SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1997 COMMISSION FILE NO. 1-12504
THE MACERICH COMPANY
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(Exact name of registrant as specified in its charter)
MARYLAND 95-4448705
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(State or other jurisdiction of (I.R.S. Employer
incorporationor organization) Identification Number)
233 Wilshire Boulevard, Suite 700, Santa Monica, CA 90401
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(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code (310) 394-5333
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N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Number of shares outstanding of each of the registrant's classes of
common stock, as of May 7, 1997.
Common stock, par value $.01 per share: 25,889,500
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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 such shorter period that the Registrant was required to
file such report) and (2) has been subject to such filing
requirements for the past ninety (90) days.
YES X NO
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The Macerich Company
Form 10Q
INDEX
Page
Part I: Financial Information
Item 1. Financial Statements
Consolidated balance sheets of The Company
as of March 31, 1997 and December 31, 1996. 1
Consolidated statements of operations of
The Company for the periods from January 1
through March 31, 1997 and 1996. 2
Consolidated statements of cash flows
of The Company for the periods from January 1
through March 31, 1997 and 1996. 3
Notes to condensed consolidated financial
statements 4 to 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12 to 16
Part II: Other Information 17
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THE MACERICH COMPANY (The Company)
CONSOLIDATED BALANCE SHEETS OF THE COMPANY
(Dollars in thousands)
March 31, December 31,
1997 1996
(Unaudited)
ASSETS:
Property, net $1,204,270 $1,108,668
Cash and cash equivalents 9,628 15,643
Tenant receivables, including accrued
overage rents of $2,795 in 1997
and $3,805 in 1996 18,864 23,192
Due from affiliates 3,756 3,105
Deferred charges and other assets, net 20,938 20,716
Investment in joint ventures and
the Management Companies 16,457 16,429
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Total assets $1,273,913 $1,187,753
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LIABILITIES AND STOCKHOLDERS' EQUITY:
Mortgage notes payable:
Related parties $135,773 $135,944
Others 676,833 584,295
Total 812,606 720,239
Bank notes payable 69,000 69,000
Accounts payable 987 4,197
Accrued interest expense 3,937 3,584
Accrued real estate taxes and
ground rent expense 7,573 7,616
Due to affiliates - 430
Deferred acquisition liability 5,000 5,000
Other accrued liabilities 31,164 27,696
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Total liabilities 930,267 837,762
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Minority interest in Operating Partnership 110,083 112,242
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Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred stock, $.01 par value,
10,000,000 shares authorized -
none issued - -
Common stock, $.01 par value,
100,000,000 shares authorized,
25,890,000 and 25,743,000 shares
issued and outstanding at
March 31, 1997 and
December 31, 1996, respectively 257 257
Additional paid in capital 235,982 238,346
Accumulated earnings - -
Unamortized restricted stock (2,676) (854)
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Total stockholders' equity 233,563 237,749
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Total liabilities
and stockholders' equity $1,273,913 $1,187,753
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The accompanying notes are an integral part of these financial
statements.
1
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THE MACERICH COMPANY (The Company)
CONSOLIDATED STATEMENTS OF OPERATIONS OF THE COMPANY
(Unaudited)
(Dollars in thousands, except per share amounts)
January 1 to March 31
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1997 1996
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(Dollars in thousands,
except share amounts)
REVENUES:
Minimum rents $32,053 $22,638
Percentage rents 2,206 1,570
Tenant recoveries 14,917 10,524
Other 1,126 561
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Total Revenues $50,302 $35,293
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OPERATING COSTS:
Shopping center expenses 15,761 11,028
General and administrative
expense 750 789
Interest expense:
Related parties 2,490 2,726
Others 12,276 7,115
Depreciation and amortization 9,474 7,751
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Total Expenses 40,751 29,409
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Equity in income of unconsolidated
joint ventures and the
management companies 368 1,181
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Income of the Operating Partnership 9,919 7,065
Less minority interest in net income
of the Operating Partnership 3,168 2,664
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Net income $6,751 $4,401
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Net income per common share $0.26 $0.22
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Dividend/distribution paid per
common share outstanding $0.44 $0.42
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Weighted average number of
common shares outstanding 25,799,000 19,978,000
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Weighted average number of
Operating Units outstanding 37,904,000 32,073,000
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The accompanying notes are an integral part of these financial
statements.
