SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 1996 COMMISSION FILE NO. 1-12504
THE MACERICH COMPANY
- - ----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 95-4448705
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(State or other jurisdiction of (I.R.S. Employer
incorporationor organization) Identification Number)
233 Wilshire Boulevard, Suite 700, Santa Monica, CA 90401
- - ----------------------------------------------------------------------(Address
of principal executive office)(Zip code)
Registrant's telephone number, including area code (310) 394-5333
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N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Number of shares outstanding of each of the registrant's classes of common
stock, as of August 8, 1996.
Common stock, par value $.01 per share: 19,996,000
- - ----------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or such shorter period that the
Registrant was required to file such report) and (2) has been subject to such
filing requirements for the past ninety (90) days.
YES X NO
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1
The Macerich Company
Form 10Q
INDEX
Page
Part I: Financial Information
Item 1. Financial Statements
Condensed consolidated balance sheets of The Company
as of June 30, 1996 and December 31, 1995. 3
Condensed consolidated statements of operations of
The Company for the periods from January 1, 1996
through June 30, 1996 and January 1, 1995 through
June 30, 1995. 4
Condensed consolidated statements of operations of
The Company for the periods from April 1, 1996
through June 30, 1996 and April 1, 1995 through
June 30, 1995. 5
Condensed consolidated statements of cash flows
of The Company for the periods from January 1
through June 30, 1996 and 1995. 6
Notes to condensed consolidated financial
statements 7 to 14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15 to 20
Part II: Other Information 21
2
THE MACERICH COMPANY (The Company)
CONDENSED CONSOLIDATED BALANCE SHEETS OF THE COMPANY
(Dollars in thousands, except per share amounts)
June 30, December 31,
1996 1995
(Unaudited) (Audited)
ASSETS:
Property, net $ 777,267 $ 694,900
Cash and cash equivalents 4,112 15,570
Tenant receivables, including
accrued overage rents
of $2,525 in 1996
and $2,455 in 1995 19,266 15,214
Deferred charges and other assets 20,695 20,434
Investment in unconsolidated joint ventures
and the management companies 17,644 17,280
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Total assets $ 838,984 $ 763,398
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LIABILITIES AND STOCKHOLDERS' EQUITY:
Mortgage notes payable:
Related parties $ 136,383 $ 136,186
Others 406,087 349,007
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Total 542,470 485,193
Bank notes payable 29,500 -
Accounts payable 3,594 2,265
Accrued interest expense 2,263 2,015
Other accrued expenses 5,307 4,522
Due to affiliates - 811
Deferred acquisition liability 5,000 5,000
Other liabilities 8,918 9,507
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Total liabilities 597,052 509,313
Minority interest in Operating Partnership 91,667 95,740
Commitments and contingencies
Stockholders' equity
Preferred Stock, $.01 par value, 10,000,000 shares
authorized - none issued - -
Common Stock, $.01 par value, 100,000,000 shares
authorized, 19,996,000 outstanding
at June 30, 1996 and 19,977,000
at December 31, 1995
Additional paid in capital 200 200
Accumulated deficit 150,065 158,145
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Total stockholders' equity 150,265 158,345
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Total liabilities and stockholders' equity $ 838,984 $ 763,398
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The accompanying notes are an integral part of these financial statements.
3
THE MACERICH COMPANY (The Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS OF THE COMPANY
(Unaudited)
(Dollars in thousands, except per share amounts)
The Company
January 1, 1996 January 1, 1995
to to
June 30, 1996 June 30, 1995
REVENUES:
Minimum rents $ 46,641 $ 32,460
Percentage rents 3,089 2,270
Tenant recoveries 22,582 12,191
Other 758 244
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Total Revenues 73,070 47,165
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OPERATING COSTS:
Shopping center expenses 23,796 14,601
General and administrative expense 1,396 1,198
Interest expense 20,359 11,521
Depreciation and amortization 15,650 12,273
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Total Expenses 61,201 39,593
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Equity in income of unconsolidated
joint ventures and the
management companies 2,121 1,624
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Income of the Operating Partnership 13,990 9,196
Minority interest in net income of
the Operating Partnership (5,277) (3,494)
Extraordinary loss on early
extinguishment of debt - (1,297)
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Net income $ 8,713 $ 4,405
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Net income per common share $ 0.44 $ 0.31
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Dividend/distribution per
common share outstanding $ 0.84 $ 0.82
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Weighted average number of
common shares outstanding 19,986,000 14,375,100
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Weighted average number of
Operating Units outstanding 32,095,000 25,781,000
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The accompanying notes are an integral part of these financial statements.
