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10-K/A
MACERICH CO filed this Form 10-K/A on 04/30/2018
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EX-99.1

Exhibit 99.1

RECONCILIATION OF NON-GAAP MEASURES

Funds From Operations (“FFO”)

Our Company uses FFO in addition to net income to report our 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 extraordinary items and sales of depreciated operating 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. Adjustments for unconsolidated joint ventures are calculated to reflect FFO on the same basis. Our Company also presents FFO excluding early extinguishment of debt, net and costs related to unsolicited takeover offer.

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 our Company believes real estate values fluctuate based on market conditions rather than depreciating in value ratably on a straight-line basis over time. Our Company believes that such a presentation also provides investors with a more meaningful measure of our operating results in comparison to the operating results of other REITs. Our Company believes that FFO excluding early extinguishment of debt, net and costs related to unsolicited takeover offer provides useful supplemental information regarding our Company’s performance as it shows a more meaningful and consistent comparison of our Company’s operating performance and allows investors to more easily compare our Company’s results. Our Company believes that FFO on a diluted basis is a measure investors find most useful in measuring the dilutive impact of outstanding convertible securities.

Our Company believes that FFO does not represent cash flow from operations as defined by GAAP, should not be considered as an alternative to net income as defined by GAAP, and is not indicative of cash available to fund all cash flow needs. Our Company also cautions that FFO, as presented, may not be comparable to similarly titled measures reported by other real estate investment trusts.

Management compensates for the limitations of FFO by providing investors with financial statements prepared according to GAAP, along with this detailed discussion of FFO and a reconciliation of FFO and FFO-diluted to net income available to common stockholders. Management believes that to further understand our Company’s performance, FFO should be compared with our Company’s reported net income, as presented in our Company’s consolidated financial statements. See our Company’s Annual Report on Form 10-K for the year ended December 31, 2017.


The following reconciles net income attributable to our Company to FFO and FFO-diluted for the years ended December 31, 2017, 2016, 2015 and 2014 (dollars and shares in thousands):

 

     2017      2016      2015      2014  

Net income attributable to our Company

   $ 146,130      $ 516,995      $ 487,562      $ 1,499,042  

Adjustments to reconcile net income attributable to our Company to FFO—basic:

           

Noncontrolling interests in the Operating Partnership

     10,729        37,780        32,615        105,584  

Gain on sale or write down of consolidated assets, net

     (42,446      (415,348      (378,248      (73,440

Gain on remeasurement of consolidated assets

     —          —          (22,089      (1,423,136

Add: gain on undepreciated assets—consolidated assets

     1,564        3,717        1,326        1,396  

Less: loss on write-down of non-real estate assets—consolidated assets

     (10,138      —          —          —    

Add: noncontrolling interests share of gain (loss) on sale or write-down of assets—consolidated assets

     1,209        (1,662      481        146  

(Gain) loss on sale or write down of assets—unconsolidated joint ventures(1)

     (14,783      189        (4,392      1,237  

Add: gain (loss) on sale of undepreciated assets—unconsolidated joint ventures(1)

     6,644        (2      4,395        2,621  

Depreciation and amortization on consolidated assets

     335,431        348,488        464,472        378,716  

Less: noncontrolling interests in depreciation and amortization—consolidated assets

     (15,126      (15,023      (14,962      (20,700

Depreciation and amortization—unconsolidated joint ventures(1)

     177,274        179,600        84,160        82,570  

Less: depreciation on personal property

     (13,610      (12,430      (13,052      (11,282
  

 

 

    

 

 

    

 

 

    

 

 

 

FFO attributable to common stockholders and unit holders—basic and diluted

     582,878        642,304        642,268        542,754  

(Gain) loss on extinguishment of debt, net—consolidated assets

     —          (1,709      (1,487      9,551  
  

 

 

    

 

 

    

 

 

    

 

 

 

FFO attributable to common stockholders and unit holders excluding extinguishment of debt, net—diluted

