SECURITIES AND EXCHANGE COMMISSION
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, 20162017Commission FileNo. 1-12504
(Exact name of registrant as specified in its charter)
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MARYLAND | | 95-4448705 |
(State or other jurisdiction of incorporation or organization) | | 95-4448705
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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's401 Wilshire Boulevard, Suite 700, Santa Monica, California 90401
(Address of principal executive office, including zip code)
Registrant’s telephone number, including area code
(310) 394-6000Securities registered pursuant to Section 12(b) of the Act
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Title of each class | | Name of each exchange on which registered |
| Common Stock, $0.01 Par Value | | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
NoneIndicate by check mark if the registrant is a 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 reports) and (2) has been subject to such filing requirements for the past 90 days. YES
ý☒ NO o ☐Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES
ý☒ NO o ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the best of registrant'sregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment on to thisForm 10-K. ☐o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company or emerging growth company. See the definitions of "large“large accelerated filer," "accelerated” “accelerated filer,"” “smaller reporting company” and "smaller reporting company"“emerging growth company” inRule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filerý | | Accelerated filer o
☒ | | Accelerated filer | | ☐ |
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Non-accelerated filero | | ☐ (Do not check if a smaller reporting company) | | Smaller reporting companyo | | ☐ |
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| | | | Emerging growth company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). YES
o☐ NO ý☒The aggregate market value of voting andnon-voting common equity held bynon-affiliates of the registrant was approximately $12.3$8.2 billion as of the last business day of the registrant'sregistrant’s most recently 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'sregistrant’s common stock, as of
February 21, 2017: 143,904,8322018: 140,852,118 sharesDOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual stockholders meeting to be held in 2017The following documents (or parts thereof) are incorporated by reference into the following parts of this Form10-K/A: None
EXPLANATORY NOTE
This Amendment No. 1 to Form10-K (this “Amendment”) amends the Annual Report on Form10-K for the fiscal year ended December 31, 2017, originally filed on February 23, 2018 (the “Original Filing”) by The Macerich Company, a Maryland corporation, (“Macerich”, the “Company”, “we” or “us”). We are filing this Amendment to present the information required by Part III of this theForm 10-K.10-K,
as we will not file our definitive proxy statement within 120 days of the end of our fiscal year ended December 31, 2017.Except as described above, no other changes have been made to the Original Filing. The Original Filing continues to speak as of the date of the Original Filing, and we have not updated the disclosures contained therein to reflect any events which occurred at a date subsequent to the filing of the Original Filing.
INDEX
THE MACERICH COMPANY
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2016
INDEX
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Part III
PART I
IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-KItem 10.Directors, Executive Officers and Corporate Governance.Executive Officers
The following table sets forth, as of The Macerich Company (the "Company") contains statementsApril 30, 2018, the names, ages and positions of our executive officers and the year each became an officer.
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Name | | Age | | | Position | | Officer
Since | |
Arthur M. Coppola | | | 66 | | | Chairman of the Board of Directors and Chief Executive Officer | | | 1993 | |
Edward C. Coppola | | | 63 | | | President | | | 1993 | |
Thomas E. O’Hern | | | 62 | | | Senior Executive Vice President, Chief Financial Officer and Treasurer | | | 1993 | |
Ann C. Menard | | | 55 | | | Executive Vice President, Chief Legal Officer and Secretary | | | 2018 | |
On April 19, 2018, Mr. Arthur M. Coppola informed our Board that constitute forward-looking statements within the meaninghe will retire from his position as Chairman of the federal securities laws. Any statementsBoard effective as of our Annual Meeting and from his position as CEO effective December 31, 2018.
Mr. Thomas J. Leanse retired from his position as Senior Executive Vice President, Chief Legal Officer and Secretary of our Company effective February 28, 2018. Ann C. Menard, who joined our Company on January 29, 2018 as an Executive Vice President, has been our Chief Legal Officer and Secretary since March 1, 2018.
On April 26, 2018, the Company announced that do not relate(i) Thomas E. O’Hern will be appointed to historical or current facts or matters are forward-looking statements. You can identify somethe role of Chief Executive Officer, effective as of January 1, 2019, (ii) Scott Kingsmore, our Senior Vice President of Finance, will be appointed to the role of Executive Vice President, Chief Financial Officer and Treasurer, effective as of January 1, 2019 and (iii) Robert D. Perlmutter notified us on April 20, 2018 that he was resigning as our Senior Executive Vice President and Chief Operating Officer, effective as of such date.
Biographical information concerning Messrs. A. Coppola and E. Coppola is set forth below under “Director Biographical Information.”
Thomas E. O’Hern became one of our Senior Executive Vice Presidents in September 2008 and has been our Chief Financial Officer and Treasurer since July 1994. Mr. O’Hern was an Executive Vice President from December 1998 through September 2008 and served as a Senior Vice President from March 1993 to December 1998. From our formation to July 1994, he served as Chief Accounting Officer, Treasurer and Secretary. From November 1984 to March 1993, Mr. O’Hern was a Chief Financial Officer at various real estate development companies. He was also a certified public accountant with Arthur Andersen & Co. and he was with that firm from 1978 through 1984. Mr. O’Hern is a member of the forward-looking statements byboard of directors, the useaudit committee chairman and a member of forward-looking words, suchthe nominating and corporate governance committee of Douglas Emmett, Inc., a publicly traded REIT. Mr. O’Hern also serves on The USC Marshall School of Business Board of Leaders.
Ann C. Menard joined our Company on January 29, 2018 as "may," "will," "could," "should," "expects," "anticipates," "intends," "projects," "predicts," "plans," "believes," "seeks," "estimates," "scheduled"an Executive Vice President and variations of these wordshas been our Chief Legal Officer and similar expressions. Statements concerning current conditions may also be forward-looking if they implySecretary since March 1, 2018. Prior to joining our Company, Ms. Menard was U.S. General Counsel and Managing Director for Tishman Speyer, a continuation of current conditions. Forward-looking statements appear in a number of places in this Form 10-Kglobal real estate owner, operator, developer and include statements regarding, among other matters:
expectations regarding the Company's growth;
the Company's beliefs regarding its acquisition, redevelopment, development, leasing and operationalfund manager from October 2005 through December 2017, where she managed legal activities and opportunities,risk in connection with operations in major U.S. markets including the performance of its retailers;
the Company's acquisition, dispositionLos Angeles, San Francisco, Silicon Valley, Seattle, Chicago and other strategies;
regulatory matters pertainingAtlanta. Prior to compliance with governmental regulations;
the Company's capital expenditure plans and expectations for obtaining capital for expenditures;
the Company's expectations regarding income tax benefits;
the Company's expectations regarding its financial condition or results of operations; and
the Company's expectations for refinancing its indebtedness, entering into and servicing debt obligations and entering into joint venture arrangements.
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. Such factors include, among others, general industry, as well as national, regional and local economic and business conditions, which will, among other things, affect demand for retail space or retail goods, availability and creditworthiness of current and prospective tenants, anchor or tenant bankruptcies, closures, mergers or consolidations, lease rates, terms and payments, interest rate fluctuations, availability, terms and cost of financing and operating expenses; adverse changesjoining Tishman Speyer, Ms. Menard was a partner in the real estate
marketsand corporate finance departments at O’Melveny & Myers, LLP in their Los Angeles and Newport Beach offices. Ms. Menard received her JD, magna cum laude, from Loyola Law School of Los Angeles in 1991, after graduating with a Bachelor of Arts degree from the University of California, Los Angeles in 1985.3
Directors
The following provides certain biographical information with respect to our current directors as of April 30, 2018 as well as the specific experience, qualifications, attributes and skills that led our Board to conclude that each director should serve as a member of our Board of Directors. Each director has served continuously since elected. On January 31, 2018, Mr. John M. Sullivan informed the Board that he will not stand for re-election at our 2018 Annual Meeting.
