NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)
1.
Organization
:
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
June 30, 2018
, 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 consolidated variable interest entities ("VIEs").
The Operating Partnership's consolidated VIEs included the following assets and liabilities:
|
|
|
|
|
|
|
|
|
|
June 30,
2018
|
|
December 31,
2017
|
Assets:
|
|
|
|
Property, net
|
$
|
264,570
|
|
|
$
|
288,881
|
|
Other assets
|
55,955
|
|
|
60,586
|
|
Total assets
|
$
|
320,525
|
|
|
$
|
349,467
|
|
Liabilities:
|
|
|
|
Mortgage notes payable
|
$
|
127,265
|
|
|
$
|
129,436
|
|
Other liabilities
|
73,090
|
|
|
72,705
|
|
Total liabilities
|
$
|
200,355
|
|
|
$
|
202,141
|
|
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 and square foot 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, 2017
. 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, 2017
has been derived from the audited financial statements but does not include all disclosures required by GAAP.
Shareholder Activism Costs:
During the
three months ended
June 30, 2018
, the Company incurred
$19,369
in costs associated with activities related to shareholder activism. These costs were primarily for legal and advisory services.
Recent Accounting Pronouncements:
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2014-09, “Revenue From Contracts With Customers (ASC 606)," which outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The standard 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 the standard specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate or equipment. The standard applies to the Company's recognition of management companies and other revenues. The Company's adoption of the standard on January 1, 2018 did not have an impact on the pattern of revenue recognition for management companies and other revenues.
Additionally, under ASC 606, the Company changed its accounting for its joint venture in
Chandler Freehold
from a co-venture arrangement to a financing arrangement (See Note
11
—
Financing Arrangement
). Upon adoption of the standard on January 1, 2018, the Company replaced its
$31,150
distributions in excess of co-venture obligation (See Note
8
—
Deferred Charges and Other Assets, net
) with a financing arrangement obligation of
$393,709
on its consolidated balance sheets. This resulted in the recognition of a
$424,859
increase in the Company’s accumulated deficit as a cumulative effect adjustment under the modified retrospective method of adoption.
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. Under the standard, 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. The standard will impact the accounting and disclosure requirements for these leases. The standard 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.
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. On January 1, 2018, the Company adopted the standard and retrospectively applied the guidance of the standard to the prior period presented, which resulted in an increase of
$353
in net cash provided by investing activities on its consolidated statements of cash flows for the
six months ended
June 30, 2017
.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)
2. Summary of Significant Accounting Policies: (Continued)
Recent Accounting Pronouncements: (Continued)
The following table presents a reconciliation of the beginning of period and end of period cash, cash equivalents and restricted cash reported on the Company's consolidated balance sheets to the totals shown on its consolidated statements of cash flows:
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
2018
|
|
2017
|
Beginning of period
|
|
|
|
Cash and cash equivalents
|
$
|
91,038
|
|
|
$
|
94,046
|
|
Restricted cash
|
52,067
|
|
|
49,951
|
|
Cash, cash equivalents and restricted cash
|
$
|
143,105
|
|
|
$
|
143,997
|
|
End of period
|
|
|
|
Cash and cash equivalents
|
$
|
92,452
|
|
|
$
|
87,133
|
|
Restricted cash
|
50,060
|
|
|
50,304
|
|
Cash, cash equivalents and restricted cash
|
$
|
142,512
|
|
|
$
|
137,437
|
|
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 and should be treated as an asset acquisition. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs. The primary difference between business combinations and asset acquisitions is the recognition of transaction costs, which are expensed as period costs for business combinations and capitalized for asset acquisitions. The Company's adoption of this standard on January 1, 2018 did not 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 has concluded that property sales represent transactions with non-customers. Sales of property generally represent only one performance obligation and are recognized when an enforceable contract is in place, collectability is ensured and control is transferred to the buyer. The Company's adoption of this standard on January 1, 2018 did not have a significant impact on its consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities,” which aims to (i) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities and (ii) reduce the complexity of and simplify the application of hedge accounting by preparers. The standard is effective for the Company beginning January 1, 2019, with early adoption permitted. The Company does not expect the adoption of this standard to have a significant impact on its consolidated financial statements.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot 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 six months ended
June 30, 2018
and
2017
(shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Numerator
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
8,866
|
|
|
$
|
29,052
|
|
|
$
|
(25,515
|
)
|
|
$
|
103,861
|
|
Less net income attributable to noncontrolling interests
|
1,050
|
|
|
2,414
|
|
|
242
|
|
|
7,980
|
|
Net income (loss) attributable to the Company
|
7,816
|
|
|
26,638
|
|
|
(25,757
|
)
|
|
95,881
|
|
Allocation of earnings to participating securities
|
(304
|
)
|
|
(188
|
)
|
|
(547
|
)
|
|
(375
|
)
|
Numerator for basic and diluted EPS—net income (loss) attributable to common stockholders
|
$
|
7,512
|
|
|
$
|
26,450
|
|
|
$
|
(26,304
|
)
|
|
$
|
95,506
|
|
Denominator
|
|
|
|
|
|
|
|
Denominator for basic EPS—weighted average number of common shares outstanding
|
141,137
|
|
|
141,695
|
|
|
141,081
|
|
|
142,640
|
|
Effect of dilutive securities(1):
|
|
|
|
|
|
|
|
Share and unit-based compensation plans
|
—
|
|
|
33
|
|
|
—
|
|
|
47
|
|
Denominator for diluted EPS—weighted average number of common shares outstanding
|
141,137
|
|
|
141,728
|
|
|
141,081
|
|
|
142,687
|
|
EPS—net (loss) income attributable to common stockholders:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.05
|
|
|
$
|
0.19
|
|
|
$
|
(0.19
|
)
|
|
$
|
0.67
|
|
Diluted
|
$
|
0.05
|
|
|
$
|
0.19
|
|
|
$
|
(0.19
|
)
|
|
$
|
0.67
|
|
|
|
(1)
|
Diluted EPS excludes
90,619
convertible preferred partnership units for the
three and six months ended
June 30, 2018
and
2017
, as their impact was antidilutive.
|
Diluted EPS excludes
10,397,726
and
10,526,547
Operating Partnership units ("OP Units") for the
three months ended
June 30, 2018
and
2017
, respectively, and
10,344,766
and
10,558,809
OP Units for the
six months ended
June 30, 2018
and
2017
, respectively, as their impact was antidilutive.
4. Investments in Unconsolidated Joint Ventures:
The Company has made the following recent investments and dispositions in its unconsolidated joint ventures:
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 unconsolidated joint ventures. The Company used its share of the proceeds to fund repurchases under the
2017 Stock Buyback Program
(See Note
13
—
Stockholders' Equity
).
On
September 18, 2017
, the Company's joint venture in
Fashion District Philadelphia
sold its ownership interest in an office building for
$61,500
, resulting in a gain on sale of assets of
$13,078
. The Company's pro rata share of the gain on the sale of assets of
$6,539
was included in equity in income from unconsolidated joint ventures. The Company used its share of the proceeds to fund repurchases under the
2017 Stock Buyback Program
(See Note
13
—
Stockholders' Equity
).
On
December 14, 2017
, the Company’s joint venture in
Westcor/Queen Creek LLC
sold land for
$30,491
, resulting in a gain on sale of assets of
$14,853
. The Company’s share of the gain on sale was
$5,436
, which was included in equity in income of unconsolidated joint ventures. The Company used its portion of the proceeds to pay down its line of credit and for general corporate purposes.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)
4. Investments in Unconsolidated Joint Ventures: (Continued)
On
February 16, 2018
, the Company's joint venture in
Fashion District Philadelphia
sold its ownership interest in an office building for
$41,800
, resulting in a gain on sale of assets of
$5,545
. The Company's pro rata share of the gain on the sale of assets of
$2,773
was included in equity in income from unconsolidated joint ventures. The Company used its share of the proceeds to pay down its line of credit and for general corporate purposes.
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:
|
|
|
|
|
|
|
|
|
|
June 30,
2018
|
|
December 31,
2017
|
Assets(1):
|
|
|
|
Property, net
|
$
|
9,002,271
|
|
|
$
|
9,052,105
|
|
Other assets
|
620,500
|
|
|
635,838
|
|
Total assets
|
$
|
9,622,771
|
|
|
$
|
9,687,943
|
|
Liabilities and partners' capital(1):
|
|
|
|
Mortgage and other notes payable(2)
|
$
|
5,964,691
|
|
|
$
|
5,296,594
|
|
Other liabilities
|
386,509
|
|
|
405,052
|
|
Company's capital
|
1,839,908
|
|
|
2,188,057
|
|
Outside partners' capital
|
1,431,663
|
|
|
1,798,240
|
|
Total liabilities and partners' capital
|
$
|
9,622,771
|
|
|
$
|
9,687,943
|
|
Investments in unconsolidated joint ventures:
|
|
|
|
Company's capital
|
$
|
1,839,908
|
|
|
$
|
2,188,057
|
|
Basis adjustment(3)
|
(550,766
|
)
|
|
(562,021
|
)
|
|
$
|
1,289,142
|
|
|
$
|
1,626,036
|
|
|
|
|
|
Assets—Investments in unconsolidated joint ventures
|
$
|
1,381,358
|
|
|
$
|
1,709,522
|
|
Liabilities—Distributions in excess of investments in unconsolidated joint ventures
|
(92,216
|
)
|
|
(83,486
|
)
|
|
$
|
1,289,142
|
|
|
$
|
1,626,036
|
|
|
|
(1)
|
These amounts include the assets of
$3,059,530
and
$3,106,105
of
Pacific Premier Retail LLC
(the "
PPR Portfolio
") as of
June 30, 2018
and
December 31, 2017
, respectively, and liabilities of
$1,859,679
and
$1,872,227
of the
PPR Portfolio
as of
June 30, 2018
and
December 31, 2017
, respectively.
|
|
|
(2)
|
Included in mortgage and other notes payable are amounts due to an affiliate of Northwestern Mutual Life ("NML") of
$701,884
and
$482,332
as of
June 30, 2018
and
December 31, 2017
, 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
$7,158
and
$4,929
for the
three months ended
June 30, 2018
and
2017
, respectively, and
$12,116
and
$8,089
for the
six months ended
June 30, 2018
and
2017
, 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
$3,524
and
$4,197
for the
three months ended
June 30, 2018
and
2017
, respectively, and
$7,627
and
$8,224
for the
six months ended
June 30, 2018
and
2017
, respectively.
|
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot 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 June 30, 2018
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
Minimum rents
|
$
|
32,881
|
|
|
$
|
123,940
|
|
|
$
|
156,821
|
|
Percentage rents
|
269
|
|
|
1,262
|
|
|
1,531
|
|
Tenant recoveries
|
11,400
|
|
|
47,312
|
|
|
58,712
|
|
Other
|
1,244
|
|
|
14,973
|
|
|
16,217
|
|
Total revenues
|
45,794
|
|
|
187,487
|
|
|
233,281
|
|
Expenses:
|
|
|
|
|
|
Shopping center and operating expenses
|
9,517
|
|
|
60,325
|
|
|
69,842
|
|
Interest expense
|
16,770
|
|
|
37,356
|
|
|
54,126
|
|
Depreciation and amortization
|
24,071
|
|
|
60,973
|
|
|
85,044
|
|
Total operating expenses
|
50,358
|
|
|
158,654
|
|
|
209,012
|
|
Gain on sale or write down of assets, net
|
—
|
|
|
559
|
|
|
559
|
|
Net (loss) income
|
$
|
(4,564
|
)
|
|
$
|
29,392
|
|
|
$
|
24,828
|
|
Company's equity in net (loss) income
|
$
|
(257
|
)
|
|
$
|
15,926
|
|
|
$
|
15,669
|
|
Three Months Ended June 30, 2017
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
Minimum rents
|
$
|
32,045
|
|
|
$
|
126,765
|
|
|
$
|
158,810
|
|
Percentage rents
|
221
|
|
|
2,126
|
|
|
2,347
|
|
Tenant recoveries
|
11,373
|
|
|
46,119
|
|
|
57,492
|
|
Other
|
1,402
|
|
|
13,017
|
|
|
14,419
|
|
Total revenues
|
45,041
|
|
|
188,027
|
|
|
233,068
|
|
Expenses:
|
|
|
|
|
|
Shopping center and operating expenses
|
9,711
|
|
|
58,886
|
|
|
68,597
|
|
Interest expense
|
16,675
|
|
|
32,976
|
|
|
49,651
|
|
Depreciation and amortization
|
24,802
|
|
|
62,090
|
|
|
86,892
|
|
Total operating expenses
|
51,188
|
|
|
153,952
|
|
|
205,140
|
|
Loss on sale or write down of assets, net
|
—
|
|
|
(2
|
)
|
|
(2
|
)
|
Net (loss) income
|
$
|
(6,147
|
)
|
|
$
|
34,073
|
|
|
$
|
27,926
|
|
Company's equity in net (loss) income
|
$
|
(1,034
|
)
|
|
$
|
17,970
|
|
|
$
|
16,936
|
|
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)
4. Investments in Unconsolidated Joint Ventures: (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PPR Portfolio
|
|
|
Other
Joint
Ventures
|
|
Total
|
Six Months Ended June 30, 2018
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
Minimum rents
|
$
|
65,620
|
|
|
|
$
|
251,648
|
|
|
$
|
317,268
|
|
Percentage rents
|
701
|
|
|
|
3,073
|
|
|
3,774
|
|
Tenant recoveries
|
22,800
|
|
|
|
95,416
|
|
|
118,216
|
|
Other
|
2,261
|
|
|
|
26,064
|
|
|
28,325
|
|
Total revenues
|
91,382
|
|
|
|
376,201
|
|
|
467,583
|
|
Expenses:
|
|
|
|
|
|
|
Shopping center and operating expenses
|
19,198
|
|
|
|
121,646
|
|
|
140,844
|
|
Interest expense
|
33,496
|
|
|
|
70,388
|
|
|
103,884
|
|
Depreciation and amortization
|
48,555
|
|
|
|
123,385
|
|
|
171,940
|
|
Total operating expenses
|
101,249
|
|
|
|
315,419
|
|
|
416,668
|
|
Gain on sale or write down of assets, net
|
—
|
|
|
|
1,529
|
|
|
1,529
|
|
Net (loss) income
|
$
|
(9,867
|
)
|
|
|
$
|
62,311
|
|
|
$
|
52,444
|
|
Company's equity in net (loss) income
|
$
|
(873
|
)
|
|
|
$
|
33,414
|
|
|
$
|
32,541
|
|
Six Months Ended June 30, 2017
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
Minimum rents
|
$
|
65,581
|
|
|
|
$
|
250,268
|
|
|
$
|
315,849
|
|
Percentage rents
|
951
|
|
|
|
3,864
|
|
|
4,815
|
|
Tenant recoveries
|
22,812
|
|
|
|
94,034
|
|
|
116,846
|
|
Other
|
2,428
|
|
|
|
24,528
|
|
|
26,956
|
|
Total revenues
|
91,772
|
|
|
|
372,694
|
|
|
464,466
|
|
Expenses:
|
|
|
|
|
|
|
Shopping center and operating expenses
|
19,471
|
|
|
|
121,081
|
|
|
140,552
|
|
Interest expense
|
33,401
|
|
|
|
65,255
|
|
|
98,656
|
|
Depreciation and amortization
|
51,078
|
|
|
|
124,969
|
|
|
176,047
|
|
Total operating expenses
|
103,950
|
|
|
|
311,305
|
|
|
415,255
|
|
(Loss) gain on sale or write down of assets, net
|
(35
|
)
|
|
|
4,579
|
|
|
4,544
|
|
Net (loss) income
|
$
|
(12,213
|
)
|
|
|
$
|
65,968
|
|
|
$
|
53,755
|
|
Company's equity in net (loss) income
|
$
|
(1,996
|
)
|
|
|
$
|
34,775
|
|
|
$
|
32,779
|
|
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 and square foot amounts)
(Unaudited)
5. Derivative Instruments and Hedging Activities:
The Company recorded other comprehensive income (loss) related to the marking-to-market of an interest rate cap agreement of
$(52)
and
$9
for the
three and six months ended
June 30, 2018
. There were no derivatives outstanding during the
three and six months ended
June 30, 2017
.
The following derivative was outstanding at
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
Notional Amount
|
|
Product
|
|
LIBOR Rate
|
|
Maturity
|
|
Fair Value
|
Santa Monica Place
|
|
$
|
300,000
|
|
|
Cap
|
|
4.00
|
%
|
|
12/9/2019
|
|
$
|
6
|
|
The above interest rate cap agreement was designated as a hedging instrument with a fair value (Level 2 measurement) of
$6
and
$11
at
June 30, 2018
and
December 31, 2017
, respectively, was included in deferred charges and other assets, net.
6. Property, net:
Property, net consists of the following:
|
|
|
|
|
|
|
|
|
|
June 30,
2018
|
|
December 31,
2017
|
Land
|
$
|
1,518,161
|
|
|
$
|
1,567,152
|
|
Buildings and improvements
|
6,099,577
|
|
|
6,385,035
|
|
Tenant improvements
|
616,150
|
|
|
620,352
|
|
Equipment and furnishings
|
190,031
|
|
|
187,998
|
|
Construction in progress
|
437,386
|
|
|
366,996
|
|
|
8,861,305
|
|
|
9,127,533
|
|
Less accumulated depreciation
|
(1,992,461
|
)
|
|
(2,018,303
|
)
|
|
$
|
6,868,844
|
|
|
$
|
7,109,230
|
|
Depreciation expense was
$66,850
and
$69,364
for the
three months ended
June 30, 2018
and
2017
, respectively, and
$134,794
and
$138,320
for the
six months ended
June 30, 2018
and
2017
, respectively.
The (loss) gain on sale or write down of assets, net was
$(9,518)
and
$(477)
for the
three months ended
June 30, 2018
and
2017
, respectively, and
$(47,030)
and
$49,088
for the
six months ended
June 30, 2018
and
2017
, respectively.
The (loss) gain on sale or write down of assets, net for the
three and six months ended
June 30, 2018
includes impairment losses of
$7,494
on
two freestanding stores
and
$1,660
on
Southridge Center
. In addition, the (loss) gain on sale or write down of assets, net for the
six months ended
June 30, 2018
includes impairment losses of
$36,338
on
SouthPark Mall
and
$1,043
on
Promenade at Casa Grande
. The impairment losses were due to the reduction of the estimated holding period of the properties.
The (loss) gain on sale or write down of assets, net for
three and six months ended
June 30, 2018
includes a loss of
$311
on the sale of
Promenade at Casa Grande
(See Note
15
—
Dispositions
). In addition, the (loss) gain on sale or write down of assets, net for the
six months ended
June 30, 2017
includes a gain of
$59,713
on the sale of
Cascade Mall
and
Northgate Mall
(See Note
15
—
Dispositions
) offset in part by a loss of
$10,138
on the write down of an investment in non-real estate assets.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)
6. Property, net: (Continued)
The following table summarizes certain of the Company's assets that were measured on a nonrecurring basis as a result of impairment losses recorded for the
three and six months ended
June 30, 2018
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)
|
June 30, 2018
|
|
$
|
72,700
|
|
|
$
|
—
|
|
|
$
|
72,700
|
|
|
$
|
—
|
|
The fair values relating to the impairments were based on sales contracts.
7. Tenant and Other Receivables, net:
Included in tenant and other receivables, net is an allowance for doubtful accounts of
$2,996
and
$2,786
at
June 30, 2018
and
December 31, 2017
, respectively. Also included in tenant and other receivables, net are accrued percentage rents of
$917
and
$8,711
at
June 30, 2018
and
December 31, 2017
, respectively, and a deferred rent receivable due to straight-line rent adjustments of
$66,419
and
$61,859
at
June 30, 2018
and
December 31, 2017
, respectively.
8. Deferred Charges and Other Assets, net:
Deferred charges and other assets, net consist of the following:
|
|
|
|
|
|
|
|
|
|
June 30,
2018
|
|
December 31,
2017
|
Leasing
|
$
|
215,499
|
|
|
$
|
232,819
|
|
Intangible assets:
|
|
|
|
In-place lease values
|
97,204
|
|
|
108,432
|
|
Leasing commissions and legal costs
|
24,421
|
|
|
25,958
|
|
Above-market leases
|
150,829
|
|
|
164,040
|
|
Deferred tax assets
|
30,834
|
|
|
29,006
|
|
Deferred compensation plan assets
|
54,441
|
|
|
52,221
|
|
Distributions in excess of co-venture obligation(1)
|
—
|
|
|
31,150
|
|
Other assets
|
67,652
|
|
|
66,990
|
|
|
640,880
|
|
|
710,616
|
|
Less accumulated amortization(2)
|
(237,122
|
)
|
|
(261,426
|
)
|
|
$
|
403,758
|
|
|
$
|
449,190
|
|
|
|
(1)
|
See Note
11
—
Financing Arrangement
.
|
|
|
(2)
|
Accumulated amortization includes
$69,192
and
$74,507
relating to in-place lease values, leasing commissions and legal costs at
June 30, 2018
and
December 31, 2017
, respectively. Amortization expense of in-place lease values, leasing commissions and legal costs was
$3,552
and
$5,545
for the
three months ended
June 30, 2018
and
2017
, respectively, and
$7,390
and
$11,549
for the
six months ended
June 30, 2018
and
2017
, respectively.