4
THE MACERICH COMPANY (The Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS OF THE COMPANY
(Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended June 30,
1996 1995
REVENUES:
Minimum rents $ 24,003 $ 16,454
Percentage rents 1,519 1,150
Tenant recoveries 12,058 6,331
Other 197 132
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Total Revenues 37,777 24,067
OPERATING COSTS:
Shopping center expenses 12,767 7,376
General and administrative expense 607 539
Interest expense 10,518 5,750
Depreciation and amortization 7,900 6,124
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Total Expenses 31,792 19,789
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Equity in income of unconsolidated joint
ventures and the management companies 940 786
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Income of the Operating Partnership 6,925 5,064
Minority interest in net income
of the Operating Partnership (2,613) (1,666)
Extraordinary loss on early extinguishment
of debt - (1,297)
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Net income $ 4,312 $ 2,101
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Net income per common share $ 0.22 $ 0.15
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Dividend/distribution per common share
outstanding $ 0.42 $ 0.42
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--------- ---------
The accompanying notes are an integral part of these financial statements.
5
THE MACERICH COMPANY (The Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS OF THE COMPANY
(Dollars in thousands)
(Unaudited)
January 1 to June 30,
1996 1995
Cash flows from operating activities:
Net income $ 8,713 $ 4,405
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Adjustments to reconcile net income to
net cash provided by operating activities:
Extraordinary loss on early
extinguishment of debt - 1,297
Loss on sale of assets 315 -
Depreciation and amortization 15,650 12,273
Amortization of discount on
trust deed note payable 331 273
Minority interest in the income
of the Operating Partnership 5,277 3,494
Changes in assets and liabilities:
Tenant receivables, net (4,052) (939)
Other assets (101) 2,862
Accounts payable and accrued expenses 2,362 (1,220)
Due to affiliates (1,046) (443)
Other liabilities (355) (501)
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Total adjustments 18,381 17,096
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Net cash provided by
operating activities 27,094 21,501
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Cash flows from investing activities:
Acquisitions of property and improvements (66,802) (2,644)
Renovations and expansions of centers (5,075) (3,446)
Additions to tenant improvements (419) (1,104)
Deferred charges - leasing costs (1,705) (1,244)
Deferred charges - financing costs (1,887) (724)
Proceeds from sale of assets 948 -
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Net cash used in investing activities (74,940) (9,162)
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Cash flows from financing activities:
Proceeds from notes and mortgages payable 65,116 7,000
Payments on mortgages and notes payable (1,621) (567)
Equity in income of unconsolidated
joint ventures and the
management companies (2,121) (1,624)
Distribution from joint ventures 1,757 1,699
Dividends and distributions (26,743) (21,140)
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Net cash provided by (used in)
financing activities 36,388 (14,632)
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Net decrease in cash (11,458) (2,293)
Cash and cash equivalents, beginning of period 15,570 3,824
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Cash and cash equivalents, end of period $ 4,112 $ 1,531
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--------- ---------
Supplemental cash flow information:
Cash payment for interest $ 19,781 $ 11,233
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Non-cash transactions:
Acquisition of property by
assumption of debt $ 25,849 $ -
--------- ---------
--------- ---------
Acquisition of property by
issuance of OP units $ 600 $ -
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--------- ---------
The accompanying notes are an integral part of these financial statements.
6
[TEXT]
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
1. Interim Financial Statements and Basis of Presentation:
The accompanying Condensed Consolidated financial statements of The
Macerich Company ("financial statements") have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements and have not been audited by independent
public accountants.
The unaudited interim financial statements should be read in conjunction
with the audited financial statements and related notes included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the
financial statements for the interim periods have been made. The
results for interim periods are not necessarily indicative of the
results to be expected for a full year.
Certain reclassifications have been made in the 1995 financial statements
to conform to the 1996 financial statement presentation.
2. Organization:
The Macerich Company (the "Company") was incorporated under the General
Corporation Law of Maryland on September 9, 1993 and commenced operations
effective with the completion of its initial public offering ("IPO") on
March 16, 1994. The Company was formed to continue the business of the
Macerich Group, which since 1972 has focused on the acquisition,
ownership, redevelopment, management and leasing of regional shopping
centers located throughout the United States. In 1994, the Company became
the sole general partner of The Macerich Partnership L.P., (the "Operating
Partnership"). In connection with it's IPO the Company acquired a 56%
interest in the Operating Partnership. The Operating Partnership now owns
100% of 16 properties, including three that were acquired in 1995 and one
in January, 1996. In addition, the Operating Partnership owns interests
in four other regional shopping centers. Collectively these properties
and interests are referred to as the "Centers". The Company conducts all
of its operations through the Operating Partnership and other wholly owned
subsidiaries, and the Company's two Management Companies, Macerich
Property Management Company and Macerich Management Company,
collectively referred to as "the Management Companies".
