Edgar Filing: MACERICH CO

Document

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, 2016

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 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.



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 2, 2016 of the registrant's common stock, par value $0.01 per share: 143,625,500 shares

THE MACERICH COMPANY

FORM 10-Q

INDEX



Part I	Financial Information

Item 1.	Financial Statements (Unaudited)	3

	Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015	3

	Consolidated Statements of Operations for the three and six months ended June 30, 2016 and 2015	4

	Consolidated Statement of Equity for the six months ended June 30, 2016	5

	Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015	6

	Notes to Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42

Item 4.	Controls and Procedures	43

Part II	Other Information

Item 1.	Legal Proceedings	44

Item 1A.	Risk Factors	44

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 3.	Defaults Upon Senior Securities	44

Item 4.	Mine Safety Disclosures	44

Item 5.	Other Information	44

Item 6.	Exhibits	45

Signature		47

Table of Contents

THE MACERICH COMPANY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except par value)

(Unaudited)



	June 30, 2016			December 31, 2015
ASSETS:
Property, net	$	7,442,988		$	8,796,912
Cash and cash equivalents	73,138			86,510
Restricted cash	44,997			41,389
Tenant and other receivables, net	110,670			130,002
Deferred charges and other assets, net	488,941			564,291
Due from affiliates	70,615			83,928
Investments in unconsolidated joint ventures	1,766,330			1,532,552
Total assets	$	9,997,679		$	11,235,584
LIABILITIES AND EQUITY:
Mortgage notes payable:
Related parties	$	178,785		$	181,069
Others	3,718,404			4,427,518
Total	3,897,189			4,608,587
Bank and other notes payable	1,015,323			652,163
Accounts payable and accrued expenses	52,836			74,398
Accrued dividend	—			337,703
Other accrued liabilities	372,954			403,281
Distributions in excess of investments in unconsolidated joint ventures	21,221			24,457
Co-venture obligation	61,055			63,756
Total liabilities	5,420,578			6,164,345
Commitments and contingencies
Equity:
Stockholders' equity:
Common stock, $0.01 par value, 250,000,000 shares authorized, 144,678,083 and 154,404,986 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively	1,447			1,544
Additional paid-in capital	4,613,114			4,926,630
Accumulated deficit	(378,389		)	(212,760		)
Total stockholders' equity	4,236,172			4,715,414
Noncontrolling interests	340,929			355,825
Total equity	4,577,101			5,071,239
Total liabilities and equity	$	9,997,679		$	11,235,584

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

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THE MACERICH COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share amounts)

(Unaudited)



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2016			2015			2016			2015
Revenues:
Minimum rents	$	152,448		$	193,131		$	303,496		$	383,892
Percentage rents	2,394			2,576			5,408			5,824
Tenant recoveries	75,948			105,592			156,121			211,290
Other	17,789			15,321			30,937			28,324
Management Companies	11,325			6,174			19,942			11,799
Total revenues	259,904			322,794			515,904			641,129
Expenses:
Shopping center and operating expenses	73,910			93,877			153,234			195,541
Management Companies' operating expenses	24,299			20,239			52,199			46,707
REIT general and administrative expenses	7,681			7,550			16,310			15,972
Costs related to unsolicited takeover offer	—			11,423			—			24,995
Depreciation and amortization	85,190			119,333			172,121			239,951
	191,080			252,422			393,864			523,166
Interest expense:
Related parties	2,256			2,709			4,528			5,438
Other	38,939			52,187			76,443			102,744
	41,195			54,896			80,971			108,182
Loss (gain) on early extinguishment of debt, net	—			1,609			3,575			(636		)
Total expenses	232,275			308,927			478,410			630,712
Equity in income of unconsolidated joint ventures	14,616			9,094			26,276			17,368
Co-venture expense	(3,212		)	(2,813		)	(6,501		)	(4,943		)
Income tax (expense) benefit	(514		)	283			(1,831		)	1,218
Gain (loss) on sale or write down of assets, net	10,915			(4,671		)	445,371			(3,736		)
(Loss) gain on remeasurement of assets	—			(14		)	—			22,089
Net income	49,434			15,746			500,809			42,413
Less net income attributable to noncontrolling interests	4,212			1,351			34,672			3,407
Net income attributable to the Company	$	45,222		$	14,395		$	466,137		$	39,006
Earnings per common share—net income attributable to common stockholders:
Basic	$	0.31		$	0.09		$	3.12		$	0.24
Diluted	$	0.31		$	0.09		$	3.12		$	0.24
Weighted average number of common shares outstanding:
Basic	146,644,000			158,501,000			149,314,000			158,419,000
Diluted	146,769,000			158,633,000			149,459,000			158,587,000

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

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THE MACERICH COMPANY

CONSOLIDATED STATEMENT OF EQUITY

(Dollars in thousands, except per share data)

(Unaudited)



	Stockholders' Equity
	Common Stock
	Shares		Par Value			Additional Paid-in Capital			Accumulated Deficit			Total Stockholders' Equity			Noncontrolling Interests			Total Equity
Balance at January 1, 2016	154,404,986		$	1,544		$	4,926,630		$	(212,760	)	$	4,715,414		$	355,825		$	5,071,239
Net income	—		—			—			466,137			466,137			34,672			500,809
Amortization of share and unit-based plans	100,781		1			27,747			—			27,748			—			27,748
Employee stock purchases	13,024		—			834			—			834			—			834
Stock repurchases	(10,018,849	)	(100		)	(373,677		)	(426,241		)	(800,018		)	—			(800,018		)
Distributions declared ($1.36) per share	—		—			—			(205,525		)	(205,525		)	—			(205,525		)
Distributions to noncontrolling interests	—		—			—			—			—			(17,956		)	(17,956		)
Conversion of noncontrolling interests to common shares	178,141		2			3,117			—			3,119			(3,119		)	—
Redemption of noncontrolling interests	—		—			(23		)	—			(23		)	(7		)	(30		)
Adjustment of noncontrolling interests in Operating Partnership	—		—			28,486			—			28,486			(28,486		)	—
Balance at June 30, 2016	144,678,083		$	1,447		$	4,613,114		$	(378,389	)	$	4,236,172		$	340,929		$	4,577,101

