 39,780 |
|
Depreciation and amortization | — |
| | 11,026 |
| | 51,743 |
| | 62,769 |
|
Total operating expenses | — |
| | 47,045 |
| | 135,163 |
| | 182,208 |
|
Gain on sale or write down of assets, net | — |
| | — |
| | 423 |
| | 423 |
|
Net income | $ | — |
| | $ | 13,393 |
| | $ | 26,213 |
| | $ | 39,606 |
|
Company's equity in net income | $ | — |
| | $ | 4,834 |
| | $ | 12,534 |
| | $ | 17,368 |
|
Six Months Ended June 30, 2014 | | | | | | | |
Revenues: | | | | | | | |
Minimum rents | $ | 51,734 |
| | $ | 31,974 |
| | $ | 112,188 |
| | $ | 195,896 |
|
Percentage rents | 1,209 |
| | 604 |
| | 4,232 |
| | 6,045 |
|
Tenant recoveries | 23,119 |
| | 23,383 |
| | 49,371 |
| | 95,873 |
|
Other | 2,690 |
| | 1,616 |
| | 16,298 |
| | 20,604 |
|
Total revenues | 78,752 |
| | 57,577 |
| | 182,089 |
| | 318,418 |
|
Expenses: | | | | | | | |
Shopping center and operating expenses | 21,813 |
| | 19,680 |
| | 64,138 |
| | 105,631 |
|
Interest expense | 19,929 |
| | 15,483 |
| | 39,066 |
| | 74,478 |
|
Depreciation and amortization | 17,548 |
| | 9,358 |
| | 42,762 |
| | 69,668 |
|
Total operating expenses | 59,290 |
| | 44,521 |
| | 145,966 |
| | 249,777 |
|
Loss on sale or write down of assets, net | (6,312 | ) | | — |
| | (60 | ) | | (6,372 | ) |
Net income | $ | 13,150 |
| | $ | 13,056 |
| | $ | 36,063 |
| | $ | 62,269 |
|
Company's equity in net income | $ | 5,486 |
| | $ | 3,369 |
| | $ | 18,817 |
| | $ | 27,672 |
|
Significant accounting policies used by the unconsolidated joint ventures are similar to those used by the Company.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
Property consists of the following:
|
| | | | | | | |
| June 30, 2015 | | December 31, 2014 |
Land | $ | 2,242,841 |
| | $ | 2,242,291 |
|
Buildings and improvements | 9,517,554 |
| | 9,479,337 |
|
Tenant improvements | 618,630 |
| | 600,436 |
|
Equipment and furnishings | 160,045 |
| | 152,554 |
|
Construction in progress | 363,570 |
| | 303,264 |
|
| 12,902,640 |
| | 12,777,882 |
|
Less accumulated depreciation | (1,856,213 | ) | | (1,709,992 | ) |
| $ | 11,046,427 |
| | $ | 11,067,890 |
|
Depreciation expense was $91,124 and $68,017 for the three months ended June 30, 2015 and 2014, respectively, and $181,321 and $136,495 for the six months ended June 30, 2015 and 2014, respectively.
The loss on sale or write down of assets, net includes an impairment loss of $5,916 for the three and six months ended June 30, 2015 and $8,516 for the three and six months ended June 30, 2014. The impairment losses were due to the reduction of the estimated holding periods of one freestanding store in 2015 and three freestanding stores in 2014.
The loss on sale or write down of assets, net includes a gain on the sale of assets of $1,372 and $1,322 for the three and six months ended June 30, 2015, respectively, and a loss on the sale of assets of $1,685 for the six months ended June 30, 2014. The gain on the sale of assets for the three and six months ended June 30, 2015 is primarily due to the reduction in the estimated selling cost of the Centers sold in 2014. The loss on the sale of assets for the six months ended June 30, 2014 is from the sales of Rotterdam Square, Somersville Towne Center and Lake Square Mall in 2014 (See Note 14—Dispositions).