Peggy Alford
Independent Director
Director Since:2018
Age:47
Board Committees:Audit
Principal Occupation and Business Experience:
Ms. Alford is the Chief Financial Officer and Head of Operations for the Chan Zuckerberg Initiative, a philanthropic organization that brings together world-class engineering, grant-making, impact investing, policy and advocacy work, overseeing finance, real estate, facilities and general operations. Prior to joining the Chan Zuckerberg Initiative in September 2017, Ms. Alford held a variety of senior positions at PayPal from May 2011 to August 2017, including among other things, competitionVice President, Chief Financial Officer of Americas, Global Customer and Global Credit, where she was responsible for all finance and analytics for PayPal’s Global Merchant and Global Consumer Business Units, its Global Credit business, and its North America and Latin America regions. She also served as PayPal’s Senior Vice President of Human Resources, People Operations and Global Head of Cross Border Trade. From 2007 to 2011, Ms. Alford was President and General Manager of Rent.com (an eBay Inc. company), also serving as its Chief Financial Officer from other companies, retail formatsOctober 2005 to March 2009. From 2002 to 2005 she served as Marketplace Controller and Director of Accounting Policy, leading accounting policy at eBay Inc. where she was instrumental in creating eBay marketplace controller’s group ensuring the financial integrity of eBay transactions. Ms. Alford started her career at Arthur Andersen LLP in 1993 as an auditor and business consultant in such industries as technology, risksconsumer products, manufacturing, government and education. Ms. Alford earned a Bachelor of Science degree in Accounting and Business Administration from the University of Dayton and is a certified public accountant.
Key Qualifications, Experience and Attributes:
As a new Board member, Ms. Alford’s wide-ranging financial and operational experience, digital, technology and omnichannel knowledge and significant experience leading complex businesses are invaluable to our Board. Her fresh perspectives and contributions to our Company are also informed by Ms. Alford’s strong digital expertise and track record of driving growth and innovation through data analytics, areas which have become increasingly critical drivers of our business. In addition to her strong managerial and operational background, Ms. Alford brings deep financial expertise to our Board, based on which she serves on our Audit Committee and has been determined by our Board to be an audit committee financial expert.
John H. Alschuler
Independent Director
Director Since:2015
Age:70
Board Committees:Nominating and Corporate Governance
Other Public Company Boards:SL Green Realty Corporation; Xenia Hotels and Resorts, Inc.
Principal Occupation and Business Experience:
Since 2008, Mr. Alschuler has been the Chairman of HR&A Advisors Inc., an economic development, real estate and public policy consulting organization. Mr. Alschuler also is an Adjunct Associate Professor at Columbia University, where he teaches real estate development at the Graduate School of Architecture, Planning & Preservation. Mr. Alschuler currently serves on the board of directors of SL Green Realty Corporation and redevelopment, acquisitionsXenia Hotels and dispositions;Resorts, Inc., both of which are publicly traded REITs. Mr. Alschuler also serves on the liquidityboard of real estate investments, governmental actions and initiatives (including legislative and regulatory changes); environmental and safety requirements; and terrorist activities or other acts of violence which could adversely affect alldirectors of the above factors. You are urged to carefully reviewCenter for an Urban Future, a Section 501(c)(3) tax exempt organization, and Friends of the disclosures we make concerning risksHigh Line Inc., a Section 501(c)(3) tax exempt organization.
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Key Qualifications, Experience and other factors that may affect ourAttributes:
Mr. Alschuler’s achievements in academia and business, and operating results, including those made in "Item 1A. Risk Factors" of this Annual Report on Form 10-K, as well as his extensive knowledge of commercial real estate and national and international markets for real estate, and his expertise in inter-governmental relations, allow him to assess the real estate market and our Company’s business from a knowledgeable and informed perspective. His experience on boards of other reports filed with the Securitiespublic and Exchange Commission ("SEC"). You are cautioned not to place undue reliance on these forward-looking statements, which speak only asprivate companies further enhances his range of knowledge.
Arthur M. Coppola
Director
Director Since:1994
Age:66
Board Committees:Executive (Chair)
Principal Occupation and Business Experience:
Mr. A. Coppola has been our Chief Executive Officer since our formation and was elected Chairman of the dateBoard in September 2008. Mr. A. Coppola’s term as Chairman of this document. The Company does not intend,the Board will end at our 2018 Annual Meeting and undertakes no obligation, to update any forward-looking information to reflect events or circumstances afterhis term as Chief Executive Officer will end December 31, 2018. As Chairman of the dateBoard and Chief Executive Officer, Mr. A. Coppola is responsible for the strategic direction and overall management of this document or to reflect the occurrenceour Company. He served as our President from our formation until his election as Chairman. Mr. A. Coppola is one of unanticipated events, unless required by law to do so.
ITEM 1. BUSINESS
General
The Company is involvedour Company’s founders and has over 42 years of experience in the acquisition, ownership, development, redevelopment, managementshopping center industry, all of which has been with The Macerich Group and leasing of regional and community/power shopping centers located throughout the United States. The Company is the sole general partner of, and ownsour Company. From 2005 through 2010, Mr. A. Coppola was a majoritymember of the ownership interestsboard of governors or the executive committee of the National Association of Real Estate Investment Trusts, Inc. (“Nareit”), served as the 2007 chair of the board of governors and received the 2009 Nareit Industry Leadership Award. Mr. A. Coppola is also an attorney and a certified public accountant.Key Qualifications, Experience and Attributes:
As Chairman and CEO, our Board has valued Mr. A. Coppola’s strategic direction and vision which has resulted in The Macerich Partnership, L.P.,our Company growing from a Delaware limited partnership (the "Operating Partnership"). Asprivately held real estate company to a dominant national regional mall company that is part of
December 31, 2016, the Operating Partnership owned or had an ownership interest in 50 regional shopping centers and seven community/power shopping centers. These 57 regional and community/power shopping centers (which include any related office space) consistS&P 500, with a portfolio of approximately 5653 million square feet of gross leasable area (“GLA”)primarily in 48 regional shopping centers across the United States. He is a recognized leader within the REIT industry. Mr. A. Coppola’s knowledge of our Company and are referredthe REIT industry, as well as his extensive business relationships with investors, retailers, financial institutions and peer companies, provide our Board with critical information necessary to hereinoversee and direct the management of our Company. His role and experiences at our Company and within our industry give him unique insights into our Company’s opportunities, operations and challenges.Edward C. Coppola
Director
Director Since:1994
Age:63
Principal Occupation and Business Experience:
Mr. E. Coppola was elected our President in September 2008. In partnership with our Chief Executive Officer, Mr. E. Coppola oversees the strategic direction of our Company. He has broad oversight over our Company’s financial and investment strategies, including our Company’s key lender and investor relationships. He also oversees our acquisitions and dispositions, department store relationships and development/redevelopment projects. Mr. E. Coppola was previously an Executive Vice President from our formation through September 2004 and was our Senior Executive Vice President and Chief Investment Officer from October 2004 until his election as President. He has over 40 years of shopping center experience with The Macerich Group and our Company and is one of our founders. From March 16, 2006 to February 2, 2009, Mr. E. Coppola was a member of the board of directors of Strategic Hotels & Resorts, Inc., a publicly traded REIT which owns and manages high end hotels and resorts. Mr. E. Coppola is also an attorney.
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Key Qualifications, Experience and Attributes:
Mr. E. Coppola has deep relationships and experience in our industry and in the retail and shopping center landscape. As President, Mr. E. Coppola provides our Board with important information about the overall conduct of our Company’s business and valuable knowledge and perspective regarding our operations, plans and direction. Our Board appreciates his long history and experience in the shopping center industry as well as his expertise with respect to strategic and investment planning, finance, capital markets, acquisition, disposition and development matters.
Steven R. Hash
Independent Director
Director Since:2015
Age:53
Board Committees:Audit (Chair); Compensation; Executive
Other Public Company Boards:Alexandria Real Estate Equities, Inc.
Principal Occupation and Business Experience:
Mr. Hash is the President and Chief Operating Officer of Renaissance Macro Research, LLC, an equity research and trading firm focused on macro research in the investment strategy, economics and Washington policy sectors, which heco-founded in 2012. Mr. Hash is a member of the board of directors of Alexandria Real Estate Equities, Inc., a publicly traded REIT, where he serves as the “Centers”. The Centers consistlead independent director, chair of consolidated Centers (“Consolidated Centers”)the compensation committee and unconsolidated joint venture Centers (“Unconsolidated Joint Venture Centers”) as set forth in “Item 2. Properties,” unless the context otherwise requires.