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

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THE MACERICH COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)



	For the Six Months Ended June 30,
	2016			2015
Cash flows from operating activities:
Net income	$	500,809		$	42,413
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on early extinguishment of debt, net	(8,453		)	(636		)
(Gain) loss on sale or write down of assets, net	(445,371		)	3,736
Gain on remeasurement of assets	—			(22,089		)
Depreciation and amortization	175,090			243,526
Amortization of net premium on mortgage notes payable	(2,063		)	(12,382		)
Amortization of share and unit-based plans	22,008			19,207
Straight-line rent adjustment	(2,503		)	(1,663		)
Amortization of above and below-market leases	(4,178		)	(9,784		)
Provision for doubtful accounts	2,291			3,156
Income tax expense (benefit)	1,831			(1,218		)
Equity in income of unconsolidated joint ventures	(26,276		)	(17,368		)
Distributions of income from unconsolidated joint ventures	4,483			—
Co-venture expense	6,501			4,943
Changes in assets and liabilities, net of acquisitions and dispositions:
Tenant and other receivables	4,061			10,991
Other assets	(15,930		)	(4,334		)
Due from affiliates	4,330			2,225
Accounts payable and accrued expenses	(15,403		)	7,756
Other accrued liabilities	6,454			4,400
Net cash provided by operating activities	207,681			272,879
Cash flows from investing activities:
Acquisitions of property	—			(26,250		)
Development, redevelopment, expansion and renovation of properties	(107,565		)	(132,212		)
Property improvements	(14,267		)	(16,851		)
Proceeds from notes receivable	3,161			909
Deferred leasing costs	(14,698		)	(18,128		)
Distributions from unconsolidated joint ventures	308,952			46,326
Contributions to unconsolidated joint ventures	(382,910		)	(312,367		)
Proceeds from sale of assets	695,724			1,440
Restricted cash	(3,613		)	(987		)
Net cash provided by (used in) investing activities	484,784			(458,120		)

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THE MACERICH COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Dollars in thousands) (Unaudited)
	For the Six Months Ended June 30,
	2016			2015
Cash flows from financing activities:
Proceeds from mortgages, bank and other notes payable	2,596,138			1,565,674
Payments on mortgages, bank and other notes payable	(1,929,969		)	(1,120,090		)
Deferred financing costs	(1,979		)	(5,060		)
Proceeds from share and unit-based plans	834			745
Stock repurchases	(800,018		)	—
Redemption of noncontrolling interests	(30		)	(189		)
Contribution from noncontrolling interests	—			23
Dividends and distributions	(561,611		)	(221,911		)
Distributions to co-venture partner	(9,202		)	(8,532		)
Net cash (used in) provided by financing activities	(705,837		)	210,660
Net (decrease) increase in cash and cash equivalents	(13,372		)	25,419
Cash and cash equivalents, beginning of period	86,510			84,907
Cash and cash equivalents, end of period	$	73,138		$	110,326
Supplemental cash flow information:
Cash payments for interest, net of amounts capitalized	$	72,224		$	119,291
Non-cash investing and financing transactions:
Accrued development costs included in accounts payable and accrued expenses and other accrued liabilities	$	24,177		$	43,085
Mortgage notes payable assumed in exchange for investments in unconsolidated joint ventures	$	997,695		$	—
Assumption of mortgage note payable from unconsolidated joint venture	$	—		$	50,000
Mortgage note payable settled by deed-in-lieu of foreclosure	$	—		$	34,149
Acquisition of property in exchange for investment in unconsolidated joint venture	$	—		$	76,250
Conversion of Operating Partnership Units to common stock	$	3,119		$	1,559

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

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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/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, 2016, the Company was the sole general partner of and held a 93% 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.


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.

On January 1, 2016, the Company adopted Accounting Standards Update (“ASU”) 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis,” which made 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 ("VIE") characteristics for a limited partnership or similar entity and (3) the primary beneficiary determination. The Company evaluated the new standard and determined that no change was required to its accounting for variable interest entities. However, under the guidance of the new standard, all of the Company's consolidated joint ventures, including the Operating Partnership, now meet the definition and criteria as VIEs and the Company is the primary beneficiary of each VIE.

The Company's sole significant asset is its investment in the Operating Partnership and as a result, substantially all of the Company's assets and liabilities represent the assets and liabilities of the Operating Partnership. In addition, the Operating Partnership has investments in a number of VIEs.

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THE MACERICH COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

2. Summary of Significant Accounting Policies: (Continued)

The VIEs included the following assets and liabilities:



	June 30, 2016		December 31, 2015
Assets:
Properties, net	$	358,921	$	362,129
Other assets	70,399		74,075
Total assets	$	429,320	$	436,204
Liabilities:
Mortgage notes payable	$	135,199	$	139,767
Other liabilities	79,296		79,984
Total liabilities	$	214,495	$	219,751

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, 2015. 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, 2015 has been derived from the audited financial statements but does not include all disclosures required by GAAP.

Recent Accounting Pronouncements:

In May 2014, the Financial Accounting Standards Board (“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 its 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. The Company's adoption of ASU 2015-03 on January 1, 2016 resulted in an adjustment of its consolidated balance sheet at December 31, 2015 to reflect the new presentation required by the standard.