In addition, the loss on sale or write down of assets, net includes the gain on the sale of land of $1,056 for the six months ended June 30, 2015 and $238 for the three and six months ended June 30, 2014.
The loss on sale or write down of assets, net also includes the write off of development costs of $127 and $1,177 for the three months ended June 30, 2015 and 2014, respectively, and $198 and $1,102 for the six months ended June 30, 2015 and 2014, respectively.
| |
6. | Tenant and Other Receivables, net: |
Included in tenant and other receivables, net, is an allowance for doubtful accounts of $4,456 and $3,234 at June 30, 2015 and December 31, 2014, respectively. Also included in tenant and other receivables, net, are accrued percentage rents of $1,163 and $13,436 at June 30, 2015 and December 31, 2014, respectively, and a deferred rent receivable due to straight-line rent adjustments of $58,312 and $57,278 at June 30, 2015 and December 31, 2014, respectively.
On March 17, 2014, in connection with the sale of Lake Square Mall (See Note 14—Dispositions), the Company issued a note receivable for $6,500 that bears interest at an effective rate of 6.5% and matures on March 17, 2018 ("LSM Note A") and a note receivable for $3,103 that bore interest at 5.0% and was to mature on December 31, 2014 ("LSM Note B"). On September 2, 2014, the balance of LSM Note B was paid in full. LSM Note A is collateralized by a trust deed on Lake Square Mall. At June 30, 2015 and December 31, 2014, LSM Note A had a balance of $6,390 and $6,436, respectively.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
| |
7. | Deferred Charges and Other Assets, net: |
Deferred charges and other assets, net, consist of the following:
|
| | | | | | | |
| June 30, 2015 | | December 31, 2014 |
Leasing | $ | 242,983 |
| | $ | 239,955 |
|
Financing | 49,099 |
| | 47,171 |
|
Intangible assets: | | | |
In-place lease values | 280,875 |
| | 298,825 |
|
Leasing commissions and legal costs | 70,991 |
| | 72,432 |
|
Above-market leases | 258,239 |
| | 250,810 |
|
Deferred tax assets | 36,843 |
| | 35,625 |
|
Deferred compensation plan assets | 37,872 |
| | 35,194 |
|
Other assets | 61,556 |
| | 66,246 |
|
| 1,038,458 |
| | 1,046,258 |
|
Less accumulated amortization(1) | (306,601 | ) | | (287,197 | ) |
| $ | 731,857 |
| | $ | 759,061 |
|
| |
(1) | Accumulated amortization includes $111,635 and $103,361 relating to in-place lease values, leasing commissions and legal costs at June 30, 2015 and December 31, 2014, respectively. Amortization expense of in-place lease values, leasing commissions and legal costs was $18,667 and $11,360 for the three months ended June 30, 2015 and 2014, respectively, and $40,345 and $24,098 for the six months ended June 30, 2015 and 2014, respectively. |
The allocated values of above-market leases and below-market leases consist of the following:
|
| | | | | | | |
| June 30, 2015 | | December 31, 2014 |
Above-Market Leases | | | |
Original allocated value | $ | 258,239 |
| | $ | 250,810 |
|
Less accumulated amortization | (69,975 | ) | | (59,696 | ) |
| $ | 188,264 |
| | $ | 191,114 |
|
Below-Market Leases(1) | | | |
Original allocated value | $ | 366,232 |
| | $ | 375,033 |
|
Less accumulated amortization | (102,645 | ) | | (93,511 | ) |
| $ | 263,587 |
| | $ | 281,522 |
|
| |
(1) | Below-market leases are included in other accrued liabilities. |
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
| |
8. | Mortgage Notes Payable: |
Mortgage notes payable at June 30, 2015 and December 31, 2014 consist of the following:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying Amount of Mortgage Notes(1) | | | | | | |