The Company is a
self-administeredmember of the audit committee. Mr. Hash is also a member of the board of directors of Nureen Global Cities REIT, Inc., anon-traded REIT. He is the lead independent director and
self-manageda member of the audit committee. Between 1993 and 2012, Mr. Hash held various leadership positions with Lehman Brothers (and its successor, Barclays Capital), including Global Head of Real Estate Investment Banking from 2006 to 2012, Chief Operating Officer of Global Investment Banking from 2008 to 2011, Director of Global Equity Research from 2003 to 2006, Director of U.S. Equity Research from 1999 to 2003, and Senior Equity Research Analyst from 1993 to 1999 covering the Real Estate Investment Trusts sector. From 1990 to 1993, Mr. Hash held various positions with Oppenheimer & Company’s Equity Research Department, including senior research analyst. He began his career in 1988 as an auditor for the accounting and consulting firm of Arthur Andersen & Co.Key Qualifications, Experience and Attributes:
Mr. Hash brings to our Board extensive knowledge of real estate investment trust ("REIT")strategy and conducts alleconomic trends through years of its operationsreal estate industry research and investment banking both domestically and internationally. In addition to important insights into the equity and capital markets and investor perspectives, he has valuable experience in accounting and financial reporting based upon his years as an auditor and senior equity research analyst. He also has important corporate governance and board leadership expertise through the Operating Partnershiphis positions at other publicly traded companies and the Company'sat our Company. He also has experience in human capital management companies, Macerich Property Management Company, LLC, a single member Delaware limited liability company, Macerich Management Company, a California corporation, Macerich Arizona Partners LLC, a single member Arizona limited liability company, Macerich Arizona Management LLC, a single member Delaware limited liability company, Macerich Partnersand talent development matters. Mr. Hash serves as Chairperson of Colorado LLC, a single member Colorado limited liability company, MACW Mall Management, Inc., a New York corporation,our Audit Committee and MACW Property Management, LLC, a single member New York limited liability company. All sevenhas been determined by our Board to be an audit committee financial expert. In August 2017, Mr. Hash was chosen by our independent directors to serve as our Lead Director and appointed to serve as our independent Chairman of the management companies are owned by the Company and are collectively referred to herein as the "Management Companies."
The Company was organized as a Maryland corporation in September 1993. All references to the Company in this Annual Report on Form 10-K 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 Schedule."
Recent Developments
Acquisitions and Dispositions:
On January 6, 2016, the Company sold a 40% ownership interest in Arrowhead Towne Center, a 1,197,000 square foot regional shopping center in Glendale, Arizona, for $289.5 million, resulting in a gain on the sale of assets of $101.6 million. The sales price was funded by a cash payment of $129.5 million and the assumption of a pro rata share of the mortgage note payable on the property of $160.0 million. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes, which included funding the Special Dividend (See "Other Transactions and Events" in Recent Developments).
On January 14, 2016, the Company formed a joint venture, whereby the Company sold a 49% ownership interest in Deptford Mall, a 1,039,000 square foot regional shopping center in Deptford, New Jersey; FlatIron Crossing, a 1,431,000 square foot regional shopping center in Broomfield, Colorado; and Twenty Ninth Street, an 847,000 square foot regional shopping center in Boulder, Colorado (the "MAC Heitman Portfolio"), for $771.5 million, resulting in a gain on the sale of assets of $340.7 million. The sales price was funded by a cash payment of $478.6 million and the assumption of a pro rata share of the mortgage notes payable on the properties of $292.9 million. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes.
On March 1, 2016, the Company through a 50/50 joint venture, acquired Country Club Plaza, a 1,246,000 square foot regional shopping center in Kansas City, Missouri, for a purchase price of $660.0 million. The Company funded its pro rata share of $330.0 million with borrowings under its line of credit.
On April 13, 2016, the Company sold Capitola Mall, a 586,000 square foot regional shopping center in Capitola, California, for $93.0 million, resulting in a gain on the sale of assets of $24.9 million. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On May 31, 2016, the Company sold a former Mervyn's store in Yuma, Arizona, for $3.2 million, resulting in a loss on the sale of assets of $3.1 million. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On January 18, 2017, the Company sold Cascade Mall, a 589,000 square foot regional shopping center in Burlington, Washington; and Northgate Mall, a 750,000 square foot regional shopping center in San Rafael, California, in a combined transaction for $170.0 million. The proceeds from the sale were used to pay off the mortgage note payable on Northgate Mall, pay down the Company's line of credit and for general corporate purposes. Consequently, Cascade Mall and Northgate Mall have been excluded from certain 2016 performance metrics and related discussions in this "Item 1. Business," including major tenants, average base rents, cost of occupancy, lease expirations and anchors (See "Major Tenants," "Mall Stores and Freestanding Stores," "Cost of Occupancy," "Lease Expirations" and "Anchors" below). In addition, Cascade Mall and Northgate Mall have been excluded from the Company's list of properties and related computations of GLA and occupancy (See "Item 2. Properties").
Financing Activity:
On January 6, 2016, the Company replaced the existing loan on Arrowhead Towne Center with a new $400.0 million loan that bears interest at an effective rate of 4.05% and matures on February 1, 2028, which resulted in a loss of $3.6 million on the early extinguishment of debt. Concurrently, a 40% interest in the loan was assumed by a third party in connection with the sale of a 40% ownership interest in the underlying property (See "Acquisitions and Dispositions" in Recent Developments). The Company used the proceeds to pay down its line of credit and for general corporate purposes.
On January 14, 2016, the Company placed a $150.0 million loan on Twenty Ninth Street that bears interest at an effective rate of 4.10% and matures on February 6, 2026. Concurrently, a 49% interest in the loan was assumed by a third party in connection with the sale of a 49% ownership interest in the MAC Heitman Portfolio (See "Acquisitions and Dispositions" in Recent Developments). The Company used the proceeds to pay down its line of credit and for general corporate purposes.
On March 28, 2016, the Company's joint venture in Country Club Plaza placed a $320.0 million loan on the property that bears interest at an effective rate of 3.88% and matures on April 1, 2026. The Company used its share of the proceeds to pay down its line of credit and for general corporate purposes.
On May 27, 2016, the Company's joint venture in The Shops at North Bridge replaced the existing loan on the property with a new $375.0 million loan that bears interest at an effective rate of 3.71% and matures on June 1, 2028. The Company used its share of the excess proceeds to pay down its line of credit and for general corporate purposes.
On July 6, 2016, the Company modified and amended its line of credit. The amended $1.5 billion line of credit bears interest at LIBOR plus a spread of 1.30% to 1.90%, depending on the Company's overall leverage level, and matures on July 6, 2020 with a one-year extension option. Based on the Company's leverage levelBoard as of the
amendment date,2018 Annual Meeting when our Board separates the
initial borrowing rateChair and CEO positions.6
Diana M. Laing
Independent Director
Director Since:2003
Age:63
Board Committees:Audit
Principal Occupation and Business Experience:
Ms. Laing is the Chief Financial Officer of American Homes 4 Rent, a publicly traded REIT focused on the facilityacquisition, renovation, leasing and operation of single-family homes as rental properties and has served in such capacity since May 2014. From May 2004 until its merger with Parkway Properties of Orlando, Florida in December 2013, Ms. Laing was LIBOR plus 1.33%. The linethe Chief Financial Officer and Secretary of credit can be expanded, depending on certain conditions, up toThomas Properties Group, Inc., a total facility of $2.0 billion.
On August 5, 2016, the Company’s joint venture in The Village at Corte Madera replaced the existing loanpublicly traded real estate operating company and institutional investment manager focused on the propertydevelopment, acquisition, operation and ownership of commercial properties throughout the United States. She was responsible for financial reporting, capital markets transactions and investor relations. Ms. Laing served as Chief Financial Officer of each of Triple Net Properties, LLC from January through April 2004, New Pacific Realty Corporation from December 2001 to December 2003, and Firstsource Corp. from July 2000 to May 2001. From August 1996 to July 2000, Ms. Laing was Executive Vice President, Chief Financial Officer and Treasurer of Arden Realty, Inc., a publicly traded REIT which was the largest owner and operator of commercial office properties in Southern California. From 1982 to August 1996, she served in various capacities, including Executive Vice President, Chief Financial Officer and Treasurer of Southwest Property Trust, Inc., a publicly traded multi-family REIT which owned multi-family properties throughout the southwestern United States. Ms. Laing began her career as an auditor with a new $225.0 million loan that bears interest at an effective rate of 3.53% and maturesArthur Andersen & Co. She serves on September 1, 2028. The Company used its sharethe advisory boards to the Dean of the excess proceeds to pay down its lineSpears School of creditBusiness and for general corporate purposes.
On October 6, 2016, the Company placed a $325.0 million loan on Fresno Fashion Fair that bears interest at an effective rate of 3.67% and matures on November 1, 2026. The Company used the proceeds to pay down its line of credit and for general corporate purposes.
