UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007
Commission File No. 1-12504
THE MACERICH COMPANY
(Exact name of registrant as specified in its charter)
MARYLAND (State or other jurisdiction of incorporation or organization) |
95-4448705 (I.R.S. Employer Identification Number) |
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401 Wilshire Boulevard, Suite 700, Santa Monica, California 90401 (Address of principal executive office, including zip code) |
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Registrant's telephone number, including area code (310) 394-6000 |
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Securities registered pursuant to Section 12(b) of the Act |
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Title of each class |
Name of each exchange on which registered |
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Common Stock, $0.01 Par Value Preferred Share Purchase Rights |
New York Stock Exchange New York Stock Exchange |
Indicate by check mark if the registrant is well-known seasoned issuer, as defined in Rule 405 of the Securities Act
YES ý NO o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act
YES o NO ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report) and (2) has been subject to such filing requirements for the past 90 days.
YES ý NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K/A or any amendment on to this Form 10-K/A. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ý | Accelerated filer o | |
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES o NO ý
The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant was approximately $3.8 billion as of the last business day of the registrant's most recent completed second fiscal quarter based upon the price at which the common shares were last sold on that day.
Number of shares outstanding of the registrant's common stock, as of February 13, 2008: 72,336,763 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual stockholders meeting to be held in 2008 are incorporated by reference into Part III of this Form 10-K/A
EXPLANATORY NOTE
(All dollars in thousands)
This Amendment No. 1 on Form 10-K/A (the "Amended Filing") of The Macerich Company (the "Company") for the fiscal year ended December 31, 2007 is being filed to restate the consolidated balance sheets as of December 31, 2007 and 2006 and the consolidated statements of operations, common stockholders' equity, and cash flows for each of the three years during the period ended December 31, 2007.
Subsequent to the filing of the Company's Annual Report on Form 10-K for the year ended December 31, 2007 ("2007 Form 10-K"), management determined that the consolidated financial statements as of December 31, 2007 and December 31, 2006, and for each of the three years during the period ended December 31, 2007 required restatement to correctly account for the convertible preferred units ("CPUs") issued to prior owners in connection with the acquisition of the Wilmorite portfolio. (See Note 12Acquisitions to the accompanying consolidated financial statements contained in this Amended Filing). The Company improperly applied purchase accounting to 100% of the Wilmorite acquisition and therefore minority interests in the Wilmorite portfolio were improperly recorded at fair value at the time of acquisition and presented outside of permanent equity as Class A participating and non-participating convertible preferred securities in the consolidated balance sheets with the periodic distributions reflected as preferred dividends as a reduction of net income available to common stockholders within the consolidated statements of operations. Upon further consideration, the Company determined that these interests represent a minority interest in MACWH, LP, a subsidiary of The Macerich Partnership, L.P. and successor in interest to Wilmorite Holdings, L.P., which in turn holds the Wilmorite portfolio. Accordingly, the Company should only have applied purchase accounting to the extent of its proportionate interest in MACWH, LP. The Company has corrected the accounting for these interests by recording a reduction in these interests of $195,905 from fair value to predecessor basis in the consolidated balance sheets with the earnings and dividends paid attributable to these interests reported as minority interests in consolidated joint ventures in the consolidated statements of operations. The adjustment also includes a reduction in depreciation expense from the 100% stepped up property basis previously reported.
In addition, because the participating CPUs were redeemable at the option of the CPU holders for the portion of the Wilmorite portfolio that consisted of Eastview Commons, Eastview Mall, Greece Ridge Center, Marketplace Mall and Pittsford Plaza, collectively referred to as the "Rochester Properties" (assets of MACWH, LP), they are subject to EITF Topic D-98, "Classification and Measurement of Redeemable Securities" and accounted for as redeemable minority interest at the greater of their redemption value or amount that would result from applying Accounting Research Bulletin No. 51 "Consolidated Financial Statements" consolidation accounting. The Company recognized the redeemable minority interest at historical cost within purchase accounting and subsequently adjusted the carrying value of the redeemable minority interest or redemption value changes at the end of each reporting period as a reduction of net income available to common stockholders within the consolidated statements of operations.
The restatement resulted in a decrease in property, net of $134,018 and $137,404, a decrease in investments in unconsolidated joint ventures of $50,019 and $51,083, an increase in minority interest of $208,993 and $209,973, decreases in Class A participating and non-participating CPUs of $230,245 and $235,287, additional paid-in capital of $210,736 and $207,035, and accumulated deficit of $47,951 and $43,862 at December 31, 2007 and 2006, respectively, an increase in net income available to common stockholders of $2,043 for the year ended December 31, 2007, and a decrease in net income available to common stockholders of $10,618 and $146,202 for the years ended December 31, 2006 and 2005, respectively.
The Company also identified other errors related to classification of preferred dividends and classification of the impact for the adoption of Interpretation No. 48, "Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109" ("FIN 48"), within the consolidated statements of common stockholders' equity. During the years the Company was in an accumulated
deficit position, the preferred dividends should have been classified as a reduction in additional paid-in capital as opposed to increasing the accumulated deficit. As a result of this error, additional paid-in capital and accumulated deficit were overstated for the years ended December 31, 2007, 2006 and 2005 by $10,058, $10,083, and $9,649, respectively, and the cumulative effect of the classification error attributable to the years prior to January 1, 2005 was $47,681. The impact of the adoption of FIN 48 should have been classified as an increase to the accumulated deficit as opposed to a decrease to the additional paid-in capital for the year ended December 31, 2007 by $1,574.
For a more detailed description of the restatement, see Note 25 to the accompanying consolidated financial statements contained in this Amended Filing.
This Amended Filing reflects a retrospective adjustment of the consolidated financial statements for the discontinued operations of the "Rochester Properties" from the Wilmorite portfolio to conform to the new discontinued operations presentation initially presented in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, filed on May 19, 2008.
For the convenience of the reader, this Amended Filing sets forth the Annual Report on Form 10-K in its entirety. The Company has updated the disclosures presented in its 2007 Form 10-K to reflect the effects of the restatement and discontinued operations. Other than amending the disclosures relating to the restatement and conforming the presentation of discontinued operations in the items discussed below, no attempt has generally been made in this Amended Filing to amend or update other disclosures presented in the 2007 Form 10-K. Among other things, forward-looking statements made in the 2007 Form 10-K have not been revised to reflect events that occurred or facts that became known to the Company after the filing of the 2007 Form 10-K, and such forward-looking statements should be read in their historical context. Accordingly, this Amended Filing should be read in conjunction with the Company's filings with the United States Securities and Exchange Commission ("SEC") subsequent to the filing of the 2007 Form 10-K.
The following items have been amended as a result of the restatement and to conform the presentation of discontinued operations:
Part IIItem 6Selected Financial Data
Part
IIItem 7Management's Discussion and Analysis of Financial Condition and Results of
Operations
Part IIItem 8Financial Statements and Supplementary Data
Part IIItem 9AControls and Procedures
Part IVItem 15Exhibits and Financial Statement Schedules
Pursuant to the rules of the SEC, Item 15, Part IV has also been amended to contain the currently dated certifications from the Company's principal executive officer and principal financial officer as required by Section 302 and 906 of the Sarbanes-Oxley Act of 2002. The certifications of the Company's principal executive officer and principal financial officer are attached to this Amended Filing as Exhibits 31.1, 31.2, and 32.1. On May 19, 2008, the Company filed its Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 and prospectively corrected the quarterly consolidated financial statements with respect to the quarter ended March 31, 2007 in such report. In addition to the updated Selected Quarterly Financial Data included in Part II, Item 8 of this Amended Filing, the Company plans to prospectively correct the quarterly consolidated financial statements with respect to the quarters ended June 30, 2007 and September 30, 2007 in conjunction with the filing of the 2008 quarterly reports for the respective quarters.
THE MACERICH COMPANY
ANNUAL REPORT ON FORM 10-K/A
FOR THE YEAR ENDED DECEMBER 31, 2007
INDEX
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Page |
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Part I | ||||
Item 1. |
Business |
1 |
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Item 1A. | Risk Factors | 14 | ||
Item 1B. | Unresolved Staff Comments | 21 | ||
Item 2. | Properties | 22 | ||
Item 3. | Legal Proceedings | 31 | ||
Item 4. | Submission of Matters to a Vote of Security Holders | 31 | ||
Part II |
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Item 5. |
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
32 |
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Item 6. | Selected Financial Data | 34 | ||
Item 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 38 | ||
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | 54 | ||
Item 8. | Financial Statements and Supplementary Data | 55 | ||
Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | 55 | ||
Item 9A. | Controls and Procedures | 55 | ||
Item 9A(T). | Controls and Procedures | 59 | ||
Item 9B. | Other Information | 59 | ||
Part III |
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Item 10. |
Directors and Executive Officers and Corporate Governance |
60 |
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Item 11. | Executive Compensation | 60 | ||
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 60 | ||
Item 13. | Certain Relationships and Related Transactions, and Director Independence | 61 | ||
Item 14. | Principal Accountant Fees and Services | 61 | ||
Part IV |
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Item 15. |
Exhibits and Financial Statement Schedules |
62 |
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Signatures |
152 |
IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K/A of the Macerich Company (the "Company") contains or incorporates statements that constitute forward-looking statements within the meaning of the federal securities laws. Any statements that do not relate to historical or current facts or matters are forward-looking statements. You can identify some of the forward-looking statements by the use of forward-looking words, such as "may," "will," "could," "should," "expects," "anticipates," "intends," "projects," "predicts," "plans," "believes," "seeks," and "estimates" and variations of these words and similar expressions. Statements concerning current conditions may also be forward-looking if they imply a continuation of current conditions. Forward-looking statements appear in a number of places in this Form 10-K/A and include statements regarding, among other matters:
Stockholders are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company or the industry to differ materially from the Company's future results, performance or achievements, or those of the industry, expressed or implied in such forward-looking statements. You are urged to carefully review the disclosures we make concerning risks and other factors that may affect our business and operating results, including those made in "Item 1A. Risk Factors" of this Annual Report on Form 10-K/A, as well as our other reports filed with the Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document. The Company does not intend, and undertakes no obligation, to update any forward-looking information to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events.
General
The Company is involved in the acquisition, ownership, development, redevelopment, management and leasing of regional and community shopping centers located throughout the United States. The Company is the sole general partner of, and owns a majority of the ownership interests in, The Macerich Partnership, L.P., a Delaware limited partnership (the "Operating Partnership"). As of December 31, 2007, the Operating Partnership owned or had an ownership interest in 74 regional shopping centers and 20 community shopping centers aggregating approximately 80.7 million square feet of gross leasable area ("GLA"). These 94 regional and community shopping centers are referred to hereinafter as the "Centers", unless the context otherwise requires. The Company is a self-administered and self-managed real estate investment trust ("REIT") and conducts all of its operations through the Operating Partnership and the Company's management companies, Macerich Property Management Company, LLC, a single member Delaware limited liability company, Macerich Management Company, a California corporation, Westcor Partners, L.L.C., a single member Arizona limited liability company,
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Macerich Westcor Management LLC, a single member Delaware limited liability company, Westcor Partners of Colorado, LLC, a 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."
The Company was organized as a Maryland corporation in September 1993 to continue and expand the shopping center operations of Mace Siegel, Arthur M. Coppola, Dana K. Anderson and Edward C. Coppola (the "principals") and certain of their business associates.
All references to the Company in this Annual Report on Form 10-K/A include the Company, those entities owned or controlled by the Company and predecessors of the Company, unless the context indicates otherwise.
Financial information regarding the Company for each of the last three fiscal years is contained in the Company's Consolidated Financial Statements included in Item 15. Exhibits and Financial Statement Schedules.
Recent Developments
Stock Repurchase:
On March 16, 2007, the Company repurchased 807,000 common shares for $75.0 million concurrent with the offering of convertible senior notes (See "Financing Activity"). These shares were repurchased pursuant to the Company's stock repurchase program authorized by the Company's Board of Directors on March 9, 2007. This repurchase program ended on March 16, 2007 because the maximum shares allowed to be repurchased under the program was reached.
Acquisitions and Dispositions:
On September 5, 2007, the Company purchased the remaining 50% outside ownership interest in Hilton Village, a 96,546 square foot specialty center in Scottsdale, Arizona. The total purchase price of $13.5 million was funded by cash, borrowings under the Company's line of credit and the assumption of the $8.6 million mortgage note payable on the property.
On December 17, 2007, the Company purchased a portfolio of fee simple and/or ground leasehold interests in 39 freestanding Mervyn's department stores located in the Southwest United States for $400.2 million. The purchase price was funded by cash and borrowings under the Company's line of credit. Concurrent with the acquisition, the Company entered into 39 individual agreements to leaseback the properties to Mervyns from terms of 14 to 20 years. The Company has designated the 27 freestanding Mervyn's stores located at shopping centers not owned or managed by the Company as available for sale.
On January 1, 2008, MACWH, LP, a subsidiary of the Operating Partnership, at the election of the holders, redeemed the 3.4 million Class A participating convertible preferred units ("PCPUs"). As a result of the redemption, the Company received the 16.32% minority interest in the portion of the Wilmorite portfolio that included Danbury Fair Mall, Freehold Raceway Mall, Great Northern Mall, Rotterdam Square, Shoppingtown Mall, Towne Mall, Tysons Corner Center and Wilton Mall, collectively referred to as the "Non-Rochester Properties", for a total consideration of $224 million, in exchange for the Company's ownership interest in the portion of the Wilmorite portfolio that consisted of Eastview Commons, Eastview Mall, Greece Ridge Center, Marketplace Mall and Pittsford Plaza, collectively referred to as the "Rochester Properties." The Company recognized a gain of $99.3 million on the exchange based on the difference between the fair value of the additional interest acquired in the Non-Rochester Properties and the carrying value of the Rochester Properties, net of minority interest. This exchange is referred herein as the "Rochester Redemption."
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On January 10, 2008, the Company in a 50/50 joint venture, acquired The Shops at North Bridge, a 680,933 square foot urban shopping center in Chicago, Illinois, for a total purchase price of $515.0 million. The Company's share of the purchase price was funded by the assumption of a pro rata share of the $205.0 million fixed rate mortgage on the Center and by borrowings under the Company's line of credit.
Financing Activity:
On January 2, 2007, the Company paid off the $75.0 million loan on Paradise Valley Mall. The repayment was funded by the proceeds from the sale of Citadel Mall, Northwest Arkansas Mall and Crossroads Mall on December 29, 2006.
On January 23, 2007, the Company exercised an earn-out provision under the loan agreement on Valley River Center and borrowed an additional $20.0 million at a fixed rate of 5.64%. The loan proceeds were used to pay down the Company's line of credit and for general corporate purposes.
On March 16, 2007, the Company issued $950.0 million in convertible senior notes ("Senior Notes") that mature on March 15, 2012. The Senior Notes bear interest at 3.25%, payable semiannually, are senior unsecured debt of the Company and are guaranteed by the Operating Partnership. The Senior Notes had an initial conversion price of $111.48. The proceeds were used to payoff the $250 million term loan, and to pay down the Company's line of credit. (See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources").
In connection with the issuance of the Senior Notes, the Company purchased two capped calls ("Capped Calls") from affiliates of the initial purchasers of the Senior Notes for approximately $59.9 million. The Capped Calls effectively increased the conversion price of the Senior Notes to approximately $130.06, which represented a 40% premium to the March 12, 2007 closing price of $92.90 per common share of the Company. The Capped Calls are expected to generally reduce the potential dilution upon exchange of the Senior Notes in the event the market value per share of the Company's common stock, as measured under the terms of the relevant settlement date, is greater than the strike price of the Capped Calls.
On March 23, 2007, the Company used borrowings under the line of credit to pay off the $51.0 million interest only loan on Tucson La Encantada. On May 15, 2007, the Company placed a new $78.0 million loan on that property that bears interest at a fixed rate of 5.60% and matures on June 1, 2012. The loan proceeds were used to pay down the Company's line of credit and for general corporate purposes.
On May 23, 2007, the Company borrowed an additional $72.5 million under the loan agreement on Deptford Mall at a fixed rate of 5.38%. The loan proceeds were used to pay down the Company's line of credit and for general corporate purposes.
On July 2, 2007, the Company's joint venture in Scottsdale Fashion Square refinanced the loan on the property. The two existing loans on the property were replaced with a new $550.0 million loan bearing interest at a fixed rate of 5.66% and maturing July 8, 2013. The Company used its pro rata share of proceeds to pay down the Company's line of credit and for general corporate purposes.
Redevelopment and Development Activity:
The first phase of SanTan Village Regional Center, in Gilbert, Arizona, opened on October 26, 2007. The 1.2 million square foot open-air super-regional shopping center opened with over 90% of the retail space committed, with Dillard's and more than 85 specialty retailers joining Harkins Theatres, which opened March 2007. The balance of the project, which includes Dick's Sporting Goods, Best Buy, Barnes & Noble and up to 13 restaurants, is expected to open in phases throughout 2008.
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The first phase of The Promenade at Casa Grande, a 1 million square foot, 130 acre department store anchored hybrid center, located in Casa Grande, Arizona, opened on November 16, 2007. With ninety percent committed, the first phase of the project has approximately 550,000 square feet of mini-majors, including Dillard's, Target, J.C.Penney, Kohl's, Petsmart and Staples. The balance of the Center is expected to continue to open in phases throughout 2008.
The first phase of The Marketplace at Flagstaff Mall, a 435,000 square foot lifestyle expansion, in Flagstaff, Arizona, began opening in phases on October 19, 2007. Phase I delivered approximately 267,538 square feet of new retail space including Best Buy, Home Depot, Linens n Things, Marshalls, Old Navy, Petco and Shoe Pavilion. Phase II, which will consist of village shops, an entertainment plaza and pad space, is expected to be completed in 2009-2010.
On November 8, 2007, Freehold Raceway Mall opened the first phase of a combined expansion and renovation project that will add 96,000 square feet of new retail and restaurant uses to this regional center in New Jersey. The expansion, which is 85% committed, added nine new-to-market additions including: Borders, The Cheesecake Factory, P.F. Chang's, Jared The Galleria of Jewelry, The Territory Ahead, Ann Taylor, Chico's, Coldwater Creek and White House/Black Market. The balance of the project is expected to open throughout 2008.
Scottsdale Fashion Square, the 2 million square foot luxury flagship, is undergoing a $130 million redevelopment and expansion. Phase I of the redevelopment and expansion began September 2007 with demolition of the vacant anchor space acquired as a result of the Federated-May merger and an adjacent parking structure. A 60,000 square foot Barneys New York, the high-end retailer's first Arizona location, will anchor an additional 100,000 square feet of up to 30 new luxury shops, which is planned to open in Fall 2009 in an urban setting on Scottsdale Road. New first-to-market deals include Salvatore Ferragamo, Grand Luxe Café, CH Carolina Herrera, and Michael Kors. First-to-market retailers opening in the Spring 2008 will include Bottega Veneta, Jimmy Choo and Marciano.
Construction continues on the combined redevelopment, expansion and interior renovation of The Oaks, an upscale 1.0 million square foot super-regional shopping center in California's affluent Thousand Oaks. The market's first Nordstrom department store is under construction. Construction of a first-to-market, 138,000 square foot Nordstrom department store, two-level open-air retail, dining and entertainment venue and new multi-level parking structure at The Oaks continues on schedule toward a phased completion beginning Fall 2008.
In December 2007, the Company received full entitlements to proceed with plans for a redevelopment of Santa Monica Place. The regional center will be redeveloped as an open-air shopping and dining environment that will connect with the popular Third Street Promenade. The Santa Monica Place redevelopment has started and is moving forward with a projected Fall 2009 completion.
The Shopping Center Industry
General
There are several types of retail shopping centers, which are differentiated primarily based on size and marketing strategy. Regional shopping centers generally contain in excess of 400,000 square feet of GLA and are typically anchored by two or more department or large retail stores ("Anchors") and are referred to as "Regional Shopping Centers" or "Malls." Regional Shopping Centers also typically contain numerous diversified retail stores ("Mall Stores"), most of which are national or regional retailers typically located along corridors connecting the Anchors. Community Shopping Centers, also referred to as "strip centers" or "urban villages" or "specialty centers", are retail shopping centers that are designed to attract local or neighborhood customers and are typically anchored by one or more supermarkets, discount department stores and/or drug stores. Community Shopping Centers typically contain 100,000 square feet to 400,000 square feet of GLA. In addition, freestanding retail stores are
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located along the perimeter of the shopping centers ("Freestanding Stores"). Anchors, Mall and Freestanding Stores and other tenants typically contribute funds for the maintenance of the common areas, property taxes, insurance, advertising and other expenditures related to the operation of the shopping center.
Regional Shopping Centers
A Regional Shopping Center draws from its trade area by offering a variety of fashion merchandise, hard goods and services and entertainment, often in an enclosed, climate controlled environment with convenient parking. Regional Shopping Centers provide an array of retail shops and entertainment facilities and often serve as the town center and the preferred gathering place for community, charity, and promotional events.
Regional Shopping Centers have generally provided owners with relatively stable growth in income despite the cyclical nature of the retail business. This stability is due both to the diversity of tenants and to the typical dominance of Regional Shopping Centers in their trade areas.
Regional Shopping Centers have different strategies with regard to price, merchandise offered and tenant mix, and are generally tailored to meet the needs of their trade areas. Anchor tenants are located along common areas in a configuration designed to maximize consumer traffic for the benefit of the Mall Stores. Mall GLA, which generally refers to gross leasable area contiguous to the Anchors for tenants other than Anchors, is leased to a wide variety of smaller retailers. Mall Stores typically account for the majority of the revenues of a Regional Shopping Center.
Business of the Company
Strategy:
The Company has a four-pronged business strategy which focuses on the acquisition, leasing and management, redevelopment and development of Regional Shopping Centers.
Acquisitions. The Company focuses on well-located, quality regional shopping centers that are, or it believes can be, dominant in their trade area and have strong revenue enhancement potential. The Company subsequently seeks to improve operating performance and returns from these properties through leasing, management and redevelopment. Since its initial public offering, the Company has acquired interests in shopping centers nationwide. The Company believes that it is geographically well positioned to cultivate and maintain ongoing relationships with potential sellers and financial institutions and to act quickly when acquisition opportunities arise. (See "Recent Developments--Acquisitions and Dispositions").
Leasing and Management. The Company believes that the shopping center business requires specialized skills across a broad array of disciplines for effective and profitable operations. For this reason, the Company has developed a fully integrated real estate organization with in-house acquisition, accounting, development, finance, leasing, legal, marketing, property management and redevelopment expertise. In addition, the Company emphasizes a philosophy of decentralized property management, leasing and marketing performed by on-site professionals. The Company believes that this strategy results in the optimal operation, tenant mix and drawing power of each Center as well as the ability to quickly respond to changing competitive conditions of the Center's trade area.
The Company believes that on-site property managers can most effectively operate the Centers. Each Center's property manager is responsible for overseeing the operations, marketing, maintenance and security functions at the Center. Property managers focus special attention on controlling operating costs, a key element in the profitability of the Centers, and seek to develop strong relationships with and to be responsive to the needs of retailers.
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Similarly, the Company generally utilizes on-site and regionally located leasing managers to better understand the market and the community in which a Center is located. The Company continually assesses and fine tunes each Center's tenant mix, identifies and replaces underperforming tenants and seeks to optimize existing tenant sizes and configurations.
On a selective basis, the Company provides property management and leasing services for third parties. The Company currently manages four malls for third party owners on a fee basis. In addition, the Company manages four community centers for a related party.
Redevelopment. One of the major components of the Company's growth strategy is its ability to redevelop acquired properties. For this reason, the Company has built a staff of redevelopment professionals who have primary responsibility for identifying redevelopment opportunities that will result in enhanced long-term financial returns and market position for the Centers. The redevelopment professionals oversee the design and construction of the projects in addition to obtaining required governmental approvals. (See "Recent Developments--Redevelopment and Development Activity").
Development. The Company pursues ground-up development projects on a selective basis. The Company has supplemented its strong acquisition, operations and redevelopment skills with its ground-up development expertise to further increase growth opportunities. (See "Recent Developments--Redevelopment and Development Activity").
The Centers
As of December 31, 2007, the Centers consist of 74 Regional Shopping Centers and 20 Community Shopping Centers aggregating approximately 80.7 million square feet of GLA. The 74 Regional Shopping Centers in the Company's portfolio average approximately 991,000 square feet of GLA and range in size from 2.2 million square feet of GLA at Tysons Corner Center to 323,455 square feet of GLA at Panorama Mall. The Company's 20 Community Shopping Centers have an average of approximately 249,000 square feet of GLA. After giving effect to the Rochester Redemption and the acquisition of The Shops at North Bridge (See Recent Developments), the Centers presently include 318 Anchors totaling approximately 41.6 million square feet of GLA and approximately 9,200 Mall and Freestanding Stores totaling approximately 35.1 million square feet of GLA.
Competition
There are numerous owners and developers of real estate that compete with the Company in its trade areas. There are six other publicly traded mall companies and several large private mall companies, any of which under certain circumstances could compete against the Company for an acquisition, an Anchor or a tenant. In addition, private equity firms compete with the Company in terms of acquisitions. This results in competition for both acquisition of centers and for tenants or Anchors to occupy space. The existence of competing shopping centers could have a material adverse impact on the Company's ability to lease space and on the level of rent that can be achieved. There is also increasing competition from other retail formats and technologies, such as lifestyle centers, power centers, internet shopping and home shopping networks, factory outlet centers, discount shopping clubs and mail-order services that could adversely affect the Company's revenues.
In making leasing decisions, the Company believes that retailers consider the following material factors relating to a center: quality, design and location, including consumer demographics; rental rates; type and quality of Anchors and retailers at the center; and management and operational experience and strategy of the center. The Company believes it is able to compete effectively for retail tenants in its local markets based on these criteria in light of the overall size, quality and diversity of its portfolio of Centers.
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Major Tenants
The Centers derived approximately 95.1% of their total minimum rents for the year ended December 31, 2007 from Mall and Freestanding Stores. One tenant accounted for approximately 3.3% of minimum rents of the Company, and no other single tenant accounted for more than 2.7% of minimum rents as of December 31, 2007.
The following tenants (including their subsidiaries) represent the 10 largest tenants in the Company's portfolio (including joint ventures) based upon minimum rents in place as of December 31, 2007:
Tenant |
Primary DBA's |
Number of Locations in the Portfolio |
% of Total Annual Minimum Rents as of December 31, 2007(1) |
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Mervyn's(2) | Mervyn's | 45 | 3.3 | % | |||
The Gap, Inc. | Gap, Banana Republic, Old Navy | 103 | 2.7 | % | |||
Limited Brands, Inc. | Victoria Secret, Bath and Body | 146 | 2.3 | % | |||
Foot Locker, Inc. | Footlocker, Champs Sports, Lady Footlocker | 161 | 2.0 | % | |||
AT&T Mobility, LLC(3) | AT&T Wireless, Cingular Wireless | 33 | 1.5 | % | |||
Abercrombie & Fitch Co. | Abercrombie & Fitch | 71 | 1.5 | % | |||
Luxottica Group S.P.A. | Lenscrafters, Sunglass Hut | 150 | 1.2 | % | |||
Zale Corporation | Zales, Piercing Pagoda, Gordon's Jewelers | 120 | 1.2 | % | |||
American Eagle Outfitters, Inc. | American Eagle Outfitters | 57 | 1.0 | % | |||
Signet Group | Kay Jewelers, Weisfield Jewelers | 76 | 1.0 | % |
Mall and Freestanding Stores
Mall and Freestanding Store leases generally provide for tenants to pay rent comprised of a base (or "minimum") rent and a percentage rent based on sales. In some cases, tenants pay only minimum rent, and in some cases, tenants pay only percentage rents. Historically, most leases for Mall and Freestanding Stores contain provisions that allow the Centers to recover their costs for maintenance of the common areas, property taxes, insurance, advertising and other expenditures related to the operations of the Center. Since January 2005, the Company generally began entering into leases which require tenants to pay a stated amount for such operating expenses, generally excluding property taxes, regardless of the expenses the Company actually incurs at any Center.
Tenant space of 10,000 square feet and under in the portfolio at December 31, 2007 comprises 69.1% of all Mall and Freestanding Store space. The Company uses tenant spaces of 10,000 square feet and under for comparing rental rate activity. The Company believes that to include space over 10,000 square feet would provide a less meaningful comparison.
When an existing lease expires, the Company is often able to enter into a new lease with a higher base rent component. The average base rent for new Mall and Freestanding Store leases at the consolidated Centers, 10,000 square feet and under, commencing during 2007 was $43.23 per square foot, or 26.4% higher than the average base rent for all Mall and Freestanding Stores at the consolidated Centers, 10,000 square feet and under, expiring during 2007 of $34.21 per square foot.
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The following table sets forth for the Centers, the average base rent per square foot of Mall and Freestanding GLA, for tenants 10,000 square feet and under, as of December 31 for each of the past three years:
For the Year Ended December 31, |
Average Base Rent Per Square Foot(1) |
Avg. Base Rent Per Sq. Ft. on Leases Commencing During the Year(2) |
Avg. Base Rent Per Sq. Ft. on Leases Expiring During the Year(3) |
||||||
---|---|---|---|---|---|---|---|---|---|
Consolidated Centers: | |||||||||
2007 | $ | 38.49 | $ | 43.23 | $ | 34.21 | |||
2006 | $ | 37.55 | $ | 38.40 | $ | 31.92 | |||
2005 | $ | 34.23 | $ | 35.60 | $ | 30.71 | |||
Joint Venture Centers: |
|||||||||
2007 | $ | 38.72 | $ | 47.12 | $ | 34.87 | |||
2006 | $ | 37.94 | $ | 41.43 | $ | 36.19 | |||
2005 | $ | 36.35 | $ | 39.08 | $ | 30.18 |
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Cost of Occupancy
The Company's management believes that in order to maximize the Company's operating cash flow, the Centers' Mall Store tenants must be able to operate profitably. A major factor contributing to tenant profitability is cost of occupancy. The following table summarizes occupancy costs for Mall Store tenants in the Centers as a percentage of total Mall Store sales for the last three years:
|
For Years ended December 31, |
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---|---|---|---|---|---|---|---|
|
2007 |
2006 |
2005 |
||||
Consolidated Centers: | |||||||
Minimum Rents | 8.0 | % | 8.1 | % | 8.3 | % | |
Percentage Rents | 0.4 | % | 0.4 | % | 0.5 | % | |
Expense Recoveries(1) | 3.8 | % | 3.7 | % | 3.6 | % | |
12.2 | % | 12.2 | % | 12.4 | % | ||
Joint Venture Centers: |
|||||||
Minimum Rents | 7.3 | % | 7.2 | % | 7.4 | % | |
Percentage Rents | 0.5 | % | 0.6 | % | 0.5 | % | |
Expense Recoveries(1) | 3.2 | % | 3.1 | % | 3.0 | % | |
11.0 | % | 10.9 | % | 10.9 | % | ||
Lease Expirations
The following tables show scheduled lease expirations (for Centers owned as of December 31, 2007) of Mall and Freestanding Stores (10,000 square feet and under) for the next ten years, assuming that none of the tenants exercise renewal options:
Consolidated Centers:
Year Ending December 31, |
Number of Leases Expiring |
Approximate GLA of Leases Expiring(1) |
% of Total Leased GLA Represented by Expiring Leases(1) |
Ending Base Rent per Square Foot of Expiring Leases(1) |
|||||
---|---|---|---|---|---|---|---|---|---|
2008 | 486 | 992,151 | 12.87 | % | $ | 35.14 | |||
2009 | 332 | 630,841 | 8.18 | % | $ | 38.93 | |||
2010 | 419 | 808,960 | 10.49 | % | $ | 41.24 | |||
2011 | 404 | 1,020,218 | 13.23 | % | $ | 37.76 | |||
2012 | 291 | 773,163 | 10.03 | % | $ | 37.20 | |||
2013 | 210 | 499,179 | 6.47 | % | $ | 41.65 | |||
2014 | 241 | 562,547 | 7.30 | % | $ | 49.88 | |||
2015 | 253 | 686,474 | 8.90 | % | $ | 46.69 | |||
2016 | 258 | 685,204 | 8.89 | % | $ | 40.56 | |||
2017 | 219 | 664,921 | 8.62 | % | $ | 38.92 |
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Joint Venture Centers (at pro rata share):
Year Ending December 31, |
Number of Leases Expiring |
Approximate GLA of Leases Expiring(1) |
% of Total Leased GLA Represented by Expiring Leases(1) |
Ending Base Rent per Square Foot of Expiring Leases(1) |
|||||
---|---|---|---|---|---|---|---|---|---|
2008 | 493 | 497,910 | 12.42 | % | $ | 37.61 | |||
2009 | 393 | 428,120 | 10.68 | % | $ | 37.97 | |||
2010 | 416 | 425,003 | 10.60 | % | $ | 41.88 | |||
2011 | 369 | 434,833 | 10.85 | % | $ | 38.88 | |||
2012 | 301 | 322,453 | 8.05 | % | $ | 41.55 | |||
2013 | 225 | 262,946 | 6.56 | % | $ | 43.02 | |||
2014 | 221 | 266,419 | 6.65 | % | $ | 42.88 | |||
2015 | 232 | 291,919 | 7.28 | % | $ | 43.73 | |||
2016 | 288 | 356,072 | 8.88 | % | $ | 47.29 | |||
2017 | 236 | 352,911 | 8.81 | % | $ | 42.64 |
Anchors
Anchors have traditionally been a major factor in the public's identification with Regional Shopping Centers. Anchors are generally department stores whose merchandise appeals to a broad range of shoppers. Although the Centers receive a smaller percentage of their operating income from Anchors than from Mall and Freestanding Stores, strong Anchors play an important part in maintaining customer traffic and making the Centers desirable locations for Mall and Freestanding Store tenants.
Anchors either own their stores, the land under them and in some cases adjacent parking areas, or enter into long-term leases with an owner at rates that are lower than the rents charged to tenants of Mall and Freestanding Stores. Each Anchor, which owns its own store, and certain Anchors which lease their stores, enter into reciprocal easement agreements with the owner of the Center covering among other things, operational matters, initial construction and future expansion.
Anchors accounted for approximately 4.9% of the Company's total minimum rent for the year ended December 31, 2007.
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The following table identifies each Anchor, each parent company that owns multiple Anchors and the number of square feet owned or leased by each such Anchor or parent company in the Company's portfolio at December 31, 2007, giving effect to the Rochester Redemption and the acquisition of The Shops at North Bridge:
Name(1) |
Number of Anchor Stores(1) |
GLA Owned by Anchor(1) |
GLA Leased by Anchor(1) |
Total GLA Occupied by Anchor(1) |
||||||
---|---|---|---|---|---|---|---|---|---|---|
Macy's Inc. | ||||||||||
Macy's(2) | 54 | 6,046,168 | 2,920,001 | 8,966,169 | ||||||
Bloomingdale's | 1 | -- | 255,888 | 255,888 | ||||||
Total | 55 | 6,046,168 | 3,175,889 | 9,222,057 | ||||||
Sears Holdings Corporation | ||||||||||
Sears | 48 | 4,462,305 | 2,079,671 | 6,541,976 | ||||||
Great Indoors, The | 1 | -- | 131,051 | 131,051 | ||||||
K-Mart | 1 | -- | 86,479 | 86,479 | ||||||
Total | 50 | 4,462,305 | 2,297,201 | 6,759,506 | ||||||
J.C. Penney | 45 | 2,351,211 | 3,664,424 | 6,015,635 | ||||||
Dillard's | 26 | 3,574,852 | 918,235 | 4,493,087 | ||||||
Mervyn's(3) | 45 | 233,282 | 3,365,571 | 3,598,853 | ||||||
Nordstrom(4) | 13 | 699,127 | 1,526,369 | 2,225,496 | ||||||
Target(5) | 13 | 1,125,041 | 564,279 | 1,689,320 | ||||||
The Bon-Ton Stores, Inc. | ||||||||||
Younkers | 6 | -- | 609,177 | 609,177 | ||||||
Bon-Ton, The | 1 | -- | 71,222 | 71,222 | ||||||
Herberger's | 4 | 188,000 | 214,573 | 402,573 | ||||||
Total | 11 | 188,000 | 894,972 | 1,082,972 | ||||||
Gottschalks | 7 | 332,638 | 553,242 | 885,880 | ||||||
Boscov's | 3 | -- | 476,067 | 476,067 | ||||||
Wal-Mart | 3 | 371,527 | 100,709 | 472,236 | ||||||
Neiman Marcus | 3 | 120,000 | 321,450 | 441,450 | ||||||
Lord & Taylor | 3 | 120,635 | 199,372 | 320,007 | ||||||
Home Depot | 3 | 120,530 | 274,402 | 394,932 | ||||||
Kohl's | 3 | 165,279 | 114,359 | 279,638 | ||||||
Burlington Coat Factory | 3 | 186,570 | 74,585 | 261,155 | ||||||
Dick's Sporting Goods(6) | 3 | -- | 257,241 | 257,241 | ||||||
Von Maur | 3 | 186,686 | 59,563 | 246,249 | ||||||
Belk, Inc. | ||||||||||
Belk | 3 | -- | 200,925 | 200,925 | ||||||
La Curacao | 1 | 164,656 | -- | 164,656 | ||||||
Barneys New York(7) | 2 | -- | 141,398 | 141,398 | ||||||
Lowe's | 1 | 135,197 | -- | 135,197 | ||||||
Best Buy | 2 | 129,441 | -- | 129,441 | ||||||
Saks Fifth Avenue | 1 | -- | 92,000 | 92,000 | ||||||
L.L. Bean | 1 | -- | 75,778 | 75,778 | ||||||
Sports Authority | 1 | -- | 52,250 | 52,250 | ||||||
Bealls | 1 | -- | 40,000 | 40,000 | ||||||
Richman Gordman 1/2 Price | 1 | -- | 60,000 | 60,000 | ||||||
Vacant(8) | 12 | -- | 1,426,844 | 1,426,844 | ||||||
Total | 318 | 20,713,145 | 20,927,125 | 41,640,270 | ||||||
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Environmental Matters
Each of the Centers has been subjected to a Phase I audit (which involves review of publicly available information and general property inspections, but does not involve soil sampling or ground water analysis) completed by an environmental consultant.
Based on these audits, and on other information, the Company is aware of the following environmental issues that may reasonably result in costs associated with future investigation or remediation, or in environmental liability:
Insurance
Each of the Centers has comprehensive liability, fire, extended coverage and rental loss insurance with insured limits customarily carried for similar properties. The Company does not insure certain types of losses (such as losses from wars), because they are either uninsurable or not economically insurable. In addition, while the Company or the relevant joint venture, as applicable, carries specific earthquake insurance on the Centers located in earthquake-prone zones, the policies are subject to a deductible equal to 5% of the total insured value of each Center, a $100,000 per occurrence minimum and a combined annual aggregate loss limit of $106.6 million on these Centers. While the Company or the relevant joint venture also carries terrorism insurance on the Centers, the policies are subject to a
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$10,000 deductible and a combined annual aggregate loss of $800 million. Each Center has environmental insurance covering eligible third-party losses, remediation and non-owned disposal sites, subject to a $100,000 deductible and a $10 million three-year aggregate limit. Some environmental losses are not covered by this insurance because they are uninsurable or not economically insurable. Furthermore, the Company carries title insurance on substantially all of the Centers for less than their full value.
Qualification as a Real Estate Investment Trust
The Company elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"), commencing with its first taxable year ended December 31, 1994, and intends to conduct its operations so as to continue to qualify as a REIT under the Code. As a REIT, the Company generally will not be subject to federal and state income taxes on its net taxable income that it currently distributes to stockholders. Qualification and taxation as a REIT depends on the Company's ability to meet certain dividend distribution tests, share ownership requirements and various qualification tests prescribed in the Code.
Employees
As of December 31, 2007, the Company and the Management Companies employed 3,014 persons, including executive officers (11), personnel in the areas of acquisitions and business development (26), property management/marketing (489), leasing (200), redevelopment/development (81), financial services (281) and legal affairs (65). In addition, in an effort to minimize operating costs, the Company generally maintains its own security and guest services staff (1,842) and in some cases maintenance staff (19). Unions represent six of these employees. The Company primarily engages a third party to handle maintenance at the Centers. The Company believes that relations with its employees are good.
Available Information; Website Disclosure; Corporate Governance Documents
The Company's corporate website address is www.macerich.com. The Company makes available free-of-charge through this website its reports on Forms 10-K, 10-Q and 8-K and all amendments thereto, as soon as reasonably practicable after the reports have been filed with, or furnished to, the Securities and Exchange Commission. These reports are available under the heading "Investing--SEC Filings", through a free hyperlink to a third-party service. Information provided on our website is not incorporated by reference into this Form 10-K/A.
The following documents relating to Corporate Governance are available on the Company's website at www.macerich.com under "Investing--Corporate Governance":
Guidelines
on Corporate Governance
Code of Business Conduct and Ethics
Code of Ethics for CEO and Senior Financial Officers
Audit Committee Charter
Compensation Committee Charter
Executive Committee Charter
Nominating and Corporate Governance Committee Charter
You may also request copies of any of these documents by writing to:
Attention:
Corporate Secretary
The Macerich Company
401Wilshire Blvd., Suite 700
Santa Monica, CA 90401
Certifications
The Company submitted a Section 303A.12 (a) CEO Certification to the New York Stock Exchange last year. In addition, the Company filed with the Securities and Exchange Commission the CEO/CFO certification required under Section 302 of the Sarbanes-Oxley Act and it is included as Exhibit 31 hereto.
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We invest primarily in shopping centers, which are subject to a number of significant risks that are beyond our control.
Real property investments are subject to varying degrees of risk that may affect the ability of our Centers to generate sufficient revenues to meet operating and other expenses, including debt service, lease payments, capital expenditures and tenant improvements, and to make distributions to us and our stockholders. Centers wholly owned by us are referred to as "Wholly Owned Centers" and Centers that are partly but not wholly owned by us are referred to as "Joint Venture Centers." A number of factors may decrease the income generated by the Centers, including:
Income from shopping center properties and shopping center values are also affected by applicable laws and regulations, including tax, environmental, safety and zoning laws, and by interest rate levels and the availability and cost of financing. In addition, the number of prospective buyers interested in purchasing shopping centers is limited. Therefore, if we want to sell one or more of our Centers, we may not be able to dispose of it in the desired time period and may receive less consideration than we originally invested in the Center. Furthermore, real estate investments are relative illiquid. This characteristic tends to limit our ability to vary our portfolio promptly in response to changes in economic or other conditions.
Some of our Centers are geographically concentrated and, as a result, are sensitive to local economic and real estate conditions.
A significant percentage of our Centers are located in California and Arizona and eight Centers in the aggregate are located in New York, New Jersey and Connecticut. To the extent that weak economic or real estate conditions, including as a result of the factors described in the preceding risk factor, or other factors affect California, Arizona, New York, New Jersey or Connecticut (or their respective regions) more severely than other areas of the country, our financial performance could be negatively impacted.
We are in a competitive business.
There are numerous owners and developers of real estate that compete with us in our trade areas. There are six other publicly traded mall companies and several large private mall companies, any of which under certain circumstances could compete against us for an acquisition, an Anchor or a tenant. In addition, private equity firms compete with us in terms of acquisitions. This results in competition for both acquisition of centers and for tenants or Anchors to occupy space. The existence of competing shopping centers could have a material adverse impact on our ability to lease space and on the level of rents that can be achieved. There is also increasing competition from other retail formats and technologies, such as lifestyle centers, power centers, internet shopping and home shopping networks,
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factory outlet centers, discount shopping clubs and mail-order services that could adversely affect our revenues.
Our Centers depend on tenants to generate rental revenues.
Our revenues and funds available for distribution will be reduced if:
A decision by an Anchor, or other significant tenant to cease operations at a Center could also have an adverse effect on our financial condition. The closing of an Anchor or other significant tenant may allow other Anchors and/or other tenants to terminate their leases, seek rent relief and/or cease operating their stores at the Center or otherwise adversely affect occupancy at the Center. In addition, Anchors and/or tenants at one or more Centers might terminate their leases as a result of mergers, acquisitions, consolidations, dispositions or bankruptcies in the retail industry. The bankruptcy and/or closure of retail stores, or sale of an Anchor or store to a less desirable retailer, may reduce occupancy levels, customer traffic and rental income, or otherwise adversely affect our financial performance. Furthermore, if the store sales of retailers operating in the Centers decline sufficiently, tenants might be unable to pay their minimum rents or expense recovery charges. In the event of a default by a lessee, the affected Center may experience delays and costs in enforcing its rights as lessor.
