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, 1997 COMMISSION FILE NO. 1-12504
THE MACERICH COMPANY
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(Exact name of registrant as specified in its charter)
MARYLAND 95-4448705
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
233 Wilshire Boulevard, Suite 700, Santa Monica, CA 90401
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(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code (310) 394-5333
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N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Number of shares outstanding of each of the registrant's classes of common
stock, as of August 8, 1997.
Common stock, par value $.01 per share: 25,938,605
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding twelve (12) months (or such shorter period that
the Registrant was required to file such report) and (2) has been subject to
such filing requirements for the past ninety (90) days.
YES X NO
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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, 1997 and
December 31, 1996. 3
Condensed consolidated statements of
operations of The Company for the periods
from January 1 through June 30, 1997 and 1996. 4
Condensed consolidated statements of
operations of The Company for the periods
from April 1 through June 30, 1997 and 1996. 5
Condensed consolidated statements of cash
flows of The Company for the periods from
January 1 through June 30, 1997 and 1996. 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 23
Part II: Other Information 24
2
CONSOLIDATED BALANCE SHEETS OF THE COMPANY
(Dollars in thousands)
(Unaudited)
June 30, December 31,
1997 1996
ASSETS:
Property, net $1,199,941 $1,108,668
Cash and cash equivalents 8,383 15,643
Tenant receivables, including
accrued overage rents of $2,882
in 1997 and $3,805 in 1996 17,911 23,192
Due from affiliates 3,371 3,105
Deferred charges and other assets, net 24,849 20,716
Investment in joint ventures and
the Management Companies 15,345 16,429
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Total assets $1,269,800 $1,187,753
LIABILITIES AND STOCKHOLDERS' EQUITY:
Mortgage notes payable:
Related parties $135,626 $135,944
Others 585,225 584,295
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Total 720,851 720,239
Bank notes payable 21,000 69,000
Convertible debentures 150,000 -
Accounts payable 787 4,197
Accrued interest expense 3,654 3,584
Accrued real estate taxes and ground
rent expense 5,192 7,616
Due to affiliates - 430
Deferred acquisition liability 5,000 5,000
Other accrued liabilities 26,369 27,696
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Total liabilities 932,853 837,762
Minority interest in
Operating Partnership 107,750 112,242
Commitments and contingencies (Note 10)
Stockholders' equity:
Preferred stock, $.01 par value,
10,000,000 shares authorized -
none issued - -
Common stock, $.01 par value,
100,000,000 shares authorized,
25,931,000 and 25,743,000 shares
issued and outstanding at
June 30, 1997 and December
31, 1996, respectively 257 257
Additional paid in capital 231,616 238,346
Accumulated earnings - -
Unamortized restricted stock (2,676) (854)
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Total stockholders' equity 229,197 237,749
Total liabilities and -------------- -------------
stockholders' equity $1,269,800 $1,187,753
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The accompanying notes are an integral part of these financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS OF THE COMPANY
(Unaudited)
(Dollars in thousands, except per share amounts)
Six Months Ended June 30,
1997 1996
--------------- --------------
REVENUES:
Minimum rents $65,554 $46,641
Percentage rents 4,157 3,089
Tenant recoveries 30,913 22,582
Other 2,029 1,073
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Total Revenues 102,653 73,385
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OPERATING COSTS:
Shopping center expenses 31,934 23,796
General and administrative expense 1,189 1,396
Interest expense 31,163 20,359
Depreciation and amortization 19,681 15,650
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Total Expenses 83,967 61,201
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Equity in income of unconsolidated joint
Ventures and the management companies 1,073 2,121
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Income of the Operating Partnership 19,759 14,305
Minority interest in net income of
Operating Partnership (6,323) (5,277)
Etraordinary loss on early
extinguishment of debt (512) (315)
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Net income $12,924 $8,713
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Net income per share before
extraordinary item $0.51 $0.45
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Net income per common share $0.50 $0.44
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Dividend/distribution per
common share outstanding $0.88 $0.84
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Weighted average number of
common shares outstanding 25,901,000 19,986,000
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Weighted average number of
Operating Units outstanding 38,008,000 32,095,000
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The accompanying notes are an integral part of these financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS OF THE COMPANY
(Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended June 30,
1997 1996
REVENUES:
Minimum rents $33,500 $24,003
Percentage rents 1,950 1,519
Tenant recoveries 15,995 12,058
Other 905 513
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Total Revenues 52,350 38,093
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OPERATING COSTS:
Shopping center expenses 16,173 12,767
General and administrative expense 440 607
Interest expense 16,397 10,518
Depreciation and amortization 10,207 7,900
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Total Expenses 43,217 31,792
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Equity in income of unconsolidated
joint ventures and the
management companies 706 939
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Income of the Operating Partnership 9,839 7,240
Minority interest in net income
of Operating Partnership (3,155) (2,613)
Extraordinary loss on early
extinguishment of debt (512) (315)
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Net income $6,172 $4,312
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Net income per share before
extraordinary item $0.25 $0.23
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Net income per common share $0.24 $0.22
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Dividend/distribution per
common share outstanding $0.44 $0.42
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Weighted average number of
common shares outstanding 25,953,000 19,996,000
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Weighted average number of
Operating Units outstanding 38,060,000 32,105,000
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The accompanying notes are an integral part of these financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS OF THE COMPANY
(Dollars in thousands)
(Unaudited)
For six months ended June 30,
1997 1996
--------------- --------------
Cash flows from
operating activities:
Net income $12,924 $8,713
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Adjustments to reconcile
net income to net cash provided
by operating activities:
Extraordinary loss on early
extinguishment of debt 512 315
Depreciation and amortization 19,681 15,650
Amortization of discount on
trust deed note payable 17 331
Minority interest in the income
of the Operating Partnership 6,323 5,277
Changes in assets and liabilities:
Tenant receivables, net 5,281 (4,052)
Other assets 231 (101)
Accounts payable and
accrued expenses (5,765) 2,362
Due to affiliates (696) (1,046)
Other liabilities (1,326) (355)
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Total adjustments 24,258 18,381
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Net cash provided by
operating activities 37,182 27,094
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Cash flows from investing activities:
Acquisitions of property
and improvements (55,458) (66,802)
Renovations and expansions
of centers (5,366) (5,075)
Additions to tenant improvements (1,467) (419)
Deferred charges (7,338) (3,592)
Equity in income of unconsolidated
joint ventures and the
management companies (1,073) (2,121)
Distribution from joint ventures 2,156 1,757
Proceeds from sale of assets - 948
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Net cash used in investing
activities (68,546) (75,304)
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Cash flows from financing activities:
Proceeds from notes, mortgages
and debentures payable 206,000 65,116
Payments on mortgages and
notes payable (149,607) (1,621)
Dividends and distributions (32,289) (26,743)
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Net cash provided by
financing activities 24,104 36,752
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Net decrease in cash (7,260) (11,458)
Cash and cash equivalents,
beginning of period 15,643 15,570
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Cash and cash equivalents,
end of period $8,383 $4,112
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Supplemental cash flow information:
Cash payment for interest $31,077 $19,781
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Non-cash transactions:
Acquisition of property by
assumption of debt $46,202 $25,849
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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
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
1. Interim Financial Statements and Basis of Presentation:
The accompanying consolidated financial statements of The Macerich
Company have been prepared in accordance with generally accepted
accounting principles ("GAAP") for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements and have not been audited by independent public
accountants.
The unaudited interim financial statements should be read in
conjunction with the audited financial statements and related notes
included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary for
a fair presentation of the financial statements for the interim
periods have been made. The results for interim periods are not
necessarily indicative of the results to be expected for a full year.
The accompanying consolidated balance sheet as of December 31, 1996
has been derived from audited financial statements but does not
include all disclosures required by GAAP.
Certain reclassifications have been made in the 1996 financial
statements to conform to the 1997 financial statement presentation.
The computation of primary earnings per share is based on net income
and the weighted average number of shares outstanding for the periods
presented. Outstanding common stock options, using the treasury
method, have less than a 3% dilutive effect on earnings per share and
thus have not been included in the computation. The computation of
fully diluted earnings per share is less than 3% dilutive and has not
been presented.
2. Organization:
The Macerich Company (the "Company") was incorporated under the
General Corporation Law of Maryland on September 9, 1993 and commenced
operations effective with the completion of its initial public
offering ("IPO") on March 16, 1994. The Company was formed to
continue the business of the Macerich Group, which since 1972 has
focused on the acquisition, ownership, redevelopment, management and
leasing of regional shopping centers located throughout the United
States. In 1994, the Company became the sole general partner of The
Macerich Partnership L.P., (the "Operating Partnership"). The
Operating Partnership owns or has an ownership interest in 24 regional
shopping centers and three community shopping centers, including one
that was acquired in 1997. Collectively these properties and
interests are referred to as the "Centers". The Company conducts all
of its operations through the Operating Partnership and other wholly
owned subsidiaries, and the Company's two Management Companies,
Macerich Property Management Company and Macerich Management Company,
collectively referred to as "the Management Companies".
The Company, a real estate investment trust under the Internal Revenue
Code of 1986, as amended, owns approximately 68% of The Operating
Partnership and is the sole General Partner. The limited partnership
interest not owned by the Company is reflected in these financial
statements as Minority Interest.
7
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(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 and the unconsolidated joint ventures 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, December 31,
1997 1996
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Assets:
Properties, net $106,093 $106,751
Other assets 7,771 13,257
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Total assets $113,864 $120,008
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Liabilities and partners' capital:
Mortgage notes payable $84,628 $81,925
Other liabilities 4,729 11,116
The Company's capital 15,345 16,429
Outside Partners' capital 9,162 10,538
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Total liabilities and
partners' capital $113,864 $120,008
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8
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(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
1997 1996 1997 1996
--------------- ------------- ------------- ------------
Revenues $7,802 $7,117 $15,670 $15,350
--------------- -------------- ------------ -----------
Expenses:
Shopping center
Expenses 2,449 1,397 5,053 3,691
Interest 1,573 1,613 3,135 3,213
Management
company
expense 882 845 1,904 1,804
Depreciation and
Amortization 1,125 922 2,245 2,042
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Total operating
Costs 6,029 4,777 12,337 10,750
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Gain on sale of
Land 340 105 347 282
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Net income $2,113 $2,445 $3,680 $4,882
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Significant accounting policies used by the unconsolidated joint ventures and
the Management Companies are similar to those used by the Company.