On February 1, 2017, the Company's joint venture in West Acres replaced the existing loan on the property with a new $80.0 million loan that bears interest at an effective rate of 4.61% and matures on March 1, 2032. The Company used its shareChairman of the excess proceeds to pay down its lineSchool of creditAccounting at Oklahoma State University and for general corporate purposes.
On February 2, 2017, the Company's joint venture in Kierland Commons entered intois a loan commitment with a lender to replace the existing loan on the property with a new $225.0 million loan that will bear interest at a fixed ratemember of 3.95% for ten-years. The new loan is expected to close in March 2017. The Company expects to use its share of the excess proceeds to pay down its line of credit and for general corporate purposes.
Redevelopment and Development Activity:
In February 2014, the Company's joint venture in Broadway Plaza started construction on the 235,000 square foot expansion of the 923,000 square foot regional shopping center in Walnut Creek, California. The joint venture completed a portion of the first phase of the project in November 2015 and the remaining portion of the first phase was completed in September 2016. The second phase will be completed through Summer 2018. The total cost of the project is estimated to be $305.0 million, with $152.5 million estimated to be the Company's pro rata share. The Company has funded $127.7 million of the total $255.4 million incurred by the joint venture as of December 31, 2016.
In July 2015, the Company started construction on a 335,000 square foot expansion of Green Acres Mall, a 2,089,000 square foot regional shopping center in Valley Stream, New York. The Company completed the project in October 2016. As of December 31, 2016, the Company has incurred $104.9 million in costs.
The Company's joint venture is proceeding with the development of Fashion Outlets of Philadelphia, a redevelopment of an 850,000 square foot regional shopping center in Philadelphia, Pennsylvania. The project is expected to be completed in 2018. The total cost of the project is estimated to be between $305.0 million and $365.0 million, with $152.5 million to $182.5 million estimated to be the Company's pro rata share. The Company has funded $46.9 million of the total $93.7 million incurred by the joint venture as of December 31, 2016.
The Company is currently in the process of redeveloping the 250,000 square foot former Sears store at Kings Plaza Shopping Center. The Company expects to complete the project in Summer 2018. As of December 31, 2016, the Company has incurred $10.0 million in costs and anticipates the total cost of the project to be between $95.0 million and $100.0 million.
Other Transactions and Events:
On January 6, 2016, the Company paid a Special Dividend (See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Other Transactions and Events") of $2.00 per share of common stock and per Operating Partnership ("OP") Unit to common stockholders and OP Unit holders of record on November 12, 2015. The Special Dividend was funded from borrowings under its line of credit.
On September 30, 2015, the Company's Board of Directors authorized the repurchase of up to $1.2 billion of the Company's outstanding common shares over the period ending September 30, 2017, as market conditions warranted (the "2015 Stock Buyback Program"). On November 12, 2015, the Company entered into an accelerated share repurchase program ("ASR") to repurchase $400.0 million of the Company's common stock. In accordance with the ASR, the Company made a prepayment of $400.0 million and received an initial share delivery of 4,140,788 shares. On January 19, 2016, the ASR was completed and the Company received an additional delivery of 970,609 shares. The average price of the 5,111,397 shares repurchased under the ASR was $78.26 per share. The ASR was funded from proceeds in connection to the recently completed PPR Portfolio transaction (See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Management's Overview and Summary").
On February 17, 2016, the Company entered into an ASR to repurchase $400.0 million of the Company's common stock. In accordance with the ASR, the Company made a prepayment of $400.0 million and received an initial share delivery of 4,222,193 shares. On April 19, 2016, the ASR was completed and the Company received delivery of an additional 861,235 shares. The average price of the 5,083,428 shares repurchased under the ASR was $78.69 per share. The ASR was funded from borrowings under the Company's line of credit, which had been paid down from the proceeds from the recently completed PPR Portfolio, Arrowhead Towne Center and MAC Heitman Portfolio transactions (See "Acquisitions and Dispositions" and "Financing Activity" in Recent Developments), collectively referred to herein as the "Joint Venture Transactions".
On May 9, 2016, the Company entered into an ASR to repurchase the remaining $400.0 million of the Company's common stock authorized for repurchase. In accordance with the ASR, the Company made a prepayment of $400.0 million and received an initial share delivery of 3,964,812 shares. On July 11, 2016, the ASR was completed and the Company received delivery of an additional 1,104,162 shares. The average price of the 5,068,974 shares repurchased under the ASR was $78.91 per share. The ASR was funded from borrowings under the Company's line of credit, which had been paid down from the proceeds from the recently completed Joint Venture Transactions. The total number of shares repurchased under the 2015 Stock Buyback Program was 15,263,799 at an average price of $78.62.
On July 15, 2016, the Company conveyed Flagstaff Mall, a 347,000 square foot regional shopping center in Flagstaff, Arizona, to the mortgage lender by a deed-in-lieu of foreclosure and was discharged from the mortgage note payable. The mortgage note payable was a non-recourse loan. As a result, the Company recognized a gain of $5.3 million on the extinguishment of debt.
On February 13, 2017, the Company announced that the Board of
Directors has authorized the repurchase of up to $500.0 million of its outstanding common shares as market conditions and the Company’s liquidity warrant. Repurchases may be made through open market purchases, privately negotiated transactions, structured or derivative transactions, including ASR transactions, or other methods of acquiring shares and pursuant to Rule 10b5-1Trustees of the
Securities ActOklahoma State University Foundation.Key Qualifications, Experience and Attributes:
Our Board believes Ms. Laing’s over 35 years of 1934, from time to time as permittedreal estate industry experience, with her particular expertise in finance, capital markets, strategic planning, budgeting and financial reporting, make her a valuable member of our Board. This financial and real estate experience is supplemented by securities lawsher substantive public company and other legal requirements.
The Shopping Center Industry
General:
There are several types of retail shopping centers,REIT experience 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. "Strip centers", "urban villages" or "specialty centers" ("Community/Power Shopping 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/Power Shopping Centers typically contain 100,000 to 400,000 square feet of GLA. Outlet Centers generally contain a wide variety of designer and manufacturer stores, often located in an open-air center, and typically range in size from 200,000 to 850,000 square feet of GLA ("Outlet Centers"). In addition, freestanding retail stores are located along the perimeter of the
shopping centers ("Freestanding Stores"). Mall Stores and Freestanding Stores over 10,000 square feet of GLA are also referred to as "Big Box." Anchors, Mall Stores, Freestanding Stores and other tenants typically contribute funds for the maintenanceenhances her understanding of the common areas, property taxes, insurance, advertisingissues facing our Company 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 goodsindustry. Based on her financial expertise, Ms. Laing serves on our Audit Committee 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 a gathering place for community, charity and promotional events.
Regional Shopping Centers have generally provided owners with relatively stable 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. Anchors 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 GLA 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 long-term four-pronged business strategy that focuses on the acquisition, leasing and management, redevelopment and development of Regional Shopping Centers.
Acquisitions. The Company principally focuses on well-located, quality Regional Shopping Centers that can be dominant in their trade area and have strong revenue enhancement potential. In addition, the Company pursues other opportunistic acquisitions of property that include retail and will complement the Company's portfolio such as Outlet Centers. 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 "Acquisitions and Dispositions" in Recent Developments).
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, information technology, 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 be responsive to the needs of retailers.
The Company generally utilizes 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 two regional shopping centers and three community centers for third party owners on a fee basis.
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 they believe 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 "Redevelopment and Development Activity" in Recent Developments).
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 "Redevelopment and Development Activity" in Recent Developments).
The Centers:
As of December 31, 2016, the Centers primarily included 48 Regional Shopping Centers, excluding Cascade Mall and Northgate Mall, and seven Community/Power Shopping Centers totaling approximately 54 million square feet of GLA. These 55 Centers average approximately 929,000 square feet of GLA and range in size from 3.5 million square feet of GLA at Tysons Corner Center to 185,000 square feet of GLA at Boulevard Shops. As of December 31, 2016, excluding Cascade Mall and Northgate Mall, the Centers primarily included 193 Anchors totaling approximately 26.5 million square feet of GLA and approximately 5,400 Mall Stores and Freestanding Stores totaling approximately 25.1 million square feet of GLA.
