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 JUNE 30, 1998 COMMISSION FILE NO. 1-12504
THE MACERICH COMPANY
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 95-4448705
- ----------------------------------------------------- ---------------
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER
OR ORGANIZATION) IDENTIFICATION NUMBER)
401 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) 394-6911
-------------------
N/A
- --------------------------------------------------------------------------------
(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 AUGUST 14, 1998.
COMMON STOCK, PAR VALUE $.01 PER SHARE: 32,468,963 SHARES
- --------------------------------------------------------------------------------
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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FORM 10-Q
INDEX
PAGE
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS OF THE COMPANY AS OF JUNE 1
30, 1998 AND DECEMBER 31, 1997
CONSOLIDATED STATEMENTS OF OPERATIONS OF THE COMPANY FOR
THE PERIODS FROM JANUARY 1 THROUGH JUNE 30, 1998 AND 2
1997
CONSOLIDATED STATEMENTS OF OPERATIONS OF THE COMPANY FOR
THE PERIODS FROM APRIL 1 THROUGH JUNE 30, 1998 AND 1997 3
CONSOLIDATED STATEMENTS OF CASH FLOWS OF THE COMPANY FOR
THE PERIODS FROM JANUARY 1 THROUGH JUNE 30, 1998 AND 4
1997
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS 5 TO 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 19 TO 26
PART II: OTHER INFORMATION 27 TO 28
THE MACERICH COMPANY (THE COMPANY)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
JUNE 30, DECEMBER 31,
1998 1997
---------- ------------
ASSETS:
Property, net $1,522,107 $1,407,179
Cash and cash equivalents 96,366 25,154
Tenant receivables, net, including accrued overage rents of
$1,983 in 1998 and $4,330 in 1997 23,967 23,696
Due from affiliates -- 3,105
Deferred charges and other assets, net 35,039 37,899
Investment in joint ventures and the Management Companies 279,903 7,969
---------- ------------
Total assets $1,957,382 $1,505,002
---------- ------------
---------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Mortgage notes payable:
Related parties $ 134,968 $ 135,313
Others 799,423 771,246
---------- ------------
Total 934,391 906,559
Bank notes payable 93,000 55,000
Convertible debentures 161,400 161,400
Accounts payable 2,215 5,185
Accrued interest expense 5,156 4,878
Accrued real estate taxes and ground rent expense 6,657 7,272
Due to affiliates 1,329 15,109
Deferred acquisition liability 5,000 5,000
Preferred stock dividend payable 2,057 --
Other accrued liabilities 28,238 27,841
---------- ------------
Total liabilities 1,239,443 1,188,244
---------- ------------
Minority interest in Operating Partnership 161,680 100,463
---------- ------------
Commitments and contingencies (Note 10)
Stockholders' equity:
Series A cumulative convertible redeemable preferred stock, $.01 par
value, 3,627,100 and 0 shares issued and outstanding
at June 30, 1998 and December 31, 1997, respectively 100,000 --
Series B cumulative convertible redeemable preferred stock, $.01 par
value, 5,487,471 and 0 shares issued and outstanding at
June 30, 1998 and December 31, 1997, respectively 150,000 --
Common stock, $.01 par value, 100,000,000 shares
authorized, 32,461,300 and 26,004,800 shares issued and
outstanding at June 30, 1998 and December 31, 1997, respectively 325 260
Additional paid in capital 311,140 219,121
Accumulated earnings -- --
Unamortized restricted stock (5,206) (3,086)
---------- ------------
Total stockholders' equity 556,259 216,295
---------- ------------
Total liabilities and stockholders' equity $1,957,382 $1,505,002
---------- ------------
---------- ------------
The accompanying notes are an integral part of these financial statements.
- 1 -
THE MACERICH COMPANY (THE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
JANUARY 1 to JUNE 30,
--------------------------
1998 1997
----------- -----------
REVENUES:
Minimum rents $79,629 $65,554
Percentage rents 4,250 4,157
Tenant recoveries 36,822 30,913
Other 1,881 2,029
----------- -----------
Total Revenues 122,582 102,653
----------- -----------
OPERATING COSTS:
Shopping center expenses 38,001 31,934
General and administrative expense 2,177 1,189
Interest expense:
Related parties 5,083 5,110
Others 36,129 26,053
Depreciation and amortization 23,607 19,681
----------- -----------
Total Expenses 104,997 83,967
----------- -----------
Equity in income of unconsolidated
joint ventures and the management companies 5,582 1,073
Gain on sale of assets 9 --
----------- -----------
Income before extraordinary item and minority interest 23,176 19,759
Less extraordinary loss on early extinguishment of debt 90 512
Less minority interest in net income
of the Operating Partnership 6,190 6,323
----------- -----------
Net income 16,896 12,924
Less preferred dividends 2,706 --
----------- -----------
Net income -- available to common stockholders $14,190 $12,924
----------- -----------
----------- -----------
Earnings per common share -- basic:
Income before extraordinary item $0.49 $0.52
Extraordinary item 0.00 (0.02)
----------- -----------
Net income -- available to common stockholders $0.49 $0.50
----------- -----------
----------- -----------
Weighted average number of common shares
outstanding -- basic 28,975,000 25,921,000
----------- -----------
----------- -----------
Weighted average number of common shares
outstanding -- basic, assuming full conversion of
operating units outstanding 41,063,000 38,008,000
----------- -----------
----------- -----------
Earnings per common share -- diluted:
Income before extraordinary item $0.49 $0.51
Extraordinary item 0.00 (0.01)
----------- -----------
Net income -- available to common stockholders $0.49 $0.50
----------- -----------
----------- -----------
Weighted average number of common shares
outstanding -- diluted for EPS 41,682,000 38,429,000
----------- -----------
----------- -----------
The accompanying notes are an integral part of these financial statements.
- 2 -
THE MACERICH COMPANY (THE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED JUNE 30,
---------------------------
1998 1997
------------ ------------
REVENUES:
Minimum rents $ 40,213 $ 33,500
Percentage rents 1,080 1,950
Tenant recoveries 19,181 15,995
Other 933 905
------------ ------------
Total Revenues 61,407 52,350
------------ ------------
OPERATING COSTS:
Shopping center expenses 19,279 16,173
General and administrative expense 1,153 440
Interest expense:
Related parties 2,556 2,620
Others 18,080 13,777
Depreciation and amortization 11,894 10,207
------------ ------------
Total Expenses 52,962 43,217
------------ ------------
Equity in income of unconsolidated
joint ventures and the management companies 4,152 706
Gain on sale of assets 9 --
------------ ------------
Income before extraordinary item and minority interest 12,606 9,839
Less extraordinary loss on early extinguishment of debt -- 512
Less minority interest in net income
of the Operating Partnership 3,182 3,155
------------ ------------
Net income 9,424 6,172
Less preferred dividends 2,057 --
------------ ------------
Net income -- available to common stockholders $ 7,367 $ 6,172
------------ ------------
------------ ------------
Earnings per common share -- basic:
Income before extraordinary item $0.24 $0.26
Extraordinary item 0.00 (0.02)
------------ ------------
Net income -- available to common stockholders $0.24 $0.24
------------ ------------
------------ ------------
Weighted average number of common shares
outstanding -- basic 30,765,000 25,953,000
------------ ------------
------------ ------------
Weighted average number of common shares
outstanding -- basic, assuming full conversion of
operating units outstanding 42,853,000 38,059,000
------------ ------------
------------ ------------
Earnings per common share -- diluted:
Income before extraordinary item $0.24 $0.25
Extraordinary item 0.00 (0.01)
------------ ------------
Net income -- available to common stockholders $0.24 $0.24
------------ ------------
------------ ------------
Weighted average number of common shares
outstanding -- diluted for EPS 43,425,000 38,480,000
------------ ------------
------------ ------------
The accompanying notes are an integral part of these financial statements.
- 3 -
THE MACERICH COMPANY (THE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
JANUARY 1 TO JUNE 30,
-------------------------
1998 1997
---------- ----------
Cash flows from operating activities:
Net income -- available to common stockholders $ 14,190 $ 12,924
Preferred dividends 2,706 --
---------- ----------
Net income 16,896 12,924
---------- ----------
Adjustments to reconcile net income to
net cash provided by operating activities:
Extraordinary loss on early extinguishment of debt 90 512
Gain on sale of assets (9) --
Depreciation and amortization 23,607 19,681
Amortization of net discount (premium) on trust deed note payable (34) 17
Minority interest in the net income of the Operating Partnership 6,190 6,323
Changes in assets and liabilities:
Tenant receivables, net (271) 5,281
Other assets 5,611 231
Accounts payable and accrued expenses (3,307) (5,765)
Preferred stock dividend payable 2,057 --
Other liabilities 397 (1,326)
---------- ----------
Total adjustments 34,331 24,954
---------- ----------
Net cash provided by operating activities 51,227 37,878
---------- ----------
Cash flows from investing activities:
Acquisitions of property and improvements (88,840) (55,458)
Renovations and expansions of centers (14,103) (5,366)
Additions to tenant improvements (1,947) (1,467)
Deferred charges (6,359) (7,338)
Equity in income of unconsolidated joint ventures
and the management companies (5,582) (1,073)
Distributions from joint ventures 2,586 2,156
Contributions to joint ventures (268,938) --
Loan repayments to affiliates, net (10,675) (696)
---------- ----------
Net cash used in investing activities (393,858) (69,242)
---------- ----------
Cash flows from financing activities:
Proceeds from mortgages and notes payable 249,000 206,000
Payments on mortgages and notes payable (213,251) (149,607)
Net proceeds from equity offerings 417,022 --
Dividends and distributions to partners (36,222) (32,289)
Dividends to preferred shareholders (2,706) --
---------- ----------
Net cash provided by financing activities 413,843 24,104
---------- ----------
Net increase (decrease) in cash 71,212 (7,260)
Cash and cash equivalents, beginning of period 25,154 15,643
---------- ----------
Cash and cash equivalents, end of period $ 96,366 $ 8,383
---------- ----------
---------- ----------
Supplemental cash flow information:
Cash payment for interest, net of amounts capitalized $ 40,969 $ 31,077
---------- ----------
---------- ----------
Non cash transactions:
Acquisition of property by assumption of debt $ 30,116 $ 46,202
---------- ----------
---------- ----------
The accompanying notes are an integral part of these financial statements.