In September 2015, the FASB issued ASU 2015-16, "Simplifying the Accounting for Measurement-Period Adjustments," which requires adjustments to provisional amounts used in business combinations during the measurement period to be recognized in the reporting period in which the adjustment amounts are determined. It also requires the disclosure of the impact on changes in estimates on earnings, depreciation, amortization and other income effects. The Company's adoption of this standard on January 1, 2016 did not have an impact on its consolidated financial statements.

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THE MACERICH COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

2. Summary of Significant Accounting Policies: (Continued)

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," which requires lessees to record operating and financing leases as assets and liabilities on the balance sheet and lessors to expense costs that are not initial direct leasing costs. ASU 2016-02 is effective for the Company beginning January 1, 2019. The Company is evaluating the impact of the adoption of this standard on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, "Compensation-Stock Compensation (Topic 718)," which amends the accounting for share-based payments, including the income tax consequences, classification of awards and classification on the statement of cash flows. ASU 2016-09 is effective for the Company beginning January 1, 2017. The Company is evaluating the impact of the adoption of this standard on its consolidated financial statements.


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, 2016 and 2015 (shares in thousands):



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2016			2015			2016			2015
Numerator
Net income	$	49,434		$	15,746		$	500,809		$	42,413
Net income attributable to noncontrolling interests	(4,212		)	(1,351		)	(34,672		)	(3,407		)
Net income attributable to the Company	45,222			14,395			466,137			39,006
Allocation of earnings to participating securities	(170		)	(147		)	(557		)	(295		)
Numerator for basic and diluted earnings per share—net income attributable to common stockholders	$	45,052		$	14,248		$	465,580		$	38,711
Denominator
Denominator for basic earnings per share—weighted average number of common shares outstanding	146,644			158,501			149,314			158,419
Effect of dilutive securities:(1)
Share and unit-based compensation plans	125			132			145			168
Denominator for diluted earnings per share—weighted average number of common shares outstanding	146,769			158,633			149,459			158,587
Earnings per common share—net income attributable to common stockholders:
Basic	$	0.31		$	0.09		$	3.12		$	0.24
Diluted	$	0.31		$	0.09		$	3.12		$	0.24


(1)	Diluted EPS excludes 138,759 convertible preferred units for the three months ended June 30, 2016 and 2015, and 138,759 and 139,620 convertible preferred units for the six months ended June 30, 2016 and 2015, respectively, as their impact was antidilutive.

Diluted EPS excludes 10,833,354 and 10,577,945 Operating Partnership units ("OP Units") for the three months ended June 30, 2016 and 2015, respectively, and 10,826,849 and 10,547,401 OP Units for the six months ended June 30, 2016 and 2015, respectively, as their impact was antidilutive.

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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 February 17, 2015, the Company acquired the remaining 50% ownership interest in Inland Center, an 867,000 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% ownership interest in the joint venture, which was funded by borrowings under the Company's line of credit.

On October 30, 2015, the Company sold a 40% ownership interest in Pacific Premier Retail LLC (the "PPR Portfolio"), which owns Lakewood Center, a 2,075,000 square foot regional shopping center in Lakewood, California; Los Cerritos Center, a 1,294,000 square foot regional shopping center in Cerritos, California; South Plains Mall, a 1,127,000 square foot regional shopping center in Lubbock, Texas; and Washington Square, a 1,442,000 square foot regional shopping center in Portland, Oregon, for a total sales price of $1,258,643, resulting in a gain on the sale of assets of $311,194. The sales price was funded by a cash payment of $545,643 and the assumption of a pro rata share of the mortgage notes payable on the properties of $713,000. The Company used the cash proceeds from the sales to pay down its line of credit and for general corporate purposes, which included funding the ASR and Special Dividend (See Note 12—Stockholders' Equity). Upon completion of the sale of the ownership interest, the Company no longer has a controlling interest in the joint venture due to the substantive participation rights of the outside partner. Accordingly, the Company accounts for its investment in the PPR Portfolio under the equity method of accounting.

On January 6, 2016, the Company sold a 40% ownership interest in Arrowhead Towne Center, a 1,197,000 square foot regional shopping center in Glendale, Arizona, for $289,496, resulting in a gain on the sale of assets of $104,297. The sales price was funded by a cash payment of $129,496 and the assumption of a pro rata share of the mortgage note payable on the property of $160,000. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes, which included funding the Special Dividend (See Note 12—Stockholders' Equity). Upon completion of the sale of the ownership interest, the Company no longer has a controlling interest in the joint venture due to the substantive participation rights of the outside partner. Accordingly, the Company accounts for its investment in Arrowhead Towne Center under the equity method of accounting.

On January 14, 2016, the Company formed a joint venture, whereby the Company sold a 49% ownership interest in Deptford Mall, a 1,040,000 square foot regional shopping center in Deptford, New Jersey; FlatIron Crossing, a 1,432,000 square foot regional shopping center in Broomfield, Colorado; and Twenty Ninth Street, an 853,000 square foot regional shopping center in Boulder, Colorado (the "MAC Heitman Portfolio"), for $771,478, resulting in a gain on the sale of assets of $340,745. The sales price was funded by a cash payment of $478,608 and the assumption of a pro rata share of the mortgage notes payable on the properties of $292,870. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes. Upon completion of the sale of the ownership interest, the Company no longer has a controlling interest in the joint venture due to the substantive participation rights of the outside partner. Accordingly, the Company accounts for its investment in the MAC Heitman Portfolio under the equity method of accounting.