2
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THE MACERICH COMPANY (The Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
January 1 to March 31,
1997 1996
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Cash flows from operating activities:
Net income $6,751 $4,401
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Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 9,474 7,751
Amortization of discount on
trust deed note payable 8 165
Minority interest in the income
of the Operating Partnership 3,168 2,664
Changes in assets and liabilities:
Tenant receivables, net 4,328 (590)
Other assets 515 1,879
Accounts payable and
accrued expenses (2,900) (219)
Due to affiliates (1,081) (76)
Other liabilities 3,468 (60)
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Total adjustments 16,980 11,514
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Net cash provided by
operating activities 23,731 15,915
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Cash flows from investing activities:
Acquisitions of property
and improvements (56,750) (61,714)
Renovations and expansions of centers (551) (466)
Additions to tenant improvements (440) (111)
Deferred charges (1,872) (1,313)
Equity in income of unconsolidated
joint ventures and the
management companies (368) (1,181)
Distributions from joint ventures 340 225
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Net cash used in investing activites (59,641) (64,560)
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Cash flows from financing activities:
Proceeds from notes and
mortgages payable 47,000 56,000
Payments on mortgages and
notes payable (843) (789)
Distributions to partners (16,262) (13,316)
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Net cash provided by
financing activities 29,895 41,895
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Net decrease in cash (6,015) (6,750)
Cash and cash equivalents,
beginning of period 15,643 15,570
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Cash and cash equivalents, end of period $9,628 $8,820
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Supplemental cash flow information:
Cash payment for interest $14,405 $9,167
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Non cash transactions:
Acquisition of property by
assumption of debt $46,202 $22,365
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Acquisition of property by
issuance of OP units $0 $600
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The accompanying notes are an integral part of these financial
statements.
3
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THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
1. Interim Financial Statements and Basis of Presentation:
The accompanying consolidated financial statements of The
Macerich Company have been prepared in accordance with
generally accepted accounting principles ("GAAP") for interim
financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements and have not been audited by independent public
accountants.
The unaudited interim financial statements should be read in
conjunction with the audited financial statements and related
notes included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996. In the opinion of
management, all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the financial
statements for the interim periods have been made. The results
for interim periods are not necessarily indicative of the
results to be expected for a full year. The accompanying
consolidated balance sheet as of December 31, 1996 has been
derived from audited financial statements but does not include
all disclosures required by GAAP.
Certain reclassifications have been made in the 1996 financial
statements to conform to the 1997 financial statement
presentation.
The computation of primary earnings per share is based on net
income and the weighted average number of shares outstanding
for the periods presented. Outstanding common stock options,
using the treasury method, have less than a 3% dilutive effect
on earnings per share and thus have not been included in the
computation. The computation of fully diluted earnings per
share is less than 3% dilutive and has not been presented.
2. Organization:
The Macerich Company (the "Company") was incorporated under
the General Corporation Law of Maryland on September 9, 1993
and commenced operations effective with the completion of its
initial public offering ("IPO") on March 16, 1994. The
Company was formed to continue the business of the Macerich
Group, which since 1972 has focused on the acquisition,
ownership, redevelopment, management and leasing of regional
shopping centers located throughout the United States. In
1994, the Company became the sole general partner of The
Macerich Partnership L.P., (the "Operating Partnership").
The Operating Partnership owns or has an ownership interest in
24 regional shopping centers and three community shopping
centers, including one that was acquired in 1997. Collectively
these properties and interests are referred to as the
"Centers". The Company conducts all of its operations
through the Operating Partnership and other wholly owned
subsidiaries, and the Company's two Management Companies,
Macerich Property Management Company and Macerich Management
Company, collectively referred to as "the Management
Companies".
The Company is a real estate investment trust under the
Internal Revenue Code of 1986, as amended, owns approximately
68% of The Operating Partnership and is the sole General
Partner. The limited partnership interest not owned by the
Company is reflected in these financial statements as Minority
Interest.
3. Investments in Unconsolidated Joint Ventures and the Management
Companies
The following are the Company's investments in various real
estate joint ventures, which own regional retail shopping
centers. The Operating Partnership is a general partner in these
joint ventures. The Operating Partnership's interest in each
joint venture is as follows:
The Operating Partnership's
Joint Venture Ownership %
Macerich Northwestern Associates 50%
North Valley Plaza Associates 50%
Panorama City Associates 50%
West Acres Development 19%
The non-voting preferred stock of the Management Companies is
owned by the Operating Partnership, which provides the Operating
Partnership the right to receive 95% of the distributable cash
flow from the Management Companies. The Company accounts for the
Management Companies using the equity method of accounting.