|
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)
8. Deferred Charges and Other Assets, net: (Continued)
The allocated values of above-market leases and below-market leases consist of the following:
|
|
|
|
|
|
|
|
|
|
June 30,
2018
|
|
December 31,
2017
|
Above-Market Leases
|
|
|
|
Original allocated value
|
$
|
150,829
|
|
|
$
|
164,040
|
|
Less accumulated amortization
|
(53,429
|
)
|
|
(60,210
|
)
|
|
$
|
97,400
|
|
|
$
|
103,830
|
|
Below-Market Leases(1)
|
|
|
|
Original allocated value
|
$
|
114,988
|
|
|
$
|
120,573
|
|
Less accumulated amortization
|
(57,301
|
)
|
|
(55,489
|
)
|
|
$
|
57,687
|
|
|
$
|
65,084
|
|
|
|
(1)
|
Below-market leases are included in other accrued liabilities.
|
9. Mortgage Notes Payable:
Mortgage notes payable at
June 30, 2018
and
December 31, 2017
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount of Mortgage Notes(1)
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
|
|
|
|
|
|
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)
|
|
$
|
—
|
|
|
$
|
199,937
|
|
|
$
|
—
|
|
|
$
|
199,904
|
|
|
3.77
|
%
|
|
$
|
625
|
|
|
2019
|
Danbury Fair Mall
|
|
102,863
|
|
|
102,863
|
|
|
104,599
|
|
|
104,598
|
|
|
5.53
|
%
|
|
1,538
|
|
|
2020
|
Fashion Outlets of Chicago(6)
|
|
—
|
|
|
199,460
|
|
|
—
|
|
|
199,298
|
|
|
3.64
|
%
|
|
580
|
|
|
2020
|
Fashion Outlets of Niagara Falls USA
|
|
—
|
|
|
111,219
|
|
|
—
|
|
|
112,770
|
|
|
4.89
|
%
|
|
727
|
|
|
2020
|
Freehold Raceway Mall(5)
|
|
—
|
|
|
398,129
|
|
|
—
|
|
|
398,050
|
|
|
3.94
|
%
|
|
1,300
|
|
|
2029
|
Fresno Fashion Fair
|
|
—
|
|
|
323,360
|
|
|
—
|
|
|
323,261
|
|
|
3.67
|
%
|
|
971
|
|
|
2026
|
Green Acres Commons(7)
|
|
—
|
|
|
127,545
|
|
|
—
|
|
|
107,219
|
|
|
4.69
|
%
|
|
447
|
|
|
2021
|
Green Acres Mall
|
|
—
|
|
|
288,043
|
|
|
—
|
|
|
291,366
|
|
|
3.61
|
%
|
|
1,447
|
|
|
2021
|
Kings Plaza Shopping Center
|
|
—
|
|
|
442,204
|
|
|
—
|
|
|
447,231
|
|
|
3.67
|
%
|
|
2,229
|
|
|
2019
|
Oaks, The
|
|
—
|
|
|
194,409
|
|
|
—
|
|
|
196,732
|
|
|
4.14
|
%
|
|
1,064
|
|
|
2022
|
Pacific View
|
|
—
|
|
|
122,895
|
|
|
—
|
|
|
124,397
|
|
|
4.08
|
%
|
|
668
|
|
|
2022
|
Queens Center
|
|
—
|
|
|
600,000
|
|
|
—
|
|
|
600,000
|
|
|
3.49
|
%
|
|
1,744
|
|
|
2025
|
Santa Monica Place(8)
|
|
—
|
|
|
296,695
|
|
|
—
|
|
|
296,366
|
|
|
3.67
|
%
|
|
844
|
|
|
2022
|
SanTan Village Regional Center
|
|
—
|
|
|
123,151
|
|
|
—
|
|
|
124,703
|
|
|
3.14
|
%
|
|
589
|
|
|
2019
|
Towne Mall
|
|
—
|
|
|
20,948
|
|
|
—
|
|
|
21,161
|
|
|
4.48
|
%
|
|
117
|
|
|
2022
|
Tucson La Encantada
|
|
66,175
|
|
|
—
|
|
|
66,970
|
|
|
—
|
|
|
4.23
|
%
|
|
368
|
|
|
2022
|
Victor Valley, Mall of
|
|
—
|
|
|
114,646
|
|
|
—
|
|
|
114,617
|
|
|
4.00
|
%
|
|
380
|
|
|
2024
|
Vintage Faire Mall
|
|
—
|
|
|
261,025
|
|
|
—
|
|
|
263,818
|
|
|
3.55
|
%
|
|
1,256
|
|
|
2026
|
Westside Pavilion(9)
|
|
—
|
|
|
139,530
|
|
|
—
|
|
|
141,020
|
|
|
4.49
|
%
|
|
783
|
|
|
2022
|
|
|
$
|
169,038
|
|
|
$
|
4,066,059
|
|
|
$
|
171,569
|
|
|
$
|
4,066,511
|
|
|
|
|
|
|
|
|
|
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)
9. Mortgage Notes Payable: (Continued)
|
|
(1)
|
The mortgage notes payable balances includes an unamortized debt premium. Debt premiums represent the excess of the fair value of debt over the principal value of debt assumed in various acquisitions and are amortized into interest expense over the remaining term of the related debt in a manner that approximates the effective interest method. The loan on
Fashion Outlets of Niagara Falls USA
had a premium of
$2,166
and
$2,630
at
June 30, 2018
and
December 31, 2017
, respectively.
|
The mortgage notes payable 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
$15,638
and
$17,838
at
June 30, 2018
and
December 31, 2017
, respectively.
|
|
(2)
|
The interest rate disclosed represents the effective interest rate, including the impact of debt premium 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.
|
|
|
(5)
|
A
49.9%
interest in the loan has been assumed by a third party in connection with the Company's joint venture in
Chandler Freehold
(See Note
11
—
Financing Arrangement
).
|
|
|
(6)
|
The loan bears interest at LIBOR plus
1.50%
. At
June 30, 2018
and
December 31, 2017
, the total interest rate was
3.64%
and
3.02%
, respectively.
|
|
|
(7)
|
On
March 1, 2018
, the Company borrowed the remaining
$20,000
available under the loan agreement on the property. The loan bears interest at LIBOR plus
2.15%
. At
June 30, 2018
and
December 31, 2017
, the total interest rate was
4.69%
and
4.07%
, respectively.
|
|
|
(8)
|
The loan bears interest at
LIBOR
plus
1.35%
. At
June 30, 2018
and
December 31, 2017
, the total interest rate was
3.67%
and
3.13%
, respectively.
|
|
|
(9)
|
On
March 1, 2018
, the Company entered into an agreement to contribute the underlying property into an unconsolidated joint venture (See Note
14
—
Collaborative Arrangement
).
|
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
$4,670
and
$3,343
for the
three months ended
June 30, 2018
and
2017
, respectively, and
$9,001
and
$5,977
for the
six months ended
June 30, 2018
and
2017
, respectively.
Related party mortgage notes payable are amounts due to an affiliate of NML. See Note
17
—
Related Party Transactions
for interest expense associated with loans from NML.
The estimated fair value (Level 2 measurement) of mortgage notes payable at
June 30, 2018
and
December 31, 2017
was
$4,229,459
and
$4,250,816
, 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.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)
10. 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
June 30, 2018
, the borrowing rate on the facility was
LIBOR
plus
1.45%
. As of
June 30, 2018
and
December 31, 2017
, borrowings under the line of credit were
$735,000
and
$935,000
, respectively, less unamortized deferred finance costs of
$6,313
and
$7,548
, respectively, at a total interest rate of
3.71%
and
3.13%
, respectively. As of
June 30, 2018
and
December 31, 2017
, the Company's availability under the line of credit for additional borrowings was
$704,412
and
$504,412
, respectively, The estimated fair value (Level 2 measurement) of the line of credit at
June 30, 2018
and
December 31, 2017
was
$724,122
and
$919,158
, respectively, based on a present value model using a credit interest rate spread offered to the Company for comparable debt.
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
June 30, 2018
and
December 31, 2017
, the note had a balance of
$4,114
and
$4,732
, respectively. The estimated fair value (Level 2 measurement) of the note at
June 30, 2018
and
December 31, 2017
was
$4,111
and
$4,717
, 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
June 30, 2018
and
December 31, 2017
, the Company was in compliance with all applicable financial loan covenants.
11. Financing Arrangement:
On
September 30, 2009
, the Company formed a joint venture, whereby a third party acquired a
49.9%
interest in
Chandler Fashion Center
, a
1,318,000
square foot
regional shopping center
in
Chandler
,
Arizona
, and
Freehold Raceway Mall
, a
1,672,000
square foot
regional shopping center
in
Freehold
,
New Jersey
, referred to herein as
Chandler Freehold
. As a result of the Company having certain rights under the agreement to repurchase the assets after the seventh year of the formation of
Chandler Freehold
, the transaction did not qualify for sale treatment. The Company, however, is not obligated to repurchase the assets. The transaction was initially accounted for as a co-venture 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 net cash proceeds received from the third party less costs allocated to a warrant. The co-venture obligation was increased for the allocation of income to the co-venture partner and decreased for distributions to the co-venture partner.
Upon adoption of ASC 606 on January 1, 2018, the Company changed its accounting for
Chandler Freehold
from a co-venture arrangement to a financing arrangement. Accordingly, the Company replaced its
$31,150
distributions in excess of co-venture obligation (See Note
8
—
Deferred Charges and Other Assets, net
) with a financing arrangement liability of
$393,709
on its consolidated balance sheets. This resulted in the recognition of a
$424,859
increase in the Company’s accumulated deficit as a cumulative effect adjustment under the modified retrospective method of adoption. The fair value (
Level 3
measurement) of the financing arrangement obligation was based upon a multiple on net operating income of
21
times, a discount rate of
5.8%
and market rents per square foot of
$20
to
$225
. The fair value of the financing arrangement obligation is sensitive to these significant unobservable inputs and a change in these inputs may result in a significantly higher or lower fair value measurement. Distributions to the partner and subsequent changes in fair value of the financing arrangement obligation are recognized as interest expense in the Company's consolidated statements of operations.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)
11. Financing Arrangement: (Continued)
During the
three and six months ended
June 30, 2018
and
2017
, the Company incurred interest (income) expense in connection with the financing arrangement as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Distributions of the partner's share of net income
|
$
|
2,464
|
|
|
$
|
—
|
|
|
$
|
4,466
|
|
|
$
|
—
|
|
Distributions in excess of the partner's share of net income
|
1,411
|
|
|
—
|
|
|
3,049
|
|
|
—
|
|
Adjustment to fair value of financing arrangement obligation
|
(8,768
|
)
|
|
—
|
|
|
(4,386
|
)
|
|
—
|
|
|
$
|
(4,893
|
)
|
|
$
|
—
|
|
|
$
|
3,129
|
|
|
$
|
—
|
|
12. 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
June 30, 2018
and
December 31, 2017
. The remaining
7%
limited partnership interest as of
June 30, 2018
and
December 31, 2017
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
June 30, 2018
and
December 31, 2017
, the aggregate redemption value of the then-outstanding OP Units not owned by the Company was
$590,571
and
$671,592
, 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.
13. Stockholders' Equity:
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, from time to time as permitted by securities laws and other legal requirements.
During the period from
February 12, 2017
to
December 31, 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
15
—
Dispositions
), its share of the proceeds from the sale of ownership interests in 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. There were no repurchases during the
three and six months ended
June 30, 2018
.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)
13. 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 Program expired by its terms in August 2017. No shares were sold under the ATM Program.
14
.
Collaborative Arrangement
:
On
March 1, 2018
, the Company formed a
25
/
75
joint venture with a third party, whereby the Company agreed to contribute
Westside Pavilion
, a
755,000
square foot
regional shopping center
in
Los Angeles
,
California
in exchange for a cash payment of
$142,500
. The Company expects to complete the transfer during the next twelve months. Both partners share operating control of the property and the Company will be reimbursed by the outside partner for
75%
of the carrying cost of the property, which are defined in the agreement as operating expenses in excess of revenues, debt service and capital expenditures.
Since
March 1, 2018
, the Company has accounted for the operations of
Westside Pavilion
as a collaborative arrangement. Accordingly, the Company has reduced minimum rents, percentage rents, tenant recoveries, other revenue, shopping center and operating expenses and interest expense by its partner's
75%
share and recorded a receivable due from its partner, which will be settled upon completion of the transfer of the property. The Company's partner's reimbursable
75%
share of mortgage loan principal payments and capital expenditures are recorded as a receivable and a deferred gain that will be recognized when the transfer is completed.
Additionally, the Company has classified the long-lived assets of
Westside Pavilion
as held for sale on its consolidated balance sheet and has ceased the recognition of depreciation and amortization expense as of
March 1, 2018
.
15. Dispositions:
The following are recent dispositions of properties:
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
$59,713
. 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
13
—
Stockholders' Equity
).
On
November 16, 2017
, the Company sold
500 North Michigan Avenue
, a
326,000
square foot
office building
in
Chicago
,
Illinois
for
$86,350
, resulting in a gain on sale of assets of
$14,597
. The Company used the proceeds from the sale to pay down its line of credit and for other general corporate purposes.
On
May 17, 2018
, the Company sold
Promenade at Casa Grande
, a
761,000
square foot
community center
in
Casa Grande
,
Arizona
for
$26,000
, resulting in a loss on sale of assets of
$311
. The Company used the proceeds from the sale to pay down its line of credit and for other general corporate purposes.
16
. Commitments and Contingencies:
The Company has certain properties that are subject to non-cancelable operating 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. Rent expense was
$4,572
and
$4,267
for the
three months ended
June 30, 2018
and
2017
, respectively, and
$8,808
and
$8,484
for the
six months ended
June 30, 2018
and
2017
, respectively.
No
contingent rent was incurred during the
three and six months ended
June 30, 2018
or
2017
.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)
16. Commitments and Contingencies: (Continued)
As of
June 30, 2018
, the Company was contingently liable for
$60,588
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
June 30, 2018
, the Company had
$10,034
in outstanding obligations which it believes will be settled in the next twelve months.
17. 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 June 30,
|
|
For the Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Management fees
|
$
|
4,716
|
|
|
$
|
4,685
|
|
|
$
|
9,395
|
|
|
$
|
9,165
|
|
Development and leasing fees
|
3,321
|
|
|
2,721
|
|
|
6,925
|
|
|
7,991
|
|
|
$
|
8,037
|
|
|
$
|
7,406
|
|
|
$
|
16,320
|
|
|
$
|
17,156
|
|
Certain mortgage notes on the properties are held by NML (See Note
9
—
Mortgage Notes Payable
). Interest expense in connection with these notes was
$2,131
and
$2,181
for the
three months ended
June 30, 2018
and
2017
, respectively, and
$4,278
and
$4,392
for the
six months ended
June 30, 2018
and
2017
, respectively. Included in accounts payable and accrued expenses is interest payable on these notes of
$705
and
$716
at
June 30, 2018
and
December 31, 2017
, respectively.
Interest expense from related party transactions also includes
$(4,893)
and
$3,129
for the
three and six months ended
June 30, 2018
in connection with the Financing Arrangement (See Note
11
—
Financing Arrangement
).
Due from affiliates includes unreimbursed costs and fees from unconsolidated joint ventures due to the Management Companies. As of
June 30, 2018
and
December 31, 2017
, the amounts due from the unconsolidated joint ventures was
$5,683
and
$5,411
, respectively.
In addition, due from affiliates at
June 30, 2018
and
December 31, 2017
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
$57
and
$68
for the
three months ended
June 30, 2018
and
2017
, respectively, and
$117
and
$138
for the
six months ended
June 30, 2018
and
2017
, respectively. The balance on this note was
$4,114
and
$4,796
at
June 30, 2018
and
December 31, 2017
, 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
$773
and
$607
for the
three months ended
June 30, 2018
and
2017
, respectively, and
$1,522
and
$1,218
for the
six months ended
June 30, 2018
and
2017
, respectively. The balance on this note was
$73,478
and
$71,955
at
June 30, 2018
and
December 31, 2017
, 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 and square foot amounts)
(Unaudited)
18. 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 stockholders (the "Total Return") per share of common stock relative to the Total Return of a group of peer REITs, as measured at the end of the measurement period.
During the
six months ended
June 30, 2018
, the Company granted the following LTIP Units:
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
Units
|
|
Type
|
|
Fair Value per LTIP Unit
|
|
Vest Date
|
1/1/2018
|
|
65,466
|
|
|
Service-based
|
|
$
|
65.68
|
|
|
12/31/2020
|
1/1/2018
|
|
291,326
|
|
|
Market-indexed
|
|
$
|
44.28
|
|
|
12/31/2020
|
1/29/2018
|
|
13,632
|
|
|
Service-based
|
|
$
|
66.02
|
|
|
2/1/2022
|
1/29/2018
|
|
1,893
|
|
|
Service-based
|
|
$
|
66.02
|
|
|
12/31/2020
|
1/29/2018
|
|
7,775
|
|
|
Market-indexed
|
|
$
|
48.23
|
|
|
12/31/2020
|
3/2/2018
|
|
99,407
|
|
|
Service-based
|
|
$
|
59.04
|
|
|
3/2/2018
|
4/26/2018
|
|
89,637
|
|
|
Service-based
|
|
$
|
55.78
|
|
|
4/26/2018
|
|
|
569,136
|
|
|
|
|
|
|
|
The fair value of the market-indexed LTIP Units granted on
January 1, 2018
were estimated on the date of grant using a Monte Carlo Simulation model that assumed a risk free interest rate of
1.98%
and an expected volatility of
23.38%
. The fair value of the market-indexed LTIP Units granted on
January 29, 2018
were estimated on the date of grant using a Monte Carlo Simulation model that assumed a risk free interest rate of
2.25%
and an expected volatility of
23.86%
.
The following table summarizes the activity of the non-vested LTIP Units, phantom stock units and stock units:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTIP Units
|
|
Phantom Stock Units
|
|
Stock Units
|
|
Units
|
|
Value(1)
|
|
Units
|
|
Value(1)
|
|
Units
|
|
Value(1)
|
Balance at January 1, 2018
|
636,632
|
|
|
$
|
52.36
|
|
|
4,054
|
|
|
$
|
79.82
|
|
|
151,355
|
|
|
$
|
73.32
|
|
Granted
|
569,136
|
|
|
51.78
|
|
|
7,337
|
|
|
63.03
|
|
|
86,495
|
|
|
59.00
|
|
Vested
|
(189,044
|
)
|
|
57.49
|
|
|
(7,761
|
)
|
|
54.70
|
|
|
(107,505
|
)
|
|
74.43
|
|
Forfeited
|
(23,666
|
)
|
|
44.28
|
|
|
(845
|
)
|
|
77.91
|
|
|
—
|
|
|
—
|
|
Balance at June 30, 2018
|
993,058
|
|
|
$
|
51.24
|
|
|
2,785
|
|
|
$
|
66.79
|
|
|
130,345
|
|
|
$
|
64.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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:
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)
18. Share and Unit-Based Plans: (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SARs
|
|
Stock Options
|
|
Units
|
|
Value(1)
|
|
Units
|
|
Value(1)
|
Balance at January 1, 2018
|
235,439
|
|
|
$
|
53.83
|
|
|
35,565
|
|
|
$
|
57.32
|
|
Granted
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Exercised
|
(235,439
|
)
|
|
53.83
|
|
|
—
|
|
|
—
|
|
Balance at June 30, 2018
|
—
|
|
|
$
|
—
|
|
|
35,565
|
|
|
$
|
57.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Value represents the weighted average exercise price.
|
The following summarizes the compensation cost under the share and unit-based plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
LTIP Units
|
$
|
8,275
|
|
|
$
|
5,242
|
|
|
$
|
18,383
|
|
|
$
|
19,623
|
|
Stock units
|
1,515
|
|
|
1,333
|
|
|
4,745
|
|
|
3,945
|
|
Stock options
|
31
|
|
|
15
|
|
|
62
|
|
|
19
|
|
Phantom stock units
|
170
|
|
|
183
|
|
|
413
|
|
|
360
|
|
|
$
|
9,991
|
|
|
$
|
6,773
|
|
|
$
|
23,603
|
|
|
$
|
23,947
|
|
The Company capitalized share and unit-based compensation costs of
$1,904
and
$926
for the
three months ended
June 30, 2018
and
2017
, respectively, and
$4,513
and
$4,295
for the
six months ended
June 30, 2018
and
2017
, respectively. Unrecognized compensation costs of share and unit-based plans at
June 30, 2018
consisted of
$11,371
from LTIP Units,
$3,474
from stock units,
$114
from stock options and
$133
from phantom stock units.
19. 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 June 30,
|
|
For the Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Current
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
439
|
|
|
$
|
—
|
|
Deferred
|
(684
|
)
|
|
(437
|
)
|
|
1,826
|
|
|
3,047
|
|
Total income tax (expense) benefit
|
$
|
(684
|
)
|
|
$
|
(437
|
)
|
|
$
|
2,265
|
|
|
$
|
3,047
|
|
The net operating loss carryforwards are currently scheduled to expire through
2037
, beginning in
2025
. Net deferred tax assets of
$30,834
and
$29,006
were included in deferred charges and other assets, net at
June 30, 2018
and
December 31, 2017
, respectively.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)
19. Income Taxes: (Continued)
The tax years
2014
through
2017
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.
20. Subsequent Events:
On
July 6, 2018
, the Company’s joint venture in
The Market at Estrella Falls
, a
298,000
square foot
community center
in
Goodyear
,
Arizona
, sold the property for
$49,100
. The proceeds were used to pay off the
$24,118
mortgage loan payable on the property, settle development obligations and for distributions to the partners. The Company used its share of the net proceeds for general corporate purposes.
On
July 26, 2018
, the Company announced a dividend/distribution of
$0.74
per share for common stockholders and OP Unit holders of record on
August 17, 2018
. All dividends/distributions will be paid 100% in cash on
September 7, 2018
.