| | June 30, 2015 | | December 31, 2014 | | | | | | |
Property Pledged as Collateral | | Related Party | | Other | | Related Party | | Other | | Effective Interest Rate(2) | | Monthly Debt Service(3) | | Maturity Date(4) |
Arrowhead Towne Center | | $ | — |
| | $ | 224,972 |
| | $ | — |
| | $ | 228,703 |
| | 2.76 | % | | $ | 1,131 |
| | 2018 |
|
Chandler Fashion Center(5) | | — |
| | 200,000 |
| | — |
| | 200,000 |
| | 3.77 | % | | 625 |
| | 2019 |
|
Danbury Fair Mall | | 112,778 |
| | 112,777 |
| | 114,265 |
| | 114,264 |
| | 5.53 | % | | 1,538 |
| | 2020 |
|
Deptford Mall | | — |
| | 195,846 |
| | — |
| | 197,815 |
| | 3.76 | % | | 947 |
| | 2023 |
|
Deptford Mall | | — |
| | 14,144 |
| | — |
| | 14,285 |
| | 6.46 | % | | 101 |
| | 2016 |
|
Eastland Mall | | — |
| | 168,000 |
| | — |
| | 168,000 |
| | 5.79 | % | | 811 |
| | 2016 |
|
Fashion Outlets of Chicago(6) | | — |
| | 200,000 |
| | — |
| | 119,329 |
| | 1.84 | % | | 278 |
| | 2020 |
|
Fashion Outlets of Niagara Falls USA | | — |
| | 120,000 |
| | — |
| | 121,376 |
| | 4.89 | % | | 727 |
| | 2020 |
|
Flagstaff Mall | | — |
| | 37,000 |
| | — |
| | 37,000 |
| | 5.03 | % | | 151 |
| | 2015 |
|
FlatIron Crossing | | — |
| | 258,146 |
| | — |
| | 261,494 |
| | 3.90 | % | | 1,393 |
| | 2021 |
|
Freehold Raceway Mall(5) | | — |
| | 227,190 |
| | — |
| | 229,244 |
| | 4.20 | % | | 1,132 |
| | 2018 |
|
Great Northern Mall(7) | | — |
| | — |
| | — |
| | 34,494 |
| | — |
| | — |
| | — |
|
Green Acres Mall | | — |
| | 310,248 |
| | — |
| | 313,514 |
| | 3.61 | % | | 1,447 |
| | 2021 |
|
Kings Plaza Shopping Center | | — |
| | 475,716 |
| | — |
| | 480,761 |
| | 3.67 | % | | 2,229 |
| | 2019 |
|
Lakewood Center(8) | | — |
| | 410,000 |
| | — |
| | 253,708 |
| | 3.46 | % | | 1,825 |
| | 2026 |
|
Los Cerritos Center | | 101,071 |
| | 101,072 |
| | 103,274 |
| | 103,274 |
| | 1.65 | % | | 1,009 |
| | 2018 |
|
Northgate Mall(9) | | — |
| | 64,000 |
| | — |
| | 64,000 |
| | 3.07 | % | | 130 |
| | 2017 |
|
Oaks, The | | — |
| | 208,113 |
| | — |
| | 210,197 |
| | 4.14 | % | | 1,064 |
| | 2022 |
|
Pacific View | | — |
| | 131,843 |
| | — |
| | 133,200 |
| | 4.08 | % | | 668 |
| | 2022 |
|
Queens Center | | — |
| | 600,000 |
| | — |
| | 600,000 |
| | 3.49 | % | | 1,744 |
| | 2025 |
|
Santa Monica Place | | — |
| | 227,727 |
| | — |
| | 230,344 |
| | 2.99 | % | | 1,004 |
| | 2018 |
|
SanTan Village Regional Center | | — |
| | 132,358 |
| | — |
| | 133,807 |
| | 3.14 | % | | 589 |
| | 2019 |
|
Stonewood Center | | — |
| | 108,424 |
| | — |
| | 111,297 |
| | 1.80 | % | | 640 |
| | 2017 |
|
Superstition Springs Center(10) | | — |
| | 67,921 |
| | — |
| | 68,079 |
| | 2.02 | % | | 139 |
| | 2016 |
|
Towne Mall | | — |
| | 22,405 |
| | — |
| | 22,607 |
| | 4.48 | % | | 117 |
| | 2022 |
|
Tucson La Encantada | | 70,792 |
| | — |
| | 71,500 |
| | — |
| | 4.23 | % | | 368 |
| | 2022 |
|
Valley Mall | | — |
| | 40,952 |
| | — |
| | 41,368 |
| | 5.85 | % | | 280 |
| | 2016 |
|
Valley River Center | | — |
| | 120,000 |
| | — |
| | 120,000 |
| | 5.59 | % | | 558 |
| | 2016 |
|
Victor Valley, Mall of | | — |
| | 115,000 |
| | — |
| | 115,000 |
| | 4.00 | % | | 380 |
| | 2024 |
|
Vintage Faire Mall(11) | | — |
| | 278,726 |
| | — |
| | — |
| | 3.55 | % | | 1,256 |
| | 2026 |
|
Washington Square | | — |
| | 231,672 |
| | — |
| | 238,696 |
| | 1.65 | % | | 1,499 |
| | 2016 |
|
Westside Pavilion | | — |
| | 148,299 |
| | — |
| | 149,626 |
| | 4.49 | % | | 783 |
| | 2022 |
|
| | $ | 284,641 |
| | $ | 5,552,551 |
| | $ | 289,039 |
| | $ | 5,115,482 |
| | |
| | |
| | |
|
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
8. Mortgage Notes Payable: (Continued)