Our acquisition and real estate development strategies may not be successful.
Our historical growth in revenues, net income and funds from operations has been closely tied to the acquisition and redevelopment of shopping centers. Many factors, including the availability and cost of capital, our total amount of debt outstanding, interest rates and the availability of attractive acquisition targets, among others, will affect our ability to acquire and redevelop additional properties in the future. We may not be successful in pursuing acquisition opportunities, and newly acquired properties may not perform as well as expected. Expenses arising from our efforts to complete acquisitions, redevelop properties or increase our market penetration may have a material adverse effect on our business, financial condition and results of operations. We face competition for acquisitions primarily from other REITs, as well as from private real estate companies and financial buyers. Some of our competitors have greater financial and other resources. Increased competition for shopping center acquisitions may impact adversely our ability to acquire additional properties on favorable terms. We cannot guarantee that we will be able to implement our growth strategy successfully or manage our expanded operations effectively and profitably.
We may not be able to achieve the anticipated financial and operating results from newly acquired assets. Some of the factors that could affect anticipated results are:
Our business strategy also includes the selective development and construction of retail properties. Any development, redevelopment and construction activities that we may undertake will be subject to the risks of real estate development, including lack of financing, construction delays, environmental
15
requirements, budget overruns, sunk costs and lease-up. Furthermore, occupancy rates and rents at a newly completed property may not be sufficient to make the property profitable. Real estate development activities are also subject to risks relating to the inability to obtain, or delays in obtaining, all necessary zoning, land-use, building, and occupancy and other required governmental permits and authorizations. If any of the above events occur, our ability to pay dividends to our stockholders and service our indebtedness could be adversely affected.
We have substantial debt that could affect our future operations.
Our total outstanding loan indebtedness at December 31, 2007 was $7.6 billion (including $1.8 billion of our pro rata share of joint venture debt). As a result of this substantial indebtedness, we are required to use a material portion of our cash flow to service principal and interest on our debt, which limits the cash flow available for other business opportunities. In addition, we are subject to the risks normally associated with debt financing, including the risk that our cash flow from operations will be insufficient to meet required debt service and that rising interest rates could adversely affect our debt service costs. A majority of our Centers are mortgaged to secure payment of indebtedness, and if income from the Center is insufficient to pay that indebtedness, the Center could be foreclosed upon by the mortgagee resulting in a loss of income and a decline in our total asset value.
We depend on external financings for our growth and ongoing debt service requirements.
We depend primarily on external financings, principally debt financings, to fund the growth of our business and to ensure that we can meet ongoing maturities of our outstanding debt. Our access to financing depends on the willingness of banks to lend to us and conditions in the capital markets in general. We cannot assure you that we will be able to obtain the financing we need for future growth or to meet our debt service as obligations mature, or that the financing available to us will be on acceptable terms.
Inflation may adversely affect our financial condition and results of operations.
If inflation increases in the future, we may experience any or all of the following:
Certain individuals have substantial influence over the management of both us and the Operating Partnership, which may create conflicts of interest.
Under the limited partnership agreement of the Operating Partnership, we, as the sole general partner, are responsible for the management of the Operating Partnership's business and affairs. Each of the principals serves as an executive officer and is a member of our board of directors. Accordingly, these principals have substantial influence over our management and the management of the Operating Partnership.
The tax consequences of the sale of some of the Centers may create conflicts of interest.
The principals will experience negative tax consequences if some of the Centers are sold. As a result, the principals may not favor a sale of these Centers even though such a sale may benefit our other stockholders.
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The guarantees of indebtedness by and certain holdings of the principals may create conflicts of interest.
The principals have guaranteed mortgage loans encumbering one of the Centers. As of December 31, 2007, the principals have guaranteed an aggregate principal amount of approximately $21.8 million. The existence of guarantees of these loans by the principals could result in the principals having interests that are inconsistent with the interests of our stockholders.
The principals may have different interests than our stockholders because they are significant holders of the Operating Partnership.
If we were to fail to qualify as a REIT, we will have reduced funds available for distributions to our stockholders.
We believe that we currently qualify as a REIT. No assurance can be given that we will remain qualified as a REIT. Qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which there are only limited judicial or administrative interpretations. The complexity of these provisions and of the applicable income tax regulations is greater in the case of a REIT structure like ours that holds assets in partnership form. The determination of various factual matters and circumstances not entirely within our control, including determinations by our partners in the Joint Venture Centers, may affect our continued qualification as a REIT. In addition, legislation, new regulations, administrative interpretations or court decisions could significantly change the tax laws with respect to our qualification as a REIT or the U.S. federal income tax consequences of that qualification.
If in any taxable year we were to fail to qualify as a REIT, we will suffer the following negative results:
In addition, if we were to lose our REIT status, we will be prohibited from qualifying as a REIT for the four taxable years following the year during which the qualification was lost, absent relief under statutory provisions. As a result, net income and the funds available for distributions to our stockholders would be reduced for at least five years and the fair market value of our shares could be materially adversely affected. Furthermore, the Internal Revenue Service could challenge our REIT status for past periods, which if successful could result in us owing a material amount of tax for prior periods. It is possible that future economic, market, legal, tax or other considerations might cause our board of directors to revoke our REIT election.
Even if we remain qualified as a REIT, we might face other tax liabilities that reduce our cash flow. Further, we might be subject to federal, state and local taxes on our income and property. Any of these taxes would decrease cash available for distributions to stockholders.
Complying with REIT requirements might cause us to forego otherwise attractive opportunities.
In order to qualify as a REIT for U.S. federal income tax purposes, we must satisfy tests concerning, among other things, our sources of income, the nature of our assets, the amounts we distribute to our stockholders and the ownership of our stock. We may also be required to make distributions to our stockholders at disadvantageous times or when we do not have funds readily available for distribution. Thus, compliance with REIT requirements may cause us to forego opportunities we would otherwise pursue.
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In addition, the REIT provisions of the Internal Revenue Code impose a 100% tax on income from "prohibited transactions." Prohibited transactions generally include sales of assets that constitute inventory or other property held for sale in the ordinary course of business, other than foreclosure property. This 100% tax could impact our desire to sell assets and other investments at otherwise opportune times if we believe such sales could be considered a prohibited transaction.
Complying with REIT requirements may force us to borrow to make distributions to our stockholders.
As a REIT, we generally must distribute 90% of our annual taxable income (subject to certain adjustments) to our stockholders. From time to time, we might generate taxable income greater than our net income for financial reporting purposes, or our taxable income might be greater than our cash flow available for distributions to our stockholders. If we do not have other funds available in these situations, we might be unable to distribute 90% of our taxable income as required by the REIT rules. In that case, we would need to borrow funds, sell a portion of our investments (potentially at disadvantageous prices) or find another alternative source of funds. These alternatives could increase our costs or reduce our equity and reduce amounts for investments.
Outside partners in Joint Venture Centers result in additional risks to our stockholders.
We own partial interests in property partnerships that own 42 Joint Venture Centers as well as fee title to a site that is ground leased to a property partnership that owns a Joint Venture Center and several development sites. We may acquire partial interests in additional properties through joint venture arrangements. Investments in Centers that are not Wholly Owned Centers involve risks different from those of investments in Wholly Owned Centers.
We may have fiduciary responsibilities to our partners that could affect decisions concerning the Joint Venture Centers. Third parties may share control of major decisions relating to the Joint Venture Centers, including decisions with respect to sales, refinancings and the timing and amount of additional capital contributions, as well as decisions that could have an adverse impact on our status. For example, we may lose our management rights relating to the Joint Venture Centers if:
In addition, some of our outside partners control the day-to-day operations of eight Joint Venture Centers (NorthPark Center, West Acres Center, Eastland Mall, Granite Run Mall, Lake Square Mall, NorthPark Mall, South Park Mall and Valley Mall). We, therefore, do not control cash distributions from these Centers, and the lack of cash distributions from these Centers could jeopardize our ability to maintain our qualification as a REIT. Furthermore, certain Joint Venture Centers have debt that could become recourse debt to us if the Joint Venture Center is unable to discharge such debt obligation.
Our holding company structure makes us dependent on distributions from the Operating Partnership.
Because we conduct our operations through the Operating Partnership, our ability to service our debt obligations and pay dividends to our stockholders is strictly dependent upon the earnings and cash flows of the Operating Partnership and the ability of the Operating Partnership to make distributions to us. Under the Delaware Revised Uniform Limited Partnership Act, the Operating Partnership is prohibited from making any distribution to us to the extent that at the time of the distribution, after giving effect to the distribution, all liabilities of the Operating Partnership (other than some
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non-recourse liabilities and some liabilities to the partners) exceed the fair value of the assets of the Operating Partnership. An inability to make cash distributions from the Operating Partnership could jeopardize our ability to maintain qualification as a REIT.
Possible environmental liabilities could adversely affect us.
Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in that real property. These laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of hazardous or toxic substances. The costs of investigation, removal or remediation of hazardous or toxic substances may be substantial. In addition, the presence of hazardous or toxic substances, or the failure to remedy environmental hazards properly, may adversely affect the owner's or operator's ability to sell or rent affected real property or to borrow money using affected real property as collateral.
Persons or entities that arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of hazardous or toxic substances at the disposal or treatment facility, whether or not that facility is owned or operated by the person or entity arranging for the disposal or treatment of hazardous or toxic substances. Laws exist that impose liability for release of ACMs into the air, and third parties may seek recovery from owners or operators of real property for personal injury associated with exposure to ACMs. In connection with our ownership, operation, management, development and redevelopment of the Centers, or any other centers or properties we acquire in the future, we may be potentially liable under these laws and may incur costs in responding to these liabilities.
Uninsured losses could adversely affect our financial condition.
Each of our Centers has comprehensive liability, fire, extended coverage and rental loss insurance with insured limits customarily carried for similar properties. We do not insure certain types of losses (such as losses from wars), because they are either uninsurable or not economically insurable. In addition, while we or the relevant joint venture, as applicable, carry earthquake insurance on the Centers located in California, the policies are subject to a deductible equal to 5% of the total insured value of each Center, a $100,000 per occurrence minimum and a combined annual aggregate loss limit of $106.6 million on these Centers. While we or the relevant joint venture also carries terrorism insurance on the Centers, the policies are subject to a $10,000 deductible and a combined annual aggregate loss limit of $800 million. Each Center has environmental insurance covering eligible third-party losses, remediation and non-owned disposal sites, subject to a $100,000 deductible and a $10 million three-year aggregate limit. Some environmental losses are not covered by this insurance because they are uninsurable or not economically insurable. Furthermore, we carry title insurance on many of the Centers for less than their full value. If an uninsured loss or a loss in excess of insured limits occurs, the entity that owns the affected Center could lose its capital invested in the Center, as well as the anticipated future revenue from the Center, while remaining obligated for any mortgage indebtedness or other financial obligations related to the Center. An uninsured loss or loss in excess of insured limits may negatively impact our financial condition.
As the general partner of the Operating Partnership and certain of the property partnerships, we are generally liable for any of its unsatisfied obligations other than non-recourse obligations.
An ownership limit and certain anti-takeover defenses could inhibit a change of control or reduce the value of our common stock.
The Ownership Limit. In order for us to maintain our qualification as a REIT, not more than 50% in value of our outstanding stock (after taking into account options to acquire stock) may be owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include
19
some entities that would not ordinarily be considered "individuals") during the last half of a taxable year. Our Charter restricts ownership of more than 5% (the "Ownership Limit") of the lesser of the number or value of our outstanding shares of stock by any single stockholder or a group of stockholders (with limited exceptions for some holders of limited partnership interests in the Operating Partnership, and their respective families and affiliated entities, including all four principals). In addition to enhancing preservation of our status as a REIT, the Ownership Limit may:
Our board of directors, in its sole discretion, may waive or modify (subject to limitations) the Ownership Limit with respect to one or more of our stockholders, if it is satisfied that ownership in excess of this limit will not jeopardize our status as a REIT.
Stockholder Rights Plan and Selected Provisions of our Charter and Bylaws. Agreements to which we are a party, as well as some of the provisions of our Charter and bylaws, may have the effect of delaying, deferring or preventing a third party from making an acquisition proposal for us and may inhibit a change in control that some, or a majority, of our stockholders might believe to be in their best interest or that could give our stockholders the opportunity to realize a premium over the then-prevailing market prices for our shares. These agreements and provisions include the following:
Selected Provisions of Maryland Law. The Maryland General Corporation Law prohibits business combinations between a Maryland corporation and an interested stockholder (which includes any person who beneficially holds 10% or more of the voting power of the corporation's shares) or its affiliates for five years following the most recent date on which the interested stockholder became an interested stockholder and, after the five-year period, requires the recommendation of the board of directors and two super-majority stockholder votes to approve a business combination unless the stockholders receive a minimum price determined by the statute. As permitted by Maryland law, our Charter exempts from
20
these provisions any business combination between us and the principals and their respective affiliates and related persons. Maryland law also allows the board of directors to exempt particular business combinations before the interested stockholder becomes an interested stockholder. Furthermore, a person is not an interested stockholder if the transaction by which he or she would otherwise have become an interested stockholder is approved in advance by the board of directors.
The Maryland General Corporation Law also provides that the acquirer of certain levels of voting power in electing directors of a Maryland corporation (one-tenth or more but less than one-third, one-third or more but less than a majority and a majority or more) is not entitled to vote the shares in excess of the applicable threshold, unless voting rights for the shares are approved by holders of two thirds of the disinterested shares or unless the acquisition of the shares has been specifically or generally approved or exempted from the statute by a provision in our Charter or bylaws adopted before the acquisition of the shares. Our Charter exempts from these provisions voting rights of shares owned or acquired by the principals and their respective affiliates and related persons. Our bylaws also contain a provision exempting from this statute any acquisition by any person of shares of our common stock. There can be no assurance that this bylaw will not be amended or eliminated in the future. The Maryland General Corporation Law and our Charter also contain supermajority voting requirements with respect to our ability to amend our Charter, dissolve, merge, or sell all or substantially all of our assets.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable
21
The following table sets forth certain information regarding the Centers and other locations that are wholly-owned or partly owned by the Company:
Company's Ownership(1) |
Name of Center/ Location(2) |
Year of Original Construction/ Acquisition |
Year of Most Recent Expansion/ Renovation |
Total GLA(3) |
Mall and Freestanding GLA |
Percentage of Mall and Freestanding GLA Leased |
Anchors |
Sales Per Square Foot(4) |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
WHOLLY OWNED: | ||||||||||||||||||
100 | % | Capitola Mall(5) Capitola, California |
1977/1995 | 1988 | 586,653 | 196,936 | 92.7 | % | Gottschalks, Macy's, Mervyn's, Sears | $ | 351 | |||||||
100 | % | Chandler Fashion Center Chandler, Arizona |
2001/2002 | -- | 1,325,450 | 640,290 | 97.6 | % | Dillard's, Macy's, Nordstrom, Sears | 653 | ||||||||
100 | % | Chesterfield Towne Center(6) Richmond, Virginia |
1975/1994 | 2000 | 1,035,593 | 426,858 | 80.0 | % | Dillard's, Macy's, Sears, J.C. Penney | 349 | ||||||||
100 | % | Danbury Fair Mall(6)(24) Danbury, Connecticut |
1986/2005 | 1991 | 1,295,086 | 498,878 | 97.1 | % | J.C. Penney, Lord & Taylor, Macy's, Sears | 589 | ||||||||
100 | % | Deptford Mall Deptford, New Jersey |
1975/2006 | 1990 | 1,033,224 | 336,782 | 97.3 | % | Boscov's, J.C. Penney, Macy's, Sears | 521 | ||||||||
100 | % | Fiesta Mall(7) Mesa, Arizona |
1979/2004 | 2007 | 827,873 | 309,682 | 93.0 | % | Dillard's, Macy's, Sears | 375 | ||||||||
100 | % | Flagstaff Mall Flagstaff, Arizona |
1979/2002 | 2007 | 343,599 | 139,587 | 92.6 | % | Dillard's, J.C. Penney, Sears | 382 | ||||||||
100 | % | FlatIron Crossing(6) Broomfield, Colorado |
2000/2002 | -- | 1,505,617 | 741,876 | 91.6 | % | Dillard's, Macy's, Nordstrom, Dick's Sporting Goods | 472 | ||||||||
100 | % | Freehold Raceway Mall(24) Freehold, New Jersey |
1990/2005 | 2007 | 1,654,364 | 862,740 | 96.5 | % | J.C. Penney, Lord & Taylor, Macy's, Nordstrom, Sears | 520 | ||||||||
100 | % | Fresno Fashion Fair Fresno, California |
1970/1996 | 2006 | 955,807 | 394,926 | 99.2 | % | Gottschalks, J.C. Penney, Macy's (two) | 545 | ||||||||
100 | % | Great Northern Mall(6)(24) Clay, New York |
1988/2005 | -- | 893,970 | 563,982 | 94.7 | % | Macy's, Sears | 268 | ||||||||
100 | % | Green Tree Mall Clarksville, Indiana |
1968/1975 | 2005 | 797,126 | 291,541 | 77.7 | % | Dillard's, J.C. Penney, Sears, Burlington Coat Factory | 411 | ||||||||
100 | % | La Cumbre Plaza(5) Santa Barbara, California |
1967/2004 | 1989 | 495,736 | 178,736 | 88.3 | % | Macy's, Sears | 446 | ||||||||
100 | % | Northgate Mall(5) San Rafael, California |
1964/1986 | 1987 | 732,543 | 262,212 | 92.6 | % | Macy's, Mervyn's, Sears | 397 | ||||||||
100 | % | Northridge Mall Salinas, California |
1972/2003 | 1994 | 892,859 | 355,879 | 98.5 | % | J.C. Penney, Macy's, Mervyn's, Sears | 350 | ||||||||
100 | % | Pacific View Ventura, California |
1965/1996 | 2001 | 1,059,916 | 411,102 | 73.7 | % | J.C. Penney, Macy's, Sears, Target(8) | 433 | ||||||||
100 | % | Panorama Mall Panorama, California |
1955/1979 | 2005 | 323,455 | 158,455 | 92.9 | % | Wal-Mart | 358 | ||||||||
100 | % | Paradise Valley Mall(6) Phoenix, Arizona |