Combined and condensed balance sheets and statements of
operations are presented below for all unconsolidated joint
ventures, and the Management Companies, followed by information
regarding the Operating Partnership's beneficial interest in the
combined operations. Beneficial interest is calculated based on
the Operating Partnership's ownership interests in the joint
ventures and the Management Companies.
4
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
COMBINED AND CONDENSED BALANCE SHEETS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
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March 31, December 31,
1997 1996
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Assets:
Properties, net $106,364 $106,751
Other assets 12,607 13,257
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Total assets $118,971 $120,008
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Liabilities and partners' capital:
Mortgage notes payable $ 84,766 $ 81,925
Other liabilities 6,922 11,116
The Company's capital 16,457 16,429
Outside Partners' capital 10,826 10,538
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Total liabilities and
partners' capital $118,971 $120,008
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5
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THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
3. Investments in Unconsolidated Joint Ventures and the Management
Companies - Continued
COMBINED STATEMENTS OF OPERATIONS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
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From January 1, From January 1,
to to
March 31, 1997 March 31, 1996
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Revenues $7,868 $8,233
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Expenses:
Shopping center expenses 2,604 2,294
Interest 1,562 1,600
Management company expense 1,022 959
Depreciation and
amortization 1,120 1,120
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Total operating costs 6,308 5,973
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Gain on sale of land 7 177
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Net income $1,567 $2,437
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Significant accounting policies used by the unconsolidated joint ventures
and the Management Companies are similar to those used by the Company.
Included in mortgage notes payable are amounts due to related parties of
$43,500 at March 31, 1997 and December 31, 1996. Interest expense incurred
on these borrowings amounted to $733 for the three months ended March 31,
1997 and $740 for the three months ended March 31, 1996.
The following table sets forth the Operating Partnership's beneficial
interest in the joint ventures:
PRO RATA SHARE OF COMBINED AND CONDENSED STATEMENT OF
OPERATIONS OF JOINT VENTURES AND THE MANAGEMENT COMPANIES
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From January 1 From January 1
to to
March 31, 1997 March 31, 1996
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Revenues $3,409 $3,943
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Expenses:
Shopping center expenses 1,011 785
Interest 508 533
Management company expense 971 911
Depreciation and amortization 552 567
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Total operating costs 3,042 2,796
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Gain on sale of land 1 34
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Net income $368 $1,181
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6
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THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
4. Property:
Property is comprised of the following:
March 31, December 31,
1997 1996
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Land $262,464 $239,847
Building Improvements 1,070,269 990,125
Tenant Improvements 34,589 34,149
Equipment & Furnishings 4,960 4,769
Construction in Progress 4,746 4,195
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1,377,028 1,273,085
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Less, accumulated depreciation (172,758) (164,417)
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$1,204,270 $1,108,668
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5. Deferred Charges and Other Assets:
Deferred charges and other assets, including deferred leasing and financing
costs are:
March 31, December 31,
1997 1996
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Leasing $25,789 $25,629
Financing 8,490 7,891
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34,279 33,520
Less, accumulated amortization (15,456) (15,434)
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18,823 18,086
Other assets 2,115 2,630
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Total $20,938 $20,716
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7
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THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
6. Mortgage Notes Payable:
Mortgage notes payable at March 31, 1997 and December 31, 1996
consists of the following:
Carrying Amount of Notes
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1997 1996
Property Pledged Related Related Interest Payment Maturity
As Collateral Other Party Other Party Rate Terms Date
- ---------------- ----- ------ ----- ------- ------- ------- --------
Capitola Mall ---- $37,893 ---- $37,976 9.25% 316 (d) 2001
Chesterfield
Towne Center $66,099 ---- ---- ---- 9.10% 548(e) 2024
Chesterfield
Towne Center ---- ---- $59,023 ---- 8.75% 475(e) 2024
Chesterfield
Towne Center ---- ---- 5,304 ---- 9.38% 43(e) 2024
Chesterfield
Towne Center ---- ---- 1,922 ---- 8.88% 16(e) 2024
Chesterfield
Towne Center 3,424 ---- 3,444 ---- 8.54% 28(d) 1999
Crossroads Mall (a) ---- $35,880 ---- 35,968 7.08% 244(d) 2010
Fresno Fashion Fair38,000 ---- 38,000 ---- 8.40% interest only 2005
Greeley Mall 18,344 ---- 18,514 ---- 8.50% 187(d) 2003
Green Tree Mall/
Crossroads - OK/
Salisbury (b)117,714 ---- 117,714 ---- 7.23% interest only 2004
Holiday Village ---- 17,000 ---- 17,000 6.75% interest only 2001
Lakewood Mall (c) 127,000 ---- 127,000 ---- 7.20% interest only 2005
Northgate Mall ---- 25,000 ---- 25,000 6.75% interest only 2001
Parklane Mall ---- 20,000 ---- 20,000 6.75% interest only 2001
Queens Center 65,100 ---- 65,100 ---- (f) interest only 1999
Rimrock Mall 31,878 ---- 31,994 ---- 7.70% 244(d) 2003
South Towne Center 46,202 ---- ---- ---- (g) interest only 1998
Valley View Mall 60,000 ---- 60,000 ---- (h) interest only (h)
Villa Marina
Marketplace 47,000 ---- ---- ---- (i) interest only (i)
Vintage
Faire Mall (j) 56,072 ---- 56,280 ---- 7.65% 427(d) 2003
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Total $676,833 $135,773 $584,295 $135,944
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Weighted average interest rate at March 31, 1997 7.47%
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Weighted average interest rate at December 31, 1996 7.45%
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Notes:
(a) This note was issued at a discount. The discount is
being amortized over the life of the loan using the
effective interest method. At March 31, 1997 and
December 31, 1996 the unamortized discount was $454
and $463, respectively.