The Company is a real estate investment trust under the Internal Revenue
Code of 1986, as amended, owns approximately 62% of The Operating
Partnership and is the sole General Partner. The limited partnership
interest not owned by the Company is reflected in these financial
statements as Minority Interest.
7
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
3. Investments in Unconsolidated Joint Ventures and the Management
Companies
The following are the Company's investments in various real estate joint
ventures which own regional retail shopping centers. The Operating
Partnership is a general partner in these joint ventures. The Operating
Partnership's interest in each joint venture is as follows:
The Operating Partnership's
Joint Venture Ownership %
Macerich Northwestern Associates 50%
North Valley Plaza Associates 50%
Panorama City Associates 50%
West Acres Development 19%
The non-voting preferred stock of the Management Companies is owned by the
Operating Partnership, which provides the Operating Partnership the right
to receive 95% of the distributable cash flow from the Management
Companies. The Company accounts for the Management Companies using the
equity method of accounting.
Combined and condensed balance sheets and statements of operations are
presented below for all unconsolidated joint ventures, and the Management
Companies, followed by information regarding the Operating Partnership's
beneficial interest in the combined operations. Beneficial interest is
calculated based on the Operating Partnership's ownership interests in
the joint ventures and the Management Companies.
COMBINED AND CONDENSED BALANCE SHEETS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
June 30, Dec 31,
1996 1995
Assets:
Properties, net $103,972 $ 104,879
Other assets 14,419 10,923
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Total assets 118,391 115,802
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Liabilities and partners' capital:
Mortgage notes payable $ 82,145 $ 82,515
Other liabilities 8,104 5,306
The Company's capital 17,644 17,280
Outside Partners' capital 10,498 10,701
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Total liabilities and partners' capital $118,391 $ 115,802
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8
[TEXT]
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
3. Investments in Unconsolidated Joint Ventures and the Management
Companies - Continued
COMBINED STATEMENTS OF OPERATIONS OF JOINT VENTURES
AND THE MANAGEMENT COMPANIES
Three Months Ended June 30 Six Months Ended June 30
1996 1995 1996 1995
Revenues $7,117 $7,990 $15,350 $16,104
--------- --------- --------- ---------
Expenses:
Shopping center expenses 1,397 2,229 3,691 4,346
Interest 1,613 1,625 3,213 3,231
Management company expense 845 1,210 1,804 2,230
Depreciation and amortization 922 989 2,042 2,200
--------- --------- --------- ---------
Total operating costs 4,777 6,053 10,750 12,007
--------- --------- --------- ---------
Gain on sale of land 105 377 282 722
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Net income $2,445 $2,314 $4,882 $4,819
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[TEXT]
Significant accounting policies used by the unconsolidated joint ventures and
the Management Companies are similar to those used by the Macerich Company.
Included in mortgage notes payable are amounts due to related parties of
$43,500 at June 30, 1996 and December 31, 1995. Interest expense incurred
on these borrowings amounted to $748 and $750 for the three months ended
June 30, 1996 and 1995, respectively, and $1,488 and 1,483 for the six months
ended June 30, 1996 and 1995, respectively.