| |
(1) | The mortgage notes payable balances include the unamortized debt premiums (discounts). Debt premiums (discounts) represent the excess (deficiency) of the fair value of debt over (under) the principal value of debt assumed in various acquisitions and are amortized into interest expense over the remaining term of the related debt in a manner that approximates the effective interest method. |
Debt premiums (discounts) consist of the following:
|
| | | | | | | |
Property Pledged as Collateral | June 30, 2015 | | December 31, 2014 |
Arrowhead Towne Center | $ | 10,031 |
| | $ | 11,568 |
|
Deptford Mall | (6 | ) | | (8 | ) |
Fashion Outlets of Niagara Falls USA | 4,950 |
| | 5,414 |
|
Lakewood Center | — |
| | 3,708 |
|
Los Cerritos Center | 15,424 |
| | 17,965 |
|
Stonewood Center | 6,586 |
| | 7,980 |
|
Superstition Springs Center | 421 |
| | 579 |
|
Valley Mall | (88 | ) | | (132 | ) |
Washington Square | 4,977 |
| | 9,847 |
|
| $ | 42,295 |
| | $ | 56,921 |
|
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(2) | The interest rate disclosed represents the effective interest rate, including the debt premiums (discounts) and deferred finance costs. |
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(3) | The monthly debt service represents the payment of principal and interest. |
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(4) | The maturity date assumes that all extension options are fully exercised and that the Company does not opt to refinance the debt prior to these dates. These extension options are at the Company's discretion, subject to certain conditions, which the Company believes will be met. |
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(5) | A 49.9% interest in the loan has been assumed by a third party in connection with a co-venture arrangement (See Note 10—Co-Venture Arrangement). |
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(6) | On March 3, 2015, the Company amended the loan on the property. The amended $200,000 loan bears interest at LIBOR plus 1.50% and matures on March 31, 2020. At June 30, 2015 and December 31, 2014, the total interest rate was 1.84% and 2.97%, respectively. |
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(7) | On June 30, 2015, the Company conveyed the property to the mortgage lender by a deed-in-lieu of foreclosure, which resulted in a loss of $1,609 on the extinguishment of debt (See Note 14—Dispositions). |
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(8) | On February 25, 2015, the Company paid off in full the loan on the property, which resulted in a gain of $2,245 on the early extinguishment of debt as a result of writing off the related debt premium. On May 12, 2015, the Company placed a new $410,000 loan on the property that bears interest at an effective rate of 3.46% and matures on June 1, 2026. |
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(9) | The loan bears interest at LIBOR plus 2.25% and matures on March 1, 2017. At June 30, 2015 and December 31, 2014, the total interest rate was 3.07% and 3.05%, respectively. |
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(10) | The loan bears interest at LIBOR plus 2.30% and matures on October 28, 2016. At June 30, 2015 and December 31, 2014, the total interest rate was 2.02% and 1.98%, respectively. |
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(11) | On February 19, 2015, the Company placed a $280,000 loan on the property that bears interest at an effective rate of 3.55% and matures on March 6, 2026. |
Most of the mortgage loan agreements contain a prepayment penalty provision for the early extinguishment of the debt.