(b) This loan is cross collateralized by Green Tree Mall,
Crossroads Mall, Oklahoma and Salisbury.
(c) On August 15, 1995 the Company issued $127,000 of
collateralized floating rate notes (the "Notes"). The
Notes bear interest at an average fixed rate of 7.20% and
mature in July 2005.
8
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THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
6. Mortgage Notes Payable, Continued:
The Note requires the Company to deposit all cash flow from
the property operations with a trustee to meet its obligations
under the Notes. Cash in excess of the required amount, as
defined, is released. Included in cash and cash equivalents
is $750 of restricted cash deposited with the trustee at March
31, 1997 and at December 31, 1996.
(d) This represents the monthly payment of principal and interest.
(e) This amount represents the monthly payment of principal and
interest. In addition, contingent interest, as defined in the
loan agreement, may be due to the extent that 35% of the
amount by which the property's gross receipts (as defined in
the loan agreement) exceeds a base amount specified therein.
Contingent interest expense recognized by the Company was $74
for the period ended March 31, 1997 and $64 for the three
months ended March 31, 1996. As of January 1, 1997 all these
loans were consolidated into a new loan of $66,200 at an
interest rate of 9.1%.
(f) This loan bears interest at LIBOR plus 0.45%. There is an
interest rate protection agreement in place on the first
$10,200 of this debt with a LIBOR ceiling of 5.88% through
maturity with the remaining principal having an interest rate
cap with a LIBOR ceiling at 7.07% through 1997 and 7.7%
thereafter.
(g) This loan bears interest at LIBOR plus 1.75% and the loan can
be increased to $47,000.
(h) As of March 31, 1997 this loan bore interest at LIBOR plus
1.50%; however, on April 16, 1997 the Company converted this
into a fixed rate loan bearing interest at 7.89% and maturing
in October 2006.
(i) This loan bears interest at LIBOR plus 1.25% (7.00% at March
31, 1997) and matures in March, 1998; however, at any time
prior to maturity the Company can elect to fix the interest
rate and extend the maturity up to 10 years.
(j) Included in cash and cash equivalents is $3,025 at March 31,
1997 and December 31, 1996, of cash restricted under the terms
of this loan agreement.
Certain mortgage loan agreements contain a prepayment penalty
provision for the early extinguishment of the debt.
The market value of notes payable at March 31, 1997 and December 31,
1996 is estimated to be approximately $796,000 and $733,000,
respectively, based on current interest rates for comparable loans.
7. Notes Payable:
The Company has a $50,000 unsecured line of credit with a bank. The
line of credit bears interest at LIBOR plus 1.625% and matures in
June 1997. There was a $12,000 balance outstanding on the line of
credit at March 31, 1997 and $12,000 at December 31, 1996. Also, at
March 31, 1997 there was a $57,000 unsecured note bearing interest
at LIBOR plus 1.625%, which matures December 31, 1997.
9
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THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
8. Related-Party Transactions:
The Company engaged The Management Companies to manage the
operations of the unconsolidated joint ventures and other affiliated
shopping centers. The Management Companies are reflected under the
equity method of accounting for investments.
Certain mortgage notes were held by outside partners of the
individual Macerich Group partnerships. Interest expense in
connection with these notes was $2,490 and $2,726 for the three
months ended March 31, 1997 and for 1996, respectively. Included in
accrued interest expense is interest payable to these partners of
$516 at March 31, 1997 and December 31, 1996.
