THE MACERICH COMPANY
THOUSANDS, EXCEPT PER SHARE AMOUNTS)
On January 1, 2018, in accordance with the adoption of ASC Topic 606, Revenue from Contracts with
Customers (ASC 606), the Company changed its accounting for its investment in the Chandler Fashion Center and Freehold Raceway Mall (Chandler Freehold) joint venture from a co-venture
arrangement to a financing arrangement. As a result, the Company has included in interest expense (i) a credit of $5,946 and $15,225 to adjust for the reduction of the fair value of the financing arrangement obligation during the three and
twelve months ended December 31, 2018, respectively, (ii) distributions of $2,502 and $9,079 to its partner representing the partners share of net income for the three and twelve months ended December 31, 2018, respectively, and
(iii) distributions of $1,573 and $6,376 to its partner in excess of the partners share of net income for the three and twelve months ended December 31, 2018, respectively.
The Macerich Partnership, L.P. (the Operating Partnership or the OP) has operating
partnership units (OP units). OP units can be converted into shares of Company common stock. Conversion of the OP units not owned by the Company has been assumed for purposes of calculating FFO per share and the weighted average number
of shares outstanding. The computation of average shares for FFOdiluted includes the effect of share and unit-based compensation plans, stock warrants and convertible senior notes using the treasury stock method. It also assumes conversion of
MACWH, LP preferred and common units to the extent they are dilutive to the calculation.
The Company uses FFO in addition to net income to report its operating and financial results and considers FFO
and FFO-diluted as supplemental measures for the real estate industry and a supplement to Generally Accepted Accounting Principles (GAAP) measures. The National Association of Real Estate
Investment Trusts (Nareit) defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales of properties, plus real estate related depreciation and amortization, impairment write-downs of real
estate and write-downs of investments in an affiliate where the write-downs have been driven by a decrease in the value of real estate held by the affiliate and after adjustments for unconsolidated joint ventures. As a result of changes in
accounting standards effective January 1, 2018 (ASC 606), the Company began treating its joint venture in Chandler Freehold as a financing arrangement for accounting purposes. In connection with this treatment, the Company recognizes financing
expense on (i) the changes in fair value of the financing arrangement, (ii) any payments to such joint venture partner equal to their pro rata share of net income and (iii) any payments to such joint venture partner less than or in excess
of their pro rata share of net income. The Company excludes from its definition of FFO the noted expenses related to the changes in fair value and for the payments to such joint venture partner less than or in excess of their pro rata share of net
income. Although the Nareit definition of FFO predates this guidance for accounting for financing arrangements, the Company believes that excluding the noted expenses resulting from the financing arrangement is consistent with the key objective of
FFO as a performance measure and it allows the Companys current FFO to be comparable with the Companys FFO from prior quarters. Adjustments for unconsolidated joint ventures are calculated to reflect FFO on the same basis. The Company
also presents FFO excluding costs related to shareholder activism.
FFO and FFO on a diluted basis are useful to
investors in comparing operating and financial results between periods. This is especially true since FFO excludes real estate depreciation and amortization, as the Company believes real estate values fluctuate based on market conditions rather than
depreciating in value ratably on a straight-line basis over time. The Company believes that such a presentation also provides investors with a more meaningful measure of its operating results in comparison to the operating results of other real
estate investment trusts (REITs). In addition, the Company believes that FFO excluding non-routine costs related to shareholder activism provides useful supplemental information regarding the
Companys performance as it shows a more meaningful and consistent comparison of the Companys operating performance and allows investors to more easily compare the Companys results. The Company believes that FFO on a diluted basis
is a measure investors find most useful in measuring the dilutive impact of outstanding convertible securities.
The Company further
believes that FFO does not represent cash flow from operations as defined by GAAP, should not be considered as an alternative to net income (loss) as defined by GAAP, and is not indicative of cash available to fund all cash flow needs. The Company
also cautions that FFO as presented, may not be comparable to similarly titled measures reported by other REITs.