Included in mortgage notes payable are amounts due to related parties of
$43,500 at June 30, 1997 and December 31, 1996. Interest expense incurred on
these borrowings amounted to $750 and $748 for the three months ended June 30,
1997 and 1996, respectively, and $1,483 and $1,488 for the six months ended
June 30, 1997 and 1996, 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
1997 1996 1997 1996
---------- ---------- ---------- ----------
Revenues $3,478 $3,547 $6,886 $7,491
---------- ---------- ---------- ----------
Expenses:
Shopping
center
expenses 926 999 1,937 1,784
Interest 512 539 1,020 1,072
Management company
Expense 838 725 1,809 1,636
Depreciation and
Amortization 561 365 1,113 932
---------- ---------- ---------- ----------
Total
operating
costs 2,837 2,628 5,879 5,424
---------- ---------- ---------- ----------
Gain on sale
of land 65 20 66 54
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Net income $706 $939 $1,073 $2,121
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9
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands)
4. Property:
Property is comprised of the following:
June 30, December 31,
1997 1996
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Land $259,447 $239,847
Building Improvements 1,071,400 990,125
Tenant Improvements 35,616 34,149
Equipment and Furnishings 5,554 4,769
Construction in Progress 9,560 4,195
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1,381,577 1,273,085
Less, accumulated
depreciation (181,636) (164,417)
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$1,199,941 $1,108,668
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5. Deferred Charges And Other Assets:
Deferred charges and other assets include leasing, financing and other
assets are:
June 30, December 31,
1997 1996
---------- ----------
Leasing $25,959 $25,629
Financing 12,042 7,891
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38,001 33,520
Less, accumulated amortization (15,551) (15,434)
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22,450 18,086
Other assets 2,399 2,630
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Total $24,849 $20,716
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10
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands)
6. Mortgage Notes Payable:
Mortgage notes payable at June 30, 1997 and December 31, 1996
consists of the following:
Carrying Amount of Notes
1997 1996
Property Pledged Related Related Interest Payment Maturity
As Collateral Other Party Other Party Rate Terms Date
Capitola Mall ---- $37,824 ---- $37,976 9.25% 316 (d) 2001
Chesterfield
Towne Center $66,009 ---- ---- ---- 9.10% 548 (e) 2024
Chesterfield
Towne Center ---- ---- $59,023 ---- 8.75% 475 (e) 2024
Chesterfield
Towne Center ---- ---- 5,304 ---- 9.38% 43 (e) 2024
Chesterfield
Towne Center ---- ---- 1,922 ---- 8.88% 16 (e) 2024
Chesterfield
Towne Center 3,403 ---- 3,444 ---- 8.54% 28 (d) 1999
Crossroads Mall(a) --- $35,802 ---- 35,968 7.08% 244(d) 2010
Fresno
Fashion Fair 38,000 ---- 38,000 ---- 8.40% interest only 2005
Greeley Mall 18,172 ---- 18,514 ---- 8.50% 187(d) 2003
Green Tree Mall/
Crossroads - OK/
Salisbury (b) 117,714 ---- 117,714 ---- 7.23% interest only 2004
Holiday Village ---- 17,000 ---- 17,000 6.75% interest only 2001
Lakewood Mall(c)127,000 ---- 127,000 ---- 7.20% interest only 2005
Northgate Mall ---- 25,000 ---- 25,000 6.75% interest only 2001
Parklane Mall ---- 20,000 ---- 20,000 6.75% interest only 2001
Queens Center 65,100 ---- 65,100 ---- (f) interest only 1999
Rimrock Mall 31,760 ---- 31,994 ---- 7.70% 244(d) 2003
South Towne
Center 11,202 ---- ---- ---- (g) interest only 1998
Valley
View Mall 51,000 ---- 60,000 ---- (h) interest only 2006
Villa Marina
Marketplace ---- ---- ---- ---- (i) interest only (I)
Vintage Faire
Mall (j) 55,865 ---- 56,280 ---- 7.65% 427(d) 2003
--------- --------- --------- ---------
Total $585,225 $135,626 $584,295 $135,944
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average interest rate at June 30, 1997 7.55%
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-------
Weighted average interest rate at December 31, 1996 7.45%
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Notes:
(a) This note was issued at a discount. The discount is being amortized over
the life of the loan using the effective interest method. At June 30, 1997 and
December 31, 1996 the unamortized discount was $446 and $463, respectively.
(b) This loan is cross collateralized by Green Tree Mall, Crossroads Mall,
Oklahoma and Salisbury.
(c) On August 15, 1995 the Company issued $127,000 of collateralized
floating rate notes (the "Notes"). The Notes bear interest at an average
fixed rate of 7.20% and mature in July 2005.