     582,878        640,595        640,781        552,305  

Costs related to unsolicited takeover offer

     —          —          25,204        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

FFO attributable to common stockholders and unit holders excluding extinguishment of debt, net and costs related to unsolicited takeover offer—diluted

   $ 582,878      $ 640,595      $ 665,985      $ 552,305  
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average number of FFO shares outstanding for:

           

FFO attributable to common stockholders and unit holders—basic(2)

     152,293        157,320        168,478        153,224  

Adjustments for the impact of dilutive securities in computing FFO—diluted:

           

Share and unit-based compensation plans

     36        112        144        147  
  

 

 

    

 

 

    

 

 

    

 

 

 

FFO attributable to common stockholders and unit holders—diluted(3)

     152,329        157,432        168,622        153,371  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Unconsolidated assets are presented at our Company’s pro rata share.
(2) Calculated based upon basic net income as adjusted to reach basic FFO. During the years ended December 31, 2017, 2016, 2015 and 2014, there were 10.4 million, 10.7 million, 10.6 million and 10.1 million OP Units outstanding, respectively.
(3) The computation of FFO-diluted shares outstanding includes the effect of share and unit-based compensation plans and the senior notes using the treasury stock method. It also assumes the conversion of MACWH, LP common and preferred units to the extent that they are dilutive to the FFO-diluted computation.


The following reconciles net income per share attributable to common stockholders-diluted to FFO per share-diluted for the years ended December 31, 2017, 2016, 2015 and 2014:

 

     2017      2016      2015      2014  

Net income per share attributable to common stockholders—diluted

   $ 1.02      $ 3.52      $ 3.08      $ 10.45  

Per share impact of depreciation and amortization of real estate

     3.19        3.18        3.09        2.81  

Per share impact of gain on remeasurement, sale or write down of assets, net

     (0.38      (2.62      (2.36      (9.72
  

 

 

    

 

 

    

 

 

    

 

 

 

FFO per share—diluted

     3.83        4.08        3.81        3.54  

Per share impact of (gain) loss on early extinguishment of debt, net

     —          (0.01      (0.01      0.06  

Per share impact of costs related to unsolicited takeover offer

     —          —          0.15        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

FFO per share excluding early extinguishment of debt, net and costs related to unsolicited takeover offer—diluted

   $ 3.83      $ 4.07      $ 3.95      $ 3.60  
  

 

 

    

 

 

    

 

 

    

 

 

 


Adjusted EBITDA, Net Operating Income (“NOI”) and NOISame Centers

Adjusted EBITDA represents earnings before interest, income taxes, depreciation, amortization, noncontrolling interests in the Operating Partnership, extraordinary items, loss (gain) on remeasurement, sale or write down of assets, loss (gain) on extinguishment of debt and preferred dividends and includes joint ventures at their pro rata share. Management considers Adjusted EBITDA to be an appropriate supplemental measure to net income because it helps investors understand the ability of our Company to incur and service debt and make capital expenditures. Our Company believes that Adjusted EBITDA should not be construed as an alternative to operating income as an indicator of our Company’s operating performance, or to cash flows from operating activities (as determined in accordance with GAAP) or as a measure of liquidity. Our Company also cautions that Adjusted EBITDA, as presented, may not be comparable to similarly titled measurements reported by other companies.

Our Company presents Same Center NOI because we believe it is useful for investors to evaluate the operating performance of comparable centers. Same Center NOI is calculated using total Adjusted EBITDA and eliminating the impact of the management companies’ revenues and operating expenses, our general and administrative expenses, costs related to unsolicited takeover offer and the straight-line and above/below market adjustments to minimum rents and subtracting out NOI from Non-Same Centers.