1979/2002 | 1990 | 1,222,507 | 417,079 | 92.1 | % | Dillard's, J.C. Penney, Macy's, Sears | 368 | ||||||||
100 | % | Prescott Gateway Prescott, Arizona |
2002/2002 | 2004 | 589,025 | 344,837 | 89.8 | % | Dillard's, Sears, J.C. Penney | 276 | ||||||||
100 | % | Queens Center(5) Queens, New York |
1973/1995 | 2004 | 961,559 | 406,792 | 97.7 | % | J.C. Penney, Macy's | 845 | ||||||||
100 | % | Rimrock Mall Billings, Montana |
1978/1996 | 1999 | 605,759 | 294,089 | 87.6 | % | Dillard's (two), Herberger's, J.C. Penney | 380 | ||||||||
100 | % | Rotterdam Square(24) Schenectady, New York |
1980/2005 | 1990 | 582,939 | 273,164 | 89.8 | % | Macy's, K-Mart, Sears | 260 | ||||||||
100 | % | Salisbury, Centre at Salisbury, Maryland |
1990/1995 | 2005 | 852,205 | 354,789 | 94.8 | % | Boscov's, J.C. Penney, Macy's, Sears | 371 | ||||||||
100 | % | Somersville Towne Center Antioch, California |
1966/1986 | 2004 | 502,709 | 174,487 | 92.5 | % | Sears, Gottschalks, Mervyn's, Macy's | 405 | ||||||||
100 | % | South Plains Mall(5) Lubbock, Texas |
1972/1998 | 1995 | 1,142,545 | 400,758 | 88.5 | % | Bealls, Dillard's (two), J.C. Penney, Mervyn's, Sears | 370 | ||||||||
100 | % | South Towne Center Sandy, Utah |
1987/1997 | 1997 | 1,268,136 | 491,624 | 95.6 | % | Dillard's, J.C. Penney, Mervyn's, Target, Macy's | 433 | ||||||||
100 | % | Towne Mall(24) Elizabethtown, Kentucky |
1985/2005 | 1989 | 353,232 | 182,360 | 91.2 | % | J.C. Penney, Belk, Sears | 298 | ||||||||
100 | % | Twenty Ninth Street(5) Boulder, Colorado |
1963/1979 | 2007 | 827,497 | 535,843 | 91.6 | % | Macy's, Home Depot | 428 | ||||||||
100 | % | Valley River Center Eugene, Oregon |
1969/2006 | 2007 | 910,841 | 334,777 | 89.6 | % | Sports Authority, Gottschalks, Macy's, J.C. Penney | 463 |
22
100 | % | Valley View Center Dallas, Texas |
1973/1996 | 2004 | 1,635,449 | 577,552 | 95.9 | % | Dillard's, Macy's(9), J.C. Penney, Sears | $ | 273 | |||||||
100 | % | Victor Valley, Mall of Victorville, California |
1986/2004 | 2001 | 543,295 | 269,446 | 94.7 | % | Gottschalks, J.C. Penney, Mervyn's, Sears | 480 | ||||||||
100 | % | Vintage Faire Mall Modesto, California |
1977/1996 | 2001 | 1,084,422 | 384,503 | 97.2 | % | Gottschalks, J.C. Penney, Macy's (two), Sears | 562 | ||||||||
100 | % | Westside Pavilion Los Angeles, California |
1985/1998 | 2007 | 739,746 | 381,618 | 95.8 | % | Nordstrom, Macy's | 481 | ||||||||
100 | % | Wilton Mall at Saratoga(6)(24) Saratoga Springs, New York |
1990/2005 | 1998 | 745,267 | 457,201 | 96.0 | % | The Bon-Ton, J.C. Penney, Sears | 325 | ||||||||
Total/Average Wholly Owned | 30,326,004 | 13,051,381 | 92.7 | % | $ | 453 | ||||||||||||
JOINT VENTURES (VARIOUS PARTNERS): |
||||||||||||||||||
33.3 | % | Arrowhead Towne Center Glendale, Arizona |
1993/2002 | 2004 | 1,204,862 | 396,448 | 98.5 | % | Dick's Sporting Goods(10), Dillard's, Macy's, J.C. Penney, Sears, Mervyn's | $ | 611 | |||||||
50 | % | Biltmore Fashion Park Phoenix, Arizona |
1963/2003 | 2006 | 608,934 | 303,934 | 78.4 | % | Macy's, Saks Fifth Avenue | 821 | ||||||||
50 | % | Broadway Plaza(5) Walnut Creek, California |
1951/1985 | 1994 | 697,981 | 252,484 | 97.8 | % | Macy's (two), Nordstrom | 768 | ||||||||
50.1 | % | Corte Madera, Village at Corte Madera, California |
1985/1998 | 2005 | 439,573 | 221,573 | 90.4 | % | Macy's, Nordstrom | 875 | ||||||||
50 | % | Desert Sky Mall Phoenix, Arizona |
1981/2002 | 2007 | 893,457 | 282,962 | 93.6 | % | Sears, Dillard's, Burlington Coat Factory, Mervyn's, La Curacao | 323 | ||||||||
50 | % | Inland Center(5) San Bernardino, California |
1966/2004 | 2004 | 987,872 | 204,198 | 95.0 | % | Macy's, Sears, Gottschalks, Mervyn's(11) | 463 | ||||||||
15 | % | Metrocenter Mall(5) Phoenix, Arizona |
1973/2005 | 2006 | 1,122,959 | 595,710 | 90.2 | % | Dillard's, Macy's, Sears | 345 | ||||||||
50 | % | NorthPark Center(5) Dallas, Texas |
1965/2004 | 2005 | 1,963,326 | 911,006 | 96.8 | % | Dillard's, Macy's, Neiman Marcus, Nordstrom, Barneys New York | 694 | ||||||||
50 | % | Ridgmar Fort Worth, Texas |
1976/2005 | 2000 | 1,277,280 | 403,307 | 82.0 | % | Dillard's, Macy's, J.C. Penney, Neiman Marcus, Sears | 323 | ||||||||
50 | % | Scottsdale Fashion Square(12) Scottsdale, Arizona |
1961/2002 | 2007 | 1,840,182 | 857,902 | 94.1 | % | Barneys New York(13) Dillard's, Macy's Nordstrom, Neiman Marcus | 736 | ||||||||
33.3 | % | Superstition Springs Center(5) Mesa, Arizona |
1990/2002 | 2002 | 1,285,839 | 439,300 | 98.7 | % | Burlington Coat Factory, Dillard's, Macy's, J.C. Penney, Sears, Mervyn's, Best Buy | 425 | ||||||||
50 | % | Tysons Corner Center(5)(24) McLean, Virginia |
1990/2005 | 2005 | 2,198,039 | 1,309,797 | 98.8 | % | Bloomingdale's, Macy's, L.L. Bean, Lord & Taylor, Nordstrom | 721 | ||||||||
19 | % | West Acres Fargo, North Dakota |
1972/1986 | 2001 | 970,707 | 418,152 | 99.2 | % | Macy's, Herberger's, J.C. Penney, Sears | 475 | ||||||||
Total/Average Joint Ventures (Various Partners) | 15,491,011 | 6,596,773 | 94.5 | % | 596 | |||||||||||||
PACIFIC PREMIER RETAIL TRUST PROPERTIES: |
||||||||||||||||||
51 | % | Cascade Mall Burlington, Washington |
1989/1999 | 1998 | 587,174 | 262,938 | 90.7 | % | Macy's (two), J.C. Penney, Sears, Target | 355 | ||||||||
51 | % | Kitsap Mall(5) Silverdale, Washington |
1985/1999 | 1997 | 846,940 | 386,957 | 95.0 | % | Macy's, J.C. Penney, Kohl's, Sears | 407 | ||||||||
51 | % | Lakewood Mall(5)(6) Lakewood, California |
1953/1975 | 2001 | 2,088,228 | 980,244 | 96.0 | % | Home Depot, Target, J.C. Penney, Macy's, Mervyn's | 441 | ||||||||
51 | % | Los Cerritos Center(6) Cerritos, California |
1971/1999 | 1998 | 1,290,420 | 489,139 | 95.0 | % | Macy's, Mervyn's, Nordstrom, Sears | 553 | ||||||||
51 | % | Redmond Town Center(5)(12) Redmond, Washington |
1997/1999 | 2000 | 1,283,683 | 1,173,683 | 97.6 | % | Macy's | 382 | ||||||||
51 | % | Stonewood Mall(5) Downey, California |
1953/1997 | 1991 | 930,655 | 359,908 | 97.8 | % | J.C. Penney, Mervyn's, Macy's, Sears | 449 |
23
51 | % | Washington Square Portland, Oregon |
1974/1999 | 2005 | 1,455,317 | 520,290 | 88.1 | % | J.C. Penney, Macy's, Dick's Sporting Goods(10), Nordstrom, Sears | $ | 709 | |||||||
Total/Average Pacific Premier Retail Trust Properties | 8,482,417 | 4,173,159 | 95.1 | % | $ | 485 | ||||||||||||
SDG MACERICH PROPERTIES, L.P. PROPERTIES: |
||||||||||||||||||
50 | % | Eastland Mall(5) Evansville, Indiana |
1978/1998 | 1996 | 1,040,025 | 550,881 | 94.9 | % | Dillard's, J.C. Penney, Macy's | $ | 371 | |||||||
50 | % | Empire Mall(5) Sioux Falls, South Dakota |
1975/1998 | 2000 | 1,363,110 | 617,588 | 96.1 | % | Macy's, J.C. Penney, Richman-Gordmans 1/2 Price, Kohl's, Sears, Target, Younkers | 390 | ||||||||
50 | % | Granite Run Mall Media, Pennsylvania |
1974/1998 | 1993 | 1,036,166 | 535,357 | 90.1 | % | Boscov's, J.C. Penney, Sears | 287 | ||||||||
50 | % | Lake Square Mall Leesburg, Florida |
1980/1998 | 1995 | 553,019 | 256,982 | 79.1 | % | Belk, J.C. Penney, Sears, Target | 276 | ||||||||
50 | % | Lindale Mall Cedar Rapids, Iowa |
1963/1998 | 1997 | 688,394 | 382,831 | 90.3 | % | Sears, Von Maur, Younkers | 318 | ||||||||
50 | % | Mesa Mall Grand Junction, Colorado |
1980/1998 | 2003 | 836,721 | 395,513 | 94.0 | % | Herberger's, J.C. Penney, Mervyn's, Sears, Target | 433 | ||||||||
50 | % | NorthPark Mall Davenport, Iowa |
1973/1998 | 2001 | 1,073,035 | 422,579 | 86.7 | % | J.C. Penney, Dillard's, Sears, Von Maur, Younkers | 271 | ||||||||
50 | % | Rushmore Mall Rapid City, South Dakota |
1978/1998 | 1992 | 832,582 | 427,922 | 94.2 | % | Herberger's, J.C. Penney, Sears, Target | 361 | ||||||||
50 | % | Southern Hills Mall Sioux City, Iowa |
1980/1998 | 2003 | 798,856 | 485,279 | 91.0 | % | Sears, Younkers, J.C. Penney | 309 | ||||||||
50 | % | SouthPark Mall Moline, Illinois |
1974/1998 | 1990 | 1,024,004 | 445,948 | 83.8 | % | J.C. Penney, Sears, Younkers, Von Maur, Dillard's | 222 | ||||||||
50 | % | SouthRidge Mall Des Moines, Iowa |
1975/1998 | 1998 | 869,390 | 480,638 | 83.1 | % | Sears, Younkers, J.C. Penney, Target | 182 | ||||||||
50 | % | Valley Mall(6) Harrisonburg, Virginia |
1978/1998 | 1992 | 505,792 | 190,714 | 87.2 | % | Belk, J.C. Penney, Target | 270 | ||||||||
Total/Average SDG Macerich Properties, L.P. Properties | 10,621,094 | 5,192,232 | 89.9 | % | $ | 317 | ||||||||||||
Total/Average Joint Ventures | 34,594,522 | 15,962,164 | 93.2 | % | $ | 483 | ||||||||||||
Total/Average before Community Centers | 64,920,526 | 29,013,545 | 93.0 | % | $ | 469 | ||||||||||||
COMMUNITY / SPECIALTY CENTERS: |
||||||||||||||||||
100 | % | Borgata, The Scottsdale, Arizona |
1981/2002 | 2006 | 93,628 | 93,628 | 83.2 | % | -- | $ | 501 | |||||||
50 | % | Boulevard Shops Chandler, Arizona |
2001/2002 | 2004 | 180,823 | 180,823 | 100.0 | % | -- | 421 | ||||||||
75 | % | Camelback Colonnade Phoenix, Arizona |
1961/2002 | 1994 | 624,101 | 544,101 | 99.7 | % | Mervyn's | 330 | ||||||||
100 | % | Carmel Plaza Carmel, California |
1974/1998 | 2006 | 111,150 | 111,150 | 81.5 | % | -- | 551 | ||||||||
50 | % | Chandler Festival Chandler, Arizona |
2001/2002 | -- | 503,735 | 368,538 | 98.6 | % | Lowe's | 287 | ||||||||
50 | % | Chandler Gateway Chandler, Arizona |
2001/2002 | -- | 255,289 | 124,238 | 100.0 | % | The Great Indoors | 396 | ||||||||
50 | % | Chandler Village Center Chandler, Arizona |
2004/2002 | 2006 | 273,418 | 130,285 | 100.0 | % | Target | 212 | ||||||||
100 | % | Flagstaff Mall, The Marketplace at Flagstaff, Arizona |
2007/-- | 2007 | 267,538 | 147,008 | 100.0 | % | Home Depot | N/A | ||||||||
100 | % | Hilton Village(5)(12)(23) Scottsdale, Arizona |
1982/2002 | -- | 96,546 | 96,546 | 97.1 | % | -- | 500 | ||||||||
24.5 | % | Kierland Commons Scottsdale, Arizona |
1999/2005 | 2003 | 435,022 | 435,022 | 100.0 | % | -- | 755 | ||||||||
100 | % | Paradise Village Office Park II Phoenix, Arizona |
1982/2002 | -- | 46,834 | 46,834 | 97.2 | % | -- | N/A | ||||||||
34.9 | % | SanTan Village Power Center Gilbert, Arizona |
2004/2004 | 2007 | 491,037 | 284,510 | 100.0 | % | Wal-Mart | 268 |
24
100 | % | Tucson La Encantada Tucson, Arizona |
2002/2002 | 2005 | 250,624 | 250,624 | 89.5 | % | -- | $ | 672 | |||||||
100 | % | Village Center Phoenix, Arizona |
1985/2002 | -- | 170,801 | 59,055 | 100.0 | % | Target | 325 | ||||||||
100 | % | Village Crossroads Phoenix, Arizona |
1993/2002 | -- | 185,186 | 84,477 | 91.6 | % | Wal-Mart | 286 | ||||||||
100 | % | Village Fair Phoenix, Arizona |
1989/2002 | -- | 271,417 | 207,817 | 97.1 | % | Best Buy | 235 | ||||||||
100 | % | Village Plaza Phoenix, Arizona |
1978/2002 | -- | 79,754 | 79,754 | 96.8 | % | -- | 314 | ||||||||
100 | % | Village Square I Phoenix, Arizona |
1978/2002 | -- | 21,606 | 21,606 | 100.0 | % | -- | 185 | ||||||||
100 | % | Village Square II(5) Phoenix, Arizona |
1978/2002 | -- | 146,193 | 70,393 | 96.4 | % | Mervyn's | 210 | ||||||||
Total/Average Community / Specialty Centers | 4,504,702 | 3,336,409 | 97.2 | % | 464 | |||||||||||||
Total before major development and redevelopment properties and other assets | 69,425,228 | 32,349,954 | 93.4 | % | 468 | |||||||||||||
MAJOR DEVELOPMENT AND REDEVELOPMENT PROPERTIES: |
||||||||||||||||||
51.3 | % | Promenade at Casa Grande(14) Casa Grande, Arizona |
2007/-- | 2007 ongoing | 827,726 | 389,976 | (15) | Dillard's, J.C. Penney, Kohl's, Target | N/A | |||||||||
84.7 | % | SanTan Village Regional Center(16) Gilbert, Arizona |
2007/-- | 2007 ongoing | 788,510 | 588,510 | (15) | Dillard's | N/A | |||||||||
100 | % | Santa Monica Place(6)(17) Santa Monica, California |
1980/1999 | 1990 | 556,933 | 273,683 | (15) | Macy's, | N/A | |||||||||
100 | % | Shoppingtown Mall(6)(24) Dewitt, New York |
1954/2005 | 2000 | 1,002,084 | 519,384 | (15) | J.C. Penney, Macy's, Sears | N/A | |||||||||
100 | % | The Oaks(6) Thousand Oaks, California |
1978/2002 | 1993 | 1,047,095 | 344,020 | (15) | J.C. Penney, Macy's (two), Nordstrom(18) | N/A | |||||||||
Total Major Development and Redevelopment Properties | 4,222,348 | 2,115,573 | ||||||||||||||||
OTHER ASSETS: |
||||||||||||||||||
100 | % | Mervyn's(19) | Various/2007 | 2,198,221 | -- | -- | -- | N/A | ||||||||||
100 | % | Paradise Village Investment Co. ground leases | Various/2002 | 165,968 | 165,968 | 80.9 | % | -- | N/A | |||||||||
30 | % | Wilshire Building | 1978/2007 | 40,000 | 40,000 | 100.0 | % | -- | N/A | |||||||||
Total Other Assets | 2,404,189 | 205,968 | N/A | |||||||||||||||
Total before Rochester Properties | 76,051,765 | 34,671,495 | ||||||||||||||||
ROCHESTER PROPERTIES(20)(24): |
||||||||||||||||||
100 | % | Eastview Mall(25) Victor, New York |
1971/2005 | 2003 | 1,686,690 | 789,608 | N/A | The Bon-Ton, Home Depot, J.C. Penney, Macy's, Lord & Taylor, Sears, Target | N/A | |||||||||
100 | % | Greece Ridge Center Greece, New York |
1967/2005 | 1993 | 1,474,093 | 847,009 | N/A | Burlington Coat Factory, The Bon-Ton, J.C. Penney, Macy's, Sears | N/A | |||||||||
37.5 | % | Marketplace Mall, The(5) Henrietta, New York |
1982/2005 | 1993 | 1,019,092 | 504,500 | N/A | The Bon-Ton, J.C. Penney, Macy's, Sears | N/A | |||||||||
63.6 | % | Pittsford Plaza Pittsford, New York |
1965/2005 | 1982 | 476,167 | 389,717 | N/A | | N/A | |||||||||
Total Rochester Properties | 4,656,042 | 2,530,834 | ||||||||||||||||
Grand Total at December 31, 2007 | 80,707,807 | 37,202,329 | ||||||||||||||||
25
January 2008 Acquisition | ||||||||||||||||||
50 | % | North Bridge, The Shops at(5)(12)(21) Chicago, Illinois |
1998/2008 | -- | 680,933 | 420,933 | 98.5 | % | Nordstrom | $ | 843 | |||||||
Post Rochester Redemption and Acquisition of The Shops at North Bridge | 76,732,698 | 35,092,428 | 93.5 | % | $ | 471 | (22) | |||||||||||
26
Mortgage Debt
The following table sets forth certain information regarding the mortgages encumbering the Centers, including those Centers in which the Company has less than a 100% interest. The information set forth below is as of December 31, 2007 (dollars in thousands):
Property Pledged as Collateral |
Fixed or Floating |
Annual Interest Rate |
Carrying Amount(1) |
Annual Debt Service |
Maturity Date |
Balance Due on Maturity |
Earliest Date Notes Can Be Defeased or Be Prepaid |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Consolidated Centers: | |||||||||||||||||
Capitola Mall(2) | Fixed | 7.13 | % | $ | 39,310 | $ | 4,558 | 5/15/11 | $ | 32,724 | Any Time | ||||||
Carmel Plaza | Fixed | 8.18 | % | 26,253 | 2,421 | 5/1/09 | 25,642 | Any Time | |||||||||
Chandler Fashion Center | Fixed | 5.52 | % | 169,789 | 12,514 | 11/1/12 | 152,097 | Any Time | |||||||||
Chesterfield Towne Center(3) | Fixed | 9.07 | % | 55,702 | 6,580 | 1/1/24 | 1,087 | Any Time | |||||||||
Danbury Fair Mall | Fixed | 4.64 | % | 176,457 | 14,698 | 2/1/11 | 155,173 | Any Time | |||||||||
Deptford Mall(4) | Fixed | 5.41 | % | 172,500 | 9,382 | 1/15/13 | 172,500 | 8/1/09 | |||||||||
Eastview Commons(5) | Fixed | 5.46 | % | 8,814 | 792 | 9/30/10 | 7,942 | Any Time | |||||||||
Eastview Mall(5) | Fixed | 5.10 | % | 101,007 | 7,107 | 1/18/14 | 87,927 | Any Time | |||||||||
Fiesta Mall | Fixed | 4.98 | % | 84,000 | 4,152 | 1/1/15 | 84,000 | Any Time | |||||||||
Flagstaff Mall | Fixed | 5.03 | % | 37,000 | 1,863 | 11/1/15 | 37,000 | Any Time | |||||||||
FlatIron Crossing | Fixed | 5.26 | % | 187,736 | 13,223 | 12/1/13 | 164,187 | Any Time | |||||||||
Freehold Raceway Mall | Fixed | 4.68 | % | 177,686 | 14,208 | 7/7/11 | 155,678 | Any Time | |||||||||
Fresno Fashion Fair | Fixed | 6.52 | % | 63,590 | 5,244 | 8/10/08 | 62,974 | Any Time | |||||||||
Great Northern Mall | Fixed | 5.19 | % | 40,285 | 2,685 | 12/1/13 | 35,566 | Any Time | |||||||||
Greece Ridge Center(5)(6) | Floating | 5.97 | % | 72,000 | 4,298 | 11/6/08 | 72,000 | Any Time | |||||||||
Hilton Village(7) | Fixed | 5.27 | % | 8,530 | 448 | 2/1/12 | 8,600 | 5/8/09 | |||||||||
La Cumbre Plaza(8) | Floating | 6.48 | % | 30,000 | 1,944 | 8/9/08 | 30,000 | Any Time | |||||||||
Marketplace Mall(5) | Fixed | 5.30 | % | 39,345 | 3,204 | 12/10/17 | 24,353 | Any Time | |||||||||
Northridge Mall | Fixed | 4.94 | % | 81,121 | 5,438 | 7/1/09 | 70,991 | Any Time | |||||||||
Pacific View | Fixed | 7.23 | % | 88,857 | 7,780 | 8/31/11 | 83,045 | Any Time | |||||||||
Panorama Mall(9) | Floating | 6.00 | % | 50,000 | 2,999 | 2/28/10 | 50,000 | Any Time | |||||||||
Paradise Valley Mall | Fixed | 5.89 | % | 21,231 | 2,193 | 5/1/09 | 19,863 | Any Time | |||||||||
Pittsford Plaza(5) | Fixed | 5.02 | % | 24,596 | 1,914 | 1/1/13 | 20,673 | Any Time | |||||||||
Pittsford Plaza(5)(10) | Fixed | 6.52 | % | 9,148 | 596 | 1/1/13 | 9,148 | Any Time | |||||||||
Prescott Gateway | Fixed | 5.86 | % | 60,000 | 3,468 | 12/1/11 | 60,000 | 12/21/08 | |||||||||
Promenade at Casa Grande(11) | Floating | 6.35 | % | 79,964 | 5,078 | 8/16/09 | 79,964 | Any Time | |||||||||
Queens Center | Fixed | 7.10 | % | 90,519 | 7,595 | 3/1/09 | 88,651 | Any Time | |||||||||
Queens Center(12) | Fixed | 7.00 | % | 217,077 | 18,013 | 3/31/13 | 204,203 | 2/19/08 | |||||||||
Rimrock Mall | Fixed | 7.56 | % | 42,828 | 3,841 | 10/1/11 | 40,025 | Any Time | |||||||||
Salisbury, Center at | Fixed | 5.83 | % | 115,000 | 6,659 | 5/1/16 | 115,000 | 6/29/08 | |||||||||
Santa Monica Place | Fixed | 7.79 | % | 79,014 | 7,272 | 11/1/10 | 75,544 | Any Time | |||||||||
Shoppingtown Mall | Fixed | 5.01 | % | 44,645 | 3,828 | 5/11/11 | 38,968 | Any Time | |||||||||
South Plains Mall | Fixed | 8.29 | % | 58,732 | 5,448 | 3/1/09 | 57,557 | Any Time | |||||||||
South Towne Center | Fixed | 6.66 | % | 64,000 | 4,289 | 10/10/08 | 64,000 | Any Time | |||||||||
Towne Mall | Fixed | 4.99 | % | 14,838 | 1,206 | 11/1/12 | 12,316 | Any Time | |||||||||
Tucson La Encantada(2)(13) | Fixed | 5.84 | % | 78,000 | 4,555 | 6/1/12 | 78,000 | Any Time | |||||||||
Twenty Ninth Street(14) | Floating | 5.93 | % | 110,558 | 6,556 | 6/5/09 | 110,558 | Any Time | |||||||||
Valley River Center(15) | Fixed | 5.60 | % | 120,000 | 6,720 | 2/1/16 | 120,000 | 2/1/09 | |||||||||
Valley View Center | Fixed | 5.81 | % | 125,000 | 7,247 | 1/1/11 | 125,000 | 3/14/08 | |||||||||
Victor Valley, Mall of | Fixed | 4.60 | % | 51,211 | 3,645 | 3/1/08 | 50,850 | Any Time | |||||||||
Village Fair North | Fixed | 5.89 | % | 10,880 | 983 | 7/15/08 | 10,710 | Any Time | |||||||||
Vintage Faire Mall | Fixed | 7.91 | % | 64,386 | 6,099 | 9/1/10 | 61,372 | Any Time | |||||||||
Westside Pavilion | Fixed | 6.74 | % | 92,037 | 7,538 | 7/1/08 | 91,133 | Any Time | |||||||||
Wilton Mall | Fixed | 4.79 | % | 44,624 | 4,183 | 11/1/09 | 40,838 | Any Time | |||||||||
$ | 3,328,270 | ||||||||||||||||
27
Joint Venture Centers (at Company's Pro Rata Share): |
|||||||||||||||||
Arrowhead Towne Center (33.3%) | Fixed | 6.38 | % | $ | 26,567 | $ | 2,240 | 10/1/11 | $ | 24,256 | Any Time | ||||||
Biltmore Fashion Park (50%) | Fixed | 4.70 | % | 38,201 | 2,433 | 7/10/09 | 34,972 | Any Time | |||||||||
Boulevard Shops (50%)(16) | Floating | 5.93 | % | 10,700 | 635 | 12/17/10 | 10,700 | Any Time | |||||||||
Broadway Plaza (50%)(2) | Fixed | 6.68 | % | 29,963 | 3,089 | 8/1/08 | 29,315 | Any Time | |||||||||
Camelback Colonnade (75%)(17) | Floating | 5.79 | % | 31,125 | 1,802 | 10/9/08 | 31,125 | Any Time | |||||||||
Cascade (51%) | Fixed | 5.27 | % | 20,110 | 1,362 | 7/1/10 | 19,221 | Any Time | |||||||||
Chandler Festival (50%) | Fixed | 4.37 | % | 14,865 | 958 | 10/1/08 | 14,583 | Any Time | |||||||||
Chandler Gateway (50%) | Fixed | 5.19 | % | 9,389 | 658 | 10/1/08 | 9,223 | Any Time | |||||||||
Chandler Village Center (50%)(18) | Floating | 6.14 | % | 8,643 | 531 | 1/15/11 | 8,643 | Any Time | |||||||||
Corte Madera, The Village at (50.1%) | Fixed | 7.75 | % | 32,653 | 3,095 | 11/1/09 | 31,534 | Any Time | |||||||||
Desert Sky Mall (50%)(19) | Floating | 6.13 | % | 25,750 | 1,578 | 3/6/08 | 25,750 | 10/26/08 | |||||||||
Eastland Mall (50%) | Fixed | 5.80 | % | 84,000 | 4,836 | 6/1/16 | 84,000 | 6/22/08 | |||||||||
Empire Mall (50%) | Fixed | 5.81 | % | 88,150 | 5,104 | 6/1/16 | 88,150 | 11/29/08 | |||||||||
Granite Run (50%) | Fixed | 5.84 | % | 59,906 | 4,311 | 6/1/16 | 51,504 | 6/7/08 | |||||||||
Inland Center (50%) | Fixed | 4.69 | % | 27,000 | 1,270 | 2/11/09 | 27,000 | Any Time | |||||||||
Kierland Greenway (24.5%) | Fixed | 6.01 | % | 15,846 | 1,144 | 1/1/13 | 13,679 | Any Time | |||||||||
Kierland Main Street (24.5%) | Fixed | 4.99 | % | 3,808 | 251 | 1/2/13 | 3,502 | Any Time | |||||||||
Kierland Tower Lofts (15%)(20) | Floating | 6.63 | % | 6,659 | 441 | 12/14/08 | 6,659 | Any Time | |||||||||
Kitsap Mall/Place (51%) | Fixed | 8.14 | % | 29,209 | 2,755 | 6/1/10 | 28,143 | Any Time | |||||||||
Lakewood Mall (51%) | Fixed | 5.43 | % | 127,500 | 6,995 | 6/1/15 | 127,500 | Any Time | |||||||||
Los Cerritos Center (51%)(21) | Floating | 5.92 | % | 66,300 | 3,926 | 7/1/11 | 66,300 | Any Time | |||||||||
Mesa Mall (50%) | Fixed | 5.82 | % | 43,625 | 2,526 | 6/1/16 | 43,625 | 8/29/08 | |||||||||
Metrocenter Mall (15%)(22) | Fixed | 5.34 | % | 16,800 | 806 | 2/9/09 | 16,800 | Any Time | |||||||||
Metrocenter Mall (15%)(23) | Floating | 8.54 | % | 3,240 | 277 | 2/9/09 | 3,240 | Any Time | |||||||||
NorthPark Center (50%)(24) | Fixed | 5.95 | % | 93,504 | 7,133 | 5/10/12 | 82,181 | Any Time | |||||||||
NorthPark Center (50%)(24) | Fixed | 8.33 | % | 41,656 | 3,996 | 5/10/12 | 38,919 | Any Time | |||||||||
NorthPark Land (50%) | Fixed | 8.33 | % | 40,236 | 3,858 | 5/10/12 | 33,633 | Any Time | |||||||||
NorthPark Land (50%)(25) | Floating | 8.25 | % | 3,500 | 289 | 8/30/08 | 3,500 | Any Time | |||||||||
Redmond Office (51%)(2) | Fixed | 6.77 | % | 33,690 | 4,443 | 7/10/09 | 30,285 | Any Time | |||||||||
Redmond Retail (51%) | Fixed | 4.81 | % | 36,789 | 2,025 | 8/1/09 | 27,164 | Any Time | |||||||||
Ridgmar (50%) | Fixed | 6.11 | % | 28,700 | 1,800 | 4/11/10 | 28,700 | Any Time | |||||||||
Rushmore (50%) | Fixed | 5.82 | % | 47,000 | 2,721 | 6/1/16 | 47,000 | 8/2/08 | |||||||||
SanTan Village Power Center (34.9%) | Fixed | 5.33 | % | 15,705 | 837 | 2/1/12 | 15,705 | Any Time | |||||||||
Scottsdale Fashion Square (50%)(26) | Fixed | 5.66 | % | 275,000 | 15,563 | 7/8/13 | 275,000 | 10/30/09 | |||||||||
Southern Hills (50%) | Fixed | 5.82 | % | 50,750 | 2,938 | 6/1/16 | 50,750 | 8/2/08 | |||||||||
Stonewood Mall (51%) | Fixed | 7.44 | % | 37,735 | 3,298 | 12/11/10 | 36,244 | Any Time | |||||||||
Superstition Springs Center (33.3%)(27) | Floating | 5.37 | % | 22,498 | 1,208 | 9/9/08 | 22,498 | 3/9/08 | |||||||||
Tysons Corner Center (50%) | Fixed | 4.78 | % | 168,955 | 11,232 | 2/17/14 | 147,595 | Any Time | |||||||||
Valley Mall (50%) | Fixed | 5.85 | % | 23,302 | 1,678 | 6/1/16 | 20,046 | 6/22/08 | |||||||||
Washington Square (51%) | Fixed | 6.72 | % | 49,932 | 5,051 | 2/1/09 | 48,021 | Any Time | |||||||||
Washington Square (51%)(28) | Floating | 7.23 | % | 16,547 | 1,196 | 2/1/09 | 16,547 | Any Time | |||||||||
West Acres (19%) | Fixed | 6.41 | % | 13,039 | 850 | 10/1/16 | 5,684 | Any Time | |||||||||
Wilshire Blvd. (30%)(29) | Fixed | 6.35 | % | 1,864 | 118 | 1/1/33 | 42 | 1/1/08 | |||||||||
$ | 1,820,411 | ||||||||||||||||
28
rate in the above tables represents the effective interest rate, including the debt premiums (discounts) and loan finance costs.