9. Commitments and Contingencies:
Certain partnerships have entered into noncancellable operating
ground leases. The leases expire at various times through 2060,
subject in some cases to options to extend the terms of the lease.
Certain leases provide for contingent rent payments based on a
percent of base rent income, as defined. Ground rent expenses were
$171, including contingent rents of $0, for the three months ended
March 31, 1997, and $188 for the three months ended March 31, 1996
including contingent rents of $0.
Perchloroethylene (PCE) has been detected in soil and groundwater in
the vicinity of a dry cleaning establishment at North Valley Plaza.
The California Department of Toxic Substance Control (DTSC) has
advised the Company that very low levels of Dichlorethylene
(1,2,DCE) a degradation byproduct of PCE, have been detected in a
water well located 1/4 mile west from the dry cleaners, and that the
dry cleaning facility may have contributed to the introduction of
1,2 DCE into the water well. According to DTSC, the maximum
contaminant level (MCL) for 1,2DCE which is permitted in drinking
water is 6 parts per billion (ppb); and the 1,2DCE was detected in
the water well at 1.2 ppb, which is below the MCL. The Company has
retained an environmental consultant and has initiated extensive
testing of the site, although the extent of the impacted soil and
groundwater has not been fully defined. Remediation is scheduled to
begin in the first half of 1997. The joint venture that owns that
property had a $680 reserve at March 31, 1997. In addition, $160
has already been incurred, to cover professional fees, testing costs
and remediation.
Toluene, a petroleum constituent, was detected in one of three
groundwater dewatering system holding tanks at the Queens Center.
The source of the toluene is currently unknown, but it is possible
that an adjacent service station has caused or contributed to the
problem. It is also possible that the toluene remains from previous
service station operations, which occurred on site prior to the
development of the site into its current use in the early 1970s.
Toluene was detected at levels of 410 and 160 parts per billion
(ppb) in samples taken from the tank in October, 1995 and February
1996, respectively. Additional samples were taken in May and
December of 1996, with results of .63 ppb and "non-detect" for the
May sampling event and 16.2 ppb and 25.2 ppb for the December
sampling event. The maximum containment level (MCL) for toluene in
drinking water is 150 ppb. Although the Company believes that no
remediation will be required, it has set up a $150 reserve to cover
professional fees and testing costs. The Company intends to look to
the responsible parties and insurers if remediation is required.
10
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THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
9. Commitments and Contingencies, Continued:
Dry cleaning chemicals, including PCE were detected in soil and
groundwater in the vicinity of a dry cleaning establishment at Villa
Marina Marketplace. The previous owner of the property has reported
the release to the local government authorities and has agreed,
subject to a limited indemnity agreement, to fully assess and
remediate the site to the extent required by those authorities. The
previous owner removed the dominant source of impacted soil in 1996.
The local regulators have confirmed in writing that no further
action is required with respect to the soil and have requested
additional assessment of the groundwater. The previous owner is
conducting such assessment. Although the Company believes that it
will not be required to participate in assessment or remediation
activities, it has set up a $150 reserve ($20 of which has already
been incurred) to cover professional and legal fees.
Dry cleaning chemicals including PCE were detected in soil and
groundwater in the vicinity of a former dry cleaning establishment
at Huntington Center. The release has been reported to the local
government authorities. The Company estimates, based on the data
currently available, that costs for assessment, remediation and
legal services will not exceed $500. Consequently, a $500 reserve
was established at the time of the acquisition to cover professional
and legal fees. The Company intends to look to responsible parties
and insurers for cost recovery.
The Company acquired Fresno Fashion Fair in December 1996. Asbestos
has been detected in structural fireproofing throughout much of the
Mall. Recent testing data conducted by a professional environmental
consulting firms indicates that the fireproofing is largely
inaccessible to building occupants and is well adhered to the
structural members. Additionally, airborne concentrations of
asbestos are well within OSHA's permissible exposure limit (PEL) of
.1 fcc. The Company intends to abate asbestos fireproofing as
tenant spaces become vacant. The accounting for this acquisition
includes a reserve of $3.3 million to cover future removal of this
asbestos, as necessary.