- 4 -
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, 1997.
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, 1997 has been derived from the audited financial statements, but does
not include all disclosure required by GAAP.
Certain reclassifications have been made in the 1997 financial statements
to conform to the 1998 financial statement presentation.
In March, 1998, the FASB, through its Emerging Issues Task Force ("EITF"),
concluded based on EITF 97-11, "Accounting for Internal Costs Relating to
Real Estate Property Acquisitions", that all internal costs to source,
analyze and close acquisitions should be expensed as incurred. The Company
has historically capitalized these costs, in accordance with GAAP. The
Company has adopted the FASB's interpretation effective March 19, 1998,
and expects the impact to be an approximate $0.06 per share reduction of
net income per share in 1998.
In May, 1998, the FASB, through the EITF, modified the timing on
recognition of revenue for percentage rent received from tenants in EITF
98-9, "Accounting for Contingent Rent in Interim Financial Periods". The
Company applied this accounting change as of April 1, 1998. Although the
Company believes this accounting change will have no material impact on the
annual percentage rent recognized, the accounting change had the effect of
deferring $1,792 of percentage rent that would have been recognized for the
three months ended June 30, 1998 using the previous GAAP accounting method
for percentage rent recognition. As a result of this accounting change,
the Company expects a portion of percentage rent that previously would be
recognized in the second and third quarters to be recognized in the fourth
quarter.
EARNINGS PER SHARE ("EPS")
The computation of basic earnings per share is based on net income and the
weighted average number of common shares outstanding for the three and six
months ending June 30, 1998 and 1997. The diluted earnings per share give
effect to the outstanding restricted stock and common stock options
calculated using the treasury stock method. The convertible debentures and
convertible preferred stock would be anti-dilutive to the calculation of
diluted EPS and therefore are not included. The OP units not held by the
Company have been included in the diluted EPS calculation since they are
convertible on a one-for-one basis. The following table reconciles the
basic and diluted earnings per share calculations:
- 5 -
THE MACERICH COMPANY (THE COMPANY)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
FOR THE THREE MONTHS ENDED JUNE 30,
----------------------------------------------------------------------------
1998 1997
----------------------------------- ---------------------------------
NET NET PER
INCOME SHARES PER SHARE INCOME SHARES SHARE
------- ------ --------- ------- ------- ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income $9,424 $6,172
Less: Preferred stock dividends 2,057 --
------- ------
Basic EPS:
Net income -- available to common stockholders 7,367 30,765 $0.24 6,172 25,953 $0.24
Diluted EPS:
Effect of dilutive securities:
Conversion of OP units 3,182 12,088 3,155 12,107
Employee stock options and restricted stock -- 572 41 421
Convertible preferred stock n/a -- antidilutive for EPS -- -- --
Convertible debentures n/a -- antidilutive n/a -- antidilutive
------- ------ --------- ------- ------- ------
Net income -- available to common stockholders $10,549 43,425 $0.24 $9,368 38,481 $0.24
------- ------ --------- ------- ------- ------
------- ------ --------- ------- ------- ------
FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------------------------------------------------
1998 1997
----------------------------------- ---------------------------------
NET NET PER
INCOME SHARES PER SHARE INCOME SHARES SHARE
------- ------ --------- ------- ------- ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income $16,896 $12,924
Less: Preferred stock dividends 2,706 --
------- -------
Basic EPS:
Net income -- available to common stockholders 14,190 28,975 $0.49 12,924 25,921 $0.50
Diluted EPS:
Effect of dilutive securities:
Conversion of OP units 6,190 12,088 6,323 12,087
Employee stock options and restricted stock 177 619 82 421
Convertible preferred stock n/a -- antidilutive for EPS -- -- --
Convertible debentures n/a -- antidilutive n/a -- antidilutive
------- ------ --------- ------- ------- ------
Net income -- available to common stockholders $20,557 41,682 $0.49 $19,329 38,429 $0.50
------- ------ --------- ------- ------- ------
------- ------ --------- ------- ------- ------
- 6 -
THE MACERICH COMPANY (THE COMPANY)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
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 forty-one
regional shopping centers and five community shopping centers, including a
portfolio of twelve regional malls that was acquired on February 27, 1998.
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 three Management Companies, Macerich Property Management Company,
Macerich Management Company, and Macerich Manhattan 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 and owned approximately 77% of The Operating
Partnership as of June 30, 1998. 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 retail shopping centers. The Operating Partnership's
interest in each joint venture as of June 30, 1998 is as follows:
THE OPERATING PARTNERSHIP'S
JOINT VENTURE OWNERSHIP %
------------- ---------------------------
Macerich Northwestern Associates 50%
Panorama City Associates 50%
SDG Macerich Properties, L.P. 50%
Village at Corte Madera 40%
West Acres Development 19%
Manhattan Village, LLC 10%
The Operating Partnership also owns the non-voting preferred stock of the
Macerich Management Company and Macerich Property Management Company and
is entitled to receive 95% of the distributable cash flow of these two
entities. Macerich Manhattan Management Company is a 100% subsidiary of
Macerich Management Company. The Company accounts for the Management
Companies and joint ventures using the equity method of accounting.
- 7 -
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:
On February 27, 1998, the Company, through a 50/50 joint venture, SDG
Macerich Properties, L.P., acquired a portfolio of twelve regional malls.
The total purchase price was $974,500 including the assumption of $485,000
in debt. The Company funded its 50% of the remaining purchase price by
issuing 3,627,131 shares of Series A convertible preferred stock for gross
proceeds totaling $100,000 in a private placement. The Company also issued
2,879,134 shares of common stock ($79,600 of total proceeds) under the
Company's shelf registration statement. The balance of the purchase price
was funded from the Company's line of credit. Each of the joint venture
partners have assumed leasing and management responsibilities for six of
the regional malls.
On June 16, 1998, 40% of the Village at Corte Madera's partnership
interest was acquired by the Company. On July 24, 1998, the remaining 60%
of the partnership interests were acquired. The total purchase price was
approximately $120,000 which included the assumption of $40,000 of debt.
For periods after July 24, 1998, this investment will be accounted for as a
consolidated subsidiary.
The results of these joint ventures are included for the period subsequent
to their respective dates of acquisition.
In December 1997, North Valley Plaza, which was 50% owned by the Company,
was sold.
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.
COMBINED AND CONDENSED BALANCE SHEETS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
JUNE 30, DECEMBER 31,
1998 1997
---------- ------------
Assets:
Properties, net $1,195,318 $153,856
Other assets 34,141 10,013
---------- ------------
Total assets $1,229,459 $163,869
---------- ------------
---------- ------------
Liabilities and partners' capital:
Mortgage notes payable $604,498 $84,342
Other liabilities 40,428 6,563
The Company's capital 279,903 7,969
Outside partners' capital 304,630 64,995
---------- ------------
Total liabilities and partners' capital $1,229,459 $163,869
---------- ------------
---------- ------------
- 8 -
THE MACERICH COMPANY (THE COMPANY)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
3. INVESTMENTS IN UNSOLICITED JOINT VENTURES AND MANAGEMENT COMPANIES --
CONTINUED
COMBINED STATEMENTS OF OPERATIONS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
THREE MONTHS ENDED JUNE 30, 1998
------------------------------------------------------------------------------
SDG OTHER
MACERICH JOINT MGMT
PROPERTIES, L.P. VENTURES COMPANIES TOTAL
--------------- ---------- ---------- ---------
Revenues $31,810 $ 9,411 $ 1,795 $43,016
------- ------- ------- -------
Expenses:
Shopping center expenses 11,706 3,142 -- 14,848
Interest 7,576 1,597 (112) 9,061
Management company expense -- -- 2,446 2,446
Depreciation and amortization 5,109 1,009 164 6,282
------- ------- ------- -------
Total operating expenses 24,391 5,748 2,498 32,637
------- ------- ------- -------
Gain on sale or write-down of assets -- 127 191 318
------- ------ ------- -------
Net income (loss) $ 7,419 $ 3,790 $ (512) $10,697
------- ------- ------- -------
------- ------- ------- -------
THREE MONTHS ENDED JUNE 30, 1997
------------------------------------------------------------------------------
SDG OTHER
MACERICH JOINT MGMT
PROPERTIES, L.P. VENTURES COMPANIES TOTAL
--------------- ---------- ---------- ---------
Revenues -- $ 6,781 $ 1,021 $ 7,802
------- ------- ------- -------
Expenses:
Shopping center expenses -- 2,449 -- 2,449
Interest -- 1,600 (27) 1,573
Management company expense -- -- 882 882
Depreciation and amortization -- 1,029 96 1,125
------- ------- ------- -------
Total operating expenses -- 5,078 951 6,029
------- ------- ------- -------
Gain on sale or write-down of assets -- 340 -- 340
------- ------- ------- -------
Net income -- $ 2,043 $ 70 $ 2,113
------- ------- ------- -------
------- ------- ------- -------
- 9 -
THE MACERICH COMPANY (THE COMPANY)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
3. INVESTMENTS IN UNSOLICITED JOINT VENTURES AND MANAGEMENT COMPANIES --
CONTINUED:
COMBINED STATEMENTS OF OPERATIONS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
SIX MONTHS ENDED JUNE 30, 1998
------------------------------------------------------------------------------
SDG OTHER
MACERICH JOINT MGMT
PROPERTIES, L.P. VENTURES COMPANIES TOTAL
--------------- ---------- ---------- ---------
Revenues $41,753 $18,905 $ 3,118 $ 63,776
------- ------- ------- --------
Expenses:
Shopping center expenses 14,563 6,426 -- 20,989
Interest 10,323 3,163 (191) 13,295
Management company expense -- -- 4,114 4,114
Depreciation and amortization 6,866 2,057 312 9,235
------- ------- ------- --------
Total operating expenses 31,752 11,646 4,235 47,633
------- ------- ------- --------
Gain (loss) on sale or write-down of assets -- 126 (197) (71)
------- ------- ------- --------
Net income (loss) $10,001 $ 7,385 $(1,314) $16,072
------- ------- ------- --------
------- ------- ------- --------
SIX MONTHS ENDED JUNE 30, 1997
------------------------------------------------------------------------------
SDG OTHER
MACERICH JOINT MGMT
PROPERTIES, L.P. VENTURES COMPANIES TOTAL
--------------- ---------- ---------- ---------
Revenues -- $13,822 $1,848 $15,670
------- ------- ------- --------
Expenses:
Shopping center expenses -- 5,053 -- 5,053
Interest -- 3,182 (47) 3,135
Management company expense -- -- 1,904 1,904
Depreciation and amortization -- 2,065 180 2,245
------- ------- ------- --------
Total operating expenses -- 10,300 2,037 12,337
------- ------- ------- --------
Gain on sale or write-down of assets -- 347 -- 347
------- ------- ------- --------
Net income (loss) -- $ 3,869 $ (189) $ 3,680
------- ------- ------- --------
------- ------- ------- --------
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 June 30, 1998 and December 31, 1997.
Interest expense incurred on these borrowings amounted to $749
and $750 for the three months ended June 30, 1998 and 1997,
respectively, and $1,483 and $1,483 for the six months ended June
30, 1998 and 1997, respectively.
- 10 -
THE MACERICH COMPANY (THE COMPANY)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
3. INVESTMENTS IN UNSOLICITED JOINT VENTURES AND MANAGEMENT COMPANIES --
CONTINUED:
PRO RATA SHARE OF COMBINED AND CONDENSED STATEMENTS OF
OPERATIONS OF JOINT VENTURES AND MANAGEMENT COMPANIES
The following tables set forth the Operating Partnership's beneficial
interest in the joint ventures:
THREE MONTHS ENDED JUNE 30, 1998
------------------------------------------------------------------------------
SDG OTHER
MACERICH JOINT MGMT
PROPERTIES, L.P. VENTURES COMPANIES TOTAL
--------------- ---------- ---------- ---------
Revenues $15,904 $ 2,752 $ 1,705 $ 20,361
------- ------- ------- --------
Expenses:
Shopping center expenses 5,853 959 -- 6,812
Interest 3,788 535 (103) 4,220
Management company expense -- -- 2,325 2,325
Depreciation and amortization 2,555 347 155 3,057
------- ------- ------- --------
Total operating expenses 12,196 1,841 2,377 16,414
------- ------- ------- --------
Gain on sale or write-down of assets -- 24 181 205
------- ------- ------- --------
Net income (loss) $ 3,708 $ 935 $ (491) $ 4,152
------- ------- ------- --------
------- ------- ------- --------
THREE MONTHS ENDED JUNE 30, 1997
------------------------------------------------------------------------------
SDG OTHER
MACERICH JOINT MGMT
PROPERTIES, L.P. VENTURES COMPANIES TOTAL
--------------- ---------- ---------- ---------
Revenues -- $ 2,506 $ 972 $ 3,478
------- ------- ------- --------
Expenses:
Shopping center expenses -- 926 -- 926
Interest -- 537 (25) 512
Management company expense -- -- 838 838
Depreciation and amortization -- 469 91 560
------- ------- ------- --------
Total operating expenses -- 1,932 904 2,836
------- ------- ------- --------
Gain (loss) on sale or write-down of assets -- 67 (3) 64
------- ------- ------- --------
Net income -- $ 641 $ 65 $ 706
------- ------- ------- --------
------- ------- ------- --------
- 11 -
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:
PRO RATA SHARE OF COMBINED AND CONDENSED STATEMENTS OF
OPERATIONS OF JOINT VENTURES AND THE MANAGEMENT COMPANIES
SIX MONTHS ENDED JUNE 30, 1998
-----------------------------------------------------------
SDG
MACERICH OTHER MGMT
PROPERTIES, L.P. JOINT VENTURES COMPANIES TOTAL
----------------- --------------- --------- --------
Revenues $20,876 $5,544 $2,962 $29,382
----------------- --------------- --------- --------
Expenses:
Shopping center expenses 7,281 1,977 -- 9,258
Interest 5,162 1,060 (181) 6,041
Management company expense -- -- 3,910 3,910
Depreciation and amortization 3,433 699 295 4,427
----------------- --------------- --------- --------
Total operating expenses 15,876 3,736 4,024 23,636
----------------- --------------- --------- --------
Gain (loss) on sale or write-down of assets -- 24 (188) (164)
----------------- --------------- --------- --------
Net income (loss) $5,000 $1,832 ($1,250) $ 5,582
----------------- --------------- --------- --------
----------------- --------------- --------- --------
SIX MONTHS ENDED JUNE 30, 1997
-----------------------------------------------------------
SDG
MACERICH OTHER MGMT
PROPERTIES, L.P. JOINT VENTURES COMPANIES TOTAL
----------------- --------------- --------- --------
Revenues -- $5,130 $1,756 $6,886
----------------- --------------- --------- --------
Expenses:
Shopping center expenses -- 1,937 -- 1,937
Interest -- 1,064 (44) 1,020
Management company expense -- -- 1,809 1,809
Depreciation and amortization -- 941 172 1,113
----------------- --------------- --------- --------
Total operating expenses -- 3,942 1,937 5,879
----------------- --------------- --------- --------
Gain on sale or write-down of assets -- 66 -- 66
----------------- --------------- --------- --------
Net income (loss) -- $1,254 ($181) $1,073
----------------- --------------- --------- --------
----------------- --------------- --------- --------
- 12 -
THE MACERICH COMPANY (THE COMPANY)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
4. PROPERTY:
Property is comprised of the following at:
1998 1997
----------- ------------
Land $ 336,152 $ 313,050
Building Improvements 1,330,120 1,235,459
Tenant Improvements 40,786 38,097
Equipment & Furnishings 8,072 7,576
Construction in Progress 27,306 13,247
----------- ------------
1,742,436 1,607,429
Less, accumulated depreciation (220,329) (200,250)
----------- ------------
$1,522,107 $1,407,179
----------- ------------
----------- ------------
5. DEFERRED CHARGES AND OTHER ASSETS:
Deferred charges and other assets, including deferred leasing and financing
costs are:
JUNE 30, DECEMBER 31,
1998 1997
--------- ------------
Leasing $ 28,770 $ 28,101
Financing 17,136 14,396
--------- ------------
45,906 42,497
Less, accumulated amortization (18,787) (18,127)
--------- ------------
27,119 24,370
Other assets 7,920 13,529
--------- ------------
$ 35,039 $ 37,899
--------- ------------
--------- ------------
- 13 -
THE MACERICH COMPANY (THE COMPANY)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
6. MORTGAGE NOTES PAYABLE:
Mortgage notes payable at June 30, 1998 and December 31, 1997 consist of
the following:
CARRYING AMOUNT OF NOTES
-------------------------------------
1998 1997
----------------- -----------------
PROPERTY PLEDGED RELATED RELATED INTEREST PAYMENT MATURITY
AS COLLATERAL OTHER PARTY OTHER PARTY RATE TERMS DATE
- ---------------- -------- -------- -------- -------- -------- ------- --------
Capitola Mall -- $ 37,509 -- $ 37,675 9.25% 316(d) 2001
Chesterfield Towne Center $ 65,393 -- $ 65,708 -- 9.10% 548(e) 2024
Chesterfield Towne Center 3,314 -- 3,359 -- 8.54% 28(d) 1999
Citadel 75,142 -- 75,600 -- 7.20% 544(d) 2008
Crossroads Mall(a) -- 35,459 -- 35,638 7.08% 244(d) 2010
Fresno Fashion Fair(j) 38,000 -- 38,000 -- 8.40% interest only 2001
Greeley Mall 17,443 -- 17,815 -- 8.50% 187(d) 2003
Green Tree Mall/Crossroads -- OK
Centre at Salisbury(b) 117,714 -- 117,714 -- 7.23% interest only 2004
Holiday Village Mall -- 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 31,264 -- 31,517 -- 7.70% 244(d) 2003
South Plains Mall 30,066 -- -- -- 6.3% (i) 348(d) 2008
South Towne Center 65,000 -- 65,000 -- 6.62% (g) interest only 2008
Valley View Center 51,000 -- 51,000 -- 7.89% interest only 2006
Villa Marina Marketplace 58,000 -- 58,000 -- 7.23% interest only 2006
Vintage Faire Mall(h) 54,987 -- 55,433 -- 7.65% 427(d) 2003
-------- -------- -------- --------
Total $799,423 $134,968 $771,246 $135,313
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average interest rate at June 30, 1998 7.19%
-----
-----
Weighted average interest rate at December 31, 1997 7.42%
-----
-----
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 June 30, 1998 and December 31, 1997, the unamortized
discount was $413 and $430, respectively.
(b) This loan is cross collateralized by Green Tree Mall, Crossroads
Mall, Oklahoma and The Centre at 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.
- 14 -
THE MACERICH COMPANY (THE COMPANY)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
6. MORTGAGE NOTES PAYABLE, CONTINUED:
The Notes require 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 June 30, 1998 and
at December 31, 1997.
(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 of 35% of the amount by
which the property's gross receipts (as defined in the loan
agreement) exceed a base amount specified therein. Contingent
interest expense recognized by the Company was $0 for the six
months ended June 30, 1998 and 1997, respectively.
(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 7.7%.
(g) At June 30, 1998, this loan had an interest rate of LIBOR plus
1.25% which totaled 6.906%. In July 1998, this loan was reduced
by $1,000 and converted into a fixed rate loan bearing interest
at 6.61% maturing in 2008.
(h) Included in cash and cash equivalents is $3,031 and $3,030 at
June 30, 1998 and December 31, 1997, respectively, of cash
restricted under the terms of this loan agreement.
(i) This note was assumed at acquisition. At the time of acquisition
in June 1998, this debt was recorded at fair market value and the
premium is being amortized over the life of the loan using the
effective interest method. The monthly debt service payment is
$348 per month and is calculated based on a 12.5% interest rate.
At June 30, 1998, the unamortized premium was $6,783.
(j) This loan was refinanced with a new loan of $69,000 on August 7,
1998. The Company incurred a loss on early extinguishment of the
old debt of $2,300. The new loan is a fixed rate 10 year loan
bearing interest at 6.52% and maturing in August, 2008.
Certain mortgage loan agreements contain a prepayment penalty provision
for the early extinguishment of the debt.
Total interest expense capitalized for the three months ending June 30,
1998 and 1997 was $810 and $205, respectively; and $1,471 and
$299 for the six months ended June 30, 1998 and 1997,
respectively.
The market value of notes payable at June 30, 1998 and December 31,
1997 is estimated to be approximately $1,077,300 and $1,013,000,
respectively, based on current interest rates for comparable
loans.
- 15 -
THE MACERICH COMPANY (THE COMPANY)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
7. BANK NOTES PAYABLE:
At December 31, 1997, the Company had $55,000 outstanding under
its $60,000 unsecured credit facility, which bore interest at
LIBOR plus 1.325%. On February 26, 1998, the Company increased
this credit facility to $150,000 with a maturity of February
2000, currently bearing interest at LIBOR plus 1.10%. As of June
30, 1998, $93,000 was outstanding on this line of credit.
8. CONVERTIBLE DEBENTURES:
During 1997, the Company issued and sold $161,400 of convertible
subordinated debentures (the "Debentures") due 2002. The
Debentures, which were sold at par, bear interest at 7.25%
annually (payable semi-annually) and are convertible at any time,
on or after 60 days, from the date of issue at a conversion price
of $31.125 per share. The Debentures mature on December 15, 2002
and are callable by the Company after June 15, 2002 at par plus
accrued interest.
9. RELATED-PARTY TRANSACTIONS:
The Company engaged The Management Companies to manage the
operations of its properties and certain unconsolidated joint
ventures. For the three months ending June 30, 1998 and 1997,
management fees of $622 and $512, respectively; and for the six
months ending June 30, 1998 and 1997 of $1,250 and $1,019,
respectively, were paid to the Management Companies by the
Company.
Certain mortgage notes were held by outside partners of the
individual Macerich Group partnerships. Interest expense in
connection with these notes was $2,348 and $2,503 for the three
months ended June 30, 1998 and 1997, respectively; and $4,875 and
$4,993 for the six months ended June 30, 1998 and 1997,
respectively. Included in accrued interest expense is interest
payable to these partners of $492 and $517 at June 30, 1998 and
December 31, 1997, respectively.
10. COMMITMENTS AND CONTINGENCIES:
Certain partnerships have entered into noncancellable operating
ground leases. The leases expire at various times through 2070,
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 $427 and $171 for the three months ended June 30,
1998 and 1997, respectively; and $644 and $342 for the six months
ended June 30, 1998 and 1997, respectively. There were no
contingent rents in either period.
- 16 -
THE MACERICH COMPANY (THE COMPANY)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
10. COMMITMENTS AND CONTINGENCIES, CONTINUED:
Perchloroethylene (PCE) has been detected in soil and groundwater
in the vicinity of a dry cleaning establishment at North Valley
Plaza, which was sold on December 18, 1997. The California
Department of Toxic Substance Control (DTSC) advised the Company
in 1995 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). The 1,2DCE which was
detected in the water well at 1.2 ppb, is below the MCL. The
Company has retained an environmental consultant and has
initiated extensive testing of the site. Remediation began in
October 1997. The joint venture that owned the property agreed
(between itself and the buyer) that it would be responsible for
continuing to pursue the investigation and remediation of
impacted soil and groundwater resulting from releases of PCE from
the shopping center's former dry cleaner. $65 and $11 has
already been incurred by the Company for remediation, and
professional and legal fees for the period ending June 30, 1998
and 1997, respectively. An additional $496 and $561 is accrued
as a liability by the Company as of June 30, 1998 and December
31, 1997, respectively. The Company has initiated cost recovery
actions and intends to continue to look to responsible parties
for recovery.
Low levels of toluene, a petroleum constituent, was detected in
one of three groundwater dewatering system holding tanks at
Queens Center. No government agency has requested any action to
address this matter. Although the Company believes that no
remediation will be required, the Company established a $150
reserve in 1996 to cover professional fees and testing costs,
which was reduced by costs incurred of $1 and $5 for the six
months ending June 30, 1998 and 1997, respectively. The Company
intends to look to the responsible parties and insurers if
remediation is required.
The Company acquired Fresno Fashion Fair in December 1996.
Asbestos has been detected in structural fireproofing throughout
much of the Mall. Testing data conducted by 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 were well within OSHA's permissible exposure limit (PEL)
of .1 fcc. The accounting for this acquisition includes a
reserve of $3.3 million to cover future removal of this asbestos,
as necessary. The Company incurred $134 and $12 for the six
months ending June 30, 1998 and 1997, respectively.
11. PRO FORMA INFORMATION:
On February 27, 1998, the Company, through a 50/50 joint venture,
SDG Macerich Properties, L.P., acquired a portfolio of twelve
regional malls. Additionally, on June 19, 1998, the Company
acquired South Plains Mall in Lubbock, Texas for approximately
$115,700. The purchase price consisted of $29,400 of debt, at
market value, and $86,300 of cash.
On a pro forma basis, reflecting these acquisitions as if they
had occurred on January 1, 1998 and 1997, the Company would have
reflected net income -- available to common stockholders of $15,960
and $14,553 for the six months ended June 30, 1998 and 1997,
respectively. Net income -- available to common shareholders on a
basic and diluted per share basis would be $0.49 and $0.50, for
the six months ended June 30, 1998 respectively; and $0.56 and
$0.46, for the six months ended June 30, 1997, respectively.
- 17 -
THE MACERICH COMPANY (THE COMPANY)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
12. PREFERRED STOCK:
In February, 1998, the Company issued 3,627,131 shares of Series
A cumulative convertible preferred stock for proceeds totaling
$100,000 in a private placement. The preferred stock can be
converted on a one for one basis into common stock and will pay a
dividend equal to the greater of $0.46 per share per quarter or
the dividend then payable on a share of common stock.
On June 17, 1998, the Company issued 5,487,471 shares of Series B
cumulative convertible preferred stock for proceeds totaling
$150,000 in a direct private placement. The preferred stock can
be converted on a one for one basis into common stock and will
pay a dividend equal to the greater of $0.46 per share per
quarter or the quarterly dividend then payable on a share of
common stock.
13. SUBSEQUENT EVENTS:
On August 5, 1998, a dividend\distribution of $0.46 per share was
declared for common stockholders and OP unit holders of record on
August 14, 1998. In addition, the Company declared a dividend of
$0.46 on the Company's Series A cumulative convertible preferred
stock and a dividend of $0.071 on the Company's Series B
cumulative convertible preferred stock. The Company issued
5,487,470 shares of Series B cumulative convertible preferred
stock on June 17, 1998, and the dividend declared represents a
dividend for the period from June 17, 1998 through June 30, 1998.
All dividends/distributions will be payable on September 4, 1998.
On July 1, 1998, the Company acquired the Westside Pavilion in
Los Angeles, California for $170,500. The purchase price was
funded from the Company's line of credit and a new ten year
$100,000 mortgage placed on the property at closing at an
effective fixed interest rate of 6.65%.
The Company acquired the remaining 60% of the Village at Corte
Madera in Corte Madera, California, on July 24, 1998 and also
acquired Carmel Plaza in Carmel, California on August 10, 1998.
The combined purchase price was $165,500 consisting of the
assumption of $40,000 of debt and the issuance of $8,000 of
OP units and $117,500 in cash.
- 18 -
THE MACERICH COMPANY (THE COMPANY)
ITEM II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion is based primarily on the consolidated balance sheet
of The Macerich Company (the "Company") as of June 30, 1998, and also
compares the activities for the three and six months ended June 30, 1998 to
the activities for the three and six months ended June 30, 1997.
This information should be read in conjunction with the accompanying
consolidated 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.
This Quarterly Report on Form 10-Q contains or incorporates statements that
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Those statements appear in a
number of places in this Quarterly Report on Form 10-Q and include statements
regarding, among other matters, the Company's growth opportunities, the
Company's acquisition strategy, regulatory matters pertaining to compliance
with governmental regulations and other factors affecting the Company's
financial condition or results of operations. Stockholders are cautioned
that any such forward looking statements are not guarantees of future
performance and involve risks, uncertainties and other factors which may
cause actual results, performance or achievements to differ materially from
the future results, performance or achievements, expressed or implied in such
forward looking statements.
The following reflects the Company's acquisitions in 1997 and 1998:
DATE ACQUIRED LOCATION
----------------- ---------------------------
"1997 ACQUISITION CENTERS":
South Towne Center March 27, 1997 Sandy, Utah
Stonewood Mall August 6, 1997 Downey, California
Manhattan Village Shopping
Center August 19, 1997 Manhattan Beach, California
The Citadel December 19, 1997 Colorado Springs, Colorado
Great Falls Marketplace December 31, 1997 Great Falls, Montana
"1998 ACQUISITION CENTERS":
ERE/Yarmouth Portfolio February 27, 1998 Eight States
Village at Corte Madera June 16, 1998 Corte Madera, California
South Plains Mall June 19, 1998 Lubbock, Texas
The financial statements include the results of these centers for periods
subsequent to their acquisition.
Manhattan Village Shopping Center, the ERE/Yarmouth portfolio and the Village
at Corte Madera ("Joint Venture Acquisitions") were acquired by
unconsolidated joint ventures of the Company which are reflected using the
equity method of accounting. The results of these acquisitions are reflected
in the consolidated results of operations of the Company in equity in income
of unconsolidated joint ventures and the Management Companies.
- 19 -
THE MACERICH COMPANY (THE COMPANY)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Many of the variations in the results of operations, discussed below,
occurred due to the addition of these properties to the portfolio during 1998
and 1997. Many factors, such as the 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 1998, and in future years,
there will be similar acquisitions and corresponding increases in revenues,
equity in income of unconsolidated joint ventures and the Management
Companies, net income and funds from operations that occurred as a result of
the addition of the 1998 and 1997 Acquisition Centers. All other centers are
referred to herein as the "Same Centers".
The bankruptcy and/or closure of retail stores, particularly anchors, may
reduce customer traffic and cash flow generated by a center. During 1997,
Montgomery Ward filed bankruptcy. The Company has 11 Montgomery Ward stores
in its portfolio. Montgomery Ward has not yet disclosed whether they will
cease operating any of their stores in the Company's centers. 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 re-let space upon the expiration or termination of
leases.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1998 AND 1997
REVENUES
Minimum and percentage rents together increased by $14.2 million to $83.9
million for the six months ended June 30, 1998 compared to $69.7 million in
the six months ended June 30, 1997. The 1997 Acquisition Centers contributed
$12.7 million of the increase with approximately $1.5 million generated from
the Same Centers. The impact of EITF 98-9, "Accounting for Contingent Rents
in Interim Financial Periods," which was implemented on April 1, 1998,
reduced percentage rents by $1.8 million for the six months ending June 30,
1998.
Tenant recoveries for the six months ended June 30, 1998 increased by $5.9
million compared to the same period in 1997. This was primarily due to the
addition of the 1997 Acquisition Centers. In addition, Same Centers
recoveries increased by $1.1 million due to increased recoverable expenses
during the quarter.
EXPENSES
Shopping center expenses increased by $6.1 million for the six months ended
June 30, 1998 compared to the same period in 1997. Approximately $4.8
million of the increase was due to the addition of the 1997 Acquisition
Centers. The Same Centers had a net increase of $1.3 million, primarily from
an increase in maintenance, repair, security and utility expenses.
- 20 -
THE MACERICH COMPANY (THE COMPANY)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
General and administrative expenses increased to $2.2 million for the six
months ended June 30, 1998 compared to $1.2 million in the same period in
1997, primarily due to the accounting change required by EITF 97-11,
"Accounting for Internal Costs Relating to Real Estate Property
Acquisitions", which requires the expensing of internal acquisition costs.
Previously, in accordance with GAAP, certain internal acquisition costs were
capitalized. The increase is also attributable to increased executive and
director compensation expense.
Interest expense increased to $41.2 million at June 30, 1998 compared to
$31.2 million at June 30, 1997. This increase of $10.0 million is partially
attributable to the acquisition activity in 1997 and 1998, which was
partially funded with secured debt and borrowings under the Company's line of
credit. In addition, in June and July of 1997, the Company issued $161.4
million of convertible debentures which resulted in $5.7 million of the
variance.
Depreciation and amortization increased to $23.6 million at June 30, 1998
compared to $19.7 million at June 30, 1997. This increase of $3.9 million
relates primarily to the 1997 Acquisition Centers.
INCOME FROM UNCONSOLIDATED JOINT VENTURES AND THE MANAGEMENT COMPANIES
The income from unconsolidated joint ventures and the Management Companies
increased to $5.6 million compared to $1.1 million for the period ended June
30, 1997. This increase was primarily due to the Joint Venture Acquisitions.
NET INCOME
Net income for the six months ended June 30, 1998 increased to $14.2 million
compared to $12.9 million for the six months ended June 30, 1997. 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 $51.2 million for the six months ended June 30, 1998 from $37.9
million during the same period in 1997. This increase is primarily due to
increased net operating income from the 1997 Acquisition Centers.
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash flow used in investing activities increased to $393.9 million for
the six months ended June 30, 1998 from $69.2 million for the same period in
1997. This increase is primarily due to more cash being used for acquisitions
in the six months ended June 30, 1998 compared to the same period in 1997.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash flow from financing activities increased to $413.8 million for the six
months ended June 30, 1998 from $24.1 million for the same period in 1997 as
a result of net proceeds received from issuing stock and debt in 1998.
- 21 -
THE MACERICH COMPANY (THE COMPANY)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1998 AND 1997
REVENUES
Minimum and percentage rents together increased by $5.8 million to $41.3
million for the three months ended June 30, 1998 compared to $35.5 million in
the three months ended June 30, 1997. The 1997 Acquisition Centers
contributed $5.4 million of the increase with approximately $0.5 million
generated from the Same Centers. The impact of EITF 98-9, which was
implemented April 1, 1998, reduced percentage rents by $1.8 million for the
three months ended June 30, 1998.
Tenant recoveries for the second quarter of 1998 increased by $3.2 million
compared to the second quarter of 1997. The addition of the 1997 Acquisition
Centers represented 2.2 million of this increase with the remaining increase
of $1.0 million attributable to the Same Centers.
EXPENSES
Shopping center expenses increased by $3.1 million for the three months ended
June 30, 1998 compared to the same period in 1997. Approximately $2.3
million of the increase was due to the addition of the 1997 Acquisition
Centers. The Same Centers had a net increase of $0.8 million, primarily from
an increase in maintenance, repair, security and utility expenses.
General and administrative expenses increased to $1.1 million for the three
months ended June 30, 1998 compared to $0.4 million in the same period in
1997, primarily due to the accounting change required by EITF 97-11,
"Accounting for Internal Costs Relating to Real Estate Property
Acquisitions", which requires the expensing of internal acquisition costs
that had been previously capitalized. The increase is also attributable to
increased executive and director compensation expense.
Interest expense increased to $20.6 million for the three months ended June
30, 1998 compared to the $16.4 million for the three months ended June 30,
1997. This increase of $4.2 million is partially attributable to the
acquisition activity in 1997 and 1998, which was partially funded with
secured debt and borrowings under the Company's line of credit. In addition,
in June and July of 1997, the Company issued $161.4 million of convertible
debentures which resulted in $2.8 million of the variance.
Depreciation and amortization increased to $11.9 million for the three months
ended June 30, 1998 compared to $10.2 million for the same period in 1997.
This increase of $1.7 million relates primarily to the 1997 Acquisition
Centers.
INCOME FROM UNCONSOLIDATED JOINT VENTURES AND THE MANAGEMENT COMPANIES
The income from unconsolidated joint ventures and the Management Companies
increased to $4.2 million for the three months ended June 30, 1998 compared
to $0.7 million for the same period in 1997. This increase was primarily due
to the Joint Venture Acquisitions.
NET INCOME
Net income for the three months ended June 30, 1998 increased to $7.4 million
compared to $6.2 million for the three months ended June 30, 1997. This
increase was due to the factors discussed above.
- 22 -
THE MACERICH COMPANY (THE COMPANY)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company intends to meet its short term liquidity needs 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 loan indebtedness at June 30, 1998 was
$1,487.2 billion (including its pro rata share of joint venture debt). This
equated to a debt to Total Market Capitalization (defined as total debt of
the Company, including its pro rata share of joint venture debt, plus
aggregate market value of outstanding shares of common stock, assuming full
conversion of all outstanding OP Units and preferred stock into common stock)
rate of 48.6% at June 30, 1998. The Company's debt consists primarily of
fixed rate, conventional mortgages payable secured by individual properties.
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 statement, effective December 8,
1997, to sell securities. The shelf registration was for a total of $500
million of common stock, common stock warrants or common stock rights. On
February 18, 1998, the Company issued 1,052,650 shares and on February 23,
1998, an additional 1,826,484 shares were issued. On April 24, 1998, the
Company issued 808,989 shares and an additional 967,256 and 1,864,802 shares
were issued on April 29, 1998 and May 29, 1998, respectively. The total
gross proceeds of these transactions were approximately $178.8 million,
leaving approximately $321.2 million available under the shelf registration
statement.
The Company has an unsecured line of credit up to $150 million. There was
$55 million outstanding at December 31, 1997 and $93 million outstanding on
June 30, 1998.
At June 30, 1998 and December 31, 1997, the Company had cash and cash
equivalents of $96.4 million and $25.2 million, respectively.
- 23 -
THE MACERICH COMPANY (THE COMPANY)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
YEAR 2000 COMPLIANCE
The Company has been advised by its independent software vendor that it has
completed its evaluation, testing and modification of the property management
and accounting software used by the Company and the necessary changes have
been completed to achieve year 2000 compliance. The Company is conducting
its own evaluation and testing regarding this software and does not believe
there will be any significant accounting or property management impact as a
result of the year 2000. In addition, the Company is in the process of
evaluating and/or testing computer and other operational systems located at
its properties for any potential year 2000 compliance issues.
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 (computed in
accordance with GAAP), excluding gains or losses from debt restructuring and
sales or write down of assets, plus depreciation and amortization (excluding
depreciation on personal property and amortization of loan and financial
instrument costs) and after adjustments for unconsolidated entities.
Adjustments for unconsolidated entities will be calculated on the same basis.
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
- --available to common stockholders to FFO:
SIX MONTHS ENDED JUNE 30,
---------------------------------------------------
1998 1997
--------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
------ --------- ------- ---------
(AMOUNTS IN THOUSANDS)
Net income -- available to common stockholders $ 14,190 $ 12,924
Adjustments to reconcile net income to FFO:
Minority interest 6,190 6,323
Depreciation and amortization on wholly owned properties 23,607 19,681
Pro rata share of unconsolidated entities' depreciation and
amortization 4,427 1,113
Gain on sale of assets (9) --
Extraordinary loss on early extinguishment of debt 90 512
Pro rata share of (gain) loss on sale or write-down 164 (66)
from unconsolidated entities
Amortization of loan costs, including interest rate caps (1,502) (833)
Depreciation of personal property (366) (223)
--------- ---------
FFO -- basic (1) 41,063 46,791 38,008 39,431
To arrive at FFO -- diluted:
Impact of convertible preferred stock 2,949 2,706 -- --
Impact of stock options and restricted stock using
the treasury method 619 256 421 120
Impact of convertible debentures (n/a anti-dilutive)
------ --------- ------- ---------
FFO -- diluted (2) 44,631 $ 49,753 38,429 $ 39,551
------ --------- ------- ---------
------ --------- ------- ---------
- 24 -
THE MACERICH COMPANY (THE COMPANY)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
THREE MONTHS ENDED JUNE 30,
---------------------------------------------------
1998 1997
--------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
------ --------- ------- ---------
(AMOUNTS IN THOUSANDS)
Net income -- available to common stockholders $ 7,367 $ 6,172
Adjustments to reconcile net income to FFO:
Minority interest 3,182 3,155
Depreciation and amortization on wholly owned properties 11,894 10,207
Pro rata share of unconsolidated entities' depreciation and
amortization 3,057 560
Gain on sale of assets (9) --
Extraordinary loss on early extinguishment of debt -- 512
Pro rata share of (gain) loss on sale or write-down (205) (64)
from unconsolidated entities
Amortization of loan costs, including interest rate caps (716) (468)
Depreciation of personal property (192) (114)
--------- ---------
FFO -- basic (1) 42,853 24,378 38,059 19,960
To arrive at FFO -- diluted:
Impact of convertible preferred stock 4,471 2,057 -- --
Impact of stock options and restricted stock using
the treasury method 572 -- 421 60
Impact of convertible debentures (n/a anti-dilutive)
------ --------- ------- ---------
FFO -- diluted (2) 47,896 $ 26,435 38,480 $ 20,020
------ --------- ------- ---------
------ --------- ------- ---------
1) Calculated based upon basic net income as adjusted to reach basic FFO.
Weighted average number of shares includes the weighted average shares of
common stock outstanding for 1998 and 1997 assuming the conversion of
all outstanding OP units.
2) The computation of FFO -- diluted and diluted average number of shares
outstanding includes the effect of outstanding common stock options and
restricted stock using the treasury method. Convertible debentures are
anti-dilutive and are not included. On February 25, 1998, the Company sold
$100 million of cumulative convertible preferred stock. On June 17, 1998,
the Company sold an additional $150 million of cumulative convertible
preferred stock. The preferred stock can be converted on a 1 for 1 basis
for common stock. These preferred shares are not assumed converted for
purposes of net income per share as they would be anti-dilutive to that
calculation. The preferred shares are assumed converted for purposes of
FFO per share as they are dilutive to that calculation.
Included in minimum rents were rents attributable to the accounting practice
of straight-lining of rents. The amount of straight-lining of rents that
impacted minimum rents was $1.8 million and $1.7 million for the six months
ended June 30, 1998 and 1997, respectively; and $.9 million and $1.0 million
for the three months ended June 30, 1998 and 1997, respectively.
- 25 -
THE MACERICH COMPANY (THE COMPANY)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
INFLATION
In the last three years, inflation has not had a significant impact on the
Company because of a relatively low inflation rate. Most of 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
In March, 1998, the FASB, through its Emerging Issues Task Force ("EITF"),
concluded based on EITF 97-11, "Accounting for Internal Costs Relating to
Real Estate Property Acquisitions," that all internal costs to source,
analyze and close acquisitions should be expensed as incurred. The Company
has historically capitalized these costs, in accordance with GAAP. The
Company has adopted the FASB's interpretation effective March 19, 1998, and
expects the impact to be an approximate $.06 per share reduction of net
income and FFO -- diluted per share in 1998.
In May, 1998, the FASB, through the EITF, modified the timing on recognition
of revenue for percentage rent received from tenants in EITF 98-9,
"Accounting for Contingent Rents in Interim Financial Periods." The Company
applied this accounting change as of April 1, 1998. Although the Company
believes this accounting change will have no material impact on the annual
percentage rent recognized, the accounting change had the effect of deferring
$1.8 million of percentage rent that would have been recognized using the
previous GAAP accounting method for percentage rent recognition. As a result
of this accounting change, the Company expects a portion of percentage rent
that previously would be recognized in the second and third quarters to be
recognized in the fourth quarter.
- 26 -
THE MACERICH COMPANY (THE COMPANY)
PART II
OTHER INFORMATION
Item 1 Legal Proceedings
During the ordinary course of business, the Company, from time to
time, is threatened with, or becomes a party to, legal actions and
other proceedings. Management is of the opinion that the outcome of
currently known actions and proceedings to which it is a party
will not, singly or in the aggregate, have a material adverse effect
on the Company.
Item 2 Changes in Securities and Use of Proceeds
On June 17, 1998, the Company sold 5,487,471 shares of its Series B
Cumulative Convertible Redeemable Preferred Stock, par value $.01
per share (the "Series B Preferred Stock"), at a price of $27.335
per share, for total gross proceeds of approximately $150 million,
in a private placement to The Ontario Teachers' Pension Plan Board
("Ontario Teachers"), an accredited investor, pursuant to Section
4(2) of the Securities Act. In lieu of a placement fee, the total
purchase price was reduced by approximately $1.5 million, for net
proceeds to the Company of $148.5 million. The Series B Preferred
Stock can be converted into shares of Common Stock on a one-for-one
basis subject to certain limitations. The proceeds from the sale of
the Series B Preferred Stock were used to acquire South Plains Mall
and Westside Pavilion and for general corporate purposes.
Additional information regarding the Series B Preferred Stock,
including the Articles of Amendment and Restatement and
Registration Rights Agreement with respect to the Series B
Preferred Stock, was filed with the Commission on Form 8-K dated
July 14, 1998 (event date June 17, 1998).
On July 24, 1998, as partial consideration for the acquisition of
the Village at Corte Madera ("Corte Madera"), The Macerich
Partnership, L.P. (the "Operating Partnership") issued $8 million
of OP Units in a private placement pursuant to Section 4(2) of the
Securities Act to Harry S. Newman and LeRoy H. Brettin (the
"Investors") as sellers of Corte Madera. The OP Units are
redeemable by the Operating Partnership for cash, or at the option
of the Company, for Common Stock. The Company and the Operating
Partnership entered into a Redemption, Registration Rights and
Lock-Up Agreement (the "Registration Rights Agreement") with the
Investors with respect to such OP Units and Common Stock. The
Registration Rights Agreement, among other things, provides certain
piggyback registration rights to the Investors. A copy of the
Registration Rights Agreement is attached hereto as Exhibit 4.1.
Additional information regarding the purchase of Corte Madera was
filed with the Commission on Form 8-K dated August 7, 1998, event
date July 24, 1998.
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
The following matters were voted upon at the Annual Meeting of
Stockholders held on May 29, 1998:
A. The following three persons were elected as Directors of the
Company to serve until the annual meeting of stockholders in 2001 and until
their respective successors are duly elected and qualified:
Number of Shares
----------------
For Against Authority Withheld
--- ------- ------------------
Edward C. Coppola 22,020,047 - 886,209
Fred S. Hubbell 22,019,547 - 886,709
Dr. William P. Sexton 22,019,572 - 886,684
B. The ratification of selection of Coopers & Lybrand LLP as
independent public accountants for the fiscal year ended December 31, 1998.
Votes
For 22,852,444
Against 3,807
Abstain 50,005
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
4.1 Redemption, Registration Rights and Lock-up Agreement dated
as of July 24, 1998 among The Macerich Company, The Macerich
Partnership, L.P., Harry S. Newman, Jr. and LeRoy H. Brettin.
(b) Reports on Form 8-K
A report on Form 8-K dated April 6, 1998, event date February
25, 1998, was filed with the Securities and Exchange Commission
for the purpose of disclosing the issuance of 3,627,131 shares of
the Company's Series A Cumulative Convertible Redeemable
Preferred Stock.
A report on Form 8-K/A dated April 22, 1998, event date
February 27, 1998, was filed with the Securities and Exchange
Commission for the purpose of disclosing the acquisition of
twelve regional malls by SDG Macerich Properties, L.P. from the
Equitable Assurance Society of the United States.
A report on Form 8-K dated April 23, 1998, event date April 21,
1998, was filed with the Securities and Exchange Commission for
the purpose of disclosing the Underwriting Agreement and
certain other documents regarding the sale of 808,989 shares of
Common Stock.
A report on Form 8-K dated April 28, 1998, event date April 23,
1998, was filed with the Securities and Exchange Commission for
the purpose of disclosing the Underwriting Agreement and
certain other documents regarding the sale of 967,255 shares of
Common Stock to Merrill Lynch, Pierce, Fenner & Smith,
Incorporated.
- 27 -
THE MACERICH COMPANY (THE COMPANY)
(b) Reports on Form 8-K continued:
A report on Form 8-K dated May 29, 1998, event date May 27, 1998, was
filed with the Securities and Exchange Commission for the purpose of
disclosing the Underwriting Agreement and certain other documents
regarding the sale of 1,864,802 shares of Common Stock.
A report on Form 8-K dated July 2, 1998, event date June 19, 1998, was
filed with the Securities and Exchange Commission for the purpose of
disclosing the acquisition of South Plains Mall.
A report on Form 8-K dated July 10, 1998, event date July 1, 1998, was
filed with the Securities and Exchange Commission for the purpose of
disclosing the acquisition of Westside Pavilion.
A report on Form 8-K dated July 14, 1998, event date June 17, 1998, was
filed with the Securities and Exchange Commission for the purpose of
disclosing the issuance of 5,487,471 shares of the Company's Series B
Cumulative Convertible Redeemable Preferred Stock.
A report on Form 8-K dated August 7, 1998, event date July 24, 1998, was
filed with the Securities and Exchange Commission for the purpose of
disclosing the acquisition of the Village at Corte Madera.
- 28 -
THE MACERICH COMPANY (THE COMPANY)
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: August 14, 1998
- 29 -
THE MACERICH COMPANY (THE COMPANY)
Exhibit Index
Exhibit No.
Page
(a) Exhibits
Number Description
4.1 Redemption, Registration Rights and Lock-up Agreement dated
as of July 24, 1998 among The Macerich Company, The Macerich
Partnership, L.P., Harry S. Newman, Jr. and LeRoy H. Brettin.
- 30 -
REDEMPTION, REGISTRATION RIGHTS AND LOCK-UP AGREEMENT
This REDEMPTION, REGISTRATION RIGHTS AND LOCK-UP
AGREEMENT is made as of the 24th day of July, 1998 (this "AGREEMENT"), among
THE MACERICH COMPANY, a Maryland corporation (the "COMPANY"), The Macerich
Partnership, L.P., a Delaware limited partnership (the "PARTNERSHIP"), and
the investors set forth on the signature pages hereto (each an "INVESTOR" and
collectively the "INVESTORS").
W I T N E S S E T H:
WHEREAS, on the Closing Date (as defined below), each of
the Investors will hold units ("OP Units") representing a limited partnership
interest in the Partnership, which may be redeemed for shares of Common
Stock, $.01 par value per share, of the Company (the "COMMON STOCK") on the
terms and conditions set forth in the Agreement of Limited Partnership (the
"PARTNERSHIP AGREEMENT") of the Partnership;
WHEREAS, the Company has agreed to provide Investors with
certain redemption and registration rights as set forth herein;
WHEREAS, the Investors have agreed to the Lock-Up
provision set forth herein; and
NOW, THEREFORE, in consideration of the mutual covenants
and undertakings contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
and subject to and on the terms and conditions herein set forth, the parties
hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1 "BUSINESS DAY" means any day on which the New York
Stock Exchange is open for trading.
1.2 "CLOSING DATE" means the date hereof.
1.3 "ELIGIBLE SECURITIES" means all or any portion of
any shares of Common Stock acquired by Investors upon redemption of OP Units
held by Investors on the Closing Date, PROVIDED, HOWEVER, that if upon any
redemption of OP Units the Company issues to any Investor Common Stock where
its issuance was registered under the Securities Act ("Unrestricted Common
Stock"), such shares of Unrestricted Common Stock shall not be deemed Eligible
1
Securities for purposes of this Agreement and the Investor will have no
registration rights, and the Company will be relieved of all of its
obligations hereunder, with respect to those shares of Unrestricted Common
Stock.
As to any proposed offer or sale of Eligible Securities,
such securities shall cease to be Eligible Securities with respect to such
proposed offer or sale when (i) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act
and such securities shall have been disposed of in accordance with such
registration statement or (ii) such securities are permitted to be
distributed pursuant to Rule 144(k) (or any successor provision to such Rule)
under the Securities Act or (iii) such securities shall have been otherwise
transferred pursuant to an applicable exemption under the Securities Act, new
certificates for such securities not bearing a legend restricting further
transfer shall have been delivered by the Company and such securities shall
be freely transferable to the public without registration under the
Securities Act.
1.4 "PERMITTED TRANSFEREES" with respect to each
Investor shall mean any Affiliates (as defined in the Partnership Agreement)
of such Investor.
1.5 "PERSON" means an individual, a partnership (general
or limited), corporation, joint venture, business trust, cooperative,
association or other form of business organization, whether or not regarded
as a legal entity under applicable law, a trust (inter vivos or
testamentary), an estate of a deceased, insane or incompetent person, a
quasi-governmental entity, a government or any agency, authority, political
subdivision or other instrumentality thereof, or any other entity.
1.6 "REGISTRATION EXPENSES" means all expenses incident
to the Company's performance of or compliance with the registration
requirements set forth in this Agreement including, without limitation, the
following: (i) the fees, disbursements and expenses of the Company's
counsel(s) (United States and foreign), accountants and experts in connection
with the registration of Eligible Securities to be disposed of under the
Securities Act; (ii) all expenses in connection with the preparation,
printing and filing of the registration statement, any preliminary prospectus
or final prospectus, any other offering document and amendments and
supplements thereto and the mailing and delivering of copies thereof to the
underwriters and dealers; (iii) the cost of printing or producing any
agreement(s) among underwriters, underwriting agreement(s) and blue sky or
legal investment memoranda, any selling agreements and any other documents in
connection with the offering, sale or delivery of Eligible Securities to be
disposed of; (iv) all expenses in connection with the qualification of
Eligible Securities to be disposed of for offering and sale under state
securities laws, including the fees and disbursements of counsel for the
underwriters in connection with such qualification and in connection with any
blue sky and legal investment surveys; (v) the filing fees incident to
securing any required review by the National Association of Securities
Dealers, Inc. of the terms of the sale of Eligible Securities to be disposed
of; and (vi) fees and expenses incurred in connection with the listing of
Eligible Securities on each securities exchange on which securities of the
same class are then listed; PROVIDED, however, that Registration Expenses
with respect to any registration pursuant to this Agreement shall not include
underwriting discounts or commissions attributable to Eligible Securities,
transfer taxes applicable to Eligible Securities or fees, disbursements and
expenses of Investor's counsel, accountants and experts.
2
1.7 "SEC" means the Securities and Exchange Commission.
1.8 "SECURITIES ACT" shall mean the Securities Act of
1933, as amended, and the rules and regulations of the SEC thereunder, all as
the same shall be in effect at the relevant time.
ARTICLE II
EFFECTIVENESS OF REGISTRATION RIGHTS
2.1 EFFECTIVENESS OF REGISTRATION RIGHTS. This
Agreement shall become effective immediately, provided, however, that the
exercise by any Investor of any registration rights granted pursuant to
Article 3 hereof prior to the first anniversary of the Closing Date shall be
subject to such Investor first having received written consent from the
Company.
ARTICLE III
REDEMPTION, REGISTRATION RIGHTS AND LOCK-UP AGREEMENT
3.1 REDEMPTION RIGHTS. The Investor, upon admission as
a limited partner of the Partnership, will be granted rights to redeem OP
Units on the terms and conditions set forth in the Partnership Agreement,
provided that notwithstanding anything set forth in the Partnership
Agreement, the Investor may not: (i) exercise such rights with respect to all
or any portion of the OP Units prior to that date which is six months prior
to the Closing, (ii) deliver more than two separate redemption notices per
calendar year, and (iii) redeem less than 5,000 OP Units (or, if the Investor
holds less than 5,000 OP Units, all of the OP Units held by the Investor) in
a single redemption.
3.2 NOTICE AND REGISTRATION. If the Company proposes to
register any shares of Common Stock or other securities issued by it having
terms substantially similar to Eligible Securities ("Other Securities") for
public sale under the Securities Act (whether proposed to be offered for sale
by the Company or by any other Person) on a form and in a manner which would
permit registration of Eligible Securities for sale to the public under the
Securities Act, it will give prompt written notice to each Investor of its
intention to do so, and upon the written request of any of the Investors
delivered to the Company within fifteen (15) Business Days after the giving
of any such notice (which request shall specify the number of Eligible
Securities intended to be disposed of by such Investor and the intended
method of disposition thereof) the Company will use all reasonable efforts to
effect, in connection with the registration of the Other Securities, the
registration under the Securities Act of all Eligible Securities which the
Company has been so requested to register by the Investor or Investors, to
the extent required to permit the disposition (in accordance with the
intended method or methods thereof as aforesaid) of Eligible Securities so to
be registered provided that:
(a) if, at any time after giving such written notice of its
intention to register any Other Securities and prior to the
effective date of the registration statement filed in
connection with such registration, the Company shall
determine for any reason not to register the Other
Securities, the Company may, at its election, give
3
written notice of such determination to the Investor or
Investors seeking registration hereunder (hereafter referred
to as the "SELLING INVESTORS") and thereupon the Company
shall be relieved of its obligation to register such
Eligible Securities in connection with the registration of
such Other Securities (but not from its obligation to
pay Registration Expenses to the extent incurred in
connection therewith as provided in Section 3.2);
(b) The Company will not be required to effect any
registration pursuant to this Article 3 if the Company shall
have been advised in writing (with a copy to Investor) by a
nationally recognized independent investment banking firm
selected by the Company to act as lead underwriter in
connection with the public offering of securities by the
Company, that in such firm's opinion, a registration of the
Eligible Securities which the Company has been requested to
register by Investor at that time would materially and
adversely affect the Company's own scheduled offering; and
(c) The Company shall not be required to effect any
registration of Eligible Securities under this Article 3
incidental to the registration of any of its securities in
connection with mergers, acquisitions, exchange offers,
subscription offers, dividend reinvestment plans or stock
options or other employee benefit plans.
3.3 REGISTRATION EXPENSES. The Company (as between the
Company and the Selling Investors) shall be responsible for the payment of
all Registration Expenses in connection with any registration pursuant to
this Article 3.
3.4 LOCK-UP AGREEMENT. The Investor agrees, that, prior
to that date which is one year following the Closing Date, it will not
directly or indirectly, offer, sell, contract to sell, grant any option to
purchase, make any short sale, transfer, pledge, cause a registration of, or
otherwise dispose of or make a distribution of any of the shares of Common
Stock acquired by the redemption of all or any portion of its OP Units,
without the prior written consent of the Company.
ARTICLE IV
REGISTRATION PROCEDURES
4.1 REGISTRATION AND QUALIFICATION. If and whenever the
Company is required to use all reasonable efforts to effect the registration
of any Eligible Securities under the Securities Act as provided in Article 3,
the Company will as promptly as is practicable:
(a) prepare, file and use all reasonable efforts to cause
to become effective a registration statement under the
Securities Act regarding the Eligible Securities to be
offered;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the
prospectus used in connection therewith as may be necessary
to keep such registration statement effective and to comply
with the
4
provisions of the Securities Act with respect to the
disposition of all Eligible Securities until the earlier of
such time as all of such Eligible Securities have been
disposed of in accordance with the intended methods of
disposition by the Selling Investors set forth in
such registration statement or the expiration of twelve (12)
months after such registration statement becomes effective;
(c) furnish to each Selling Investor and to any underwriter
of such Eligible Securities such number of conformed copies
of such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies
of the prospectus included in such registration statement (including
each preliminary prospectus and any summary prospectus), in conformity
with the requirements of the Securities Act, such documents
incorporated by reference in such registration statement or
prospectus, and such other documents as such Selling Investor or such
underwriter may reasonably request;
(d) use all reasonable efforts to register or qualify all Eligible
Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as the Selling
Investors or any underwriter of such Eligible Securities shall
reasonably request, and do any and all other acts and things which may
be reasonably requested by the Selling Investors or any underwriter to
consummate the disposition in such jurisdictions of the Eligible
Securities covered by such registration statement, except the Company
shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction wherein it is
not so qualified, or to subject itself to taxation in any jurisdiction
where it is not then subject to taxation, or to consent to general
service of process in any jurisdiction where it is not then subject to
service of process;
(e) use all reasonable efforts to list the Eligible Securities on
each national securities exchange on which the Common Stock is then
listed, if the listing of such securities is then permitted under the
rules of such exchange; and
(f) immediately notify the Selling Investors at any time when a
prospectus relating to a registration pursuant to Article 3 hereof is
required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue
statement of material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, and at the request of any Selling Investor prepare and
furnish to such Investor as many copies of a supplement to or an
amendment of such prospectus as the Selling Investor may request so
that, as thereafter delivered to the purchasers of such Eligible
Securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
5
The Company may require the Investors to furnish the Company such information
regarding the Investors and the distribution of such securities as the
Company may from time to time reasonably request in writing and as shall be
required by law or by the SEC in connection with any registration. The
Company may also impose such restrictions and limitations on the distribution
of such Eligible Securities as the Company reasonably believes are necessary
or advisable to comply with applicable law or to effect an orderly
distribution, including those restrictions set forth in Section 4.3 hereof.
4.2 UNDERWRITING. (a) In the event that any
registration pursuant to Article 3 hereof shall involve, in whole or in part,
an underwritten offering, the Company may require Eligible Securities
requested to be registered pursuant to Article 3 to be included in such
underwriting on the same terms and conditions as shall be applicable to the
Other Securities being sold through underwriters under such registration.
(b) If requested by the underwriters for any
underwritten offering of Eligible Securities pursuant to a registration
requested hereunder, the Company will enter into and perform its obligations
under an underwriting agreement with such underwriters for such offering,
such agreement to contain such representations and warranties by the Company
and such other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, indemnities and contribution to the effect and to the
extent provided in Article 6 hereof. Each Selling Investor shall be a party
to any such underwriting agreement and the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit
of such underwriters shall also be made to and for the benefit of each such
Selling Investor. Such agreement shall also contain such representations and
warranties by each such Selling Investor and such other terms and provisions
as are customarily contained in underwriting agreements with respect to
secondary distributions, including, without limitation, indemnities and
contribution to the effect and to the extent provided in Article 6.
4.3 BLACKOUT PERIODS. At any time when a registration
statement effected pursuant to Article 3 relating to Eligible Securities is
effective, upon written notice from the Company to an Investor that the
Company has determined in good faith, with the advice of counsel, that such
Investor's sale of Eligible Securities pursuant to the registration statement
would require disclosure of non-public material information the disclosure of
which would have a material adverse effect on the Company or would otherwise
adversely effect a material financing, acquisition, disposition, merger or
other comparable transaction (a "Blackout"), such Investor shall suspend
sales of Eligible Securities pursuant to such registration statement until
the earlier of:
(a) the date upon which such material information
is disclosed to the public or ceases to be material, or
(b) such time as the Company notifies such Investor
that sales pursuant to such registration statement may be resumed.
4.4 QUALIFICATION FOR RULE 144 SALES. The Company will
take all actions reasonably necessary to comply with the filing requirements
described in Rule 144(c)(1) so as to
6
enable the Investors to sell Eligible Securities without registration under
the Securities Act and, upon the written request of any Investor, the Company
will deliver to such Investor a written statement as to whether it has
complied with such filing requirements.
ARTICLE V
PREPARATION; REASONABLE INVESTIGATION
5.1 PREPARATION; REASONABLE INVESTIGATION. In
connection with the preparation and filing of each registration statement
registering Eligible Securities under the Securities Act, the Company will
give each Selling Investor and the underwriters, if any, and their respective
counsel and accountants, drafts of such registration statement for their
review and comment prior to filing and such reasonable and customary access
to its books and records and such opportunities to discuss the business of
the Company with its officers and the independent public accountants who have
certified its financial statements as shall be necessary, in the opinion of
the Selling Investors and such underwriters or their respective counsel, to
conduct a reasonable investigation within the meaning of the Securities Act.
ARTICLE VI
INDEMNIFICATION AND CONTRIBUTION
6.1 INDEMNIFICATION AND CONTRIBUTION. (a) In the event
of any registration of Eligible Securities hereunder, the Company will enter
into customary indemnification arrangements to indemnify and hold harmless
each Selling Investor, and each Person who participates as an underwriter in
the offering or sale of such securities, and each Person, if any, who
controls such underwriter within the meaning of the Securities Act against
any losses, claims, damages, liabilities and expenses, joint or several, to
which such Person may be subject under the Securities Act or otherwise
insofar as such losses, claims, damages, liabilities or expenses (or actions
or proceedings in respect thereof) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of any material fact contained
in any registration statement under which such securities were registered
under the Securities Act, any preliminary prospectus or final prospectus
included therein, or any amendment or supplement thereto, or any document
incorporated by reference therein, or (ii) any omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, and the Company will promptly
reimburse each such Person for any legal or any other expenses reasonably
incurred by such Person in connection with investigating or defending any
such loss, claim, damage, liability, action or proceeding; PROVIDED that the
Company shall not be liable in any such case to the extent that any such
loss, claim, damage, liability (or action or proceeding in respect thereof)
or expense arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in such registration
statement, any such preliminary prospectus or final prospectus, amendment or
supplement in reliance upon and in conformity with written information
furnished to the Company by such Selling Investor expressly for use in the
registration statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Selling Investor
or any such
7
Person and shall survive the transfer of such securities by such Selling
Investor. The Company also shall agree to provide provision for contribution
as shall be reasonably requested by the Selling Investors or any underwriters
in circumstances where such indemnity is held unenforceable.
(b) Each Selling Investor, by virtue of exercising its
registration rights hereunder, agrees and undertakes to enter into customary
indemnification arrangements to indemnify and hold harmless (in the same
manner and to the same extent as set forth in clause (a) of this Article 6)
the Company, each director of the Company, each officer of the Company who
shall sign such registration statement, each Person who participates as an
underwriter in the offering or sale of such securities and each Person, if
any, who controls the Company or any such underwriter within the meaning of
the Securities Act, with respect to any statement in or omission from such
registration statement, any preliminary prospectus or final prospectus
included therein, or any amendment or supplement thereto, but only to the
extent that such statement or omission was made in reliance upon and in
conformity with written information furnished by such Investor to the Company
expressly for use in the registration statement. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on behalf
of the Company or any such director, officer or controlling Person and shall
survive the transfer of the registered securities by the Investor and the
expiration of this Agreement. Each Investor also shall agree to provide
provision for contribution as shall be reasonably requested by the Company or
any underwriters in circumstances where such indemnity is held unenforceable.
(c) Indemnification and contribution similar to that
specified in the preceding subdivisions of this Article 6 (with appropriate
modifications) shall be given by the Company and each Selling Investor with
respect to any required registration or other qualification of Eligible
Securities under any federal or state law or regulation of governmental
authority other than the Securities Act.
ARTICLE VII
TRANSFER OF REGISTRATION RIGHTS
7.1 TRANSFER OF REGISTRATION RIGHTS. The Investors may
NOT transfer the registration rights granted hereunder to any other Person.
ARTICLE VIII
MISCELLANEOUS
8.1 CAPTIONS. The captions or headings in this
Agreement are for convenience and reference only, and in no way define,
describe, extend or limit the scope or intent of this Agreement.
8.2 SEVERABILITY. If any clause, provision or section
of this Agreement shall be invalid or unenforceable, the invalidity or
unenforceability of such clause, provision or section
8
shall not affect the enforceability or validity of any of the remaining
clauses, provisions or sections hereof to the extent permitted by applicable
law.
8.3 GOVERNING LAW. This Agreement shall be construed
and enforced in accordance with the internal laws of the State of California,
without reference to its rules as to conflicts or choice of laws.
8.4 MODIFICATION AND AMENDMENT. This Agreement may not
be changed, modified, discharged or amended, except by an instrument signed
by all of the parties hereto.
8.5 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
8.6 ENTIRE AGREEMENT. This Agreement constitutes the
entire agreement and understanding among the parties and supersedes any prior
understandings and/or written or oral agreements among them respecting the
subject matter herein.
8.7 NOTICES. All notices, requests, demands, consents
and other communications required or permitted to be given pursuant to this
Agreement shall be in writing and delivered by hand, by overnight courier
delivery service or by certified mail, return receipt requested, postage
prepaid. Notices to Investors shall be made to the address listed on the
stock transfer records of the Company.
9
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement or caused this Agreement to be executed as of the day and year
first above written.
THE MACERICH COMPANY
By:
---------------------------------
Name: Richard A. Bayer
Title: Secretary and General Counsel
THE MACERICH PARTNERSHIP, L.P.
By: The Macerich Company,
its General Partner
By:
----------------------------
Name: Richard A. Bayer
Title: Secretary and General Counsel
THE "INVESTORS"
-------------------------------
Harry S. Newman, Jr.
-------------------------------
LeRoy H. Brettin
10
5
1,000
6-MOS
DEC-31-1998
JAN-01-1998
JUN-30-1998
96,366
0
23,967
0
0
0
1,742,436
(220,329)
1,957,382
15,357
1,188,791
0
250,000
325
305,934
1,957,382
0
122,582
0
40,178
23,607
0
41,212
14,280
0
14,280
0
(90)
0
14,190
0.49
0.49