11
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands)
6. Mortgage Notes Payable, Continued:
The Note requires the Company to deposit all cash flow from the property
operations with a trustee to meet its obligations under the Notes. Cash in
excess of the required amount, as defined, is released. Included in cash and
cash equivalents is $750 of restricted cash deposited with the trustee at
June 30, 1997 and at December 31, 1996.
(d) This represents the monthly payment of principal and interest.
(e) This amount represents the monthly payment of principal and interest.
In addition, contingent interest, as defined in the loan agreement, may be
due to the extent that 35% of the amount by which the property's gross
receipts (as defined in the loan agreement) exceeds a base amount specified
therein. Contingent interest expense recognized by the Company was $0 for
the period ended June 30, 1997 and $155 for the six months ended June 30,
1996. As of January 1, 1997 all these loans were consolidated into
a new loan of $66,200 at an interest rate of 9.1%.
(f) This loan bears interest at LIBOR plus 0.45%. There is an interest rate
protection agreement in place on the first $10,200 of this debt with a LIBOR
ceiling of 5.88% through maturity with the remaining principal having an
interest rate cap with a LIBOR ceiling at 7.07% through 1997 and 7.7%
thereafter.
(g) This loan bears interest at LIBOR plus 1.75% and the loan can be
increased to $47,000.
(h) As of December 31, 1996 this loan bore interest at LIBOR plus 1.50%;
however, on April 16, 1997 the Company converted this into a fixed rate loan
bearing interest at 7.89% and maturing in October 2006.
(i) This credit facility, secured by Villa Marina Marketplace, originally
bore interest at LIBOR plus 1.25% (7.00% at March 31, 1997), matures in
March, 1998 and had a $0 balance at June 30, 1997. On August 6, 1997 the
Company borrowed $58,000 on this facility, fixed the interest rate
at 7.23% and extended the maturity to October, 2006.
(j) Included in cash and cash equivalents is $3,033 and $3,025 at June 30,
1997 and December 31, 1996, respectively, of cash restricted under the terms
of this loan agreement.
Certain mortgage loan agreements contain a prepayment penalty
provision for the early extinguishment of the debt.
The market value of mortgage notes payable at June 30, 1997 and
December 31, 1996 is estimated to be approximately $694,000 and
$733,000, respectively, based on current interest rates for
comparable loans.
7. Bank Notes Payable:
The Company has a $50,000 unsecured line of credit with a bank.
The line of credit bears interest at LIBOR plus 1.375% and matures
in June 1998. There was a $21,000 balance outstanding on the line
of credit at June 30, 1997 and $12,000 at December 31, 1996.
Also, at December 31, 1996 there was a $57,000 unsecured note
which was paid off in 1997.
12
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands)
8. Convertible Debentures:
On June 27, 1997, the Company issued and sold $150,000 of
convertible subordinated debentures (the "Debentures") due 2002.
The Debentures, which were sold at par, bear interest at 7.25%
annually (payable semi-annually) and are convertible at any time,
on or after 60 days, from the date of issue at a conversion price
of $31.125 per share. The Debentures mature on December 15, 2002
and are callable by the Company after June 15, 2002 at par plus
accrued interest. An additional $11,400 of debentures were sold
in July, 1997.
9. 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 $2,503 and $2,691 for the three
months ended June 30, 1997 and 1996, respectively, and $4,993 and
$5,417 for the six months ended June 30, 1997 and 1996,
respectively. Included in accrued interest expense is interest
payable to these partners of $491 and $516 at June 30, 1997 and
December 31, 1996, respectively.
10. Commitments and Contingencies:
Certain partnerships have entered into noncancellable operating
ground leases. The leases expire at various times through 2060,
subject in some cases to options to extend the terms of the lease.
Certain leases provide for contingent rent payments based on a
percent of base rent income, as defined. Ground rent expenses
were $342, including contingent rents of $0, for the six months
ended June 30, 1997, and $388 for the six months ended June 30,
1996 including contingent rents of $10. Ground rent expenses were
$171 and $204 for three months ended June 30, 1997 and 1996,
respectively.
Perchloroethylene (PCE) has been detected in soil and groundwater
in the vicinity of a dry cleaning establishment at North Valley
Plaza. The California Department of Toxic Substance Control
(DTSC) has advised the Company that very low levels of
Dichlorethylene (1,2,DCE) a degradation byproduct of PCE, have
been detected in a water well located 1/4 mile west from the dry
cleaners, and that the dry cleaning facility may have contributed
to the introduction of 1,2 DCE into the water well. According to
DTSC, the maximum contaminant level (MCL) for 1,2DCE which is
permitted in drinking water is 6 parts per billion (ppb); and the
1,2DCE was detected in the water well at 1.2 ppb, which is below
the MCL. The Company has retained an environmental consultant and
has initiated extensive testing of the site, although the extent
of the impacted soil and groundwater has not been fully defined.
Remediation is scheduled to begin in the first half of 1997. The
joint venture that owns that property had a $674 reserve at June
30, 1997. In addition, $166 has already been incurred, to cover
professional fees, testing costs and remediation.
Toluene, a petroleum constituent, was detected in one of three
groundwater dewatering system holding tanks at the Queens Center.