On March 1, 2016, the Company, through a 50/50 joint venture, acquired Country Club Plaza, a 1,300,000 square foot regional shopping center in Kansas City, Missouri, for a purchase price of $660,000. The Company funded its pro rata share of the purchase price of $330,000 from borrowings under its line of credit. On March 28, 2016, the joint venture placed a $320,000 loan on the property that bears interest at an effective rate of 3.88% and matures on April 1, 2026. The Company used its pro rata share of the proceeds to pay down its line of credit.

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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, 2016			December 31, 2015
Assets(1):
Properties, net	$	9,235,308		$	6,334,442
Other assets	603,631			507,718
Total assets	$	9,838,939		$	6,842,160
Liabilities and partners' capital(1):
Mortgage and other notes payable(2)	$	5,098,835		$	3,607,588
Other liabilities	435,191			355,634
Company's capital	2,348,081			1,585,796
Outside partners' capital	1,956,832			1,293,142
Total liabilities and partners' capital	$	9,838,939		$	6,842,160
Investments in unconsolidated joint ventures:
Company's capital	$	2,348,081		$	1,585,796
Basis adjustment(3)	(602,972		)	(77,701		)
	$	1,745,109		$	1,508,095

Assets—Investments in unconsolidated joint ventures	$	1,766,330		$	1,532,552
Liabilities—Distributions in excess of investments in unconsolidated joint ventures	(21,221		)	(24,457		)
	$	1,745,109		$	1,508,095


(1)	These amounts include the assets of $3,225,172 and $3,283,702 of Pacific Premier Retail LLC as of June 30, 2016 and December 31, 2015, respectively, and liabilities of $1,909,943 and $1,938,241 of Pacific Premier Retail LLC as of June 30, 2016 and December 31, 2015, 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, 2016 and December 31, 2015, a total of $5,000 could become recourse debt to the Company. As of June 30, 2016 and December 31, 2015, the Company had an indemnity agreement from a joint venture partner for $2,500 of the guaranteed amount.

Included in mortgage and other notes payable are amounts due to an affiliate of Northwestern Mutual Life ("NML") of $269,350 and $460,872 as of June 30, 2016 and December 31, 2015, 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 $4,992 and $8,083 for the three months ended June 30, 2016 and 2015, respectively, and $11,358 and $16,591 for the six months ended June 30, 2016 and 2015, 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 $4,669 and $260 for the three months ended June 30, 2016 and 2015, respectively, and $9,126 and $160 for the six months ended June 30, 2016 and 2015, respectively.

Table of Contents

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 LLC (1)			Other Joint Ventures		Total
Three Months Ended June 30, 2016
Revenues:
Minimum rents	$	31,474		$	119,664	$	151,138
Percentage rents	343			2,624		2,967
Tenant recoveries	11,919			46,652		58,571
Other	689			12,752		13,441
Total revenues	44,425			181,692		226,117
Expenses:
Shopping center and operating expenses	9,314			58,930		68,244
Interest expense	16,055			31,266		47,321
Depreciation and amortization	26,796			60,764		87,560
Total operating expenses	52,165			150,960		203,125
Gain on sale or write down of assets, net	—			5		5
Net (loss) income	$	(7,740	)	$	30,737	$	22,997
Company's equity in net (loss) income	$	(1,730	)	$	16,346	$	14,616
Three Months Ended June 30, 2015
Revenues:
Minimum rents	$	—		$	71,303	$	71,303
Percentage rents	—			2,807		2,807
Tenant recoveries	—			31,340		31,340
Other	—			6,843		6,843
Total revenues	—			112,293		112,293
Expenses:
Shopping center and operating expenses	—			37,481		37,481
Interest expense	—			19,397		19,397
Depreciation and amortization	—			33,099		33,099
Total operating expenses	—			89,977		89,977
Gain on sale or write down of assets, net	—			423		423
Net income	$	—		$	22,739	$	22,739
Company's equity in net income	$	—		$	9,094	$	9,094

Table of Contents

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 LLC (1)			Other Joint Ventures		Total
Six Months Ended June 30, 2016
Revenues:
Minimum rents	$	62,057		$	226,037	$	288,094
Percentage rents	1,102			4,377		5,479
Tenant recoveries	23,895			90,095		113,990
Other	3,527			23,104		26,631
Total revenues	90,581			343,613		434,194
Expenses:
Shopping center and operating expenses	19,100			112,228		131,328
Interest expense	31,269			59,004		90,273
Depreciation and amortization	54,880			117,297		172,177
Total operating expenses	105,249			288,529		393,778
Net (loss) income	$	(14,668	)	$	55,084	$	40,416
Company's equity in net (loss) income	$	(2,974	)	$	29,250	$	26,276
Six Months Ended June 30, 2015
Revenues:
Minimum rents	$	—		$	138,825	$	138,825
Percentage rents	—			4,430		4,430
Tenant recoveries	—			63,703		63,703
Other	—			14,433		14,433
Total revenues	—			221,391		221,391
Expenses:
Shopping center and operating expenses	—			79,659		79,659
Interest expense	—			39,780		39,780
Depreciation and amortization	—			62,769		62,769
Total operating expenses	—			182,208		182,208
Gain on sale or write down of assets, net	—			423		423
Net income	$	—		$	39,606	$	39,606
Company's equity in net income	$	—		$	17,368	$	17,368

_______________________________________________________________________________


(1)	These amounts exclude the results of operations from January 1, 2015 to June 30, 2015, as Pacific Premier Retail LLC was wholly-owned during that period. On October 30, 2015, as a result of the PPR Portfolio transaction discussed above, Pacific Premier Retail LLC was converted from wholly-owned to an unconsolidated joint venture.