Most of the Company's mortgage notes payable are secured by the properties on which they are placed and are non-recourse to the Company. As of June 30, 2015 and December 31, 2014, a total of $13,500 and $73,165, respectively, of the mortgage notes payable could become recourse to the Company.
The Company expects that all loan maturities during the next twelve months will be refinanced, restructured, extended and/or paid-off from the Company's line of credit or with cash on hand.
Total interest expense capitalized was $3,837 and $3,098 during the three months ended June 30, 2015 and 2014, respectively, and $6,466 and $5,583 during the six months ended June 30, 2015 and 2014, respectively.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
8. Mortgage Notes Payable: (Continued)
Related party mortgage notes payable are amounts due to an affiliate of NML. See Note 16—Related Party Transactions for interest expense associated with loans from NML.
The estimated fair value (Level 2 measurement) of mortgage notes payable at June 30, 2015 and December 31, 2014 was $5,814,998 and $5,455,453, respectively, based on current interest rates for comparable loans. Fair value was determined using a present value model and an interest rate that included a credit value adjustment based on the estimated value of the property that serves as collateral for the underlying debt.
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9. | Bank and Other Notes Payable: |
Bank and other notes payable consist of the following:
Line of Credit:
The Company has a $1,500,000 revolving line of credit that bears interest at LIBOR plus a spread of 1.38% to 2.0%, depending on the Company's overall leverage level, and matures on August 6, 2018. Based on the Company's leverage level as of June 30, 2015, the borrowing rate on the facility was LIBOR plus 1.50%. In addition, the line of credit can be expanded, depending on certain conditions, up to a total facility of $2,000,000.
As of June 30, 2015 and December 31, 2014, borrowings under the line of credit were $767,000 and $752,000, respectively, at an average interest rate of 1.87% and 1.89%, respectively. The estimated fair value (Level 2 measurement) of the line of credit at June 30, 2015 and December 31, 2014 was $749,300 and $713,989, respectively, based on a present value model using a credit interest rate spread offered to the Company for comparable debt.
Term Loan:
On December 8, 2011, the Company obtained a $125,000 unsecured term loan under the line of credit that bears interest at LIBOR plus a spread of 1.95% to 3.20%, depending on the Company's overall leverage level, and matures on December 8, 2018. Based on the Company's current leverage level as of June 30, 2015, the borrowing rate was LIBOR plus 2.20%. As of June 30, 2015 and December 31, 2014, the total interest rate was 2.53% and 2.25%, respectively. The estimated fair value (Level 2 measurement) of the term loan at June 30, 2015 and December 31, 2014 was $124,592 and $119,780, respectively, based on a present value model using a credit interest rate spread offered to the Company for comparable debt.
Prasada Note:
On March 29, 2013, the Company issued a $13,330 note payable that bears interest at 5.25% and matures on March 29, 2016. The note payable is collateralized by a portion of a development reimbursement agreement with the City of Surprise, Arizona. At June 30, 2015 and December 31, 2014, the note had a balance of $10,016 and $10,879, respectively. The estimated fair value (Level 2 measurement) of the note at June 30, 2015 and December 31, 2014 was $10,181 and $11,178, respectively, based on current interest rates for comparable notes. Fair value was determined using a present value model and an interest rate that included a credit value adjustment based on the estimated value of the collateral for the underlying debt.
As of June 30, 2015 and December 31, 2014, the Company was in compliance with all applicable financial loan covenants.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
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10. | Co-Venture Arrangement: |
On September 30, 2009, the Company formed a joint venture, whereby a third party acquired a 49.9% interest in Freehold Raceway Mall, a 1,668,000 square foot regional shopping center in Freehold, New Jersey, and Chandler Fashion Center, a 1,320,000 square foot regional shopping center in Chandler, Arizona.
As a result of the Company having certain rights under the agreement to repurchase the assets after the seventh year of the venture formation, the transaction did not qualify for sale treatment. The Company, however, is not obligated to repurchase the assets. The transaction has been accounted for as a profit-sharing arrangement, and accordingly the assets, liabilities and operations of the properties remain on the books of the Company and a co-venture obligation was established for the amount of $168,154, representing the net cash proceeds received from the third party. The co-venture obligation is increased for the allocation of income to the co-venture partner and decreased for distributions to the co-venture partner. The co-venture obligation was $71,861 and $75,450 at June 30, 2015 and December 31, 2014, respectively.
11. Noncontrolling Interests:
The Company allocates net income of the Operating Partnership based on the weighted average ownership interest during the period. The net income of the Operating Partnership that is not attributable to the Company is reflected in the consolidated statements of operations as noncontrolling interests. The Company adjusts the noncontrolling interests in the Operating Partnership at the end of each period to reflect its ownership interest in the Company. The Company had a 94% ownership interest in the Operating Partnership as of June 30, 2015 and December 31, 2014. The remaining 6% limited partnership interest as of June 30, 2015 and December 31, 2014 was owned by certain of the Company's executive officers and directors, certain of their affiliates, and other third party investors in the form of OP Units. The OP Units may be redeemed for shares of stock or cash, at the Company's option. The redemption value for each OP Unit as of any balance sheet date is the amount equal to the average of the closing price per share of the Company's common stock, par value $0.01 per share, as reported on the New York Stock Exchange for the 10 trading days ending on the respective balance sheet date. Accordingly, as of June 30, 2015 and December 31, 2014, the aggregate redemption value of the then-outstanding OP Units not owned by the Company was $819,392 and $877,184, respectively.
The Company issued common and preferred units of MACWH, LP in April 2005 in connection with the acquisition of the Wilmorite portfolio. The common and preferred units of MACWH, LP are redeemable at the election of the holder. The Company may redeem them for cash or shares of the Company's stock at the Company's option and they are classified as permanent equity.
Included in permanent equity are outside ownership interests in various consolidated joint ventures. The joint ventures do not have rights that require the Company to redeem the ownership interests in either cash or stock.
At-The-Market Stock Offering Program ("ATM Program"):
On August 17, 2012, the Company entered into an equity distribution agreement ("2012 Distribution Agreement") with a number of sales agents (the "2012 ATM Program") to issue and sell, from time to time, shares of common stock, par value $0.01 per share, having an aggregate offering price of up to $500,000 (the “2012 ATM Shares”). Sales of the 2012 ATM Shares could have been made in privately negotiated transactions and/or any other method permitted by law, including sales deemed to be an “at the market” offering, which includes sales made directly on the New York Stock Exchange or sales made to or through a market maker other than on an exchange. The Company agreed to pay each sales agent a commission that was not to exceed, but could have been lower than, 2% of the gross proceeds of the 2012 ATM Shares sold through such sales agent under the 2012 Distribution Agreement.
On August 20, 2014, the Company terminated and replaced the 2012 ATM Program with a new ATM Program (the "2014 ATM Program") to sell, from time to time, shares of common stock, par value $0.01 per share, having an aggregate offering
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
12. Stockholders' Equity: (Continued)
price of up to $500,000 (the "ATM Shares"). The terms of the 2014 ATM Program are substantially the same as the 2012 ATM Program. The unsold 2012 ATM Shares are no longer available for issuance.