Competition:
Numerous owners, developers and managers of malls, shopping centers and other retail-oriented real estate compete with the Company for the acquisition of properties and in attracting tenants or Anchors to occupy space. There are seven other publicly traded mall companies and several large private mall companies in the United States, any of which under certain circumstances could compete against the Company for an Anchor or a tenant. In addition, these companies, as well as other REITs, private real estate companies or investors compete with the Company in terms of property acquisitions. This results in competition both for the acquisition of properties or centers and for tenants or Anchors to occupy space. Competition for property acquisitions may result in increased purchase prices and may adversely affect the Company's ability to make suitable property acquisitions on favorable terms. 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 rents that can be achieved. There is also increasing competition from other retail formats and technologies, such as lifestyle centers, power centers, outlet centers, Internet shopping, home shopping networks, catalogs, telemarketing and discount shopping clubs 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 Centers.
Major Tenants:
The Centers, excluding Cascade Mall and Northgate Mall, derived approximately 76% of their total rents for the year ended December 31, 2016 from Mall Stores and Freestanding Stores under 10,000 square feet, and Big Box and Anchor tenants accounted for 24% of total rents for the year ended December 31, 2016. Total rents as set forth in "Item 1. Business" include minimum rents and percentage rents.
The following retailers (including their subsidiaries) represent the 10 largest tenants in the Centers, excluding Cascade Mall and Northgate Mall, based upon total rents in place as of December 31, 2016:
|
| | | | | | | | |
| Tenant | | Primary DBAs | | Number of Locations in the Portfolio | | % of Total Rents |
| L Brands, Inc. | | Victoria's Secret, Bath and Body Works, PINK | | 94 |
| | 2.7 | % |
| Forever 21, Inc. | | Forever 21, XXI Forever, Love21 | | 34 |
| | 2.5 | % |
| Foot Locker, Inc. | | Champs Sports, Foot Locker, Kids Foot Locker, Lady Foot Locker, Foot Action, House of Hoops SIX:02 and others | | 93 |
| | 1.9 | % |
| Gap, Inc., The | | Athleta, Banana Republic, Gap, Gap Kids, Old Navy and others | | 57 |
| | 1.9 | % |
| Signet Jewelers | | Gordon's Jewelers, Jared Jewelry, Kay Jewelers, Piercing Pagoda, Rogers Jewelers, Shaw's Jewelers, Weisfield Jewelers and Zales | | 102 |
| | 1.6 | % |
| Dick's Sporting Goods, Inc. | | Dick's Sporting Goods, Chelsea Collective | | 16 |
| | 1.5 | % |
| H & M Hennes & Mauritz AB | | H & M | | 24 |
| | 1.5 | % |
| Golden Gate Capital | | Payless ShoeSource, Eddie Bauer, California Pizza Kitchen, PacSun | | 78 |
| | 1.2 | % |
| American Eagle Outfitters, Inc. | | American Eagle Outfitters, aerie | | 36 |
| | 1.1 | % |
| Sears Holdings Corporation | | Sears | | 22 |
| | 1.0 | % |
Mall Stores and Freestanding Stores:
Mall Store 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 other cases, tenants pay only percentage rent. The Company generally enters into leases for Mall Stores and Freestanding Stores that also require tenants to pay a stated amount for operating expenses, generally excluding property taxes, regardless of the expenses the Company actually incurs at any Center. However, certain leases for Mall Stores and Freestanding Stores contain provisions that only require tenants to pay their pro rata share of maintenance of the common areas, property taxes, insurance, advertising and other expenditures related to the operations of the Center.
Tenant space of 10,000 square feet and under in the Company's portfolio at December 31, 2016, excluding Cascade Mall and Northgate Mall, comprises approximately 76% of all Mall Store and Freestanding Store space. The Company uses tenant spaces of 10,000 square feet and under for comparing rental rate activity because this space is more consistent in terms of shape and configuration and, as such, the Company is able to provide a meaningful comparison of rental rate activity for this space. Mall Store and Freestanding Store space greater than 10,000 square feet is inconsistent in size and configuration throughout the Company's portfolio and as a result does not lend itself to a meaningful comparison of rental rate activity with the Company's other space. Most of the non-Anchor space over 10,000 square feet is not physically connected to the mall, does not share the same common area amenities and does not benefit from the foot traffic in the mall. As a result, space greater than 10,000 square feet has a unique rent structure that is inconsistent with mall space under 10,000 square feet.
The following tables set forth the average base rent per square foot for the Centers, as of December 31 for each of the past five years:
Mall Stores and Freestanding Stores under 10,000 square feet:
|
| | | | | | | | | | | |
| For the Years Ended December 31, | Avg. Base Rent Per Sq. Ft.(1)(2) | | Avg. Base Rent Per Sq. Ft. on Leases Executed During the Year(2)(3) | | Avg. Base Rent Per Sq. Ft. on Leases Expiring During the Year(2)(4) |
| Consolidated Centers: | | | | | |
| 2016 | $ | 53.51 |
| | $ | 53.48 |
| | $ | 44.77 |
|
| 2015 | $ | 52.64 |
| | $ | 53.99 |
| | $ | 49.02 |
|
| 2014 | $ | 49.68 |
| | $ | 49.55 |
| | $ | 41.20 |
|
| 2013 | $ | 44.51 |
| | $ | 45.06 |
| | $ | 40.00 |
|
| 2012 | $ | 40.98 |
| | $ | 44.01 |
| | $ | 38.00 |
|
| Unconsolidated Joint Venture Centers (at the Company's pro rata share): | | | | | |
| 2016 | $ | 57.90 |
| | $ | 64.78 |
| | $ | 57.29 |
|
| 2015 | $ | 60.74 |
| | $ | 80.18 |
| | $ | 60.85 |
|
| 2014 | $ | 63.78 |
| | $ | 82.47 |
| | $ | 64.59 |
|
| 2013 | $ | 62.47 |
| | $ | 63.44 |
| | $ | 48.43 |
|
| 2012 | $ | 55.64 |
| | $ | 55.72 |
| | $ | 48.74 |
|
Big Box and Anchors:
|
| | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, | Avg. Base Rent Per Sq. Ft.(1)(2) | | Avg. Base Rent Per Sq. Ft. on Leases Executed During the Year(2)(3) | | Number of Leases Executed During the Year | | Avg. Base Rent Per Sq. Ft. on Leases Expiring During the Year(2)(4) | | Number of Leases Expiring During the Year |
| Consolidated Centers: | | | | | | | | | |
| 2016 | $ | 13.34 |
| | $ | 22.23 |
| | 20 |
| | $ | 19.12 |
| | 8 |
|
| 2015 | $ | 12.72 |
| | $ | 19.87 |
| | 19 |
| | $ | 8.96 |
| | 14 |
|
| 2014 | $ | 11.26 |
| | $ | 18.28 |
| | 22 |
| | $ | 15.16 |
| | 14 |
|
| 2013 | $ | 10.94 |
| | $ | 14.61 |
| | 29 |
| | $ | 14.08 |
| | 21 |
|
| 2012 | $ | 9.34 |
| | $ | 15.54 |
| | 21 |
| | $ | 8.85 |
| | 22 |
|
| Unconsolidated Joint Venture Centers (at the Company's pro rata share): | | | | | | | | | |
| 2016 | $ | 15.76 |
| | $ | 29.41 |
| | 13 |
| | $ | 28.00 |
| | 1 |
|
| 2015 | $ | 14.48 |
| | $ | 33.00 |
| | 14 |
| | $ | 9.30 |
| | 8 |
|
| 2014 | $ | 18.51 |
| | $ | 33.62 |
| | 11 |
| | $ | 27.27 |
| | 6 |
|
| 2013 | $ | 13.36 |
| | $ | 37.45 |
| | 22 |
| | $ | 24.58 |
| | 10 |
|
| 2012 | $ | 12.52 |
| | $ | 23.25 |
| | 21 |
| | $ | 8.88 |
| | 10 |
|
_____________________
| |
(1) | Average base rent per square foot is based on spaces occupied as of December 31 for each of the Centers and gives effect to the terms of each lease in effect, as of such date, including any concessions, abatements and other adjustments or allowances that have been granted to the tenants. |
| |
(2) | Centers under development and redevelopment are excluded from average base rents. As a result, the leases for Broadway Plaza, Fashion Outlets of Philadelphia, Paradise Valley Mall and Westside Pavilion are excluded for the years ended December 31, 2016, 2015, and 2014. The leases for Fashion Outlets of Niagara Falls, USA and SouthPark Mall are excluded for the years ended December 31, 2015 and 2014. The leases for Paradise Valley Mall are excluded for the year ended December 31, 2013. The leases for The Shops at Atlas Park and Southridge Center are excluded for the year ended December 31, 2012. |
The leases for Cascade Mall and Northgate Mall, which were sold on January 18, 2017, are excluded for the year ended December 31, 2016. Flagstaff Mall was conveyed to the mortgage lender by a deed-in-lieu of foreclosure on July 15, 2016 and is excluded for the year ended December 31, 2015. On June 30, 2015, Great Northern Mall was conveyed to the mortgage lender by a deed-in-lieu of foreclosure. Consequently, Great Northern Mall is excluded for the year ended December 31, 2014. The leases for Rotterdam Square, which was sold on January 15, 2014, are excluded for the year ended December 31, 2013.
| |
(3) | The average base rent per square foot on leases executed during the year represents the actual rent paid on a per square foot basis during the first twelve months of the lease. |
| |
(4) | The average base rent per square foot on leases expiring during the year represents the actual rent to be paid on a per square foot basis during the final twelve months of the lease. |
Cost of Occupancy:
A major factor contributing to tenant profitability is cost of occupancy, which consists of tenant occupancy costs charged by the Company. Tenant expenses included in this calculation are minimum rents, percentage rents and recoverable expenditures, which consist primarily of property operating expenses, real estate taxes and repair and maintenance expenditures. These tenant charges are collectively referred to as tenant occupancy costs. These tenant occupancy costs are compared to tenant sales. A low cost of occupancy percentage shows more potential capacity for the Company to increase rents at the time of lease renewal than a high cost of occupancy percentage. The following table summarizes occupancy costs for Mall Store and Freestanding Store tenants in the Centers as a percentage of total Mall Store sales for the last five years:
|
| | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2016 (1) | | 2015 (2) | | 2014 (3) | | 2013 (4) | | 2012 |
| Consolidated Centers: | | | | | | | | | |
| Minimum rents | 9.4 | % | | 9.0 | % | | 8.7 | % | | 8.4 | % | | 8.1 | % |
| Percentage rents | 0.4 | % | | 0.4 | % | | 0.4 | % | | 0.4 | % | | 0.4 | % |
| Expense recoveries(5) | 4.3 | % | | 4.5 | % | | 4.3 | % | | 4.5 | % | | 4.2 | % |
| | 14.1 | % | | 13.9 | % | | 13.4 | % | | 13.3 | % | | 12.7 | % |
| Unconsolidated Joint Venture Centers: | | | | | | | | | |
| Minimum rents | 8.6 | % | | 8.1 | % | | 8.7 | % | | 8.8 | % | | 8.9 | % |
| Percentage rents | 0.3 | % | | 0.4 | % | | 0.4 | % | | 0.4 | % | | 0.4 | % |
| Expense recoveries(5) | 3.9 | % | | 4.0 | % | | 4.5 | % | | 4.0 | % | | 3.9 | % |
| | 12.8 | % | | 12.5 | % | | 13.6 | % | | 13.2 | % | | 13.2 | % |
_____________________________
| |
(1) | Cascade Mall and Northgate Mall were sold on January 18, 2017 and are excluded for the year ended December 31, 2016. |
| |
(2) | Flagstaff Mall was conveyed to the mortgage lender by a deed-in-lieu of foreclosure on July 15, 2016 and is excluded for the year ended December 31, 2015. |
| |
(3) | Great Northern Mall was conveyed to the mortgage lender by a deed-in-lieu of foreclosure on June 30, 2015 and is excluded for the year ended December 31, 2014. |
| |
(4) | Rotterdam Square was sold on January 15, 2014 and is excluded for the year ended December 31, 2013. |
| |
(5) | Represents real estate tax and common area maintenance charges. |
Lease Expirations:
The following tables show scheduled lease expirations for Centers owned as of December 31, 2016, excluding Cascade Mall and Northgate Mall, for the next ten years, assuming that none of the tenants exercise renewal options:
Mall Stores and Freestanding Stores under 10,000 square feet:
|
| | | | | | | | | | | | | | | | |
| 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) | | % of Base Rent Represented by Expiring Leases(1) |
| Consolidated Centers: | | | | | | | | | | |
| 2017 | | 348 |
| | 627,096 |
| | 11.06 | % | | $ | 53.71 |
| | 10.78 | % |
| 2018 | | 346 |
| | 761,539 |
| | 13.43 | % | | $ | 49.98 |
| | 12.18 | % |
| 2019 | | 318 |
| | 764,628 |
| | 13.49 | % | | $ | 48.82 |
| | 11.95 | % |
| 2020 | | 248 |
| | 518,447 |
| | 9.15 | % | | $ | 54.00 |
| | 8.96 | % |
| 2021 | | 231 |
| | 532,982 |
| | 9.40 | % | | $ | 53.46 |
| | 9.12 | % |
| 2022 | | 164 |
| | 382,108 |
| | 6.74 | % | | $ | 54.10 |
| | 6.62 | % |
| 2023 | | 165 |
| | 381,975 |
| | 6.74 | % | | $ | 54.39 |
| | 6.65 | % |
| 2024 | | 180 |
| | 495,723 |
| | 8.75 | % | | $ | 61.62 |
| | 9.78 | % |
| 2025 | | 176 |
| | 453,145 |
| | 7.99 | % | | $ | 65.28 |
| | 9.47 | % |
| 2026 | | 145 |
| | 456,989 |
| | 8.06 | % | | $ | 61.58 |
| | 9.01 | % |
| Unconsolidated Joint Venture Centers (at the Company's pro rata share): | | | | | | | | | | |
| 2017 | | 235 |
| | 298,552 |
| | 11.83 | % | | $ | 56.79 |
| | 11.13 | % |
| 2018 | | 213 |
| | 277,612 |
| | 11.00 | % | | $ | 61.71 |
| | 11.24 | % |
| 2019 | | 199 |
| | 228,138 |
| | 9.04 | % | | $ | 62.31 |
| | 9.33 | % |
| 2020 | | 180 |
| | 238,392 |
| | 9.44 | % | | $ | 58.84 |
| | 9.21 | % |
| 2021 | | 215 |
| | 278,582 |
| | 11.03 | % | | $ | 59.18 |
| | 10.82 | % |
| 2022 | | 136 |
| | 193,629 |
| | 7.67 | % | | $ | 57.48 |
| | 7.30 | % |
| 2023 | | 120 |
| | 208,759 |
| | 8.27 | % | | $ | 55.25 |
| | 7.57 | % |
| 2024 | | 117 |
| | 194,844 |
| | 7.72 | % | | $ | 58.58 |
| | 7.49 | % |
| 2025 | | 124 |
| | 207,729 |
| | 8.23 | % | | $ | 63.91 |
| | 8.71 | % |
| 2026 | | 136 |
| | 213,645 |
| | 8.46 | % | | $ | 75.78 |
| | 10.63 | % |
Big Boxes and Anchors:
|
| | | | | | | | | | | | | | | | |
| 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) | | % of Base Rent Represented by Expiring Leases(1) |
| Consolidated Centers: | | | | | | | | | | |
| 2017 | | 21 |
| | 541,354 |
| | 4.87 | % | | $ | 14.85 |
| | 4.97 | % |
| 2018 | | 18 |
| | 541,672 |
| | 4.87 | % | | $ | 10.41 |
| | 3.48 | % |
| 2019 | | 25 |
| | 1,024,177 |
| | 9.22 | % | | $ | 10.46 |
| | 6.62 | % |
| 2020 | | 23 |
| | 908,840 |
| | 8.18 | % | | $ | 9.31 |
| | 5.23 | % |
| 2021 | | 32 |
| | 1,514,030 |
| | 13.63 | % | | $ | 8.98 |
| | 8.40 | % |
| 2022 | | 30 |
| | 1,129,808 |
| | 10.17 | % | | $ | 17.91 |
| | 12.50 | % |
| 2023 | | 19 |
| | 608,892 |
| | 5.48 | % | | $ | 14.63 |
| | 5.50 | % |
| 2024 | | 21 |
| | 646,036 |
| | 5.81 | % | | $ | 24.17 |
| | 9.65 | % |
| 2025 | | 23 |
| | 776,630 |
| | 6.99 | % | | $ | 23.12 |
| | 11.09 | % |
| 2026 | | 14 |
| | 642,015 |
| | 5.78 | % | | $ | 13.86 |
| | 5.50 | % |
| Unconsolidated Joint Venture Centers (at the Company's pro rata share): | | | | | | | | | | |
| 2017 | | 8 |
| | 81,013 |
| | 1.59 | % | | $ | 33.25 |
| | 3.20 | % |
| 2018 | | 20 |
| | 308,128 |
| | 6.05 | % | | $ | 16.35 |
| | 5.98 | % |
| 2019 | | 11 |
| | 202,221 |
| | 3.97 | % | | $ | 25.16 |
| | 6.04 | % |
| 2020 | | 24 |
| | 901,156 |
| | 17.69 | % | | $ | 11.83 |
| | 12.65 | % |
| 2021 | | 19 |
| | 268,669 |
| | 5.27 | % | | $ | 18.01 |
| | 5.75 | % |
| 2022 | | 17 |
| | 571,611 |
| | 11.22 | % | | $ | 8.55 |
| | 5.80 | % |
| 2023 | | 12 |
| | 220,042 |
| | 4.32 | % | | $ | 21.91 |
| | 5.72 | % |
| 2024 | | 19 |
| | 264,001 |
| | 5.18 | % | | $ | 34.00 |
| | 10.66 | % |
| 2025 | | 20 |
| | 926,165 |
| | 18.18 | % | | $ | 13.53 |
| | 14.87 | % |
| 2026 | | 20 |
| | 384,418 |
| | 7.55 | % | | $ | 24.33 |
| | 11.10 | % |
| |
(1) | The ending base rent per square foot on leases expiring during the period represents the final year minimum rent, on a cash basis, for tenant leases expiring during the year. Currently, 57% of leases have provisions for future consumer price index increases that are not reflected in ending base rent. The leases for Centers currently under development and redevelopment are excluded from this table. |
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 Stores and Freestanding Stores, strong Anchors play an important part in maintaining customer traffic and making the Centers desirable locations for Mall Store 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 Stores and Freestanding Stores. Each Anchor that owns its own store and certain Anchors that 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 7.9% of the Company's total rents for the year ended December 31, 2016, excluding Cascade Mall and Northgate Mall.
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, excluding Cascade Mall and Northgate Mall, at December 31, 2016.
|
| | | | | | | | | | | | |
| Name | | Number of Anchor Stores | | GLA Owned by Anchor | | GLA Leased by Anchor | | Total GLA Occupied by Anchor |
| Macy's Inc. | | | | | | | | |
| Macy's(1) | | 37 |
| | 4,922,000 |
| | 1,931,000 |
| | 6,853,000 |
|
| Bloomingdale's | | 2 |
| | — |
| | 355,000 |
| | 355,000 |
|
| | | 39 |
| | 4,922,000 |
| | 2,286,000 |
| | 7,208,000 |
|
| JCPenney | | 27 |
| | 1,744,000 |
| | 2,204,000 |
| | 3,948,000 |
|
| Sears(1) | | 22 |
| | 811,000 |
| | 2,336,000 |
| | 3,147,000 |
|
| Dillard's | | 14 |
| | 2,205,000 |
| | 257,000 |
| | 2,462,000 |
|
| Nordstrom(1) | | 13 |
| | 739,000 |
| | 1,477,000 |
| | 2,216,000 |
|
| Dick's Sporting Goods | | 15 |
| | — |
| | 952,000 |
| | 952,000 |
|
| Forever 21 | | 7 |
| | 155,000 |
| | 574,000 |
| | 729,000 |
|
| Target | | 4 |
| | 304,000 |
| | 273,000 |
| | 577,000 |
|
| The Bon-Ton Stores, Inc. | | |
| | |
| | | | |
| Younkers | | 3 |
| | — |
| | 317,000 |
| | 317,000 |
|
| Bon-Ton, The | | 1 |
| | — |
| | 71,000 |
| | 71,000 |
|
| Herberger's | | 1 |
| | 188,000 |
| | — |
| | 188,000 |
|
| | | 5 |
| | 188,000 |
| | 388,000 |
| | 576,000 |
|
| Hudson Bay Company | | | | | | | | |
| Lord & Taylor | | 3 |
| | 121,000 |
| | 199,000 |
| | 320,000 |
|
| Saks Fifth Avenue | | 1 |
| | — |
| | 92,000 |
| | 92,000 |
|
| | | 4 |
| | 121,000 |
| | 291,000 |
| | 412,000 |
|
| Home Depot | | 3 |
| | — |
| | 395,000 |
| | 395,000 |
|
| Costco | | 2 |
| | — |
| | 321,000 |
| | 321,000 |
|
| Burlington | | 3 |
| | 187,000 |
| | 127,000 |
| | 314,000 |
|
| Kohl's | | 3 |
| | 89,000 |
| | 200,000 |
| | 289,000 |
|
| Neiman Marcus | | 2 |
| | — |
| | 188,000 |
| | 188,000 |
|
| Von Maur | | 2 |
| | 187,000 |
| | — |
| | 187,000 |
|
| Walmart | | 1 |
| | — |
| | 173,000 |
| | 173,000 |
|
| Century 21 | | 2 |
| | — |
| | 171,000 |
| | 171,000 |
|
| La Curacao | | 1 |
| | — |
| | 165,000 |
| | 165,000 |
|
| Boscov's | | 1 |
| | — |
| | 161,000 |
| | 161,000 |
|
| Belk | | 2 |
| | — |
| | 139,000 |
| | 139,000 |
|
| Primark(2) | | 2 |
| | — |
| | 137,000 |
| | 137,000 |
|
| BJ's Wholesale Club | | 1 |
| | — |
| | 123,000 |
| | 123,000 |
|
| Lowe's | | 1 |
| | — |
| | 114,000 |
| | 114,000 |
|
| Mercado de los Cielos | | 1 |
| | — |
| | 78,000 |
| | 78,000 |
|
| L.L. Bean | | 1 |
| | — |
| | 75,000 |
| | 75,000 |
|
| Best Buy | | 1 |
| | 66,000 |
| | — |
| | 66,000 |
|
| Des Moines Area Community College | | 1 |
| | 64,000 |
| | — |
| | 64,000 |
|
| Bealls | | 1 |
| | — |
| | 40,000 |
| | 40,000 |
|
| Vacant Anchors(2)(3) | | 8 |
| | — |
| | 755,000 |
| | 755,000 |
|
| | | 189 |
| | 11,782,000 |
| | 14,400,000 |
| | 26,182,000 |
|
| Anchors at Centers not owned by the Company(4): | |
|
| |
|
| |
|
| |
|
|
| Forever 21 | | 2 |
| | — |
| | 154,000 |
| | 154,000 |
|
| Kohl's | | 1 |
| | — |
| | 83,000 |
| | 83,000 |
|
| Vacant Anchors(3) | | 1 |
| | — |
| | 41,000 |
| | 41,000 |
|
| Total | | 193 |
| | 11,782,000 |
| | 14,678,000 |
| | 26,460,000 |
|
| |
(1) | The Anchor has announced its intention of closing one of the locations. |
| |
(2) | The Company anticipates that Primark will open a store at Kings Plaza Shopping Center in 2018 in a portion of the space vacated by Sears. |
| |
(3) | The Company is seeking replacement tenants and/or contemplating redevelopment opportunities for these vacant sites. The Company continues to collect rent under the terms of an agreement regarding two of these vacant Anchor locations. |
| |
(4) | The Company owns an office building and seven stores located at shopping centers not owned by the Company. Of these seven stores, two have been leased to Forever 21, one has been leased to Kohl's, one is vacant and three have been leased for non-Anchor usage. |
Environmental Matters
Each of the Centers has been subjected to an Environmental Site Assessment—Phase I (which involves review of publicly available information and general property inspections, but does not involve soil sampling or ground water analysis) completeddetermined by an environmental consultant.
Based on these assessments, and on other information, the Company is aware of the following environmental issues, which may result in potential environmental liability and cause the Company to incur costs in responding to these liabilities or in other costs associated with future investigation or remediation:
Asbestos. The Company has conducted asbestos-containing materials ("ACM") surveys at various locations within the Centers. The surveys indicate that ACMs are present or suspected in certain areas, primarily vinyl floor tiles, mastics, roofing materials, drywall tape and joint compounds. The identified ACMs are generally non-friable, in good condition, and possess low probabilities for disturbance. At certain Centers where ACMs are present or suspected, however, some ACMs have been or may be classified as "friable," and ultimately may require removal under certain conditions. The Company has developed and implemented an operations and maintenance ("O&M") plan to manage ACMs in place.