The debt premiums (discounts) as of December 31, 2007 consisted of the following (dollars in thousands):
Consolidated Centers
Property Pledged as Collateral |
|
|||
---|---|---|---|---|
Danbury Fair Mall | $ | 13,405 | ||
Eastview Commons | 573 | |||
Eastview Mall | 1,736 | |||
Freehold Raceway Mall | 12,373 | |||
Great Northern Mall | (164 | ) | ||
Hilton Village | (70 | ) | ||
Marketplace Mall | 1,650 | |||
Paradise Valley Mall | 392 | |||
Pittsford Plaza | 857 | |||
Shoppingtown Mall | 3,731 | |||
Towne Mall | 464 | |||
Victor Valley, Mall of | 54 | |||
Village Fair North | 49 | |||
Wilton Mall | 2,729 | |||
$ | 37,779 | |||
Joint Venture Centers (at Company's Pro Rata Share)
Property Pledged as Collateral |
|
|||
---|---|---|---|---|
Arrowhead Towne Center | $ | 413 | ||
Biltmore Fashion Park | 1,559 | |||
Kierland Greenway | 732 | |||
Tysons Corner Center | 3,468 | |||
Wilshire Blvd. | (131 | ) | ||
$ | 6,041 | |||
29
interest rate cap agreement over the loan term which effectively prevents LIBOR from exceeding 7.12%. At December 31, 2007, the total interest rate was 6.48%.
30
which effectively prevent LIBOR from exceeding 5.25% on $11,500 of the loan and 7.25% on the remaining $25,880 of the loan. In connection with the loan extension, the joint venture entered into an interest rate swap agreement for $133.6 million to convert both loans at this property from floating rate debt to fixed rate debt of 4.57%, which effectively limits the weighted average interest rate on these loans to 5.92% from February 15, 2008 through February 15, 2009. At December 31, 2007, the total interest rate was 8.54%.
None of the Company, the Operating Partnership, the Management Companies or their respective affiliates are currently involved in any material litigation nor, to the Company's knowledge, is any material litigation currently threatened against such entities or the Centers, other than routine litigation arising in the ordinary course of business, most of which is expected to be covered by liability insurance. For information about certain environmental matters, see "Business--Environmental Matters."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
31
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The common stock of the Company is listed and traded on the New York Stock Exchange under the symbol "MAC". The common stock began trading on March 10, 1994 at a price of $19 per share. In 2007, the Company's shares traded at a high of $103.59 and a low of $69.44.
As of February 8, 2008, there were approximately 961 stockholders of record. The following table shows high and low closing prices per share of common stock during each quarter in 2007 and 2006 and dividends/distributions per share of common stock declared and paid by quarter:
|
Market Quotation Per Share |
|
|||||||
---|---|---|---|---|---|---|---|---|---|
|
Dividends/ Distributions Declared/Paid |
||||||||
Quarter Ended |
High |
Low |
|||||||
March 31, 2007 | $ | 103.32 | $ | 85.76 | $ | 0.71 | |||
June 30, 2007 | 97.69 | 81.17 | 0.71 | ||||||
September 30, 2007 | 87.58 | 73.14 | 0.71 | ||||||
December 31, 2007 | 92.66 | 70.63 | 0.80 | ||||||
March 31, 2006 |
$ |
75.13 |
$ |
68.89 |
$ |
0.68 |
|||
June 30, 2006 | 74.05 | 67.90 | 0.68 | ||||||
September 30, 2006 | 77.11 | 70.02 | 0.68 | ||||||
December 31, 2006 | 87.00 | 76.16 | 0.71 |
At December 31, 2007, the Company had outstanding 3,067,131 shares of its Series A cumulative convertible redeemable preferred stock ("Series A Preferred Stock"). There is no established public trading market for the Series A Preferred Stock. The Series A Preferred Stock was issued on February 25, 1998. Preferred stock dividends are accrued quarterly and paid in arrears. The Series A Preferred Stock can be converted on a one for one basis into common stock and pays a quarterly dividend equal to the greater of $0.46 per share, or the dividend then payable on a share of common stock. No dividends will be declared or paid on any class of common or other junior stock to the extent that dividends on Series A Preferred Stock have not been declared and/or paid. The following table shows the dividends per share of Series A Preferred Stock declared and paid by quarter in 2007 and 2006:
|
Series A Preferred Stock Dividend |
|||||
---|---|---|---|---|---|---|
Quarter Ended |
Declared |
Paid |
||||
March 31, 2007 | $ | 0.71 | $ | 0.71 | ||
June 30, 2007 | 0.71 | 0.71 | ||||
September 30, 2007 | 0.80 | 0.71 | ||||
December 31, 2007 | 0.80 | 0.80 | ||||
March 31, 2006 |
$ |
0.68 |
$ |
0.68 |
||
June 30, 2006 | 0.68 | 0.68 | ||||
September 30, 2006 | 0.71 | 0.68 | ||||
December 31, 2006 | 0.71 | 0.71 |
The Company's existing financing agreements limit, and any other financing agreements that the Company enters into in the future will likely limit, the Company's ability to pay cash dividends. Specifically, the Company may pay cash dividends and make other distributions based on a formula derived from Funds from Operations (See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Funds From Operations") and only if no event of default under the financing agreements has occurred, unless, under certain circumstances, payment of the distribution is necessary to enable the Company to qualify as a REIT under the Code.
32
Stock Performance Graph
The following graph provides a comparison, from December 31, 2002 through December 31, 2007, of the yearly percentage change in the cumulative total stockholder return (assuming reinvestment of dividends) of the Company, the Standard & Poor's ("S&P") 500 Index, the S&P Midcap 400 Index and the NAREIT All Equity REIT Index (the "NAREIT Index"), an industry index of publicly-traded REITs (including the Company). The Company is providing the S&P Midcap 400 Index since it is a company within such index.
The graph assumes that the value of the investment in each of the Company's common stock and the indices was $100 at the beginning of the period. The graph further assumes the reinvestment of dividends.
Upon written request directed to the Secretary of the Company, the Company will provide any stockholder with a list of the REITs included in the NAREIT Index. The historical information set forth below is not necessarily indicative of future performance. Data for the NAREIT Index, the S&P 500 Index and the S&P Midcap 400 Index were provided to the Company by Research Data Group, Inc.
Copyright © 2008, Standard & Poor's, a division of The McGraw-Hill Companies, Inc. All rights reserved. www.researchdatagroup.com/S&P.htm
|
12/31/02 |
12/31/03 |
12/31/04 |
12/31/05 |
12/31/06 |
12/31/07 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
The Macerich Company | $ | 100.00 | $ | 154.38 | $ | 229.09 | $ | 255.36 | $ | 341.95 | $ | 290.34 | ||||||
S&P 500 Index | 100.00 | 128.68 | 142.69 | 149.70 | 173.34 | 182.87 | ||||||||||||
S&P Midcap 400 Index | 100.00 | 135.62 | 157.97 | 177.81 | 196.16 | 211.81 | ||||||||||||
NAREIT Equity Index | 100.00 | 137.13 | 180.44 | 202.38 | 273.34 | 230.45 |
33
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth selected financial data for the Company on a historical basis. The following data should be read in conjunction with the financial statements (and the notes thereto) of the Company and "Management's Discussion and Analysis of Financial Condition and Results of Operations" each included elsewhere in this Form 10-K/A. All amounts are in thousands except per share data.
|
Years Ended December 31, |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2007(1) |
2006(1) |
2005(1) |
2004 |
2003 |
|||||||||||||
|
(Restated) |
(Restated) |
(Restated) |
|
|
|||||||||||||
OPERATING DATA: | ||||||||||||||||||
Revenues: | ||||||||||||||||||
Minimum rents(2) | $ | 474,885 | $ | 438,261 | $ | 392,046 | $ | 294,846 | $ | 256,974 | ||||||||
Percentage rents | 26,104 | 23,876 | 23,744 | 15,655 | 10,646 | |||||||||||||
Tenant recoveries | 245,332 | 227,575 | 195,896 | 145,055 | 139,380 | |||||||||||||
Management Companies(3) | 39,752 | 31,456 | 26,128 | 21,549 | 14,630 | |||||||||||||
Other | 27,199 | 28,451 | 22,333 | 18,070 | 16,487 | |||||||||||||
Total revenues | 813,272 | 749,619 | 660,147 | 495,175 | 438,117 | |||||||||||||
Shopping center and operating expenses | 256,426 | 233,669 | 203,829 | 146,465 | 136,881 | |||||||||||||
Management Companies' operating expenses(3) | 73,761 | 56,673 | 52,840 | 44,080 | 32,031 | |||||||||||||
REIT general and administrative expenses | 16,600 | 13,532 | 12,106 | 11,077 | 8,482 | |||||||||||||
Depreciation and amortization | 212,518 | 196,760 | 171,987 | 128,413 | 95,888 | |||||||||||||
Interest expense | 250,127 | 260,705 | 228,061 | 134,549 | 121,105 | |||||||||||||
Loss on early extinguishment of debt | 877 | 1,835 | 1,666 | 1,642 | 44 | |||||||||||||
Total expenses | 810,309 | 763,174 | 670,489 | 466,226 | 394,431 | |||||||||||||
Minority interest in consolidated joint ventures | (2,301 | ) | (1,860 | ) | (1,087 | ) | (184 | ) | (112 | ) | ||||||||
Equity in income of unconsolidated joint ventures and management companies(3) | 81,458 | 86,053 | 76,303 | 54,881 | 59,348 | |||||||||||||
Income tax benefit (provision)(4) | 470 | (33 | ) | 2,031 | 5,466 | 444 | ||||||||||||
Gain on sale of assets | 12,146 | (84 | ) | 1,253 | 473 | 11,960 | ||||||||||||
Income from continuing operations | 94,736 | 70,521 | 68,158 | 89,585 | 115,326 | |||||||||||||
Discontinued operations:(5) | ||||||||||||||||||
(Loss) gain on sale of assets | (2,409 | ) | 204,985 | 277 | 7,568 | 22,491 | ||||||||||||
Income from discontinued operations | 6,517 | 9,870 | 9,219 | 14,350 | 19,124 | |||||||||||||
Total income from discontinued operations | 4,108 | 214,855 | 9,496 | 21,918 | 41,615 | |||||||||||||
Income before minority interest and preferred dividends | 98,844 | 285,376 | 77,654 | 111,503 | 156,941 | |||||||||||||
Minority interest in Operating Partnership | (13,036 | ) | (40,827 | ) | 22,001 | (19,870 | ) | (28,907 | ) | |||||||||
Net income | 85,808 | 244,549 | 99,655 | 91,633 | 128,034 | |||||||||||||
Less preferred dividends | 10,058 | 10,083 | 9,649 | 9,140 | 14,816 | |||||||||||||
Less adjustment of minority interest due to redemption value | 2,046 | 17,062 | 183,620 | | | |||||||||||||
Net income (loss) available to common stockholders | $ | 73,704 | $ | 217,404 | $ | (93,614 | ) | $ | 82,493 | $ | 113,218 | |||||||
Earnings per share ("EPS")basic: |
||||||||||||||||||
Income from continuing operations | $ | 1.01 | $ | 0.72 | $ | 0.80 | $ | 1.11 | $ | 1.49 | ||||||||
Discontinued operations | 0.02 | 2.35 | (2.38 | ) | 0.30 | 0.62 | ||||||||||||
Net income (loss) available to common stockholdersbasic | $ | 1.03 | $ | 3.07 | $ | (1.58 | ) | $ | 1.41 | $ | 2.11 | |||||||
EPSdiluted:(6)(7) | ||||||||||||||||||
Income from continuing operations | $ | 1.00 | $ | 0.80 | $ | 0.80 | $ | 1.10 | $ | 1.54 | ||||||||
Discontinued operations | 0.02 | 2.25 | (2.37 | ) | 0.30 | 0.55 | ||||||||||||
Net income (loss) available to common stockholdersdiluted | $ | 1.02 | $ | 3.05 | $ | (1.57 | ) | $ | 1.40 | $ | 2.09 | |||||||
34
|
As of December 31, |
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2007(1) |
2006(1) |
2005(1) |
2004 |
2003 |
||||||||||||
|
(Restated) |
(Restated) |
(Restated) |
|
|
||||||||||||
BALANCE SHEET DATA | |||||||||||||||||
Investment in real estate (before accumulated depreciation) | $ | 7,078,802 | $ | 6,356,156 | $ | 6,017,546 | $ | 4,149,776 | $ | 3,662,359 | |||||||
Total assets | $ | 7,937,097 | $ | 7,373,676 | $ | 6,986,005 | $ | 4,637,096 | $ | 4,145,593 | |||||||
Total mortgage and notes payable | $ | 5,762,958 | $ | 4,993,879 | $ | 5,424,730 | $ | 3,230,120 | $ | 2,682,598 | |||||||
Minority interest(8) | $ | 547,693 | $ | 597,156 | $ | 474,590 | $ | 221,315 | $ | 237,615 | |||||||
Series A Preferred Stock(9) | $ | 83,495 | $ | 98,934 | $ | 98,934 | $ | 98,934 | $ | 98,934 | |||||||
Common stockholders' equity | $ | 1,149,849 | $ | 1,379,132 | $ | 679,678 | $ | 913,533 | $ | 953,485 | |||||||
OTHER DATA: | |||||||||||||||||
Funds from operations ("FFO")diluted(10) | $ | 407,927 | $ | 383,122 | $ | 336,831 | $ | 299,172 | $ | 269,132 | |||||||
Cash flows provided by (used in): | |||||||||||||||||
Operating activities | $ | 326,070 | $ | 211,850 | $ | 235,296 | $ | 213,197 | $ | 215,752 | |||||||
Investing activities | $ | (865,283 | ) | $ | (126,736 | ) | $ | (131,948 | ) | $ | (489,822 | ) | $ | (341,341 | ) | ||
Financing activities | $ | 355,051 | $ | 29,208 | $ | (20,349 | ) | $ | 308,383 | $ | 115,703 | ||||||
Number of centers at year end | 94 | 91 | 97 | 84 | 78 | ||||||||||||
Weighted average number of shares outstandingEPS basic | 71,768 | 70,826 | 59,279 | 58,537 | 53,669 | ||||||||||||
Weighted average number of shares outstandingEPS diluted(6)(7) | 84,760 | 88,058 | 73,573 | 73,099 | 75,198 | ||||||||||||
Cash distribution declared per common share | $ | 2.93 | $ | 2.75 | $ | 2.63 | $ | 2.48 | $ | 2.32 |
The Company sold its 67% interest in Paradise Village Gateway on January 2, 2003, and a loss on sale of $0.2 million has been classified as discontinued operations in 2003.
The Company sold Bristol Center on August 4, 2003, and the results for the period January 1, 2003 to August 4, 2003 have been classified as discontinued operations. The sale of Bristol Center resulted in a gain on sale of asset of $22.2 million in 2003.
The Company sold Westbar on December 16, 2004, and the results for the period January 1, 2004 to December 16, 2004 and for the year ended December 31, 2003 have been classified as discontinued operations. The sale of Westbar resulted in a gain on sale of asset of $6.8 million.
On January 5, 2005, the Company sold Arizona Lifestyle Galleries. The sale of this property resulted in a gain on sale of $0.3 million and the impact on the results of operations for the years ended December 31, 2005 and 2004 have been reclassified to discontinued operations. Prior to 2004, this property was accounted for under the equity method of accounting.
On June 9, 2006, the Company sold Scottsdale/101 and the results for the period January 1, 2006 to June 9, 2006 and for the years ended December 31, 2005 and 2004 have been classified as discontinued operations. Prior to January 1, 2004, this property was accounted for under the equity method of accounting. The sale of Scottsdale/101 resulted in a gain on sale of asset, at the Company's pro rata share, of $25.8 million.
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The Company sold Park Lane Mall on July 13, 2006 and the results for the period January 1, 2006 to July 13, 2006 and for the years ended December 31, 2005, 2004 and 2003 have been classified as discontinued operations. The sale of Park Lane Mall resulted in a gain on sale of asset of $5.9 million.
The Company sold Greeley Mall and Holiday Village Mall in a combined sale on July 27, 2006, and the results for the period January 1, 2006 to July 27, 2006 and the years ended December 31, 2005, 2004 and 2003 have been classified as discontinued operations. The sale of these properties resulted in a gain on sale of assets of $28.7 million.
The Company sold Great Falls Marketplace on August 11, 2006, and the results for the period January 1, 2006 to August 11, 2006 and for the years ended December 31, 2005, 2004 and 2003 have been classified as discontinued operations. The sale of Great Falls Marketplace resulted in a gain on sale of $11.8 million.
The Company sold Citadel Mall, Crossroads Mall and Northwest Arkansas Mall in a combined sale on December 29, 2006, and the results for the period January 1, 2006 to December 29, 2006 and the years ended December 31, 2005, 2004 and 2003 have been classified as discontinued operations. The sale of these properties resulted in a gain on sale of assets of $132.7 million.
On December 17, 2007, the Company designated 27 freestanding stores acquired from Mervyn's in 2007 as available for sale. The results from December 17, 2007 to December 31, 2007 have been classified as discontinued operations.
On January 1, 2008, MACWH, LP, a subsidiary of the Operating Partnership, at the election of the holders, redeemed the 3,426,609 PCPUs. In the Rochester Redemption, the Company received the 16.32% minority interest in the Non-Rochester Properties, in exchange for the Company's ownership interest in the Rochester Properties. As a result of the Rochester Redemption, the Company recognized a gain of $99.3 million on the exchange.
In addition, the Company recorded an additional loss of $2.4 million in 2007, related to the sale of properties in 2006.
Total revenues and income from discontinued operations were:
|
Years Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2007 |
2006 |
2005 |
2004 |
2003 |
|||||||||||
|
(Dollars in millions) |
|||||||||||||||
Revenues: | ||||||||||||||||
Bristol Center | $ | -- | $ | -- | $ | -- | $ | -- | $ | 2.5 | ||||||
Westbar | -- | -- | -- | 4.8 | 5.7 | |||||||||||
Arizona LifeStyle Galleries | -- | -- | -- | 0.3 | -- | |||||||||||
Scottsdale/101 | 0.1 | 4.7 | 9.8 | 6.9 | -- | |||||||||||
Park Lane Mall | -- | 1.5 | 3.1 | 3.0 | 3.1 | |||||||||||
Holiday Village | 0.2 | 2.9 | 5.2 | 4.8 | 5.3 | |||||||||||
Greeley Mall | -- | 4.3 | 7.0 | 6.2 | 5.9 | |||||||||||
Great Falls Marketplace | -- | 1.8 | 2.7 | 2.6 | 2.5 | |||||||||||
Citadel Mall | -- | 15.7 | 15.3 | 15.4 | 16.1 | |||||||||||
Northwest Arkansas Mall | -- | 12.9 | 12.6 | 12.7 | 12.5 | |||||||||||
Crossroads Mall | -- | 11.5 | 10.9 | 11.2 | 12.2 | |||||||||||
Mervyn's Stores | 1.2 | -- | -- | -- | -- | |||||||||||
Rochester Properties | 83.1 | 80.0 | 51.7 | -- | -- | |||||||||||
Total | $ | 84.6 | $ | 135.3 | $ | 118.3 | $ | 67.9 | $ | 65.8 | ||||||
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Income from operations: | ||||||||||||||||
Bristol Center | $ | -- | $ | -- | $ | -- | $ | -- | $ | 1.4 | ||||||
Westbar | -- | -- | -- | 1.8 | 1.7 | |||||||||||
Arizona LifeStyle Galleries | -- | -- | -- | (1.0 | ) | -- | ||||||||||
Scottsdale/101 | -- | 0.3 | (0.2 | ) | (0.3 | ) | -- | |||||||||
Park Lane Mall | -- | -- | 0.8 | 0.9 | 1.0 | |||||||||||
Holiday Village | 0.2 | 1.2 | 2.8 | 1.9 | 2.4 | |||||||||||
Greeley Mall | (0.1 | ) | 0.6 | 0.9 | 0.5 | 1.2 | ||||||||||
Great Falls Marketplace | -- | 1.1 | 1.7 | 1.6 | 1.5 | |||||||||||
Citadel Mall | (0.1 | ) | 2.5 | 1.8 | 2.0 | 3.0 | ||||||||||
Northwest Arkansas Mall | -- | 3.4 | 2.9 | 3.1 | 3.2 | |||||||||||
Crossroads Mall | -- | 2.3 | 3.2 | 3.9 | 3.7 | |||||||||||
Mervyn's Stores | 0.8 | -- | -- | -- | -- | |||||||||||
Rochester Properties | 5.7 | (1.5 | ) | (4.7 | ) | -- | -- | |||||||||
Total | $ | 6.5 | $ | 9.9 | $ | 9.2 | $ | 14.4 | $ | 19.1 | ||||||
The computation of FFO-diluted includes the effect of share and unit-based compensation plans and convertible senior notes calculated using the treasury stock method. It also assumes the conversion of MACWH, LP common and preferred units and all other securities to the extent that they are dilutive to the FFO computation (See Note 12--Acquisitions of the Company's Notes to the Consolidated Financial Statements). On February 25, 1998, the Company sold $100 million of its Series A Preferred Stock. On June 16, 1998, the Company sold $150 million of its Series B Preferred Stock. The Preferred Stock can be converted on a one-for-one basis for common stock. The Series A Preferred Stock then outstanding was dilutive to FFO in 2007, 2006, 2005, 2004 and 2003 and was dilutive to net income in 2006 and 2003. All of the Series B Preferred Stock was converted to common stock on September 9, 2003. The Series B Preferred Stock then outstanding was dilutive to FFO and net income in 2003.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and Results of Operations has been updated to reflect the Rochester Properties as discontinued operations, the restatement of the consolidated balance sheets as of December 31, 2007 and 2006, and the restatement of the consolidated statements of operations, common stockholders' equity and cash flows for each of the three years during the period ended December 31, 2007. For a more detailed description of the restatement and reclassifications, see Note 25Restatement of the Company's Notes to Consolidated Financial Statements.
Management's Overview and Summary
The Company is involved in the acquisition, ownership, development, redevelopment, management and leasing of regional and community shopping centers located throughout the United States. The Company is the sole general partner of, and owns a majority of the ownership interests in, the Operating Partnership. As of December 31, 2007, the Operating Partnership owned or had an ownership interest in 74 regional shopping centers and 20 community shopping centers aggregating approximately 80.7 million square feet of GLA. These 94 regional and community shopping centers are referred to hereinafter as the "Centers", unless the context otherwise requires. The Company is a self-administered and self-managed REIT and conducts all of its operations through the Operating Partnership and the Company's Management Companies.
The following discussion is based primarily on the consolidated financial statements of the Company for the years ended December 31, 2007, 2006 and 2005. It compares the results of operations and cash flows for the year ended December 31, 2007 to the results of operations and cash flows for the year ended December 31, 2006. Also included is a comparison of the results of operations and cash flows for the year ended December 31, 2006 to the results of operations and cash flows for the year ended December 31, 2005. This information should be read in conjunction with the accompanying consolidated financial statements and notes thereto.
Acquisitions and Dispositions:
The financial statements reflect the following acquisitions, dispositions and changes in ownership subsequent to the occurrence of each transaction.
On January 5, 2005, the Company sold Arizona Lifestyle Galleries for $4.3 million. The sale resulted in a gain on sale of asset of $0.3 million.
On January 11, 2005, the Company became a 15% owner in a joint venture that acquired Metrocenter Mall, a 1.1 million square foot super-regional mall in Phoenix, Arizona. The total purchase price was $160 million and concurrently with the acquisition, the joint venture placed a $112 million loan on the property. The Company's share of the purchase price, net of the debt, was $7.2 million which was funded by cash and borrowings under the Company's line of credit.
On January 21, 2005, the Company formed a 50/50 joint venture with a private investment company. The joint venture acquired a 49% interest in Kierland Commons, a 435,022 square foot mixed-use center in Phoenix, Arizona. The joint venture's purchase price for the interest in the Center was $49.0 million. The Company assumed its share of the underlying property debt and funded the remainder of its share of the purchase price by cash and borrowings under the Company's line of credit.
On April 8, 2005, the Company acquired Ridgmar Mall, a 1.3 million square foot super-regional mall in Fort Worth, Texas. The acquisition was completed in a 50/50 joint venture with an affiliate of Walton Street Capital, LLC. The purchase price was $71.1 million. Concurrent with the closing, a
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$57.4 million loan bearing interest at a fixed rate of 6.0725% was placed on the property. The balance of the purchase price was funded by borrowings under the Company's line of credit.
On April 25, 2005, the Company and the Operating Partnership acquired Wilmorite Properties, Inc., a Delaware corporation ("Wilmorite"), and Wilmorite Holdings, L.P., a Delaware limited partnership ("Wilmorite Holdings"). Wilmorite's portfolio included interests in 11 regional malls and two open-air community shopping centers with 13.4 million square feet of space located in Connecticut, New York, New Jersey, Kentucky and Virginia. The total purchase price was approximately $2.3 billion, plus adjustments for working capital, including the assumption of approximately $877.2 million of existing debt with an average interest rate of 6.43% and the issuance of $212.7 million of PCPUs, $21.5 million of non-participating convertible preferred units and $5.8 million of common units in Wilmorite Holdings. The balance of the consideration to the equity holders of Wilmorite and Wilmorite Holdings was paid in cash, which was provided primarily by a five-year, $450 million term loan bearing interest at LIBOR plus 1.50% and a $650 million acquisition loan with a term of up to two years and bearing interest initially at LIBOR plus 1.60%. An affiliate of the Operating Partnership is the general partner and, together with other affiliates, owned as of December 31, 2007 approximately 84% of Wilmorite Holdings, with the remaining 16% held by those limited partners of Wilmorite Holdings who elected to receive convertible preferred units or common units in Wilmorite Holdings rather than cash.
On January 1, 2008, MACWH, LP, a subsidiary of the Operating Partnership, at the election of the holders, redeemed the 3.4 million PCPUs. As a result of the Rochester Redemption, the Company received the 16.32% minority interest in the Non-Rochester Properties, for a total consideration of $224 million, in exchange for the Company's ownership interest in the Rochester Properties. The Company recognized a gain of $99.3 million on the exchange based on the difference between the fair value of the additional interest acquired in the Non-Rochester Properties and the carrying value of the Rochester Properties, net of minority interest. The Company has classified the results of operations of the Rochester Properties for the years ended December 31, 2007, 2006, and 2005 as discontinued operations.
The Wilmorite portfolio, exclusive of Tysons Corner Center and Tysons Corner Office (collectively referred herein as "Tysons Center") and the Rochester Properties, are referred to herein as the "2005 Acquisition Centers."
On February 1, 2006, the Company acquired Valley River Center, an 910,841 square foot super-regional mall in Eugene, Oregon. The total purchase price was $187.5 million and concurrent with the acquisition, the Company placed a $100.0 million ten-year loan on the property. The balance of the purchase price was funded by cash and borrowings under the Company's line of credit.
On June 9, 2006, the Company sold Scottsdale/101, a 564,000 square foot center in Phoenix, Arizona. The sale price was $117.6 million from which $56.0 million was used to payoff the mortgage on the property. The Company's share of the realized gain was $25.8 million.
On July 13, 2006, the Company sold Park Lane Mall, a 370,000 square foot center in Reno, Nevada, for $20 million resulting in a gain of $5.9 million.
On July 26, 2006, the Company purchased 11 department stores located in 10 of its Centers from Federated Department Stores, Inc. for approximately $100.0 million. The purchase price consisted of a $93.0 million cash payment at closing and a $7.0 million cash payment in 2007, in connection with development work by Federated at the Company's development properties. The Company's share of the purchase price was $81.0 million and was funded in part from the proceeds of sales of Park Lane Mall, Greeley Mall, Holiday Village and Great Falls Marketplace, and from borrowings under the Company's line of credit. The balance of the purchase price was paid by the Company's joint venture partners.
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On July 27, 2006, the Company sold Holiday Village, a 498,000 square foot center in Great Falls, Montana, and Greeley Mall, a 564,000 square foot center in Greeley, Colorado, in a combined sale for $86.8 million, resulting in a gain of $28.7 million.
On August 11, 2006, the Company sold Great Falls Marketplace, a 215,000 square foot community center in Great Falls, Montana, for $27.5 million resulting in a gain of $11.8 million.
On December 1, 2006, the Company acquired Deptford Mall, a two-level 1.0 million square foot super-regional mall in Deptford, New Jersey. The total purchase price of $240.1 million was funded by cash and borrowings under the Company's line of credit. On December 7, 2006, the Company placed a $100.0 million six-year loan bearing interest at a fixed rate of 5.44% on the property.
On December 29, 2006, the Company sold Citadel Mall, a 1,095,000 square foot center in Colorado Springs, Colorado, Crossroads Mall, a 1,268,000 square foot center in Oklahoma City, Oklahoma, and Northwest Arkansas Mall, a 820,000 square foot center in Fayetteville, Arkansas, in a combined sale for $373.8 million, resulting in a gain of $132.7 million. The net proceeds were used to pay down the Company's line of credit and pay off the Company's $75.0 million loan on Paradise Valley Mall.
Valley River Center and Deptford Mall are referred to herein as the "2006 Acquisition Centers."
On September 5, 2007, the Company purchased the remaining 50% outside ownership interest in Hilton Village, a 96,546 square foot specialty center in Scottsdale, Arizona. The total purchase price of $13.5 million was funded by cash, borrowings under the Company's line of credit and the assumption of a mortgage note payable. The Center was previously accounted for under the equity method as an investment in unconsolidated joint ventures.
On December 17, 2007, the Company purchased a portfolio of ground leasehold interest and/or fee interests in 39 freestanding Mervyn's stores located in the Southwest United States. The purchase price of $400.2 million was funded by cash and borrowings under the Company's line of credit. At acquisition, management designated the 27 freestanding stores located at shopping centers not owned or managed by the Company as available for sale.
Hilton Village and the 12 Mervyn's freestanding stores that have not been designated as available for sale are referred herein as the "2007 Acquisition Properties."
Redevelopments and Developments:
The first phase of SanTan Village Regional Center, in Gilbert, Arizona, opened on October 26, 2007. The 1.2 million square foot open-air super-regional shopping center opened with over 90% of the retail space committed, with Dillard's and more than 85 specialty retailers joining Harkins Theatres, which opened March 2007. The balance of the project, which includes Dick's Sporting Goods, Best Buy, Barnes & Noble and up to 13 restaurants, is expected to open in phases throughout 2008.
The first phase of The Promenade at Casa Grande, a 1 million square foot, 130 acre department store anchored hybrid center, located in Casa Grande, Arizona, opened on November 16, 2007. With ninety percent committed, the first phase of the project has approximately 550,000 square feet of mini-majors, including Dillard's, Target, J.C.Penney, Kohl's, Petsmart and Staples. The balance of the Center is expected to continue to open in phases throughout 2008.
The first phase of The Marketplace at Flagstaff Mall, a 435,000 square foot lifestyle expansion in Flagstaff, Arizona, began opening in phases on October 19, 2007. Phase I delivered approximately 267,538 square feet of new retail space including Best Buy, Home Depot, Linens n Things, Marshalls, Old Navy, Petco and Shoe Pavilion. Phase II, which will consist of village shops, an entertainment plaza and pad space, is expected to be completed in 2009-2010.
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On November 8, 2007, Freehold Raceway Mall opened the first phase of a combined expansion and renovation project that will add 96,000 square feet of new retail and restaurant uses to this regional center in New Jersey. The expansion, which is 85% committed, added nine new-to-market additions including: Borders, The Cheesecake Factory, P.F. Chang's, Jared The Galleria of Jewelry, The Territory Ahead, Ann Taylor, Chico's, Coldwater Creek and White House/Black Market. The balance of the project is expected to open throughout 2008.
Scottsdale Fashion Square, the 2 million square foot luxury flagship, is undergoing a $130 million redevelopment and expansion. Phase I of the redevelopment and expansion began September 2007 with demolition of the vacant anchor space acquired as a result of the Federated-May merger and an adjacent parking structure. A 60,000 square foot Barneys New York, the high-end retailer's first Arizona location, will anchor an additional 100,000 square feet of up to 30 new luxury shops, which is planned to open in Fall 2009 in an urban setting on Scottsdale Road. New first-to-market deals include Salvatore Ferragamo, Grand Luxe Café, CH Carolina Herrera, and Michael Kors. First-to-market retailers opening in the Spring 2008 will include Bottega Veneta, Jimmy Choo and Marciano.
Construction continues on the combined redevelopment, expansion and interior renovation of The Oaks, an upscale 1.0 million square foot super-regional shopping center in California's affluent Thousand Oaks. The market's first Nordstrom department store is under construction. Construction of a first-to-market, 138,000 square foot Nordstrom Department Store, two-level open-air retail, dining and entertainment venue and new multi-level parking structure at The Oaks continues on schedule toward a phased completion beginning Fall 2008.
In December 2007, the Company received full entitlements to proceed with plans for a redevelopment of Santa Monica Place. The regional center will be redeveloped as an open-air shopping and dining environment that will connect with the popular Third Street Promenade. The Santa Monica Place redevelopment has started and is moving forward with a projected Fall 2009 completion.
Inflation:
In the last three years, inflation has not had a significant impact on the Company because of a relatively low inflation rate. Most of the leases at the Centers have rent adjustments periodically through the lease term. These rent increases are either in fixed increments or based on using an annual multiple of increases in the Consumer Price Index ("CPI"). In addition, about 6%-13% of the leases expire each year, which enables the Company to replace existing leases with new leases at higher base rents if the rents of the existing leases are below the then existing market rate. Additionally, historically the majority of the leases required the tenants to pay their pro rata share of operating expenses. In January 2005, the Company began entering into leases that require tenants to pay a stated amount for operating expenses, generally excluding property taxes, regardless of the expenses actually incurred at any Center. This change shifts the burden of cost control to the Company.
Seasonality:
The shopping center industry is seasonal in nature, particularly in the fourth quarter during the holiday season when retailer occupancy and retail sales are typically at their highest levels. In addition, shopping malls achieve a substantial portion of their specialty (temporary retailer) rents during the holiday season and the majority of percentage rent is recognized in the fourth quarter. As a result of the above, earnings are generally higher in the fourth quarter.
Critical Accounting Policies
The preparation of financial statements in conformity with generally accepted accounting principles ("GAAP") in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
41
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Some of these estimates and assumptions include judgments on revenue recognition, estimates for common area maintenance and real estate tax accruals, provisions for uncollectible accounts, impairment of long-lived assets, the allocation of purchase price between tangible and intangible assets, and estimates for environmental matters. The Company's significant accounting policies are described in more detail in Note 2 to the Consolidated Financial Statements. However, the following policies are deemed to be critical.
Revenue Recognition
Minimum rental revenues are recognized on a straight-line basis over the term of the related lease. The difference between the amount of rent due in a year and the amount recorded as rental income is referred to as the "straight line rent adjustment." Currently, 53% of the mall and freestanding leases contain provisions for CPI rent increases periodically throughout the term of the lease. The Company believes that using an annual multiple of CPI increases, rather than fixed contractual rent increases, results in revenue recognition that more closely matches the cash revenue from each lease and will provide more consistent rent growth throughout the term of the leases. Percentage rents are recognized when the tenants' specified sales targets have been met. Estimated recoveries from certain tenants for their pro rata share of real estate taxes, insurance and other shopping center operating expenses are recognized as revenues in the period the applicable expenses are incurred. Other tenants pay a fixed rate and these tenant recoveries' revenues are recognized on a straight-line basis over the term of the related leases.
Property
The Company capitalizes costs incurred in redevelopment and development of properties in accordance with Statement of Financial Accounting Standards ("SFAS") No. 34 "Capitalization of Interest Cost" and SFAS No. 67 "Accounting for Costs and the Initial Rental Operations of Real Estate Properties." The costs of land and buildings under development include specifically identifiable costs. The capitalized costs include pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes, salaries and related costs and other costs incurred during the period of development. Capitalized costs are allocated to the specific components of a project that are benefited. The Company considers a construction project as completed and held available for occupancy and ceases capitalization of costs when the areas under development have been substantially completed.
Maintenance and repairs expenses are charged to operations as incurred. Costs for major replacements and betterments, which includes HVAC equipment, roofs, parking lots, etc., are capitalized and depreciated over their estimated useful lives. Gains and losses are recognized upon disposal or retirement of the related assets and are reflected in earnings.
Property is recorded at cost and is depreciated using a straight-line method over the estimated useful lives of the assets as follows:
Buildings and improvements | 5-40 years | |
Tenant improvements | 5-7 years | |
Equipment and furnishings | 5-7 years |
Accounting for Acquisitions
The Company accounts for all acquisitions in accordance with SFAS No. 141, "Business Combinations." The Company first determines the value of the land and buildings utilizing an "as if
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vacant" methodology. The Company then assigns a fair value to any debt assumed at acquisition. The balance of the purchase price is allocated to tenant improvements and identifiable intangible assets or liabilities. Tenant improvements represent the tangible assets associated with the existing leases valued on a fair market value basis at the acquisition date prorated over the remaining lease terms. The tenant improvements are classified as an asset under real estate investments and are depreciated over the remaining lease terms. Identifiable intangible assets and liabilities relate to the value of in-place operating leases which come in three forms: (i) leasing commissions and legal costs, which represent the value associated with "cost avoidance" of acquiring in-place leases, such as lease commissions paid under terms generally experienced in the Company's markets; (ii) value of in-place leases, which represents the estimated loss of revenue and of costs incurred for the period required to lease the "assumed vacant" property to the occupancy level when purchased; and (iii) above or below market value of in-place leases, which represents the difference between the contractual rents and market rents at the time of the acquisition, discounted for tenant credit risks. Leasing commissions and legal costs are recorded in deferred charges and other assets and are amortized over the remaining lease terms. The value of in-place leases are recorded in deferred charges and other assets and amortized over the remaining lease terms plus an estimate of renewal of the acquired leases. Above or below market leases are classified in deferred charges and other assets or in other accrued liabilities, depending on whether the contractual terms are above or below market, and the asset or liability is amortized to minimum rents over the remaining terms of the leases.
When the Company acquires a real estate property, the Company allocates the purchase price to the components of these acquisitions using relative fair values computed using its estimates and assumptions. These estimates and assumptions impact the amount of costs allocated between various components as well as the amount of costs assigned to individual properties in multiple property acquisitions. These allocations also impact depreciation expense and gains or losses recorded on future sales of properties.
Asset Impairment
The Company assesses whether there has been impairment in the value of its long-lived assets by considering factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other economic factors. Such factors include the tenant's ability to perform their duties and pay rent under the terms of the leases. The Company may recognize impairment losses if the cash flows are not sufficient to cover its investment. Such a loss would be determined as the difference between the carrying value and the fair value of a center.
Deferred Charges
Costs relating to obtaining tenant leases are deferred and amortized over the initial term of the agreement using the straight-line method. Costs relating to financing of shopping center properties are deferred and amortized over the life of the related loan using the straight-line method, which approximates the effective interest method. In-place lease values are amortized over the remaining lease term plus an estimate of renewal. Leasing commissions and legal costs are amortized on a straight-line basis over the individual remaining lease years. The ranges of the terms of the agreements are as follows:
Deferred lease costs | 1-15 years | |
Deferred financing costs | 1-15 years | |
In-place lease values | Remaining lease term plus an estimate for renewal | |
Leasing commissions and legal costs | 5-10 years |
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Results of Operations
Many of the variations in the results of operations, discussed below, occurred due to the transactions described above including the 2007 Acquisition Properties, the 2006 Acquisition Centers, the 2005 Acquisition Centers and the Redevelopment Centers. For the comparison of the year ended December 31, 2007 to the year ended December 31, 2006, the "Same Centers" include all consolidated Centers, excluding the 2007 Acquisition Properties, the 2006 Acquisition Centers and the Redevelopment Centers. For the comparison of the year ended December 31, 2006 to the year ended December 31, 2005, the Same Centers include all consolidated Centers, excluding the 2006 Acquisition Centers, the 2005 Acquisition Centers and the Redevelopment Centers.
For the comparison of the year ended December 31, 2007 to the year ended December 31, 2006, "Redevelopment Centers" include The Oaks, Twenty Ninth Street, Santa Monica Place, Westside Pavilion, The Marketplace at Flagstaff Mall, SanTan Village Regional Center and Promenade at Casa Grande. For the comparison of the year ended December 31, 2006 to the year ended December 31, 2005, "Redevelopment Centers" include Twenty Ninth Street, Santa Monica Place and Westside Pavilion.
For comparison of the year ended December 31, 2006 to the year ended December 31, 2005, Kierland Commons, Metrocenter Mall, Ridgmar Mall and Tysons Center are referred to herein as the "Joint Venture Acquisition Centers." Unconsolidated joint ventures are reflected using the equity method of accounting. The Company's pro rata share of the results from these Centers is reflected in the Consolidated Statements of Operations as equity in income from unconsolidated joint ventures.
Comparison of Years Ended December 31, 2007 and 2006
Revenues
Minimum and percentage rents (collectively referred to as "rental revenue") increased by $38.9 million, or 8.4%, from 2006 to 2007. The increase in rental revenue is attributed to an increase of $17.9 million from the 2006 Acquisition Centers, $13.8 million from the Redevelopment Centers, $6.7 million from the Same Centers and $0.5 million from the 2007 Acquisition Properties.
The amortization of above and below market leases, which is recorded in rental revenue, decreased to $10.6 million in 2007 from $12.2 million in 2006. The decrease in amortization is primarily due to leases terminated in 2006. The amortization of straight-lined rents, included in rental revenue, was $6.9 million in 2007 compared to $4.7 million in 2006. Lease termination income, which is included in rental revenue, decreased to $9.8 million in 2007 from $13.2 million in 2006.
Tenant recoveries increased $17.8 million, or 7.8%, from 2006 to 2007. The increase in tenant recoveries is attributed to an increase of $11.0 million from the 2006 Acquisition Centers, $4.3 million from the Redevelopment Centers, $2.4 million from the Same Centers and $0.1 million from the 2007 Acquisition Properties.
Management Companies' revenues increased by $8.3 million from 2006 to 2007, primarily due to increased management fees received from the joint venture Centers, additional third party management contracts and increased development fees from joint ventures.
Shopping Center and Operating Expenses
Shopping center and operating expenses increased $22.8 million, or 9.7%, from 2006 to 2007. Approximately $9.6 million of the increase in shopping center and operating expenses is from the 2006 Acquisition Centers, $6.8 million is from the Redevelopment Centers, $6.1 million is from the Same Centers and $0.2 million is from the 2007 Acquisition Properties.
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Management Companies' Operating Expenses
Management Companies' operating expenses increased to $73.8 million in 2007 from $56.7 million in 2006, in part as a result of the additional costs of managing the joint venture Centers and third party managed properties, higher compensation expense due to increased staffing and higher professional fees.
REIT General and Administrative Expenses
REIT general and administrative expenses increased by $3.1 million in 2007 from 2006, primarily due to increased share and unit-based compensation expense in 2007.
Depreciation and Amortization
Depreciation and amortization increased $15.8 million in 2007 from 2006. The increase in depreciation and amortization is primarily attributed to an increase of $10.5 million at the Redevelopment Centers, $10.4 million at the 2006 Acquisition Centers and $0.2 million at the 2007 Acquisition Properties. This increase is offset in part by a decrease of $1.8 million at the Same Centers.
Interest Expense
Interest expense decreased $10.6 million in 2007 from 2006. The decrease in interest expense was primarily attributed to a decrease of $17.2 million from term loans, $16.1 million from the line of credit, $8.1 million from the Same Centers and $2.7 million from the Redevelopment Centers. The decrease in interest expense was offset in part by an increase of $27.3 million from the $950.0 million convertible senior notes issued on March 16, 2007 and $6.6 million from the 2006 Acquisition Centers. The decrease in interest on term loans was due to the repayment of the $250 million loan in 2007 and the repayment of the $619 million term loan in 2006. The decrease in interest on the line of credit was due to: (i) a decrease in average outstanding borrowings during 2007, in part, because of the issuance of the senior notes, (ii) a decrease in interest rates because of the $400 million swap and (iii) lower LIBOR rates and spreads. The decrease in interest from the Same Centers is due to: (i) the repayment of the $75.0 million loan on Paradise Valley Mall in January 2007, (ii) an increase in capitalized interest and (iii) a decrease in LIBOR rates on floating rate mortgages payable. The above interest expense items are net of capitalized interest, which increased to $32.0 million in 2007 from $14.9 million in 2006 due to an increase in redevelopment activity in 2007.
Loss on Early Extinguishment of Debt
The Company recorded a $0.9 million loss from the early extinguishment of the $250 million term loan in 2007. In 2006, the Company recorded a loss from the early extinguishment of debt of $1.8 million related to the pay off of the $619 million term loan.
Equity in Income of Unconsolidated Joint Ventures
The equity in income of unconsolidated joint ventures decreased $4.6 million in 2007 from 2006. The decrease in equity in income of unconsolidated joint ventures is due in part to a $2.0 million loss on sale of assets at the SDG Macerich Properties, L.P. joint venture and additional interest expense and depreciation at other joint ventures due to the completion of development projects.
Gain on Sale of Assets
The Company recorded a gain on sale of assets of $12.2 million in 2007 relating to land sales of $8.8 million and $3.4 million relating to sale of equipment and furnishings.
45
Discontinued Operations
The decrease of $210.7 million in income from discontinued operations is primarily related to the recognition of gain on the sales of Scottsdale/101, Park Lane Mall, Holiday Village, Greeley Mall, Great Falls Marketplace, Citadel Mall, Crossroads Mall and Northwest Arkansas Mall in 2006 (See "Management's Overview and Summary--Acquisitions and Dispositions"). As result of these sales, the Company classified the results of operations for these properties to discontinued operations for all periods presented.
Minority Interest in the Operating Partnership
The minority interest in the Operating Partnership represents the 15.0% weighted average interest of the Operating Partnership not owned by the Company during 2007 compared to the 15.8% not owned by the Company during 2006. The change in ownership interest is primarily due to the common stock offering by the Company in 2006, the conversion of partnership units and preferred shares into common shares in 2007 which is offset in part by the repurchase of 807,000 shares in 2007 (See Note 21--Stock Repurchase Program of the Company's Consolidated Financial Statements).
Funds From Operations
Primarily as a result of the factors mentioned above, funds from operations ("FFO")--diluted increased 6.5% to $407.9 million in 2007 from $383.1 million in 2006. For the reconciliation of FFO and FFO--diluted to net income available to common stockholders, see "Funds from Operations."
Operating Activities
Cash flow from operations increased to $326.1 million in 2007 from $211.9 million in 2006. The increase was primarily due to changes in assets and liabilities in 2007 compared to 2006 and due to the results at the Centers as discussed above.
Investing Activities
Cash used in investing activities increased to $865.3 million in 2007 from $126.7 million in 2006. The increase in cash used in investing activities was primarily due to a $580.3 million decrease in cash proceeds from the sales of assets and a $220.9 million increase in capital expenditures.
Financing Activities
Cash flow provided by financing activities increased to $355.1 million in 2007 from $29.2 million in 2006. The increase in cash provided by financing activities was primarily attributed to the issuance of $950 million convertible senior notes issuance in 2007, offset in part by a decrease of $746.8 million in proceeds from the common stock offering in 2006 (See "Liquidity and Capital Resources") and the purchase of the Capped Calls in connection with the issuance of the convertible senior notes in 2007.
Comparison of Years Ended December 31, 2006 and 2005
Revenues
Rental revenue increased by $46.3 million or 11.1% from 2005 to 2006. Approximately $24.0 million of the increase in rental revenue related to the 2005 Acquisition Centers, $11.9 million was related to the 2006 Acquisition Centers and $9.9 million was related to the Same Centers due in part to an increase in lease termination income of $7.2 million compared to 2005 at the Same Centers. The increases are offset in part by a decrease in rental revenue of $0.5 million at the Redevelopment Centers.
46
The amount of straight-lined rents, included in rental revenue, was $4.7 million in 2006 compared to $4.5 million in 2005. This increase is primarily due to the 2006 Acquisition Centers.
The amortization of above and below market leases, which is recorded in rental revenue, increased to $12.2 million in 2006 from $11.0 million in 2005. The increase in amortization is primarily due to the 2005 Acquisition Centers and the 2006 Acquisition Centers.
Tenant recoveries increased $31.7 million or 16.2% from 2005 to 2006. Approximately $15.0 million of the increase in tenant recoveries related to the 2005 Acquisition Centers, $5.1 million related to the 2006 Acquisition Centers and $12.4 million related to the Same Centers due to an increase in recoverable shopping center expenses. The increase in tenant recoveries was offset in part by a decrease of $0.9 million at the Redevelopment Centers.
Management Companies' revenues increased by $5.3 million from 2005 to 2006, primarily due to increased management fees received from the Joint Venture Acquisition Centers, third party management contracts and increased development fees from joint ventures.
Shopping Center and Operating Expenses
Shopping center and operating expenses increased $29.8 million or 14.6% from 2005 to 2006. Approximately $17.2 million of the increase in shopping center and operating expenses related to the 2005 Acquisition Centers, $5.0 million related to the 2006 Acquisition Centers and $8.0 million related to the Same Centers offset in part by a $0.5 million decrease at the Redevelopment Centers.
Management Companies' Operating Expenses
Management Companies' operating expenses increased to $56.7 million in 2006 from $52.8 million in 2005, primarily as a result of the additional costs of managing the Joint Venture Acquisition Centers and third party managed properties.
REIT General and Administrative Expenses
REIT general and administrative expenses increased by $1.4 million in 2006 from 2005, primarily due to increased share-based compensation expense in 2006.
Depreciation and Amortization
Depreciation and amortization increased $24.8 million in 2006 from 2005. The increase is primarily attributed to the 2005 Acquisition Centers of $11.5 million, the 2006 Acquisition Centers of $6.2 million and the Same Centers of $7.4 million.
Interest Expense
Interest expense increased $32.6 million in 2006 from 2005. Approximately $13.8 million of the increase relates to the term loan associated with the 2005 Acquisition Centers, $7.4 million relates to assumed debt from the 2005 Acquisition Centers, $5.3 million relates to the 2006 Acquisition Centers, $13.3 million relates to increased borrowings and higher interest rates under the Company's line of credit, $6.7 million relates to higher interest rates on the $250 million term loan and approximately $8.9 million relates to increased interest expense due to refinancings and higher rates on floating rate debt regarding the Same Centers. These increases were offset in part by an approximately $1.3 million decrease in interest expense at the Redevelopment Centers and $21.6 million relating to the pay off of the acquisition loan associated with the 2005 Acquisition Centers. Additionally, capitalized interest was $14.9 million in 2006, up from $10.0 million in 2005.
47
Loss on Early Extinguishment of Debt
The Company recorded a loss from the early extinguishment of debt of $1.8 million in 2006 related to the pay off of the $619 million acquisition loan on January 19, 2006. In 2005, the Company recorded a loss on early extinguishment of debt of $1.7 relating to the refinancing of the mortgage note payable on Valley View Mall.
Equity in Income of Unconsolidated Joint Ventures
The equity in income of unconsolidated joint ventures increased $9.8 million in 2006 from 2005. Approximately $6.5 million of the increase relates to increased income from the Joint Venture Acquisition Centers, increased net income of $3.3 million from the Pacific Premier Retail Trust joint venture due to increased rental revenue and $4.6 million from other joint ventures due to increased rental revenues. This is partly offset by a $4.7 million increase in interest expense from the SDG Macerich Properties, L.P. joint venture.
Discontinued Operations
The increase of $205.3 million in discontinued operations relates to the gain on sales of Scottsdale/101, Park Lane Mall, Holiday Village, Greeley Mall, Great Falls Marketplace, Citadel Mall, Crossroads Mall and Northwest Arkansas Mall in 2006 (See "Management's Overview and Summary--Acquisitions and Dispositions"). As result of the sales, the Company reclassified the results of operations for these properties for 2006 and 2005.
Minority Interest in the Operating Partnership
The minority interest in the Operating Partnership represents the 15.8% weighted average interest of the Operating Partnership not owned by the Company during 2006 compared to the 19.0% not owned by the Company during 2005. The change is primarily due to the stock offering by the Company in January 2006.
Funds From Operations
Primarily as a result of the factors mentioned above, FFO--Diluted increased 13.7% to $383.1 million in 2006 from $336.8 million in 2005. For the reconciliation of FFO and FFO--diluted to net income available to common stockholders, see "Funds from Operations."
Operating Activities
Cash flow from operations decreased to $211.9 million in 2006 from $235.3 million in 2005. The decrease is primarily due to changes in assets and liabilities in 2006 compared to 2005 and due to the results at the Centers as discussed above.
Investing Activities
Cash used in investing activities decreased to $126.7 million in 2006 from $131.9 million in 2005. The decrease is primarily attributed to the cash used to acquire the 2006 Acquisition Centers and increases in development and redevelopment costs at the Centers. This is offset by $610.6 million in proceeds from the sale of assets in 2006 (See "Management's Overview and Summary--Acquisitions and Dispositions").
48
Financing Activities
Cash flow provided by financing activities was $29.2 million in 2006 compared to cash used in financing activities of $20.3 million in 2005. The increase in cash provided by financing activities is primarily attributed to the net proceeds of $746.8 million from the stock offering in January 2006 offset in part by a reduction of debt in 2006 compared to 2005.
Liquidity and Capital Resources
The Company intends to meet its short term liquidity requirements through cash generated from operations, working capital reserves, property secured borrowings, unsecured corporate borrowings and borrowings under the revolving line of credit. The Company anticipates that revenues will continue to provide necessary funds for its operating expenses and debt service requirements, and to pay dividends to stockholders in accordance with REIT requirements. The Company anticipates that cash generated from operations, together with cash on hand, will be adequate to fund capital expenditures which will not be reimbursed by tenants, other than non-recurring capital expenditures.
The following tables summarize capital expenditures incurred at the Centers for the years ended December 31:
|
2007 |
2006 |
2005 |
||||||
---|---|---|---|---|---|---|---|---|---|
|
(Dollars in thousands) |
||||||||
Consolidated Centers: | |||||||||
Acquisitions of property and equipment | $ | 387,899 | $ | 580,542 | $ | 1,571,332 | |||
Development, redevelopment and expansion of Centers | 545,926 | 184,315 | 77,254 | ||||||
Renovations of Centers | 31,065 | 51,406 | 51,092 | ||||||
Tenant allowances | 27,959 | 26,976 | 21,765 | ||||||
Deferred leasing charges | 21,611 | 21,610 | 21,836 | ||||||
$ | 1,014,460 | $ | 864,849 | $ | 1,743,279 | ||||
Joint Venture Centers (at Company's pro rata share): | |||||||||
Acquisitions of property and equipment | $ | 24,828 | $ | 28,732 | $ | 736,451 | |||
Development, redevelopment and expansion of Centers | 33,492 | 48,785 | 79,400 | ||||||
Renovations of Centers | 10,495 | 8,119 | 32,243 | ||||||
Tenant allowances | 15,066 | 13,795 | 8,922 | ||||||
Deferred leasing charges | 4,181 | 4,269 | 5,113 | ||||||
$ | 88,062 | $ | 103,700 | $ | 862,129 | ||||
Management expects similar levels to be incurred in future years for tenant allowances and deferred leasing charges and to incur between $400 million to $600 million in 2008 for development, redevelopment, expansion and renovations. In January 2008, in a 50/50 joint venture, the Company acquired The Shops at North Bridge, a 680,933 square foot urban shopping center in Chicago, Illinois, for a total purchase price of $515.0 million. The Company's pro rata share of the purchase price was funded by the assumption of a pro rata share of the $205.0 million fixed rate mortgage on the Center and by borrowings under the Company's line of credit.
Capital for major expenditures, developments and/or redevelopments has been, and is expected to continue to be, obtained from equity or debt financings which include borrowings under the Company's line of credit and construction loans. However, many factors impact the Company's ability to access capital, such as its overall debt level, interest rates, interest coverage ratios and prevailing market conditions.
The Company's total outstanding loan indebtedness at December 31, 2007 was $7.6 billion (including $1.8 billion of its pro rata share of joint venture debt). This equated to a debt to Total
49
Market Capitalization (defined as total debt of the Company, including its pro rata share of joint venture debt, plus aggregate market value of outstanding shares of common stock, assuming full conversion of OP Units, MACWH, LP units and preferred stock into common stock) ratio of approximately 53.7% at December 31, 2007. The majority of the Company's debt consists of fixed-rate conventional mortgages payable collateralized by individual properties.
The Company filed a shelf registration statement, effective June 6, 2002, to sell securities. The shelf registration is for a total of $1.0 billion of common stock, common stock warrants or common stock rights. The Company sold a total of 15.2 million shares of common stock under this shelf registration on November 27, 2002. The aggregate offering price of this transaction was approximately $440.2 million, leaving approximately $559.8 million available under the shelf registration statement. In addition, the Company filed another shelf registration statement, effective October 27, 2003, to sell up to $300 million of preferred stock. On January 12, 2006, the Company filed a shelf registration statement registering an unspecified amount of common stock that it may offer in the future.
On March 16, 2007, the Company issued $950 million in convertible senior notes ("Senior Notes") that mature on March 15, 2012. The Senior Notes bear interest at 3.25%, payable semiannually, are senior to unsecured debt of the Company and are guaranteed by the Operating Partnership. Prior to December 14, 2011, upon the occurrence of certain specified events, the Senior Notes will be convertible at the option of holder into cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the election of the Company, at an initial conversion rate of 8.9702 shares per $1,000 principal amount. On and after December 15, 2011, the Senior Notes will be convertible at any time prior to the second business day preceding the maturity date at the option of the holder at the initial conversion rate. The initial conversion price of approximately $111.48 per share represented a 20% premium over the closing price of the Company's common stock on March 12, 2007. The initial conversion rate is subject to adjustment under certain circumstances. Holders of the Senior Notes do not have the right to require the Company to repurchase the Senior Notes prior to maturity except in connection with the occurrence of certain fundamental change transactions.
In connection with the issuance of the Senior Notes, the Company purchased two capped calls ("Capped Calls") from affiliates of the initial purchasers of the Senior Notes. The Capped Calls effectively increase the conversion price of the Senior Notes to approximately $130.06, which represented a 40% premium to the March 12, 2007 closing price of $92.90 per common share of the Company.
The Company has a $1.5 billion revolving line of credit that matures on April 25, 2010 with a one-year extension option. The interest rate fluctuates between LIBOR plus 0.75% to LIBOR plus 1.10% depending on the Company's overall leverage. In September 2006, the Company entered into an interest rate swap agreement that effectively fixed the interest rate on $400.0 million of the outstanding balance of the line of credit at 6.23% until April 25, 2011. On March 16, 2007, the Company repaid $541.5 million of borrowings outstanding from the proceeds of the Senior Notes (See Note 10--Bank and Other Notes Payable of the Company's Consolidated Financial Statements). As of December 31, 2007 and 2006, borrowings outstanding were $1,015.0 million and $934.5 million, respectively, at an average interest rate, net of the $400.0 million swapped portion, of 6.19% and 6.60%, respectively.
On May 13, 2003, the Company issued $250.0 million in unsecured notes maturing in May 2007 with a one-year extension option bearing interest at LIBOR plus 2.50%. On April 25, 2005, the Company modified these unsecured notes and reduced the interest rate to LIBOR plus 1.50%. On March 16, 2007, the Company repaid the notes from the proceeds of the Senior Notes (See Note 10--Bank and Other Notes Payable of the Company's Consolidated Financial Statements).
On April 25, 2005, the Company obtained a five year, $450.0 million term loan bearing interest at LIBOR plus 1.50%. In November 2005, the Company entered into an interest rate swap agreement
50
that effectively fixed the interest rate of the $450.0 million term loan at 6.30% from December 1, 2005 to April 15, 2010. At December 31, 2007 and 2006, the entire loan was outstanding with an interest rate of 6.30%.
At December 31, 2007, the Company was in compliance with all applicable loan covenants.
At December 31, 2007, the Company had cash and cash equivalents available of $85.3 million.
Off-Balance Sheet Arrangements
The Company has an ownership interest in a number of joint ventures as detailed in Note 4 to the Company's Consolidated Financial Statements included herein. The Company accounts for those investments that it does not have a controlling interest or is not the primary beneficiary using the equity method of accounting and those investments are reflected on the Consolidated Balance Sheets of the Company as "Investments in Unconsolidated Joint Ventures." A pro rata share of the mortgage debt on these properties is shown in "Item 2. Properties--Mortgage Debt."
In addition, certain joint ventures also have debt that could become recourse debt to the Company or its subsidiaries, in excess of the Company's pro rata share, should the joint ventures be unable to discharge the obligations of the related debt.
The following reflects the maximum amount of debt principal that could recourse to the Company at December 31, 2007 (in thousands):
Property |
Recourse Debt |
Maturity Date |
|||
---|---|---|---|---|---|
Boulevard Shops | $ | 4,280 | 12/17/2010 | ||
Chandler Village Center | 4,375 | 1/15/2011 | |||
$ | 8,655 | ||||
Additionally, as of December 31, 2007, the Company is contingently liable for $6.4 million 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.
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Long-term Contractual Obligations
The following is a schedule of long-term contractual obligations (as of December 31, 2007) for the consolidated Centers over the periods in which they are expected to be paid (in thousands):
|
Payment Due by Period |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contractual Obligations |
Total |
Less than 1 year |
1 - 3 years |
3 - 5 years |
More than five years |
||||||||||
Long-term debt obligations (includes expected interest payments) | $ | 6,087,693 | $ | 455,713 | $ | 2,390,249 | $ | 2,014,591 | $ | 1,227,140 | |||||
Operating lease obligations(1) | 670,038 | 14,771 | 29,624 | 29,250 | 596,393 | ||||||||||
Purchase obligations(1) | 103,419 | 103,419 | -- | -- | -- | ||||||||||
Other long-term liabilities(2) | 393,102 | 393,102 | -- | -- | -- | ||||||||||
$ | 7,254,252 | $ | 967,005 | $ | 2,419,873 | $ | 2,043,841 | $ | 1,823,533 | ||||||
Funds From Operations
The Company uses FFO in addition to net income to report its operating and financial results and considers FFO and FFO--diluted as supplemental measures for the real estate industry and a supplement to GAAP measures. The National Association of Real Estate Investment Trusts ("NAREIT") defines FFO as net income (loss) computed in accordance with GAAP, excluding gains (or losses) from extraordinary items and sales of depreciated operating properties, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. FFO and FFO on a fully diluted basis are useful to investors in comparing operating and financial results between periods. This is especially true since FFO excludes real estate depreciation and amortization as the Company believes real estate values fluctuate based on market conditions rather than depreciating in value ratably on a straight-line basis over time. FFO on a fully diluted basis is one of the measures investors find most useful in measuring the dilutive impact of outstanding convertible securities. FFO does not represent cash flow from operations as defined by GAAP, should not be considered as an alternative to net income as defined by GAAP and is not indicative of cash available to fund all cash flow needs. FFO, as presented, may not be comparable to similarly titled measures reported by other real
52
estate investment trusts. The reconciliation of FFO and FFO--diluted to net income available to common stockholders is provided below.
The following reconciles net income (loss) available to common stockholders to FFO and FFO--diluted (dollars in thousands):
|
2007 |
2006 |
2005 |
2004 |
2003 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net income (loss)--available to common stockholders | $ | 73,704 | $ | 217,404 | $ | (93,614 | ) | $ | 82,493 | $ | 113,218 | ||||||
Adjustments to reconcile net income to FFO--basic: | |||||||||||||||||
Minority interest in the Operating Partnership | 13,036 | 40,827 | (22,001 | ) | 19,870 | 28,907 | |||||||||||
Gain on sale of consolidated assets | (9,771 | ) | (241,732 | ) | (1,530 | ) | (8,041 | ) | (34,451 | ) | |||||||
Adjustment of minority interest due to redemption value | 2,046 | 17,062 | 183,620 | | | ||||||||||||
Add: Gain on undepreciated assets--consolidated assets | 8,047 | 8,827 | 1,068 | 939 | 1,054 | ||||||||||||
Add: Minority interest share of gain on sale of consolidated joint ventures | 760 | 36,831 | 239 | -- | -- | ||||||||||||
Gain on sale of assets from unconsolidated entities (pro rata) | (400 | ) | (725 | ) | (1,954 | ) | (3,353 | ) | (155 | ) | |||||||
Add: Gain on sale of undepreciated assets--from unconsolidated entities (pro rata) | 2,793 | 725 | 2,092 | 3,464 | 387 | ||||||||||||
Depreciation and amortization on consolidated centers | 227,091 | 226,797 | 200,098 | 144,828 | 109,569 | ||||||||||||
Depreciation and amortization on joint ventures and from management companies (pro rata) | 88,807 | 82,745 | 73,247 | 61,060 | 45,133 | ||||||||||||
Less: depreciation on personal property and amortization of loan costs and interest rate caps | (8,244 | ) | (15,722 | ) | (14,724 | ) | (11,228 | ) | (9,346 | ) | |||||||
FFO--basic | 397,869 | 373,039 | 326,541 | 290,032 | 254,316 | ||||||||||||
Additional adjustments to arrive at FFO--diluted: | |||||||||||||||||
Impact of convertible preferred stock | 10,058 | 10,083 | 9,649 | 9,140 | 14,816 | ||||||||||||
Impact of non-participating convertible preferred units | -- | -- | 641 | -- | -- | ||||||||||||
FFO--diluted | $ | 407,927 | $ | 383,122 | $ | 336,831 | $ | 299,172 | $ | 269,132 | |||||||
Weighted average number of FFO shares outstanding for: | |||||||||||||||||
FFO--basic(1) | 84,467 | 84,138 | 73,250 | 72,715 | 67,332 | ||||||||||||
Adjustments for the impact of dilutive securities in computing FFO--diluted: | |||||||||||||||||
Convertible preferred stock | 3,512 | 3,627 | 3,627 | 3,627 | 7,386 | ||||||||||||
Non-participating convertible preferred units | -- | -- | 197 | -- | -- | ||||||||||||
Stock options | 293 | 293 | 323 | 385 | 480 | ||||||||||||
FFO--diluted(2) | 88,272 | 88,058 | 77,397 | 76,727 | 75,198 | ||||||||||||
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is interest rate risk. The Company has managed and will continue to manage interest rate risk by (1) maintaining a ratio of fixed rate, long-term debt to total debt such that floating rate exposure is kept at an acceptable level, (2) reducing interest rate exposure on certain long-term floating rate debt through the use of interest rate caps and/or swaps with appropriately matching maturities, (3) using treasury rate locks where appropriate to fix rates on anticipated debt transactions, and (4) taking advantage of favorable market conditions for long-term debt and/or equity.
The following table sets forth information as of December 31, 2007 concerning the Company's long term debt obligations, including principal cash flows by scheduled maturity, weighted average interest rates and estimated fair value ("FV") (dollars in thousands):
|
For the years ending December 31, |
|
|
|
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2008 |
2009 |
2010 |
2011 |
2012 |
Thereafter |
Total |
FV |
|||||||||||||||||
CONSOLIDATED CENTERS: | |||||||||||||||||||||||||
Long term debt: | |||||||||||||||||||||||||
Fixed rate(1) | $ | 327,747 | $ | 355,615 | $ | 1,036,927 | $ | 718,914 | $ | 1,206,230 | $ | 1,160,003 | $ | 4,805,436 | $ | 4,821,439 | |||||||||
Average interest rate | 6.02% | 6.24% | 6.49% | 5.58% | 4.09% | 5.79% | 5.57% | ||||||||||||||||||
Floating rate | 102,000 | 190,522 | 665,000 | -- | -- | -- | 957,522 | 957,522 | |||||||||||||||||
Average interest rate | 6.12% | 6.11% | 6.18% | 6.15% | |||||||||||||||||||||
Total debt--Consolidated Centers | $ | 429,747 | $ | 546,137 | $ | 1,701,927 | $ | 718,914 | $ | 1,206,230 | $ | 1,160,003 | $ | 5,762,958 | $ | 5,778,961 | |||||||||
JOINT VENTURE CENTERS: |
|||||||||||||||||||||||||
Long term debt (at Company's pro rata share): | |||||||||||||||||||||||||
Fixed rate | $ | 70,356 | $ | 237,996 | $ | 122,203 | $ | 33,504 | $ | 169,206 | $ | 992,184 | $ | 1,625,449 | $ | 1,681,623 | |||||||||
Average interest rate | 5.73% | 5.89% | 6.79% | 6.11% | 6.99% | 5.56% | 5.89% | ||||||||||||||||||
Floating rate | 83,331 | 25,988 | 19,343 | 66,300 | -- | -- | 194,962 | 194,962 | |||||||||||||||||
Average interest rate | 5.89% | 7.24% | 6.03% | 5.92% | 6.09% | ||||||||||||||||||||
Total debt--Joint Venture Centers | $ | 153,687 | $ | 263,984 | $ | 141,546 | $ | 99,804 | $ | 169,206 | $ | 992,184 | $ | 1,820,411 | $ | 1,876,585 | |||||||||
The consolidated Centers' total fixed rate debt at December 31, 2007 and 2006 was $4.8 billion and $3.8 billion, respectively. The average interest rate on fixed rate debt at December 31, 2007 and 2006 was 5.57% and 5.99%, respectively. The consolidated Centers' total floating rate debt at December 31, 2007 and 2006 was $1.0 billion and $1.2 billion, respectively. The average interest rate on floating rate debt at December 31, 2007 and 2006 was 6.15% and 6.59%, respectively.
The Company's pro rata share of the Joint Venture Centers' fixed rate debt at December 31, 2007 and 2006 was $1.6 billion and $1.5 billion, respectively. The average interest rate on fixed rate debt at December 31, 2007 and 2006 was 5.89% and 5.84%, respectively. The Company's pro rata share of the Joint Venture Centers' floating rate debt at December 31, 2007 and 2006 was $195.0 million and $198.4 million, respectively. The average interest rate on the floating rate debt at December 31, 2007 and 2006 was 6.09% and 6.33%, respectively.
The Company uses derivative financial instruments in the normal course of business to manage or hedge interest rate risk and records all derivatives on the balance sheet at fair value in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" (See "Note 5--Derivative Instruments and Hedging Activities" of the Company's Consolidated Financial Statements).
54
The following are outstanding derivatives at December 31, 2007 (amounts in thousands):
Property/Entity |
Notional Amount |
Product |
Rate |
Maturity |
Company's Ownership |
Fair Value(1) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Camelback Colonnade | $ | 41,500 | Cap | 8.54% | 11/15/2008 | 75% | $ | -- | |||||||
Desert Sky Mall | 51,500 | Cap | 7.65% | 3/15/2008 | 50% | -- | |||||||||
Greece Ridge Center | 72,000 | Cap | 7.95% | 12/15/2008 | 100% | -- | |||||||||
La Cumbre Plaza | 30,000 | Cap | 7.12% | 8/9/2008 | 100% | -- | |||||||||
Metrocenter Mall | 37,380 | Cap | 7.25% | 2/15/2009 | 15% | -- | |||||||||
Metrocenter Mall | 11,500 | Cap | 5.25% | 2/15/2009 | 15% | -- | |||||||||
Panorama Mall | 50,000 | Cap | 6.65% | 3/1/2008 | 100% | -- | |||||||||
Superstition Springs Center | 67,500 | Cap | 8.63% | 9/9/2008 | 33.33% | -- | |||||||||
Metrocenter Mall | 112,000 | Swap | 3.86% | 2/15/2009 | 15% | 20 | |||||||||
Metrocenter Mall | 133,597 | Swap | 4.57% | 2/15/2009 | 15% | (154 | ) | ||||||||
The Operating Partnership | 450,000 | Swap | 4.80% | 4/25/2010 | 100% | (11,377 | ) | ||||||||
The Operating Partnership | 400,000 | Swap | 5.33% | 4/25/2011 | 100% | (16,147 | ) |
Interest rate cap agreements ("Cap") offer protection against floating rates on the notional amount from exceeding the rates noted in the above schedule, and interest rate swap agreements ("Swap") effectively replace a floating rate on the notional amount with a fixed rate as noted above.
In addition, the Company has assessed the market risk for its floating rate debt and believes that a 1% increase in interest rates would decrease future earnings and cash flows by approximately $11.5 million per year based on $1.1 billion outstanding of floating rate debt at December 31, 2007.
The fair value of the Company's long term debt is estimated based on discounted cash flows at interest rates that management believes reflect the risks associated with long term debt of similar risk and duration.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Refer to the Index to Financial Statements and Financial Statement Schedules for the required information appearing in Item 15.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
Management, including our Chief Executive Officer and Chief Financial Officer, does not expect that its disclosure controls and procedures or its internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
55
Conclusion Regarding Effectiveness of Disclosure Controls and Procedures
Based on their evaluation as of December 31, 2007, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is (a) recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms and (b) accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management's Report on Internal Control Over Financial Reporting
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). The Company's management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2007. In making this assessment, the Company's management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal ControlIntegrated Framework. The Company's management concluded that, as of December 31, 2007, its internal control over financial reporting was effective based on these criteria.
The Company's independent registered public accounting firm, Deloitte & Touche LLP, has issued an attestation report on the Company's internal control over financial reporting, which is included herein. In such report, Deloitte & Touche LLP notes that it has identified a material weakness in the operation of the Company's review and analysis of the relevant terms and conditions underlying the convertible preferred units issued to prior owners of Wilmorite holdings in connection with the acquisition of the Wilmorite portfolio because effective controls were not maintained by the Company to provide for an appropriate evaluation and determination of whether these interests represent minority interests.
Deficiency Related to Wilmorite Acquisition
The decision to restate our consolidated financial statements as of December 31, 2007 and December 31, 2006 and for each of the three years during the period ended December 31, 2007 to correctly account for the minority interests issued to prior owners in connection with the Company's acquisition of Wilmorite and Wilmorite Holdings in April 2005 as more fully described in Note 25 to the consolidated financial statements does not cause our management to change its conclusion that our internal control over financial reporting was effective as of December 31, 2007. The Company does acknowledge a deficiency in its internal control over financial reporting related to the Wilmorite acquisition. Specifically, management has determined that at the time of the Wilmorite acquisition, the Company did not maintain a sufficient complement of personnel with an appropriate level of technical accounting knowledge and experience to review, analyze and monitor the application of generally accepted accounting principles related to the Wilmorite acquisition. However, the Company has taken action to increase the level of technical accounting knowledge and experience of its internal accounting personnel. Consequently, the Company has concluded that it has cured the prior deficiency in its internal control over financial reporting.
Consistent with the Company's historical practices with respect to significant transactions such as the Wilmorite acquisition, members of the Company's finance organization, including our Chief Financial Officer, engaged in detailed internal conversations to determine proper disclosure of the Wilmorite acquisition in our consolidated financial statements. The Company reached its conclusion
56
regarding the proper presentation of the Wilmorite acquisition in its consolidated financial statements only after it had fully considered all discussions regarding the appropriate disclosure of the transaction under generally accepted accounting principles. While the Company has determined that its prior accounting analysis was incorrect, the Company does not believe that the internal control deficiency was severe enough to constitute a material weakness at December 31, 2007. As a result, the Company does not concur with the conclusion of Deloitte & Touche LLP that such review and analysis constitutes a material weakness.
Changes in Internal Control over Financial Reporting
There were no changes in the Company's internal control over financial reporting during the quarter ended December 31, 2007 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
57
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of
The Macerich Company
Santa Monica, California
We have audited The Macerich Company's and subsidiaries' (the "Company's") internal control over financial reporting as of December 31, 2007, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our report dated February 27, 2008, we expressed an unqualified opinion on the effectiveness of internal control over financial reporting. As described in the following paragraphs, we subsequently identified a material weakness. Accordingly, our present opinion on the effectiveness of the Company's internal control over financial reporting as of December 31, 2007 expressed herein is different from that expressed in our previous report.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.
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We have identified the following material weakness that has not been identified as a material weakness in management's assessment:
We identified a material weakness in the operation of the Company's review and analysis of the relevant terms and conditions underlying the convertible preferred units issued to prior owners of Wilmorite Holdings in connection with the acquisition of the Wilmorite portfolio. Specifically, effective controls were not maintained by the Company to provide for an appropriate evaluation and determination of whether these interests represent minority interests. The material restatement that resulted from this material weakness includes a decrease of property, net and investments in unconsolidated joint ventures of $134,018,000 and $50,019,000, respectively, an increase in minority interest of $208,993,000, decreases in Class A participating and non-participating convertible preferred units, additional paid-in capital, and accumulated deficit of $230,245,000, $210,736,000, and $47,951,000, respectively, a decrease of net income of $10,732,000, an increase of net income available to common stockholders of $2,043,000 as of and for the year ended December 31, 2007, and in the restatement of the consolidated balance sheets as of December 31, 2007 and 2006, the related consolidated statements of operations, common stockholders' equity, and of cash flows, for each of the three years in the period ended December 31, 2007, and the notes related thereto.
This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements and financial statement schedules of the Company as of and for the year ended December 31, 2007 and this report does not affect our report on such financial statements and financial statement schedules.
In our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, the Company has not maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
The material weakness described above has not been disclosed or identified in Management's Report on Internal Control over Financial Reporting.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2007, of the Company and our report dated February 27, 2008 (June 3, 2008 as to the effects of the restatement described in Note 25 and the reclassification for discontinued operations described in Note 13) expressed an unqualified opinion, and included an explanatory paragraph relating to the restatement described in Note 25, on those financial statements and financial statement schedules.
/s/ DELOITTE & TOUCHE LLP
Deloitte &
Touche LLP
Los Angeles, California
February 27, 2008 (June 3, 2008 as to the effects of the material weakness described above)
ITEM 9A(T). CONTROLS AND PROCEDURES
Not Applicable
None
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
There is hereby incorporated by reference the information which appears under the captions "Information Regarding Nominees and Directors," "Executive Officers," "Section 16(a) Beneficial Ownership Reporting Compliance," "Audit Committee Matters" and "Codes of Ethics" in the Company's definitive proxy statement for its 2008 Annual Meeting of Stockholders that is responsive to the information required by this Item.
During 2007, there were no material changes to the procedures described in the Company's proxy statement relating to the 2007 Annual Meeting of Stockholders by which stockholders may recommend nominees to the Company.
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information which appears under the caption "Election of Directors" in the Company's definitive proxy statement for its 2008 Annual Meeting of Stockholders that is responsive to the information required by this Item. Notwithstanding the foregoing, the Compensation Committee Report set forth therein shall not be incorporated by reference herein, in any of the Company's prior or future filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent the Company specifically incorporates such report by reference therein and shall not be otherwise deemed filed under either of such Acts.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
There is hereby incorporated by reference the information which appears under the captions "Principal Stockholders," "Information Regarding Nominees and Directors" and "Executive Officers" in the Company's definitive proxy statement for its 2008 Annual Meeting of Stockholders that is responsive to the information required by this Item.
Equity Compensation Plan Information
The Company currently maintains two equity compensation plans for the granting of equity awards to directors, officers and employees: the 2003 Equity Incentive Plan ("2003 Plan") and the Eligible Directors' Deferred Compensation/Phantom Stock Plan ("Director Phantom Stock Plan"). Certain of the Company's outstanding stock awards were granted under other equity compensation plans which are no longer available for stock awards: the 1994 Eligible Directors' Stock Option Plan (the "Director Plan"), the Amended and Restated 1994 Incentive Plan (the "1994 Plan") and the 2000 Incentive Plan (the "2000 Plan").
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Summary Table
The following table sets forth, for the Company's equity compensation plans, the number of shares of Common Stock subject to outstanding options, warrants and rights, the weighted-average exercise price of outstanding options, and the number of shares remaining available for future award grants as of December 31, 2007.
Plan Category |
Number of shares of Common Stock to be issued upon exercise of outstanding options, warrants and rights (a) |
Weighted average exercise price of outstanding options, warrants and rights(1) (b) |
Number of shares of Common stock remaining available for future issuance under equity compensation plans (excluding shares reflected in column(a)) (c) |
||||||
---|---|---|---|---|---|---|---|---|---|
Equity Compensation Plans approved by stockholders | 879,664 | (2) | $ | 35.54 | 5,664,249 | (3) | |||
Equity Compensation Plans not approved by stockholders | 15,000 | (4) | $ | 30.75 | -- | ||||
Total | 894,664 | $ | 35.46 | 5,664,249 | |||||
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
There is hereby incorporated by reference the information which appears under the captions "Certain Transactions" and "The Board of Directors and its Committees" in the Company's definitive proxy statement for its 2008 Annual Meeting of Stockholders that is responsive to the information required by this Item.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
There is hereby incorporated by reference the information which appears under the captions "Principal Accountant Fees and Services" and "Audit Committee Pre-Approval Policy" in the Company's definitive proxy statement for its 2008 Annual Meeting of Stockholders that is responsive to the information required by this Item.
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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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|
|
Page |
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(a) and (c) | 1. | Financial Statements of the Company | ||||
Report of Independent Registered Public Accounting Firm |
63 |
|||||
Consolidated balance sheets of the Company as of December 31, 2007 (As Restated) and 2006 (As Restated) |
64 |
|||||
Consolidated statements of operations of the Company for the years ended December 31, 2007 (As Restated), 2006 (As Restated) and 2005 (As Restated) |
65 |
|||||
Consolidated statements of common stockholders' equity of the Company for the years ended December 31, 2007 (As Restated), 2006 (As Restated) and 2005 (As Restated) |
66 |
|||||
Consolidated statements of cash flows of the Company for the years ended December 31, 2007 (As Restated), 2006 (As Restated) and 2005 (As Restated) |
67 |
|||||
Notes to consolidated financial statements (As Restated) |
69 |
|||||
2. |
Financial Statements of Pacific Premier Retail Trust |
|||||
Report of Independent Registered Public Accounting Firm |
119 |
|||||
Consolidated balance sheets of Pacific Premier Retail Trust as of December 31, 2007 and 2006 |
120 |
|||||
Consolidated statements of operations of Pacific Premier Retail Trust for the years ended December 31, 2007, 2006 and 2005 |
121 |
|||||
Consolidated statements of stockholders' equity of Pacific Premier Retail Trust for the years ended December 31, 2007, 2006 and 2005 |
122 |
|||||
Consolidated statements of cash flows of Pacific Premier Retail Trust for the years ended December 31, 2007, 2006 and 2005 |
123 |
|||||
Notes to consolidated financial statements |
124 |
|||||
3. |
Financial Statements of SDG Macerich Properties, L.P. |
|||||
Report of Independent Registered Public Accounting Firm |
133 |
|||||
Balance sheets of SDG Macerich Properties, L.P. as of December 31, 2007 and 2006 |