10. Acquisition:
South Towne Center was acquired in March, 1997 for approximately
$98,000, which included assumption of debt of $46,200 and $51,800 in
cash. On a pro forma basis, reflecting this acquisition as if it
had occurred on January 1, 1997, the Company would have reported,
for the quarter ended March 31, 1997, total revenues of $53,104, net
income of $6,936, and net income per share of $0.27. On a pro forma
basis, if the acquisition had occurred on January 1, 1996, the
Company would have reported, for the quarter ended March 31, 1996,
total revenues of $37,457, net income of $4,508 and earnings per
share of $0.22. This pro forma information is baed on assumptions
management elieves to be appropriate. The pro forma information is
not necessarily indicative of what the actual results would have
been had the acquisition occurred at the beginning of the period
indicated, nor does it purport to project the Company's financial
position or results of operations at any future date or for any
future period.
11. Subsequent Event:
On May 8, 1997 a dividend of $0.44 per share was declared for
shareholder and OP unit holders of record on May 21, 1997. The
dividend is payable on June 4, 1997.
11
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THE MACERICH COMPANY (The Company)
Item II
Management's Discussion and Analysis of Financial Condition Results of
Operations
The following discussion is based primarily on the consolidated
balance sheet of the Macerich Company ("the Company") as of March 31,
1997, and also compares the activities for the three months ended
March 31, 1997, to the activities for the three months ended March 31,
1996.
This information should be read in conjunction with the
accompanying consolidated and combined financial statements and notes
thereto. These financial statements include all adjustments which
are, in the opinion of management, necessary to reflect the fair
statement of the results for the interim periods presented, and all
such adjustments are of a normal recurring nature.
On August 15, 1995, the Company acquired The Centre at Salisbury
("Salisbury") in Salisbury, Maryland. Capitola Mall ("Capitola"),
in Capitola, California was acquired on December 21, 1995, and Queens
Center ("Queens"), in Queens, New York was acquired on December 28,
1995. These properties are known as the "1995 Acquisition Centers".
In January, 1996 the company acquired Villa Marina Marketplace in
Marina del Rey, California and in October, 1996 Valley View Mall in
Dallas, Texas was acquired. In November, 1996 Rimrock Mall in
Billings, Montana and Vintage Faire Mall in Modesto, California were
acquired. In addition, in December, 1996 three malls were acquired:
Buenaventura Mall in Ventura, California; Fresno Fashion Fair in
Fresno, California; and Huntington Center in Huntington Beach,
California. Together these acquisitions are referred to as the "1996
Acquisition Centers". The 1996 financial statements include Villa
Marina Marketplace from the date of acquisition to March 31, 1996 and
do not include results from any of the other 1996 Acquisition Centers.
The 1997 financial statements include all the 1996 Acquisition Centers
for the full quarter. On March 27, 1997 South Towne Center in Sandy,
Utah was acquired and the results from this acquisition were included
from March 27 through March 31, 1997. As a result of the
acquisitions, many of the variations in the results of operations,
discussed below, occurred due to the addition of these properties to
the portfolio during 1997, 1996 and 1995. Many factors, such as
availability and cost of capital, overall debt to market
capitalization level, interest rates and availability of potential
acquisition targets that meet the Company's criteria, impact the
Company's ability to acquire additional properties. Accordingly,
management is uncertain as to whether during the balance of 1997 there
will be similar acquisitions and corresponding increases in revenues,
net income and funds from operations that occurred as a result of the
1996 and 1995 acquisitions.
The bankruptcy and/or closure of retail stores, particularly
Anchors, may reduce customer traffic and cash flow generated by a
Center. During 1995, Federated Department Stores, Inc. announced the
closure of the Broadway Stores at Panorama and Huntington Center, and
Weinstocks at Parklane. Although the Panorama store has been sold to
Wal-Mart, and the Company is replacing the other two stores with
multi-screen theater complexes, the long-term closure of these or
other stores could adversely affect the Company's performance.
In addition, the Company's success in the highly competitive real
estate shopping center business depends upon many other factors,
including general economic conditions, the ability of tenants to make
rent payments, increases or decreases in operating expenses, occupancy
levels, changes in demographics, competition from other centers and
forms of retailing and the ability to renew leases or relet space upon
the expiration or termination of leases.
12
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THE MACERICH COMPANY (The Company)
Results of Operations - Three Months Ended March 31, 1997 and 1996
Revenues
Minimum and percentage rents together increased by $10.1
million to $34.3 million for the three months ended March 31,
1997 compared to $24.2 million in the three months ended March
31, 1996. The 1996 Acquisition Centers contributed virtually all
of the increase.
Tenant recoveries for the first quarter of 1997 increased
by $4.4 million compared to the first quarter of 1996. This was
primarily due to the addition of the 1996 Acquisition Centers.