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

Table of Contents

THE MACERICH COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)


5.	Property, net:

Property, net consists of the following:



	June 30, 2016			December 31, 2015
Land	$	1,635,761		$	1,894,717
Buildings and improvements	6,527,339			7,752,892
Tenant improvements	578,102			637,355
Equipment and furnishings	164,547			169,841
Construction in progress	298,020			234,851
	9,203,769			10,689,656
Less accumulated depreciation	(1,760,781		)	(1,892,744		)
	$	7,442,988		$	8,796,912

Depreciation expense was $68,175 and $91,124 for the three months ended June 30, 2016 and 2015, respectively, and $138,078 and $181,321 for the six months ended June 30, 2016 and 2015, respectively.

The gain (loss) on sale or write down of assets, net was $10,915 and $(4,671) for the three months ended June 30, 2016 and 2015, respectively, and $445,371 and $(3,736) for the six months ended June 30, 2016 and 2015, respectively.

The gain (loss) on sale or write down of assets, net for the three and six months ended June 30, 2016 includes a gain of $24,897 on the sale of Capitola Mall and a loss of $3,058 on the sale of a former Mervyns' store (See Note 14—Dispositions).

The gain (loss) on sale or write down of assets, net for the six months ended June 30, 2016 includes a gain of $104,297 on the sale of a 40% ownership interest in Arrowhead Towne Center (See Note 4—Investments in Unconsolidated Joint Ventures) and $340,745 on the sale of a 49% ownership interest in the MAC Heitman Portfolio (See Note 4—Investments in Unconsolidated Joint Ventures).

The gain (loss) on sale or write down of assets, net for the three and six months ended June 30, 2016 includes an impairment loss of $7,188 due to the reduction of the estimated holding period of The Marketplace at Flagstaff. The gain (loss) on sale or write down of assets, net for the three and six months ended June 30, 2015 includes an impairment loss of $5,916 due to the reduction of the estimated holding period of a freestanding store.

In addition, the Company recorded a loss of $2,456 and $14,750 for the three and six months ended June 30, 2016, respectively, for adjustments to a contingent consideration obligation (See Note 13—Acquisitions).


6.	Tenant and Other Receivables, net:

Included in tenant and other receivables, net is an allowance for doubtful accounts of $2,620 and $3,072 at June 30, 2016 and December 31, 2015, respectively. Also included in tenant and other receivables, net are accrued percentage rents of $945 and $10,940 at June 30, 2016 and December 31, 2015, respectively, and a deferred rent receivable due to straight-line rent adjustments of $54,075 and $60,790 at June 30, 2016 and December 31, 2015, respectively.

On March 17, 2014, in connection with the sale of Lake Square Mall, the Company issued a note receivable for $6,500 that bears interest at an effective rate of 6.5%, matures on March 17, 2018 and is collateralized by a trust deed on Lake Square Mall. At June 30, 2016 and December 31, 2015, the note had a balance of $6,314 and $6,351, respectively.

Table of Contents

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, 2016			December 31, 2015
Leasing	$	226,596		$	248,709
Intangible assets:
In-place lease values	152,871			196,969
Leasing commissions and legal costs	34,359			52,000
Above-market leases	192,104			220,847
Deferred tax assets	37,103			38,847
Deferred compensation plan assets	40,583			37,341
Other assets	57,231			70,070
	740,847			864,783
Less accumulated amortization(1)	(251,906		)	(300,492		)
	$	488,941		$	564,291

(1)

Accumulated amortization includes $85,893 and $109,453 relating to in-place lease values, leasing commissions and legal costs at June 30, 2016 and December 31, 2015, respectively. Amortization expense of in-place lease values, leasing commissions and legal costs was $8,203 and $18,667 for the three months ended June 30, 2016 and 2015, respectively, and $17,050 and $40,345 for the six months ended June 30, 2016 and 2015, respectively.

The allocated values of above-market leases and below-market leases consist of the following:



	June 30, 2016			December 31, 2015
Above-Market Leases
Original allocated value	$	192,104		$	220,847
Less accumulated amortization	(58,481		)	(73,520		)
	$	133,623		$	147,327
Below-Market Leases(1)
Original allocated value	$	201,998		$	227,063
Less accumulated amortization	(97,937		)	(101,872		)
	$	104,061		$	125,191


(1)	Below-market leases are included in other accrued liabilities.

Table of Contents

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, 2016 and December 31, 2015 consist of the following:



	Carrying Amount of Mortgage Notes(1)
	June 30, 2016				December 31, 2015
Property Pledged as Collateral	Related Party		Other		Related Party		Other		Effective Interest Rate(2)		Monthly Debt Service(3)		Maturity Date(4)
Arrowhead Towne Center(5)	$	—	$	—	$	—	$	221,194	—		$	—	—
Chandler Fashion Center(6)	—		199,803		—		199,766		3.77	%	625		2019
Danbury Fair Mall	109,525		109,525		111,078		111,079		5.53	%	1,538		2020
Deptford Mall(7)	—		—		—		193,337		—		—		—
Deptford Mall(8)	—		—		—		13,999		—		—		—
Fashion Outlets of Chicago	—		198,781		—		198,653		2.10	%	323		2020
Fashion Outlets of Niagara Falls USA	—		117,203		—		117,708		4.89	%	727		2020
Flagstaff Mall(9)	—		37,000		—		37,000		8.97	%	153		2015
FlatIron Crossing(7)	—		—		—		254,075		—		—		—
Freehold Raceway Mall(6)	—		222,762		—		224,836		4.20	%	1,132		2018
Green Acres Mall	—		300,909		—		303,960		3.61	%	1,447		2021
Kings Plaza Shopping Center	—		461,659		—		466,266		3.67	%	2,229		2019
Northgate Mall(10)	—		63,662		—		63,783		3.35	%	143		2017
Oaks, The	—		203,418		—		205,555		4.14	%	1,064		2022
Pacific View	—		128,723		—		130,108		4.08	%	668		2022
Queens Center	—		600,000		—		600,000		3.49	%	1,744		2025
Santa Monica Place	—		222,209		—		224,815		2.99	%	1,004		2018
SanTan Village Regional Center	—		129,192		—		130,638		3.14	%	589		2019
Stonewood Center	—		102,543		—		105,494		1.80	%	640		2017
Superstition Springs Center(11)	—		67,599		—		67,749		2.27	%	154		2016
Towne Mall	—		21,765		—		21,956		4.48	%	117		2022
Tucson La Encantada	69,260		—		69,991		—		4.23	%	368		2022
Victor Valley, Mall of	—		114,529		—		114,500		4.00	%	380		2024
Vintage Faire Mall	—		271,847		—		274,417		3.55	%	1,255		2026
Westside Pavilion	—		145,275		—		146,630		4.49	%	783		2022
	$	178,785	$	3,718,404	$	181,069	$	4,427,518