The Company did not sell any shares under the 2014 ATM Program during the six months ended June 30, 2015.
As of June 30, 2015, $500,000 of the ATM Shares were available to be sold under the 2014 ATM Program. Actual future sales of the ATM Shares under the 2014 ATM Program will depend upon a variety of factors including but not limited to market conditions, the trading price of the Company's common stock and the Company's capital needs. The Company has no obligation to sell the ATM Shares under the 2014 ATM Program.
Stock Issued to Acquire Property:
On November 14, 2014, the Company issued 17,140,845 shares of common stock in connection with the acquisition of the PPRLP Queens Portfolio (See Note 13—Acquisitions) for a value of $1,166,777, based on the closing price of the Company's common stock on the date of the transaction.
Cascade Mall:
On June 4, 2014, the Company acquired the remaining 49% ownership interest in Cascade Mall that it did not previously own for $15,233. Prior to the acquisition, the Company had accounted for its investment under the equity method of accounting (See Note 4—Investments in Unconsolidated Joint Ventures). As a result of this transaction, the Company obtained 100% ownership of Cascade Mall. The acquisition was completed in order to obtain 100% ownership and control over this asset.
The following is a summary of the allocation of the fair value of Cascade Mall:
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| | | |
Property | $ | 28,924 |
|
Deferred charges | 6,660 |
|
Other assets | 202 |
|
Total assets acquired | 35,786 |
|
Other accrued liabilities | 4,786 |
|
Total liabilities assumed | 4,786 |
|
Fair value of acquired net assets (at 100% ownership) | $ | 31,000 |
|
The Company determined that the purchase price represented the fair value of the additional ownership interest in Cascade Mall that was acquired.
The following is the reconciliation of the purchase price to the fair value of the acquired net assets:
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| | | |
Purchase price | $ | 15,233 |
|
Distributions in excess of investment | 15,767 |
|
Fair value of acquired net assets (at 100% ownership) | $ | 31,000 |
|
Since the date of acquisition, the Company has included Cascade Mall in its consolidated financial statements.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
13. Acquisitions: (Continued)
Fashion Outlets of Chicago:
On October 31, 2014, the Company purchased AWE/Talisman's ownership interest in its consolidated joint venture in Fashion Outlets of Chicago for $69,987. The purchase price was funded by a cash payment of $55,867 and the settlement of the balance on the Talisman Notes of $14,120 (See Note 16—Related Party Transactions). The cash payment was funded by borrowings under the Company's line of credit. The purchase agreement includes contingent consideration based on the financial performance of Fashion Outlets of Chicago at an agreed upon date in 2016. The Company estimated the fair value of the contingent consideration as of June 30, 2015 to be $10,537, which has been included in other accrued liabilities. As a result of this acquisition, the noncontrolling interest of $76,141 was reversed.
PPRLP Queens Portfolio:
On November 14, 2014, the Company acquired the remaining 49% ownership interest in the PPRLP Queens Portfolio that it did not previously own for $1,838,886. The acquisition was completed in order to gain 100% ownership and control over this portfolio of prominent shopping centers. The purchase price was funded by the assumption of the third party's pro rata share of the mortgage notes payable on the properties of $672,109 and the issuance of $1,166,777 in common stock of the Company. Prior to the acquisition, the Company had accounted for its investment under the equity method of accounting (See Note 4—Investments in Unconsolidated Joint Ventures). As a result of this transaction, the Company obtained 100% ownership of the PPRLP Queens Portfolio.