The following table sets forth the Operating Partnership's beneficial
interest in the joint ventures and the Management Companies:
PRO RATA SHARE OF COMBINED AND STATEMENT OF
OPERATIONS OF JOINT VENTURES AND THE MANAGEMENT COMPANIES
Three Months Ended June 30 Six Months Ended June 30
1996 1995 1996 1995
Revenues $3,548 $3,823 $7,491 $7,654
------- ------- ------- -------
Expenses:
Shopping center expenses 999 976 1,784 1,898
Interest 539 541 1,072 1,074
Management company expense 725 1,122 1,636 2,244
Depreciation and amortization 365 468 932 951
------- ------- ------- -------
Total operating costs 2,628 3,107 5,424 6,167
------- ------- ------- -------
Gain on sale of land 20 70 54 137
------- ------- ------- -------
Net income $940 $786 $2,121 $1,624
------- ------- ------- -------
------- ------- ------- -------
9
[TEXT]
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
4. Property:
Property is comprised of the following:
June 30, December 31,
1996 1995
Land $172,562 $155,490
Building Improvements 708,651 636,183
Tenant Improvements 35,149 34,730
Equipment and Furnishings 3,896 3,668
Construction in Progress 9,002 3,927
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929,260 833,998
Less, accumulated depreciation 151,993 139,098
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$777,267 $694,900
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[TEXT]
5. Deferred Charges And Other Assets:
Deferred charges and other assets include leasing, financing and other assets
are:
June 30, December 31,
1996 1995
Leasing $26,263 $24,926
Financing 6,466 8,173
--------- ---------
32,729 33,099
Less, accumulated amortization 15,946 16,476
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16,783 16,623
Other assets 3,912 3,811
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Total $20,695 $20,434
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10
[TEXT]
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
6. Notes and Mortgages Payable:
Notes and mortgages payable at June 30, 1996 and December 31, 1995
consists of the following:
Carrying Amount of Notes
1996 1995
Property Pledged Related Related Interest Payment Maturity
As Collateral Other Party Other Party Rate Terms Date
Capitola Mall ---- $ 38,116 ---- $38,250 9.25% 316(f) 2001
Chesterfield Towne Center $ 59,285 ---- $59,536 ---- 8.75% 475(h) 2024
Chesterfield Towne Center 5,326 ---- 5,346 ---- 9.38% 43(h) 2024
Chesterfield Towne Center 1,930 ---- 1,938 ---- 8.88% 16(h) 2024
Crossroads Mall (a) ---- 36,267 ---- 35,936 7.08% 244(f) 2010
Greeley Mall 18,841 ---- 19,000 ---- 8.50% (i) 2003
Green Tree/Crossroads - OK (b) ---- ---- 50,000 ---- 7.45% interest only 2004
Holiday Village Mall 34 ---- 73 ---- 5.50% 7(f) 1996
Holiday Village Mall ---- 17,000 ---- 17,000 6.75% interest only 2001
Lakewood Mall (c) 127,000 ---- 127,000 ---- 7.20% interest only 2005
Marina Marketplace 22,088 ---- ---- ---- 6.35% 173 1997
Northgate Mall ---- 25,000 ---- 25,000 6.75% interest only 2001
Parklane Mall ---- 20,000 ---- 20,000 6.75% interest only 2001
Queens Center 54,900 ---- 55,800 ---- (d) (d) 1999
Queens Center 10,200 ---- 10,200 ---- (e) (e) 1999
The Centre at Salisbury (b) ---- ---- 21,000 ---- 7.13% interest only 2004
Salisbury/Crossroads-OK/
Greentree 103,300 ---- ---- ---- 7.11% interest only(b)2004
Sassafras Square 3,484 ---- ---- ---- 8.54% 31 (j) 1999
------- ------- ------- -------
Sub-Total 406,388 136,383 349,893 136,186
Less interest rate
arrangements (g) 301 ---- 886 ----
------- ------- ------- -------
Total $406,087 $136,383 $349,007 $136,186
------- ------- ------- -------
------- ------- ------- -------
Bank notes payable $29,500 ---- ---- ---- 7.25%(k) 1997
------- ------- ------- -------
------- ------- ------- -------
Weighted average interest rate at June 30, 1996 7.42%
-------
-------
Weighted average interest rate at December 31, 1995 7.52%
-------
-------
[TEXT]
Notes:
(a) There is a discount on this note which is being amortized over
the life of the loan using the effective interest method. At June
30, 1996 and December 31, 1995 the unamortized discount was $480
and $496, respectively.
(b) On April 16, 1996 these loans were combined and secured by all three
properties. The loan amount was increased to $103,300. The average
interest rate is 7.11% and the maturity is March, 2004.
11
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
6. Mortgage Notes Payable, Continued:
(c) The loan indenture requires the Company to deposit all cash flow
from the property operations with a trustee to meet its obligations
under the Notes. Cash in excess of the required amount, as defined,
is released. Included in cash and cash equivalents is $750 of
restricted cash deposited with the trustee at June 30, 1996 and at
December 31, 1995.
(d) This loan bears interest at LIBOR plus .90%. LIBOR was 5.56% at
June 30, 1996 and 5.65% at December 31, 1995. Principal payments of
$1,800 are due in 1996, $1,600 in 1997 and $1,400 in 1998. There is
an interest rate ceiling on this debt of 7.25% for 1996, 7.875% for
1997 and 8.5% from January 1, 1998 to June 30, 1999. The estimated
value of this interest rate cap was $420 at June 30, 1996 and $140
at December 31, 1995.
