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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part II
 
Other Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2

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.

3

Table of Contents

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.

4

Table of Contents

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.

5

Table of Contents

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
)
 
 
 
 

6

Table of Contents

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.

7

Table of Contents

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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Table of Contents
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.

9

Table of Contents
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.

10

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:
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 13Acquisitions).
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 12Stockholders' 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 12Stockholders' 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.

11

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 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.

12

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



13

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.

14

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 14Dispositions).
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 4Investments in Unconsolidated Joint Ventures) and $340,745 on the sale of a 49% ownership interest in the MAC Heitman Portfolio (See Note 4Investments 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.

15

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.

16

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

 
 

 
 

 
 


17

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 4Investments 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 10Co-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 4Investments 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.

18

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 16Related 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.

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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 4Investments 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 4Investments 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 4Investments in Unconsolidated Joint Ventures).

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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 4Investments 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 4Investments 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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THE MACERICH COMPANY
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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THE MACERICH COMPANY
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 8Mortgage 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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THE MACERICH COMPANY
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: