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 MARCH 31, 2001 COMMISSION FILE NO. 1-12504 THE MACERICH COMPANY - ---------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) MARYLAND 95-4448705 - ----------------------------- ------------------------------------ (State or other jurisdiction of incorporation (I.R.S. Employer Identification Number) or organization) 401 Wilshire Boulevard, Suite 700, Santa Monica, CA 90401 - ---------------------------------------------------------------------------- (Address of principal executive office)(Zip code) Registrant's telephone number, including area code (310) 394-6000 ------------------- N/A - ---------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Number of shares outstanding of the registrant's common stock, as of May 9, 2001. Common stock, par value $.01 per share: 33,750,275 shares - ---------------------------------------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or such shorter period that the Registrant was required to file such report) and (2) has been subject to such filing requirements for the past ninety (90) days. YES X NO ----------- ----------
THE MACERICH COMPANY (The Company) Form 10-Q INDEX Page Part I: Financial Information Item 1. Financial Statements Consolidated balance sheets of the Company as of March 31, 2001 and December 31, 2000 1 Consolidated statements of operations of the Company for the periods from January 1 through March 31, 2001 and 2000 2 Consolidated statements of cash flows of the Company for the periods from January 1 through March 31, 2001 and 2000 3 Notes to condensed and consolidated financial statements 4 to 18 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 19 to 26 Item 3. Quantitative and Qualitative Disclosures About Market Risk 27 Part II: Other Information 28 to 30
THE MACERICH COMPANY (The Company) CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data) (Unaudited) <TABLE> <CAPTION> March 31, December 31. 2001 2000 ----------------- ----------------- <S> <C> <C> ASSETS: Property, net $1,933,533 $1,933,584 Cash and cash equivalents 21,762 36,273 Tenant receivables, including accrued overage rents of $1,278 in 2001 and $6,486 in 2000 32,759 38,922 Deferred charges and other assets, net 53,399 55,323 Investments in joint ventures and the Management Companies 272,661 273,140 ----------------- ----------------- ----------------- ----------------- Total assets $2,314,114 $2,337,242 ================= ================= LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY: Mortgage notes payable: Related parties $70,828 $133,063 Others 1,117,464 1,119,684 ----------------- ----------------- Total 1,188,292 1,252,747 Bank notes payable 220,250 147,340 Convertible debentures 150,848 150,848 Accounts payable and accrued expenses 25,227 24,681 Due to affiliates 1,560 8,800 Other accrued liabilities 17,005 17,887 Preferred stock dividend payable 4,831 4,831 ----------------- ----------------- ----------------- ----------------- Total liabilities 1,608,013 1,607,134 ----------------- ----------------- Minority interest in Operating Partnership 116,236 120,500 ----------------- ----------------- Commitments and contingencies (Note 9) Series A cumulative convertible redeemable preferred stock, $.01 par value, 3,627,131 shares authorized, issued and outstanding at March 31, 2001 and December 31, 2000 98,934 98,934 Series B cumulative convertible redeemable preferred stock, $.01 par value, 5,487,471 shares authorized, issued and outstanding at March 31, 2001 and December 31, 2000 148,402 148,402 ----------------- ----------------- Common stockholders' equity: 247,336 247,336 ----------------- ----------------- Common stock, $.01 par value, 100,000,000 shares authorized, 33,740,191 and 33,612,462 shares issued and outstanding at March 31, 2001 and December 31, 2000, respectively 338 338 Additional paid in capital 360,514 359,306 Accumulated earnings - 10,314 Accumulated other comprehensive loss (9,118) - Unamortized restricted stock (9,205) (7,686) ----------------- ----------------- Total common stockholders' equity 342,529 362,272 ----------------- ----------------- ----------------- ----------------- Total liabilities, preferred stock and common stockholders' equity $2,314,114 $2,337,242 ================= ================= The accompanying notes are an integral part of these financial statements. </TABLE> - 1 -
THE MACERICH COMPANY (The Company) CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except share and per share amounts) (Unaudited) <TABLE> <CAPTION> Three Months Ended March 31, ----------------------------------------------- 2001 2000 --------------------- --------------------- <S> <C> <C> REVENUES: Minimum rents $48,665 $47,175 Percentage rents 1,848 1,532 Tenant recoveries 24,803 24,569 Other 2,447 2,027 --------------------- --------------------- Total revenues 77,763 75,303 --------------------- --------------------- EXPENSES: Shopping center expenses 24,151 23,900 General and administrative expense 1,682 1,469 Interest expense: Related parties 2,485 2,519 Others 25,511 25,632 --------------------- --------------------- Total interest expense 27,996 28,151 --------------------- --------------------- Depreciation and amortization 16,104 14,528 Equity in income of unconsolidated joint ventures and the management companies 6,055 6,723 Loss on sale of assets (321) (2) --------------------- --------------------- Income before minority interest, extraordinary item and cumulative effect of change in accounting principle 13,564 13,976 Extraordinary loss on early extinguishment of debt (186) - Cumulative effect of change in accounting principle - (963) --------------------- --------------------- Income of the Operating Partnership 13,378 13,013 Less minority interest in net income of the Operating Partnership 2,128 2,039 --------------------- --------------------- Net income 11,250 10,974 Less preferred dividends 4,831 4,648 --------------------- --------------------- Net income available to common stockholders $6,419 $6,326 ===================== ===================== Earnings per common share - basic: Income before extraordinary item and cumulative effect of change in accounting principle $0.20 $0.22 Extraordinary item (0.01) - Cumulative effect of change in accounting principle - (0.03) --------------------- --------------------- Net income per share available to common stockholders $0.19 $0.19 ===================== ===================== Weighted average number of common shares outstanding - basic 33,640,000 34,091,000 ===================== ===================== Weighted average number of common shares outstanding - basic, assuming full conversion of operating partnership units outstanding 44,796,000 45,052,000 ===================== ===================== Earnings per common share - diluted: Income before extraordinary item and cumulative effect of change in accounting principle $0.19 $0.21 Extraordinary item - - Cumulative effect of change in accounting principle - (0.02) --------------------- --------------------- Net income per share - available to common stockholders $0.19 $0.19 ===================== ===================== Weighted average number of common shares outstanding - diluted for EPS 44,796,000 45,350,000 ===================== ===================== The accompanying notes are an integral part of these financial statements. </TABLE> - 2 -
THE MACERICH COMPANY (The Company) CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) <TABLE> <CAPTION> For the three months ended March 31, ---------------------------------------------- 2001 2000 ---------------------- --------------------- <S> <C> <C> Cash flows from operating activities: Net income - available to common stockholders $6,419 $6,326 Preferred dividends 4,831 4,648 ---------------------- --------------------- ---------------------- --------------------- Net income 11,250 10,974 ---------------------- --------------------- Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary loss on early extinguishment of debt 186 - Cumulative effect of change in accounting principle - 963 Loss on sale of assets 321 2 Depreciation and amortization 16,104 14,528 Amortization of net discount (premium) on trust deed note payable 8 8 Minority interest in net income of the Operating Partnership 2,128 2,039 Changes in assets and liabilities: Tenant receivables, net 6,163 5,305 Other assets (7,021) 584 Accounts payable and accrued expenses 546 (5,889) Due to affiliates (7,240) (3,933) Other liabilities (882) 801 ---------------------- --------------------- Total adjustments 10,313 14,408 ---------------------- --------------------- Net cash provided by operating activities 21,563 25,382 ---------------------- --------------------- Cash flows from investing activities: Acquisitions of property and improvements (4,007) (586) Renovations and expansions of Centers (7,679) (5,558) Tenant allowances (2,795) (1,043) Deferred charges (2,253) (1,634) Equity in income of unconsolidated joint ventures and the Management Companies (6,055) (6,723) Distributions from joint ventures 11,136 6,931 Contributions to joint ventures (4,602) (425) ---------------------- --------------------- Net cash used in investing activities (16,255) (9,038) ---------------------- --------------------- Cash flows from financing activities: Proceeds from mortgages, notes and debentures payable 82,911 34,434 Payments on mortgages, notes and debentures payable (74,464) (32,552) Dividends and distributions (23,435) (23,277) Dividends to preferred stockholders (4,831) (4,648) ---------------------- --------------------- Net cash used in financing activities (19,819) (26,043) ---------------------- --------------------- Net decrease in cash (14,511) (9,699) Cash and cash equivalents, beginning of period 36,273 40,455 ---------------------- --------------------- Cash and cash equivalents, end of period $21,762 $30,756 ====================== ===================== Supplemental cash flow information: Cash payment for interest, net of amounts capitalized $25,643 $24,993 ====================== ===================== The accompanying notes are an integral part of these financial statements. </TABLE> - 3 -
THE MACERICH COMPANY (The Company) NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) 1. Interim Financial Statements and Basis of Presentation: The accompanying consolidated financial statements of The Macerich Company (the "Company") have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements and have not been audited by independent public accountants. The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements for the interim periods have been made. The results for interim periods are not necessarily indicative of the results to be expected for a full year. The accompanying consolidated balance sheet as of December 31, 2000 has been derived from the audited financial statements, but does not include all disclosures required by GAAP. Certain reclassifications have been made in the 2000 consolidated financial statements to conform to the 2001 financial statement presentation. In December 1999, the Securities and Exchange Committee issued Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements," ("SAB 101") which became effective for periods beginning after December 15, 1999. This bulletin modified the timing of revenue recognition for percentage rent received from tenants. This change will defer recognition of a significant amount of percentage rent for the first three calendar quarters into the fourth quarter. The Company applied this accounting change as of January 1, 2000. The cumulative effect of this change in accounting principle, at the adoption date of January 1, 2000, including the pro rata share of joint ventures, was approximately $1,750. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS 133") which requires companies to record derivatives on the balance sheet, measured at fair value. Changes in the fair values of those derivatives will be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The key criterion for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in fair value or cash flows. In June 1999, the FASB issued SFAS 137, "Accounting for Derivative Instruments and Hedging Activities," which delays the implementation of SFAS 133 from January 1, 2000 to January 1, 2001. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133," ("SFAS138"), which amends the accounting and reporting standards of SFAS 133. As a result of the adoption of SFAS 133 on January 1, 2001, the Company recorded a transition adjustment of $9,445 to accumulated other comprehensive income related to treasury rate lock transactions settled in prior years. The entire transition adjustment is reflected in the quarter ended March 31, 2001. The transition adjustment of $9,445 less amortization of $328 would be subtracted from net income to arrive at comprehensive income of $2,132. The Company expects that $1,328 will be reclassified from accumulated other comprehensive income to earnings for the year ended December 31, 2001. During the quarter ended March 31, 2001, the Company reclassified $328 from accumulated other comprehensive income to earnings. - 4 -
THE MACERICH COMPANY (The Company) NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) Earnings Per Share ("EPS"): The computation of basic earnings per share is based on net income and the weighted average number of common shares outstanding for the three months ending March 31, 2001 and 2000. The computation of diluted earnings per share includes the effect of outstanding restricted stock and common stock options calculated using the treasury method. The Operating Partnership units ("OP units") not held by the Company have been included in the diluted EPS calculation since they are redeemable on a one-for-one basis. The following table reconciles the basic and diluted earnings per share calculation: <TABLE> <CAPTION> For the Three Months Ended March 31, ------------------------------------------------------------------------------- -------------------------------------- --------------------------------------- 2001 2000 -------------------------------------- --------------------------------------- <S> <C> <C> <C> <C> <C> <C> Net Net Income Shares Per Share Income Shares Per Share -------------------------------------- --------------------------------------- (In thousands, except per share data) Net income $11,250 $10,974 Less: Preferred stock dividends 4,831 4,648 ------------- ------------- Basic EPS: Net income - available to common stockholders 6,419 33,640 $0.19 6,326 34,091 $0.19 Diluted EPS: Effect of dilutive securities: Conversion of OP units 2,128 11,156 2,039 10,961 Employee stock options and restricted stock n/a - antidilutive for EPS 458 298 Convertible preferred stock n/a - antidilutive for EPS n/a - antidilutive for EPS Convertible debentures n/a - antidilutive for EPS n/a - antidilutive for EPS -------------------------------------- --------------------------------------- Net income - available to common stockholders $8,547 44,796 $0.19 $8,823 45,350 $0.19 ====================================== ======================================= </TABLE> - 5 -
THE MACERICH COMPANY (The Company) NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) 2. Organization: The Company is involved in the acquisition, ownership, redevelopment, management and leasing of regional and community shopping centers located throughout the United States. The Company is the sole general partner of, and owns a majority of the ownership interests in, The Macerich Partnership, L.P., a Delaware limited partnership (the "Operating Partnership"). The Operating Partnership owns or has an ownership interest in 46 regional shopping centers and five community shopping centers aggregating approximately 42 million square feet of gross leasable area ("GLA"). These 51 regional and community shopping centers are referred to hereinafter as the "Centers", unless the context otherwise requires. The Company is a self-administered and self-managed real estate investment trust ("REIT") and conducts all of its operations through the Operating Partnership and the Company's three management companies, Macerich Property Management Company, LLC, a Delaware limited liability company, Macerich Manhattan Management Company, a California corporation, and Macerich Management Company, a California corporation (collectively, the "Management Companies"). The term "Management Companies" includes Macerich Property Management Company prior to the merger with Macerich Property Management Company, LLC on March 29, 2001. The Company was organized to qualify as a REIT under the Internal Revenue Code of 1986, as amended. The 21%, as of March 31, 2001, limited partnership interest of the Operating Partnership not owned by the Company is reflected in these financial statements as minority interest. 3. Investments in Unconsolidated Joint Ventures and the Management Companies: The following are the Company's investments in various joint ventures. The Operating Partnership's interest in each joint venture as of March 31, 2001 is as follows: The Operating Partnership's Joint Venture Ownership % --------------- ------------- Macerich Northwestern Associates 50% Manhattan Village, LLC 10% MerchantWired, LLC 9.5% Pacific Premier Retail Trust 51% Panorama City Associates 50% SDG Macerich Properties, L.P. 50% West Acres Development 19% As of March 28, 2001, the Operating Partnership also owned all of the non-voting preferred stock of Macerich Property Management Company and Macerich Management Company, which is generally entitled to dividends equal to 95% of the net cash flow of each company. Macerich Manhattan Management Company is a wholly owned subsidiary of Macerich Management Company. Effective March 29, 2001, Macerich Property Management Company merged with and into Macerich Property Management Company, LLC ("MPMC, LLC"). MPMC, LLC is a single-member Delaware limited liability company and is 100% owned by the Operating Partnership. The ownership structure of Macerich Management Company has remained unchanged. - 6 -
THE MACERICH COMPANY (The Company) NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) 3. Investments in Unconsolidated Joint Ventures and the Management Companies, Continued: The Company accounts for the Management Companies, exclusive of MPMC, LLC, and joint ventures using the equity method of accounting. As of March 29, 2001, the Company will consolidate the accounts of MPMC, LLC. On September 30, 2000, Manhattan Village, a 551,847 square foot regional shopping center, 10% of which was owned by the Operating Partnership, was sold. The joint venture sold the property for $89,000, including a note receivable from the buyer for $79,000 at an interest rate of 8.75% payable monthly, until the maturity date of September 30, 2001. A gain from sale of the property for $10,945 was recorded at September 30, 2000. Combined and condensed balance sheets and statements of operations are presented below for all unconsolidated joint ventures and the Management Companies, 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. <TABLE> <CAPTION> COMBINED AND CONDENSED BALANCE SHEETS OF JOINT VENTURES AND THE MANAGEMENT COMPANIES March 31, December 31, 2001 2000 ---------------- ------------------ <S> <C> <C> Assets: Properties, net $2,063,821 $2,064,777 Other assets 149,708 155,919 ---------------- ------------------ Total assets $2,213,529 $2,220,696 ---------------- ------------------ ---------------- ------------------ Liabilities and partners' capital: Mortgage notes payable $1,458,776 $1,461,857 Other liabilities 53,101 51,791 The Company's capital 272,661 273,140 Outside partners' capital 428,991 433,908 ---------------- ------------------ Total liabilities and partners' capital $2,213,529 $2,220,696 ---------------- ------------------ ---------------- ------------------ </TABLE> - 7 -
THE MACERICH COMPANY (The Company) NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) 3. Investments in Unconsolidated Joint Ventures and the Management Companies - Continued: <TABLE> <CAPTION> COMBINED STATEMENTS OF OPERATIONS OF JOINT VENTURES AND THE MANAGEMENT COMPANIES Three Months Ended March 31, 2001 ------------------------------------------------------------------------------------- SDG Pacific Macerich Premier Other Mgmt Properties, L.P. Retail Trust Joint Ventures Companies Total ----------------- ---------------- ---------------- -------------- -------------- <S> <C> <C> <C> <C> <C> Revenues: Minimum rents $22,810 $24,110 $4,965 - $51,885 Percentage rents 1,672 856 135 - 2,663 Tenant recoveries 10,883 8,591 2,245 - 21,719 Management fee - - - $3,051 3,051 Other 494 604 1,968 - 3,066 ----------------- ---------------- ---------------- -------------- -------------- Total revenues 35,859 34,161 9,313 3,051 82,384 ----------------- ---------------- ---------------- -------------- -------------- Expenses: Shopping center expenses 13,256 9,252 6,912 - 29,420 Interest expense 10,451 12,367 1,842 (33) 24,627 Management Company expense - - - 3,942 3,942 Depreciation and amortization 6,148 5,511 839 294 12,792 ----------------- ---------------- ---------------- -------------- -------------- Total operating expenses 29,855 27,130 9,593 4,203 70,781 ----------------- ---------------- ---------------- -------------- -------------- Gain (loss) on sale of assets (1) 72 260 - 331 ----------------- ---------------- ---------------- -------------- -------------- Net income (loss) $6,003 $7,103 ($20) ($1,152) $11,934 ================= ================ ================ ============== ============== </TABLE> <TABLE> <CAPTION> COMBINED STATEMENTS OF OPERATIONS OF JOINT VENTURES AND THE MANAGEMENT COMPANIES Three Months Ended March 31, 2000 ------------------------------------------------------------------------------------- SDG Pacific Macerich Premier Other Mgmt Properties, L.P. Retail Trust Joint Ventures Companies Total ----------------- ---------------- ---------------- -------------- -------------- <S> <C> <C> <C> <C> <C> Revenues: Minimum rents $21,909 $22,988 $6,387 - $51,284 Percentage rents 1,516 792 441 - 2,749 Tenant recoveries 10,188 7,765 2,262 - 20,215 Management fee - - - $3,003 3,003 Other 485 312 302 115 1,214 ----------------- ---------------- ---------------- -------------- -------------- Total revenues 34,098 31,857 9,392 3,118 78,465 ----------------- ---------------- ---------------- -------------- -------------- Expenses: Shopping center expenses 12,919 8,607 2,754 - 24,280 Interest expense 8,037 11,260 1,868 (92) 21,073 Management Company expense - - - 3,457 3,457 Depreciation and amortization 5,511 4,629 1,049 232 11,421 ----------------- ---------------- ---------------- -------------- -------------- Total operating expenses 26,467 24,496 5,671 3,597 60,231 ----------------- ---------------- ---------------- -------------- -------------- Loss on sale of assets - - - (447) (447) Cumulative effect of change in accounting principle (1,053) (397) (98) (9) (1,557) ----------------- ---------------- ---------------- -------------- -------------- Net income (loss) $6,578 $6,964 $3,623 ($935) $16,230 ================= ================ ================ ============== ============== </TABLE> - 8 -
THE MACERICH COMPANY (The Company) NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) 3. Investments in Unconsolidated Joint Ventures and the Management Companies - Continued: Significant accounting policies used by the unconsolidated joint ventures and the Management Companies are similar to those used by the Company. Included in mortgage notes payable are amounts due to affiliates of Northwestern Mutual Life ("NML") of $160,657 and $161,281 for the periods ended March 31, 2001 and December 31, 2000, respectively. NML is considered a related party because it is a joint venture partner with the Company in Macerich Northwestern Associates. Interest expense incurred on these borrowings amounted to $2,681 and $2,495 for the three months ended March 31, 2001 and 2000, respectively. - 9 -
THE MACERICH COMPANY (The Company) NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) 3. Investments in Unconsolidated Joint Ventures and the Management Companies - Continued: PRO RATA SHARE OF COMBINED AND CONDENSED STATEMENTS OF OPERATIONS OF JOINT VENTURES AND THE MANAGEMENT COMPANIES The following tables set forth the Operating Partnership's beneficial interest in the joint ventures and the Management Companies: <TABLE> <CAPTION> Three Months Ended March 31, 2001 ------------------------------------------------------------------------------------------ SDG Pacific Macerich Premier Other Mgmt Properties, L.P. Retail Trust Joint Ventures Companies Total ------------------ -------------------- ------------------ ------------- ------------ <S> <C> <C> <C> <C> <C> Revenues: Minimum rents $11,405 $12,296 $1,905 - $25,606 Percentage rents 836 437 31 - 1,304 Tenant recoveries 5,442 4,381 772 - 10,595 Management fee - - - $2,898 2,898 Other 247 308 236 - 791 ------------------ -------------------- ------------------ ------------- ------------ Total revenues 17,930 17,422 2,944 2,898 41,194 ------------------ -------------------- ------------------ ------------- ------------ Expenses: Shopping center expenses 6,628 4,719 1,390 - 12,737 Interest expense 5,226 6,307 719 (31) 12,221 Management Company expense - - - 3,745 3,745 Depreciation and amortization 3,074 2,811 357 279 6,521 ------------------ -------------------- ------------------ ------------- ------------ Total operating expenses 14,928 13,837 2,466 3,993 35,224 ------------------ -------------------- ------------------ ------------- ------------ Gain on sale of assets - 37 48 - 85 ------------------ -------------------- ------------------ ------------- ------------ Net income (loss) $3,002 $3,622 $526 ($1,095) $6,055 ================== ==================== ================== ============= ============ Three Months Ended March 31, 2000 ------------------------------------------------------------------------------------------ SDG Pacific Macerich Premier Other Mgmt Properties, L.P. Retail Trust Joint Ventures Companies Total ------------------ -------------------- ------------------ ------------- ------------ Revenues: Minimum rents $10,954 $11,724 $1,965 - $24,643 Percentage rents 759 403 111 - 1,273 Tenant recoveries 5,094 3,960 673 - 9,727 Management fee - - - $2,853 2,853 Other 242 159 70 109 580 ------------------ -------------------- ------------------ ------------- ------------ Total revenues 17,049 16,246 2,819 2,962 39,076 ------------------ -------------------- ------------------ ------------- ------------ Expenses: Shopping center expenses 6,460 4,390 906 - 11,756 Interest expense 4,018 5,743 732 (87) 10,406 Management Company expense - - - 3,285 3,285 Depreciation and amortization 2,756 2,361 358 220 5,695 ------------------ -------------------- ------------------ ------------- ------------ Total operating expenses 13,234 12,494 1,996 3,418 31,142 ------------------ -------------------- ------------------ ------------- ------------ Loss on sale of assets - - - (424) (424) Cumulative effect of change in accounting principle (527) (202) (49) (9) (787) ------------------ -------------------- ------------------ ------------- ------------ Net income (loss) $3,288 $3,550 $774 ($889) $6,723 ================== ==================== ================== ============= ============ </TABLE> - 10 -
THE MACERICH COMPANY (The Company) NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) 4. Property: Property is summarized as follows: <TABLE> <CAPTION> March 31, December 31, 2001 2000 --------------------- --------------------- <S> <C> <C> Land $397,947 $397,947 Building improvements 1,722,471 1,716,860 Tenant improvements 59,222 56,723 Equipment and furnishings 14,964 12,259 Construction in progress 48,345 44,679 --------------------- --------------------- 2,242,949 2,228,468 Less, accumulated depreciation (309,416) (294,884) --------------------- --------------------- $1,933,533 $1,933,584 --------------------- --------------------- --------------------- --------------------- </TABLE> - 11 -
THE MACERICH COMPANY (The Company) NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) 5. Mortgage Notes Payable: Mortgage notes payable at March 31, 2001 and December 31, 2000 consist of the following: <TABLE> <CAPTION> Carrying Amount of Notes --------------------------------------------------- ------------------------ ----------------------- 2001 2000 ------------------------ ----------------------- Property Pledged Related Related Interest Payment Maturity As Collateral Other Party Other Party Rate Terms Date - ------------------------- ------------ ----------- ------------ ----------- ------------ --------------- --------------- <S> <C> <C> <C> <C> <C> <C> <C> Wholly Owned Centers: Capitola Mall (b) ---- $36,470 ---- $36,587 9.25% 316 (a) 2001 Carmel Plaza $28,554 ---- $28,626 ---- 8.18% 202 (a) 2009 Chesterfield Towne Center 63,382 ---- 63,587 ---- 9.07% 548(c) 2024 Citadel 71,754 ---- 72,091 ---- 7.20% 554(a) 2008 Corte Madera, Village at 71,146 ---- 71,313 ---- 7.75% 516(a) 2009 Crossroads Mall-Boulder (d) ---- 34,358 ---- 34,476 7.08% 244(a) 2010 Fresno Fashion Fair 69,000 ---- 69,000 ---- 6.52% interest only 2008 Greeley Mall 15,090 ---- 15,328 ---- 8.50% 187(a) 2003 Green Tree Mall/ Crossroads - OK/ Salisbury (e) 117,714 ---- 117,714 ---- 7.23% interest only 2004 Holiday Village (f) ---- ---- ---- 17,000 6.75% interest only 2001 Northgate Mall (f) ---- ---- ---- 25,000 6.75% interest only 2001 Northwest Arkansas Mall 60,732 ---- 61,011 ---- 7.33% 434(a) 2009 Parklane Mall (f) ---- ---- ---- 20,000 6.75% interest only 2001 Queens Center 99,028 ---- 99,300 ---- 6.88% 633(a) 2009 Rimrock Mall 29,687 ---- 29,845 ---- 7.70% 244(a) 2003 Santa Monica Place (g) 84,756 ---- 84,939 ---- 7.70% 606(a) 2010 South Plains Mall 63,914 ---- 64,077 ---- 8.22% 454(a) 2009 South Towne Center 64,000 ---- 64,000 ---- 6.61% interest only 2008 Valley View Center 51,000 ---- 51,000 ---- 7.89% interest only 2006 Villa Marina Marketplace 58,000 ---- 58,000 ---- 7.23% interest only 2006 Vintage Faire Mall (h) 69,707 ---- 69,853 ---- 7.89% 508(a) 2010 Westside Pavilion 100,000 ---- 100,000 ---- 6.67% interest only 2008 ------------ ----------- ------------ ----------- Total - Wholly Owned Centers $1,117,464 $70,828 $1,119,684 $133,063 ------------ ----------- ------------ ----------- </TABLE> - 12 -
THE MACERICH COMPANY (The Company) NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) 5. Mortgage Notes Payable, Continued: Mortgage notes payable at March 31, 2001 and December 31, 2000 consist of the following: <TABLE> <CAPTION> Carrying Amount of Notes --------------------------------------------------- ------------------------ ----------------------- 2001 2000 ------------------------ ----------------------- Property Pledged Related Related Interest Payment Maturity As Collateral Other Party Other Party Rate Terms Date - ------------------------- ------------ ----------- ------------ ----------- ------------ --------------- --------------- <S> <C> <C> <C> <C> <C> <C> <C> Joint Venture Centers (at pro rata share): Broadway Plaza (50%) (i) ---- $35,852 ---- $36,032 6.68% 257 (a) 2008 Pacific Premier Retail Trust (51%) (i): Cascade Mall $13,108 ---- $13,261 ---- 6.50% 122 (a) 2014 Kitsap Mall/Kitsap Place (j) 31,110 ---- 31,110 ---- 8.06% 230 (a) 2010 Lakewood Mall (k) 64,770 64,770 ---- 7.20% interest only 2005 Lakewood Mall (l) 8,224 ---- 8,224 ---- 7.75% interest only 2002 Los Cerritos Center 59,982 60,174 ---- 7.13% 421(a) 2006 North Point Plaza 1,802 ---- 1,821 ---- 6.50% 16 (a) 2015 Redmond Town Center - Retail 32,020 ---- 32,176 ---- 6.50% 224 (a) 2011 Redmond Town Center - Office (m) ---- 45,366 ---- 45,500 6.77% 370 (a) 2009 Stonewood Mall (n) 39,653 39,653 ---- 7.41% 275 (a) 2010 Washington Square 59,172 ---- 59,441 ---- 6.70% 421 (a) 2009 Washington Square Too 6,261 ---- 6,318 ---- 6.50% 53 (a) 2016 SDG Macerich Properties L.P. (50%) (i) 186,289 ---- 186,607 ---- 6.55% (o) 1,120 (a) 2006 SDG Macerich Properties L.P. (50%) (i) 92,250 ---- 92,250 ---- 5.66% (o) interest only 2003 SDG Macerich Properties L.P. (50%) (i) 40,700 ---- 40,700 ---- 5.53% (o) interest only 2006 West Acres Center (19%)(i)(p) 7,569 ---- 7,600 ---- 6.52% interest only 2009 --------------- ------------- --------------- ------------- Total - Joint Venture Centers $642,910 $81,218 $644,105 $81,532 --------------- ------------- --------------- ------------- --------------- ------------- --------------- ------------- Total - All Centers $1,760,374 $152,046 $1,763,789 $214,595 =============== ============= =============== ============= </TABLE> (a) This represents the monthly payment of principal and interest. (b) On May 2, 2001, the Company refinanced the debt on Capitola Mall. The prior loan was paid in full and a new note was issued for $48,500 bearing interest at a fixed rate of 7.13% and maturing May 15, 2011. (c) This amount represents the monthly payment of principal and interest. In addition, contingent interest, as defined in the loan agreement, may be due to the extent that 35% of the amount by which the property's gross receipts (as defined in the loan agreement) exceeds a base amount specified therein. Contingent interest expense recognized by the Company was $204 and $130 for the three months ended March 31, 2001 and 2000, respectively. (d) This note was issued at a discount. The discount is being amortized over the life of the loan using the effective interest method. At March 31, 2001 and December 31, 2000 the unamortized discount was $322 and $331, respectively. - 13 -
THE MACERICH COMPANY (The Company) NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) 5. Mortgage Notes Payable, Continued: (e) This loan is cross collateralized by Green Tree Mall, Crossroads Mall-Oklahoma and the Centre at Salisbury. (f) These loans were paid off in full on March 31, 2001. (g) On October 2, 2000, the Company refinanced this loan with a 10 year fixed rate $85,000 loan bearing interest at 7.70%. The prior loan bore interest at LIBOR plus 1.75%. (h) On August 31, 2000, the Company refinanced the debt on Vintage Faire Mall. The prior loan was paid in full and a new note was issued for $70,000 bearing interest at a fixed rate of 7.89% and maturing September 1, 2010. The Company incurred a loss on early extinguishment of the prior debt in 2000 of $984. (i) Reflects the Company's pro rata share of debt. (j) In connection with the acquisition of this Center, the joint venture assumed $39,425 of debt. At acquisition, this debt was recorded at its fair value of $41,475 which included an unamortized premium of $2,050. This premium was being amortized as interest expense over the life of the loan using the effective interest method. The joint venture's monthly debt service was $349 and was calculated based on an 8.60% interest rate. On June 1, 2000, the joint venture paid off in full the prior debt and a new note was issued for $61,000 bearing interest at a fixed rate of 8.06% and maturing June 2010. The new loan is interest only until December 31, 2001. Effective January 1, 2002, monthly principal and interest of $450 will be payable through maturity. The new debt is cross-collateralized by Kitsap Mall and Kitsap Place. (k) In connection with the acquisition of this property, the joint venture assumed $127,000 of collateralized fixed rate notes (the "Notes"). The Notes bear interest at an average fixed rate of 7.20% and mature in August 2005. The Notes require the joint venture to deposit all cash flow from the property operations with a trustee to meet its obligations under the Notes. Cash in excess of the required amount, as defined, is released. Included in cash and cash equivalents is $750 of restricted cash deposited with the trustee at March 31, 2001 and at December 31, 2000. (l) On July 28, 2000, the joint venture placed a $16,125 floating rate note on the property bearing interest at LIBOR plus 2.25% and maturing July 2002. At March 31, 2001 and December 31, 2000, the total interest was 7.75% and 9.0%, respectively. (m) Concurrent with this acquisition, the joint venture placed $76,700 of debt and obtained a construction loan for an additional $16,000. Principal is drawn on the construction loan as costs are incurred. As of March 31, 2001 and December 31, 2000, $15,291 and $15,038 of principal has been drawn under the construction loan, respectively. - 14 -
THE MACERICH COMPANY (The Company) NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) 5. Mortgage Notes Payable, Continued: (n) On December 1, 2000, the joint venture refinanced the debt on Stonewood Mall. The prior loan was paid in full and a new note was issued for $77,750 bearing interest at a fixed rate of 7.41% and maturing December 11, 2010. The joint venture incurred a loss on early extinguishment of the prior debt in 2000 of $375. (o) In connection with the acquisition of these Centers, the joint venture assumed $485,000 of mortgage notes payable which are secured by the properties. At acquisition, the $300,000 fixed rate portion of this debt reflected a fair value of $322,700, which included an unamortized premium of $22,700. This premium is being amortized as interest expense over the life of the loan using the effective interest method. At March 31, 2001 and December 31, 2000, the unamortized balance of the debt premium was $15,478 and $16,113, respectively. This debt is due in May 2006 and requires monthly payments of $1,852. $184,500 of this debt is due in May 2003 and requires monthly interest payments at a variable weighted average rate (based on LIBOR) of 5.66% and 7.21% at March 31, 2001 and December 31, 2000, respectively. This variable rate debt is covered by an interest rate cap agreement which effectively prevents the interest rate from exceeding 11.53% . On April 12, 2000, the joint venture issued $138,500 of additional mortgage notes which are secured by the properties and are due in May 2006.$57,100 of this debt requires fixed monthly interest payments of $387 at a weighted average rate of 8.13% while the floating rate notes of $81,400 require monthly interest payments at a variable weighted average rate (based on LIBOR) of 5.53% and 7.08% at March 31, 2001 and December 31, 2000, respectively. This variable rate debt is covered by an interest rate cap agreement which effectively prevents the interest rate from exceeding 11.83%. (p) This debt is interest only until January 2001 at which time monthly payments of principal and interest will be due in the amount of $299. The Company periodically enters into treasury lock agreements in order to hedge its exposure to interest rate fluctuations on anticipated financings. Under these agreements, the Company pays or receives an amount equal to the difference between the treasury lock rate and the market rate on the date of settlement, based on the notional amount of the hedge. The realized gain or loss on the contracts was recorded, prior to January 1, 2001, on the balance sheet in other assets and amortized as interest expense over the period of the hedged loans. As of January 1, 2001, in accordance with SFAS 133, the gain or loss on the contracts has been reclassified to accumulated other comprehensive income on the balance sheet. As of March 31, 2001, no treasury lock agreements were outstanding. Certain mortgage loan agreements contain a prepayment penalty provision for the early extinguishment of the debt. Total interest capitalized, including the prorata share of joint ventures, during the three months ended March 31, 2001 and 2000, was $1,218 and $1,311, respectively. The fair value of mortgage notes payable for the wholly-owned Centers at March 31, 2001 and December 31, 2000 is estimated to be approximately $1,208,307 and $1,282,163, respectively, based on current interest rates for comparable loans. - 15 -
THE MACERICH COMPANY (The Company) NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) 6. Bank and Other Notes Payable: The Company has a credit facility of $150,000 with a maturity of May 2002. The interest rate on such credit facility fluctuates between 1.35% and 1.80% over LIBOR depending on leverage levels. As of March 31, 2001 and December 31, 2000,$131,000 and $59,000 of borrowings were outstanding under this line of credit at interest rates of 6.42% and 7.90%, respectively. Additionally, the Company issued $10,776 in letters of credit guaranteeing performance by the Company of certain obligations. The Company does not believe that these letters of credit will result in a liability to the Company. During January 1999, the Company entered into a bank construction loan agreement to fund $89,250 of costs related to the redevelopment of Pacific View. The loan bore interest at LIBOR plus 2.25% through 2000. In January 2001, the interest rate was reduced to LIBOR plus 1.75% and the loan matures in February 2002. Principal was drawn as construction costs were incurred. As of March 31, 2001 and December 31, 2000, $89,250 and $88,340 of principal had been drawn under the loan at interest rates of 7.63% and 8.63%, respectively. The Company has committed to replacing this loan with a $96,000 ten-year 7.16% fixed rate permanent loan. 7. Convertible Debentures: During 1997, the Company issued and sold $161,400 of convertible subordinated debentures (the "Debentures") due 2002. The Debentures, which were sold at par, bear interest at 7.25% annually (payable semi-annually) and are convertible into common stock at any time, on or after 60 days, from the date of issue at a conversion price of $31.125 per share. In November and December 2000, the Company purchased and retired $10,552 of the Debentures. The Company recorded a gain on early extinguishment of debt of $1,018 related to the transaction. The Debentures mature on December 15, 2002 and are callable by the Company after June 15, 2002 at par plus accrued interest. 8. Related-Party Transactions: The Company engaged the Management Companies to manage the operations of its properties and certain unconsolidated joint ventures. For the three months ending March 31, 2001 and 2000, management fees of $757 and $713 respectively, were paid to the Management Companies by the Company. For the three months ending March 31, 2001 and 2000, management fees of $1,772 and $2,013 respectively, were paid to the Management Companies by the joint ventures. Certain mortgage notes are held by one of the Company's joint venture partners. Interest expense in connection with these notes was $2,485 and $2,519 for the three months ended March 31, 2001 and 2000, respectively. Included in accounts payable and accrued expenses is interest payable to these partners of $262 and $512 at March 31, 2001 and December 31, 2000, respectively. - 16 -
THE MACERICH COMPANY (The Company) NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) 8. Related-Party Transactions - Continued: In 1997 and 1999 certain executive officers received loans from the Company totaling $6,500. These loans are full recourse to the executives. $6,000 of the loans were issued under the terms of the employee stock incentive plan, bear interest at 7%, are due in 2007 and 2009 and are secured by Company common stock owned by the executives. On February 9, 2000, $300 of the $6,000 of loans was forgiven with respect to three of these officers and charged to compensation expense. The $500 loan issued in 1997 is non interest bearing and is forgiven ratably over a five year term. These loans receivable are included in other assets at March 31, 2001 and December 31, 2000. Certain Company officers and affiliates have guaranteed mortgages of $21,750 at one of the Company's joint venture properties and $2,000 at Greeley Mall. 9. Commitments and Contingencies: The Company has certain properties subject to noncancellable operating ground leases. The leases expire at various times through 2070, subject in some cases to options to extend the terms of the lease. Certain leases provide for contingent rent payments based on a percentage of base rental income, as defined. Ground rent expenses, net of amounts capitalized, were $9 and $198 for the three months ended March 31, 2001 and 2000, respectively. There were no contingent rents incurred in either period. Perchloroethylene ("PCE") has been detected in soil and groundwater in the vicinity of a dry cleaning establishment at North Valley Plaza, formerly owned by a joint venture of which the Company was a 50% member. The property was sold on December 18, 1997. The California Department of Toxic Substances Control ("DTSC") advised the Company in 1995 that very low levels of Dichloroethylene ("1,2 DCE"), a degradation byproduct of PCE, had been detected in a municipal water well located 1/4 mile west of the dry cleaners, and that the dry cleaning facility may have contributed to the introduction of 1,2 DCE into the water well. According to DTSC, the maximum contaminant level ("MCL") for 1,2 DCE which is permitted in drinking water is 6 parts per billion ("ppb"). The 1,2 DCE was detected in the water well at a concentration of 1.2 ppb, which is below the MCL. The Company has retained an environmental consultant and has initiated extensive testing of the site. The joint venture agreed (between itself and the buyer) that it would be responsible for continuing to pursue the investigation and remediation of impacted soil and groundwater resulting from releases of PCE from the former dry cleaner. Approximately $4 and $18 have already been incurred by the joint venture for remediation, professional and legal fees for the periods ending March 31, 2001 and 2000, respectively. An additional $66 remains reserved by the joint venture as of March 31, 2001. The joint venture has been sharing costs with former owners of the property and intends to look to additional responsible parties for recovery. - 17 -
THE MACERICH COMPANY (The Company) NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) 9. Commitments and Contingencies, Continued: The Company acquired Fresno Fashion Fair in December 1996. Asbestos has been detected in structural fireproofing throughout much of the Center. Testing data conducted by professional environmental consulting firms indicates that the fireproofing is largely inaccessible to building occupants and is well adhered to the structural members. Additionally, airborne concentrations of asbestos were well within OSHA's permissible exposure limit ("PEL") of .1 fcc. The accounting for this acquisition includes a reserve of $3,300 to cover future removal of this asbestos, as necessary. The Company incurred $4 and $13 in remediation costs for the three months ending March 31, 2001 and 2000, respectively. An additional $2,754 remains reserved at March 31, 2001. 10. Redeemable Preferred Stock: On February 25, 1998, the Company issued 3,627,131 shares of Series A cumulative convertible redeemable preferred stock ("Series A Preferred Stock") for proceeds totaling $100,000 in a private placement. The preferred stock can be converted on a one for one basis into common stock and will pay a quarterly dividend equal to the greater of $0.46 per share, or the dividend then payable on a share of common stock. On June 17, 1998, the Company issued 5,487,471 shares of Series B cumulative convertible redeemable preferred stock ("Series B Preferred Stock") for proceeds totaling $150,000 in a private placement. The preferred stock can be converted on a one for one basis into common stock and will pay a quarterly dividend equal to the greater of $0.46 per share, or the dividend then payable on a share of common stock. No dividends will be declared or paid on any class of common or other junior stock to the extent that dividends on Series A Preferred Stock and Series B Preferred Stock have not been declared and/or paid. The holders of Series A Preferred Stock and Series B Preferred Stock have redemption rights if a change of control of the Company occurs, as defined under the respective Articles Supplementary for each series. Under such circumstances, the holders of the Series A Preferred Stock and Series B Preferred Stock are entitled to require the Company to redeem their shares, to the extent the Company has funds legally available therefor, at a price equal to 105% of their respective liquidation preference plus accrued and unpaid dividends. The Series A Preferred Stock holder also has the right to require the Company to repurchase its shares if the Company fails to be taxed as a REIT for federal tax purposes at a price equal to 115% of its liquidation preference plus accrued and unpaid dividends, to the extent funds are legally available therefor. 11. Subsequent Events: On May 11, 2001, a dividend/distribution of $0.53 per share was declared for common stockholders and OP unit holders of record on May 18, 2001. In addition, the Company declared a dividend of $0.53 on the Company's Series A Preferred Stock and a dividend of $0.53 on the Company's Series B Preferred Stock. All dividends/distributions will be payable on June 8, 2001. - 18 -
THE MACERICH COMPANY (The Company) Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion is based primarily on the consolidated balance sheet of The Macerich Company as of March 31, 2001, and also compares the activities for the three months ended March 31, 2001 to the activities for the three months ended March 31, 2000. This information should be read in conjunction with the accompanying consolidated financial statements and notes thereto. These financial statements include all adjustments, which are, in the opinion of management, necessary to reflect the fair presentation of the results for the interim periods presented, and all such adjustments are of a normal recurring nature. Forward-Looking Statements This quarterly report on Form 10-Q contains or incorporates statements that constitute forward-looking statements. Those statements appear in a number of places in this Form 10-Q and include statements regarding, among other matters, the Company's growth and acquisition opportunities, the Company's acquisition and other strategies, regulatory matters pertaining to compliance with governmental regulations and other factors affecting the Company's financial condition or results of operations. Words such as "expects," "anticipates," "intends," "projects," "predicts," "plans," "believes," "seeks," "estimates," and "should" and variations of these words and similar expressions, are used in many cases to identify these forward-looking statements. Stockholders are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company or industry to vary materially from the Company's future results, performance or achievements, or those of the industry, expressed or implied in such forward-looking statements. Such factors include, among others, general industry economic and business conditions, which will, among other things, affect demand for retail space or retail goods, availability and creditworthiness of current and prospective tenants, tenant bankruptcies, lease rates and terms, availability and cost of financing, interest rate fluctuations and operating expenses; adverse changes in the real estate markets including, among other things, competition from other companies, retail formats and technology, risks of real estate development, acquisitions and dispositions; governmental actions and initiatives; environmental and safety requirements; energy and electricity shortages ` and costs. The Company will not update any forward-looking information to reflect actual results or changes in the factors affecting the forward-looking information. - 19 -
Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued: Pacific View (formerly known as Buenaventura Mall), Crossroads Mall-Boulder and Parklane Mall are currently under redevelopment and are referred to herein as the "Redevelopment Centers." All other Centers, excluding Redevelopment Centers, are referred to herein as the "Same Centers," unless the context otherwise requires. Revenues include rents attributable to the accounting practice of straight lining of rents which requires rent to be recognized each year in an amount equal to the average rent over the term of the lease, including fixed rent increases over that period. The amount of straight lined rents, included in consolidated revenues, recognized at March 31, 2001 was $0.1 million compared to $0.2 million at March 31, 2000. Additionally, the Company recognized through equity in income of unconsolidated joint ventures, $0.4 million as its pro rata share of straight lined rents from joint ventures at March 31, 2001 compared to $0.5 million at March 31, 2000. These decreases resulted from the Company structuring the majority of its new leases using annual Consumer Price Index ("CPI") increases, which generally do not require straight lining treatment. The Company believes that using CPI increases, rather than fixed contractual rent increases, results in revenue recognition that more closely matches the cash revenue from each lease and will provide more consistent rent growth throughout the term of the leases. The bankruptcy and/or closure of an Anchor, or its sale to a less desirable retailer, could adversely affect customer traffic in a Center and thereby reduce the income generated by that Center. Furthermore, the closing of an Anchor could, under certain circumstances, allow certain other Anchors or other tenants to terminate their leases or cease operating their stores at the Center or otherwise adversely affect occupancy at the Center. Other retail stores at the Centers may also seek the protection of bankruptcy laws and/or close stores, which could result in the termination of such tenants and thus cause a reduction in cash flow generated by the Centers. In addition, the Company's success in the highly competitive real estate shopping center business depends upon many other factors, including general economic conditions, the ability of tenants to make rent payments, increases or decreases in operating expenses, occupancy levels, changes in demographics, competition from other centers and forms of retailing and the ability to renew leases or relet space upon the expiration or termination of leases. - 20 -
Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued: Results of Operations Comparison of Three Months Ended March 31, 2001 and 2000 Revenues Minimum and percentage rents increased by 3.7% to $50.5 million in 2001 from $48.7 million in 2000. Approximately $0.9 million of the increase is attributable to the Same Centers and $0.9 million of the increase relates to the Redevelopment Centers. Tenant recoveries increased to $24.8 million in 2001 from $24.6 million in 2000. Other income increased to $2.4 million in 2001 from $2.0 million in 2000. Expenses Shopping center expenses increased to $24.2 million in 2001 compared to $23.9 million in 2000. The increase is a result of increased property taxes and recoverable expenses at the Centers. Interest Expense Interest expense decreased to $28.0 million in 2001 from $28.2 million in 2000. Depreciation and Amortization Depreciation and amortization increased to $16.1 million in 2001 from $14.5 million in 2000. The increase is primarily due to greater depreciation at Pacific View Mall. Income from Unconsolidated Joint Ventures and Management Companies The income from unconsolidated joint ventures and the Management Companies was $6.1 million for 2001, compared to income of $6.7 million in 2000. The decrease is primarily due to greater interest expense from the debt restructuring at SDG Macerich Properties, L.P. Extraordinary Loss from Early Extinguishment of Debt In 2001, the Company wrote off $0.2 million of unamortized financing costs. Cumulative Effect of Change in Accounting Principle A loss of $1.0 million in 2000 is a result of implementation of SAB 101 at January 1, 2000. Net Income Available to Common Stockholders As a result of the foregoing, net income available to common stockholders increased to $6.4 million in 2001 from $6.3 million in 2000. - 21 -
Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued: Results of Operations - Continued: Comparison of Three Months Ended March 31, 2001 and 2000 - Continued: Operating Activities Cash flow from operations was $21.6 million in 2001 compared to $25.4 million in 2000. The decrease is primarily due to the factors mentioned above. Investing Activities Cash used in investing activities was $16.3 million in 2001 compared to cash utilized by investing activities of $9.0 million in 2000. This decrease is primarily due to improvements and renovations to the Centers. Financing Activities Cash flow used in financing activities was $19.8 million in 2001 compared to cash used in financing activities of $26.0 million in 2000. Funds From Operations Primarily because of the factors mentioned above, Funds from Operations - Diluted increased 1% to $38.1 million in 2001 from $37.8 million in 2000 (See "Funds From Operations"). Liquidity and Capital Resources The Company intends to meet its short term liquidity requirements through cash generated from operations and working capital reserves. The Company anticipates that revenues will continue to provide necessary funds for its operating expenses and debt service requirements, and to pay dividends to stockholders in accordance with REIT requirements. The Company anticipates that cash generated from operations, together with cash on hand, will be adequate to fund capital expenditures which will not be reimbursed by tenants, other than non-recurring capital expenditures. Capital for major expenditures or major redevelopments has been, and is expected to continue to be, obtained from equity or debt financings which include borrowings under the Company's line of credit and construction loans. However, many factors impact the Company's ability to access capital, such as its overall debt level, interest rates, interest coverage ratios and prevailing market conditions. The Company believes that it will have access to the capital necessary to expand its business in accordance with its strategies for growth and maximizing Funds from Operations and to execute its share repurchase program. The Company presently intends to obtain additional capital necessary for these purposes through a combination of debt financings, joint ventures and the sale of non-core assets. During 1998 and 1999, the Company acquired two portfolios through joint ventures and raised additional capital in 1999 from the sale of interests in two properties to one joint venture partner. The Company believes such joint venture arrangements provide an attractive alternative to other forms of financing, whether for acquisitions or other business opportunities. - 22 -
Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued: Liquidity and Capital Resources - Continued: The Company's total outstanding loan indebtedness at March 31, 2001 was $2.3 billion (including its pro rata share of joint venture debt). This equated to a debt to Total Market Capitalization (defined as total debt of the Company, including its pro rata share of joint venture debt, plus aggregate market value of outstanding shares of common stock, assuming full conversion of OP Units and preferred stock into common stock) ratio of approximately 66% at March 31, 2001. The Company's debt consists primarily of fixed-rate conventional mortgages payable secured by individual properties. The Company has filed a shelf registration statement, effective December 8, 1997, to sell securities. The shelf registration is for a total of $500 million of common stock, common stock warrants or common stock rights. During 1998, the Company sold a total of 7,920,181 shares of common stock under this shelf registration. The aggregate offering price of these transactions was approximately $212.9 million, leaving approximately $287.1 million available under the shelf registration statement. The Company has an unsecured line of credit for up to $150.0 million with a maturity of May 2002. There were $131.0 million of borrowings outstanding at March 31, 2001. At March 31, 2001, the Company had cash and cash equivalents available of $21.8 million. - 23 -
Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued: Funds From Operations The Company believes that the most significant measure of its performance is Funds from Operations ("FFO"). FFO is defined by the National Association of Real Estate Investment Trusts ("NAREIT") to be: Net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from debt restructuring, sales or write-down of assets, and cumulative effect of change in accounting principle, plus depreciation and amortization (excluding depreciation on personal property and amortization of loan and financial instrument costs) and after adjustments for unconsolidated entities. Adjustments for unconsolidated entities are calculated on the same basis. FFO does not represent cash flow from operations, as defined by GAAP, and is not necessarily indicative of cash available to fund all cash flow needs. The following reconciles net income available to common stockholders to FFO: <TABLE> <CAPTION> Three Months Ended March 31, 2001 2000 ------------------------ -------------------------- Shares Amount Shares Amount ---------- ------------ ---------- -------------- (amounts in thousands) <S> <C> <C> <C> <C> Net income - available to common stockholders $6,419 $6,326 Adjustments to reconcile net income to FFO - basic: Minority interest 2,128 2,039 Depreciation and amortization on wholly owned centers 16,104 14,528 Pro rata share of unconsolidated entities' depreciation and amortization 6,521 5,695 Loss (gain) on sale of wholly-owned assets 321 2 Loss on early extinguishment of debt 186 - Pro rata share of (gain) loss on sale of assets from unconsolidated entities (85) 424 Cumulative effect of the change in accounting principle - wholly-owned assets - 963 Cumulative effect of the change in accounting principle - pro rata joint ventures - 787 Less: Depreciation on personal property and amortization of loan costs and interest rate caps (1,220) (1,194) ------------ -------------- FFO - basic (1) 44,796 30,374 45,052 29,570 Additional adjustments to arrive at FFO - diluted: Impact of convertible preferred stock 9,115 4,831 9,115 4,648 Impact of stock options and restricted stock using the treasury method - - 298 458 Impact of convertible debentures 4,847 2,904 5,186 3,146 ---------- ------------ ---------- -------------- FFO - diluted (2) 58,758 $38,109 59,651 $37,822 ========== ============ ========== ============== </TABLE> - 24 -
Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued: Funds From Operations - Continued: 1) Calculated based upon basic net income as adjusted to reach basic FFO. Weighted average number of shares includes the weighted average number of shares of common stock outstanding for 2001 and 2000 assuming the conversion of all outstanding OP units. As of March 31, 2001, 11.2 million of OP units were outstanding. 2) The computation of FFO - diluted and diluted average number of shares outstanding includes the effect of outstanding common stock options and restricted stock using the treasury method. The convertible debentures are dilutive for the three months ending March 31, 2001 and 2000, and are included in the FFO calculation to calculate FFO - diluted. On February 25, 1998, the Company sold $100 million of its Series A Preferred Stock. On June 17, 1998, the Company sold $150 million of its Series B Preferred Stock. The preferred stock can be converted on a one for one basis for common stock. The preferred shares are assumed converted for purposes of FFO diluted per share, as they are dilutive to that calculation. Included in minimum rents were rents attributable to the accounting practice of straight-lining of rents. The amount of straight-lining of rents that impacted minimum rents was $0.1 million and $0.2 million for the three months ended March 31, 2001 and 2000, respectively. The decline in straight-lining of rents from 2000 to 2001 is due to the Company structuring its new leases using rent increases tied to the change in the CPI rather than using contractually fixed rent increases. CPI increases do not generally require straight-lining of rent treatment. Inflation In the last three years, inflation has not had a significant impact on the Company because of a relatively low inflation rate. Most of the leases at the Centers have rent adjustments periodically through the lease term. These rent increases are either in fixed increments or based on increases in the CPI. In addition, many of the leases are for terms of less than ten years, which enables the Company to replace existing leases with new leases at higher base rents if the rents of the existing leases are below the then existing market rate. Additionally, most of the leases require the tenants to pay their pro rata share of operating expenses. This reduces the Company's exposure to increases in costs and operating expenses resulting from inflation. Seasonality The shopping center industry is seasonal in nature, particularly in the fourth quarter during the holiday season when retailer occupancy and retail sales are typically at their highest levels. In addition, shopping malls achieve a substantial portion of their specialty (temporary retailer) rents during the holiday season and the majority of percentage rent is recognized in the fourth quarter. As a result of the above, plus the accounting change discussed below for percentage rent, earnings are generally highest in the fourth quarter of each year. - 25 -
Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued: New Accounting Pronouncements Issued In December 1999, the Securities and Exchange Committee issued Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB 101"), which became effective for periods beginning after December 15, 1999. This bulletin modified the timing of revenue recognition for percentage rent received from tenants. This change will defer recognition of a significant amount of percentage rent for the first three calendar quarters into the fourth quarter. The Company applied this accounting change as of January 1, 2000. The cumulative effect of this change in accounting principle at the adoption date of January 1, 2000, including the pro rata share of joint ventures, was approximately $1,750,000 at March 31, 2000. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS 133") which requires companies to record derivatives on the balance sheet, measured at fair value. Changes in the fair values of those derivatives will be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The key criterion for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in fair value or cash flows. In June 1999, the FASB issued SFAS 137, "Accounting for Derivative Instruments and Hedging Activities," which delays the implementation of SFAS 133 from January 1, 2000 to January 1, 2001. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133," ("SFAS138"), which amends the accounting and reporting standards of SFAS 133. As a result of the adoption of SFAS 133 on January 1, 2001, the Company recorded a transition adjustment of $9.4 million to accumulated other comprehensive income related to treasury rate lock transactions settled in prior years. The entire transition adjustment is reflected in the quarter ended March 31, 2001. The transition adjustment of $9.4 million less amortization of $0.3 million would be subtracted from net income to arrive at comprehensive income of $2.1 million. The Company expects that $1.3 million will be reclassified from accumulated other comprehensive income to earnings for the year ended December 31, 2001. During the quarter ended March 31, 2001, the Company reclassified $0.3 million from accumulated other comprehensive income to earnings. - 26 -
Item 3 Quantitative and Qualitative Disclosures About Market Risk The Company's primary market risk exposure is interest rate risk. The Company has managed and will continue to manage interest rate risk by (1) maintaining a conservative ratio of fixed rate, long-term debt to total debt such that variable rate exposure is kept at an acceptable level, (2) reducing interest rate exposure on certain long-term variable rate debt through the use of interest rate caps with appropriately matching maturities, (3) using treasury rate locks where appropriate to fix rates on anticipated debt transactions, and (4) taking advantage of favorable market conditions for long-term debt and/or equity. The following table sets forth information as of March 31, 2001 concerning the Company's long term debt obligations, including principal cash flows by scheduled maturity, weighted average interest rates and estimated fair value ("FV"). <TABLE> <CAPTION> For the Years Ended December 31, (dollars in thousands) 2001 2002 2003 2004 2005 Thereafter Total FV ------------- -------------- ------------ ------------ ------------ ------------- -------------- ---------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Wholly Owned Centers: Long term debt: Fixed rate $46,490 $11,857 $52,235 $129,297 $12,554 $935,859 $1,188,292 $1,208,307 Average interest rate 7.47% 7.41% 7.39% 7.41% 7.41% 7.41% 7.42% - Fixed rate - Debentures - 150,848 - - - - 150,848 150,052 Average interest rate - 7.25% - - - - 7.25% - Variable rate - 220,250 - - - - 220,250 220,250 Average interest rate - 6.91% - - - - 6.91% - ------------- -------------- ------------ ------------ ------------ ------------- -------------- ------------ Total debt - Wholly owned Centers $46,490 $382,955 $52,235 $129,297 $12,554 $935,859 $1,559,390 $1,578,609 ------------- -------------- ------------ ------------ ------------ ------------- -------------- ------------ Joint Venture Centers: (at Company's pro rata share) Fixed rate $6,812 $7,538 $8,410 $8,977 $74,468 $476,749 $582,954 $577,710 Average interest rate 6.86% 6.86% 6.86% 6.87% 6.83% 6.83% 6.85% - Variable rate - 8,224 92,250 - - 40,700 141,174 141,174 Average interest rate - 7.75% 5.66% - - 5.53% 6.30% - ------------- -------------- ------------ ------------ ------------ ------------- -------------- ------------ Total debt - Joint Ventures $6,812 $15,762 $100,660 $8,977 $74,468 $517,449 $724,128 $718,884 ------------- -------------- ------------ ------------ ------------ ------------- -------------- ------------ Total debt - All Centers $53,302 $398,717 $152,895 $138,274 $87,022 $1,453,308 $2,283,518 $2,297,493 ============= ============== ============ ============ ============ ============= ============== ============ </TABLE> On May 2, 2001, the Company refinanced the $36.5 million fixed rate debt on Capitola Mall maturing in 2001. The prior loan was paid in full and a new note was issued for $48.5 million bearing interest at a fixed rate of 7.13% and maturing May 15, 2011. The remaining debt maturing in 2001 reflects the amortization of principal on existing debt. In addition, the Company has assessed the market risk for its variable rate debt and believes that a 1% increase in interest rates would decrease future earnings and cash flows by approximately $3.6 million per year based on $361.4 million outstanding at March 31, 2001. The fair value of the Company's long term debt is estimated based on discounted cash flows at interest rates that management believes reflect the risks associated with long term debt of similar risk and duration. - 27 -
PART II Other Information Item 1 Legal Proceedings During the ordinary course of business, the Company, from time to time, is threatened with, or becomes a party to, legal actions and other proceedings. Management is of the opinion that the outcome of currently known actions and proceedings to which it is a party will not, singly or in the aggregate, have a material adverse effect on the Company. Item 2 Changes in Securities and Use of Proceeds None Item 3 Defaults Upon Senior Securities None Item 4 Submission of Matters to a Vote of Security Holders None Item 5 Other Information None Item 6 Exhibits and Reports on Form 8-K None - 28 -
Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The Macerich Company By: /s/ Thomas E. O'Hern Thomas E. O'Hern Executive Vice President and Chief Financial Officer Date: May 14, 2001 - 29 -
Exhibit Index Exhibit No. Page (a) Exhibits Number Description -------- ------------ None - 30 -