The source of the toluene is currently unknown, but it is possible
that an adjacent service station has caused or contributed to the
problem. It is also possible that the toluene remains from
previous service station operations, which occurred on site prior
to the development of the site into its current use in the early
1970s. Toluene was detected at levels of 410 and 160 parts per
billion (ppb) in samples taken from the tank in October, 1995 and
February 1996, respectively. Additional samples were taken in
May and December of 1996, with results of .63 ppb and "non-
detect" for the May sampling event and 16.2 ppb and 25.2 ppb for
the December sampling event. The maximum containment level (MCL)
for toluene in
13
THE MACERICH COMPANY (The Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Dollars in thousands)
10. Commitments and Contingencies, Continued:
drinking water is 150 ppb. Although the Company believes that no
remediation will be required, it has set up a $150 reserve, of
which $5 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.
Dry cleaning chemicals, including PCE were detected in soil and
groundwater in the vicinity of a dry cleaning establishment at
Villa Marina Marketplace. The previous owner of the property has
reported the release to the local government authorities and has
agreed, subject to a limited indemnity agreement, to fully assess
and remediate the site to the extent required by those
authorities. The previous owner removed the dominant source of
impacted soil in 1996. The local regulators have confirmed in
writing that no further action is required with respect to the
soil and have requested additional assessment of the groundwater.
The previous owner is conducting such assessment. Although the
Company believes that it will not be required to participate in
assessment or remediation activities, it has set up a $150 reserve
($31 of which has already been incurred) to cover professional and
legal fees.
Dry cleaning chemicals including PCE were detected in soil and
groundwater in the vicinity of a former dry cleaning establishment
at Huntington Center. The release has been reported to the local
government authorities. The Company estimates, based on the data
currently available, that costs for assessment, remediation and
legal services will not exceed $500. Consequently, a $500 reserve
was established at the time of the acquisition ($7 of which has
already been incurred) to cover professional and legal fees. The
Company intends to look to responsible parties and insurers for
cost recovery.
The Company acquired Fresno Fashion Fair in December 1996.
Asbestos has been detected in structural fireproofing throughout
much of the Mall. Recent testing data conducted by a professional
environmental consulting firms indicates that the fireproofing is
largely inaccessible to building occupants and is well adhered to
the structural members. Additionally, airborne concentrations of
asbestos are well within OSHA's permissible exposure limit (PEL)
of .1 fcc. The Company intends to abate asbestos fireproofing as
tenant spaces become vacant. A reserve of $3.3 million was set up
at acquisition ($12 of which has already been incurred) to cover
future removal of this asbestos, as necessary.
11. Acquisition:
South Towne Center was acquired in March, 1997 for approximately
$98,000, which included assumption of debt of $46,200 and $51,800
in cash. On a pro forma basis, reflecting this acquisition as if
it had occurred on January 1, 1997, the Company would have
reported, for the six months ended June 30, 1997, total revenues
of $105,455, net income of $13,109, and net income per share of
$0.51. On a pro forma basis, if the acquisition had occurred on
January 1, 1996, the Company would have reported, for the six
months ended June 30, 1996, total revenues of $77,713, net income
of $8,927 and net income per share of $0.45. This pro forma
information is based on assumptions management believes to be
appropriate. The pro forma information is not necessarily
indicative of what the actual results would have been had the
acquisition occurred at the beginning of the period indicated, nor
does it purport to project the Company's financial position or
results of operations at any future date or for any future period.
12. Subsequent Event:
On August 6, 1997 a dividend of $0.44 per share was declared for
shareholder and OP unit holders of record on August 18, 1997. The
dividend is payable on September 9, 1997.
On August 6, 1997 the Company acquired Stonewood Mall for $92,000.
The Company paid cash for the acquisition and concurrently
borrowed $58,000 under its credit facility secured by Villa Marina
Marketplace.
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, 1997, and also
compares the activities for the six months and three months ended June 30,
1997, to the activities for the six months and three months ended June 30,
1996.
This information should be read in conjunction with the
accompanying consolidated financial statements and notes thereto.
These financial statements include all adjustments which are, in the
opinion of management, necessary to reflect the fair statement of
the results for the interim periods presented, and all such
adjustments are of a normal recurring nature.
This Quarterly Report on Form 10-Q contains or incorporates
statements that constitute forward looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
Those statements appear in a number of places in this Quarterly
Report on Form 10-Q and include statements regarding, among other
matters, the Company's growth opportunities, the Company's
acquisition strategy, regulatory matters pertaining to compliance
with governmental regulations and other factors affecting the
Company's financial condition or results of operations.
Stockholders are cautioned that any such forward looking statements
are not guarantees of future performance and involve risks,
uncertainties and other factors which may cause actual results,
performance or achievements to differ materially from the future
results, performance or achievements, expressed or implied in such
forward looking statements.