Table of Contents

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, 2016		December 31, 2015
Arrowhead Towne Center	$	—	$	8,494
Deptford Mall	—		(3		)
Fashion Outlets of Niagara Falls USA	4,022		4,486
Stonewood Center	3,766		5,168
Superstition Springs Center	105		263
	$	7,893	$	18,408

The mortgage notes payable balances also include unamortized deferred finance costs that are amortized into interest expense over the remaining term of the related debt in a manner that approximates the effective interest method. Unamortized deferred finance costs were $12,368 and $16,025 at June 30, 2016 and December 31, 2015, respectively.


(2)	The interest rate disclosed represents the effective interest rate, including the debt premiums (discounts) and deferred finance costs.


(3)	The monthly debt service represents the payment of principal and interest.


(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.

(5)

On January 6, 2016, the Company replaced the existing loan on the property with a new $400,000 loan that bears interest at an effective rate of 4.05% and matures on February 1, 2028, which resulted in a loss of $3,575 on the early extinguishment of debt. Concurrently, a 40% interest in the loan was assumed by a third party in connection with the sale of a 40% ownership interest in the underlying property (See Note 4—Investments in Unconsolidated Joint Ventures).


(6)	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).


(7)	On January 14, 2016, a 49% interest in the loan was assumed by a third party in connection with the sale of a 49% ownership interest in the MAC Heitman Portfolio (See Note 4—Investments in Unconsolidated Joint Ventures).


(8)	On March 1, 2016, the Company paid off in full the loan on the property.


(9)	On July 15, 2016, the Company conveyed Flagstaff Mall to the mortgage lender by a deed-in-lieu of foreclosure. The mortgage loan was non-recourse. As a result of the transfer, the Company was discharged from the mortgage note payable.


(10)	The loan bears interest at LIBOR plus 2.25% and matures on March 1, 2017. At June 30, 2016 and December 31, 2015, the total interest rate was 3.35% and 3.30%, respectively.


(11)	The loan bears interest at LIBOR plus 2.30% and matures on October 28, 2016. At June 30, 2016 and December 31, 2015, the total interest rate was 2.27% and 2.17%, respectively.

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, 2016 and December 31, 2015, a total of $13,500 of the mortgage notes payable could become recourse to the Company.

The Company expects that all loan maturities during the next twelve months, except for the loan on Flagstaff Mall, will be refinanced, restructured, extended and/or paid-off from the Company's line of credit or with cash on hand. On July 15, 2016, the Company conveyed Flagstaff Mall to the mortgage lender by a deed-in-lieu of foreclosure. The mortgage loan was non-recourse. As a result of the transfer, the Company was discharged from the mortgage note payable.

Total interest expense capitalized was $2,562 and $3,837 during the three months ended June 30, 2016 and 2015, respectively, and $4,865 and $6,466 during the six months ended June 30, 2016 and 2015, respectively.

Table of Contents

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, 2016 and December 31, 2015 was $3,946,754 and $4,628,781, 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.


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 bore interest at LIBOR plus a spread of 1.38% to 2.0%, depending on the Company's overall leverage level, and was to mature on August 6, 2018. On July 6, 2016, the Company amended its line of credit. The amended $1,500,000 line of credit bears interest at LIBOR plus a spread of 1.30% to 1.90%, depending on the Company's overall leverage level, and matures on July 6, 2020 with a one-year extension option. The line of credit can be expanded, depending on certain conditions, up to a total facility of $2,000,000.

Based on the Company's leverage level as of June 30, 2016, the borrowing rate on the facility was LIBOR plus 1.50%. As of June 30, 2016 and December 31, 2015, borrowings under the line of credit, were $1,015,000 and $650,000, respectively, less unamortized deferred finance costs of $5,684 and $6,967, respectively, at a total interest rate of 2.13% and 1.95%, respectively. The estimated fair value (Level 2 measurement) of the line of credit at June 30, 2016 and December 31, 2015 was $1,012,106 and $640,260, 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 was to mature on March 29, 2016. The maturity date of the note has been extended to May 30, 2021. The note payable is collateralized by a portion of a development reimbursement agreement with the City of Surprise, Arizona. At June 30, 2016 and December 31, 2015, the note had a balance of $6,007 and $9,130, respectively. The estimated fair value (Level 2 measurement) of the note at June 30, 2016 and December 31, 2015 was $6,470 and $9,168, 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, 2016 and December 31, 2015, the Company was in compliance with all applicable financial loan covenants.


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 1,670,000 square foot regional shopping center in Freehold, New Jersey, and Chandler Fashion Center, a 1,319,000 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 $61,055 and $63,756 at June 30, 2016 and December 31, 2015, respectively.

Table of Contents

THE MACERICH COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

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 93% ownership interest in the Operating Partnership as of June 30, 2016 and December 31, 2015. The remaining 7% limited partnership interest as of June 30, 2016 and December 31, 2015 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, 2016 and December 31, 2015, the aggregate redemption value of the then-outstanding OP Units not owned by the Company was $887,777 and $870,625, 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.


12.	Stockholders' Equity:

Stock Buyback Program:

On September 30, 2015, the Company's Board of Directors authorized the repurchase of up to $1,200,000 of the Company's outstanding common shares over the period ending September 30, 2017, as market conditions warranted.

On November 12, 2015, the Company entered into an accelerated share repurchase program ("ASR") to repurchase $400,000 of the Company's common stock. In accordance with the ASR, the Company made a prepayment of $400,000 and received an initial share delivery of 4,140,788 shares. On January 19, 2016, the ASR was completed and the Company received delivery of an additional 970,609 shares. The average price of the 5,111,397 shares repurchased under the ASR was $78.26 per share. The ASR was funded from proceeds in connection with the financing and sale of the ownership interest in the PPR Portfolio (See Note 4—Investments in Unconsolidated Joint Ventures).

On February 17, 2016, the Company entered into an ASR to repurchase an additional $400,000 of the Company's common stock. In accordance with the ASR, the Company made a prepayment of $400,000 and received an initial share delivery of 4,222,193 shares. On April 19, 2016, the ASR was completed and the Company received delivery of an additional 861,235 shares. The average price of the 5,083,428 shares repurchased under the ASR was $78.69 per share. The ASR was funded from borrowings under the Company's line of credit, which had been recently paid down from the proceeds from the recently completed financings and sale of ownership interests (See Note 4—Investments in Unconsolidated Joint Ventures).

On May 9, 2016, the Company entered into an ASR to repurchase the remaining $400,000 of the Company's common stock authorized for repurchase. In accordance with the ASR, the Company made a prepayment of $400,000 and received an initial share delivery of 3,964,812 shares. On July 11, 2016, the ASR was completed and the Company received delivery of an additional 1,104,162 shares. The average price of the 5,068,974 shares repurchased under the ASR was $78.91 per share. The ASR was funded from borrowings under the Company's line of credit, which had been recently paid down from the proceeds from the recently completed financings and sale of ownership interests (See Note 4—Investments in Unconsolidated Joint Ventures).

Table of Contents

THE MACERICH COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

12. Stockholders' Equity: (Continued)

Special Dividends:

On October 30, 2015, the Company declared two special dividends/distributions ("Special Dividend"), each of $2.00 per share of common stock and per OP Unit. The first Special Dividend was paid on December 8, 2015 to common stockholders and OP Unit holders of record on November 12, 2015. The second Special Dividend was paid on January 6, 2016 to common stockholders and OP Unit holders of record on November 12, 2015. The Special Dividends were funded from proceeds in connection with the financing and sale of ownership interests in the PPR Portfolio and Arrowhead Towne Center (See Note 4—Investments in Unconsolidated Joint Ventures).

At-The-Market Stock Offering Program ("ATM Program"):

On August 20, 2014, the Company entered into an equity distribution agreement with a number of sales agents (the "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 “ATM Shares”). Sales of the ATM Shares can be 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 ATM Shares sold through such sales agent under the distribution agreement.

As of June 30, 2016, $500,000 of the ATM Shares were available to be sold under the ATM Program. Actual future sales of the ATM Shares under the 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 ATM Program.


13.	Acquisitions:

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 notes receivables of $14,120. 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, 2016 to be $26,370, which has been included in other accrued liabilities. As a result of this acquisition, the noncontrolling interest of $76,141 was reversed.

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

13. Acquisitions: (Continued)

The following is a summary of the allocation of the fair value of Inland Center:



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 Company determined that the purchase price represented the fair value of the additional ownership interest in Inland Center that was acquired.



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 following is the reconciliation of the purchase price to the 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.


14.	Dispositions:

The following are recent dispositions of properties:

On June 30, 2015, the Company conveyed Great Northern Mall, an 895,000 square foot regional shopping center in Clay, New York, to the mortgage lender by a deed-in-lieu of foreclosure and was discharged from the mortgage note payable. The loan was non-recourse to the Company. As a result, the Company recognized a loss on the extinguishment of debt of $1,627.

On November 19, 2015, the Company sold Panorama Mall, a 312,000 square foot community center in Panorama City, California, for $98,000, resulting in a gain on the sale of assets of $73,726. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.

On April 13, 2016, the Company sold Capitola Mall, a 586,000 square foot regional shopping center in Capitola, California, for $93,000, resulting in a gain on the sale of assets of $24,897. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.

On May 31, 2016, the Company sold a former Mervyn's store in Yuma, Arizona, for $3,200, resulting in a loss on the sale of assets of $3,058. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)


15.	Commitments and Contingencies:

The Company has certain properties that are subject to non-cancelable operating ground leases. The leases expire at various times through 2098, subject in some cases to options to extend the terms of the lease. Certain leases provide for contingent rent payments based on a percentage of base rental income, as defined in the lease. Ground lease rent expense was $2,406 and $2,966 for the three months ended June 30, 2016 and 2015, respectively, and $4,917 and $5,911 for the six months ended June 30, 2016 and 2015, respectively. No contingent rent was incurred during the three and six months ended June 30, 2016 or 2015.

As of June 30, 2016, the Company was contingently liable for $61,002 in letters of credit guaranteeing performance by the Company of certain obligations relating to the Centers. The Company does not believe that these letters of credit will result in a liability to the Company.

The Company has entered into a number of construction agreements related to its redevelopment and development activities. Obligations under these agreements are contingent upon the completion of the services within the guidelines specified in the agreements. At June 30, 2016, the Company had $45,616 in outstanding obligations which it believes will be settled in the next twelve months.