The changes in Same Center NOI is calculated by dividing the change in NOI year-over-year by the preceding period’s NOI based on the Same Center population for the year most recently presented. For purposes of the comparison, our Company defines Same Centers as those Centers that are substantially complete and in operation for the entirety of both periods of the comparison. Non-Same Centers for comparison purposes, include those Centers or properties that are going through a substantial redevelopment, those properties that have recently transitioned to or from equity method joint ventures to consolidated assets, properties recently acquired and properties that have been disposed of. Our Company moves a Center in and out of Same Centers based on whether the Center is substantially complete and in operation for the entirety of both periods of the comparison. Accordingly, the adjustments reflect movement of Centers in and out of Same Centers for periods of comparison.


The following reconciles net income attributable to our Company to Adjusted EBITDA, NOI and NOI—Same Centers for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 (dollars in thousands).

 

     2017     2016     2015     2014  

Net income attributable to our Company

   $ 146,130     $ 516,995     $ 487,562     $ 1,499,042  

Interest expense

     263,382       251,618       242,126       241,400  

Depreciation and amortization

     497,579       513,065       533,670       440,586  

Noncontrolling interests in the Operating Partnership

     10,729       37,780       32,615       105,584  

(Gain) loss on extinguishment of debt, net

     —         (1,709     (1,487     9,551  

Gain on remeasurement, sale or write down of assets, net

     (56,020     (416,821     (404,248     (1,495,193

Income tax expense (benefit)

     15,594       722       (3,223     (4,269

Distributions on preferred units

     387       575       1,174       710  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     877,781       902,225       888,189       797,411  

REIT general and administrative expenses

     28,240       28,217       29,870       29,412  

Costs related to unsolicited takeover offer

     —         —         25,204       —    

Management Companies’ revenues

     (43,394     (39,464     (26,254     (33,981

Management Companies’ operating expenses

     100,121       98,323       92,340       88,424  

Straight-line and above/below market adjustments

     (29,531     (38,309     (27,950     (18,357
  

 

 

   

 

 

   

 

 

   

 

 

 

NOI—All Centers

     933,217       950,992       981,399       862,909  

NOI of Non-Same Centers

     (57,606     (91,150     (81,708     (93,826
  

 

 

   

 

 

   

 

 

   

 

 

 

NOI—Same Centers

   $ 875,611     $ 859,842     $ 899,691     $ 769,083  
  

 

 

   

 

 

   

 

 

   

 

 

 
     2016     2015     2014     2013  

Net income attributable to our Company

   $ 516,995     $ 487,562     $ 1,499,042     $ 420,090  

Interest expense

     251,618       242,126       241,400       269,542  

Depreciation and amortization

     513,065       533,670       440,586       441,363  

Noncontrolling interests in the Operating Partnership

     37,780       32,615       105,584       29,637  

(Gain) loss on extinguishment of debt, net

     (1,709     (1,487     9,551       (3,036

Gain on remeasurement, sale or write down of assets, net

     (416,821     (404,248     (1,495,193     (354,764

Income tax expense (benefit)

     722       (3,223     (4,269     (1,692

Distributions on preferred units

     575       1,174       710       735  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     902,225       888,189       797,411       801,875  

REIT general and administrative expenses

     28,217       29,870       29,412       27,772  

Costs related to unsolicited takeover offer

     —         25,204       —         —    

Management Companies’ revenues

     (39,464     (26,254     (33,981     (40,192

Management Companies’ operating expenses

     98,323       92,340       88,424       93,461  

Straight-line and above/below market adjustments

     (38,309     (27,950     (18,357     (16,780
  

 

 

   

 

 

   

 

 

   

 

 

 

NOI—All Centers

     950,992       981,399       862,909       866,136  

NOI of Non-Same Centers

     (98,657     (162,204     (17,982     (128,353
  

 

 

   

 

 

   

 

 

   

 

 

 

NOI—Same Centers

   $ 852,335     $ 819,195     $ 844,927     $ 737,783  
  

 

 

   

 

 

   

 

 

   

 

 

 

NOI—Same Centers Percentage Change

     2.73     4.96     6.48     4.24