NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
The Macerich Company (the "Company") is involved in the acquisition, ownership, development, redevelopment, management and leasing of regional and community/power shopping centers (the "Centers") located throughout the United States.
The Company commenced operations effective with the completion of its initial public offering on March 16, 1994. As of
September 30, 2017
, the Company was the sole general partner of and held a
93%
ownership interest in The Macerich Partnership, L.P. (the "Operating Partnership"). The Company was organized to qualify as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code").
The property management, leasing and redevelopment of the Company's portfolio is provided by the Company's management companies, Macerich Property Management Company, LLC, a single member Delaware limited liability company, Macerich Management Company, a California corporation, Macerich Arizona Partners LLC, a single member Arizona limited liability company, Macerich Arizona Management LLC, a single member Delaware limited liability company, Macerich Partners of Colorado LLC, a single member Colorado limited liability company, MACW Mall Management, Inc., a New York corporation, and MACW Property Management, LLC, a single member New York limited liability company. All
seven
of the management companies are collectively referred to herein as the "Management Companies."
All references to the Company in this Quarterly Report on Form 10-Q include the Company, those entities owned or controlled by the Company and predecessors of the Company, unless the context indicates otherwise.
|
|
2.
|
Summary of Significant Accounting Policies:
|
Basis of Presentation:
The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States ("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 an independent registered public accounting firm.
The Company's sole significant asset is its investment in the Operating Partnership and as a result, substantially all of the Company's assets and liabilities represent the assets and liabilities of the Operating Partnership. In addition, the Operating Partnership has investments in a number of variable interest entities ("VIEs").
The Operating Partnership's VIEs included the following assets and liabilities:
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
December 31,
2016
|
Assets:
|
|
|
|
Property, net
|
$
|
300,149
|
|
|
$
|
307,582
|
|
Other assets
|
70,881
|
|
|
68,863
|
|
Total assets
|
$
|
371,030
|
|
|
$
|
376,445
|
|
Liabilities:
|
|
|
|
Mortgage notes payable
|
$
|
130,403
|
|
|
$
|
133,245
|
|
Other liabilities
|
77,272
|
|
|
75,913
|
|
Total liabilities
|
$
|
207,675
|
|
|
$
|
209,158
|
|
All intercompany accounts and transactions have been eliminated in the consolidated financial statements.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
2. Summary of Significant Accounting Policies: (Continued)
The unaudited interim consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2016
. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial statements for the interim periods have been made. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The accompanying consolidated balance sheet as of
December 31, 2016
has been derived from the audited financial statements but does not include all disclosures required by GAAP.
Recent Accounting Pronouncements:
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2014-09, “Revenue From Contracts With Customers,” which outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU 2014-09 states that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” While ASU 2014-09 specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate or equipment. ASU 2014-09 is effective for the Company beginning January 1, 2018, with early adoption permitted beginning January 1, 2017. The Company has evaluated each of its revenue streams and related accounting policies under the standard. The standard will initially apply to the Company's recognition of management companies and other revenues. This standard will not apply to the Company's recognition of tenant recoveries until January 1, 2019, when it adopts ASU 2016-02, "Leases (Topic 842)", as discussed below. Upon adoption of the standard, the Company has determined that the pattern of revenue recognition for management companies and other revenues will not change. Additionally, the Company will account for its joint venture in
Chandler Fashion Center
and
Freehold Raceway Mall
(See Note
10
—
Co-Venture Arrangement
) as a financing arrangement. As a result, the Company will replace the co-venture obligation on its consolidated balance sheet with a financing arrangement liability. The financing arrangement liability will be recorded at fair value upon adoption with any subsequent changes in fair value recognized as interest expense in its consolidated statements of operations.
In February 2016, the FASB issued ASU 2016-02, which sets out principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The standard requires that lessors expense, on an as-incurred basis, certain initial direct costs that are not incremental in negotiating a lease. Under existing standards, certain of these costs are capitalizable and therefore this new standard may result in certain of these costs being expensed as incurred after adoption. Additionally, under the standard, certain common area maintenance recoveries must be accounted for as a non-lease component. The Company will evaluate whether bifurcating common area maintenance will affect the timing or recognition of such revenues.
Under ASU 2016-02, lessees apply a dual approach, classifying leases as either finance or operating leases. A lessee is required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months, regardless of their lease classification. The Company is a lessee on ground leases at certain properties, on certain office space leases and on certain other improvements and equipment. ASU 2016-02 will impact the accounting and disclosure requirements for these leases. ASU 2016-02 is effective for the Company under a modified retrospective approach beginning January 1, 2019. The Company is evaluating the impact of the adoption of this standard on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, "Compensation-Stock Compensation (Topic 718)," which amended the accounting for share-based payments, including the income tax consequences, classification of awards and classification on the statement of cash flows. The Company's adoption of this standard on January 1, 2017 under the modified retrospective method resulted in the recognition of excess tax benefits of
$6,484
as a cumulative effect adjustment, which reduced its accumulated deficit and increased its deferred tax assets by the same amount.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
2. Summary of Significant Accounting Policies: (Continued)
Recent Accounting Pronouncements: (Continued)
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash flows (Topic 230)," which amended the accounting for the statement of cash flows by providing guidance on how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The Company's adoption of this standard on January 1, 2017 resulted in the reclassification of
$12,028
of debt extinguishment costs from operating activities to financing activities on its consolidated statement of cash flows for the
nine months ended
September 30, 2016
.
On November 17, 2016, the FASB issued ASU 2016-18, “Restricted Cash,” which requires that the statement of cash flows explain the change during a reporting period in the total of cash, cash equivalents, and amounts generally described as restricted cash and restricted cash equivalents. This standard states that transfers between cash, cash equivalents, and restricted cash are not part of the entity’s operating, investing, and financing activities. Therefore, restricted cash should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for the Company beginning January 1, 2018 with early adoption permitted. The Company does not believe that the adoption of ASU 2016-18 will have a significant impact on its consolidated statements of cash flows.
On January 5, 2017, the FASB issued ASU 2017-01, “Business Combinations,” which clarifies the definition of a business. The objective of the standard is to add further guidance that assists entities in evaluating whether a transaction will be accounted for as an acquisition of an asset or a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If so, the set of transferred assets and activities are not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs. ASU 2017-01 is effective for the Company beginning January 1, 2018 with early adoption permitted using a prospective transition method. The Company does not believe that the adoption of 2017-01 will have a significant impact on its consolidated financial statements.
In February 2017, the FASB issued ASU No. 2017-05, “Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets,” which clarifies the scope of asset derecognition and adds further guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with non-customers. The Company is required to adopt ASU 2017-05 beginning January 1, 2018 with early adoption permitted. The Company does not believe that the adoption of ASU No. 2017-05 will have a significant impact on its consolidated financial statements.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
|
|
3.
|
Earnings per Share ("EPS"):
|
The following table reconciles the numerator and denominator used in the computation of EPS for the
three and nine months ended
September 30, 2017
and
2016
(shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Numerator
|
|
|
|
|
|
|
|
Net income
|
$
|
19,228
|
|
|
$
|
13,196
|
|
|
$
|
123,089
|
|
|
$
|
514,005
|
|
Net income attributable to noncontrolling interests
|
(1,730
|
)
|
|
534
|
|
|
(9,710
|
)
|
|
(34,138
|
)
|
Net income attributable to the Company
|
17,498
|
|
|
13,730
|
|
|
113,379
|
|
|
479,867
|
|
Allocation of earnings to participating securities
|
(193
|
)
|
|
(170
|
)
|
|
(567
|
)
|
|
(586
|
)
|
Numerator for basic and diluted EPS—net income attributable to common stockholders
|
$
|
17,305
|
|
|
$
|
13,560
|
|
|
$
|
112,812
|
|
|
$
|
479,281
|
|
Denominator
|
|
|
|
|
|
|
|
Denominator for basic EPS—weighted average number of common shares outstanding
|
141,299
|
|
|
143,923
|
|
|
142,188
|
|
|
147,504
|
|
Effect of dilutive securities(1):
|
|
|
|
|
|
|
|
Share and unit-based compensation plans
|
11
|
|
|
113
|
|
|
35
|
|
|
126
|
|
Denominator for diluted EPS—weighted average number of common shares outstanding
|
141,310
|
|
|
144,036
|
|
|
142,223
|
|
|
147,630
|
|
Earnings per common share—net income attributable to common stockholders:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.12
|
|
|
$
|
0.09
|
|
|
$
|
0.79
|
|
|
$
|
3.25
|
|
Diluted
|
$
|
0.12
|
|
|
$
|
0.09
|
|
|
$
|
0.79
|
|
|
$
|
3.25
|
|
|
|
(1)
|
Diluted EPS excludes
90,619
and
138,759
convertible preferred partnership units for the
three months ended
September 30, 2017
and
2016
, respectively, and
90,619
and
138,759
convertible preferred partnership units for the
nine months ended
September 30, 2017
and
2016
, respectively, as their impact was antidilutive.
|
Diluted EPS excludes
10,324,376
and
10,666,565
Operating Partnership units ("OP Units") for the
three months ended
September 30, 2017
and
2016
, respectively, and
10,479,806
and
10,773,029
OP Units for the
nine months ended
September 30, 2017
and
2016
, respectively, as their impact was antidilutive.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
|
|
4.
|
Investments in Unconsolidated Joint Ventures:
|
The Company has made the following recent investments and dispositions in its unconsolidated joint ventures:
On
January 6, 2016
, the Company sold a
40%
ownership interest in
Arrowhead Towne Center
, a
1,197,000
square foot
regional shopping center
in
Glendale
,
Arizona
, for
$289,496
, resulting in a gain on the sale of assets of
$101,629
. The sales price was funded by a cash payment of
$129,496
and the assumption of a pro rata share of the mortgage note payable on the property of
$160,000
. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes, which included funding the Special Dividend (See Note
12
—
Stockholders' Equity
). Upon completion of the sale of the ownership interest, the Company no longer has a controlling interest in the joint venture due to the substantive participation rights of the outside partner. Accordingly, the Company accounts for its investment in
Arrowhead Towne Center
under the equity method of accounting.
On
January 14, 2016
, the Company formed a joint venture, whereby the Company sold a
49%
ownership interest in
Deptford Mall
, a
1,040,000
square foot
regional shopping center
in
Deptford
,
New Jersey
;
FlatIron Crossing
, a
1,432,000
square foot
regional shopping center
in
Broomfield
,
Colorado
; and
Twenty Ninth Street
, an
847,000
square foot
regional shopping center
in
Boulder
,
Colorado
(the "
MAC Heitman Portfolio
"), for
$771,478
, resulting in a gain on the sale of assets of
$340,734
. The sales price was funded by a cash payment of
$478,608
and the assumption of a pro rata share of the mortgage notes payable on the properties of
$292,870
. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes. Upon completion of the sale of the ownership interest, the Company no longer has a controlling interest in the joint venture due to the substantive participation rights of the outside partner. Accordingly, the Company accounts for its investment in the
MAC Heitman Portfolio
under the equity method of accounting.
On
March 1, 2016
, the Company, through a
50
/50 joint venture, acquired
Country Club Plaza
, a
1,001,000
square foot
regional shopping center
in
Kansas City
,
Missouri
, for a purchase price of
$660,000
. The Company funded its pro rata share of the purchase price of
$330,000
from borrowings under its line of credit. On
March 28, 2016
, the joint venture placed a
$320,000
loan on the property that bears interest at an effective rate of
3.88%
and matures on
April 1, 2026
. The Company used its pro rata share of the proceeds to pay down its line of credit and for general corporate purposes.
On
March 17, 2017
, the Company's joint venture in
Country Club Plaza
sold an office building for
$78,000
, resulting in a gain on sale of assets of
$4,580
. The Company's pro rata share of the gain on the sale of assets of
$2,290
was included in equity in income from joint ventures. The Company used its share of the proceeds to fund repurchases under the
2017 Stock Buyback Program
(See Note
12
—
Stockholders' Equity
).
On
September 18, 2017
, the Company's joint venture in
Fashion District Philadelphia
sold an office building for
$61,500
, resulting in a gain on sale of assets of
$13,426
. The Company's pro rata share of the gain on the sale of assets of
$6,713
was included in equity in income from joint ventures. The Company used its share of the proceeds to fund repurchases under the
2017 Stock Buyback Program
(See Note
12
—
Stockholders' Equity
).
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
4. Investments in Unconsolidated Joint Ventures: (Continued)
Combined and condensed balance sheets and statements of operations are presented below for all unconsolidated joint ventures.
Combined and Condensed Balance Sheets of Unconsolidated Joint Ventures:
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
December 31,
2016
|
Assets(1):
|
|
|
|
Property, net
|
$
|
9,058,868
|
|
|
$
|
9,176,642
|
|
Other assets
|
655,905
|
|
|
614,607
|
|
Total assets
|
$
|
9,714,773
|
|
|
$
|
9,791,249
|
|
Liabilities and partners' capital(1):
|
|
|
|
Mortgage and other notes payable(2)
|
$
|
5,311,238
|
|
|
$
|
5,224,713
|
|
Other liabilities
|
438,235
|
|
|
403,369
|
|
Company's capital
|
2,166,954
|
|
|
2,279,819
|
|
Outside partners' capital
|
1,798,346
|
|
|
1,883,348
|
|
Total liabilities and partners' capital
|
$
|
9,714,773
|
|
|
$
|
9,791,249
|
|
Investments in unconsolidated joint ventures:
|
|
|
|
Company's capital
|
$
|
2,166,954
|
|
|
$
|
2,279,819
|
|
Basis adjustment(3)
|
(566,917
|
)
|
|
(584,887
|
)
|
|
$
|
1,600,037
|
|
|
$
|
1,694,932
|
|
|
|
|
|
Assets—Investments in unconsolidated joint ventures
|
$
|
1,688,606
|
|
|
$
|
1,773,558
|
|
Liabilities—Distributions in excess of investments in unconsolidated joint ventures
|
(88,569
|
)
|
|
(78,626
|
)
|
|
$
|
1,600,037
|
|
|
$
|
1,694,932
|
|
|
|
(1)
|
These amounts include the assets of
$3,120,534
and
$3,179,255
of
Pacific Premier Retail LLC
(the "
PPR Portfolio
") as of
September 30, 2017
and
December 31, 2016
, respectively, and liabilities of
$1,878,719
and
$1,887,952
of the
PPR Portfolio
as of
September 30, 2017
and
December 31, 2016
, respectively.
|
|
|
(2)
|
Included in mortgage and other notes payable are amounts due to an affiliate of Northwestern Mutual Life ("NML") of
$484,716
and
$265,863
as of
September 30, 2017
and
December 31, 2016
, respectively. NML is considered a related party because it is a joint venture partner with the Company in Macerich Northwestern Associates—Broadway Plaza. Interest expense on these borrowings was
$4,903
and
$2,775
for the
three months ended
September 30, 2017
and
2016
, respectively, and
$12,992
and
$14,133
for the
nine months ended
September 30, 2017
and
2016
, respectively.
|
|
|
(3)
|
The Company amortizes the difference between the cost of its investments in unconsolidated joint ventures and the book value of the underlying equity into income on a straight-line basis consistent with the lives of the underlying assets. The amortization of this difference was
$4,227
and
$4,988
for the
three months ended
September 30, 2017
and
2016
, respectively, and
$12,451
and
$14,114
for the
nine months ended
September 30, 2017
and
2016
, respectively.
|
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
4. Investments in Unconsolidated Joint Ventures: (Continued)
Combined and Condensed Statements of Operations of Unconsolidated Joint Ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PPR Portfolio
|
|
|
Other
Joint
Ventures
|
|
Total
|
Three Months Ended September 30, 2017
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
Minimum rents
|
$
|
35,052
|
|
|
|
$
|
123,663
|
|
|
$
|
158,715
|
|
Percentage rents
|
903
|
|
|
|
3,953
|
|
|
4,856
|
|
Tenant recoveries
|
12,015
|
|
|
|
47,841
|
|
|
59,856
|
|
Other
|
1,713
|
|
|
|
12,329
|
|
|
14,042
|
|
Total revenues
|
49,683
|
|
|
|
187,786
|
|
|
237,469
|
|
Expenses:
|
|
|
|
|
|
|
Shopping center and operating expenses
|
10,591
|
|
|
|
60,394
|
|
|
70,985
|
|
Interest expense
|
16,890
|
|
|
|
33,214
|
|
|
50,104
|
|
Depreciation and amortization
|
25,449
|
|
|
|
62,958
|
|
|
88,407
|
|
Total operating expenses
|
52,930
|
|
|
|
156,566
|
|
|
209,496
|
|
Gain on sale or write down of assets, net
|
—
|
|
|
|
13,426
|
|
|
13,426
|
|
Net (loss) income
|
$
|
(3,247
|
)
|
|
|
$
|
44,646
|
|
|
$
|
41,399
|
|
Company's equity in net income
|
$
|
620
|
|
|
|
$
|
23,373
|
|
|
$
|
23,993
|
|
Three Months Ended September 30, 2016
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
Minimum rents
|
$
|
33,332
|
|
|
|
$
|
121,109
|
|
|
$
|
154,441
|
|
Percentage rents
|
1,117
|
|
|
|
4,228
|
|
|
5,345
|
|
Tenant recoveries
|
11,933
|
|
|
|
48,540
|
|
|
60,473
|
|
Other
|
987
|
|
|
|
11,697
|
|
|
12,684
|
|
Total revenues
|
47,369
|
|
|
|
185,574
|
|
|
232,943
|
|
Expenses:
|
|
|
|
|
|
|
Shopping center and operating expenses
|
9,897
|
|
|
|
61,335
|
|
|
71,232
|
|
Interest expense
|
16,688
|
|
|
|
32,126
|
|
|
48,814
|
|
Depreciation and amortization
|
27,091
|
|
|
|
70,030
|
|
|
97,121
|
|
Total operating expenses
|
53,676
|
|
|
|
163,491
|
|
|
217,167
|
|
Loss on sale or write down of assets, net
|
—
|
|
|
|
(343
|
)
|
|
(343
|
)
|
Net (loss) income
|
$
|
(6,307
|
)
|
|
|
$
|
21,740
|
|
|
$
|
15,433
|
|
Company's equity in net (loss) income
|
$
|
(871
|
)
|
|
|
$
|
12,132
|
|
|
$
|
11,261
|
|
|
|
|
|
|
|
|
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
4. Investments in Unconsolidated Joint Ventures: (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PPR Portfolio
|
|
|
Other
Joint
Ventures
|
|
Total
|
Nine Months Ended September 30, 2017
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
Minimum rents
|
$
|
100,633
|
|
|
|
$
|
373,931
|
|
|
$
|
474,564
|
|
Percentage rents
|
1,854
|
|
|
|
7,817
|
|
|
9,671
|
|
Tenant recoveries
|
34,827
|
|
|
|
141,875
|
|
|
176,702
|
|
Other
|
4,141
|
|
|
|
36,857
|
|
|
40,998
|
|
Total revenues
|
141,455
|
|
|
|
560,480
|
|
|
701,935
|
|
Expenses:
|
|
|
|
|
|
|
Shopping center and operating expenses
|
30,062
|
|
|
|
181,475
|
|
|
211,537
|
|
Interest expense
|
50,291
|
|
|
|
98,469
|
|
|
148,760
|
|
Depreciation and amortization
|
76,527
|
|
|
|
187,927
|
|
|
264,454
|
|
Total operating expenses
|
156,880
|
|
|
|
467,871
|
|
|
624,751
|
|
(Loss) gain on sale or write down of assets, net
|
(35
|
)
|
|
|
18,005
|
|
|
17,970
|
|
Net (loss) income
|
$
|
(15,460
|
)
|
|
|
$
|
110,614
|
|
|
$
|
95,154
|
|
Company's equity in net (loss) income
|
$
|
(1,376
|
)
|
|
|
$
|
58,148
|
|
|
$
|
56,772
|
|
Nine Months Ended September 30, 2016
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
Minimum rents
|
$
|
95,389
|
|
|
|
$
|
347,146
|
|
|
$
|
442,535
|
|
Percentage rents
|
2,219
|
|
|
|
8,605
|
|
|
10,824
|
|
Tenant recoveries
|
35,828
|
|
|
|
138,635
|
|
|
174,463
|
|
Other
|
4,514
|
|
|
|
34,801
|
|
|
39,315
|
|
Total revenues
|
137,950
|
|
|
|
529,187
|
|
|
667,137
|
|
Expenses:
|
|
|
|
|
|
|
Shopping center and operating expenses
|
28,997
|
|
|
|
173,563
|
|
|
202,560
|
|
Interest expense
|
47,957
|
|
|
|
91,130
|
|
|
139,087
|
|
Depreciation and amortization
|
81,971
|
|
|
|
187,327
|
|
|
269,298
|
|
Total operating expenses
|
158,925
|
|
|
|
452,020
|
|
|
610,945
|
|
Loss on sale or write down of assets, net
|
—
|
|
|
|
(343
|
)
|
|
(343
|
)
|
Net (loss) income
|
$
|
(20,975
|
)
|
|
|
$
|
76,824
|
|
|
$
|
55,849
|
|
Company's equity in net (loss) income
|
$
|
(3,845
|
)
|
|
|
$
|
41,382
|
|
|
$
|
37,537
|
|
Significant accounting policies used by the unconsolidated joint ventures are similar to those used by the Company.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
Property, net consists of the following:
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
December 31,
2016
|
Land
|
$
|
1,578,877
|
|
|
$
|
1,607,590
|
|
Buildings and improvements
|
6,412,728
|
|
|
6,511,741
|
|
Tenant improvements
|
613,854
|
|
|
622,878
|
|
Equipment and furnishings
|
184,379
|
|
|
177,036
|
|
Construction in progress
|
342,539
|
|
|
289,966
|
|
|
9,132,377
|
|
|
9,209,211
|
|
Less accumulated depreciation
|
(1,967,728
|
)
|
|
(1,851,901
|
)
|
|
$
|
7,164,649
|
|
|
$
|
7,357,310
|
|
Depreciation expense was
$69,343
and
$68,792
for the
three months ended
September 30, 2017
and
2016
, respectively, and
$207,663
and
$206,870
for the
nine months ended
September 30, 2017
and
2016
, respectively.
The (loss) gain on sale or write down of assets, net was
$(11,854)
and
$(19,321)
for the
three months ended
September 30, 2017
and
2016
, respectively, and
$37,234
and
$426,050
for the
nine months ended
September 30, 2017
and
2016
, respectively.
The (loss) gain on sale or write down of assets, net for the
nine months ended
September 30, 2017
includes a gain of
$59,698
on the sale of
Cascade Mall
and
Northgate Mall
(See Note
14
—
Dispositions
) offset in part by a loss of
$10,138
on the write down of an investment in non-real estate assets.
The (loss) gain on sale or write down of assets, net for the
nine months ended
September 30, 2016
includes a gain of
$101,629
on the sale of a
40%
ownership interest in Arrowhead Towne Center (See Note
4
—
Investments in Unconsolidated Joint Ventures
), a gain of
$340,734
on the sale of a
49%
ownership interest in the MAC Heitman Portfolio (See Note
4
—
Investments in Unconsolidated Joint Ventures
), a gain of
$24,894
on the sale of
Capitola Mall
(See Note
14
—
Dispositions
), a loss of
$3,066
on the sale of a former Mervyn's store (See Note
14
—
Dispositions
) and a loss of
$12,180
on an adjustment to contingent consideration (See Note 13—Acquisitions).
The (loss) gain on sale or write down of assets, net also includes impairment losses of
$12,036
on
Southridge Center
for the
three and nine months ended
September 30, 2017
,
$23,335
on
Promenade at Casa Grande
for the
three and nine months ended
September 30, 2016
and
$7,188
on
The Marketplace at Flagstaff
for the
nine months ended
September 30, 2016
. The impairment losses are due to the reduction of the estimated holding period of the properties.
The following table summarizes certain of the Company's assets that were measured on a nonrecurring basis as a result of impairment charges recorded for the
three and nine months ended
September 30, 2017
and
2016
as described above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value Measurement
|
|
Quoted Prices in Active Markets for Identical Assets
|
|
Significant Other Unobservable Inputs
|
|
Significant Unobservable Inputs
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
2017
|
|
$
|
11,500
|
|
|
$
|
—
|
|
|
$
|
11,500
|
|
|
$
|
—
|
|
2016
|
|
$
|
66,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
66,000
|
|
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
5. Property, net: (Continued)
The fair value relating to impairment assessments were based upon a discounted cash flow model that includes all cash inflows and outflows over a specific holding period, or the negotiated sales price, if applicable. Projected cash flows are comprised of contractual rental revenues and forecasted rental revenues and expenses based upon market conditions and expectations for growth. Terminal capitalization rates and discount rates utilized in these models are based on a reasonable range of current market rates for each property analyzed. Based upon these inputs, the Company determined that its valuations of properties using a discounted cash flow model are classified within Level 3 of the fair value hierarchy.
The following table sets forth quantitative information about the unobservable inputs of the Company’s Level 3 real estate recorded as of
September 30, 2016
:
|
|
|
|
|
|
Terminal capitalization rate
|
|
|
7.0% - 8.0%
|
|
Discount rate
|
|
|
8.0% - 9.5%
|
|
Market rents per square foot
|
|
|
$5.75 - $20.00
|
|
|
|
6.
|
Tenant and Other Receivables, net:
|
Included in tenant and other receivables, net is an allowance for doubtful accounts of
$2,559
and
$1,991
at
September 30, 2017
and
December 31, 2016
, respectively. Also included in tenant and other receivables, net are accrued percentage rents of
$1,866
and
$9,509
at
September 30, 2017
and
December 31, 2016
, respectively, and a deferred rent receivable due to straight-line rent adjustments of
$62,182
and
$56,761
at
September 30, 2017
and
December 31, 2016
, respectively.
On
March 17, 2014
, in connection with the sale of
Lake Square Mall
, the Company issued a note receivable for
$6,500
that bore interest at an effective rate of
6.5%
, which was collateralized by a trust deed on
Lake Square Mall
and that was to mature on
March 17, 2018
. At
September 30, 2017
and
December 31, 2016
, the note had a balance of
$6,245
and
$6,284
, respectively. On October 20, 2017, the note was repaid in full. The Company used the proceeds from the repayment for general corporate purposes.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
|
|
7.
|
Deferred Charges and Other Assets, net:
|
Deferred charges and other assets, net consist of the following:
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
December 31,
2016
|
Leasing
|
$
|
232,443
|
|
|
$
|
239,983
|
|
Intangible assets:
|
|
|
|
In-place lease values
|
112,994
|
|
|
140,437
|
|
Leasing commissions and legal costs
|
27,621
|
|
|
32,384
|
|
Above-market leases
|
171,156
|
|
|
181,851
|
|
Deferred tax assets
|
44,964
|
|
|
38,301
|
|
Deferred compensation plan assets
|
49,430
|
|
|
42,711
|
|
Other assets
|
59,358
|
|
|
72,206
|
|
|
697,966
|
|
|
747,873
|
|
Less accumulated amortization(1)
|
(258,471
|
)
|
|
(269,815
|
)
|
|
$
|
439,495
|
|
|
$
|
478,058
|
|
|
|
(1)
|
Accumulated amortization includes
$75,818
and
$88,785
relating to in-place lease values, leasing commissions and legal costs at
September 30, 2017
and
December 31, 2016
, respectively. Amortization expense of in-place lease values, leasing commissions and legal costs was
$4,206
and
$8,983
for the
three months ended
September 30, 2017
and
2016
, respectively, and
$15,755
and
$26,033
for the
nine months ended
September 30, 2017
and
2016
, respectively.
|
The allocated values of above-market leases and below-market leases consist of the following:
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
December 31,
2016
|
Above-Market Leases
|
|
|
|
Original allocated value
|
$
|
171,156
|
|
|
$
|
181,851
|
|
Less accumulated amortization
|
(61,000
|
)
|
|
(57,505
|
)
|
|
$
|
110,156
|
|
|
$
|
124,346
|
|
Below-Market Leases(1)
|
|
|
|
Original allocated value
|
$
|
128,750
|
|
|
$
|
144,713
|
|
Less accumulated amortization
|
(57,314
|
)
|
|
(58,400
|
)
|
|
$
|
71,436
|
|
|
$
|
86,313
|
|
|
|
(1)
|
Below-market leases are included in other accrued liabilities.
|
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
|
|
8.
|
Mortgage Notes Payable:
|
Mortgage notes payable at
September 30, 2017
and
December 31, 2016
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount of Mortgage Notes(1)
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
|
|
|
|
|
Property Pledged as Collateral
|
|
Related Party
|
|
Other
|
|
Related Party
|
|
Other
|
|
Effective Interest
Rate(2)
|
|
Monthly
Debt
Service(3)
|
|
Maturity
Date(4)
|
Chandler Fashion Center(5)
|
|
$
|
—
|
|
|
$
|
199,885
|
|
|
$
|
—
|
|
|
$
|
199,833
|
|
|
3.77
|
%
|
|
$
|
625
|
|
|
2019
|
|
Danbury Fair Mall
|
|
105,448
|
|
|
105,448
|
|
|
107,929
|
|
|
107,928
|
|
|
5.53
|
%
|
|
1,538
|
|
|
2020
|
|
Fashion Outlets of Chicago(6)
|
|
—
|
|
|
199,218
|
|
|
—
|
|
|
198,966
|
|
|
2.90
|
%
|
|
457
|
|
|
2020
|
|
Fashion Outlets of Niagara Falls USA
|
|
—
|
|
|
113,534
|
|
|
—
|
|
|
115,762
|
|
|
4.89
|
%
|
|
727
|
|
|
2020
|
|
Freehold Raceway Mall(5)(7)
|
|
—
|
|
|
217,379
|
|
|
—
|
|
|
220,643
|
|
|
4.20
|
%
|
|
1,132
|
|
|
2018
|
|
Fresno Fashion Fair
|
|
—
|
|
|
323,208
|
|
|
—
|
|
|
323,062
|
|
|
3.67
|
%
|
|
971
|
|
|
2026
|
|
Green Acres Commons(8)
|
|
—
|
|
|
107,446
|
|
|
—
|
|
|
—
|
|
|
3.96
|
%
|
|
312
|
|
|
2021
|
|
Green Acres Mall
|
|
—
|
|
|
293,004
|
|
|
—
|
|
|
297,798
|
|
|
3.61
|
%
|
|
1,447
|
|
|
2021
|
|
Kings Plaza Shopping Center
|
|
—
|
|
|
449,709
|
|
|
—
|
|
|
456,958
|
|
|
3.67
|
%
|
|
2,229
|
|
|
2019
|
|
Northgate Mall(9)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
63,434
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Oaks, The
|
|
—
|
|
|
197,875
|
|
|
—
|
|
|
201,235
|
|
|
4.14
|
%
|
|
1,064
|
|
|
2022
|
|
Pacific View
|
|
—
|
|
|
125,136
|
|
|
—
|
|
|
127,311
|
|
|
4.08
|
%
|
|
668
|
|
|
2022
|
|
Queens Center
|
|
—
|
|
|
600,000
|
|
|
—
|
|
|
600,000
|
|
|
3.49
|
%
|
|
1,744
|
|
|
2025
|
|
Santa Monica Place(10)
|
|
—
|
|
|
215,508
|
|
|
—
|
|
|
219,564
|
|
|
2.99
|
%
|
|
1,004
|
|
|
2018
|
|
SanTan Village Regional Center
|
|
—
|
|
|
125,470
|
|
|
—
|
|
|
127,724
|
|
|
3.14
|
%
|
|
589
|
|
|
2019
|
|
Stonewood Center(11)
|
|
—
|
|
|
94,994
|
|
|
—
|
|
|
99,520
|
|
|
1.80
|
%
|
|
640
|
|
|
2017
|
|
Towne Mall
|
|
—
|
|
|
21,266
|
|
|
—
|
|
|
21,570
|
|
|
4.48
|
%
|
|
117
|
|
|
2022
|
|
Tucson La Encantada
|
|
67,362
|
|
|
—
|
|
|
68,513
|
|
|
—
|
|
|
4.23
|
%
|
|
368
|
|
|
2022
|
|
Victor Valley, Mall of
|
|
—
|
|
|
114,602
|
|
|
—
|
|
|
114,559
|
|
|
4.00
|
%
|
|
380
|
|
|
2024
|
|
Vintage Faire Mall
|
|
—
|
|
|
265,195
|
|
|
—
|
|
|
269,228
|
|
|
3.55
|
%
|
|
1,256
|
|
|
2026
|
|
Westside Pavilion
|
|
—
|
|
|
141,987
|
|
|
—
|
|
|
143,881
|
|
|
4.49
|
%
|
|
783
|
|
|
2022
|
|
|
|
$
|
172,810
|
|
|
$
|
3,910,864
|
|
|
$
|
176,442
|
|
|
$
|
3,908,976
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The mortgage notes payable balances include the unamortized debt premiums (discounts). Debt premiums (discounts) represent the excess (deficiency) of the fair value of debt over (under) the principal value of debt assumed in various acquisitions and are amortized into interest expense over the remaining term of the related debt in a manner that approximates the effective interest method. Debt premiums (discounts) consist of the following:
|
|
|
|
|
|
|
|
|
|
Property Pledged as Collateral
|
September 30,
2017
|
|
December 31,
2016
|
Fashion Outlets of Niagara Falls USA
|
$
|
2,862
|
|
|
$
|
3,558
|
|
Stonewood Center
|
246
|
|
|
2,349
|
|
|
$
|
3,108
|
|
|
$
|
5,907
|
|
The mortgage notes payable balances also include unamortized deferred finance costs that are amortized into interest expense over the remaining term of the related debt in a manner that approximates the effective interest method. Unamortized deferred finance costs were
$12,810
and
$12,716
at
September 30, 2017
and
December 31, 2016
, respectively.
|
|
(2)
|
The interest rate disclosed represents the effective interest rate, including the debt premiums (discounts) and deferred finance costs.
|
|
|
(3)
|
The monthly debt service represents the payment of principal and interest.
|
|
|
(4)
|
The maturity date assumes that all extension options are fully exercised and that the Company does not opt to refinance the debt prior to these dates. These extension options are at the Company's discretion, subject to certain conditions, which the Company believes will be met.
|
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
8. Mortgage Notes Payable: (Continued)
|
|
(5)
|
A
49.9%
interest in the loan has been assumed by a third party in connection with a co-venture arrangement (See Note
10
—
Co-Venture Arrangement
).
|
|
|
(6)
|
The loan bears interest at LIBOR plus
1.50%
and matures on
March 31, 2020
. At
September 30, 2017
and
December 31, 2016
, the total interest rate was
2.90%
and
2.43%
, respectively.
|
|
|
(7)
|
On
October 19, 2017
, the joint venture replaced the existing loan on the property with a new
$400,000
loan that bears interest at
3.90%
and matures on
November 1, 2029
(See Note
19
—
Subsequent Events
).
|
|
|
(8)
|
On
September 29, 2017
, the Company placed a new
$110,000
loan on the property that bears interest at LIBOR plus
2.15%
and matures on
March 29, 2021
. The loan can be expanded, depending on certain conditions, up to
$130,000
. At
September 30, 2017
, the total interest rate was
3.96%
.
|
|
|
(9)
|
On
January 18, 2017
, the loan was paid off in connection with the sale of the underlying property (See Note
14
—
Dispositions
).
|
|
|
(10)
|
On
October 13, 2017
, the Company entered into a loan commitment with a lender to replace the existing loan on the property with a new
$300,000
five
-year floating rate loan. The new loan is expected to close in the fourth quarter of 2017. The Company expects to use the excess proceeds to pay down its line of credit (See Note
19
—
Subsequent Events
).
|
|
|
(11)
|
On
November 1, 2017
, the Company paid off the loan on the property (See Note
19
—
Subsequent Events
).
|
Most of the mortgage loan agreements contain a prepayment penalty provision for the early extinguishment of the debt.
The Company's mortgage notes payable are secured by the properties on which they are placed and are non-recourse to the Company.
The Company expects that all loan maturities during the next twelve months will be refinanced, restructured, extended and/or paid-off from the Company's line of credit or with cash on hand.
Total interest expense capitalized was
$3,428
and
$2,707
for the
three months ended
September 30, 2017
and
2016
, respectively, and
$9,405
and
$7,572
for the
nine months ended
September 30, 2017
and
2016
, respectively.
Related party mortgage notes payable are amounts due to an affiliate of NML. See Note
16
—
Related Party Transactions
for interest expense associated with loans from NML.
The estimated fair value (Level 2 measurement) of mortgage notes payable at
September 30, 2017
and
December 31, 2016
was
$4,112,364
and
$4,126,819
, respectively, based on current interest rates for comparable loans. Fair value was determined using a present value model and an interest rate that included a credit value adjustment based on the estimated value of the property that serves as collateral for the underlying debt.
|
|
9.
|
Bank and Other Notes Payable:
|
Bank and other notes payable consist of the following:
Line of Credit:
The Company has a
$1,500,000
revolving line of credit that bears interest at
LIBOR
plus a spread of
1.30%
to
1.90%
, depending on the Company's overall leverage level, and matures on
July 6, 2020
with a
one
-year extension option. The line of credit can be expanded, depending on certain conditions, up to a total facility of
$2,000,000
.
Based on the Company's leverage level as of
September 30, 2017
, the borrowing rate on the facility was
LIBOR
plus
1.45%
. As of
September 30, 2017
and
December 31, 2016
, borrowings under the line of credit, were
$970,000
and
$885,000
, respectively, less unamortized deferred finance costs of
$8,176
and
$10,039
, respectively, at a total interest rate of
3.01%
and
2.40%
, respectively. The estimated fair value (Level 2 measurement) of the line of credit at
September 30, 2017
and
December 31, 2016
was
$960,233
and
$865,921
, respectively, based on a present value model using a credit interest rate spread offered to the Company for comparable debt.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
9. Bank and Other Notes Payable: (Continued)
Prasada Note:
On March 29, 2013, the Company issued a
$13,330
note payable that bears interest at
5.25%
and matures on May 30, 2021. The note payable is collateralized by a portion of a development reimbursement agreement with the City of Surprise, Arizona. At
September 30, 2017
and
December 31, 2016
, the note had a balance of
$4,933
and
$5,521
, respectively. The estimated fair value (Level 2 measurement) of the note at
September 30, 2017
and
December 31, 2016
was
$5,067
and
$5,786
, respectively, based on current interest rates for comparable notes. Fair value was determined using a present value model and an interest rate that included a credit value adjustment based on the estimated value of the collateral for the underlying debt.
As of
September 30, 2017
and
December 31, 2016
, the Company was in compliance with all applicable financial loan covenants.
|
|
10.
|
Co-Venture Arrangement:
|
On
September 30, 2009
, the Company formed a joint venture, whereby a third party acquired a
49.9%
interest in
Freehold Raceway Mall
, a
1,671,000
square foot
regional shopping center
in
Freehold
,
New Jersey
, and
Chandler Fashion Center
, a
1,318,000
square foot
regional shopping center
in
Chandler
,
Arizona
.
As a result of the Company having certain rights under the agreement to repurchase the assets after the seventh year of the venture formation, the transaction did not qualify for sale treatment. The Company, however, is not obligated to repurchase the assets. The transaction has been accounted for as a profit-sharing arrangement, and accordingly the assets, liabilities and operations of the properties remain on the books of the Company and a co-venture obligation was established for the amount of
$168,154
, representing the net cash proceeds received from the third party. The co-venture obligation is increased for the allocation of income to the co-venture partner and decreased for distributions to the co-venture partner. The co-venture obligation was
$59,118
and
$58,973
at
September 30, 2017
and
December 31, 2016
, respectively.
11
. Noncontrolling Interests:
The Company allocates net income of the Operating Partnership based on the weighted average ownership interest during the period. The net income of the Operating Partnership that is not attributable to the Company is reflected in the consolidated statements of operations as noncontrolling interests. The Company adjusts the noncontrolling interests in the Operating Partnership at the end of each period to reflect its ownership interest in the Company. The Company had a
93%
ownership interest in the Operating Partnership as of
September 30, 2017
and
December 31, 2016
. The remaining
7%
limited partnership interest as of
September 30, 2017
and
December 31, 2016
was owned by certain of the Company's executive officers and directors, certain of their affiliates and other third party investors in the form of OP Units. The OP Units may be redeemed for shares of stock or cash, at the Company's option. The redemption value for each OP Unit as of any balance sheet date is the amount equal to the average of the closing price per share of the Company's common stock, par value
$0.01
per share, as reported on the New York Stock Exchange for the
10
trading days ending on the respective balance sheet date. Accordingly, as of
September 30, 2017
and
December 31, 2016
, the aggregate redemption value of the then-outstanding OP Units not owned by the Company was
$555,597
and
$733,141
, respectively.
The Company issued common and preferred units of MACWH, LP in April 2005 in connection with the acquisition of the Wilmorite portfolio. The common and preferred units of MACWH, LP are redeemable at the election of the holder. The Company may redeem them for cash or shares of the Company's stock at the Company's option and they are classified as permanent equity.
Included in permanent equity are outside ownership interests in various consolidated joint ventures. The joint ventures do not have rights that require the Company to redeem the ownership interests in either cash or stock.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
|
|
12.
|
Stockholders' Equity:
|
2015 Stock Buyback Program:
On
September 30, 2015
, the Company's Board of Directors authorized the repurchase of up to
$1,200,000
of the Company's outstanding common shares over the period ending
September 30, 2017
, as market conditions warranted.
On
November 12, 2015
, the Company entered into an accelerated share repurchase program ("ASR") to repurchase
$400,000
of the Company's common stock. In accordance with the ASR, the Company made a prepayment of
$400,000
and received an initial share delivery of
4,140,788
shares. On
January 19, 2016
, the ASR was completed and the Company received delivery of an additional
970,609
shares. The average price of the
5,111,397
shares repurchased under the ASR was
$78.26
per share. The ASR was funded from proceeds in connection with the financing and sale of a
40%
ownership interest in the
PPR Portfolio
.
On
February 17, 2016
, the Company entered into an ASR to repurchase an additional
$400,000
of the Company's common stock. In accordance with the ASR, the Company made a prepayment of
$400,000
and received an initial share delivery of
4,222,193
shares. On
April 19, 2016
, the ASR was completed and the Company received delivery of an additional
861,235
shares. The average price of the
5,083,428
shares repurchased under the ASR was
$78.69
per share. The ASR was funded from borrowings under the Company's line of credit, which had been paid down from the proceeds from the financings and sale of ownership interests in
Arrowhead Towne Center
and the
MAC Heitman Portfolio
(See Note
4
—
Investments in Unconsolidated Joint Ventures
).
On
May 9, 2016
, the Company entered into an ASR to repurchase the remaining
$400,000
of the Company's common stock authorized for repurchase. In accordance with the ASR, the Company made a prepayment of
$400,000
and received an initial share delivery of
3,964,812
shares. On
July 11, 2016
, the ASR was completed and the Company received delivery of an additional
1,104,162
shares. The average price of the
5,068,974
shares repurchased under the ASR was
$78.91
per share. The ASR was funded from borrowings under the Company's line of credit, which had been paid down from the proceeds from the financings and sale of ownership interests in
Arrowhead Towne Center
and the
MAC Heitman Portfolio
(See Note
4
—
Investments in Unconsolidated Joint Ventures
).
2017 Stock Buyback Program:
On
February 12, 2017
, the Company's Board of Directors authorized the repurchase of up to
$500,000
of its outstanding common shares as market conditions and the Company’s liquidity warrant. Repurchases may be made through open market purchases, privately negotiated transactions, structured or derivative transactions, including ASR transactions, or other methods of acquiring shares and pursuant to Rule 10b5-1 of the Securities Act of 1934, from time to time as permitted by securities laws and other legal requirements.
During the period from
February 12, 2017
to
September 30, 2017
, the Company repurchased a total of
3,627,390
of its common shares for
$221,428
, representing an average price of
$61.01
per share. The Company funded the repurchases from the net proceeds of the sale of
Cascade Mall
and
Northgate Mall
(See Note
14
—
Dispositions
), its share of the proceeds from the sale of office buildings at
Fashion District Philadelphia
and
Country Club Plaza
(See Note
4
—
Investments in Unconsolidated Joint Ventures
) and from borrowings under its line of credit.
Special Dividends:
On October 30, 2015, the Company declared
two
special dividends/distributions ("Special Dividend"), each of
$2.00
per share of common stock and per OP Unit. The first Special Dividend was paid on December 8, 2015 to common stockholders and OP Unit holders of record on November 12, 2015. The second Special Dividend was paid on January 6, 2016 to common stockholders and OP Unit holders of record on November 12, 2015. The Special Dividends were funded from proceeds in connection with the financing and sale of ownership interests in the
PPR Portfolio
and
Arrowhead Towne Center
(See Note
4
—
Investments in Unconsolidated Joint Ventures
).
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
12. Stockholders' Equity: (Continued)
At-The-Market Stock Offering Program ("ATM Program"):
On August 20, 2014, the Company entered into an equity distribution agreement with a number of sales agents (the "ATM Program") to issue and sell, from time to time, shares of common stock, par value
$0.01
per share, having an aggregate offering price of up to
$500,000
(the “ATM Shares”). Sales of the ATM Shares could have been made in privately negotiated transactions and/or any other method permitted by law, including sales deemed to be an “at the market” offering, which included sales made directly on the New York Stock Exchange or sales made to or through a market maker other than on an exchange. The Company agreed to pay each sales agent a commission that was not to exceed, but could have been lower than,
2%
of the gross proceeds of the ATM Shares sold through such sales agent under the distribution agreement. The ATM program expired by its term in August 2017. No shares were sold under the program.
Fashion Outlets of Chicago
:
On
October 31, 2014
, the Company purchased the outside ownership interest in its consolidated joint venture in
Fashion Outlets of Chicago
for
$69,987
. The purchase price was funded by a cash payment of
$55,867
and the settlement of the balance on notes receivables of
$14,120
. The purchase agreement included contingent consideration based on the financial performance of
Fashion Outlets of Chicago
at an agreed upon date in 2016. On
August 19, 2016
, the Company paid
$23,800
in full settlement of the contingent consideration obligation.
The following are recent dispositions of properties:
On
April 13, 2016
, the Company sold
Capitola Mall
, a
586,000
square foot
regional shopping center
in
Capitola
,
California
, for
$93,000
, resulting in a gain on the sale of assets of
$24,894
. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On
May 31, 2016
, the Company sold a
former Mervyn's store
in
Yuma
,
Arizona
, for
$3,200
, resulting in a loss on the sale of assets of
$3,066
. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On
July 15, 2016
, the Company conveyed
Flagstaff Mall
, a
347,000
square foot
regional shopping center
in
Flagstaff
,
Arizona
, to the mortgage lender by a deed-in-lieu of foreclosure and was discharged from the mortgage note payable. The loan was non-recourse to the Company. As a result, the Company recognized a gain on the extinguishment of debt of
$5,284
.
On
January 18, 2017
, the Company sold
Cascade Mall
, a
589,000
square foot
regional shopping center
in
Burlington
,
Washington
; and
Northgate Mall
, a
750,000
square foot
regional shopping center
in
San Rafael
,
California
, in a combined transaction for
$170,000
, resulting in a gain on the sale of assets of
$59,698
. The proceeds were used to pay off the mortgage note payable on
Northgate Mall
and to repurchase shares of the Company's common stock under the
2017 Stock Buyback Program
(See Note
12
—
Stockholders' Equity
).
|
|
15.
|
Commitments and Contingencies:
|
The Company has certain properties that are subject to non-cancelable operating ground leases. The leases expire at various times through 2098, 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 in the lease. Ground lease rent expense was
$2,589
and
$2,395
for the
three months ended
September 30, 2017
and
2016
, respectively, and
$7,757
and
$7,312
for the
nine months ended
September 30, 2017
and
2016
, respectively.
No
contingent rent was incurred during the
three and nine months ended
September 30, 2017
or
2016
.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
15. Commitments and Contingencies: (Continued)
As of
September 30, 2017
, the Company was contingently liable for
$60,927
in letters of credit guaranteeing performance by the Company of certain obligations relating to the Centers. The Company does not believe that these letters of credit will result in a liability to the Company.
The Company has entered into a number of construction agreements related to its redevelopment and development activities. Obligations under these agreements are contingent upon the completion of the services within the guidelines specified in the agreements. At
September 30, 2017
, the Company had
$62,609
in outstanding obligations which it believes will be settled in the next twelve months.
|
|
16.
|
Related Party Transactions:
|
Certain unconsolidated joint ventures have engaged the Management Companies to manage the operations of the Centers. Under these arrangements, the Management Companies are reimbursed for compensation paid to on-site employees, leasing agents and project managers at the Centers, as well as insurance costs and other administrative expenses.
The following are fees charged to unconsolidated joint ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Management fees
|
$
|
4,749
|
|
|
$
|
4,271
|
|
|
$
|
13,914
|
|
|
$
|
13,240
|
|
Development and leasing fees
|
3,385
|
|
|
2,952
|
|
|
11,376
|
|
|
10,149
|
|
|
$
|
8,134
|
|
|
$
|
7,223
|
|
|
$
|
25,290
|
|
|
$
|
23,389
|
|
Certain mortgage notes on the properties are held by NML (See Note
8
—
Mortgage Notes Payable
). Interest expense in connection with these notes was
$2,175
and
$2,224
for the
three months ended
September 30, 2017
and
2016
, respectively, and
$6,567
and
$6,752
for the
nine months ended
September 30, 2017
and
2016
, respectively. Included in accounts payable and accrued expenses is interest payable on these notes of
$721
and
$736
at
September 30, 2017
and
December 31, 2016
, respectively.
Due from (to) affiliates includes unreimbursed and/or prepaid costs and fees from unconsolidated joint ventures due to (from) the Management Companies. As of
September 30, 2017
and
December 31, 2016
, the amounts due from (to) the unconsolidated joint ventures was
$4,905
and
$(6,809)
, respectively.
In addition, due from affiliates at
September 30, 2017
and
December 31, 2016
included a note receivable from RED/303 LLC ("RED") that bears interest at
5.25%
and matures on May 30, 2021. Interest income earned on this note was
$66
and
$81
for the
three months ended
September 30, 2017
and
2016
, respectively, and
$204
and
$294
for the
nine months ended
September 30, 2017
and
2016
, respectively. The balance on this note was
$4,998
and
$5,593
at
September 30, 2017
and
December 31, 2016
, respectively. RED is considered a related party because it is a partner in a joint venture development project. The note is collateralized by RED's membership interest in the development project.
Also included in due from affiliates is a note receivable from
Lennar Corporation
that bears interest at LIBOR plus
2%
and matures upon the completion of certain milestones in connection with the development of
Fashion Outlets of San Francisco
. Interest income earned on this note was
$621
and
$583
for the
three months ended
September 30, 2017
and
2016
, respectively, and
$1,839
and
$1,629
for the
nine months ended
September 30, 2017
and
2016
, respectively. The balance on this note was
$71,281
and
$69,443
at
September 30, 2017
and
December 31, 2016
, respectively.
Lennar Corporation
is considered a related party because it is a joint venture partner in
Fashion Outlets of San Francisco
.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
|
|
17.
|
Share and Unit-Based Plans:
|
Under the Long-Term Incentive Plan ("LTIP"), each award recipient is issued a form of units ("LTIP Units") in the Operating Partnership. Upon the occurrence of specified events and subject to the satisfaction of applicable vesting conditions, LTIP Units (after conversion into OP Units) are ultimately redeemable for common stock of the Company, or cash at the Company's option, on a
one
-unit for
one
-share basis. LTIP Units receive cash dividends based on the dividend amount paid on the common stock of the Company. The LTIP may include both market-indexed awards and service-based awards.
The market-indexed LTIP Units vest over the service period of the award based on the percentile ranking of the Company in terms of total return to the stockholders (the "Total Return") per common stock share relative to the Total Return of a group of peer REITs, as measured at the end of the measurement period.
On
January 1, 2017
, the Company granted
66,079
LTIP Units with a grant date fair value of
$70.84
per LTIP Unit that will vest in equal annual installments over a service period ending
December 31, 2019
. Concurrently, the Company granted
297,849
market-indexed
LTIP Units ("2017 LTIP Units") at a grant date fair value of
$47.15
per LTIP Unit that vest over a service period ending
December 31, 2019
. The fair value of the 2017 LTIP Units was estimated on the date of grant using a Monte Carlo Simulation model that assumed a risk free interest rate of
1.49%
and an expected volatility of
20.75%
.
On
March 3, 2017
, the Company granted
134,742
LTIP Units at a fair value of
$66.57
per LTIP Unit that were fully vested on the grant date.
On
May 30, 2017
, the Company granted
25,000
non-qualified stock options with a grant date fair value of
$10.02
that will vest on
May 30, 2019
. The Company measured the value of each option awarded using the Black-Scholes Option Pricing Model based upon the following assumptions: volatility of
30.19%
, dividend yield of
4.93%
, risk free rate of
2.08%
, current value of
$57.55
and an expected term of
8 years
.
On
June 1, 2017
, the Company granted
1,522
LTIP Units with a grant date fair value of
$58.31
per LTIP Unit that will vest in equal annual installments over a service period ending
May 29, 2020
. Concurrently, the Company granted
6,714
market-indexed LTIP Units at a grant date fair value of
$39.66
per LTIP Unit that vest over a service period ending
May 29, 2020
. The fair value of the market-indexed LTIP Units was estimated on the date of grant using a Monte Carlo Simulation model that assumed a risk free interest rate of
1.45%
and an expected volatility of
21.40%
.
The following summarizes the compensation cost under the share and unit-based plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
LTIP Units
|
$
|
5,269
|
|
|
$
|
5,204
|
|
|
$
|
24,892
|
|
|
$
|
27,752
|
|
Stock awards
|
—
|
|
|
—
|
|
|
—
|
|
|
20
|
|
Stock units
|
1,002
|
|
|
965
|
|
|
4,947
|
|
|
5,339
|
|
Stock options
|
34
|
|
|
4
|
|
|
53
|
|
|
12
|
|
Phantom stock units
|
185
|
|
|
212
|
|
|
545
|
|
|
1,010
|
|
|
$
|
6,490
|
|
|
$
|
6,385
|
|
|
$
|
30,437
|
|
|
$
|
34,133
|
|
The Company capitalized share and unit-based compensation costs of
$983
and
$750
for the
three months ended
September 30, 2017
and
2016
, respectively, and
$5,278
and
$6,490
for the
nine months ended
September 30, 2017
and
2016
, respectively. Unrecognized compensation costs of share and unit-based plans at
September 30, 2017
consisted of
$5,554
from LTIP Units,
$4,338
from stock units,
$208
from stock options and
$466
from phantom stock units.
The following table summarizes the activity of the non-vested LTIP Units, phantom stock units and stock units:
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
17. Share and Unit-Based Plans: (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTIP Units
|
|
Phantom Stock Units
|
|
Stock Units
|
|
Units
|
|
Value(1)
|
|
Units
|
|
Value(1)
|
|
Units
|
|
Value(1)
|
Balance at January 1, 2017
|
322,572
|
|
|
$
|
58.18
|
|
|
5,845
|
|
|
$
|
81.47
|
|
|
148,428
|
|
|
$
|
78.53
|
|
Granted
|
506,906
|
|
|
55.33
|
|
|
8,439
|
|
|
68.34
|
|
|
86,426
|
|
|
66.47
|
|
Vested
|
(134,742
|
)
|
|
66.57
|
|
|
(8,166
|
)
|
|
71.85
|
|
|
(80,804
|
)
|
|
75.67
|
|
Forfeited
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,695
|
)
|
|
69.57
|
|
Balance at September 30, 2017
|
694,736
|
|
|
$
|
54.48
|
|
|
6,118
|
|
|
$
|
76.20
|
|
|
151,355
|
|
|
$
|
73.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Value represents the weighted average grant date fair value.
|
The following table summarizes the activity of the stock appreciations rights ("SARs") and stock options outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SARs
|
|
Stock Options
|
|
Units
|
|
Value(1)
|
|
Units
|
|
Value(1)
|
Balance at January 1, 2017
|
284,146
|
|
|
$
|
53.85
|
|
|
10,565
|
|
|
$
|
56.77
|
|
Granted
|
—
|
|
|
—
|
|
|
25,000
|
|
|
57.55
|
|
Exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at September 30, 2017
|
284,146
|
|
|
$
|
53.85
|
|
|
35,565
|
|
|
$
|
57.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Value represents the weighted average exercise price.
|
18. Income Taxes:
The Company has made taxable REIT subsidiary elections for all of its corporate subsidiaries other than its qualified REIT subsidiaries. The elections, effective for the year beginning
January 1, 2001
and future years, were made pursuant to Section 856(l) of the Code. The Company's taxable REIT subsidiaries ("TRSs") are subject to corporate level income taxes which are provided for in the Company's consolidated financial statements. The Company's primary TRSs include Macerich Management Company and Macerich Arizona Partners LLC.
The income tax provision of the TRSs are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Current
|
$
|
—
|
|
|
$
|
(68
|
)
|
|
$
|
—
|
|
|
$
|
(154
|
)
|
Deferred
|
(2,869
|
)
|
|
(837
|
)
|
|
178
|
|
|
(2,582
|
)
|
Income tax (expense) benefit
|
$
|
(2,869
|
)
|
|
$
|
(905
|
)
|
|
$
|
178
|
|
|
$
|
(2,736
|
)
|
The net operating loss carryforwards are currently scheduled to expire through
2035
, beginning in
2024
. Net deferred tax assets of
$44,964
and
$38,301
were included in deferred charges and other assets, net at
September 30, 2017
and
December 31, 2016
, respectively.
The tax years
2013
through
2016
remain open to examination by the taxing jurisdictions to which the Company is subject. The Company does not expect that the total amount of unrecognized tax benefit will materially change within the next twelve months.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
On
October 13, 2017
, the Company entered into a loan commitment with a lender to replace the existing loan on
Santa Monica Place
(See Note
8
—
Mortgage Notes Payable
) with a new
$300,000
five
-year floating rate loan. The new loan is expected to close in the fourth quarter of 2017. The Company expects to use the excess proceeds to pay down its line of credit.
On
October 19, 2017
, the Company's joint venture in
Chandler Fashion Center
and
Freehold Raceway Mall
(See Note
10
—
Co-Venture Arrangement
) replaced the existing loan on
Freehold Raceway Mall
with a new
$400,000
loan that bears interest at
3.90%
and matures on
November 1, 2029
. The Company used its share of the net proceeds to pay down its line of credit and for general corporate purposes.
On
October 24, 2017
, the Company announced a dividend/distribution of
$0.74
per share for common stockholders and OP Unit holders of record on
November 10, 2017
. All dividends/distributions will be paid 100% in cash on
December 1, 2017
.
On
November 1, 2017
, the Company paid off in full the mortgage loan payable on
Stonewood Center
(See Note
8
—
Mortgage Notes Payable
). The Company funded the repayment of the mortgage loan payable from borrowings under its line of credit.
On
November 2, 2017
, the Company entered into a loan commitment with a lender to place an
$88,000
ten
-year floating rate loan on
Inland Center
. The financing is expected to close in the fourth quarter of 2017. The Company expects to use the loan proceeds to pay down its line of credit.