16.	Related Party Transactions:

Certain unconsolidated joint ventures have engaged the Management Companies to manage the operations of the Centers. Under these arrangements, the Management Companies are reimbursed for compensation paid to on-site employees, leasing agents and project managers at the Centers, as well as insurance costs and other administrative expenses.

The following are fees charged to unconsolidated joint ventures:



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2016		2015		2016		2015
Management fees	$	5,016	$	2,460	$	8,969	$	4,671
Development and leasing fees	4,236		1,588		7,197		3,480
	$	9,252	$	4,048	$	16,166	$	8,151

Certain mortgage notes on the properties are held by NML (See Note 8—Mortgage Notes Payable). Interest expense in connection with these notes was $2,256 and $2,709 for the three months ended June 30, 2016 and 2015, respectively, and $4,528 and $5,438 for the six months ended June 30, 2016 and 2015, respectively. Included in accounts payable and accrued expenses is interest payable on these notes of $747 and $756 at June 30, 2016 and December 31, 2015, respectively.

Due from affiliates includes prepaid and/or unreimbursed costs and fees from unconsolidated joint ventures due to the Management Companies. As of June 30, 2016 and December 31, 2015, the amounts due (from) to the unconsolidated joint ventures was $(3,648) and $7,467, respectively.

In addition, due from affiliates at June 30, 2016 and December 31, 2015 included a note receivable from RED/303 LLC ("RED") that bears interest at 5.25% and was to mature on May 30, 2016. The maturity date of the note has been extended to May 30, 2021. Interest income earned on this note was $97 and $131 for the three months ended June 30, 2016 and 2015, respectively, and $214 and $269 for the six months ended June 30, 2016 and 2015, respectively. The balance on this note was $6,008 and $9,252 at June 30, 2016 and December 31, 2015, respectively. RED is considered a related party because it is a partner in a joint venture development project. The note is collateralized by RED's membership interest in a development agreement.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

16. Related Party Transactions: (Continued)

Also included in due from affiliates is a note receivable from Lennar Corporation that bears interest at LIBOR plus 2% and matures upon the completion of certain milestones in connection with the development of Fashion Outlets of San Francisco. Interest income earned on this note was $525 and $450 for the three months ended June 30, 2016 and 2015, respectively, and $1,046 and $883 for the six months ended June 30, 2016 and 2015, respectively. The balance on this note was $68,255 and $67,209 at June 30, 2016 and December 31, 2015, respectively. Lennar Corporation is considered a related party because it has an ownership interest in Fashion Outlets of San Francisco.


17.	Share and Unit-Based Plans:

Under the Long-Term Incentive Plan ("LTIP"), each award recipient is issued a form of operating partnership units ("LTIP Units") in the Operating Partnership. Upon the occurrence of specified events and subject to the satisfaction of applicable vesting conditions, LTIP Units (after conversion into OP Units) are ultimately redeemable for common stock of the Company, or cash at the Company's option, on a one-unit for one-share basis. LTIP Units receive cash dividends based on the dividend amount paid on the common stock of the Company. The LTIP may include both market-indexed awards and service-based awards. The market-indexed LTIP Units vest over the service period of the award based on the percentile ranking of the Company in terms of total return to the stockholders (the "Total Return") per common stock share relative to the Total Return of a group of peer REITs, as measured at the end of the measurement period.

On January 1, 2016, the Company granted 58,786 LTIP Units with a grant date fair value of $80.69 per LTIP Unit that will vest in equal annual installments over a service period ending December 31, 2018. Concurrently, the Company granted 266,899 market-indexed LTIP Units ("2016 LTIP Units") at a grant date fair value of $53.32 per LTIP Unit that vest over a service period ending December 31, 2018. The fair value of the 2016 LTIP Units was estimated on the date of grant using a Monte Carlo Simulation model that assumed a risk free interest rate of 1.32% and an expected volatility of 20.31%.

On March 4, 2016, the Company granted 154,686 LTIP Units at a fair value of $79.20 per LTIP Unit that were fully vested on the grant date.

The following summarizes the compensation cost under the share and unit-based plans:



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2016		2015		2016		2015
LTIP Units	$	5,149	$	3,770	$	22,548	$	18,998
Stock awards	—		122		20		197
Stock units	1,002		1,136		4,374		4,333
Stock options	4		4		8		8
Phantom stock units	194		268		798		579
	$	6,349	$	5,300	$	27,748	$	24,115

The Company capitalized share and unit-based compensation costs of $781 and $561 for the three months ended June 30, 2016 and 2015, respectively, and $5,740 and $4,908 for the six months ended June 30, 2016 and 2015, respectively. Unrecognized compensation costs of share and unit-based plans at June 30, 2016 consisted of $12,807 from LTIP Units, $5,648 from stock units, $19 from stock options and $631 from phantom stock units.

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THE MACERICH COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

17. Share and Unit-Based Plans: (Continued)

The following table summarizes the activity of the non-vested LTIP Units, stock awards, phantom stock units and stock units:



	LTIP Units				Stock Awards				Phantom Stock Units				Stock Units
	Units		Value(1)		Shares		Value(1)		Units		Value(1)		Units		Value(1)
Balance at January 1, 2016	56,315		$	73.24	1,612		$	62.01	—		$	—	132,086		$	74.58
Granted	480,371		65.00		—		—		17,578		80.39		85,221		79.24
Vested	(154,686	)	79.20		(1,612	)	62.01		(9,714	)	80.54		(68,879	)	71.81
Forfeited	—		—		—		—		—		—		—		—
Balance at June 30, 2016	382,000		$	60.47	—		$	—	7,864		$	80.20	148,428		$	78.53

(1) Value represents the weighted average grant date fair value.

The following table summarizes the activity of the stock appreciations rights ("SARs") and stock options outstanding: