THE MACERICH COMPANY (The Company)
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, 2001 COMMISSION FILE NO. 1-12504
THE MACERICH COMPANY
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 95-4448705
- -------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
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) 394-6000
-------------------
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Number of shares outstanding of the registrant's common stock, as of August 9,
2001.
Common stock, par value $.01 per share: 33,934,114 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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THE MACERICH COMPANY (The Company)
Form 10-Q
INDEX
Page
Part I: Financial Information
Item 1. Financial Statements
Consolidated balance sheets of the Company as of June 30, 2001 and
December 31, 2000 1
Consolidated statements of operations of the Company for the
periods from January 1 through June 30, 2001 and 2000 2
Consolidated statements of operations of the Company for the
periods from April 1 through June 30, 2001 and 2000 3
Consolidated statements of cash flows of the Company for the
periods from January 1 through June 30, 2001 and 2000 4
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 28
Item 3.
Quantitative and Qualitative Disclosures About
Market Risk 29
Part II:
Other Information 30
THE MACERICH COMPANY (The Company)
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Unaudited)
June 30, December 31.
2001 2000
----------------- -----------------
ASSETS:
Property, net $1,932,654 $1,933,584
Cash and cash equivalents 27,364 36,273
Tenant receivables, including accrued overage rents of
$975 in 2001 and $6,486 in 2000 34,327 38,922
Deferred charges and other assets, net 56,523 55,323
Investments in joint ventures and the Management Companies 271,041 273,140
----------------- -----------------
----------------- -----------------
Total assets $2,321,909 $2,337,242
================= =================
LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY:
Mortgage notes payable:
Related parties $82,665 $133,063
Others 1,115,313 1,119,684
----------------- -----------------
Total 1,197,978 1,252,747
Bank notes payable 233,250 147,340
Convertible debentures 150,848 150,848
Accounts payable and accrued expenses 20,130 24,681
Due to affiliates 2,485 8,800
Other accrued liabilities 18,065 17,887
Preferred stock dividend payable 4,831 4,831
----------------- -----------------
Total liabilities 1,627,587 1,607,134
----------------- -----------------
Minority interest in Operating Partnership 110,705 120,500
----------------- -----------------
Commitments and contingencies (Note 9)
Series A cumulative convertible redeemable preferred stock, $.01 par value,
3,627,131 shares authorized, issued and
outstanding at June 30, 2001 and December 31, 2000 98,934 98,934
Series B cumulative convertible redeemable preferred stock, $.01 par value,
5,487,471 shares authorized, issued and
outstanding at June 30, 2001 and December 31, 2000 148,402 148,402
----------------- -----------------
247,336 247,336
----------------- -----------------
Common stockholders' equity:
Common stock, $.01 par value, 100,000,000 shares
authorized, 33,850,167 and 33,612,462 shares issued and
outstanding at June 30, 2001 and December 31, 2000, respectively 338 338
Additional paid in capital 351,462 359,306
Accumulated earnings - 10,314
Accumulated other comprehensive loss (6,489) -
Unamortized restricted stock (9,030) (7,686)
----------------- -----------------
Total common stockholders' equity 336,281 362,272
----------------- -----------------
Total liabilities, preferred stock and common stockholders' equity $2,321,909 $2,337,242
================= =================
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 share and per share amounts)
(Unaudited)
Six Months Ended June 30,
-----------------------------------------------
2001 2000
--------------------- ---------------------
REVENUES:
Minimum rents $98,219 $95,080
Percentage rents 2,988 3,002
Tenant recoveries 52,166 49,438
Other 5,081 4,037
--------------------- ---------------------
Total revenues 158,454 151,557
--------------------- ---------------------
EXPENSES:
Shopping center expenses 51,977 48,108
General and administrative expense 3,515 3,181
Interest expense:
Related parties 3,959 5,042
Others 51,534 50,057
--------------------- ---------------------
Total interest expense 55,493 55,099
--------------------- ---------------------
Depreciation and amortization 32,491 29,568
Equity in income of unconsolidated
joint ventures and the management companies 12,681 13,109
Loss on sale of assets (188) (108)
--------------------- ---------------------
Income before minority interest, extraordinary item and
cumulative effect of change in accounting principle 27,471 28,602
Extraordinary loss on early extinguishment of debt (187) -
Cumulative effect of change in accounting principle - (963)
--------------------- ---------------------
Income of the Operating Partnership 27,284 27,639
Less minority interest in net income
of the Operating Partnership 4,377 4,421
--------------------- ---------------------
Net income 22,907 23,218
Less preferred dividends 9,662 9,297
--------------------- ---------------------
Net income available to common stockholders $13,245 $13,921
===================== =====================
Earnings per common share - basic:
Income before extraordinary item and cumulative effect
of change in accounting principle $0.40 $0.44
Extraordinary item (0.01) -
Cumulative effect of change in accounting principle - (0.03)
--------------------- ---------------------
Net income per share available to common stockholders $0.39 $0.41
===================== =====================
Weighted average number of common shares
outstanding - basic 33,706,000 34,120,000
===================== =====================
Weighted average number of common shares
outstanding - basic, assuming full conversion of
operating partnership units outstanding 44,860,000 45,073,000
===================== =====================
Earnings per common share - diluted:
Income before extraordinary item and cumulative effect
of change in accounting principle $0.39 $0.43
Extraordinary item - -
Cumulative effect of change in accounting principle - (0.02)
--------------------- ---------------------
Net income per share - available to common stockholders $0.39 $0.41
===================== =====================
Weighted average number of common shares
outstanding - diluted for EPS 44,860,000 45,073,000
===================== =====================
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 share and per share amounts)
(Unaudited)
Three Months Ended June 30,
-----------------------------
2001 2000
------------ -------------
REVENUES:
Minimum rents $49,553 $47,905
Percentage rents 1,140 1,471
Tenant recoveries 27,364 24,869
Other 2,634 2,010
------------ -------------
Total revenues 80,691 76,255
------------ -------------
EXPENSES:
Shopping center expenses 27,825 24,208
General and administrative expense 1,832 1,712
Interest expense:
Related parties 1,474 2,523
Others 26,023 24,424
------------ -------------
Total interest expense 27,497 26,947
------------ -------------
Depreciation and amortization 16,387 15,040
Equity in income of unconsolidated
joint ventures and the management companies 6,625 6,386
Gain (loss) on sale of assets 132 (106)
------------ -------------
Income before minority interest, extraordinary item and
cumulative effect of change in accounting principle 13,907 14,628
Extraordinary loss on early extinguishment of debt (1) -
------------ -------------
Income of the Operating Partnership 13,906 14,628
Less minority interest in net income
of the Operating Partnership 2,249 2,383
------------ -------------
Net income 11,657 12,245
Less preferred dividends 4,831 4,648
------------ -------------
Net income available to common stockholders $6,826 $7,597
============ =============
Earnings per common share - basic:
Income before extraordinary item and cumulative effect
of change in accounting principle $0.20 $0.22
------------ -------------
Net income per share available to common stockholders $0.20 $0.22
============ =============
Weighted average number of common shares
outstanding - basic 33,771,000 34,148,000
============ =============
Weighted average number of common shares
outstanding - basic, assuming full conversion of
operating partnership units outstanding 44,924,000 45,093,000
============ =============
Earnings per common share - diluted:
Income before extraordinary item and cumulative effect
of change in accounting principle $0.20 $0.22
------------ -------------
Net income per share - available to common stockholders $0.20 $0.22
============ =============
Weighted average number of common shares
outstanding - diluted for EPS 44,924,000 45,093,000
============ =============
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)
(Unaudited)
For the six months ended June 30,
------------------------------------
2001 2000
---------------- -----------------
Cash flows from operating activities:
Net income - available to common stockholders $13,245 $13,921
Preferred dividends 9,662 9,297
---------------- -----------------
Net income 22,907 23,218
---------------- -----------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Extraordinary loss on early extinguishment of debt 187 -
Cumulative effect of change in accounting principle - 963
Loss on sale of assets 188 108
Depreciation and amortization 32,491 29,568
Amortization of net discount (premium) on trust deed note payable 17 17
Minority interest in net income of the Operating Partnership 4,377 4,421
Changes in assets and liabilities:
Tenant receivables, net 4,595 6,118
Other assets 236 3,188
Accounts payable and accrued expenses (4,551) (10,087)
Due to affiliates (6,315) (5,470)
Other liabilities 178 (3,382)
---------------- -----------------
Total adjustments 31,403 25,444
---------------- -----------------
Net cash provided by operating activities 54,310 48,662
---------------- -----------------
Cash flows from investing activities:
Acquisitions of property, equipment and improvements (4,703) (1,456)
Renovations and expansions of Centers (17,412) (11,387)
Tenant allowances (5,140) (2,464)
Deferred charges (5,930) (5,440)
Equity in income of unconsolidated joint ventures
and the Management Companies (12,681) (13,109)
Distributions from joint ventures 23,982 85,707
Contributions to joint ventures (9,202) (387)
---------------- -----------------
Net cash (used in) provided by investing activities (31,086) 51,464
---------------- -----------------
Cash flows from financing activities:
Proceeds from mortgages, notes and debentures payable 134,410 37,962
Payments on mortgages, notes and debentures payable (103,286) (85,729)
Dividends and distributions (53,595) (48,563)
Dividends to preferred stockholders (9,662) (9,297)
---------------- -----------------
Net cash used in financing activities (32,133) (105,627)
---------------- -----------------
Net decrease in cash (8,909) (5,501)
Cash and cash equivalents, beginning of period 36,273 40,455
---------------- -----------------
Cash and cash equivalents, end of period $27,364 $34,954
================ =================
Supplemental cash flow information:
Cash payment for interest, net of amounts capitalized $55,977 $55,263
================ =================
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)
(Unaudited)
1. Interim Financial Statements and Basis of Presentation:
The accompanying consolidated financial statements of The Macerich
Company (the "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. They do not include all of the information and
footnotes required by GAAP for complete financial statements and have
not been audited by independent public accountants.
The unaudited interim consolidated financial statements should be read
in conjunction with the audited consolidated financial statements and
related notes included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2000. 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, 2000 has
been derived from the audited financial statements, but does not
include all disclosures required by GAAP.
Certain reclassifications have been made in the 2000 consolidated
financial statements to conform to the 2001 financial statement
presentation.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements"
("SAB 101"), which became effective for periods beginning after
December 15, 1999. This bulletin modified the timing of revenue
recognition for percentage rent received from tenants. This change will
defer recognition of a significant amount of percentage rent for the
first three calendar quarters into the fourth quarter. The Company
applied this accounting change as of January 1, 2000. The cumulative
effect of this change in accounting principle, at the adoption date of
January 1, 2000, including the pro rata share of joint ventures, was
approximately $1,750.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") 133, "Accounting
for Derivative Instruments and Hedging Activities," ("SFAS 133") which
requires companies to record derivatives on the balance sheet, measured
at fair value. Changes in the fair values of those derivatives will be
accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. The key criterion for hedge accounting
is that the hedging relationship must be highly effective in achieving
offsetting changes in fair value or cash flows. In June 1999, the FASB
issued SFAS 137, "Accounting for Derivative Instruments and Hedging
Activities," which delays the implementation of SFAS 133 from January
1, 2000 to January 1, 2001. In June 2000, the FASB issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities - an Amendment of FASB Statement No. 133," ("SFAS138"),
which amends the accounting and reporting standards of SFAS 133. As a
result of the adoption of SFAS 133 on January 1, 2001, the Company
recorded a transition adjustment of $9,445 to accumulated other
comprehensive income related to treasury rate lock transactions settled
in prior years. The entire transition adjustment was reflected in the
quarter ended March 31, 2001. The transition adjustment of $9,445, less
minority interest of $2,297 and amortization of $659 for the six months
ended June 30, 2001, would be subtracted from net income to arrive at
comprehensive income of $16,418. The Company expects that $1,328 will
be reclassified from
- 5 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
1. Interim Financial Statements and Basis of Presentation - Continued:
accumulated other comprehensive income to earnings for the year ended
December 31, 2001. During the quarter ended June 30, 2001, the Company
reclassified $331 from accumulated other comprehensive income to
earnings.
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 six and
three months ending June 30, 2001 and 2000. The computation of diluted
earnings per share does not include the effect of outstanding restricted
stock and common stock options issued under the employee and director
stock incentive plans as they are antidilutive using the treasury method.
The Operating Partnership units ("OP units") not held by the Company have
been included in the diluted EPS calculation since they are redeemable on
a one-for-one basis. The following table reconciles the basic and diluted
earnings per share calculation:
For the Six Months Ended June 30,
--------------------------------------------------------------------------
-------------------------------------- ----------------------------------
2001 2000
-------------------------------------- ----------------------------------
Net Net
Income Shares Per Share Income Shares Per Share
-------------------------------------- ----------------------------------
(In thousands, except per share data)
Net income $22,907 $23,218
Less: Preferred stock dividends 9,662 9,297
------------- -------------
Basic EPS:
Net income - available to common stockholders 13,245 33,706 $0.39 13,921 34,120 $0.41
Diluted EPS:
Effect of dilutive securities:
Conversion of OP units 4,377 11,154 4,421 10,953
Employee stock options and restricted stock n/a - antidilutive for EPS n/a - antidilutive for EPS
Convertible preferred stock n/a - antidilutive for EPS n/a - antidilutive for EPS
Convertible debentures n/a - antidilutive for EPS n/a - antidilutive for EPS
-------------------------------------- -----------------------------------
Net income - available to common stockholders $17,622 44,860 $0.39 $18,342 45,073 $0.41
====================================== ===================================
For the Three Months Ended June 30,
-------------------------------------------------------------------
---------------------------------- --------------------------------
2001 2000
---------------------------------- --------------------------------
Net Net
Income Shares Per Share Income Shares Per Share
---------------------------------- --------------------------------
(In thousands, except per share data)
Net income $11,657 $12,245
Less: Preferred stock dividends 4,831 4,648
------------- -----------
Basic EPS:
Net income - available to common stockholders 6,826 33,771 $0.20 7,597 34,148 $0.22
Diluted EPS:
Effect of dilutive securities:
Conversion of OP units 2,249 11,153 2,383 10,945
Employee stock options and restricted stock n/a - antidilutive for EPS n/a - antidilutive for EPS
Convertible preferred stock n/a - antidilutive for EPS n/a - antidilutive for EPS
Convertible debentures n/a - antidilutive for EPS n/a - antidilutive for EPS
---------------------------------- --------------------------------
Net income - available to common stockholders $9,075 44,924 $0.20 $9,980 45,093 $0.22
================================== ================================
- 6 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
2. Organization:
The Company is involved in the acquisition, ownership, redevelopment,
management and leasing of regional and community shopping centers
located throughout the United States. The Company is the sole general
partner of, and owns a majority of the ownership interests in, The
Macerich Partnership, L.P., a Delaware limited partnership (the
"Operating Partnership"). The Operating Partnership owns or has an
ownership interest in 46 regional shopping centers and five community
shopping centers aggregating approximately 42 million square feet of
gross leasable area ("GLA"). These 51 regional and community shopping
centers are referred to hereinafter as the "Centers", unless the
context otherwise requires. The Company is a self-administered and
self-managed real estate investment trust ("REIT") and conducts all of
its operations through the Operating Partnership and the Company's
three management companies, Macerich Property Management Company, LLC,
a Delaware limited liability company, Macerich Manhattan Management
Company, a California corporation, and Macerich Management Company, a
California corporation (collectively, the "Management Companies"). The
term "Management Companies" includes Macerich Property Management
Company prior to the merger with Macerich Property Management Company,
LLC on March 29, 2001.
The Company was organized to qualify as a REIT under the Internal
Revenue Code of 1986, as amended. The 21%, as of June 30, 2001, limited
partnership interest of the Operating Partnership 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 joint ventures.
The Operating Partnership's interest in each joint venture as of June
30, 2001 is as follows:
The Operating Partnership's
Joint Venture Ownership %
Macerich Northwestern Associates 50%
Manhattan Village, LLC 10%
MerchantWired, LLC 9.5%
Pacific Premier Retail Trust 51%
Panorama City Associates 50%
SDG Macerich Properties, L.P. 50%
West Acres Development 19%
As of March 28, 2001, the Operating Partnership also owned all of the
non-voting preferred stock of Macerich Property Management Company and
Macerich Management Company, which is generally entitled to dividends
equal to 95% of the net cash flow of each company. Macerich Manhattan
Management Company is a wholly owned subsidiary of Macerich Management
Company. Effective March 29, 2001, Macerich Property Management Company
merged with and into Macerich Property Management Company, LLC ("MPMC,
LLC"). MPMC, LLC is a single-member Delaware limited liability company
and is 100% owned by the Operating Partnership. The ownership structure
of Macerich Management Company has remained unchanged.
- 7 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
3. Investments in Unconsolidated Joint Ventures and the Management
Companies, Continued:
The Company accounts for the Management Companies (exclusive of MPMC,
LLC), and joint ventures using the equity method of accounting.
Effective March 29, 2001, the Company consolidated the accounts for
MPMC, LLC.
On September 30, 2000, Manhattan Village, a 551,847 square foot
regional shopping center, 10% of which was owned by the Operating
Partnership, was sold. The joint venture sold the property for $89,000,
including a note receivable from the buyer for $79,000 at an interest
rate of 8.75% payable monthly, until the maturity date of September 30,
2001. A gain from sale of the property for $10,945 was recorded at
September 30, 2000.
Combined and condensed balance sheets and statements of operations are
presented below for all unconsolidated joint ventures and the
Management Companies.
COMBINED AND CONDENSED BALANCE SHEETS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
June 30, December 31,
2001 2000
---------------- ------------------
Assets:
Properties, net $2,167,435 $2,064,777
Other assets 148,385 155,919
---------------- ------------------
Total assets $2,315,820 $2,220,696
---------------- ------------------
---------------- ------------------
Liabilities and partners' capital:
Mortgage notes payable $1,455,239 $1,461,857
Other liabilities 137,346 51,791
The Company's capital 271,041 273,140
Outside partners' capital 452,194 433,908
---------------- ------------------
Total liabilities and partners' capital $2,315,820 $2,220,696
---------------- ------------------
---------------- ------------------
- 8 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
3. Investments in Unconsolidated Joint Ventures and the Management
Companies - Continued:
COMBINED STATEMENTS OF OPERATIONS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
Six Months Ended June 30, 2001
---------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
------------------ -------------- ---------------- ------------- -------------
Revenues:
Minimum rents $45,362 $48,750 $9,957 - $104,069
Percentage rents 2,087 1,422 578 - 4,087
Tenant recoveries 21,286 17,591 4,583 - 43,460
Management fee - - - $5,402 5,402
Other 1,298 891 7,550 - 9,739
------------------ -------------- ---------------- ------------- -------------
Total revenues 70,033 68,654 22,668 5,402 166,757
------------------ -------------- ---------------- ------------- -------------
Expenses:
Shopping center expenses 26,047 19,347 18,193 - 63,587
Interest expense 19,740 24,786 3,852 (67) 48,311
Management Company expense - - - 5,924 5,924
Depreciation and amortization 12,439 11,213 3,317 533 27,502
------------------ -------------- ---------------- ------------- -------------
Total operating expenses 58,226 55,346 25,362 6,390 145,324
------------------ -------------- ---------------- ------------- -------------
Gain (loss) on sale of assets (12) 72 259 - 319
------------------ -------------- ---------------- ------------- -------------
Net income (loss) $11,795 $13,380 ($2,435) ($988) $21,752
================== ============== ================ ============= =============
COMBINED STATEMENTS OF OPERATIONS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
Six Months Ended June 30, 2000
--------------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
------------------- -------------- ------------------ ------------ ---------------
Revenues:
Minimum rents $44,043 $46,076 $13,025 - $103,144
Percentage rents 2,144 1,248 808 - 4,200
Tenant recoveries 19,995 15,931 4,519 - 40,445
Management fee - - - $6,500 6,500
Other 1,051 591 704 191 2,537
------------------- -------------- ------------------ ------------ ---------------
Total revenues 67,233 63,846 19,056 6,691 156,826
------------------- -------------- ------------------ ------------ ---------------
Expenses:
Shopping center expenses 25,308 17,287 5,479 - 48,074
Interest expense 17,945 22,224 3,732 (161) 43,740
Management Company expense - - - 7,906 7,906
Depreciation and amortization 11,234 9,572 1,466 506 22,778
------------------- -------------- ------------------ ------------ ---------------
Total operating expenses 54,487 49,083 10,677 8,251 122,498
------------------- -------------- ------------------ ------------ ---------------
Gain (loss) on sale of assets - - 60 (447) (387)
Cumulative effect of change in accounting principle (1,053) (397) (98) (9) (1,557)
------------------- -------------- ------------------ ------------ ---------------
Net income (loss) $11,693 $14,366 $8,341 ($2,016) $32,384
=================== ============== ================== ============ ===============
- 9 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
3. Investments in Unconsolidated Joint Ventures and the Management
Companies, Continued:
COMBINED STATEMENTS OF OPERATIONS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
Three Months Ended June 30, 2001
-----------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
----------------- --------------- ------------------- -------------- -----------
Revenues:
Minimum rents $22,552 $24,640 $4,992 - $52,184
Percentage rents 415 566 443 - 1,424
Tenant recoveries 10,403 9,000 2,338 - 21,741
Management fee - - - $2,351 2,351
Other 804 287 5,582 - 6,673
----------------- --------------- ------------------- -------------- -----------
Total revenues 34,174 34,493 13,355 2,351 84,373
----------------- --------------- ------------------- -------------- -----------
Expenses:
Shopping center expenses 12,791 10,095 11,281 - 34,167
Interest expense 9,289 12,419 2,010 (34) 23,684
Management Company expense - - - 1,982 1,982
Depreciation and amortization 6,291 5,702 2,478 239 14,710
----------------- --------------- ------------------- -------------- -----------
Total operating expenses 28,371 28,216 15,769 2,187 74,543
----------------- --------------- ------------------- -------------- -----------
Gain (loss) on sale of assets (11) - (1) - (12)
----------------- --------------- ------------------- -------------- -----------
Net income (loss) $5,792 $6,277 ($2,415) $164 $9,818
================= =============== =================== ============== ===========
COMBINED STATEMENTS OF OPERATIONS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
Three Months Ended June 30, 2000
----------------------------------------------------------------------------------
SDG Pacific
Macerich Premier Other Mgmt
Properties, L.P. Retail Trust Joint Ventures Companies Total
------------------ -------------- ----------------- -------------- ------------
Revenues:
Minimum rents $22,134 $23,088 $6,638 - $51,860
Percentage rents 628 456 367 - 1,451
Tenant recoveries 9,807 8,166 2,257 - 20,230
Management fee - - - $3,497 3,497
Other 566 279 402 76 1,323
------------------ -------------- ----------------- -------------- ------------
Total revenues 33,135 31,989 9,664 3,573 78,361
------------------ -------------- ----------------- -------------- ------------
Expenses:
Shopping center expenses 12,389 8,680 2,725 - 23,794
Interest expense 9,908 10,964 1,864 (69) 22,667
Management Company expense - - - 4,449 4,449
Depreciation and amortization 5,723 4,943 417 274 11,357
------------------ -------------- ----------------- -------------- ------------
Total operating expenses 28,020 24,587 5,006 4,654 62,267
------------------ -------------- ----------------- -------------- ------------
Gain on sale of assets - - 60 - 60
------------------ -------------- ----------------- -------------- ------------
Net income (loss) $5,115 $7,402 $4,718 ($1,081) $16,154
================== ============== ================= ============== ============
- 10 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
3. Investments in Unconsolidated Joint Ventures and the Management
Companies - Continued:
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 affiliates of
Northwestern Mutual Life ("NML") of $159,654 and $161,281 for the periods
ended June 30, 2001 and December 31, 2000, respectively. NML is considered a
related party because it is a joint venture partner with the Company in
Macerich Northwestern Associates. Interest expense incurred on these
borrowings amounted to $5,367 and $4,645 for the six months ended June 30,
2001 and 2000, respectively; and $2,686 and $2,150 for the three months ended
June 30, 2001 and 2000, respectively.
4. Property:
Property is summarized as follows:
June 30, December 31,
2001 2000
--------------------- ---------------------
Land $397,800 $397,947
Building improvements 1,726,361 1,716,860
Tenant improvements 61,992 56,723
Equipment and furnishings 15,060 12,259
Construction in progress 54,510 44,679
--------------------- ---------------------
2,255,723 2,228,468
Less, accumulated depreciation (323,069) (294,884)
--------------------- ---------------------
$1,932,654 $1,933,584
--------------------- ---------------------
--------------------- ---------------------
- 11 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
5. Mortgage Notes Payable:
Mortgage notes payable at June 30, 2001 and December 31, 2000 consist
of the following:
Carrying Amount of Notes
---------------------------------------------------------
---------------------------- ----------------------------
2001 2000
---------------------------- ----------------------------
Property Pledged Related Related Interest Payment Maturity
As Collateral Other Party Other Party Rate Terms Date
- --------------------------------- -------------- ------------ -------------- ------------ --------- -------------- ---------
Wholly Owned Centers:
Capitola Mall (b) ---- $48,414 ---- $36,587 7.13% 380 (a) 2011
Carmel Plaza $28,492 ---- $28,626 ---- 8.18% 202 (a) 2009
Chesterfield Towne Center 63,174 ---- 63,587 ---- 9.07% 548(c) 2024
Citadel 71,412 ---- 72,091 ---- 7.20% 554(a) 2008
Corte Madera, Village at 70,976 ---- 71,313 ---- 7.75% 516(a) 2009
Crossroads Mall-Boulder (d) ---- 34,251 ---- 34,476 7.08% 244(a) 2010
Fresno Fashion Fair 69,000 ---- 69,000 ---- 6.52% interest only 2008
Greeley Mall 14,848 ---- 15,328 ---- 8.50% 187(a) 2003
Green Tree Mall/Crossroads - OK/
Salisbury (e) 117,714 ---- 117,714 ---- 7.23% interest only 2004
Holiday Village ---- ---- ---- 17,000 6.75% interest only (f)
Northgate Mall ---- ---- ---- 25,000 6.75% interest only (f)
Northwest Arkansas Mall 60,448 ---- 61,011 ---- 7.33% 434(a) 2009
Parklane Mall ---- ---- ---- 20,000 6.75% interest only (f)
Queens Center 98,788 ---- 99,300 ---- 6.88% 633(a) 2009
Rimrock Mall 29,527 ---- 29,845 ---- 7.70% 244(a) 2003
Santa Monica Place (g) 84,604 ---- 84,939 ---- 7.70% 606(a) 2010
South Plains Mall 63,774 ---- 64,077 ---- 8.22% 454(a) 2009
South Towne Center 64,000 ---- 64,000 ---- 6.61% 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) 69,556 ---- 69,853 ---- 7.89% 508(a) 2010
Westside Pavilion 100,000 ---- 100,000 ---- 6.67% interest only 2008
-------------- ------------ -------------- ------------
-------------- ------------ -------------- ------------
Total - Wholly Owned
Centers $1,115,313 $82,665 $1,119,684 $133,063
-------------- ------------ -------------- ------------
- 12 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
5. Mortgage Notes Payable, Continued:
Mortgage notes payable at June 30, 2001 and December 31, 2000 consist
of the following:
Carrying Amount of Notes
----------------------------------------------------------
---------------------------- ----------------------------
2001 2000
---------------------------- ----------------------------
Property Pledged Related Related Interest Payment Maturity
As Collateral Other Party Other Party Rate Terms Date
- --------------------------------- -------------- ------------ -------------- ------------ --------- -------------- ---------
Joint Venture Centers
(at pro rata share):
Broadway Plaza (50%) (i) ---- $35,683 ---- $36,032 6.68% 257 (a) 2008
Pacific Premier Retail
Trust (51%) (i):
Cascade Mall $12,956 ---- $13,261 ---- 6.50% 122 (a) 2014
Kitsap Mall/Kitsap Place (j) 31,110 ---- 31,110 ---- 8.06% 230 (a) 2010
Lakewood Mall (k) 64,770 64,770 ---- 7.20% interest only 2005
Lakewood Mall (l) 8,224 ---- 8,224 ---- 7.75% interest only 2002
Los Cerritos Center 59,791 60,174 ---- 7.13% 421(a) 2006
North Point Plaza 1,784 ---- 1,821 ---- 6.50% 16 (a) 2015
Redmond Town Center - Retail 31,872 ---- 32,176 ---- 6.50% 224 (a) 2011
Redmond Town Center - Office (m) ---- 45,027 ---- 45,500 6.77% 370 (a) 2009
Stonewood Mall (n) 39,653 39,653 ---- 7.41% 275 (a) 2010
Washington Square 58,899 ---- 59,441 ---- 6.70% 421 (a) 2009
Washington Square Too 6,204 ---- 6,318 ---- 6.50% 53 (a) 2016
SDG Macerich Properties L.P. (50%) (i) 185,966 ---- 186,607 ---- 6.55% (o) 1,120 (a) 2006
SDG Macerich Properties L.P. (50%) (i) 92,250 ---- 92,250 ---- 5.67% (o) interest only 2003
SDG Macerich Properties L.P. (50%) (i) 40,700 ---- 40,700 ---- 5.54% (o) interest only 2006
West Acres Center (19%) (i) (p) 7,522 ---- 7,600 ---- 6.52% 299 (a) 2009
-------------- ------------ -------------- ------------
Total - Joint Venture Centers $641,701 $80,710 $644,105 $81,532
-------------- ------------ -------------- ------------
-------------- ------------ -------------- ------------
Total - All Centers $1,757,014 $163,375 $1,763,789 $214,595
============== ============ ============== ============
(a) This represents the monthly payment of principal and interest.
(b) On May 2, 2001, the Company refinanced the debt on Capitola Mall.
The prior loan was paid in full and a new note was issued for
$48,500 bearing interest at a fixed rate of 7.13% and maturing May
15, 2011.
(c) This amount represents the monthly payment of principal and
interest. In addition, contingent interest, as defined in the loan
agreement, may be due to the extent that 35% of the amount by
which the property's gross receipts (as defined in the loan
agreement) exceeds a base amount specified therein. Contingent
interest expense recognized by the Company was $278 and $74 for
the six and three months ended June 30, 2001, respectively; and
$236 and $106 for the six and three months ended June 30, 2000,
respectively.
(d) 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, 2001 and December 31, 2000, the unamortized
discount was $314 and $331, respectively.
- 13 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
5. Mortgage Notes Payable, Continued:
(e) This loan is cross collateralized by Green Tree Mall, Crossroads Mall-
Oklahoma and the Centre at Salisbury.
(f) These loans were paid off in full on March 31, 2001.
(g) On October 2, 2000, the Company refinanced this loan with a 10 year
fixed rate $85,000 loan bearing interest at 7.70%. The prior loan
bore interest at LIBOR plus 1.75%.
(h) On August 31, 2000, the Company refinanced the debt on Vintage
Faire Mall. The prior loan was paid in full and a new note was
issued for $70,000 bearing interest at a fixed rate of 7.89% and
maturing September 1, 2010. The Company incurred a loss on early
extinguishment of the prior debt in 2000 of $984.
(i) Reflects the Company's pro rata share of debt.
(j) In connection with the acquisition of this Center, the joint
venture assumed $39,425 of debt. At acquisition, this debt was
recorded at its fair value of $41,475 which included an
unamortized premium of $2,050. This premium was being amortized as
interest expense over the life of the loan using the effective
interest method. The joint venture's monthly debt service was $349
and was calculated based on an 8.60% interest rate. On June 1,
2000, the joint venture paid off in full the prior debt and a new
note was issued for $61,000 bearing interest at a fixed rate of
8.06% and maturing June 2010. The new loan is interest only until
December 31, 2001. Effective January 1, 2002, monthly principal
and interest of $450 will be payable through maturity. The new
debt is cross-collateralized by Kitsap Mall and Kitsap Place.
(k) In connection with the acquisition of this property, the joint
venture assumed $127,000 of collateralized fixed rate notes (the
"Notes"). The Notes bear interest at an average fixed rate of
7.20% and mature in August 2005. The Notes require the joint
venture 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, 2001 and at December 31, 2000.
(l) On July 28, 2000, the joint venture placed a $16,125 floating rate
note on the property bearing interest at LIBOR plus 2.25% and
maturing July 2002. At June 30, 2001 and December 31, 2000, the
total interest was 7.75% and 9.0%, respectively.
(m) Concurrent with this acquisition, the joint venture placed $76,700
of debt and obtained a construction loan for an additional
$16,000. Principal is drawn on the construction loan as costs are
incurred. As of June 30, 2001 and December 31, 2000, $15,291 and
$15,038 of principal has been drawn under the construction loan,
respectively.
- 14 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
5. Mortgage Notes Payable, Continued:
(n) On December 1, 2000, the joint venture refinanced the debt on
Stonewood Mall. The prior loan was paid in full and a new note was
issued for $77,750 bearing interest at a fixed rate of 7.41% and
maturing December 11, 2010. The joint venture incurred a loss on
early extinguishment of the prior debt in 2000 of $375.
(o) In connection with the acquisition of these Centers, the joint
venture assumed $485,000 of mortgage notes payable which are
secured by the properties. At acquisition, the $300,000 fixed rate
portion of this debt reflected a fair value of $322,700, which
included an unamortized premium of $22,700. This premium is being
amortized as interest expense over the life of the loan using the
effective interest method. At June 30, 2001 and December 31, 2000,
the unamortized balance of the debt premium was $14,833 and $16,113,
respectively. This debt is due in May 2006 and requires monthly
payments of $1,852. $184,500 of this debt is due in May 2003 and
requires monthly interest payments at a variable weighted average
rate(based on LIBOR)of 5.67% and 7.21% at June 30, 2001 and December
31, 2000, respectively. This variable rate debt is covered by an
interest rate cap agreement which effectively prevents the interest
rate from exceeding 11.53%. On April 12, 2000, the joint venture
issued $138,500 of additional mortgage notes which are secured by the
properties and are due in May 2006. $57,100 of this debt requires
fixed monthly interest payments of $387 at a weighted average rate of
8.13% while the floating rate notes of $81,400 require monthly
interest payments at a variable weighted average rate(based on LIBOR)
of 5.54% and 7.08% at June 30, 2001 and December 31, 2000,
respectively. This variable rate debt is covered by an interest rate
cap agreement which effectively prevents the interest rate from
exceeding 11.83%.
(p) This debt is interest only until January 2001 at which time monthly
payments of principal and interest will be due in the amount of $299.
The Company periodically enters into treasury lock agreements in order
to hedge its exposure to interest rate fluctuations on anticipated
financings. Under these agreements, the Company pays or receives an
amount equal to the difference between the treasury lock rate and the
market rate on the date of settlement, based on the notional amount of
the hedge. The realized gain or loss on the contracts was recorded,
prior to January 1, 2001, on the balance sheet in other assets and
amortized as interest expense over the period of the hedged loans. As
of January 1, 2001, in accordance with SFAS 133, the gain or loss on
the contracts has been reclassified to accumulated other comprehensive
income on the balance sheet. As of June 30, 2001, no treasury lock
agreements were outstanding.
Certain mortgage loan agreements contain a prepayment penalty provision
for the early extinguishment of the debt.
Total interest capitalized, including the prorata share of joint
ventures, during the six and three months ended June 30, 2001, was
$2,564 and $1,320, respectively; and total interest capitalized during
the six and three months ended June 30, 2000 was $3,411 and $2,100,
respectively.
The fair value of mortgage notes payable, including the pro rata share
of joint ventures, at June 30, 2001 and December 31, 2000 is estimated
to be approximately $1,938,980 and $2,009,932, 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)
(Unaudited)
6. Bank and Other Notes Payable:
The Company has a credit facility of $150,000 with a maturity of May
2002. In August 2001, the Company expanded this line of credit to
$175,000. The interest rate on such credit facility fluctuates between
1.35% and 1.80% over LIBOR depending on leverage levels. As of June 30,
2001 and December 31, 2000, $144,000 and $59,000 of borrowings were
outstanding under this line of credit at interest rates of 5.64% and
7.90%, respectively.
Additionally, the Company issued $10,776 in letters of credit
guaranteeing performance by the Company of certain obligations. The
Company does not believe that these letters of credit will result in a
liability to the Company.
During January 1999, the Company entered into a bank construction loan
agreement to fund $89,250 of costs related to the redevelopment of
Pacific View. The loan bore interest at LIBOR plus 2.25% through 2000.
In January 2001, the interest rate was reduced to LIBOR plus 1.75% and
the loan matures in February 2002. Principal was drawn as construction
costs were incurred. As of June 30, 2001 and December 31, 2000, $89,250
and $88,340 of principal had been drawn under the loan at interest
rates of 5.56% and 8.63%, respectively. On July 10, 2001, the Company
paid off this loan in full and a permanent loan was issued for $89,000,
expandable up to $96,000 subject to certain conditions, bearing
interest at a fixed rate of 7.16% and maturing August 31, 2011.
7. 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 into common stock at any time, on or
after 60 days, from the date of issue at a conversion price of $31.125
per share. In November and December 2000, the Company purchased and
retired $10,552 of the Debentures. The Company recorded a gain on early
extinguishment of debt of $1,018 related to the transaction. The
Debentures mature on December 15, 2002 and are callable by the Company
after June 15, 2002 at par plus accrued interest.
8. Related-Party Transactions:
The Company engaged the Management Companies to manage the operations
of its properties and certain unconsolidated joint ventures. For the
six and three months ending June 30, 2001, management fees of $757 and
$0, respectively; and for the six and three months ending June 30,
2000, management fees of $1,437 and $724, respectively, were paid to
the Management Companies by the Company. For the six and three months
ending June 30, 2001, management fees of $3,561 and $1,789
respectively; and for the six and three months ending June 30, 2000,
management fees of $3,449 and $1,752, respectively, were paid to the
Management Companies by the joint ventures.
Certain mortgage notes are held by one of the Company's joint venture
partners. Interest expense in connection with these notes was $3,959
and $1,474 for the six and three months ended June 30, 2001,
respectively; and $5,042 and $2,523 for the six and three months ended
June 30, 2000, respectively. Included in accounts payable and accrued
expenses is interest payable to these partners of $249 and $512 at June
30, 2001 and December 31, 2000, respectively.
- 16 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
8. Related-Party Transactions - Continued:
In 1997 and 1999 certain executive officers received loans from the
Company totaling $6,500. These loans are full recourse to the
executives. $6,000 of the loans were issued under the terms of the
employee stock incentive plan, bear interest at 7%, are due in 2007 and
2009 and are secured by Company common stock owned by the executives.
On February 9, 2000, $300 of the $6,000 of loans was forgiven with
respect to three of these officers and charged to compensation expense.
The $500 loan issued in 1997 is non interest bearing and is forgiven
ratably over a five year term. These loans receivable are included in
other assets at June 30, 2001 and December 31, 2000.
Certain Company officers and affiliates have guaranteed mortgages of
$21,750 at one of the Company's joint venture properties and $2,000 at
Greeley Mall.
9. Commitments and Contingencies:
The Company has certain properties subject to 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 percentage of
base rental income, as defined. Ground rent expenses, net of amounts
capitalized, were $85 and $77 for the six and three months ended June
30, 2001, respectively. Ground rent expenses, net of amounts
capitalized, were $170 and ($28) for the six and three months ended
June 30, 2000, respectively. There were no contingent rents incurred in
either periods.
Perchloroethylene ("PCE") has been detected in soil and groundwater in
the vicinity of a dry cleaning establishment at North Valley Plaza,
formerly owned by a joint venture of which the Company was a 50%
member. The property was sold on December 18, 1997. The California
Department of Toxic Substances Control ("DTSC") advised the Company in
1995 that very low levels of Dichloroethylene ("1,2 DCE"), a
degradation byproduct of PCE, had been detected in a municipal water
well located 1/4 mile west of 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 1,2 DCE which is permitted in drinking water is 6 parts per
billion ("ppb"). The 1,2 DCE was detected in the water well at a
concentration of 1.2 ppb, which is below the MCL. The Company has
retained an environmental consultant and has initiated extensive
testing of the site. The joint venture 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 former dry cleaner.
Approximately $15 and $29 have already been incurred by the joint
venture for remediation, professional and legal fees for the periods
ending June 30, 2001 and 2000, respectively. An additional $241 remains
reserved by the joint venture as of June 30, 2001, which management has
estimated as its remaining obligation for the remediation. The joint
venture has been sharing costs with former owners of the property.
- 17 -
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
9. Commitments and Contingencies, Continued:
The Company acquired Fresno Fashion Fair in December 1996. Asbestos has
been detected in structural fireproofing throughout much of the Center.
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 $3,300 to cover future removal of this asbestos,
as necessary. The Company incurred $54 and $24 in remediation costs for
the six months ending June 30, 2001 and 2000, respectively. An
additional $2,703 remains reserved at June 30, 2001.
10. Redeemable Preferred Stock:
On February 25, 1998, the Company issued 3,627,131 shares of Series A
cumulative convertible redeemable preferred stock ("Series A 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 quarterly dividend equal to the greater of $0.46
per share, 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 redeemable preferred stock ("Series B Preferred
Stock") for proceeds totaling $150,000 in a private placement. The
preferred stock can be converted on a one for one basis into common
stock and will pay a quarterly dividend equal to the greater of $0.46
per share, or the dividend then payable on a share of common stock.
No dividends will be declared or paid on any class of common or other
junior stock to the extent that dividends on Series A Preferred Stock
and Series B Preferred Stock have not been declared and/or paid.
The holders of Series A Preferred Stock and Series B Preferred Stock
have redemption rights if a change of control of the Company occurs, as
defined under the respective Articles Supplementary for each series.
Under such circumstances, the holders of the Series A Preferred Stock
and Series B Preferred Stock are entitled to require the Company to
redeem their shares, to the extent the Company has funds legally
available therefor, at a price equal to 105% of their respective
liquidation preference plus accrued and unpaid dividends. The Series A
Preferred Stock holder also has the right to require the Company to
repurchase its shares if the Company fails to be taxed as a REIT for
federal tax purposes at a price equal to 115% of its liquidation
preference plus accrued and unpaid dividends, to the extent funds are
legally available therefor.
11. Subsequent Events:
On August 9, 2001, a dividend/distribution of $0.53 per share was
declared for common stockholders and OP unit holders of record on
August 20, 2001. In addition, the Company declared a dividend of $0.53
on the Company's Series A Preferred Stock and a dividend of $0.53 on
the Company's Series B Preferred Stock. All dividends/distributions
will be payable on September 10, 2001.
- 18 -
THE MACERICH COMPANY (The Company)
Item 2
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 as of June 30, 2001, and also compares
the activities for the six and three months ended June 30, 2001 to the
activities for the six and three months ended June 30, 2000.
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 presentation of the results
for the interim periods presented, and all such adjustments are of a
normal recurring nature.
Forward-Looking Statements
This quarterly report on Form 10-Q contains or incorporates statements
that constitute forward-looking statements. Those statements appear in
a number of places in this Form 10-Q and include statements regarding,
among other matters, the Company's growth and acquisition
opportunities, the Company's acquisition and other strategies,
regulatory matters pertaining to compliance with governmental
regulations and other factors affecting the Company's financial
condition or results of operations. Words such as "expects,"
"anticipates," "intends," "projects," "predicts," "plans," "believes,"
"seeks," "estimates," and "should" and variations of these words and
similar expressions, are used in many cases to identify these
forward-looking statements. Stockholders are cautioned that any such
forward-looking statements are not guarantees of future performance and
involve risks, uncertainties and other factors that may cause actual
results, performance or achievements of the Company or industry to vary
materially from the Company's future results, performance or
achievements, or those of the industry, expressed or implied in such
forward-looking statements. Such factors include, among others, general
industry economic and business conditions, which will, among other
things, affect demand for retail space or retail goods, availability
and creditworthiness of current and prospective tenants, tenant
bankruptcies, lease rates and terms, availability and cost of
financing, interest rate fluctuations and operating expenses; adverse
changes in the real estate markets including, among other things,
competition from other companies, retail formats and technology, risks
of real estate development, acquisitions and dispositions; governmental
actions and initiatives; environmental and safety requirements; energy
and electricity shortages and costs. The Company will not update any
forward-looking information to reflect actual results or changes in the
factors affecting the forward-looking information.
- 19 -
THE MACERICH COMPANY (The Company)
Management's Discussion and Analysis of Financial Condition and Results
of Operations, Continued:
Pacific View (formerly known as Buenaventura Mall), Crossroads
Mall-Boulder and Parklane Mall are currently under redevelopment and
are referred to herein as the "Redevelopment Centers." All other
Centers, excluding the Redevelopment Centers, are referred to herein as
the "Same Centers," unless the context otherwise requires.
Revenues include rents attributable to the accounting practice of
straight lining of rents which requires rent to be recognized each year
in an amount equal to the average rent over the term of the lease,
including fixed rent increases over that period. The amount of straight
lined rents, included in consolidated revenues, recognized for the six
and three months ended June 30, 2001 was ($0.1) million and ($0.2)
million, respectively; compared to $0.6 million and $0.4 million for
the six and three months ended June 30, 2000. Additionally, the Company
recognized through equity in income of unconsolidated joint ventures,
$0.7 million and $0.3 million as its pro rata share of straight lined
rents from joint ventures for the six and three months ended June 30,
2001, respectively; compared to $1.1 million and $0.6 million for the
six and three months ended June 30, 2000, respectively. These decreases
resulted from the Company structuring the majority of its new leases
using annual Consumer Price Index ("CPI") increases, which generally do
not require straight lining treatment. The Company believes that using
CPI increases, rather than fixed contractual rent increases, results in
revenue recognition that more closely matches the cash revenue from
each lease and will provide more consistent rent growth throughout the
term of the leases.
The bankruptcy and/or closure of an Anchor, or its sale to a less
desirable retailer, could adversely affect customer traffic in a Center
and thereby reduce the income generated by that Center. Furthermore,
the closing of an Anchor could, under certain circumstances, allow
certain other Anchors or other tenants to terminate their leases or
cease operating their stores at the Center or otherwise adversely
affect occupancy at the Center. Other retail stores at the Centers may
also seek the protection of bankruptcy laws and/or close stores, which
could result in the termination of such tenants and thus cause a
reduction in cash flow generated by the Centers.
In addition, the Company's success in the highly competitive real
estate shopping center business depends upon many other factors,
including general economic conditions, the ability of tenants to make
rent payments, increases or decreases in operating expenses, occupancy
levels, changes in demographics, competition from other centers and
forms of retailing and the ability to renew leases or relet space upon
the expiration or termination of leases.
- 20 -
THE MACERICH COMPANY (The Company)
Management's Discussion and Analysis of Financial Condition and Results
of Operations, Continued:
Results of Operations
Comparison of Six Months Ended June 30, 2001 and 2000
Revenues
Minimum and percentage rents increased by 3.2% to $101.2 million in
2001 from $98.1 million in 2000. Approximately $1.8 million of the
increase is attributable to the Same Centers and $1.3 million of the
increase relates to the Redevelopment Centers.
Tenant recoveries increased to $52.2 million in 2001 from $49.4 million
in 2000. Approximately $2.3 million of the increase is attributable to
the Same Centers and $0.5 million of the increase relates to the
Redevelopment Centers.
Other income increased to $5.1 million in 2001 from $4.0 million in
2000.
Expenses
Shopping center expenses increased to $52.0 million in 2001 compared to
$48.1 million in 2000. The increase is a result of increased property
taxes and recoverable expenses at the Centers.
Interest Expense
Interest expense increased to $55.5 million in 2001 from $55.1 million
in 2000.
Depreciation and Amortization
Depreciation and amortization increased to $32.5 million in 2001 from
$29.6 million in 2000. The increase is primarily due to greater
depreciation at Pacific View Mall.
Income from Unconsolidated Joint Ventures and Management Companies
The income from unconsolidated joint ventures and the Management
Companies was $12.7 million for 2001, compared to income of $13.1
million in 2000. The decrease is primarily due to greater interest
expense from the debt restructuring at SDG Macerich Properties, L.P.
Extraordinary Loss from Early Extinguishment of Debt
In 2001, the Company wrote off $0.2 million of unamortized financing
costs.
Cumulative Effect of Change in Accounting Principle
A loss of $1.0 million in 2000 is a result of implementation of SAB 101
at January 1, 2000.
Net Income Available to Common Stockholders
As a result of the foregoing, net income available to common
stockholders decreased to $13.2 million in 2001 from $13.9 million in
2000.
- 21 -
THE MACERICH COMPANY (The Company)
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Continued:
Results of Operations - Continued:
Comparison of Six Months Ended June 30, 2001 and 2000 - Continued:
Operating Activities
Cash flow from operations was $54.3 million in 2001 compared to $48.7
million in 2000. The decrease is primarily due to the factors mentioned
above.
Investing Activities
Cash used in investing activities was $31.1 million in 2001 compared to
cash utilized by investing activities of $51.5 million in 2000. This
decrease is primarily due to improvements and renovations to the
Centers.
Financing Activities
Cash flow used in financing activities was $32.1 million in 2001
compared to cash used in financing activities of $105.6 million in
2000. The decrease was due to more refinancing activity in 2001 of
wholly-owned assets.
Funds From Operations
Primarily because of the factors mentioned above, Funds from Operations
- Diluted increased 1% to $76.8 million in 2001 from $76.1 million in
2000 (See "Funds From Operations").
Comparison of Three Months Ended June 30, 2001 and 2000
Revenues
Minimum and percentage rents increased by 2.6% to $50.7 million in 2001
from $49.4 million in 2000. Approximately $0.9 million of the increase
is attributable to the Same Centers and $0.4 million of the increase
relates to the Redevelopment Centers.
Tenant recoveries increased to $27.4 million in 2001 from $24.9 million
in 2000. Approximately $2.2 million of the increase is attributable to
the Same Centers and $0.3 of the increase relates to the Redevelopment
Centers.
Other income increased to $2.6 million in 2001 from $2.0 million in
2000.
Expenses
Shopping center expenses increased to $27.8 million in 2001 compared to
$24.2 million in 2000. The increase is a result of increased property
taxes and recoverable expenses at the Centers.
Interest Expense
Interest expense increased to $27.5 million in 2001 from $26.9 million
in 2000.
- 22 -
THE MACERICH COMPANY (The Company)
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Continued:
Results of Operations
Comparison of Three Months Ended June 30, 2001 and 2000, Continued:
Depreciation and Amortization
Depreciation and amortization increased to $16.4 million in 2001 from
$15.0 million in 2000. The increase is primarily due to greater
depreciation at Pacific View Mall.
Income from Unconsolidated Joint Ventures and Management Companies
The income from unconsolidated joint ventures and the Management
Companies was $6.6 million for 2001, compared to income of $6.4 million
in 2000.
Net Income Available to Common Stockholders
As a result of the foregoing, net income available to common
stockholders decreased to $6.8 million in 2001 from $7.6 million in
2000.
Funds From Operations
Primarily because of the factors mentioned above, Funds from Operations
- Diluted increased 1% to $38.7 million in 2001 from $38.2 million in
2000 (See "Funds From Operations").
Liquidity and Capital Resources
The Company intends to meet its short term liquidity requirements
through cash generated from operations and working capital reserves.
The Company anticipates that revenues will continue to provide
necessary funds for its operating expenses and debt service
requirements, and to pay dividends to stockholders in accordance with
REIT requirements. The Company anticipates that cash generated from
operations, together with cash on hand, will be adequate to fund
capital expenditures which will not be reimbursed by tenants, other
than non-recurring capital expenditures. The following table summarizes
capital expenditures incurred at the Wholly-Owned Centers for the six
months ending June 30,:
2001 2000
--------------------- ---------------------
(Dollars in millions)
Renovations, expansions and acquisitions of property,
equipment and improvements $22.1 $12.9
Tenant allowances 5.1 2.5
Deferred charges 5.9 5.4
--------------------- ---------------------
Total $33.1 $20.8
===================== =====================
- 23 -
THE MACERICH COMPANY (The Company)
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Continued:
Liquidity and Capital Resources - Continued:
Management expects similar levels to be incurred in future years for
tenant allowances and deferred charges and to incur between $30.0
million to $75.0 million in 2001 for renovations and expansions.
Capital for major expenditures or major redevelopments has been, and is
expected to continue to be, obtained from equity or debt financings
which include borrowings under the Company's line of credit and
construction loans. However, many factors impact the Company's ability
to access capital, such as its overall debt level, interest rates,
interest coverage ratios and prevailing market conditions.
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 for these purposes through a
combination of debt financings, joint ventures and the sale of non-core
assets. During 1998 and 1999, the Company acquired two portfolios
through joint ventures and raised additional capital in 1999 from the
sale of interests in two properties to one joint venture partner. The
Company believes such joint venture arrangements provide an attractive
alternative to other forms of financing, whether for acquisitions or
other business opportunities.
The Company's total outstanding loan indebtedness at June 30, 2001 was
$2.3 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 OP Units and preferred stock into common
stock) ratio of approximately 63% at June 30, 2001. The Company's debt
consists primarily of fixed-rate conventional mortgages payable secured
by individual properties.
The Company has filed a shelf registration statement, effective
December 8, 1997, to sell securities. The shelf registration is for a
total of $500 million of common stock, common stock warrants or common
stock rights. During 1998, the Company sold a total of 7,920,181 shares
of common stock under this shelf registration. The aggregate offering
price of these transactions was approximately $212.9 million, leaving
approximately $287.1 million available under the shelf registration
statement.
The Company has an unsecured line of credit for up to $175.0 million
with a maturity of May 2002. There were $144.0 million of borrowings
outstanding at June 30, 2001.
At June 30, 2001, the Company had cash and cash equivalents available
of $27.4 million.
- 24 -
THE MACERICH COMPANY (The Company)
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Continued:
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 (loss) (computed in accordance with GAAP), excluding gains
(or losses) from debt restructuring, sales or write-down of assets, and
cumulative effect of change in accounting principle, 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 are calculated on the same basis. FFO does not represent cash
flow from operations, as defined by GAAP, and is not necessarily
indicative of cash available to fund all cash flow needs. FFO, as
presented, may not be comparable to similarly titled measures reported
by other real estate investment trusts. The following reconciles net
income available to common stockholders to FFO:
Six Months Ended June 30,
2001 2000
------------------------ --------------------------
Shares Amount Shares Amount
---------- ------------ ---------- --------------
(amounts in thousands)
Net income - available to common stockholders $13,245 $13,921
Adjustments to reconcile net income to FFO - basic:
Minority interest 4,377 4,421
Depreciation and amortization on wholly owned centers 32,491 29,568
Pro rata share of unconsolidated entities' depreciation and
amortization 13,320 11,636
Loss (gain) on sale of wholly-owned assets 188 108
Loss on early extinguishment of debt 187 -
Pro rata share of (gain) loss on sale of assets
from unconsolidated entities (123) 413
Cumulative effect of the change in accounting principle -
wholly-owned assets - 963
Cumulative effect of the change in accounting principle -
pro rata joint ventures - 787
Less: Depreciation on personal property and amortization
of loan costs and interest rate caps (2,394) (2,359)
------------ --------------
FFO - basic (1) 44,860 61,291 45,073 59,458
Additional adjustments to arrive at FFO - diluted:
Impact of convertible preferred stock 9,115 9,662 9,115 9,297
Impact of stock options and restricted stock using
the treasury method - - 401 1,003
Impact of convertible debentures 4,848 5,859 5,186 6,292
---------- ------------ ---------- --------------
FFO - diluted (2) 58,823 $76,812 59,775 $76,050
========== ============ ========== ==============
- 25 -
THE MACERICH COMPANY (The Company)
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Continued:
Funds From Operations - Continued:
Three Months Ended June 30,
2001 2000
------------------------ --------------------------
Shares Amount Shares Amount
---------- ------------ ---------- --------------
(amounts in thousands)
Net income - available to common stockholders $6,826 $7,597
Adjustments to reconcile net income to FFO - basic:
Minority interest 2,249 2,383
Depreciation and amortization on wholly owned centers 16,387 15,040
Pro rata share of unconsolidated entities' depreciation and
amortization 6,800 5,941
Loss (gain) on sale of wholly-owned assets (132) 106
Loss on early extinguishment of debt 1 -
Pro rata share of (gain) loss on sale of assets
from unconsolidated entities (37) (11)
Less: Depreciation on personal property and amortization
of loan costs and interest rate caps (1,176) (1,166)
------------ --------------
FFO - basic (1) 44,924 30,918 45,093 29,890
Additional adjustments to arrive at FFO - diluted:
Impact of convertible preferred stock 9,115 4,831 9,115 4,648
Impact of stock options and restricted stock using
the treasury method - - 506 545
Impact of convertible debentures 4,847 2,955 5,186 3,145
---------- ------------ ---------- --------------
FFO - diluted (2) 58,886 $38,704 59,900 $38,228
========== ============ ========== ==============
1) Calculated based upon basic net income as adjusted to reach
basic FFO. Weighted average number of shares includes the
weighted average number of shares of common stock outstanding
for 2001 and 2000 assuming the conversion of all outstanding
OP units. As of June 30, 2001, 11.2 million of OP units were
outstanding.
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.
The convertible debentures are dilutive for the six and three
months ending June 30, 2001 and 2000, and are included in the
FFO calculation to calculate FFO - diluted. On February 25,
1998, the Company sold $100 million of its Series A Preferred
Stock. On June 17, 1998, the Company sold $150 million of its
Series B Preferred Stock. The preferred stock can be converted
on a one for one basis for common stock. The preferred shares
are assumed converted for purposes of FFO diluted 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 ($0.1) million and $0.6 million
for the six months ended June 30, 2001 and 2000, respectively; and
($0.2) million and $0.4 million for the three months ended June 30,
2001 and 2000, respectively. The decline in straight-lining of rents
from 2000 to 2001 is due to the Company structuring its new leases
using rent increases tied to the change in the CPI rather than using
contractually fixed rent increases. CPI increases do not generally
require straight-lining of rent treatment.
- 26 -
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 CPI. 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.
Seasonality
The shopping center industry is seasonal in nature, particularly in the
fourth quarter during the holiday season when retailer occupancy and
retail sales are typically at their highest levels. In addition,
shopping malls achieve a substantial portion of their specialty
(temporary retailer) rents during the holiday season and the majority
of percentage rent is recognized in the fourth quarter. As a result of
the above, plus the accounting change discussed below for percentage
rent, earnings are generally highest in the fourth quarter of each
year.
New Accounting Pronouncements Issued
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements"
("SAB 101"), which became effective for periods beginning after
December 15, 1999. This bulletin modified the timing of revenue
recognition for percentage rent received from tenants. This change will
defer recognition of a significant amount of percentage rent for the
first three calendar quarters into the fourth quarter. The Company
applied this accounting change as of January 1, 2000. The cumulative
effect of this change in accounting principle at the adoption date of
January 1, 2000, including the pro rata share of joint ventures, was
approximately $1,750,000.
- 27 -
THE MACERICH COMPANY (The Company)
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Continued:
New Accounting Pronouncements Issued, Continued:
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") 133, "Accounting
for Derivative Instruments and Hedging Activities," ("SFAS 133") which
requires companies to record derivatives on the balance sheet, measured
at fair value. Changes in the fair values of those derivatives will be
accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. The key criterion for hedge accounting
is that the hedging relationship must be highly effective in achieving
offsetting changes in fair value or cash flows. In June 1999, the FASB
issued SFAS 137, "Accounting for Derivative Instruments and Hedging
Activities," which delays the implementation of SFAS 133 from January
1, 2000 to January 1, 2001. In June 2000, the FASB issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities - an Amendment of FASB Statement No. 133," ("SFAS138"),
which amends the accounting and reporting standards of SFAS 133. As a
result of the adoption of SFAS 133 on January 1, 2001, the Company
recorded a transition adjustment of $9.4 million to accumulated other
comprehensive income related to treasury rate lock transactions settled
in prior years. The entire transition adjustment was reflected in the
quarter ended March 31, 2001. The transition adjustment of $9.4
million, less minority interest of $2.3 million and amortization of
$0.7 million for the six months ended June 30, 2001, would be
subtracted from net income to arrive at comprehensive income of $16.4
million for the six months ended June 30, 2001. The Company expects
that $1.3 million will be reclassified from accumulated other
comprehensive income to earnings for the year ended December 31, 2001.
During the quarter ended June 30, 2001, the Company reclassified $0.3
million from accumulated other comprehensive income to earnings.
- 28 -
THE MACERICH COMPANY (The Company)
Item 3
Quantitative and Qualitative Disclosures About Market Risk
The Company's primary market risk exposure is interest rate risk. The
Company has managed and will continue to manage interest rate risk by
(1) maintaining a conservative ratio of fixed rate, long-term debt to
total debt such that variable rate exposure is kept at an acceptable
level, (2) reducing interest rate exposure on certain long-term
variable rate debt through the use of interest rate caps with
appropriately matching maturities, (3) using treasury rate locks where
appropriate to fix rates on anticipated debt transactions, and (4)
taking advantage of favorable market conditions for long-term debt
and/or equity.
The following table sets forth information as of June 30, 2001
concerning the Company's long term debt obligations, including
principal cash flows by scheduled maturity, weighted average interest
rates and estimated fair value ("FV").
For the Years Ended December 31,
(dollars in thousands)
2001 2002 2003 2004 2005 Thereafter Total FV
---------- ------------ ----------- ------------ ----------- ------------- ------------- -------------
Wholly Owned Centers:
Long term debt:
Fixed rate $10,662 $12,952 $53,104 $130,660 $14,021 $976,579 $1,197,978 $1,219,607
Average interest rate 7.40% 7.40% 7.39% 7.41% 7.41% 7.41% 7.42% -
Fixed rate - Debentures - 150,848 - - - - 150,848 150,515
Average interest rate - 7.25% - - - - 7.25% -
Variable rate - 233,250 - - - - 233,250 233,250
Average interest rate - 5.64% - - - - 5.64% -
---------- ------------ ----------- ------------ ----------- ------------- ------------- -------------
Total debt - Wholly owned
Centers $10,662 $397,050 $53,104 $130,660 $14,021 $976,579 $1,582,076 $1,603,372
---------- ------------ ----------- ------------ ----------- ------------- ------------- -------------
Joint Venture Centers:
(at Company's pro rata share)
Fixed rate $6,812 $7,538 $8,410 $8,977 $74,468 $475,032 $581,237 $578,199
Average interest rate 6.86% 6.86% 6.86% 6.87% 6.83% 6.83% 6.85% -
Variable rate - 8,224 92,250 - - 40,700 141,174 141,174
Average interest rate - 7.75% 5.67% - - 5.54% 5.75% -
---------- ------------ ----------- ------------ ----------- ------------- ------------- -------------
Total debt - Joint Ventures $6,812 $15,762 $100,660 $8,977 $74,468 $515,732 $722,411 $719,373
---------- ------------ ----------- ------------ ----------- ------------- ------------- -------------
Total debt - All Centers $17,474 $412,812 $153,764 $139,637 $88,489 $1,492,311 $2,304,487 $2,322,745
========== ============ =========== ============ =========== ============= ============= =============
On May 2, 2001, the Company refinanced the $36.5 million fixed rate
debt on Capitola Mall maturing in 2001. The prior loan was paid in full
and a new note was issued for $48.5 million bearing interest at a fixed
rate of 7.13% and maturing May 15, 2011. All debt maturing in 2001
reflects the amortization of principal on existing debt.
In addition, the Company has assessed the market risk for its variable
rate debt and believes that a 1% increase in interest rates would
decrease future earnings and cash flows by approximately $3.7 million
per year based on $374.4 million outstanding at June 30, 2001.
The fair value of the Company's long term debt is estimated based on
discounted cash flows at interest rates that management believes
reflect the risks associated with long term debt of similar risk and
duration.
- 29 -
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
None
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 held on
May 21, 2001:
A. The following three persons were elected as directors of the
Company to serve until the annual meeting of stockholders in 2004
and until their respective successors are duly elected and
qualify:
For Authority Withheld
Edward C. Coppola 23,079,545 3,098,329
Fred S. Hubbell 26,017,342 160,532
Dr. William P. Sexton 26,016,842 161,032
B. The ratification of the selection of PricewaterhouseCoopers LLP as
independent public accountants for the fiscal year ending
December 31, 2001.
Votes:
For: 26,085,922
Against: 21,143
Abstain: 71,277
Item 5 Other Information
None
- 30 -
THE MACERICH COMPANY (The Company)
PART II - Continued:
Item 6 Exhibits and Reports on Form 8-K
10.1 Option/Unrestricted Share Exchange Agreement
Dated as of May 11, 2001 between the Company
and David J. Contis.
10.2 Option/Stock Unit Exchange Agreement
Dated as of May 11, 2001 between the Company
and Larry E. Sidwell.
10.3 Amendments to the Amended and Restated 1994
Incentive Plan dated as of May 10, 2001.
10.4 Amendments to the 2000 Incentive Plan dated May 10, 2001.
- 31 -
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
Executive Vice President and
Chief Financial Officer
Date: August 14, 2001
- 32 -
THE MACERICH COMPANY (The Company)
Exhibit Index
Exhibit No. Page
(a) Exhibits
Number Description
10.1 Option/Unrestricted Share Exchange Agreement
Dated as of May 11, 2001 between the Company
and David J. Contis. 34-35
10.2 Option/Stock Unit Exchange Agreement
Dated as of May 11, 2001 between the Company
and Larry E. Sidwell. 36-39
10.3 Amendments to the Amended and Restated 1994
Incentive Plan dated as of May 10, 2001. 40
10.4 Amendments to the 2000 Incentive Plan dated
May 10, 2001. 41
- 33 -
THE MACERICH COMPANY (The Company)
EXHIBIT 10.1
OPTION/UNRESTRICTED SHARE EXCHANGE AGREEMENT
THIS AGREEMENT, dated as of the 11th day of May, 2001, is between THE
MACERICH COMPANY, a Maryland corporation (the "Company") and David J. Contis
(the "Executive").
WHEREAS, on May 8, 1997, the Company granted to the Executive stock
options to purchase an aggregate of 75,000 shares of the Company's common stock,
$.01 par value (the "Common Stock"), with a per share exercise price of $26.50
(the "Existing Options") pursuant to Option Agreements originally issued as of
such date (the "Existing Option Agreements");
WHEREAS, as of the date hereof, the Existing Options are 100% vested
and exercisable;
WHEREAS, the Committee under The Macerich Company Amended and Restated
1994 Incentive Plan, as amended (the "Plan") has approved, and the Company's
Board of Directors has ratified, the cancellation of the Existing Options in
exchange for the grant of unrestricted shares of Common Stock under the Plan, at
a ratio of 1 share for each Existing Option to purchase 10 shares of Common
Stock, for an aggregate 7,500 new shares (the "Shares"); and
WHEREAS, the grant of the Shares, upon the terms and conditions set
forth herein, in exchange for the cancellation of the Existing Options is
conditioned upon the Executive's cancellation of the Existing Options and the
Executive's surrender of the Existing Option Agreements;
NOW THEREFORE, in consideration of the mutual promises made herein, the
parties agree as follows:
1. Defined Terms. Capitalized terms used herein and not otherwise
defined herein shall have the meaning assigned to such terms in the Plan.
2. Option Surrender. In consideration of the Company's grant of the
Shares, the Executive agrees that the Existing Options are hereby cancelled and
the Executive shall concurrently herewith surrender the Existing Option
Agreements. The Executive will have no further rights under the Existing Option
Agreements or with respect to the Existing Options. The Executive's rights in
respect of the Shares will solely be governed by the terms of this Agreement and
the Plan.
3. Grant of Shares. Subject to the terms of this Agreement and the
Plan, the Company grants to Executive an award of Shares as set forth above. The
Company acknowledges receipt of consideration for the Shares on the terms set
forth in this Agreement in the form of the cancellation of the Existing Options
with a value at least equal to the fair market value, as of the date hereof, of
the Shares, which amount is not less than the minimum lawful consideration under
Maryland law.
4. Dividend Rights. If a certificate for the Shares is not issued to
the Executive prior to any dividend record date after the date hereof, Executive
shall be entitled to an amount in cash, on or as soon as practicable after the
dividend payment date, equal to the product of the per share dividend and 7,500,
without interest.
- 34 -
THE MACERICH COMPANY (The Company)
EXHIBIT 10.1 - Continued:
OPTION/UNRESTRICTED SHARE EXCHANGE AGREEMENT - Continued:
5. Tax Withholding. The Company shall be entitled to require a cash
payment by or on behalf of the Executive and/or to deduct from other
compensation payable to the Executive any sums required by federal, state or
local tax law to be withheld with respect to the grant of the Shares and any
Dividend Right under Section 4. Alternatively, the Executive may elect in such
manner and at such time prior to the applicable tax date as may be permitted or
required under Section 6.5 of the Plan and rules established by the Committee,
to have the Company withhold certain of the Shares at their Fair Market Value to
satisfy any withholding obligations of the Company with respect to the grant of
the Shares.
6. Plan. The grant of the Shares and all rights of the Executive with
respect thereto are subject to, and the Executive agrees to be bound by, all of
the terms and conditions of the Plan, incorporated herein by reference, to the
extent that such provisions are applicable to awards of unrestricted shares of
Common Stock. The Executive acknowledges receipt of a copy of the Plan, which is
made a part hereof by this reference, and agrees to be bound by the terms
thereof.
7. Compliance with Laws. The issuance of Shares under this Agreement
and their resale is subject to compliance with all applicable federal and state
laws, rules and regulations (including but not limited to federal and state
securities laws) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Executive agrees, if requested
by the Company, to provide such assurances and representations to the Company as
the Committee may deem necessary or desirable to assure compliance with all
legal requirements.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first written above.
THE MACERICH COMPANY EXECUTIVE
By: Richard A. Bayer /s/ DAVID J. CONTIS
Its: Executive Vice President Signature
and General Counsel David J. Contis
- 35 -
THE MACERICH COMPANY (The Company)
EXHIBIT 10.2
OPTION/STOCK UNIT EXCHANGE AGREEMENT
THIS AGREEMENT, dated as of the 11th day of May, 2001, is between THE
MACERICH COMPANY, a Maryland corporation (the "Company") and Larry E. Sidwell
(the "Executive").
WHEREAS, on February 11, 1997, the Company granted to the Executive
stock options to purchase an aggregate of 60,000 shares of the Company's common
stock, $.01 par value (the "Common Stock"), with a per share exercise price of
$26.880 (the "Existing Options") pursuant to Option Agreements originally issued
as of such date (the "Existing Option Agreements");
WHEREAS, as of the date hereof, the Existing Options are 100% vested
and exercisable;
WHEREAS, the Committee under The Macerich Company Amended and Restated
1994 Incentive Plan, as amended (the "Plan") has approved, and the Company's
Board of Directors has ratified, the cancellation of the Existing Options in
exchange for the grant of Stock Units under the Plan, at a ratio of 1 Stock Unit
for each Existing Option to purchase 10 shares of Common Stock, for an aggregate
6,000 Stock Units (the "Stock Units"); and
WHEREAS, the grant of the Stock Units, upon the terms and conditions
set forth herein, in exchange for the cancellation of the Existing Options is
conditioned upon the Executive's cancellation of the Existing Options and the
Executive's surrender of the Existing Option Agreements.
NOW THEREFORE, in consideration of the mutual promises made herein, the
parties agree as follows:
1. Defined Terms. Capitalized terms used herein and not otherwise
defined herein shall have the meaning assigned to such terms in the Plan.
2. Option Surrender. In consideration of the Company's grant of the
Stock Units, the Executive agrees that the Existing Options are hereby cancelled
and the Executive shall concurrently herewith surrender the Existing Option
Agreements. The Executive will have no further rights under the Existing Option
Agreements or with respect to the Existing Options. The Executive's rights in
respect of the Stock Units will solely be governed by the terms of this
Agreement and the Plan.
3. Grant of Stock Units. Subject to the terms of this Agreement and the
Plan, the Company grants to Executive an award of Stock Units as set forth
above. The Company acknowledges receipt of consideration for the Stock Units on
the terms set forth in this Agreement in the form of the cancellation of the
Existing Options with a value at least equal to the fair market value, as of the
date hereof, of the shares of Common Stock to be issued pursuant to the Stock
Units, which amount is not less than the minimum lawful consideration under
Maryland law.
4. Vesting of Stock Units. The Stock Units shall be fully vested and
non-forfeitable at all times.
- 36 -
THE MACERICH COMPANY (The Company)
EXHIBIT 10.2 - Continued:
5. Dividend and Voting Rights.
(a) Limitations on Rights Associated with Stock Units. The
Executive shall have no rights as a stockholder of the Company, no dividend
rights (except as expressly provided in Section 5(b) with respect to Dividend
Equivalent Rights) and no voting rights, with respect to the Stock Units and any
shares of Common Stock underlying or issuable in respect of such Stock Units
until such shares of Common Stock are actually issued to and held of record by
the Executive. Except as provided in Section 5(b), no adjustments will be made
for dividends or other rights of a holder for which the record date is prior to
the issuance of the stock certificate.
(b) Dividend Equivalent Rights Distributions. As of any
applicable dividend or distribution payment date, the Executive shall receive a
payment in the same consideration as paid to stockholders in an amount equal to
the amount of the Dividend Equivalent Rights multiplied by the number of Stock
Units in the Executive's Stock Unit Account as of the applicable dividend
payment date. Notwithstanding the foregoing, if the Stock Units are not credited
to the Executive's Stock Unit Account prior to any dividend payment date after
the date hereof, Executive shall be entitled to an amount in cash, on or as soon
as practicable after the dividend payment date, equal to the product of the per
share dividend and 6,000, without interest.
6. Distributions with Respect to Stock Units
(a) Timing and Manner of Distributions. The Stock Units
credited to the Executive's Stock Unit Account will be distributed in
shares of Common Stock in three equal installments of 33 1/3% on each
of the first three anniversaries of the date of this Agreement or, if
his employment earlier terminates, within 30 days after such
termination of employment or if there is a Change in Control Event,
immediately prior thereto. Fractional share interests may be
accumulated but shall not be issued. The Executive shall be entitled to
an amount in cash in lieu of any fractional share interests that remain
upon the final distribution under this Agreement.
(b) Change in Timing of Distributions. Notwithstanding Section
6(a) above, the Executive may elect to change the time of distribution
for either of the installment of Stock Unit distributions due on the
second or third anniversaries of the date of this Agreement by filing a
written change of distribution election form with the Committee on a
form approved by the Committee; provided, however, that (1) no such
election shall be effective until 12 months after such election is
filed with the Committee and (2) no more than three such new elections
shall be valid.
(c) Early Distributions. Executive shall be permitted to elect
to withdraw not less than 50% of the Stock Units credited to his Stock
Unit Account, reduced by the withdrawal penalty described below, prior
to the applicable distribution dates ("Early Distributions"), subject
to the following restrictions:
(1) The election to take an Early Distribution shall
be made in writing on a form provided by and
filed with the Committee;
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THE MACERICH COMPANY (The Company)
EXHIBIT 10.2 - Continued:
(2) The amount of the Early Distribution shall equal
90% of the number of Stock Units that the Executive has
elected to withdraw; provided that if such percentage results
in fractional shares, the number of shares subject to the
distribution shall be rounded down to the nearest whole number
and any fractional share interests shall be paid in cash based
on the Fair Market Value of a share of Common Stock on the
date that Early Distribution is paid; and
(3) The remaining 10% of the Stock Units that the
Executive has elected to withdraw shall be permanently
forfeited, and the Executive shall have no rights with respect
to such forfeited Stock Units.
(d) Distribution for Unforeseeable Emergencies.
(1) The Executive may request a distribution for an
Unforeseeable Emergency without penalty of an amount not
greater than the number of Stock Units credited to his
Account. Such distribution for an Unforeseeable Emergency
shall be subject to approval by the Committee in its sole
discretion and may be made only to the extent necessary to
satisfy the hardship. The Committee may treat a distribution
as necessary for an Unforeseeable Emergency if it relies on
the Executive's written representation, without actual
knowledge to the contrary, that the hardship cannot reasonably
be relieved (1) through timely reimbursement or compensation
by insurance or otherwise or (2) by liquidation of the
Executive's assets, to the extent the liquidation of such
assets would not itself cause severe financial hardship.
(2) For the purposes of this Section 6(d), an
"Unforeseeable Emergency" shall mean a severe financial
hardship to the Executive resulting from a sudden and
unexpected illness or accident of the Executive or a dependent
of the Executive, loss to the Executive's property due to
casualty, or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the
Executive's control. The circumstances that will constitute an
Unforeseeable Emergency will depend upon the facts of each
case. Examples of what are not considered to be Unforeseeable
Emergencies include the need to send the Executive's child to
college or the desire to purchase a home, absent destruction
or severe damage to the Executive's existing home.
7. Adjustments Upon Specified Events. Upon the occurrence of certain
events relating to the Company's stock contemplated by Section 6.2 of the Plan,
the Committee shall make adjustments as it deems appropriate in the number and
kind of securities or other consideration that may become payable with respect
to the Stock Units. If any adjustment shall be made under Section 6.2 of the
Plan, the Stock Units may be payable in the securities or other consideration
payable in respect of the Stock Units. Notwithstanding the foregoing, to the
extent that such consideration includes any cash, the commitment hereunder shall
become an unsecured promise to pay an amount equal to such cash (with earnings
attributable thereto as if such amount had been invested, pursuant to policies
established by the Committee, in an interest bearing, FDIC insured (subject to
applicable insurance limits) deposits of a depository institution selected by
the Committee) in accordance with the distribution dates of the Stock Units.
Notwithstanding the foregoing, the Stock Units shall continue to be subject to
such proportionate and equitable adjustments (if any) under Section 6.2 of the
Plan as the Committee determines to be necessary or appropriate, in the number,
kind and/or character of shares of Common Stock or other securities, property
and/or other rights payable in respect of the Stock Units and Stock Unit Account
credited under the Plan. All rights of the Executive are subject to those
adjustments.
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THE MACERICH COMPANY (The Company)
EXHIBIT 10.2 - Continued:
8. Tax Withholding. Upon payment of Dividend Equivalent Rights and/or
the distribution of shares of Common Stock in respect of the Executive's Stock
Unit Account, the Company shall be entitled to require a cash payment by or on
behalf of the Executive and/or to deduct from other compensation payable to the
Executive any sums required by federal, state or local tax law to be withheld
with respect to such payment or distribution. Alternatively, with respect to the
distribution of shares, the Executive may elect subject to approval by the
Committee and in such manner and at such time prior to the applicable tax date
as may be permitted or required under Section 6.5 of the Plan and rules
established by the Committee, to have the Company reduce the number of shares to
be delivered by the appropriate number of shares valued at their then Fair
Market Value to satisfy such withholding obligation.
9. Plan. The grant of the Stock Units and all rights of the Executive
with respect thereto are subject to, and the Executive agrees to be bound by,
all of the terms and conditions of the Plan, incorporated herein by reference,
to the extent that such provisions are applicable to Awards granted to Eligible
Employees. The Executive acknowledges receipt of a copy of the Plan, which is
made a part hereof by this reference, and agrees to be bound by the terms
thereof. Unless otherwise expressly provided in other sections of this
Agreement, provisions of the Plan that confer discretionary authority on the
Committee do not (and shall not be deemed to) create any rights in the Executive
unless such rights are expressly set forth herein or are otherwise in the sole
discretion of the Committee so conferred by appropriate action of the Committee
under the Plan after the date hereof.
10. Limitation on Executive's Rights. This Agreement creates only a
contractual obligation on the part of the Company as to amounts payable and
shall not be construed as creating a trust. The Plan, in and of itself, does not
have any assets. The Executive shall have only the rights of a general unsecured
creditor of the Company with respect to amounts credited and Dividend Equivalent
Rights and rights no greater than the right to receive the Common Stock (or
equivalent value) as a general unsecured creditor with respect to the Stock
Units, as and when payable thereunder.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first written above.
THE MACERICH COMPANY EXECUTIVE
By: Richard A. Bayer /s/ LARRY E. SIDWELL
Its: Executive Vice President Signature
and General Counsel Larry E. Sidwell
- 39 -
THE MACERICH COMPANY (The Company)
EXHIBIT 10.3
THE MACERICH COMPANY
AMENDED AND RESTATED 1994 INCENTIVE PLAN, AS AMENDED
AMENDMENTS AS OF MAY 10, 2001
(1) Subsections (a), (c) and (d) of Section 1.8 "Notes to Finance
Exercise or Purchase" are hereby amended in their entirety to read as follows
(additional language italicized):
* * *
"(a) In the case of notes in connection with the receipt, exercise or
vesting of any outstanding Award, the principal of the note shall not
exceed the amount required to be paid to the Corporation upon the
exercise or receipt of one or more Awards under this plan and the note
shall be delivered directly to the Corporation in consideration of such
exercise or receipt.
* * *
"(c) The note shall provide for full recourse to the Participant and
shall bear interest at a rate determined by the Committee but not less
than the interest rate necessary to avoid the imputation of interest
under the Code; provided however, that the Committee, in limited
circumstances relating to a change in control of the Company, may
provide for the note to be non-recourse to the Participant on such
terms as the Committee may approve."
(d) Unless the Committee otherwise expressly provides (but subject to
clause (b) above), the unpaid principal balance of the note shall
become due and payable on the 10th business day after Termination of
Employment of the Participant; provided however, that if a sale of the
shares financed by the note would cause such Participant to incur
liability under Section 16(b) of the Exchange Act, the unpaid balance
shall become due and payable on the 10th business day after the first
day on which a sale of such shares could have been made without
incurring such liability, assuming for these purposes that there are no
other transactions (or deemed transactions) in securities of this
Corporation by the Participant subsequent to such termination."
* * *
(2) The caption on Article V shall be amended to read as follows
(additional language italicized):
"V. STOCK BONUSES, OTHER CASH OR STOCK PERFORMANCE-BASED AWARDS,
STOCK UNITS, DIVIDEND EQUIVALENT RIGHTS AND STOCK AWARDS IN
LIEU OF OUTSTANDING AWARDS"
(3) A new Section 5.5 "Grants of Stock in Lieu of other Awards"
shall be added to Article V to read as follows:
"The Committee in its discretion may also grant shares of Common Stock
on a restricted or unrestricted basis hereunder in lieu of any
outstanding Award hereunder, upon such terms and conditions as
determined time to time by the Committee. The number of shares so
awarded shall be determined by the Committee; provided however, in no
case may any such awards of shares be granted to the extent that it
will cause an Eligible Person to Beneficially or Constructively Own
Equity Shares in excess of the Ownership Limit."
(4) The definition of "Subsidiary" contained in Section 7.1 is
amended to read as follows:
""Subsidiary" shall mean The Macerich Partnership, L.P., Macerich
Management Company, Macerich Property Management Company, LLC, or any
corporation or other entity a majority of whose outstanding voting
stock or voting power is beneficially owned directly or indirectly by
the Corporation."
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THE MACERICH COMPANY (The Company)
EXHIBIT 10.4
THE MACERICH COMPANY
2000 INCENTIVE PLAN
AMENDMENTS AS OF MAY 10, 2001
(1) Subsections (a), (c) and (d) of Section 1.8 "Notes to Finance
Exercise or Purchase" are hereby amended in their entirety to read as follows
(additional language italicized):
* * *
"(a) In the case of notes in connection with the receipt, exercise or
vesting of any outstanding Award, the principal of the note shall not
exceed the amount required to be paid to the Corporation upon the
exercise or receipt of one or more Awards under this plan and the note
shall be delivered directly to the Corporation in consideration of such
exercise or receipt.
* * *
"(c) The note shall provide for full recourse to the Participant and
shall bear interest at a rate determined by the Committee but not less
than the interest rate necessary to avoid the imputation of interest
under the Code; provided however, that the Committee, in limited
circumstances relating to a change in control of the Company, may
provide for the note to be non-recourse to the Participant on such
terms as the Committee may approve."
(d) Unless the Committee otherwise expressly provides (but subject to
clause (b) above), the unpaid principal balance of the note shall
become due and payable on the 10th business day after Termination of
Employment of the Participant; provided however, that if a sale of the
shares financed by the note would cause such Participant to incur
liability under Section 16(b) of the Exchange Act, the unpaid balance
shall become due and payable on the 10th business day after the first
day on which a sale of such shares could have been made without
incurring such liability, assuming for these purposes that there are no
other transactions (or deemed transactions) in securities of this
Corporation by the Participant subsequent to such termination."
* * *
(2) The caption on Article V shall be amended to read as follows
(additional language italicized):
"V. STOCK BONUSES, OTHER CASH OR STOCK PERFORMANCE-BASED AWARDS,
STOCK UNITS, DIVIDEND EQUIVALENT RIGHTS AND STOCK AWARDS IN
LIEU OF OUTSTANDING AWARDS"
(3) A new Section 5.5 "Grants of Stock in Lieu of other Awards"
shall be added to Article V to read as follows:
"The Committee in its discretion may also grant shares of Common Stock
on a restricted or unrestricted basis hereunder in lieu of any
outstanding Award hereunder, upon such terms and conditions as
determined time to time by the Committee. The number of shares so
awarded shall be determined by the Committee; provided however, in no
case may any such awards of shares be granted to the extent that it
will cause an Eligible Person to Beneficially or Constructively Own
Equity Shares in excess of the Ownership Limit."
(4) The definition of "Subsidiary" contained in Section 7.1 is
amended to read as follows:
""Subsidiary" shall mean The Macerich Partnership, L.P., Macerich
Management Company, Macerich Property Management Company, LLC, or any
corporation or other entity a majority of whose outstanding voting
stock or voting power is beneficially owned directly or indirectly by
the Corporation."
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