UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2007
Commission File No. 1-12504
THE MACERICH COMPANY
(Exact name of registrant as specified in its charter)
MARYLAND |
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95-4448705 |
(State or other
jurisdiction of incorporation |
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(I.R.S. Employer Identification Number) |
401 Wilshire Boulevard, Suite 700, Santa Monica, California 90401
(Address of principal executive office, including zip code)
(310) 394-6000
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
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 o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.
Large accelerated filer x Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES o NO x
Number of shares outstanding of the registrants common stock, as of May 3, 2007 Common Stock, par value $.01 per share: 71,677,344 shares
THE MACERICH COMPANY
FORM 10-Q
INDEX
Part I |
Financial Information |
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Item 1. |
Financial Statements |
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Consolidated Balance Sheets of the Company as of March 31, 2007 and December 31, 2006 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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2
THE MACERICH COMPANY
(Dollars in thousands, except share amounts)
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March 31, |
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December 31, |
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2007 |
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2006 |
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(Unaudited) |
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ASSETS: |
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Property, net |
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$ |
5,806,357 |
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$ |
5,755,283 |
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Cash and cash equivalents |
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47,945 |
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269,435 |
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Restricted cash |
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68,727 |
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66,376 |
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Marketable securities |
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29,783 |
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30,019 |
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Tenant receivables, net |
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110,022 |
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117,855 |
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Deferred charges and other assets, net |
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334,766 |
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307,825 |
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Loans to unconsolidated joint ventures |
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543 |
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708 |
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Due from affiliates |
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5,639 |
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4,282 |
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Investments in unconsolidated joint ventures |
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987,435 |
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1,010,380 |
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Total assets |
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$ |
7,391,217 |
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$ |
7,562,163 |
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LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS EQUITY: |
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Mortgage notes payable: |
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Related parties |
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$ |
150,432 |
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$ |
151,311 |
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Others |
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2,977,036 |
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3,179,787 |
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Total |
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3,127,468 |
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3,331,098 |
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Bank and other notes payable |
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1,870,711 |
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1,662,781 |
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Accounts payable and accrued expenses |
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72,995 |
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86,127 |
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Other accrued liabilities |
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241,183 |
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212,249 |
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Preferred stock dividends payable |
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6,199 |
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6,199 |
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Total liabilities |
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5,318,556 |
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5,298,454 |
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Minority interest |
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352,465 |
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387,183 |
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Commitments and contingencies |
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Class A participating convertible preferred units |
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213,786 |
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213,786 |
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Class A non-participating convertible preferred units |
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16,459 |
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21,501 |
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Series A cumulative convertible redeemable preferred stock, $.01 par value, 3,627,131 shares authorized, issued and outstanding at March 31, 2007 and December 31, 2006, respectively |
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98,934 |
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98,934 |
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Common stockholders equity: |
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Common stock, $.01 par value, 145,000,000 shares authorized, 71,449,716 and 71,567,908 shares issued and outstanding at March 31, 2007 and December 31, 2006, respectively |
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715 |
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716 |
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Additional paid-in capital |
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1,618,303 |
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1,717,498 |
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Accumulated deficit |
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(226,886 |
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(178,249 |
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Accumulated other comprehensive (loss) income |
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(1,115 |
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2,340 |
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Total common stockholders equity |
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1,391,017 |
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1,542,305 |
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Total liabilities, preferred stock and common stockholders equity |
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$ |
7,391,217 |
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$ |
7,562,163 |
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The accompanying notes are an integral part of these financial statements.
3
THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
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For the Three Months |
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Ended March 31, |
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2007 |
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2006 |
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Revenues: |
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Minimum rents |
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$ |
123,985 |
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$ |
122,089 |
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Percentage rents |
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3,767 |
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2,372 |
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Tenant recoveries |
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67,654 |
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62,341 |
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Management Companies |
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8,754 |
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7,257 |
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Other |
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7,511 |
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6,633 |
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Total revenues |
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211,671 |
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200,692 |
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Expenses: |
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Shopping center and operating expenses |
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68,622 |
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61,845 |
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Management Companies operating expenses |
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17,755 |
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14,714 |
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REIT general and administrative expenses |
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5,373 |
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3,698 |
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Depreciation and amortization |
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57,087 |
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59,409 |
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148,837 |
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139,666 |
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Interest expense: |
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Related parties |
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2,651 |
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2,698 |
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Other |
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64,904 |
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66,083 |
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67,555 |
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68,781 |
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Total expenses |
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216,392 |
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208,447 |
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Minority interest in consolidated joint ventures |
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(1,491 |
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(463 |
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Equity in income of unconsolidated joint ventures |
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14,483 |
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21,016 |
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Income tax benefit |
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120 |
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533 |
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Gain (loss) on sale of assets |
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1,752 |
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(502 |
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Loss on early extinguishment of debt |
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(878 |
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(1,782 |
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Income from continuing operations |
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9,265 |
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11,047 |
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Discontinued operations: |
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Loss on sale of assets |
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(289 |
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Income from discontinued operations |
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179 |
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3,836 |
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Total (loss) income from discontinued operations |
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(110 |
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3,836 |
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Income before minority interest and preferred dividends |
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9,155 |
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14,883 |
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Less: minority interest in Operating Partnership |
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467 |
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1,460 |
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Net income |
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8,688 |
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13,423 |
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Less: preferred dividends |
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6,122 |
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5,970 |
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Net income available to common stockholders |
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$ |
2,566 |
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$ |
7,453 |
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Earnings per common share - basic: |
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Income from continuing operations |
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$ |
0.04 |
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$ |
0.06 |
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Discontinued operations |
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0.05 |
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Net income |
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$ |
0.04 |
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$ |
0.11 |
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Earnings per common share - diluted: |
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Income from continuing operations |
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$ |
0.04 |
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$ |
0.06 |
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Discontinued operations |
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0.05 |
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Net income |
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$ |
0.04 |
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$ |
0.11 |
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Weighted average number of common shares outstanding: |
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Basic |
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71,669,000 |
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68,738,000 |
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Diluted |
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85,034,000 |
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82,518,000 |
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The accompanying notes are an integral part of these financial statements.
4
THE MACERICH COMPANY
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS EQUITY
(Dollars in thousands, except per share data)
(Unaudited)
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Accumulated |
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Total |
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Common Stock |
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Additional |
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Other |
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Common |
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Par |
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Paid-in |
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Accumulated |
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Comprehensive |
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Stockholders |
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Shares |
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Value |
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Capital |
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Deficit |
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Income (loss) |
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Equity |
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Balance January 1, 2007 |
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71,567,908 |
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$ |
716 |
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$ |
1,717,498 |
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$ |
(178,249 |
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$ |
2,340 |
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$ |
1,542,305 |
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Comprehensive income: |
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Net income |
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8,688 |
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8,688 |
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Reclassification of deferred losses |
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238 |
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238 |
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Interest rate swap/cap agreements |
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(3,693 |
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(3,693 |
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Total comprehensive income |
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8,688 |
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(3,455 |
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5,233 |
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Amortization of share and unit-based plans |
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212,085 |
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2 |
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4,824 |
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4,826 |
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Exercise of stock options |
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9,500 |
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274 |
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274 |
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Employee stock purchases |
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4,099 |
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259 |
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259 |
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Distributions paid ($0.71) per share |
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(51,203 |
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(51,203 |
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Preferred dividends |
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(6,122 |
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(6,122 |
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Conversion of Operating Partnership units and Class A non-participating convertible preferred units |
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463,124 |
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5 |
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16,910 |
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16,915 |
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Repurchase of common shares |
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(807,000 |
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(8 |
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(74,962 |
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(74,970 |
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Capped Calls on convertible senior notes |
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(59,850 |
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(59,850 |
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Change in accounting principle due to adoption of FIN 48 |
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(1,574 |
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(1,574 |
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Adjustment to reflect minority interest on a pro rata basis for period end ownership percentage of Operating Partnership units |
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14,924 |
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14,924 |
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Balance March 31, 2007 |
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71,449,716 |
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$ |
715 |
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$ |
1,618,303 |
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$ |
(226,886 |
) |
$ |
(1,115 |
) |
$ |
1,391,017 |
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The accompanying notes are an integral part of these financial statements.
5
THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
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For the Three Months |
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Ended March 31, |
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2007 |
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2006 |
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Cash flows from operating activities: |
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Net income available to common stockholders |
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$ |
2,566 |
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$ |
7,453 |
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Preferred dividends |
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6,122 |
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5,970 |
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Net income |
|
8,688 |
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13,423 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Loss on early extinguishment of debt |
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878 |
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1,782 |
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(Gain) loss on sale of assets |
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(1,752 |
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502 |
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Loss on sale of discontinued operations |
|
289 |
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Depreciation and amortization |
|
57,085 |
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63,537 |
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Amortization of net premium on mortgage and bank and other notes payable |
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(2,771 |
) |
(3,333 |
) |
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Amortization of share and unit-based plans |
|
3,393 |
|
2,479 |
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Minority interest in Operating Partnership |
|
467 |
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1,460 |
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Minority interest in consolidated joint ventures |
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1,491 |
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463 |
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Equity in income of unconsolidated joint ventures |
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(14,483 |
) |
(21,016 |
) |
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Distributions of income from unconsolidated joint ventures |
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285 |
|
772 |
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Changes in assets and liabilities, net of acquisitions: |
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Tenant receivables, net |
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7,833 |
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8,337 |
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Other assets |
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(14,011 |
) |
3,639 |
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Accounts payable and accrued expenses |
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(11,211 |
) |
(10,203 |
) |
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Due from affiliates |
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(1,357 |
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(196 |
) |
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Other accrued liabilities |
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21,470 |
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(10,055 |
) |
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Net cash provided by operating activities |
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56,294 |
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51,591 |
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Cash flows from investing activities: |
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Acquisitions of property, development, redevelopment and property improvements |
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(105,618 |
) |
(262,672 |
) |
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Issuance of note receivable |
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(10,000 |
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Maturities of marketable securities |
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322 |
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Deferred leasing costs |
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(8,873 |
) |
(6,533 |
) |
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Distributions from unconsolidated joint ventures |
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42,789 |
|
24,199 |
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Contributions to unconsolidated joint ventures |
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(9,309 |
) |
(2,871 |
) |
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Repayments of loans to unconsolidated joint ventures |
|
165 |
|
228 |
|
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Proceeds from sale of assets |
|
5,768 |
|
155 |
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Restricted cash |
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(2,351 |
) |
(3,856 |
) |
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Net cash used in investing activities |
|
(77,107 |
) |
(261,350 |
) |
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Cash flows from financing activities: |
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|
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Proceeds from mortgages and bank and other notes payable |
|
1,172,263 |
|
312,845 |
|
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Payments on mortgages and bank and other notes payable |
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(1,174,540 |
) |
(871,844 |
) |
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Deferred financing costs |
|
(504 |
) |
(900 |
) |
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Purchase of Capped Calls |
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(59,850 |
) |
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|
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Repurchase of common stock |
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(74,970 |
) |
|
|
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Proceeds from share-based plans |
|
533 |
|
26 |
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Net proceeds from stock offering |
|
|
|
746,809 |
|
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Dividends and distributions |
|
(57,487 |
) |
(59,512 |
) |
||
Dividends to preferred stockholders / preferred unit holders |
|
(6,122 |
) |
(5,970 |
) |
||
Net cash (used in) provided by financing activities |
|
(200,677 |
) |
121,454 |
|
||
Net decrease in cash |
|
(221,490 |
) |
(88,305 |
) |
||
Cash and cash equivalents, beginning of period |
|
269,435 |
|
155,113 |
|
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Cash and cash equivalents, end of period |
|
$ |
47,945 |
|
$ |
66,808 |
|
Supplemental cash flow information: |
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|
|
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|
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Cash payments for interest, net of amounts capitalized |
|
$ |
81,163 |
|
$ |
79,215 |
|
Non-cash transactions: |
|
|
|
|
|
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Increase in other accrued liabilities and additional paid-in capital recorded upon adoption of FIN 48 |
|
$ |
1,574 |
|
$ |
|
|
Reclassification from other accrued liabilities to additional paid-in capital upon adoption of SFAS No. 123(R) |
|
$ |
|
|
$ |
6,000 |
|
Accrued development costs included in accounts payable and accrued expenses and other accrued liabilities |
|
$ |
23,987 |
|
$ |
6,112 |
|
The accompanying notes are an integral part of these financial statements.
6
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
1. Organization:
The Macerich Company (the Company) is involved in the acquisition, ownership, development, redevelopment, management and leasing of regional and community shopping centers (the Centers) located throughout the United States.
The Company commenced
operations effective with the completion of its initial public offering on
March 16, 1994. As
of March 31, 2007, the Company is the sole general partner of and holds an 85%
ownership interest in The Macerich Partnership, L.P. (the Operating Partnership).
The interests in the Operating Partnership are known as OP Units. OP Units not
held by the Company are redeemable, subject to certain restrictions, on a
one-for-one basis for the Companys common stock or cash at the Companys
option.
The Company is organized to qualify as a real estate investment trust (REIT) under the Internal Revenue Code of 1986, as amended. The 15% limited partnership interest of the Operating Partnership not owned by the Company is reflected in these financial statements as minority interest in the Operating Partnership.
The property management, leasing and redevelopment of the Companys portfolio is provided by the Companys management companies, Macerich Property Management Company, LLC, (MPMC, LLC) a single member Delaware limited liability company, Macerich Management Company (MMC), a California corporation, Westcor Partners, L.L.C., a single member Arizona limited liability company, Macerich Westcor Management LLC, a single member Delaware limited liability company, Westcor Partners of Colorado, LLC, a Colorado limited liability company, MACW Mall Management, Inc., a New York corporation and MACW Property Management, LLC, a single member New York limited liability company. The two MACW management companies are collectively referred to herein as the Wilmorite Management Companies. The three Westcor management companies are collectively referred to herein as the Westcor Management Companies. All seven of the management companies are collectively referred to herein as the Management Companies.
2. Basis of Presentation:
The accompanying consolidated financial statements of 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 accompanying consolidated financial statements include the accounts of the Company and the Operating Partnership. Investments in entities that are controlled by the Company or meet the definition of a variable interest entity in which an enterprise absorbs the majority of the entitys expected losses, receives a majority of the entitys expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity are consolidated; otherwise they are accounted for under the equity method and are reflected as Investments in unconsolidated joint ventures.
7
The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Companys Annual Report on Form 10-K for the year ended December 31, 2006. 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 preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The accompanying consolidated balance sheet as of December 31, 2006 has been derived from the audited financial statements, but does not include all disclosures required by GAAP.
All intercompany accounts and transactions have been eliminated in the consolidated financial statements.
Recent Accounting Pronouncements:
In February 2006, the Financial Accounting Standards Board (FASB) issued Statement on Financial Accounting Standards (SFAS) No. 155, Accounting for Certain Hybrid Financial Instruments An Amendment of FASB Statements No. 133 and 140. This statement amended SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. This statement also established a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation. The adoption of this statement on January 1, 2007, did not have a material effect on the Companys results of operations or financial condition.
In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 (FIN 48). This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition of previously recognized income tax benefits, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company adopted this statement on January 1, 2007. See Note 18 Income Taxes, for the impact of the adoption of FIN 48 on the results of operations and financial condition.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The Company is required to adopt SFAS No. 157 for fiscal year 2008 and does not expect its adoption to have a material effect on the Companys results of operations or financial condition.
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 108. SAB No. 108 establishes a framework for quantifying materiality of financial statement misstatements. The adoption of SAB No. 108 on January 1, 2007, did not have a material impact on the Companys consolidated results of operations or financial condition.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilitiesincluding an amendment of FASB Statement No. 115. SFAS No. 159 allows for the measurement of many financial instruments and certain other items at fair value. The Company is required to adopt SFAS No. 159 for fiscal year 2008. The Company is currently evaluating the impact of adoption of this statement on its results of operations and financial condition.
8
Fair Value of Financial Instruments
The Company calculates the fair value of financial instruments and includes this additional information in the notes to consolidated financial statements when the fair value is different than the carrying value of those financial instruments. When the fair value reasonably approximates the carrying value, no additional disclosure is made. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
3. Earnings per Share:
The computation of basic earnings per share (EPS) is based on net income and the weighted average number of common shares outstanding for the three months ended March 31, 2007 and 2006. The computation of diluted earnings per share includes the effect of dilutive securities using the if-converted method and the dilutive effect of employee stock options calculated using the treasury stock method. The OP Units and MACWHLP common units not held by the Company have been included in the diluted EPS since they may be redeemable on a one-for-one basis for common stock, at the Companys option. The following table computes the basic and diluted earnings per share calculation (dollars and shares in thousands):
|
For the Three Months Ended March 31, |
|
|||||||||||||||
|
|
2007 |
|
2006 |
|
||||||||||||
|
|
Net |
|
Shares |
|
Per |
|
Net |
|
Shares |
|
Per |
|
||||
Net income |
|
$ |
8,688 |
|
|
|
|
|
$ |
13,423 |
|
|
|
|
|
||
Less: Preferred dividends (1) |
|
6,122 |
|
|
|
|
|
5,970 |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income available to common stockholders |
|
2,566 |
|
71,669 |
|
$ |
0.04 |
|
7,453 |
|
68,738 |
|
$ |
0.11 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Conversion of partnership units |
|
467 |
|
13,053 |
|
|
|
1,460 |
|
13,485 |
|
|
|
||||
Employee stock options |
|
|
|
312 |
|
|
|
|
|
295 |
|
|
|
||||
Net income available to common stockholders |
|
$ |
3,033 |
|
85,034 |
|
$ |
0.04 |
|
$ |
8,913 |
|
82,518 |
|
$ |
0.11 |
|
(1)
Preferred dividends include convertible preferred unit dividends of $3,547 and
$3,503 for the three months
ended March 31, 2007 and 2006, respectively.
The minority interest in the Operating Partnership as reflected in the Companys consolidated statements of operations has been allocated for EPS calculations as follows:
|
For the Three Months Ended |
|
|||||
|
|
March 31, |
|
||||
|
|
2007 |
|
2006 |
|
||
Income from continuing operations |
|
$ |
485 |
|
$ |
831 |
|
Discontinued operations: |
|
|
|
|
|
||
Loss on sale of assets |
|
(44 |
) |
|
|
||
Income from discontinued operations |
|
26 |
|
629 |
|
||
Total |
|
$ |
467 |
|
$ |
1,460 |
|
9
4. Investments in Unconsolidated Joint Ventures:
The following are the Companys investments in unconsolidated joint ventures. The Operating Partnerships interest in each joint venture property as of March 31, 2007 was as follows:
|
Partnerships |
|
|
Joint Venture |
|
Ownership % (1) |
|
Biltmore Shopping Center Partners LLC |
|
50.0 |
% |
Camelback Colonnade SPE LLC |
|
75.0 |
% |
Chandler Festival SPE, LLC |
|
50.0 |
% |
Chandler Gateway SPE LLC |
|
50.0 |
% |
Chandler Village Center, LLC |
|
50.0 |
% |
Coolidge Holding LLC |
|
37.5 |
% |
Corte Madera Village, LLC |
|
50.1 |
% |
Desert Sky MallTenants in Common |
|
50.0 |
% |
East Mesa Land, L.L.C. |
|
50.0 |
% |
East Mesa Mall, L.L.C.Superstition Springs Center |
|
33.3 |
% |
Jaren Associates #4 |
|
12.5 |
% |
Kierland Tower Lofts, LLC |
|
15.0 |
% |
Macerich Northwestern Associates |
|
50.0 |
% |
MetroRising AMS Holding LLC |
|
15.0 |
% |
New River AssociatesArrowhead Towne Center |
|
33.3 |
% |
NorthPark Land Partners, LP |
|
50.0 |
% |
NorthPark Partners, LP |
|
50.0 |
% |
Pacific Premier Retail Trust |
|
51.0 |
% |
PHXAZ/Kierland Commons, L.L.C. |
|
24.5 |
% |
Propcor Associates |
|
25.0 |
% |
Propcor II Associates, LLCBoulevard Shops |
|
50.0 |
% |
SanTan Village Phase 2 LLC |
|
34.9 |
% |
Scottsdale Fashion Square Partnership |
|
50.0 |
% |
SDG Macerich Properties, L.P. |
|
50.0 |
% |
The Market at Estrella Falls LLC |
|
35.1 |
% |
Tysons Corner Holdings LLC |
|
50.0 |
% |
Tysons Corner LLC |
|
50.0 |
% |
Tysons Corner Property Holdings II LLC |
|
50.0 |
% |
Tysons Corner Property Holdings LLC |
|
50.0 |
% |
Tysons Corner Property LLC |
|
50.0 |
% |
W.M. Inland, L.L.C. |
|
50.0 |
% |
West Acres Development, LLP |
|
19.0 |
% |
Westcor/Gilbert, L.L.C. |
|
50.0 |
% |
Westcor/Goodyear, L.L.C. |
|
50.0 |
% |
Westcor/Queen Creek Commercial LLC |
|
37.6 |
% |
Westcor/Queen Creek LLC |
|
37.6 |
% |
Westcor/Queen Creek Medical LLC |
|
37.6 |
% |
Westcor/Queen Creek Residential LLC |
|
37.6 |
% |
Westcor/Surprise Auto Park LLC |
|
33.3 |
% |
Westcor/Surprise LLC |
|
33.3 |
% |
Westlinc AssociatesHilton Village |
|
50.0 |
% |
Westpen Associates |
|
50.0 |
% |
WM Ridgmar, L.P. |
|
50.0 |
% |
(1) The Operating Partnerships ownership interest in this table reflects its legal ownership interest but may not reflect its economic interest since each joint venture has various agreements regarding cash flow, profits and losses, allocations, capital requirements and other matters.
10
The Company accounts for its investments in joint ventures using the equity method of accounting unless the Company has a controlling interest in the joint venture or is the primary beneficiary in a variable interest entity. Although the Company has a greater than 50% interest in Pacific Premier Retail Trust, Camelback Colonnade SPE LLC and Corte Madera Village, LLC, the Company shares management control with the partners in these joint ventures and accounts for these joint ventures using the equity method of accounting.
Combined and Condensed Balance Sheets of Unconsolidated Joint Ventures:
|
March 31, |
|
December 31, |
|
|||
|
|
2007 |
|
2006 |
|
||
Assets (1): |
|
|
|
|
|
||
Properties, net |
|
$ |
4,228,955 |
|
$ |
4,251,765 |
|
Other assets |
|
444,893 |
|
429,028 |
|
||
Total assets |
|
$ |
4,673,848 |
|
$ |
4,680,793 |
|
|
|
|
|
|
|
||
Liabilities and partners capital (1): |
|
|
|
|
|
||
Mortgage notes payable(2) |
|
$ |
3,543,193 |
|
$ |
3,515,154 |
|
Other liabilities |
|
156,415 |
|
140,889 |
|
||
The Companys capital(3) |
|
538,642 |
|
559,172 |
|
||
Outside partners capital |
|
435,598 |
|
465,578 |
|
||
Total liabilities and partners capital |
|
$ |
4,673,848 |
|
$ |
4,680,793 |
|
(1) These amounts include the assets and liabilities of the following significant joint ventures:
|
|
|
Pacific |
|
|
|
||||
|
|
SDG |
|
Premier |
|
Tysons |
|
|||
|
|
Macerich |
|
Retail |
|
Corner |
|
|||
|
|
Properties, L.P. |
|
Trust |
|
LLC |
|
|||
|
|
|
|
|
|
|
|
|||
As of March 31, 2007: |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
Total Assets |
|
$ |
902,312 |
|
$ |
1,023,991 |
|
$ |
644,762 |
|
Total Liabilities |
|
$ |
823,419 |
|
$ |
848,770 |
|
$ |
370,888 |
|
|
|
|
|
|
|
|
|
|||
As of December 31, 2006: |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
Total Assets |
|
$ |
924,720 |
|
$ |
1,027,132 |
|
$ |
644,545 |
|
Total Liabilities |
|
$ |
823,327 |
|
$ |
848,070 |
|
$ |
371,360 |
|
(2) Certain joint ventures have debt that could become recourse debt to the Company should the joint venture be unable to discharge the obligations of the related debt. As of March 31, 2007 and December 31, 2006, the total amount of debt that could become recourse to the Company was $8,600 and $8,570, respectively.
(3) The Companys investment in unconsolidated joint ventures was $448,793 and $451,208 more than the underlying equity as reflected in the joint ventures financial statements as of March 31, 2007 and December 31, 2006, respectively. This represents the difference between the cost of the investment and the book value of the underlying equity of the joint venture. The Company is amortizing this difference into income on a straight-line basis, consistent with the depreciable lives on property. The amortization of this difference was $3,407 and $3,583 for the three months ended March 31, 2007 and 2006, respectively.
11
Combined and Condensed Statements of Operations of Unconsolidated Joint Ventures:
|
SDG |
|
Pacific |
|
Tysons |
|
Other |
|
|
|
||||||
|
|
Macerich |
|
Premier |
|
Corner |
|
Joint |
|
|
|
|||||
|
|
Properties, L.P. |
|
Retail Trust |
|
LLC |
|
Ventures |
|
Total |
|
|||||
Three Months Ended March 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Minimum rents |
|
$ |
23,149 |
|
$ |
30,885 |
|
$ |
15,946 |
|
$ |
59,825 |
|
$ |
129,805 |
|
Percentage rents |
|
1,213 |
|
1,585 |
|
(43 |
) |
1,967 |
|
4,722 |
|
|||||
Tenant recoveries |
|
11,961 |
|
12,020 |
|
8,252 |
|
29,514 |
|
61,747 |
|
|||||
Other |
|
941 |
|
957 |
|
430 |
|
3,584 |
|
5,912 |
|
|||||
Total revenues |
|
37,264 |
|
45,447 |
|
24,585 |
|
94,890 |
|
202,186 |
|
|||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Shopping center and operating expenses |
|
14,799 |
|
12,432 |
|
6,250 |
|
32,854 |
|
66,335 |
|
|||||
Interest expense |
|
11,470 |
|
12,288 |
|
4,197 |
|
25,640 |
|
53,595 |
|
|||||
Depreciation and amortization |
|
7,263 |
|
7,583 |
|
5,264 |
|
26,068 |
|
46,178 |
|
|||||
Total operating expenses |
|
33,532 |
|
32,303 |
|
15,711 |
|
84,562 |
|
166,108 |
|
|||||
Loss on sale of assets |
|
(4,764 |
) |
|
|
|
|
|
|
(4,764 |
) |
|||||
Net income |
|
$ |
(1,032 |
) |
$ |
13,144 |
|
$ |
8,874 |
|
$ |
10,328 |
|
$ |
31,314 |
|
Companys equity in net income |
|
$ |
(516 |
) |
$ |
6,693 |
|
$ |
3,353 |
|
$ |
4,953 |
|
$ |
14,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Three Months Ended March 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Minimum rents |
|
$ |
24,024 |
|
$ |
31,377 |
|
$ |
14,327 |
|
$ |
50,058 |
|
$ |
119,786 |
|
Percentage rents |
|
1,109 |
|
1,637 |
|
275 |
|
2,375 |
|
5,396 |
|
|||||
Tenant recoveries |
|
11,620 |
|
11,509 |
|
7,284 |
|
27,134 |
|
57,547 |
|
|||||
Other |
|
797 |
|
862 |
|
456 |
|
5,333 |
|
7,448 |
|
|||||
Total revenues |
|
37,550 |
|
45,385 |
|
22,342 |
|
84,900 |
|
190,177 |
|
|||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Shopping center and operating expenses |
|
14,616 |
|
12,071 |
|
6,460 |
|
29,009 |
|
62,156 |
|
|||||
Interest expense |
|
9,170 |
|
12,824 |
|
4,375 |
|
16,458 |
|
42,827 |
|
|||||
Depreciation and amortization |
|
7,367 |
|
7,157 |
|
5,364 |
|
16,434 |
|
36,322 |
|
|||||
Total operating expenses |
|
31,153 |
|
32,052 |
|
16,199 |
|
61,901 |
|
141,305 |
|
|||||
Net income |
|
$ |
6,397 |
|
$ |
13,333 |
|
$ |
6,143 |
|
$ |
22,999 |
|
$ |
48,872 |
|
Companys equity in net income |
|
$ |
3,198 |
|
$ |
6,713 |
|
$ |
2,507 |
|
$ |
8,598 |
|
$ |
21,016 |
|
Significant accounting policies used by the unconsolidated joint ventures are similar to those used by the Company. Included in mortgage notes payable are amounts due to affiliates of Northwestern Mutual Life (NML) of $130,633 and $132,170 as of March 31, 2007 and December 31, 2006, 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 $2,179 and $2,276 for the three months ended March 31, 2007 and 2006, respectively.
12
5. Derivative Instruments and Hedging Activities
The Company recognizes and measures all derivatives in the consolidated financial statements at fair value. The Company uses derivative financial instruments in the normal course of business to manage or reduce its exposure to adverse fluctuations in interest rates. The Company designs its hedges to be effective in reducing the risk exposure that they are designated to hedge. Any instrument that meets the cash flow hedging criteria in SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, is formally designated as a cash flow hedge at the inception of the derivative contract. On an ongoing quarterly basis, the Company adjusts its balance sheet to reflect the current fair value of its derivatives. To the extent they are effective, changes in fair value of derivatives are recorded in comprehensive income (loss). Ineffective portions, if any, are included in net income. No ineffectiveness was recorded in net income during the three months ended March 31, 2007 or 2006. If any derivative instrument used for risk management does not meet the hedging criteria, it is marked-to-market each period in the consolidated statements of operations. As of March 31, 2007, one of the Companys derivative instruments was not designated as a cash flow hedge. Changes in the market value of this derivative instrument will be recorded in the consolidated statements of operations.
As of March 31, 2007 and December 31, 2006, the Company had $1,014 and $1,252, respectively, reflected in other comprehensive (loss) income related to treasury rate locks settled in prior years. The Company reclassified $238 and $332 for the three months ended March 31, 2007 and 2006, respectively, related to treasury rate lock transactions settled in prior years from accumulated other comprehensive (loss) income to earnings. It is anticipated that an additional $729 will be reclassified during the remainder of the current year.
Interest rate swap and cap agreements are purchased by the Company from third parties to manage the risk of interest rate changes on some of the Companys floating rate debt. Payments received as a result of these agreements are recorded as a reduction of interest expense. The fair value of the instrument is included in deferred charges and other assets if the fair value is an asset or in other accrued liabilities if the fair value is a deficit. The Company recorded other comprehensive (loss) income of ($3,693) and $6,584 related to the marking-to-market of interest rate swap/cap agreements for the three months ended March 31, 2007 and 2006, respectively. The amount expected to be reclassified to interest expense in the next 12 months will be immaterial.
6. Property:
Property consists of the following:
|
March 31, |
|
December 31, |
|
|||
|
|
2007 |
|
2006 |
|
||
Land |
|
$ |
1,155,915 |
|
$ |
1,147,464 |
|
Building improvements |
|
4,747,943 |
|
4,743,960 |
|
||
Tenant improvements |
|
242,503 |
|
231,210 |
|
||
Equipment and furnishings |
|
83,501 |
|
82,456 |
|
||
Construction in progress |
|
359,924 |
|
294,115 |
|
||
|
|
6,589,786 |
|
6,499,205 |
|
||
Less accumulated depreciation |
|
(783,429 |
) |
(743,922 |
) |
||
|
|
$ |
5,806,357 |
|
$ |
5,755,283 |
|
Depreciation expense for the three months ended March 31, 2007 and 2006 was $42,567 and $42,822, respectively.
The Company recognized a gain (loss) on the sale of equipment and furnishings and tenant improvements of $33 and ($623) during the three months ended March 31, 2007 and 2006, respectively. In addition, the Company recognized a gain on the sale of land of $1,719 and $121 during the three months ended March 31, 2007 and 2006, respectively.
13
7. Marketable Securities:
Marketable securities consist of the following:
|
March 31, |
|
December 31, |
|
||
|
|
2007 |
|
2006 |
|
|
Government debt securities, at par value |
|
$ |
31,544 |
|
31,866 |
|
Less discount |
|
(1,761 |
) |
(1,847 |
) |
|
|
|
29,783 |
|
30,019 |
|
|
Unrealized gain |
|
711 |
|
514 |
|
|
Fair value |
|
$ |
30,494 |
|
30,533 |
|
Future contractual maturities of marketable securities at March 31, 2007 are as follows:
1 year or less |
|
$ |
1,192 |
|
1 to 5 years |
|
3,843 |
|
|
5 to 10 year |
|
26,509 |
|
|
|
|
$ |
31,544 |
|
The proceeds from maturities and interest receipts from the marketable securities are restricted to the service of the $28,127 note on which the Company remains obligated following the sale of Greeley Mall on July 27, 2006 (See Note 10 Bank and Other Notes Payable).
8. Deferred Charges And Other Assets:
Deferred charges and other assets are summarized as follows:
|
March 31, |
|
December 31, |
|
|||
|
|
2007 |
|
2006 |
|
||
Leasing |
|
$ |
92,098 |
|
$ |
115,657 |
|
Financing |
|
45,855 |
|
40,906 |
|
||
Intangible assets resulting from SFAS No. 141 allocations: |
|
|
|
|
|
||
In-place lease values |
|
209,716 |
|
207,023 |
|
||
Leasing commissions and legal costs |
|
36,707 |
|
36,177 |
|
||
|
|
384,376 |
|
399,763 |
|
||
Less accumulated amortization (1) |
|
(140,220 |
) |
(171,073 |
) |
||
|
|
244,156 |
|
228,690 |
|
||
Other assets |
|
90,610 |
|
79,135 |
|
||
|
|
$ |
334,766 |
|
$ |
307,825 |
|
(1) Accumulated amortization includes $86,043 and $86,172 relating to intangibles resulting from SFAS No. 141 allocations at March 31, 2007 and December 31, 2006, respectively.
The allocated values of above market leases included in Other assets and the below market leases included in Other accrued liabilities, related to SFAS No. 141, consist of the following:
|
March 31, |
|
December 31, |
|
|||
|
|
2007 |
|
2006 |
|
||
Above Market Leases |
|
|
|
|
|
||
Original allocated value |
|
$ |
65,752 |
|
$ |
64,718 |
|
Less accumulated amortization |
|
(31,920 |
) |
(36,058 |
) |
||
|
|
$ |
33,832 |
|
$ |
28,660 |
|
Below Market Leases |
|
|
|
|
|
||
Original allocated value |
|
$ |
156,667 |
|
$ |
150,300 |
|
Less accumulated amortization |
|
(78,306 |
) |
(77,261 |
) |
||
|
|
$ |
78,361 |
|
$ |
73,039 |
|
14
9. Mortgage Notes Payable:
Mortgage notes payable consist of the following:
|
Carrying Amount of Mortgage Notes (a) |
|
|
|
Monthly |
|
|
|
||||||||||||
|
|
March 31, 2007 |
|
December 31, 2006 |
|
Interest |
|
Payment |
|
Maturity |
|
|||||||||
Property Pledged as Collateral |
|
Other |
|
Related Party |
|
Other |
|
Related Party |
|
Rate |
|
Term (b) |
|
Date |
|
|||||
Borgata |
|
$ |
14,746 |
|
$ |
|
|
$ |
14,885 |
|
$ |
|
|
5.39 |
% |
$ |
115 |
|
2007 |
|
Capitola Mall |
|
|
|
40,578 |
|
|
|
40,999 |
|
7.13 |
% |
380 |
|
2011 |
|
|||||
Carmel Plaza |
|
26,565 |
|
|
|
26,674 |
|
|
|
8.18 |
% |
202 |
|
2009 |
|
|||||
Casa Grande (c) |
|
6,429 |
|
|
|
7,304 |
|
|
|
6.72 |
% |
43 |
|
2009 |
|
|||||
Chandler Fashion Center |
|
172,141 |
|
|
|
172,904 |
|
|
|
5.48 |
% |
1,043 |
|
2012 |
|
|||||
Chesterfield Towne Center (d) |
|
56,804 |
|
|
|
57,155 |
|
|
|
9.07 |
% |
548 |
|
2024 |
|
|||||
Danbury Fair Mall |
|
181,259 |
|
|
|
182,877 |
|
|
|
4.64 |
% |
1,225 |
|
2011 |
|
|||||
Deptford Mall (e) |
|
100,000 |
|
|
|
100,000 |
|
|
|
5.44 |
% |
453 |
|
2013 |
|
|||||
Eastview Commons |
|
9,039 |
|
|
|
9,117 |
|
|
|
5.46 |
% |
66 |
|
2010 |
|
|||||
Eastview Mall |
|
102,395 |
|
|
|
102,873 |
|
|
|
5.10 |
% |
592 |
|
2014 |
|
|||||
Fiesta Mall |
|
84,000 |
|
|
|
84,000 |
|
|
|
4.88 |
% |
346 |
|
2015 |
|
|||||
Flagstaff Mall |
|
37,000 |
|
|
|
37,000 |
|
|
|
4.97 |
% |
155 |
|
2015 |
|
|||||
FlatIron Crossing |
|
190,234 |
|
|
|
191,046 |
|
|
|
5.23 |
% |
1,102 |
|
2013 |
|
|||||
Freehold Raceway Mall |
|
182,025 |
|
|
|
183,505 |
|
|
|
4.68 |
% |
1,184 |
|
2011 |
|
|||||
Fresno Fashion Fair |
|
64,335 |
|
|
|
64,595 |
|
|
|
6.52 |
% |
437 |
|
2008 |
|
|||||
Great Northern Mall |
|
40,778 |
|
|
|
40,947 |
|
|
|
5.19 |
% |
224 |
|
2013 |
|
|||||
Greece Ridge Center (f) |
|
72,000 |
|
|
|
72,000 |
|
|
|
5.97 |
% |
358 |
|
2007 |
|
|||||
La Cumbre Plaza (g) |
|
30,000 |
|
|
|
30,000 |
|
|
|
6.20 |
% |
155 |
|
2007 |
|
|||||
La Encantada (h) |
|
|
|
|
|
51,000 |
|
|
|
7.08 |
% |
|
|
|
|
|||||
Marketplace Mall |
|
40,196 |
|
|
|
40,473 |
|
|
|
5.30 |
% |
267 |
|
2017 |
|
|||||
Northridge Mall (i) |
|
82,172 |
|
|
|
82,514 |
|
|
|
4.84 |
% |
453 |
|
2009 |
|
|||||
Oaks, The (j) |
|
|
|
|
|
92,000 |
|
|
|
5.37 |
% |
|
|
|
|
|||||
Pacific View |
|
89,897 |
|
|
|
90,231 |
|
|
|
7.16 |
% |
648 |
|
2011 |
|
|||||
Panorama Mall (k) |
|
50,000 |
|
|
|
50,000 |
|
|
|
6.16 |
% |
257 |
|
2010 |
|
|||||
Paradise Valley Mall (l) |
|
|
|
|
|
74,990 |
|
|
|
5.89 |
% |
|
|
|
|
|||||
Paradise Valley Mall |
|
21,928 |
|
|
|
22,154 |
|
|
|
5.89 |
% |
183 |
|
2009 |
|
|||||
Pittsford Plaza |
|
25,112 |
|
|
|
25,278 |
|
|
|
5.02 |
% |
160 |
|
2013 |
|
|||||
Prescott Gateway |
|
60,000 |
|
|
|
60,000 |
|
|
|
5.78 |
% |
289 |
|
2011 |
|
|||||
Queens Center |
|
91,648 |
|
|
|
92,039 |
|
|
|
6.88 |
% |
633 |
|
2009 |
|
|||||
Queens Center |
|
109,855 |
|
109,854 |
|
110,313 |
|
110,312 |
|
7.00 |
% |
1,501 |
|
2013 |
|
|||||
Rimrock Mall |
|
43,301 |
|
|
|
43,452 |
|
|
|
7.45 |
% |
320 |
|
2011 |
|
|||||
Salisbury, Center at |
|
115,000 |
|
|
|
115,000 |
|
|
|
5.79 |
% |
555 |
|
2016 |
|
|||||
Santa Monica Place |
|
79,795 |
|
|
|
80,073 |
|
|
|
7.70 |
% |
606 |
|
2010 |
|
|||||
Shoppingtown Mall |
|
45,819 |
|
|
|
46,217 |
|
|
|
5.01 |
% |
319 |
|
2011 |
|
|||||
South Plains Mall |
|
59,435 |
|
|
|
59,681 |
|
|
|
8.22 |
% |
454 |
|
2009 |
|
|||||
South Towne Center |
|
64,000 |
|
|
|
64,000 |
|
|
|
6.61 |
% |
357 |
|
2008 |
|
|||||
Towne Mall |
|
15,177 |
|
|
|
15,291 |
|
|
|
4.99 |
% |
101 |
|
2012 |
|
|||||
Twenty Ninth Street (m) |
|
101,343 |
|
|
|
94,080 |
|
|
|
6.61 |
% |
558 |
|
2007 |
|
|||||
Valley River Center (n) |
|
120,000 |
|
|
|
100,000 |
|
|
|
5.59 |
% |
559 |
|
2016 |
|
|||||
Valley View Center |
|
125,000 |
|
|
|
125,000 |
|
|
|
5.72 |
% |
596 |
|
2011 |
|
|||||
Victor Valley, Mall of |
|
52,120 |
|
|
|
52,429 |
|
|
|
4.60 |
% |
304 |
|
2008 |
|
|||||
Village Fair North |
|
11,129 |
|
|
|
11,210 |
|
|
|
5.89 |
% |
82 |
|
2008 |
|
|||||
Vintage Faire Mall |
|
65,126 |
|
|
|
65,363 |
|
|
|
7.89 |
% |
508 |
|
2010 |
|
|||||
Westside Pavilion |
|
93,132 |
|
|
|
93,513 |
|
|
|
6.67 |
% |
628 |
|
2008 |
|
|||||
Wilton Mall |
|
46,101 |
|
|
|
46,604 |
|
|
|
4.79 |
% |
349 |
|
2009 |
|
|||||
|
|
$ |
2,977,036 |
|
$ |
150,432 |
|
$ |
3,179,787 |
|
$ |
151,311 |
|
|
|
|
|
|
|
|
15
(a) The mortgage notes payable balances include the unamortized debt premiums (discount). Debt premiums (discount) represent the excess (deficiency) of the fair value of debt over (under) the principal value of debt assumed in various acquisitions and are amortized into interest expense over the remaining term of the related debt in a manner that approximates the effective interest method. The interest rate represents the effective interest rate, including the debt premium (discount).
Debt premiums (discounts) consist of the following:
|
March 31, |
|
December 31, |
|
|||
Property Pledged as Collateral |
|
2007 |
|
2006 |
|
||
Borgata |
|
$ |
172 |
|
$ |
245 |
|
Danbury Fair Mall |
|
16,591 |
|
17,634 |
|
||
Eastview Commons |
|
725 |
|
776 |
|
||
Eastview Mall |
|
1,947 |
|
2,018 |
|
||
Freehold Raceway Mall |
|
14,947 |
|
15,806 |
|
||
Great Northern Mall |
|
(184 |
) |
(191 |
) |
||
Marketplace Mall |
|
1,772 |
|
1,813 |
|
||
Paradise Valley Mall |
|
|
|
2 |
|
||
Paradise Valley Mall |
|
612 |
|
685 |
|
||
Pittsford Plaza |
|
983 |
|
1,025 |
|
||
Shoppingtown Mall |
|
4,546 |
|
4,813 |
|
||
Towne Mall |
|
535 |
|
558 |
|
||
Victor Valley, Mall of |
|
296 |
|
377 |
|
||
Village Fair North |
|
122 |
|
146 |
|
||
Wilton Mall |
|
3,829 |
|
4,195 |
|
||
|
|
$ |
46,893 |
|
$ |
49,902 |
|
(b) This represents the monthly payment of principal and interest.
(c) The construction loan allows for total borrowings of up to $110,000, and bears interest at LIBOR plus a spread of 1.20% to 1.40% depending on certain conditions. The loan matures in August 2009, with two one-year extension options. At March 31, 2007 and December 31, 2006, the total interest rate was 6.72% and 6.75%, respectively.
(d) In addition to monthly principal and interest payments, contingent interest, as defined in the loan agreement, may be due to the extent that 35% of the amount by which the propertys gross receipts exceeds a base amount. Contingent interest expense recognized by the Company was $78 and $70 for the three months ended March 31, 2007 and 2006, respectively.
(e) The loan provides for additional borrowings of up to $72,500 during the period ending December 7, 2007, subject to certain conditions.
(f) The floating rate loan bears interest at LIBOR plus 0.65%. The Company has stepped interest rate cap agreements over the term of the loan that effectively prevent LIBOR from exceeding 7.95%. At March 31, 2007 and December 31, 2006, the total interest rate was 5.97% and 6.0%, respectively.
(g) The floating rate loan bears interest at LIBOR plus 0.88% and matures on August 9, 2007 with two one-year extensions. The Company has an interest rate cap agreement over the loan term which effectively prevents LIBOR from exceeding 7.12%. At March 31, 2007 and December 31, 2006, the total interest rate was 6.20% and 6.23%, respectively.
(h) The loan was paid off in full on March 23, 2007.
(i) The loan bore interest at LIBOR plus 2.0% for six months and then converted at January 1, 2005 to a fixed rate loan at 4.94%. The effective interest rate over the entire term is 4.84%.
(j) The loan was paid off in full on February 2, 2007.
(k) The floating rate loan bears interest at LIBOR plus 0.85% and matures in February 2010. There is an interest rate cap agreement on this loan which effectively prevents LIBOR from exceeding 6.65%. At March 31, 2007 and December 31, 2006, the total interest rate was 6.16% and 6.23%, respectively.
(l) The loan was paid off in full on January 2, 2007.
16
(m) The construction loan allows for total borrowings of up to $115,000, and bears interest at LIBOR plus a spread of 1.1% to 1.25% depending on certain conditions. The loan matures in June 2007, with two one-year extension options. At March 31, 2007 and December 31, 2006, the total interest rate was 6.61% and 6.67%, respectively.
(n) Concurrent with the acquisition of this property, the Company placed a $100,000 loan that bears interest at 5.58% and matures on February 16, 2016. On January 23, 2007, the Company exercised an earn-out provision under the loan agreement and borrowed an additional $20,000 at a fixed rate of 5.64%. The total interest rate at March 31, 2007 and December 31, 2006, was 5.59% and 5.58%, respectively.
Most of the mortgage loan agreements contain a prepayment penalty provision for the early extinguishment of the debt.
Total interest expense capitalized during the three months ended March 31, 2007 and 2006 was $5,357 and $3,037, respectively.
Related party mortgage notes payable are amounts due to affiliates of NML. See Note 11 Related-Party Transactions, for interest expense associated with loans from NML.
The fair value of mortgage notes payable is estimated to be approximately $3,636,254 and $3,854,913, at March 31, 2007 and December 31, 2006, respectively, based on current interest rates for comparable loans.
10. Bank and Other Notes Payable:
Bank and other notes payable consist of the following:
Convertible Senior Notes
On March 16, 2007, the Company issued $950,000 in convertible senior notes (Senior Notes) that are to mature on March 15, 2012. The Senior Notes bear interest at 3.25%, payable semiannually, are senior unsecured debt of the Company and are guaranteed by the Operating Partnership. Prior to December 14, 2011, upon the occurrence of certain specified events, the Senior Notes will be convertible at the option of holder into cash, shares of the Companys common stock or a combination of cash and shares of the Companys common stock, at the election of the Company, at an initial conversion rate of 8.9702 shares per $1 principal amount. On and after December 15, 2011, the Senior Notes will be convertible at any time prior to the second business day preceding the maturity date at the option of the holder at the initial conversion rate. The initial conversion price of approximately $111.48 per share represents a 20% premium over the closing price of the Companys common stock on March 12, 2007. The initial conversion rate is subject to adjustment in certain circumstances. Holders of the Senior Notes do not have the right to require the Company to repurchase the Senior Notes prior to maturity except in connection with the occurrence of certain fundamental change transactions. The carrying value of the Senior Notes at March 31, 2007, includes an unamortized discount of $9,417 incurred at issuance and is amortized into interest expense over the term of the notes in a manner that approximates the effective interest method. As of March 31, 2007, the effective interest rate was 3.48%.
In connection with the issuance of the Senior Notes, the Company purchased two capped calls (Capped Calls) from affiliates of the initial purchasers of the Senior Notes. The Capped Calls effectively increased the conversion price of the Senior Notes to approximately $130.06, which represents a 40% premium to the March 12, 2007 closing price of $92.90 per common share of the Company. The Capped Calls are expected to generally reduce the potential dilution upon exchange of the Senior Notes in the event the market value per share of the Companys common stock, as measured under the terms of the relevant settlement date, is greater than the strike price of the Capped Calls. If, however, the market value per share of the Companys common stock exceeds $130.06 per common share then the dilution mitigation under the Capped Calls will be capped, which means there would be dilution from exchange of the Senior Notes to the extent that the market value per share of our common stock exceeds $130.06. The cost of the Capped Calls was approximately $59,850 and was recorded as a charge to Additional paid-in capital.
Line of Credit
The Company has a $1,500,000 revolving line of credit that matures on April 25, 2010 with a one-year extension option. The interest rate fluctuates from LIBOR plus 1.0% to LIBOR plus 1.35% depending on the Companys overall leverage. The Company has an interest rate swap agreement that effectively fixed the interest rate on $400,000 of the outstanding balance of the line of credit at 6.23% until April 25, 2011. As of March 31, 2007 and December 31, 2006, borrowings outstanding were $452,000 and $934,500 at an average interest rate, net of the $400,000 swapped portion, of 6.47% and 6.60%, respectively.
17
Term Notes
On May 13, 2003, the Company issued $250,000 in unsecured notes that were to mature in May 2007 with a one-year extension option and bore interest at LIBOR plus 2.50%. These notes were repaid in full on March 16, 2007, from the proceeds of the Senior Notes offering. At December 31, 2006, all of the notes were outstanding at an interest rate of 6.94%.
On April 25, 2005, the Company obtained a five-year, $450,000 term loan bearing interest at LIBOR plus 1.50%. In November 2005, the Company entered into an interest rate swap agreement that effectively fixed the interest rate of the term loan at 6.30% from December 1, 2005 to April 25, 2010. As of March 31, 2007 and December 31, 2006, the entire term loan was outstanding with an interest rate of 6.30%.
On July 27, 2006, concurrent with the sale of Greeley Mall (See Note 14 Discontinued Operations), the Company provided marketable securities to replace Greeley Mall as collateral for the mortgage note payable on the property (See Note 7 Marketable Securities). As a result of this transaction, the debt has been reclassified to bank and other notes payable. This note bears interest at 6.18% and matures in September 2013. As of March 31, 2007 and December 31, 2006, the note had a balance outstanding of $28,127 and $28,281, respectively.
As of March 31, 2007 and December 31, 2006, the Company was in compliance with all applicable loan convenants.
11. Related-Party Transactions:
Certain unconsolidated joint ventures have engaged the Management Companies to manage the operations of the Centers. Under these arrangements, the Management Companies are reimbursed for compensation paid to on-site employees, leasing agents and project managers at the Centers, as well as insurance costs and other administrative expenses.
The following fees were charged to unconsolidated joint ventures:
|
For the Three Months Ended |
|
|||||
|
|
March 31, |
|
||||
|
|
2007 |
|
2006 |
|
||
Management Fees |
|
|
|
|
|
||
MMC |
|
$ |
2,562 |
|
$ |
3,011 |
|
Westcor Management Companies |
|
1,603 |
|
1,664 |
|
||
Wilmorite Management Companies |
|
428 |
|
343 |
|
||
|
|
$ |
4,593 |
|
$ |
5,018 |
|
|
|
|
|
|
|
||
Development and Leasing Fees |
|
|
|
|
|
||
MMC |
|
$ |
105 |
|
$ |
258 |
|
Westcor Management Companies |
|
1,676 |
|
756 |
|
||
Wilmorite Management Companies |
|
28 |
|
47 |
|
||
|
|
$ |
1,809 |
|
$ |
1,061 |
|
As of March 31, 2007 and December 31, 2006, the Company had loans to unconsolidated joint ventures of $543 and $708, respectively. Interest income associated with these notes was $12 and $24 for the three months ended March 31, 2007 and 2006, respectively. These loans represent initial funds advanced to development stage projects prior to construction loan funding. Correspondingly, loan payables in the same amount have been accrued as an obligation by the various joint ventures.
Due from affiliates of $5,639 and $4,282 at March 31, 2007 and December 31, 2006, respectively, represents unreimbursed costs and fees due from unconsolidated joint ventures under management agreements.
Certain Company officers and affiliates have guaranteed mortgages of $21,750 at one of the Companys joint venture properties.
18
12. Stock Repurchase Program:
On March 16, 2007, the Company repurchased 807,000 shares for $74,970 concurrent with the Senior Notes offering (See Note 10 Bank and Other Notes Payable). These shares were repurchased pursuant to the Companys stock repurchase program authorized by the Companys Board of Directors on March 9, 2007. This repurchase program is now ended, as the maximum shares allowed to be repurchased under the program has been reached.
13. Acquisitions:
The following were acquisitions recently completed by the Company:
Valley River:
On February 1, 2006, the Company acquired Valley River Center, an 835,694 square foot super-regional mall in Eugene, Oregon. The total purchase price was $187,500 and concurrent with the acquisition, the Company placed a $100,000 ten-year loan on the property. The balance of the purchase price was funded by cash and borrowings under the Companys line of credit. The results of Valley River Centers operations have been included in the Companys consolidated financial statements since the acquisition date.
Federated:
On July 26, 2006, the Company purchased 11 department stores located in 10 of its Centers from Federated Department Stores, Inc. for approximately $100,000. The purchase price consisted of a $93,000 cash payment at closing and a $7,000 cash payment on March 29, 2007 paid in connection with a development work commitment by Federated. The Companys share of the purchase price of $81,043 was funded from the proceeds of sales of properties and from borrowings under the Companys line of credit. The balance of the purchase price was paid by the Companys joint venture partners where four of the eleven stores are located. The purchase price allocation included in the Companys balance sheet as of March 31, 2007 and December 31, 2006 was based on information available at that time.
Deptford:
On December 1, 2006, the Company acquired Deptford Mall, a 1,039,840 square foot super-regional mall in Deptford, New Jersey. The total purchase price was $240,055. The purchase price was funded by cash and borrowings under the Companys line of credit. Subsequently, the Company placed a $100,000 six-year loan on the property. The proceeds from the loan were used to pay down the Companys line of credit. The results of Deptford Malls operations have been included in the Companys consolidated financial statements since the acquisition date. The purchase price allocation included in the Companys balance sheet as of December 31, 2006 was based on information available at that time. Subsequent adjustment to the allocation was made during the three months ended March 31, 2007 based upon the receipt of a third-party valuation report.
14. Discontinued Operations:
The following were dispositions recently completed by the Company:
On June 9, 2006, the Company sold Scottsdale/101 for $117,600 resulting in a gain on sale of asset of $62,633. The Companys share of the gain was $25,802 in 2006. The Companys pro rata share of the proceeds were used to pay down the Companys line of credit.
On July 13, 2006, the Company sold Park Lane Mall for $20,000 resulting in a gain on sale of asset of $5,853 in 2006.
19
On July 27, 2006, the Company sold Holiday Village and Greeley Mall in a combined sale for $86,800, resulting in a gain on sale of asset of $28,711 in 2006. Concurrent with the sale, the Company defeased the mortgage note payable on Greeley Mall. As a result of the defeasance, the lenders secured interest in the property was replaced with a secured interest in marketable securities (See Note 7 Marketable Securities). This transaction did not meet the criteria for extinguishment of debt under SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities.
On August 11, 2006, the Company sold Great Falls Marketplace for $27,500 resulting in a gain on sale of asset of $11,826 in 2006.
The proceeds from the sale of Park Lane, Holiday Village, Greeley Mall and Great Falls Marketplace were used in part to fund the Companys pro rata share of the purchase price of the Federated stores acquisition (See Note 13 Acquisitions) and pay down the Companys line of credit.
On December 29, 2006, the Company sold Citadel Mall, Northwest Arkansas Mall and Crossroads Mall in a combined sale for $373,800, resulting in a gain of $132,671 in 2006. The proceeds were used to pay down the Companys line of credit and pay off the mortgage note payable on Paradise Valley Mall (See Note 9 Mortgage Notes Payable).
The Company has classified the results of operations for the three months ended March 31, 2007 and 2006 for all of the above dispositions as discontinued operations.
Loss on sale of assets from discontinued operations of $289 for the three months ended March 31, 2007, consists of additional costs related to the properties sold in 2006.
Revenues and (loss) income were as follows:
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
||||
|
|
2007 |
|
2006 |
|
||
Revenues: |
|
|
|
|
|
||
Scottsdale/101 |
|
$ |
15 |
|
$ |
2,596 |
|
Park Lane Mall |
|
12 |
|
725 |
|
||
Holiday Village |
|
65 |
|
1,240 |
|
||
Greeley Mall |
|
(2 |
) |
1,872 |
|
||
Great Falls Marketplace |
|
|
|
663 |
|
||
Citadel Mall |
|
85 |
|
4,175 |
|
||
Northwest Arkansas Mall |
|
24 |
|
3,291 |
|
||
Crossroads Mall |
|
38 |
|
2,910 |
|
||
|
|
$ |
237 |
|
$ |
17,472 |
|
|
|
|
|
|
|
||
(Loss) income from operations: |
|
|
|
|
|
||
Scottsdale/101 |
|
$ |
(34 |
) |
$ |
7 |
|
Park Lane Mall |
|
20 |
|
149 |
|
||
Holiday Village |
|
84 |
|
484 |
|
||
Greeley Mall |
|
(68 |
) |
295 |
|
||
Great Falls Marketplace |
|
7 |
|
411 |
|
||
Citadel Mall |
|
(45 |
) |
660 |
|
||
Northwest Arkansas Mall |
|
(88 |
) |
891 |
|
||
Crossroads Mall |
|
14 |
|
939 |
|
||
|
|
$ |
(110 |
) |
$ |
3,836 |
|
20
15. Commitments and Contingencies:
The Company has certain properties that are subject to non-cancelable operating ground leases. The leases expire at various times through 2097, 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 were $867 and $1,279 for the three months ended March 31, 2007 and 2006, respectively. No contingent rent was incurred in either period.
As of March 31, 2007 and December 31, 2006, the Company was contingently liable for $6,087 in letters of credit guaranteeing performance by the Company of certain obligations relating to the Centers. The Company does not believe that these letters of credit will result in a liability to the Company. In addition, the Company has a $24,000 letter of credit that serves as collateral to a liability assumed in the acquisition of Shoppingtown Mall in 2005.
16. Share/Unit-Based Plans:
The Company has established share-based compensation plans for the purpose of attracting and retaining executive officers, directors and key employees. The share-based compensation plans provide for grants of stock awards, stock options, operating partnership units and phantom stock units. In addition, the Company has established an Employee Stock Purchase Plan to allow employees to purchase the Companys common stock at a discount.
On January 1, 2006, the Company adopted SFAS No. 123(R), Share-Based Payment, to account for its share-based compensation plans using the modified-prospective method. Accordingly, prior period amounts have not been restated. Under SFAS No. 123(R), an equity instrument is not recorded to common stockholders equity until the related compensation expense is recorded over the requisite service period of the award. The Company records compensation expense on a straight-line basis for awards, excluding the Long-Term Incentive Plan (LTIP) awards. Prior to the adoption of SFAS No. 123(R), and in accordance with the previous accounting guidance, the Company recognized compensation expense and an increase to additional paid in capital for the fair value of vested stock awards and stock options. In addition, the Company recognized compensation expense and a corresponding liability for the fair value of vested stock units issued under the Eligible Directors Deferred Compensation/Phantom Stock Plan.
On January 8, 2007, the Company granted 43,624 additional limited operating partnership units under the LTIP to an executive officer of the Company at a weighted average grant date fair value of $85.34. As of March 31, 2007, there has been a total of 259,333 LTIP Units granted to executive officers. None of the granted LTIP Units were vested at March 31, 2007. Compensation cost for LTIP Units was $1,990 and $0 for the three months ended March 31, 2007 and 2006, respectively. As of March 31, 2007, there was $11,049 of unrecognized cost related to non-vested LTIP Units, which is expected to be recognized over the three years ending December 31, 2009 using the graded attribution method.
Total compensation cost under share-based plans, exclusive of the LTIP, for the three months ended March 31, 2007 and 2006 was $2,836 and $3,332, respectively.
The following table summarizes the activity of non-vested stock awards:
|
|
|
Weighted |
|
||
|
|
|
|
Average |
|
|
|
|
Number of |
|
Grant Date |
|
|
|
|
Shares |
|
Fair Value |
|
|
Balance at January 1, 2007 |
|
392,294 |
|
$ |
61.06 |
|
|
|
|
|
|
|
|
Granted |
|
150,057 |
|
$ |
92.36 |
|
Vested |
|
(201,311 |
) |
$ |
56.89 |
|
Forfeited |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Balance at March 31, 2007 |
|
341,040 |
|
$ |
77.29 |
|
21
The following table summarizes the activity of the non-vested phantom stock units:
|
|
|
Weighted |
|
||
|
|
Number of |
|
Average |
|
|
|
|
Units |
|
Exercise Price |
|
|
Balance at January 1, 2007 |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Granted |
|
10,444 |
|
$ |
84.57 |
|
Vested |
|
(9,611 |
) |
$ |
85.04 |
|
Forfeited |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Balance at March 31, 2007 |
|
833 |
|
$ |
84.53 |
|
17. Cumulative Convertible 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.
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 have not been declared and/or paid.
The holders of Series A Preferred Stock have redemption rights if a change in control of the Company occurs, as defined under the Articles Supplementary. Under such circumstances, the holders of the Series A 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 its 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.
18. Income Taxes:
The Company elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, commencing with its taxable year ended December 31, 1994. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it distribute at least 90% of its taxable income to its stockholders. It is managements current intention to adhere to these requirements and maintain the Companys REIT status. As a REIT, the Company generally will not be subject to corporate level federal income tax on net income it distributes currently to its stockholders. If the Company fails to qualify as a REIT in any taxable year, then it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property and to federal income and excise taxes on its undistributed taxable income, if any.
Each partner is taxed individually on its share of partnership income or loss, and accordingly, no provision for federal and state income tax is provided for the Operating Partnership in the consolidated financial statements.
The Company has made Taxable
REIT Subsidiary elections for all of its corporate subsidiaries other than its
Qualified REIT Subsidiaries. The elections, effective for the year beginning
January 1, 2001 and future years, were made pursuant
to section 856(l) of the Internal Revenue Code. The Companys Taxable REIT
Subsidiaries (TRSs) are subject to corporate level income taxes which are
provided for in the Companys consolidated financial statements. The Companys
primary TRSs include Macerich Management Company and Westcor Partners, L.L.C.
22
The income tax expense (benefit) of the TRSs is as follows:
|
For the Three Months |
|
|||||
|
|
Ended March 31, |
|
||||
|
|
2007 |
|
2006 |
|
||
Current |
|
$ |
9 |
|
$ |
11 |
|
|
|
|
|
|
|
||
Deferred |
|
(129 |
) |
(544 |
) |
||
|
|
$ |
(120 |
) |
$ |
(533 |
) |
SFAS No. 109 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The deferred tax assets and liabilities of the TRSs relate primarily to differences in the book and tax bases of property and to operating loss carryforwards for federal and state income tax purposes. A valuation allowance for deferred tax assets is provided if the Company believes it is more likely than not that all or some portion of the deferred tax assets will not be realized. Realization of deferred tax assets is dependent on the Company generating sufficient taxable income in future periods. The net operating loss carryforwards are currently scheduled to expire through 2025, beginning in 2011. Net deferred tax assets were $11,477 and $11,227 at March 31, 2007 and December 31, 2006, respectively.
The Company adopted the provisions of FIN 48 on January 1, 2007. The adoption of this standard did not have a material impact on the Companys results of operations or financial condition. At the adoption date of January 1, 2007, the Company had $1,574 of unrecognized tax benefit, all of which would affect the Companys effective tax rate if recognized, and which was recorded as a charge to additional paid-in capital. At March 31, 2007, the Company had $1,721 of unrecognized tax benefit. As a result of tax positions taken during the current period, an increase in the unrecognized tax benefit of $147 was included in the Companys consolidated statement of operations.
The tax years 2003-2006 remain open to examination by the taxing jurisdictions to which the Company is subject. The Company does not expect that the total amount of unrecognized tax benefit will materially change within the next 12 months as a result of the expiration of the statute of limitations on the 2003 year during the third quarter of 2007.
19. Segment Information:
The Company currently operates in one business segment, the acquisition, ownership, development, redevelopment, management and leasing of regional and community shopping centers. Additionally, the Company operates in one geographic area, the United States.
20. Subsequent Events:
On April 27, 2007, the Company declared a dividend/distribution of $0.71 per share for common stockholders, OP unit holders and Series A Preferred stockholders of record on May 18, 2007. In addition, MACWH, LP declared a distribution of $0.96 per unit for its convertible preferred unit holders and $0.71 per unit for its common unit holders of record on May 18, 2007. All dividends/distributions will be paid on June 8, 2007.
23
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
This quarterly report on the Form 10-Q of The Macerich Company (the Company) 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 Companys growth, acquisition, redevelopment and development opportunities, the Companys acquisition and other strategies, regulatory matters pertaining to compliance with governmental regulations and other factors affecting the Companys 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 Companys future results, performance or achievements, or those of the industry, expressed or implied in such forward-looking statements. Such factors include the matters described herein and in the matters described under the caption Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2006, which matters are incorporated herein by reference. The Company will not update any forward-looking information to reflect actual results or changes in the factors affecting the forward-looking information.
Managements Overview and Summary
The Company is involved in the acquisition, ownership, development, 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). As of March 31, 2007, the Operating Partnership owned or had an ownership interest in 73 regional shopping centers and 18 community shopping centers aggregating approximately 77 million square feet of gross leasable area. These 91 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 Companys Management Companies.
The following discussion is based primarily on the consolidated financial statements of the Company for the three months ended March 31, 2007 and 2006. It compares the activity for the three months ended March 31, 2007 to results of operations for the three months ended March 31, 2006. This information should be read in conjunction with the accompanying consolidated financial statements and notes thereto.
Acquisitions and dispositions:
The financial statements reflect the following acquisitions, dispositions and changes in ownership subsequent to the occurrence of each transaction.
On February 1, 2006, the Company acquired Valley River Center, an 835,694 square foot super-regional mall in Eugene, Oregon. The total purchase price was $187.5 million and concurrent with the acquisition, the Company placed a $100.0 million ten-year loan on the property. The balance of the purchase price was funded by cash and borrowings under the Companys line of credit.
On June 9, 2006, the Company sold Scottsdale/101, a
564,000 square foot center in Phoenix, Arizona.
The sale price was
$117.6 million from which $56.0 million was used to payoff the mortgage on the
property. The Companys share of the
realized gain was $25.8 million.
On July 13, 2006, the Company sold Park Lane Mall, a 370,000 square foot center in Reno, Nevada, for $20 million resulting in a gain of $5.9 million.
24
On July 26, 2006, the Company purchased 11 department stores located in 10 of its Centers from Federated Department Stores, Inc. (Federated) for approximately $100.0 million. The purchase price consisted of a $93.0 million cash payment at closing and a $7.0 million cash payment on March 29, 2007 in connection with a commitment by Federated to perform development work at certain Company properties. The Companys share of the purchase price was $81.0 million and was funded from the proceeds of sales of Park Lane Mall, Greeley Mall, Holiday Village and Great Falls Marketplace, and from borrowings under the Companys line of credit. The balance of the purchase price was paid by the Companys joint venture partners.
On July 27, 2006, the Company sold Holiday Village, a 498,000 square foot center in Great Falls, Montana and Greeley Mall, a 564,000 square foot center in Greeley, Colorado, in a combined sale for $86.8 million, resulting in a gain of $28.7 million.
On August 11, 2006, the Company sold Great Falls Marketplace, a 215,000 square foot community center in Great Falls, Montana, for $27.5 million resulting in a gain of $11.8 million.
On December 1, 2006, the Company acquired Deptford Mall, a two-level 1.0 million square foot super-regional mall in Deptford, New Jersey. The total purchase price of $241.0 million was funded by cash and borrowings under the Companys line of credit. On December 7, 2006, the Company placed a $100.0 million six-year loan bearing interest at a fixed rate of 5.44% on the property. The loan provides the right, subject to certain conditions, to borrow an additional $72.5 million for up to one-year after the initial funding.
On December 29, 2006, the Company sold Citadel Mall, a 1,095,000 square foot center in Colorado Springs, Colorado, Crossroads Mall, a 1,268,000 square foot center in Oklahoma City, Oklahoma and Northwest Arkansas Mall, a 820,000 square foot center in Fayetteville, Arkansas, in a combined sale for $373.8 million, resulting in a gain of $132.7 million. The net proceeds were used to pay down the Companys line of credit and pay off the Companys $75.0 million loan on Paradise Valley Mall.
Valley River Center and Deptford Mall are referred to herein as the 2006 Acquisition Centers.
Redevelopment:
The grand opening of the first phase of Twenty Ninth Street, an 817,085 square foot shopping district in Boulder, Colorado, took place on October 13, 2006. The balance of the project is scheduled for completion in the Summer 2007. Recent store openings include Borders Books, Chipotle Mexican Grill, Helly Hansen, Lady Foot Locker, lululemon, and Solstice Sunglass Boutique. Wild Oats has also opened their corporate headquarters at this project. Recent lease commitments include Anthropologie, Sephora, Cantina Laredo, Jamba Juice and North Face.
On November 1, 2006, the Company received Phoenix City Council approval to add up to five mixed-use towers of up to 165 feet at Biltmore Fashion Park. Biltmore Fashion Park is an established luxury destination for first-to-market, high-end and luxury tenants in the metropolitan Phoenix market. The mixed-use towers are planned to be built over time based upon demand.
The major redevelopment and expansion of The Oaks continues. The Oaks is a 1.1 million square foot super-regional shopping center in Californias affluent Thousand Oaks. The Company is adding a 235,000 square foot mall expansion and the markets first Nordstrom department store. The project is expected to be completed in Fall 2008.
The first phase of SanTan Village, a $205 million regional shopping center under construction in Gilbert, Arizona, is scheduled to open in October 2007. The Center, currently 87% leased, is an open-air streetscape that will contain in excess of 1.2 million square feet on 120 acres. Several tenants have committed to date, including Dillards, Harkins Theatres, Aeropostale, American Eagle Outfitters, Ann Taylor, Ann Taylor Loft, Apple, Banana Republic, Best Buy, Blue Wasabi, The Body Shop, The Buckle, Charlotte Russe, Chicos, The Childrens Place, Coach, Coldwater Creek, The Disney Store, Eddie Bauer, J. Jill, Lane Bryant/Cacique, lucy, PacSun, Soma by Chicos, Swarovski Crystals, Victorias Secret, Weisfields Jewelers, White House/Black Market and Z Gallerie.
25
Construction continues on The Promenade at Casa Grande, a 1.0 million square foot regional shopping center in Arizonas fastest-growing county. Located in Casa Grande, Pinal County, the Center will be located along the I-10 corridor between Phoenix and Tucson. The project is 90% committed, including Best Buy, Dillards, Famous Footwear, Harkins Theaters, JC Penney, Kohls, Lane Bryant, Michaels, Petsmart, Staples, Shoe Pavilion and Target, and will deliver shopping, dining and entertainment options to a key growth corridor. Phase I of the project, which will include a combination of large-format retailers, specialty shops and restaurants, is scheduled for completion in Fall 2007. Phase II is comprised of small shops and is scheduled to open in Spring 2008. The Promenade at Casa Grande is 51% owned by the Company.
On January 22, 2007, the Fairfax County Board of Supervisors approved plans for a transit-oriented development at Tysons Corner Center in McLean, Virginia. The expansion will add 3.5 million square feet of mixed-use space to the existing 2.2 million square foot regional shopping center. The project is planned to be built in phases over the next 10 years based on market demand and the expansion of the areas light rail system. Completion of the entitlement process for Phase I, totaling roughly 1.4 million square feet, is anticipated for the first quarter of 2008. The first phase of the project is anticipated to begin development in late 2009.
In late 2006, plans were announced to bring Barneys New York Department Store to Scottsdale Fashion Square, replacing one of the anchor spaces acquired as a result of the Federated-May merger. Demolition of the vacant space and adjoining parking structure will begin in 2007, allowing for construction of an additional 100,000 square feet of new shop space and the 65,000-square-foot Barneys New York location. This store is anticipated to open in Fall 2009.
At Freehold Raceway Mall in New Jersey, construction is underway on the 100,000 square foot, $40 million lifestyle expansion. The project is 90% committed. In addition, an interior renovation of the existing 1.4 million square foot regional shopping center commenced in the first quarter. Both projects are expected to be substantially complete in the fourth quarter of 2007.
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 using an annual multiple of increases in the Consumer Price Index (CPI). In addition, about 6%-13% of the leases expire each year, 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, historically the majority of the leases required the tenants to pay their pro rata share of operating expenses. In January 2005, the Company began entering into leases that require tenants to pay a stated amount for operating expenses, generally excluding property taxes, regardless of the expenses actually incurred at any Center. This change shifts the burden of cost control to the Company.
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, earnings are generally higher in the fourth quarter.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
26
Some of these estimates and assumptions include judgments on revenue recognition, estimates for common area maintenance and real estate tax accruals, provisions for uncollectible accounts, impairment of long-lived assets, the allocation of purchase price between tangible and intangible assets, and estimates for environmental matters. The Companys significant accounting policies are described in more detail in Note 2 to the audited Consolidated Financial Statements in the Companys Annual Report on Form 10-K for the year ended December 31, 2006. However, the following policies are deemed to be critical.
Revenue Recognition
Minimum rental revenues are recognized on a straight-line basis over the term of the related lease. The difference between the amount of rent due in a year and the amount recorded as rental income is referred to as the straight lining of rent adjustment. Currently, 40% of the mall and freestanding leases contain provisions for CPI rent increases periodically throughout the term of the lease. The Company believes that using an annual multiple of 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. Percentage rents are recognized when the tenants specified sales targets have been met. Estimated recoveries from tenants for real estate taxes, insurance and other shopping center operating expenses are recognized as revenues in the period the applicable expenses are incurred.
Property
Costs related to the development, redevelopment, construction and improvement of properties are capitalized. Interest incurred on development, redevelopment and construction projects is capitalized until construction is substantially complete.
Maintenance and repairs expenses are charged to operations as incurred. Costs for major replacements and betterments, which includes HVAC equipment, roofs, parking lots, etc., are capitalized and depreciated over their estimated useful lives. Gains and losses are recognized upon disposal or retirement of the related assets and are reflected in earnings.
Property is recorded at cost and is depreciated using a straight-line method over the estimated useful lives of the assets as follows:
Buildings and improvements |
|
5-40 years |
|
Tenant improvements |
|
5-7 years |
|
Equipment and furnishings |
|
5-7 years |
|
Accounting for Acquisitions
The Company accounts for all acquisitions in accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations. The Company will first determine the value of the land and buildings utilizing an as if vacant methodology. The Company will then assign a fair value to any debt assumed at acquisition. The balance of the purchase price will be allocated to tenant improvements and identifiable intangible assets or liabilities. Tenant improvements represent the tangible assets associated with the existing leases valued on a fair market value basis at the acquisition date prorated over the remaining lease terms. The tenant improvements are classified as an asset under property and are depreciated over the remaining lease terms. Identifiable intangible assets and liabilities relate to the value of in-place operating leases which come in three forms: (i) leasing commissions and legal costs, which represent the value associated with cost avoidance of acquiring in-place leases, such as lease commissions paid under terms generally experienced in the Companys markets; (ii) value of in-place leases, which represents the estimated loss of revenue and of costs incurred for the period required to lease the assumed vacant property to the occupancy level when purchased; and (iii) above or below market value of in-place leases, which represents the difference between the contractual rents and market rents at the time of the acquisition, discounted for tenant credit risks. Leasing commissions and legal costs are recorded in deferred charges and other assets and are amortized over the remaining lease terms. The value of in-place leases are recorded in deferred charges and other assets and amortized over the remaining lease terms plus an estimate of renewal of the acquired leases. Above or below market leases are classified in deferred charges and other assets or in other accrued liabilities, depending on whether the contractual terms are above or below market, and the asset or liability is amortized to rental revenue over the remaining terms of the leases.
27
When the Company acquires real estate properties, the Company allocates the purchase price to the components of these acquisitions using relative fair values computed using estimates and assumptions. These estimates and assumptions impact the amount of costs allocated between various components as well as the amount of costs assigned to individual properties in multiple property acquisitions. These allocations also impact depreciation expense and gains or loses recorded on future sales of properties. Generally, the Company engages a valuation firm to assist with these allocations.
Asset Impairment
The Company assesses whether the value of its long-lived assets has been impairment by considering factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other economic factors. Such factors include the tenants ability to perform their duties and pay rent under the terms of the leases. The Company may recognize an impairment loss if the cash flows are not sufficient to cover its investment. Such a loss would be determined as the difference between the carrying value and the fair value of a Center.
Deferred Charges
Costs relating to obtaining tenant leases are deferred and amortized over the initial term of the agreement using the straight-line method. Costs relating to financing of shopping center properties are deferred and amortized over the life of the related loan using the straight-line method, which approximates the effective interest method. In-place lease values are amortized over the remaining lease term plus an estimate of renewal. Leasing commissions and legal costs are amortized on a straight-line basis over the individual remaining lease years. The ranges of the terms of the agreements are as follows:
Deferred lease costs |
|
1-15 years |
|
Deferred financing costs |
|
1-15 years |
|
In-place lease values |
|
Remaining lease term plus an estimate for renewal |
|
Leasing commissions and legal costs |
|
5-10 year |
s |
Results of Operations
Many of the variations in the results of operations, discussed below, occurred due to the transactions described above including the 2006 Acquisition Centers and the Redevelopment Centers. For the comparison of the three months ended March 31, 2007 to the three months ended March 31, 2006, the Same Centers include all consolidated Centers, excluding 2006 Acquisition Centers and the Redevelopment Centers. The Redevelopment Centers include Twenty Ninth Street, the Oaks, Santa Monica Place and Westside Pavilion Adjacent.
Comparison of the Three Months Ended March 31, 2007 and 2006
Revenues
Minimum and percentage rents (collectively referred to as rental revenue) increased by $3.3 million, or 2.7%, from 2006 to 2007. Approximately $4.8 million of the increase in rental revenue was related to the 2006 Acquisition Centers and $1.3 million was related to the Redevelopment Centers offset in part by a decrease of $2.8 million at the Same Centers due in part to a decrease in lease termination income to $3.4 million in 2007 from $8.6 million in 2006.
The amortization of above and below market leases, which is recorded in rental revenue, decreased to $3.2 million in 2007 from $3.8 million in 2006. The decrease in amortization is primarily due to accelerated amortization of leases terminated in 2006. The amortization of straight-lined rents, included in rental revenue, was $1.3 million in 2007 compared to $1.8 million in 2006. This decrease was primarily due to the termination of leases at the Same Centers offset by increases at the 2006 Acquisition Centers and the Redevelopment Centers.
Tenant recoveries increased $5.3 million, or 8.5%, from 2006 to 2007. Approximately $3.1 million of the increase in tenant recoveries related to the 2006 Acquisition Centers, $1.5 million at the Same Centers and $0.7 million at the Redevelopment Centers.
28
Management Companies Revenues
Management Companies revenues increased by $1.5 million from 2006 to 2007, primarily due to increased management fees received from the joint venture Centers, additional third party management contracts and increased development fees from joint ventures.
Shopping Center and Operating Expenses
Shopping center and operating expenses increased $6.8 million, or 11.0%, from 2006 to 2007. Approximately $2.8 million of the increase in shopping center and operating expenses related to the 2006 Acquisition Centers, $2.5 million related to the Same Centers and $1.5 million related to the Redevelopment Centers.
Management Companies Operating Expenses
Management Companies operating expenses increased to $17.8 million in 2007 from $14.7 million in 2006, primarily as a result of the additional costs of managing the joint venture Centers and third party managed properties.
REIT General and Administrative Expenses
REIT general and administrative expenses increased by $1.7 million in 2007 from 2006, primarily due to increased share-based compensation expense in 2007.
Depreciation and Amortization
Depreciation and amortization decreased $2.3 million in 2007 from 2006. The decrease in depreciation and amortization is primarily attributed to a $6.7 million decrease at the Same Centers offset in part by an increase of $3.0 million at the 2006 Acquisition Centers and $1.4 million at the Redevelopment Centers. The decrease at the Same Centers is primarily due to a decrease in amortization from intangible assets due to lease terminations in 2006.
Interest Expense
Interest expense decreased $1.2 million in 2007 from 2006. The decrease is primarily attributed to a decrease of $2.6 million at the Same Centers, $0.6 million at the Redevelopment Centers and $2.5 million from the term loans. This is offset in part by an increase of $1.9 million at the 2006 Acquisition Centers and $1.4 million of additional interest expense due to the issuance of $950.0 million of convertible senior notes on March 16, 2007. The decrease in interest on term loans is due to the repayment of the $250 million loan in 2007 and the repayment of the $619 million term loan in 2006. (See Liquidity and Capital Resoures).
Additionally, capitalized interest was $5.4 million in 2007, up from $3.0 million in 2006.
Equity in Income of Unconsolidated Joint Ventures
The equity in income of unconsolidated joint ventures decreased $6.5 million in 2007 from 2006. The decrease in equity in income of unconsolidated joint ventures is due in part to a $2.4 million loss on sale of assets at the SDG Macerich Properties, L.P. and $3.1 million in additional interest expense and depreciation at other joint ventures due to the completion of development projects.
Loss on Early Extinguishment of Debt
The Company recorded a $0.9 million loss from the early extinguishment of the $250 million term loan in 2007. In 2006, the Company recorded a loss from the early extinguishment of debt of $1.8 million related to the pay off of the $619 million term loan.
29
Discontinued Operations
The income from discontinued operations decreased $3.9 million in 2007 from 2006. The decrease relates to the sales in 2006 of Scottsdale/101, Park Lane Mall, Holiday Village, Greeley Mall, Great Falls Marketplace, Citadel Mall, Crossroads Mall and Northwest Arkansas Mall (See Managements Overview and SummaryAcquisitions and dispositions). As result of the sales, the Company classified the results of operations for these properties to discontinued operations.
Minority Interest in the Operating Partnership
The minority interest in the Operating Partnership represents the 15.4% weighted average interest of the Operating Partnership not owned by the Company during 2007 compared to the 16.4% not owned by the Company during 2006. The change in ownership interest is primarily due to the stock offering by the Company in 2006, the redemption of OP Units in 2007 and the repurchase of 807,000 shares in 2007 (See Note 12 Stock Repurchase Program of the Companys Consolidated Financial Statements).
Funds From Operations
Primarily as a result of the factors mentioned above, Funds from Operations (FFO)diluted decreased 5.6% to $85.1 million in 2007 from $90.1 million in 2006. For the reconciliation of FFO and FFO-diluted to net income available to common stockholders, see Funds from Operations.
Operating Activities
Cash flow from operations increased to $56.3 million in 2007 from $51.6 million in 2006. The increase was primarily due to changes in assets and liabilities in 2007 compared to 2006 and due to the results at the Centers as discussed above.
Investing Activities
Cash used in investing activities decreased to $77.1 million in 2007 from $261.4 million in 2006. The decrease was primarily attributed to the acquisition of the Valley River Center for approximately $187.5 million in 2006 (See Managements Overview and Summary-Acquisitions and dispositions).
Financing Activities
Cash flow used in financing activities was $200.7 million in 2007 compared to cash provided by financing activities of $121.4 million in 2006. The increase in cash used in financing activities in 2007 was primarily attributed to $59.8 million for the purchase of the capped calls in connection with the issuance of the convertible debt and $75.0 million for the repurchase of the Companys common stock. The increase in cash provided by financing activities in 2006 was primarily attributed to the $746.8 million in proceeds from the common stock offering, offset in part by the pay down of mortgage notes payable and bank and other notes payable.
Liquidity and Capital Resources
The Company intends to meet its short term liquidity requirements through cash generated from operations, working capital reserves, property secured borrowings, unsecured corporate borrowings and borrowings under the revolving line of credit. 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.
30
The following tables summarize capital expenditures incurred at the Centers for the three months ended March 31:
|
For the Three Months Ended |
|
|||||
|
|
March 31, |
|
||||
(Dollars in thousands) |
|
2007 |
|
2006 |
|
||
Consolidated Centers: |
|
|
|
|
|
||
Acquisitions of property and equipment |
|
$ |
2,178 |
|
$ |
242,967 |
|
Development, redevelopment and expansion of Centers |
|
84,308 |
|
25,929 |
|
||
Renovations of Centers |
|
14,553 |
|
7,769 |
|
||
Tenant allowances |
|
5,272 |
|
2,266 |
|
||
Deferred leasing charges |
|
5,481 |
|
6,659 |
|
||
|
|
$ |
111,792 |
|
$ |
285,590 |
|
|
|
|
|
|
|
||
Joint Venture Centers (at Companys pro rata share) : |
|
|
|
|
|
||
Acquisitions of property and equipment |
|
$ |
529 |
|
$ |
1,553 |
|
Development, redevelopment and expansion of Centers |
|
4,354 |
|
12,075 |
|
||
Renovations of Centers |
|
2,170 |
|
3,852 |
|
||
Tenant allowances |
|
2,530 |
|
1,548 |
|
||
Deferred leasing charges |
|
1,033 |
|
1,048 |
|
||
|
|
$ |
10,616 |
|
$ |
20,076 |
|
Management expects similar levels to be incurred in future years for tenant allowances and deferred leasing charges and to incur between $400 million to $600 million in 2007 for development, redevelopment, expansion and renovations. Capital for major expenditures or major developments and redevelopments has been, and is expected to continue to be, obtained from equity or debt financings which include borrowings under the Companys line of credit and construction loans. However, many factors impact the Companys ability to access capital, such as its overall debt level, interest rates, interest coverage ratios and prevailing market conditions.
The Companys total outstanding loan indebtedness at March 31, 2007 was $6.7 billion (including $1.7 billion of 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, MACWH, LP units and preferred stock into common stock) ratio of approximately 44.11% at March 31, 2007. The majority of the Companys debt consists of fixed-rate conventional mortgages payable collateralized by individual properties.
The Company filed a shelf registration statement, effective June 6, 2002, to sell securities. The shelf registration is for a total of $1.0 billion of common stock, common stock warrant or common stock rights. The Company sold a total of 15.2 million shares of common stock under this shelf registration on November 27, 2002. The aggregate offering price of this transaction was approximately $440.2 million, leaving approximately $559.8 million available under the shelf registration statement. In addition, the Company filed another shelf registration statement, effective October 27, 2003, to sell up to $300 million of preferred stock. On January 12, 2006, the Company filed a shelf registration statement registering an unspecified amount of common stock that it may offer in the future.
31
On March 16, 2007, the Company issued $950 million in convertible senior notes (Senior Notes) that are to mature on March 15, 2012. The Senior Notes bear interest at 3.25%, payable semiannually, are senior unsecured debt of the Company and are guaranteed by the Operating Partnership. Prior to December 14, 2011, upon the occurrence of certain specified events, the Senior Notes will be convertible at the option of holder into cash, shares of the Companys common stock or a combination of cash and shares of the Companys common stock, at the election of the Company, at an initial conversion rate of 8.9702 shares per $1,000 principal amount. On and after December 15, 2011, the Senior Notes will be convertible at any time prior to the second business day preceding the maturity date at the option of the holder at the initial conversion rate. The initial conversion price of approximately $111.48 per share represents a 20% premium over the closing price of the Companys common stock on March 12, 2007. The initial conversion rate is subject to adjustment in certain circumstances. Holders of the Senior Notes do not have the right to require the Company to repurchase the Senior Notes prior to maturity except in connection with the occurrence of certain fundamental change transactions.
In connection with the issuance of the Senior Notes, the Company purchased two capped calls (Capped Calls) from affiliates of the initial purchasers of the Senior Notes. The Capped Calls effectively increase the conversion price of the Senior Notes to approximately $130.06, which represents a 40% premium to the March 12, 2007 closing price of $92.90 per common share of the Company.
The Company has a $1.5 billion revolving line of credit that matures on April 25, 2010 with a one-year extension option. The interest rate fluctuates from LIBOR plus 1.0% to LIBOR plus 1.35% depending on the Companys overall leverage. In September 2006, the Company entered into an interest rate swap agreement that effectively fixed the interest rate on $400.0 million of the outstanding balance of the line of credit at 6.23% until April 25, 2011. As of March 31, 2007 and December 31, 2006, borrowings outstanding were $452.0 million and $934.5 million at an average interest rate, net of the $400.0 million swapped portion, of 6.47% and 6.60%, respectively. On March 16, 2007, the Company repaid $541.5 million of borrowings outstanding from the proceeds of the Senior Notes (See Note 10 Bank and Other Notes Payable of the Companys Consolidated Financial Statements).
On May 13, 2003, the Company issued $250.0 million in unsecured notes maturing in May 2007 with a one-year extension option bearing interest at LIBOR plus 2.50%. On April 25, 2005, the Company modified these unsecured notes and reduced the interest rate to LIBOR plus 1.50%. On March 16, 2007, the Company repaid the notes from the proceeds of the Senior Notes (See Note 10 Bank and Other Notes Payable of the Companys Consolidated Financial Statements). At December 31, 2006, all of the notes were outstanding at an interest rate of 6.94%.
On April 25, 2005, the Company obtained a five year, $450.0 million term loan bearing interest at LIBOR plus 1.50%. In November 2005, the Company entered into an interest rate swap agreement that effectively fixed the interest rate of the $450.0 million term loan at 6.30% from December 1, 2005 to April 15, 2010. At March 31, 2007 and December 31, 2006, the entire loan was outstanding with an interest rate of 6.30%.
At March 31, 2007, the Company was in compliance with all applicable loan covenants.
At March 31, 2007, the Company had cash and cash equivalents available of $47.9 million.
Off-Balance Sheet Arrangements
The Company has an ownership interest in a number of joint ventures as detailed in Note 4 to the Companys Consolidated Financial Statements included herein. The Company accounts for those investments that it does not have a controlling interest or is not the primary beneficiary using the equity method of accounting and those investments are reflected on the Consolidated Balance Sheets of the Company as Investments in Unconsolidated Joint Ventures. A pro rata share of the mortgage debt on these properties is shown in Item 3. Quantitative and Qualitative Disclosure about Market Risk.
In addition, certain joint ventures also have debt that could become recourse debt to the Company or its subsidiaries, in excess of its pro rata share, should the joint ventures be unable to discharge the obligations of the related debt.
32
The following reflects the maximum amount of debt principal that could recourse to the Company at March 31, 2007 (in thousands):
|
|
|
Maturity |
|
||
Property |
|
Recourse Debt |
|
Date |
|
|
Boulevard Shops |
|
$ |
4,280 |
|
12/16/2007 |
|
Chandler Village Center |
|
4,320 |
|
12/19/2007 |
|
|
|
|
$ |
8,600 |
|
|
|
Additionally, as of March 31, 2007, the Company is contingently liable for $6.1 million in letters of credit guaranteeing performance by the Company of certain obligations relating to the Centers. The Company does not believe that these letters of credit will result in a liability to the Company.
Long-term contractual obligations
The following is a schedule of long-term contractual obligations (as of March 31, 2007) for the consolidated Centers over the periods in which they are expected to be paid (in thousands):
|
Payment Due by Period |
|
||||||||||||||
|
|
|
|
Less than |
|
1 - 3 |
|
3 - 5 |
|
More than |
|
|||||
Contractual Obligations |
|
Total |
|
1 year |
|
years |
|
years |
|
five years |
|
|||||
Long-term debt
obligations |
|
$ |
6,016,262 |
|
$ |
579,731 |
|
$ |
2,023,362 |
|
$ |
2,088,025 |
|
$ |
1,325,144 |
|
Operating lease obligations |
|
259,959 |
|
5,257 |
|
10,592 |
|
10,706 |
|
233,404 |
|
|||||
Purchase obligations |
|
239,019 |
|
239,019 |
|
|
|
|
|
|
|
|||||
Other long-term liabilities |
|
320,377 |
|
320,377 |
|
|
|
|
|
|
|
|||||
|
|
$ |
6,835,617 |
|
$ |
1,144,384 |
|
$ |
2,033,954 |
|
$ |
2,098,731 |
|
$ |
1,558,548 |
|
Funds From Operations
The Company uses Funds from Operations (FFO) in addition to net income to report its operating and financial results and considers FFO and FFO-diluted as supplemental measures for the real estate industry and a supplement to Generally Accepted Accounting Principles (GAAP) measures. The National Association of Real Estate Investment Trusts (NAREIT) defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from extraordinary items and sales of depreciated operating properties, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. FFO and FFO on a fully diluted basis are useful to investors in comparing operating and financial results between periods. This is especially true since FFO excludes real estate depreciation and amortization as the Company believes real estate values fluctuate based on market conditions rather than depreciating in value ratably on a straight-line basis over time. FFO on a fully diluted basis is one of the measures investors find most useful in measuring the dilutive impact of outstanding convertible securities. FFO does not represent cash flow from operations as defined by GAAP, should not be considered as an alternative to net income as defined by GAAP and is not indicative of cash available to fund all cash flow needs. FFO, as presented, may not be comparable to similarly titled measures reported by other real estate investment trusts. The reconciliation of FFO and FFO-diluted to net income available to common stockholders is provided below.
33
The following reconciles net income available to common stockholders to FFO and FFO-diluted (dollars in thousands):
|
For the Three Months Ended |
|
|||||
|
|
March 31, |
|
||||
|
|
2007 |
|
2006 |
|
||
Net incomeavailable to common stockholders |
|
$ |
2,566 |
|
$ |
7,453 |
|
Adjustments to reconcile net income to FFO basic: |
|
|
|
|
|
||
Minority interest in the Operating Partnership |
|
467 |
|
1,460 |
|
||
(Gain) loss on sale or write-down of consolidated assets |
|
(1,463 |
) |
502 |
|
||
Add: Gain on undepreciated assetsconsolidated assets |
|
881 |
|
121 |
|
||
Add: Minority interest share of gain on sale of consolidated joint ventures |
|
837 |
|
|
|
||
Loss on sale or write-down of assets from unconsolidated entities (pro rata) |
|
2,382 |
|
|
|
||
Depreciation and amortization on consolidated centers |
|
57,087 |
|
63,539 |
|
||
Less: depreciation and amortization allocable to minority interests on consolidated joint ventures |
|
(994 |
) |
(1,975 |
) |
||
Depreciation and amortization on joint ventures and from management companies(pro rata) |
|
24,388 |
|
20,579 |
|
||
Less: depreciation on personal property and amortization of loan costs and interest rate caps |
|
(3,658 |
) |
(4,032 |
) |
||
FFObasic |
|
82,493 |
|
87,647 |
|
||
Additional adjustments to arrive at FFOdiluted: |
|
|
|
|
|
||
Impact of convertible preferred stock |
|
2,575 |
|
2,466 |
|
||
FFOdiluted |
|
$ |
85,068 |
|
$ |
90,113 |
|
|
|
|
|
|
|
||
Weighted average number of FFO shares outstanding for: |
|
|
|
|
|
||
FFO - basic (1) |
|
84,722 |
|
82,223 |
|
||
Adjustments for the impact of dilutive securities in computing FFO-diluted: |
|
|
|
|
|
||
Convertible preferred stock |
|
3,627 |
|
3,627 |
|
||
Stock options |
|
312 |
|
295 |
|
||
FFO - diluted (2) |
|
88,661 |
|
86,145 |
|
(1) Calculated based upon basic net income as adjusted to reach basic FFO. As of March 31, 2007 and 2006, 12.8 million and 13.3 million OP Units were outstanding, respectively.
(2) The computation of FFOdiluted shares outstanding includes the effect of outstanding common stock options and restricted stock using the treasury method. It also assumes the conversion of MACWH, LP common and preferred units and the Senior Notes to the extent that it is dilutive to the FFO computation (See Note 10 Bank and Other Notes Payable of the Companys Consolidated Financial Statements). The preferred stock can be converted on a one-for-one basis for common stock. The then outstanding preferred shares are assumed converted for purposes of the FFO-diluted as they are dilutive to that calculation. The MACWH, LP preferred units and the Senior Notes were antidilutive to the calculations at March 31,2007 and 2006 and were not included in the above calculations.
34
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Companys primary market risk exposure is interest rate risk. The Company has managed and will continue to manage interest rate risk by (1) maintaining a ratio of fixed rate, long-term debt to total debt such that floating rate exposure is kept at an acceptable level, (2) reducing interest rate exposure on certain long-term floating rate debt through the use of interest rate caps and/or swaps 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 March 31, 2007 concerning the Companys long term debt obligations, including principal cash flows by scheduled maturity, weighted average interest rates and estimated fair value (FV) (dollars in thousands):
|
|
For the years ending March 31, |
|
|
|
|
|
|
|
||||||||||||||||
|
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
Thereafter |
|
Total |
|
FV |
|
||||||||
CONSOLIDATED CENTERS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Long term debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Fixed rate (1) |
|
$ |
110,658 |
|
$ |
419,326 |
|
$ |
210,028 |
|
$ |
1,315,459 |
|
$ |
1,377,779 |
|
$ |
1,253,157 |
|
$ |
4,686,407 |
|
$ |
4,674,495 |
|
Average interest rate |
|
5.50 |
% |
5.50 |
% |
5.40 |
% |
5.20 |
% |
5.20 |
% |
5.80 |
% |
5.49 |
% |
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Floating rate |
|
203,343 |
|
|
|
56,429 |
|
52,000 |
|
|
|
|
|
311,772 |
|
311,772 |
|
||||||||
Average interest rate |
|
6.60 |
% |
|
|
6.20 |
% |
6.50 |
% |
|
|
|
|
6.33 |
% |
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total debtConsolidated Centers |
|
$ |
314,001 |
|
$ |
419,326 |
|
$ |
266,457 |
|
$ |
1,367,459 |
|
$ |
1,377,779 |
|
$ |
1,253,157 |
|
$ |
4,998,179 |
|
$ |
4,986,267 |
|
JOINT VENTURE CENTERS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Long term debt (at Companys pro rata share): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Fixed rate |
|
$ |
143,850 |
|
$ |
143,149 |
|
$ |
145,998 |
|
$ |
121,172 |
|
$ |
32,815 |
|
$ |
890,379 |
|
$ |
1,477,363 |
|
$ |
1,480,908 |
|
Average interest rate |
|
5.90 |
% |
5.90 |
% |
6.10 |
% |
5.80 |
% |
5.80 |
% |
5.80 |
% |
5.83 |
% |
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Floating rate |
|
83,398 |
|
19,672 |
|
|
|
66,300 |
|
|
|
22,499 |
|
191,869 |
|
191,868 |
|
||||||||
Average interest rate |
|
6.30 |
% |
6.30 |
% |
|
|
5.70 |
% |
|
|
5.50 |
% |
6.28 |
% |
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total debtJoint Venture Centers |
|
$ |
227,248 |
|
$ |
162,821 |
|
$ |
145,998 |
|
$ |
187,472 |
|
$ |
32,815 |
|
$ |
912,878 |
|
$ |
1,669,232 |
|
$ |
1,672,776 |
|
(1) Fixed rate debt includes the $450 million floating rate term note and $400 million of the line of credit balance. These amounts have effective fixed rates over the remaining terms due to swap agreements as discussed below.
The consolidated Centers total fixed rate debt at March 31, 2007 and December 31, 2006 was $4.7 billion and $3.8 billion, respectively. The average interest rate on fixed rate debt at March 31, 2007 and December 31, 2006 was 5.49% and 5.99%, respectively. The consolidated Centers total floating rate debt at March 31, 2007 and December 31, 2006 was $311.8 million and $1.2 billion, respectively. The average interest rate on floating rate debt at March 31, 2007 and December 31, 2006 was 6.33% and 6.59%, respectively. The increase in total fixed rate debt and decrease in floating rate debt at the consolidated Centers was primarily due to the issuance of $950 million in fixed rate convertible debt and the use of the proceeds, in part, to pay off the $250 million floating rate term notes and to pay down the Companys line of credit. (See Note 10 Bank and Other Notes Payable of the Companys Consolidated Financial Statements).
The Companys pro rata share of the joint venture Centers fixed rate debt at March 31, 2007 and December 31, 2006 was $1.5 billion. The average interest rate on fixed rate debt at March 31, 2007 and December 31, 2006 was 5.83% and 5.84%, respectively. The Companys pro rata share of the joint venture Centers floating rate debt at March 31, 2007 and December 31, 2006 was $191.9 million and $198.4 million, respectively. The average interest rate on the floating rate debt at March 31, 2007 and December 31, 2006 was 6.28% and 6.33%, respectively.
The Company uses derivative financial instruments in the normal course of business to manage or hedge interest rate risk and records all derivatives on the balance sheet at fair value in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (See Note 5 Derivative Instruments and Hedging Activities of the Companys Consolidated Financial Statements).
35
The following derivatives were outstanding at March 31, 2007 (amounts in thousands):
|
|
Notional |
|
|
|
|
|
|
|
Companys |
|
Fair |
|
||
Property/Entity |
|
Amount |
|
Product |
|
Rate |
|
Maturity |
|
Ownership |
|
Value (1) |
|
||
Camelback Colonnade |
|
$ |
41,500 |
|
Cap |
|
8.54 |
% |
11/15/2008 |
|
75 |
% |
$ |
|
|
Desert Sky Mall |
|
51,500 |
|
Cap |
|
7.65 |
% |
3/15/2008 |
|
50 |
% |
|
|
||
Greece Ridge Center |
|
72,000 |
|
Cap |
|
7.95 |
% |
12/15/2007 |
|
100 |
% |
|
|
||
La Cumbre Plaza |
|
30,000 |
|
Cap |
|
7.12 |
% |
8/9/2007 |
|
100 |
% |
|
|
||
Metrocenter Mall |
|
37,380 |
|
Cap |
|
7.25 |
% |
2/15/2008 |
|
15 |
% |
|
|
||
Metrocenter Mall |
|
11,500 |
|
Cap |
|
5.25 |
% |
2/15/2008 |
|
15 |
% |
(1 |
) |
||
Panorama Mall |
|
50,000 |
|
Cap |
|
6.65 |
% |
3/1/2008 |
|
100 |
% |
|
|
||
Superstition Springs Center |
|
67,500 |
|
Cap |
|
8.63 |
% |
9/9/2008 |
|
33.33 |
% |
|
|
||
Metrocenter Mall |
|
112,000 |
|
Swap |
|
3.86 |
% |
2/15/2008 |
|
15 |
% |
(58 |
) |
||
The Operating Partnership |
|
450,000 |
|
Swap |
|
4.80 |
% |
4/15/2010 |
|
100 |
% |
(1,939 |
) |
||
The Operating Partnership |
|
400,000 |
|
Swap |
|
5.08 |
% |
4/25/2011 |
|
100 |
% |
(1,698 |
) |
||
(1) Fair value at the Companys ownership percentage.
Interest rate cap agreements (Cap) offer protection against floating rates on the notional amount from exceeding the rates noted in the above schedule and interest rate swap agreements (Swap) effectively replace a floating rate on the notional amount with a fixed rate as noted above.
In addition, the Company has assessed the market risk for its floating rate debt and believes that a 1% increase in interest rates would decrease future earnings and cash flows by approximately $5.0 million per year based on $503.6 million outstanding of floating rate debt at March 31, 2007.
The fair value of the Companys 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.
Item 4. Controls and Procedures
Management, including our Chief Executive Officer and Chief Financial Officer, does not expect that its disclosure controls and procedures or its internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their cost. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
However, based on their evaluation as of March 31, 2007, the Companys Chief Executive Officer and Chief Financial Officer have concluded that the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is (a) recorded, processed, summarized, and reported within the time periods specified in the SECs rules and forms and (b) is accumulated and communicated to the Companys management , including it Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There has been no change in the Companys internal control over financial reporting that occurred during the Companys most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
Item 4T. Controls and Procedures
Not Applicable
36
None of the Company, the Operating Partnership, Macerich Property Management Company, LLC, Macerich Management Company, the Westcor Management Companies, the Wilmorite Management Companies or their respective affiliates are currently involved in any material litigation nor, to the Companys knowledge, is any material litigation currently threatened against such entities or the Centers, other than routine litigation arising in the ordinary course of business, most of which is expected to be covered by liability insurance.
There have been no material changes to the risk factors relating to the Company set forth under the caption Item 1A. Risk Factors in the Companys Annual Report on Form 10-K for the year ended December 31, 2006.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) On February 20, 2007, the Company issued 164,164 shares of unregistered common stock upon the redemption of 164,164 OP Units in a private placement to a limited partner of the Operating Partnership, an accredited investor, pursuant to Section 4(2) of the Securities Act of 1933.
(c) Issuer Purchases of Equity Securities
Period |
|
Total Number of |
|
Average Price Paid |
|
Total Number of Shares |
|
Maximum Number |
|
|
January 1,
2007 - |
|
|
|
|
|
|
|
|
|
|
February 1, 2007
- |
|
|
|
|
|
|
|
|
|
|
March 1, 2007 - |
|
807,000(1) |
|
$ |
92.90(1) |
|
|
|
|
|
Total |
|
807,000(1) |
|
$ |
92.90(1) |
|
|
|
|
|
(1) On March 9, 2007, the Board of Directors of the Company established a stock repurchase plan pursuant to which the Company may purchase up to $75 million of Common Stock in the open market and/or private transactions in conformance with applicable law. This plan concluded on March 16, 2007 because $75 million of Common Stock was purchased concurrently with the closing of the Senior Notes offering.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
None
3.1* |
Articles of Amendment and Restatement of the Company |
|
|
3.1.1** |
Articles Supplementary of the Company |
|
|
3.1.2*** |
Articles Supplementary of the Company (Series A Preferred Stock) |
|
|
3.1.3**** |
Articles Supplementary of the Company (Series C Junior Participating Preferred Stock) |
|
|
3.1.4***** |
Articles Supplementary of the Company (Series D Preferred Stock) |
|
|
3.1.5# |
Articles Supplementary of the Company (reclassification of shares) |
|
|
3.2## |
Amended and Restated By-Laws of the Company, as adopted on February 8, 2007 |
|
|
4.1### |
Form of Common Stock Certificate |
|
|
4.2#### |
Form of Preferred Stock Certificate (Series A Preferred Stock) |
|
|
4.2.1### |
Form of Preferred Stock/Right Certificate (Series C Junior Participating Preferred Stock) |
|
|
4.2.2##### |
Form of Preferred Stock Certificate (Series D Preferred Stock) |
|
|
4.3### |
Agreement dated as of November 10, 1998 between the Company and Computershare Investor Services as successor to EquiServe Trust Company, N.A., as successor to First Chicago Trust |
37
Company of New York, as Rights Agent |
|
|
|
4.4#* |
Indenture, dated as of March 16, 2007, among the Company, the Operating Partnership and Deutsche Bank Trust Company Americas (includes form of the Notes and Guarantee) |
|
|
4.5#* |
Registration Rights Agreement, dated as of March 16, 2007, among the Company, J.P. Morgan Securities Inc. and Deutsche Bank Securities Inc. |
|
|
10.1#* |
Eleventh Amendment to the Amended and Restated Limited Partnership Agreement for the Operating Partnership, dated as of March 16, 2007 |
|
|
31.1 |
Section 302 Certification of Arthur Coppola, Chief Executive Officer |
|
|
31.2 |
Section 302 Certification of Thomas OHern, Chief Financial Officer |
|
|
32.1 |
Section 906 Certification of Arthur Coppola, Chief Executive Officer and Thomas OHern, Chief Financial Officer |
|
|
99.1#* |
Capped Call Confirmation dated as of March 12, 2007 by and among the Company, Deutsche Bank AG, London Branch and Deutsche Bank AG, New York Branch |
|
|
99.2#* |
Amendment to Capped Call Confirmation dated as of March 15, 2007, by and among the Company, Deutsche Bank AG, London Branch and Deutsche Bank AG, New York Branch |
|
|
99.3#* |
Capped Call Confirmation dated as of March 12, 2007 by and between the Company and JPMorgan Chase Bank, National Association |
|
|
99.4#* |
Amendment to Capped Call Confirmation dated as of March 15, 2007 by and between the Company and JPMorgan Chase Bank, National Association |
* |
|
Previously filed as an exhibit to the Companys Registration Statement on Form S-11, as amended (No. 33-68964), and incorporated herein by reference. |
|
|
|
** |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, event date May 30, 1995, and incorporated herein by reference. |
|
|
|
*** |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, event date February 25, 1998, and incorporated herein by reference. |
|
|
|
**** |
|
Previously filed as an exhibit to the Companys Annual Report on Form 10-K for the year ended December 31, 1998, and incorporated herein by reference. |
|
|
|
***** |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, event date July 26, 2002, and incorporated herein by reference. |
|
|
|
# |
|
Previously filed as an exhibit to the Companys Registration Statement on Form S-3, as amended (No. 333-88718), and incorporated herein by reference. |
|
|
|
## |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, event date February 8, 2007, and incorporated herein by reference. |
|
|
|
### |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, event date November 10, 1998, as amended, and incorporated herein by reference. |
|
|
|
#### |
|
Previously filed as an exhibit to the Companys Annual Report on Form 10-K for the year ended December 31, 1997, and incorporated herein by reference. |
|
|
|
##### |
|
Previously filed as an exhibit to the Companys Registration Statement on Form S-3 (No. 333-107063), and incorporated herein by reference. |
|
|
|
#* |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, event date March 16, 2007, and incorporated herein by reference.
|
38
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. OHern |
|
|||
|
|
Thomas E. OHern |
||||
|
|
Executive Vice President and |
||||
|
|
Chief Financial Officer |
||||
|
||||||
Date: |
May 8, 2007 |
|
||||
39
Exhibit 31.1
THE MACERICH COMPANY
SECTION 302 CERTIFICATION
I, Arthur M. Coppola, certify that:
1. I have reviewed this report on Form 10-Q for the quarter ended March 31, 2007 of The Macerich Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors:
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: |
May 8, 2007 |
|
/S/ Arthur M. Coppola |
|
|
|
President
and Chief Executive |
Exhibit 31.2
THE MACERICH COMPANY
SECTION 302 CERTIFICATION
I, Thomas E. OHern, certify that:
1. I have reviewed this report on Form 10-Q for the quarter ended March 31, 2007 of The Macerich Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors:
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: |
May 8, 2007 |
|
/S/ Thomas E. OHern |
|
|
|
Executive Vice President and Chief Financial Officer |
Exhibit 32.1
THE MACERICH COMPANY
WRITTEN STATEMENT
PURSUANT TO
18 U.S.C. SECTION 1350
The undersigned, Arthur M. Coppola and Thomas E. OHern, the Chief Executive Officer and Chief Financial Officer, respectively, of The Macerich Company (the Company), pursuant to 18 U.S.C. §1350, hereby certify that, to the best of their knowledge:
(i) the Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 of the Company (the Report) fully complies with the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: |
May 8, 2007 |
|
|
|
|
|
|
||
|
|
/S/ Arthur M. Coppola |
|
|
|
|
President and Chief Executive Officer |
||
|
|
|
||
|
|
|
||
|
|
/S/ Thomas E. OHern |
|
|
|
|
Executive Vice President and Chief Financial Officer |