On August 15, 1995, the Company acquired The Centre at
Salisbury ("Salisbury") in Salisbury, Maryland. Capitola Mall
("Capitola"), in Capitola, California was acquired on December 21,
1995, and Queens Center ("Queens"), in Queens, New York was
acquired on December 28, 1995. These properties are known as the
"1995 Acquisition Centers". In January, 1996 the company acquired
Villa Marina Marketplace in Marina del Rey, California and in
October, 1996 Valley View Mall in Dallas, Texas was acquired. In
November, 1996 Rimrock Mall in Billings, Montana and Vintage Faire
Mall in Modesto, California were acquired. In addition, in
December, 1996 three malls were acquired: Buenaventura Mall in
Ventura, California; Fresno Fashion Fair in Fresno, California; and
Huntington Center in Huntington Beach, California. Together these
acquisitions are referred to as the "1996 Acquisition Centers".
The 1996 financial statements include Villa Marina Marketplace from
the date of acquisition to June 30, 1996 and do not include results
from any of the other 1996 Acquisition Centers. The 1997 financial
statements include all the 1996 Acquisition Centers for the entire
six months. On March 27, 1997 South Towne Center in Sandy, Utah was
acquired and the results from this acquisition were included from
March 27 through June 30, 1997. As a result of the acquisitions,
many of the variations in the results of operations, discussed
below, occurred due to the addition of these properties to the
portfolio during 1997, 1996 and 1995. Many factors, such as
availability and cost of capital, overall debt to market
capitalization level, interest rates and availability of potential
acquisition targets that meet the Company's criteria, impact the
Company's ability to acquire additional properties. Accordingly,
management is uncertain as to whether during the balance of 1997
there will be similar acquisitions and corresponding increases in
revenues, net income and funds from operations that occurred as a
result of the 1996 and 1995 acquisitions.
15
THE MACERICH COMPANY (The Company)
The bankruptcy and/or closure of retail stores, particularly
Anchors, may reduce customer traffic and cash flow generated by a
Center. During 1995, Federated Department Stores, Inc. announced
the closure of the Broadway Stores at Panorama and Huntington
Center, and Weinstocks at Parklane. Although the Panorama store has
been sold to Wal-Mart, and the Company is replacing the other two
stores with multi-screen theater complexes, the long-term closure of
these or other stores could adversely affect the Company's
performance.
In addition, the Company's success in the highly competitive
real estate shopping center business depends upon many other
factors, including general economic conditions, the ability of
tenants to make rent payments, increases or decreases in operating
expenses, occupancy levels, changes in demographics, competition
from other centers and forms of retailing and the ability to renew
leases or relet space upon the expiration or termination of leases.
16
THE MACERICH COMPANY - (The Company)
Results of Operations - Six months Ended June 30, 1997 and 1996
Revenues
Minimum and percentage rents together increased $20.0
million to $69.7 million for the six months ended June
30, 1997 compared to $49.7 million in the six months ended June
30, 1996. The 1997 and 1996 Acquisition Centers were the
primary reasons for this increase.
Tenant recoveries for the second quarter of 1997
increased by $8.3 million. This was due to the addition of the
1996 Acquisition Centers and the 1997 Acquisition ($9.4
million) and decreases in recoverable expenses at the other
centers of $1.1 million.
Expenses
Operating expenses, including shopping center,
management, leasing and ground rent expense, increased by $8.1
million for the six months ended June 30, 1997 compared to the
same period in 1996. This increase was due to the addition of
the 1997 and 1996 Acquisition Centers ($9.5 million) and
decreases in other centers recoverable expenses of $1.5
million. Depreciation and amortization increased by $4.0
million. This increase was primarily due to the 1996
Acquisition Centers. Interest expense increased by $10.8
million primarily due to the increased interest expense on debt
attributable to the 1997 and 1996 Acquisition Centers.
Income From Unconsolidated Joint Ventures and The Management
Companies
The income from unconsolidated joint ventures decreased
to $1.1 million compared to $2.1 million for the period ended
June 30, 1996. This decrease was primarily due to reduced fee
income relating to the sale of a managed asset of approximately
$350 in 1997 compared to 1996, and a reduction of approximately
$400 in net operating income at Panorama Mall.
Loss on Early Extinguishment of Debt
The Company paid off $148,000 million of debt during the
second quarter of 1997 resulting in unamortized loan costs of
$512 being written off as an extraordinary item in the second
quarter of 1997, compared to $315 in the second quarter of
1996.
Net Income
Net income for the period increased to $12.9 million
compared to $8.7 million for the six months ended June 30,
1996. This increase was due to the factors discussed above.
Cash Flows From Operating Activities
As a result of the factors discussed above, cash flow
from operations increased to $37.2 million for the six months
ended June 30, 1997 from $27.1 million for the same period in
1996.
17
THE MACERICH COMPANY (The Company)
Cash Flows From Investing Activities
Net cash flow used in investing activities decreased to
$68.5 million from $75.3 million due primarily to less cash
being used for acquisitions in 1997 compared to 1996.
18
THE MACERICH COMPANY (The Company)
Results of Operations - Three months Ended June 30, 1997 and 1996
Revenues
Minimum and percentage rents together increased $9.9
million for the three months ended June 30, 1997 compared to
the same period in 1996. This increase resulted primarily from
1997 and 1996 Acquisition Centers.
Tenant recoveries increased to $16.0 million in June 30,
1997, from $12.1 million in 1996. The 1997 and 1996
Acquisition Centers were responsible for $5.2 million of this
increase. The balance is primarily due to lower Same Centers
recoverable expenses of $1.1 million.