(e) This loan bears interest at LIBOR plus 2.22%. Interest only is
payable monthly. There is an interest rate cap that provides for an
interest rate ceiling of 8% through March, 1999. This interest rate
cap had an estimated market value of $840 at June 30, 1996 and $280 at
December 31, 1995.
(f) This represents the monthly payment of principal and interest.
(g) Represents the unamortized cost of interest rate arrangements at
Crossroads Mall. The estimated market value of these arrangements is
$300 at June 30, 1996 and $886 at December 31, 1995.
(h) This amount represents the monthly payment of principal and
interest. In addition, contingent interest, as defined in the loan
agreement, may be due to the extent that 35% of the amount by which
the property's gross receipts (as defined in the loan agreement)
exceeds a base amount specified therein. Contingent interest expense
recognized by the Company was $153 at June 30, 1996 and $92 at
June 30, 1995.
(i) Interest only is payable through March, 1996. Thereafter
monthly payments total $187 until maturity at which time the balance
is due in full.
(j) Represents the monthly payment of principal and interest.
(k) Represents borrowings under the Company's unsecured working capital
line of credit. The total amount of the line is $50,000 and the
interest rate is LIBOR plus 1.35% or the prime rate.
Certain mortgage loan agreements contain a prepayment penalty provision for
the early extinguishment of the debt.
The market value of notes payable at June 30, 1996 and December 31, 1995 is
estimated to be approximately $573,000 and $466,000, respectively, based on
current interest rates for comparable loans.
12
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
7. Related-Party Transactions:
The Company engaged The Management Companies to manage the operations of the
unconsolidated joint ventures and other affiliated shopping centers. The
Management Companies are reflected under the equity method of accounting for
investments.
Certain mortgage notes were held by outside partners of the individual
Macerich Group partnerships. Interest expense in connection with these
notes was $2,691 and $2,045 for the three months ended June 30, 1996 and
1995, respectively, and $5,417 and $4,055 for the six months ended
June 30, 1996 and for 1995, respectively. Included in accrued interest
expense is interest payable to these partners of $498 and $537 at June 30,
1996 and December 31, 1995, respectively.
8. Commitments and contingencies:
Certain partnerships have entered into noncancellable operating ground
leases. The leases expire at various times through 2070, subject in some
cases to options to extend the terms of the lease. Certain leases provide
for contingent rent payments based on a percent of base rent income, as
defined. Ground rent expenses were $388, including contingent rents of $10,
for the six months ended June 30, 1996, and $1,131, including contingent
rents of $360, for the six months ended June 30, 1995. Ground rent expenses
were $204 and $533 for three months ended June 30, 1996 and June 30, 1995,
respectively.
On December 21, 1995, the Company acquired Capitola Mall. As part of the
purchase price, the Company will issue $5,000 of Operating Partnership units
five years after the acquisition date. The units will be issued at a price
equal to the stock price at that time.
Perchloroethylene (PCE) has been detected in soil and groundwater in the
vicinity of a dry cleaning establishment at North Valley Plaza. The
California Department of Toxic Substance Control (DTSC) has advised the
Company that very low levels of Dichlorethylene (1,2,DCE) a degradation
byproduct of PCE, have been detected in a water well located 1/4 mile west
from the dry cleaners, and the dry cleaning facility may have contributed
to the introduction of 1,2 DCE into the water well. According to DTSC, the
maximum contaminant level (MCL) for 1,2DCE which is permitted in drinking
water is 6 parts per billion (ppb); and that the 1,2DCE was detected in the
water well at 1.2 ppb, which is below the MCL. The Company has retained an
environmental consultant to investigate the contamination and the Company
has initiated testing of the site. Evaluation of this situation is
preliminary,
and at this time the Company is unable to determine whether any remediation
will be required, or if necessary, what the range of remediation costs might
be. The joint venture that owns that property has set up a $200 reserve
($95 of which has already been incurred) to cover professional fees and
testing costs. The Company intends to look to the responsible parties and
insurers if remediation is required.
13
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
8. Commitments and contingencies - Continued:
Toluene, a petroleum constituent, has been detected in one of three
groundwater dewatering system holding tanks at the Queens Center. The
source of the toluene is currently unknown, but it is possible that an
adjacent service station has caused or contributed to the problem. It is
also possible that the toluene remains from previous service station
operations which occurred on site prior to the development of the site into
its current use in the early 1970s. Toluene was detected at levels of 410
and 160 parts per billion (ppb) in samples taken from the tank in October,
1995 and February, 1996, respectively. In May, 1996, two additional samples
were collected, one of which contained toluene at .63 ppb, the other sample
detected no toluene. Although the Company believes that no remediation will
be required, it has set up a $300 reserve to cover professional fees and
testing costs. The Company intends to look to the responsible parties and
insurers if remediation is required.