The following is a summary of the preliminary allocation of the estimated fair value of the PPRLP Queens Portfolio:
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| | | |
Property | $ | 3,711,819 |
|
Deferred charges | 155,892 |
|
Cash and cash equivalents | 28,890 |
|
Restricted cash | 5,113 |
|
Tenant receivables | 5,438 |
|
Other assets | 127,244 |
|
Total assets acquired | 4,034,396 |
|
Mortgage notes payable | 1,414,659 |
|
Accounts payable | 5,669 |
|
Due to affiliates | 2,680 |
|
Other accrued liabilities | 230,210 |
|
Total liabilities assumed | 1,653,218 |
|
Fair value of acquired net assets (at 100% ownership) | $ | 2,381,178 |
|
The purchase price allocation for the PPRLP Queens Portfolio is based on a preliminary measurement of fair value that is subject to change. The allocation for the PPRLP Queens Portfolio represents the Company's current best estimate of fair value. The Company determined that the purchase price represented the estimated fair value of the additional ownership interest in the PPRLP Queens Portfolio that was acquired.
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| | | |
Fair value of existing ownership interest (at 51% ownership) | $ | 1,214,401 |
|
Distributions in excess of investment | 208,735 |
|
Gain on remeasurement of assets | $ | 1,423,136 |
|
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
13. Acquisitions: (Continued)
The following is the reconciliation of the purchase price to the estimated fair value of the acquired net assets:
|
| | | |
Purchase price | $ | 1,838,886 |
|
Less debt assumed | (672,109 | ) |
Distributions in excess of investment | (208,735 | ) |
Gain on remeasurement of assets | 1,423,136 |
|
Fair value of acquired net assets (at 100% ownership) | $ | 2,381,178 |
|
Since the date of acquisition, the Company has included the PPRLP Queens Portfolio in its consolidated financial statements.
Inland Center:
On February 17, 2015, the Company acquired the remaining 50% ownership interest in Inland Center that it did not previously own for $51,250. The purchase price was funded by a cash payment of $26,250 and the assumption of the third party's share of the mortgage note payable on the property of $25,000. Prior to the acquisition, the Company had accounted for its investment under the equity method of accounting (See Note 4—Investments in Unconsolidated Joint Ventures). As a result of this transaction, the Company obtained 100% ownership of Inland Center. The acquisition was completed in order to obtain 100% ownership and control over this asset.
The following is a summary of the preliminary allocation of the estimated fair value of Inland Center:
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| | | |
Property | $ | 91,871 |
|
Deferred charges | 9,752 |
|
Other assets | 5,782 |
|
Total assets acquired | 107,405 |
|
Mortgage note payable | 50,000 |
|
Other accrued liabilities | 4,905 |
|
Total liabilities assumed | 54,905 |
|
Fair value of acquired net assets (at 100% ownership) | $ | 52,500 |
|
The purchase price allocation for Inland Center is based on a preliminary measurement of fair value that is subject to change. The allocation for Inland Center represents the Company's current best estimate of fair value. The Company determined that the purchase price represented the estimated fair value of the additional ownership interest in Inland Center that was acquired.
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| | | |
Fair value of existing ownership interest (at 50% ownership) | $ | 26,250 |
|
Carrying value of investment | (4,161 | ) |
Gain on remeasurement of assets | $ | 22,089 |
|
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
13. Acquisitions: (Continued)
The following is the reconciliation of the purchase price to the estimated fair value of the acquired net assets:
|
| | | |
Purchase price | $ | 51,250 |
|
Less debt assumed | (25,000 | ) |
Carrying value of investment | 4,161 |
|
Gain on remeasurement of assets | 22,089 |
|
Fair value of acquired net assets (at 100% ownership) | $ | 52,500 |
|
Since the date of acquisition, the Company has included Inland Center in its consolidated financial statements. The property has generated incremental revenue of $5,662 and incremental net income of $345 during the six months ended June 30, 2015.
Pro Forma Results of Operations:
The following pro forma financial information for the three and six months ended June 30, 2015 and 2014 assumes all of the above transactions took place on January 1, 2014:
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| | | | | | | | | | | | | | | |
| For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| 2015 | | 2014 | | 2015 | | 2014 |
Supplemental pro forma revenue(1) | $ | 322,794 |
| | $ | 325,151 |
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