Expenses
Operating expenses, including shopping center and ground
rent expenses, increased by $3.4 million to $16.2 million in
the second quarter of 1997, most of which related to the 1997
and 1996 Acquisition Centers ($4.8 million). Depreciation and
amortization for the quarter increased to $10.2 million from
$7.9 million for the same period in 1996. Virtually all of
this increase was attributable to the 1997 and 1996 Acquisition
Centers. Interest expense increased from $10.5 million in 1996
to $16.4 million in 1997. Most of the increase related to debt
assumed on, or debt incurred to acquire, the 1997 and 1996
Acquisition Centers.
Income From Unconsolidated Joint Ventures and The Management
Companies
The income from unconsolidated joint ventures and the
Management Companies decreased from $939,000 in 1996 to
$706,000 in 1997. This decrease was primarily due to decreased
net income from the Management Companies.
Net Income
Net income for the period increased to $6.2 million from
$4.3 million for the three months ended June 30, 1996. This
increase was due to the factors discussed above.
Cash Flows From Operating Activities
As a result of the factors discussed above, cash flow
from operations increased by $13.5 million in the second
quarter of 1997 from $11.2 million during the second quarter of
1996.
Cash Flows From Investing Activities
Net cash flow used in investing activities decreased by
$8.9 million compared to $10.7 million due primarily to less
cash being used for acquisitions in the second quarter of 1997
compared to 1996.
19
THE MACERICH COMPANY (The Company)
Cash Flows From Financing Activities
Cash flow from financing activities decreased by $5.8
million in the second quarter of 1997 compared to $5.1 million
for the second quarter of 1996 as a result of more mortgage
financing in 1997.
20
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 loan indebtedness at
June 30, 1997 was $921.4 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 47% at June 30, 1997. Such debt consists
primarily of conventional mortgages payable secured by
individual properties, plus $150 million of convertible
debentures maturing in December, 2002 at a conversion price
$31.125. At June 30, 1997 the Company had a total of $86
million of floating rate indebtedness. In connection with
$65.1 million of the Company's floating rate indebtedness, the
Company has entered into interest rate protection agreements
that limit the Company's exposure to increases in interest
rates.
The Company has filed a shelf registration, which is not
yet effective, to sell $500 million of common stock and common
stock warrants.
The Company's line of credit is $50 million. The
outstanding borrowings on the line of credit at June 30, 1997
were $21.0 million.
At June 30, 1997 the Company had cash and cash
equivalents available of $8.4 million.
21
THE MACERICH COMPANY (The Company)
Funds From Operations
The Company believes that the most significant measure of
its performance is Funds from Operations ("FFO"). FFO is
defined by The National Association of Real Estate Investment
Trusts ("NAREIT") to be: Net income, excluding gains (or
losses) from debt restructuring and sales of property, plus
depreciation and amortization (excluding: depreciation of
personal property, amortization of financing cost and
amortization of financial instruments) and after adjustments
for unconsolidated joint ventures. Adjustments for
unconsolidated partnerships and joint ventures will be
calculated to reflect FFO on the same basis. Also,
extraordinary items and significant non-recurring events are
excluded from the FFO calculation. FFO does not represent cash
flow from operations, as defined by generally accepted
accounting principles, and is not necessarily indicative of
cash available to fund all cash flow needs. The following
reconciles net income to FFO:
Six months ended Three months ended
June 30, June 30,
1997 1996 1997 1996
(amounts in thousands)
Net income $12,924 $8,713 $6,172 $4,312
Adjustments to reconcile
net income to FFO:
Loss on early
extinguishment of debt 512 315 512 315
Minority interest 6,323 5,277 3,155 2,613
Depreciation and amortization
on wholly owned properties 19,681 15,650 10,207 7,900
Less amortization of loan
costs and depreciation of
personal property (1,057) (1,315) (581) (530)
Interest on convertible
debentures 119 - 119 -
Pro rata share of joint venture
depreciation and
amortization of
real estate 1,113 932 560 365
Pro rata share of (gain)
loss on sale of
joint venture assets (66) (54) (65) (20)
----------- ----------- -------- -----------
Total FFO $39,549 $29,518 $20,079 $14,955
----------- --------- -------- -----------
----------- --------- -------- -----------
Weighted average number of
shares outstanding,
assuming full conversion
of OP Units 38,008 32,095 38,060 32,105
----------- --------- -------- -----------
----------- --------- -------- -----------
The 1997 weighted average number of shares outstanding
includes convertible debentures of $150,000,000 bearing
interest at 7.25% at a conversion price of $31.125 issued on
June 27, 1997.
Included in minimum rents for the six months ended June
30, 1997 were $1,726,600 of rents attributable to the
accounting practice of "straight lining of rents." This
compares to $745,000 for the same period in 1996.
22
THE MACERICH COMPANY (The Company)
Inflation
In the last three years, inflation has not had a
significant impact on the Company because of a relatively low
inflation rate. Substantially all the leases at the Centers
have rent adjustments periodically through the lease term.
These rent increases are either in fixed increments or based on
increases in the Consumer Price Index. In addition, many of
the leases are for terms of less than ten years, which enables
the Company to replace existing leases with new leases at
higher base rents if the rents of the existing leases are below
the then existing market rate. Additionally, most of the
leases require the tenants to pay their pro rata share of
operating expenses. This reduces the Company's exposure to
increases in costs and operating expenses resulting from
inflation.
New Accounting Pronouncements, Issued But Not Yet Effective
The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share" (EPS). SFAS No. 128 supercedes and
simplifies the existing computational guidelines under
Accounting Principles Board Opinion No. 15. The new
pronouncement is effective for periods ended after December 15,
1997. Among other changes, SFAS No. 128 eliminates the
presentation of primary EPS and replaces it with basic EPS for
which common stock equivalents are not considered in the
computation. SFAS No. 128 also revises the computation of
diluted EPS. The Company does not expect SFAS No. 128 to have
a material impact on its EPS, financial condition or results of
operations.
In June 1997, the FASB issued SFAS No. 130 Reporting
Comprehensive Income. SFAS No. 130 establishes standards for
the reporting and display of comprehensive income and its
components in a full set of general purpose financial
statements. Comprehensive income is defined as the change in
equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner
sources. The Company does not expect this pronouncement to
materially impact the Company's results of operations.
In June 1997, the FASB issued SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information. SFAS
No. 131 establishes standards for disclosure about operating
segments in annual financial statements and selected
information in interim financial reports. It also establishes
standards for related disclosures about products and services,
geographic areas and major customers. This statement
supersedes SFAS No. 14, Financial Reporting for Segments of a
Business Enterprise. The new standard becomes effective for
the Company for the year ending December 31, 1998, and requires
that comparative information from earlier years be restated to
conform to the requirements of this standard. The Company does
not expect this pronouncement to materially change the
Company's current reporting and disclosures.
23
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
The Company's Annual Meeting of Stockholders was held on
May 28, 1997, shares of the Company's Common Stock
were represented at the Annual Meeting in person or by proxy.
Stockholders voted in favor of the re-election of three
nominees for directors to each serve a three year term. The voting
results for each nominee were as follows:
Voted in Favor Votes Against Broker
Nominee Of Election Election Abstentions Non-Votes
Arthur M. Coppola 23,416,331 0 903,550 0
Jame S. Cownie 23,416,331 0 903,550 0
Mace Siegel 23,416,331 0 903,550 0
At the Company's Annual Meeting of Stockholders, stockholders also approved
an amendment and restatement of the Company's 1994 Stock Incentive Plan,
15,135,399 shares were voted in favor of the amendment and restatement of the
Plan, 6,373,996 shares were voted against the amendment and restatement of the
Plan, 59,597 shares represented abstentions and 2,750,889 shares represented
broker non-votes. Stockholders also ratified the appointment of Coopers &
Lybrand L.L.P. as the Company's independent auditor. 24,227,712 shares were
voted in favor of this proposal, 15,804 shares were voted against this
proposal, 76,365 shares represented abstentions and 0 shares represented
broker non-votes.
Item 5 Other Information
None
24
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Earnings per share
(b) Reports on Form 8-K
A report on Form 8-K dated July 3, 1997, event date June 20, 1997, was
filed with the Securities and Exchange Commission for the purpose of
filing the information required by Items 5, 7 and 9 regarding the sale
of Euro-Convertible Bonds.
25
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, 1997
26
Exhibit Index
Exhibit No. Page
- ---------- ----
(a) Exhibits
11.1 Earnings per share
27
Exhibit 11.1
THE MACERICH COMPANY
Computation of Earnings Per Share
For the quarter ended For the six months ended
June 30, June 30,
1997 1996 1997 1996
Primary
- -------
Net income as reported $6,172,000 $4,312,000 $12,924,000 $8,713,000
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Weighted average number of shares outstanding 25,953,000 19,996,000 25,901,000 19,986,000
Incremental shares resulting from stock option
and restricted stock 350,000 25,000 350,000 25,000
----------- ---------- ---------- ----------
Weighted average number of shares of common
stock equivalents 26,303,000 20,021,000 26,251,000 20,011,000
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Primary earnings per share $ 0.24 $ 0.22 $ 0.49 $ 0.44
----------- ---------- ---------- -----------
----------- ---------- ----------
Fully Diluted
- -------------
Net income as reported $6,172,000 $4,312,000 $12,924,000 $8,713,000
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
Weighted average number of shares outstanding 25,953,000 19,996,000 25,901,000 19,986,000
Incremental shares resulting from stock
options and restricted stock 443,000 50,000 443,000 50,000
----------- ----------- ---------- ----------
Weighted average number of shares of common
stock and equivalents 26,396,000 20,046,000 26,344,000 20,036,000
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Fully diluted earnings per share $ 0.23 $ 0.22 $ 0.49 $ 0.44
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
28
5
6-MOS
DEC-31-1997
JUN-30-1997
8,383
0
21,282
0
0
40,194
1,199,941
0
1,269,800
62,002
870,851
0
0
229,197
107,750
1,269,800
0
102,653
0
31,934
20,870
0
31,163
12,924
0
12,924
0
0
0
12,924
.88
.88