Dry cleaning chemicals, including perchloroethylene (PCE) have been detected
in soil and groundwater in the vicinity of a dry cleaning establishment at
Villa Marina Marketplace. The previous owner of the property has reported
the problem to the appropriate government authorities and has agreed to fully
assess and remediate the site to the extent required by those authorities
subject to a limited indemnity agreement. The previous owner has removed
the dominant source of impacted soil and is continuing its efforts to assess
the site under the direction of the local regulatory oversight agency.
Although the Company believes that it will not be required to participate in
assessment or remediation activities, it has set up a $300 reserve ($10 of
which has already been incurred), concurrent with its January 24, 1996
acquisition of the Center, to cover professional fees and testing costs.
9. Pro Forma Information:
Villa Marina Marketplace was acquired on January 25, 1996. On a pro forma
basis, reflecting this acquisition as if it had occurred on January 1, 1996,
the Company would have reflected total revenues of $73,612, net income of
$9,011 and net income per share of $0.45 for the six months ended
June 30, 1996.
14
THE MACERICH COMPANY (The Company)
Item II
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion is based primarily on the consolidated balance
sheet of the Macerich Company ("the Company") as of June 30, 1996, and also
compares the activities for the six months and three months ended June 30,
1996, to the activities for the six months and three months ended
June 30, 1995.
This information should be read in conjunction with the accompanying
consolidated financial statements and notes thereto. These financial
statements include all adjustments which are, in the opinion of management,
necessary to reflect the fair statement of the results for the interim periods
presented, and all such adjustments are of a normal recurring nature.
The Company acquired The Centre at Salisbury ("Salisbury") in Salisbury,
Maryland on August 15, 1995, Capitola Mall ("Capitola"), in Capitola,
California on December 21, 1995, and Queens Center ("Queens"), in Queens,
New York on December 28, 1995. These properties are known as the "1995
Acquisition Centers". On January 25, 1996 the Company acquired Villa Marina
Marketplace in Marina del Rey, California ("1996 Acquisition"). Shopping
centers owned by the Company for the entire six month period ended June 30,
1996 and 1995 are referred to as the "Same Centers" for comparison purposes
below. The 1996 financial statements include Villa Marina Marketplace from
the date of acquisition to June 30, 1996 and include the 1995 Acquisitions from
January 1, 1996 through June 30, 1996. As a result of the acquisitions, many
of the variations in the results of operations, discussed below, occurred due
to the addition of these properties to the portfolio during 1996 and 1995. The
Company's ability to acquire additional properties is impacted by many factors,
such as availability and cost of capital, overall debt to market capitalization
level, interest rates and availability of potential acquisition targets that
meet the Company's criteria. Accordingly, management is uncertain as to
whether during the balance of 1996 there will be similar acquisitions and
corresponding increases in revenues, net income and funds from operations that
occurred as a result of the 1996 and 1995 acquisitions. In addition, the
Company's success in the highly competitive real estate shopping center
business depends upon many other factors, including general economic
conditions, the ability of tenants to make rent payments, increases or
decreases in operating expenses, occupancy levels, changes in demographics,
competition from other centers and forms of retailing and the ability to
renew leases or relet space upon the expiration or termination of leases.
The bankruptcy and/or closure of retail stores, particularly anchors, may
reduce customer traffic and cash flow generated by a Center. During 1996,
Federated Department Stores, Inc. closed the Broadway at Panorama and
Weinstocks at Parklane. Although negotiations are underway to replace these
anchor tenants, completion of those transactions is not certain and the
long-term closure of these or other stores could adversely affect the Company's
performance.
15
THE MACERICH COMPANY (The Company)
Results of Operations - Six months Ended June 30, 1996 and 1995
Revenues
Minimum and percentage rents together increased $15 million to $49.7
million for the six months ended June 30, 1996 compared to $34.7 million
in the six months ended June 30, 1995. The 1995 Acquisition Centers
contributed $11.1 million of this increase and the 1996 Acquisition
contributed $4.0 million.
Tenant recoveries for the second quarter of 1996 increased by $10.4
million. This was due to the addition of the 1995 Acquisition Centers and
the 1996 Acquisition ($8.8 million) and increases in recoverable expenses
at the Same Centers of $1.5 million.
Expenses
Operating expenses, including shopping center, management, leasing
and ground rent expense, increased by $9.2 million for the six months
ended June 30, 1996 compared to the same period in 1995. This increase
was due to the addition of the 1995 Acquisition Centers ($7.0 million),
the 1996 Acquisition ($1.3 million) and increases in Same Centers
recoverable expenses of $1.5 million. The increase was offset somewhat by
lower ground rent expense of $0.7 million which resulted from the October
1995 acquisition of land at Crossroads-Boulder which was previously ground
leased. Depreciation and amortization increased by $3.4 million,
virtually all of which was related to the 1996 Acquisition and 1995
Acquisition Centers. Interest expense increased by $8.8 million which
resulted primarily from the increased interest expense on debt
attributable to the 1995 Acquisition Centers and the 1996 Acquisition.
Income From Unconsolidated Joint Ventures and The Management
Companies
The income from unconsolidated joint ventures increased to $2.1
million compared to $1.6 million for the period ended June 30, 1995. This
increase was primarily due to increased net income of $665,000 at the
Management Companies.
Loss on Early Extinguishment of Debt
The Company financed the debt secured by Lakewood Mall on June 28,
1995. As a result $1.3 million of unamortized loan costs were written off
as an extraordinary item during the six months ended June 30, 1995.
Net Income
Net income for the period increased to $8.7 million compared to $4.4
million for the six months ended June 30, 1995. This increase was due to
the factors discussed above.
16
THE MACERICH COMPANY (The Company)
Results of Operations - Three months Ended June 30, 1996 and 1995
Revenues
Minimum and percentage rents together increased $7.9 million. Of
this increase approximate $5.6 million related to the 1995 Acquisition
Centers and $2.3 million related to the 1996 Acquisition.
Tenant recoveries increased to $12.1 million in 1996, from $6.3
million in 1995. The 1995 Acquisition Centers were responsible for $4.0
million of this increase and $0.5 million of the increase related to the
1996 Acquisition. The balance of the increase was primarily due to higher
Same Centers recoverable expenses.
Expenses
Operating expenses, including shopping center and ground rent
expenses, increased by $5.4 million to $12.8 million in 1996, most of
which related to the 1995 Acquisition Centers ($3.6 million) and the 1996
Acquisition ($0.7 million). The balance of the increase was primarily due
to higher Same Center recoverable expenses of $1.2 million, offset somewhat
by lower ground lease expense of $0.3 million. Depreciation and
amortization for the quarter increased to $7.9 million from $6.1 million
for the same period in 1995. Virtually all of this increase was
attributable to the 1995 Acquisition Centers and 1996 Acquisition.
Interest expense increased from $5.7 million in 1995 to $10.5 million in
1996. Most of the increase related to debt assumed on, or debt incurred
to acquire, the 1995 Acquisition Centers and the 1996 Acquisition.
Income From Unconsolidated Joint Ventures and The Management
Companies
The income from unconsolidated joint ventures and the Management
Companies increased from $786,000 in 1995 to $940,000 in 1996. This
increase was primarily due to increased net income from the Management
Companies.
Loss on Early Extinguishment of Debt
The Company refinanced the debt secured by Lakewood Mall on
June 28, 1995. As a result $1.3 million of unamortized loan costs
were written off as an extraordinary item during the quarter ended
June 30, 1995.
Net Income
Net income for the period increased to $4.3 million from $2.1
million for the three months ended June 30, 1995. This increase was
due to the factors discussed above.
17
THE MACERICH COMPANY (The Company)
Liquidity and Capital Resources
The Company intends to meet its short term liquidity requirements
through cash generated from operations and working capital reserves. The
Company anticipates that revenues will continue to provide necessary funds
for its operating expenses and debt service requirements, and to pay
dividends to stockholders in accordance with REIT requirements. The
Company anticipates that cash generated from operations, together with
cash on hand, will be adequate to fund capital expenditures which will
not be reimbursed by tenants, other than non-recurring capital
expenditures. Capital for major expenditures or redevelopments has been,
and is expected to continue to be, obtained from equity or debt financings.
The Company believes that it will have access to the capital
necessary to expand its business in accordance with its strategies for
growth and maximizing Funds from Operations. The Company presently intends
to obtain additional capital necessary to expand its business through a
combination of additional equity offerings and debt financings.
The Company's total outstanding mortgage loan indebtedness at June
30, 1996 was $571.6 million (including its pro rata share of joint venture
debt). This equated to a debt to Total Market Capitalization (defined as
total debt of the Operating Partnership, including its pro rata share of
joint venture debt, plus aggregate market value of outstanding shares of
common stock, assuming full conversion of OP Units into stock) rate of
46.5% at June 30, 1996. Such debt consists primarily of conventional
mortgages payable secured by individual properties. In connection with
$65 million of the Company's floating rate indebtedness, the Company has
entered into interest rate protection agreements that limit the Company's
exposure to increases in interest rates.
The Company has a shelf registration to sell securities consisting
of $136.6 million of common stock and common stock warrants.
The Company has an unsecured line of credit to $50 million. The
outstanding borrowings on the line of credit at June 30, 1996 were $29.5
million.
At June 30, 1996 the Company had cash and cash equivalents available
of $4.1 million.
The Company increased its debt on Crossroads-OK, Green Tree and
Salisbury by $15.3 million on April 16, 1996. The excess borrowings were
used to repay a portion of the debt outstanding under the Company's bank
line of credit and for general corporate purposes. Also, under the credit
facility the Company has available $10.0 million of notes that can be
issued.
18
THE MACERICH COMPANY (The Company)
Funds From Operations
The Company believes that the most significant measure of its
performance is Funds from Operations ("FFO"). FFO is defined by The
National Association of Real Estate Investment Trusts ("NAREIT") to be:
Net income, excluding gains (or losses) from debt restructuring and sales
of property, plus depreciation and amortization of real property and
after adjustments for Unconsolidatedjoint ventures. Adjustments for
Unconsolidated partnerships and joint ventures will be calculated to
reflect FFO on the same basis. Also, extraordinary items and significant
non-recurring events are excluded from the FFO calculation. FFO does not
represent cash flow from operations, as defined by generally accepted
accounting principles, and is not necessarily indicative of cash
available to fund all cash flow needs. The following reconciles net
income to the FFO.
Six months ended Three months ended
June 30, June 30,
1996 1995 1996 1995
(amounts in thousands)
Net income $8,713 $4,405 $4,312 $2,101
Adjustments to reconcile
net income to FFO:
Loss on early extinguishment of debt - 1,297 - 1,297
Extraordinary loss on sale of assets 315 - 315 -
Minority interest 5,277 3,494 2,613 1,666
Depreciation and amortization on
wholly owned properties 15,650 12,273 7,900 6,124
Less amortization of loan costs and
depreciation of personal property (1,315) (1,871) (530) (981)
Pro rata share of joint venture
depreciation and amortization
of real estate 932 951 365 468
Pro rata share of (gain) loss on sale of
joint venture assets (54) (137) (20) (69)
------- ------- ------- -------
Total FFO 29,518 20,412 14,955 10,606
------- ------- ------- -------
------- ------- ------- -------
Weighted average number of shares outstanding,
assuming full conversion of OP Units 32,095 25,781 32,105 25,781
------- ------- ------- -------
------- ------- ------- -------
[TEXT]
Included in minimum rents for the six months ended June 30, 1996 were
$745,000 of rents attributable to the accounting practice of "straight
lining of rents." This compares to $774,000 for the same period in 1995.
19
THE MACERICH COMPANY (The Company)
Inflation
In the last three years, inflation has not had a significant impact
on the Company because of a relatively low inflation rate. Substantially
all the leases at the Centers have rent adjustments periodically through
the lease term. These rent increases are either in fixed increments or
based on increases in the Consumer Price Index. In addition, many of the
leases are for terms of less than ten years, which enables the Company to
replace existing leases with new leases at higher base rents if the rents
of the existing leases are below the then existing market rate.
Additionally, most of the leases require the tenants to pay their pro rata
share of operating expenses. This reduces the Company's exposure to
increases in costs and operating expenses resulting from inflation.
20
PART II
Other Information
Item 1 Legal Proceedings
None
Item 2 Changes in Securities
None
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedules
(b) Reports on Form 8-K
None
21
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Macerich Company
By: /s/ THOMAS E. O'HERN
Thomas E. O'Hern
Senior Vice President and
Chief Financial Officer
Date: August 14, 1996
22
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
- - -------- ----------------
27. Financial Data Schedules............. Filed herewith electronically
23
5
6-MOS
DEC-31-1996
JUN-30-1996
4,112
0
19,266
0
0
0
929,260
151,993
777,267
0
571,970
0
0
200
150,065
838,984
0
73,070
0
0
40,842
0
20,359
8,713
0
8,713
0
0
0
8,713
.44
.44