Other revenue increased by $.6 million primarily due to
increased interest income and fee income.
Expenses
Shopping center expenses increased by $4.7 million for the
three months ended March 31, 1997 compared to the same period in
1996. This increase was due to the addition of the 1996
Acquisition Centers. Depreciation and amortization increased by
$1.7 million. This increase was primarily due to the 1996
Acquisition Centers. Interest expense increased by $4.9 million
primarily due to the increased interest expense on debt
attributable to the 1996 Acquisition Centers.
Income From Unconsolidated Joint Ventures and The Management
Companies
The income from unconsolidated joint ventures decreased to
$.4 million compared to $1.2 million for the period ended March
31, 1996. This decrease was primarily due to non recurring fee
income of $.4 million in 1996. Also contributing to the decrease
was reduced third party management fee income in the first
quarter of 1997, because of fewer properties managed for third
parties during the first quarter of 1997.
Net Income
Net income for the period increased to $6.8 million
compared to $4.4 million for the three months ended March 31,
1996. This increase was due to the factors discussed above.
Cash Flows From Operating Activities
As a result of the factors discussed above, cash flow from
operations increased to $23.7 million in the first quarter of
1997 from $15.9 million during the first quarter of 1996.
Cash Flows From Investing Activities
Net cash flow used in investing activities decreased to
$59.6 million from $64.6 million due primarily to less cash being
used for acquisitions in the first quarter of 1997 compared to
1996.
13
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THE MACERICH COMPANY (The Company)
Cash Flows From Financing Activities
Cash flow from financing activities decreased to $29.9
million in the first quarter of 1997 from $41.9 million for the
first quarter of 1996 as a result of less mortgage financing in
1997.
Liquidity and Capital Resources
The Company intends to meet its short term liquidity
requirements through cash generated from operations and working
capital reserves. The Company anticipates that revenues will
continue to provide necessary funds for its operating expenses
and debt service requirements, and to pay dividends to
stockholders in accordance with REIT requirements. The Company
anticipates that cash generated from operations, together with
cash on hand, will be adequate to fund capital expenditures which
will not be reimbursed by tenants, other than non-recurring
capital expenditures. Capital for major expenditures or
redevelopments has been, and is expected to continue to be,
obtained from equity or debt financings.
The Company believes that it will have access to the
capital necessary to expand its business in accordance with its
strategies for growth and maximizing Funds from Operations. The
Company presently intends to obtain additional capital necessary
to expand its business through a combination of additional equity
offerings and debt financings.
The Company's total outstanding mortgage loan indebtedness
at March 31, 1997 was $910.6 million (including its pro rata
share of joint venture debt). This equated to a debt to Total
Market Capitalization (defined as total debt of the Operating
Partnership, including its pro rata share of joint venture debt,
plus aggregate market value of outstanding shares of common
stock, assuming full conversion of OP Units into stock) rate of
46% at March 31, 1997. Such debt consists primarily of
conventional mortgages payable secured by individual properties.
At March 31, 1997 the Company had a total of $287.3 million of
floating rate indebtedness, of which $51 million was refinanced
on a fixed rate basis in April, 1997. In connection with $65.1
million of the Company's floating rate indebtedness, the Company
has entered into interest rate protection agreements that limit
the Company's exposure to increases in interest rates.
The Company has filed a shelf registration, which is not
yet effective, to sell s $500 million of common stock and common
stock warrants.
The Company's line of credit is $50 million. The
outstanding borrowings on the line of credit at March 31, 1997
were $12 million.
At March 31, 1997 the Company had cash and cash
equivalents available of $9.6 million.
14
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THE MACERICH COMPANY (The Company)
Funds From Operations
The Company believes that the most significant measure of
its performance is Funds from Operations ("FFO"). FFO is
defined by The National Association of Real Estate Investment
Trusts ("NAREIT") to be: Net income, excluding gains (or
losses) from debt restructuring and sales of property, plus
depreciation and amortization (excluding: depreciation of
personal property, amortization of financing cost and
amortization of financial instruments) and after adjustments for
unconsolidated joint ventures. Adjustments for unconsolidated
partnerships and joint ventures will be calculated to reflect FFO
on the same basis. Also, extraordinary items and significant
non-recurring events are excluded from the FFO calculation. FFO
does not represent cash flow from operations, as defined by
generally accepted accounting principles, and is not necessarily
indicative of cash available to fund all cash flow needs. The
following reconciles net income to FFO:
March 31,
1997 1996
---- ----
(amounts in thousands)
Net income $6,751 $4,401
Adjustments to reconcile
net income to FFO:
Minority interest 3,168 2,664
Depreciation and
amortization on
wholly owned properties 9,474 7,751
Less: Depreciation of
personal property (109) (133)
Less: Amortization of
loan costs,
including
interest rate
caps
and swaps (365) (652)
Pro rata share of joint
venture depreciation
and amortization 553 567
Pro rata share of gain on
sale of joint venture
assets (1) (34)
--------- ---------
FFO $19,471 $14,564
--------- ---------
--------- ---------
Weighted average number of
shares outstanding,
assuming full conversion
of OP Units 37,904 32,073
--------- ---------
--------- ---------
15
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THE MACERICH COMPANY (The Company)
Inflation
In the last three years, inflation has not had a significant
impact on the Company because of a relatively low inflation rate.
Substantially all the leases at the Centers have rent adjustments
periodically through the lease term. These rent increases are
either in fixed increments or based on increases in the Consumer
Price Index. In addition, many of the leases are for terms of
less than ten years, which enables the Company to replace
existing leases with new leases at higher base rents if the rents
of the existing leases are below the then existing market rate.
Additionally, most of the leases require the tenants to pay their
pro rata share of operating expenses. This reduces the Company's
exposure to increases in costs and operating expenses resulting
from inflation.
New Accounting Pronouncements, Issued But Not Yet Effective
The Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share" (EPS). SFAS No. 128 supercedes and simplifies the
existing computational guidelines under Accounting Principles
Board Opinion No. 15. The new pronouncement is effective for
periods ended after December 15, 1997. Among other changes, SFAS
No. 128 eliminates the presentation of primary EPS and replaces
it with basic EPS for which common stock equivalents are not
considered in the computation. SFAS No. 128 also revises the
computation of diluted EPS. The Company does not expect SFAS No.
128 to have a material impact on its EPS, financial condition or
results of operations.
16
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PART II
Other Information
- -----------------
Item 1 Legal Proceedings
None
Item 2 Changes in Securities
None
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Earnings per share
(b) Reports on Form 8-K
A report on Form 8-K/A dated February 3, 1997, event date
November 30, 1996, was filed with the Securities and Exchange
Commission for the purpose of filing the financial statements
and pro forma financial information required by Item 7
regarding the acquisition of Vintage Faire Mall and Rimrock
Mall.
A report on Form 8-K/A dated February 27, 1997, event date
December 30, 1996, was filed with the Securities and Exchange
Commission for the purpose of filing the financial statements
and pro forma financial information required by Item 7
regarding the acquisition of Buenaventura Mall, Fresno Fashion
Fair, and Huntington Center.
17
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
The Macerich Company
By: /s/ THOMAS E. O'HERN
--------------------
Thomas E. O'Hern
Senior Vice President and
Chief Financial Officer
Date: May 15, 1997
18
- ----------------------------------------------------------------------
Exhibit Index
Exhibit No. Page
- ---------- ----
(a) Exhibits
11.1 Earnings per share
19
- ----------------------------------------------------------------------
Exhibit 11.1
THE MACERICH COMPANY
Computation of Earnings Per Share
(Dollars in thousands, except per share data)
For the quarter ended
March 31,
1997 1996
---- ----
Primary
- -------
Net income as reported $ 6,751 $ 4,401
---------- ----------
---------- ----------
Weighted average number of
shares outstanding 25,799,000 19,978,000
Incremental shares resulting
from stock options
and restricted stock 350,000 25,000
---------- ----------
Weighted average number of
shares of common
stock and equivalents 26,149,000 20,003,000
---------- ----------
---------- ----------
Primary earnings per share $ 0.26 $ 0.22
---------- ----------
---------- ----------
Fully Diluted
- ------------
Net income as reported $ 6,751 $ 4,401
---------- ----------
---------- ----------
Weighted average number of
shares outstanding 25,799,000 19,978,000
Incremental shares resulting
from stock options
and restricted stock 395,000 50,000
---------- ----------
Weighted average number of
shares of common
stock and equivalents 26,194,000 20,028,000
---------- ----------
---------- ----------
Fully diluted earnings per share $ 0.26 $ 0.22
---------- ----------
---------- ----------
5
3-MOS
DEC-31-1997
MAR-31-1997
9,628
22,620
0
0
0
37,395
1,204,270
0
1,273,913
117,661
812,606
0
0
233,563
110,083
1,273,913
0
50,302
0
15,761
10,224
0
14,766
6,751
0
6,751
0
0
0
6,751
.44
.44