Underground Storage Tanks. Underground storage tanks ("USTs") are or were present at certain Centers, often in connection with tenant operations at gasoline stations or automotive tire, battery and accessory service centers located at such Centers. USTs also may be or have been present at properties neighboring certain Centers. Some of these tanks have either leaked or are suspected to have leaked. Where leakage has occurred, investigation, remediation, and monitoring costs may be incurred by the Company if responsible current or former tenants, or other responsible parties, are unavailable to pay such costs.
Chlorinated Hydrocarbons. The presence of chlorinated hydrocarbons such as perchloroethylene ("PCE") and its degradation byproducts have been detected at certain Centers, often in connection with tenant dry cleaning operations. Where PCE has been detected, the Company may incur investigation, remediation and monitoring costs if responsible current or former tenants, or other responsible parties, are unavailable to pay such costs.
See "Item 1A. Risk Factors—Possible environmental liabilities could adversely affect us."
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, carry specific 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 $150 million on these Centers. The Company or the relevant joint venture, as applicable, carry specific earthquake insurance on the Centers located in the Pacific Northwest and in the New Madrid Seismic Zone. However, the policies are subject to a deductible equal to 2% of the total insured value of each Center, a $50,000 per occurrence minimum and a combined annual aggregate loss limit of $200 million on these Centers. While the Company or the relevant joint venture also carries standalone terrorism insurance on the Centers, the policies are subject to a $50,000 deductible and a combined annual aggregate loss limit of $1.2 billion. Each Center has environmental insurance covering eligible third‑party losses, remediation and non-owned disposal sites, subject to a $100,000 retention and a $50 million three-year aggregate loss limit, with the exception of one Center, which has a $5 million ten-year aggregate loss limit and another Center, which has a $20 million ten-year aggregate loss 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 generally less than their full value.
Qualification as a Real Estate Investment Trust
The Company electedour Board 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.
Supplemental Tax Disclosures - Updates to REIT Rules
The “Protecting Americans from Tax Hikes Act of 2015” (the “PATH Act”) was enacted on December 18, 2015 and contains several provisions pertaining to REIT qualification and taxation, which are briefly summarized below:
Prior to the PATH Act, no more than 25% of the value of the Company's assets may consist of stock or securities of one or more Taxable REIT Subsidiaries ("TRSs"). For taxable years beginning after December 31, 2017, the Act reduces this limit to 20%.
For purposes of the REIT asset tests, the PATH Act provides that debt instruments issued by publicly offered REITs will constitute “real estate assets.” However, unless such a debt instrument is secured by a mortgage or otherwise would have qualified as a real estate asset under prior law, (i) interest income and gain from such a debt instrument is not qualifying income for purposes of the 75% gross income test and (ii) all such debt instruments may represent no more than 25% of the value of the Company's total assets.
For taxable years beginning after December 31, 2015, certain obligations secured by a mortgage on both real property and personal property will be treated as a qualifying real estate asset and give rise to qualifying income for purposes of the 75% gross income test if the fair market value of such personal property does not exceed 15% of the total fair market value of all such property.
A 100% excise tax is imposed on “redetermined TRS service income,” which is income of a TRS attributable to services provided to, or on behalf of its associated REIT and which would otherwise be increased on distribution, apportionment, or allocation under Section 482 of the Code.
For distributions made in taxable years beginning after December 31, 2014, the preferential dividend rules no longer apply to the Company.
Additional exceptions to the rules under the Foreign Investment in Real Property Act (“FIRPTA”) were introduced for non-U.S. persons that constitute “qualified shareholders” (within the meaning of Section 897(k)(3) of the Code) or “qualified foreign pension funds” (within the meaning of Section 897(l)(2) of the Code).
After February 16, 2016, the FIRPTA withholding rate under Section 1445 of the Code for dispositions of U.S. real property interests is increased from 10% to 15%.
The PATH Act increases from 5% to 10% the maximum stock ownership of the REIT that a non-U.S. shareholder may have held to avail itself of the FIRPTA exception for shares regularly traded on an established securities market.
For taxable years beginning after December 31, 2015, personal property shall be treated as a qualifying real estate asset for purposes of the 75% asset test to the extent rent attributable to such personal property is qualifying income under the 75% income test (though any gain attributable to such personal property would still be non-qualifying income for purposes of both the 75% and 95% income tests).
In addition, the IRS recently issued guidance delaying the imposition of withholding under FATCA to the gross proceeds from a disposition of property that can produce U.S. source interest or dividends. Such withholding will apply only to dispositions occurring after December 31, 2018.
Employees
As of December 31, 2016, the Company had approximately 851 employees, of which approximately 845 were full-time. The Company believes that relations with its employees are good.
Seasonality
For a discussion of the extent to which the Company's business may be seasonal, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Management's Overview and Summary—Seasonality."
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 SEC. These reports are available under the heading "Investors—Financial Information—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.
The following documents relating to Corporate Governance are available on the Company's website at www.macerich.com under "Investors—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
audit committee financial expert.Mason G. Ross
Independent Director
Director Since:2009
Age:74
Board Committees: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
401 Wilshire Blvd., Suite 700
Santa Monica, CA 90401
ITEM 1A. RISK FACTORS
The following factors could cause our actual results to differ materially from those contained in forward-looking statements made in this Annual Report on Form 10-K(Chair)Principal Occupation and presented elsewhere by our management from time to time. This list should not be considered to be a complete statement of all potential risks or uncertainties as it does not describe additional risksBusiness Experience:
Mr. Ross spent 35 years at Northwestern Mutual Life, an industry-leading life insurance company, the final nine years of which we are not presently aware or that we do not currently consider material. We may update ourhe served as Executive Vice President and Chief Investment Officer. As Chief Investment Officer, his responsibilities included the design and administration of investment compensation systems, oversight of investment risk factors from time to time in our future periodic reports. Anymanagement, and the formation of these factors may havethe asset allocation strategy of the investment portfolio. During his prior 27 years at Northwestern Mutual Life, he held a material adverse effect on our business, financial condition, operating results and cash flows. For purposesvariety of this “Risk Factor” section, 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.”
RISKS RELATED TO OUR BUSINESS AND PROPERTIES
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 affectpositions, including leading 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. A number of factors may decrease the income generated by the Centers, including:
the national economic climate;
the regional and local economy (which may be negatively impacted by rising unemployment, decliningcompany’s real estate values, increased foreclosures, higher taxes, plant closings, industry slowdowns, union activity, adverse weather conditions, natural disastersinvestment and other factors);
localprivate securities operations. During that time, he also served as a director of Robert W. Baird, Inc., a regional brokerage and investment banking firm, and the Russell Investment Group, an international investment management firm. Since retiring from Northwestern Mutual Life in 2007, he has remained active in the investment business and currently serves as chairman of the board of Schroeder Manatee Ranch Inc., a privately held real estate conditions (such as an oversupply of, or a reduction in demand for, retail space or retail goods, decreases in rental rates, declining real estate values and the availability and creditworthiness of current and prospective tenants);
decreased levels of consumer spending, consumer confidence, and seasonal spending (especially during the holiday season when many retailers generate a disproportionate amount of their annual sales);
increasing use by customers of e-commerce and online store sites and the impact of internet sales on the demand for retail space;
negative perceptions by retailers or shoppers of the safety, convenience and attractiveness of a Center;
acts of violence, including terrorist activities; and
increased costs of maintenance, insurance and operations (including real estate taxes).
Income from shopping center properties and shopping center values are also affected by applicable laws and regulations, including tax, environmental, safety and zoning laws.
A significant percentage of our Centers are geographically concentratedcompany and as a result, are sensitive to local economic and real estate conditions.
A significant percentagetrustee of our Centers are located in California and Arizona. Nine Centers in the aggregate are located in New York, New Jersey and Connecticut. To the extent that weak economic or real estate conditions 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.
Numerous owners, developers and managers of malls, shopping centers and other retail-oriented real estate compete with us for the acquisition of properties and in attracting tenants or Anchors to occupy space. There are seven other publicly traded mall companies and several large private
mall companiestrusts. He is the past chairman of the National Association of Real Estate Investment Managers and a former trustee of the Urban Land Institute.7
Key Qualifications, Experience and Attributes:
Our Board values the over 40 years of investment experience of Mr. Ross and his extensive involvement in commercial real estate. His real estate financing expertise acquired over a 25 year period of providing real estate financing for all types of properties provides our Board with important knowledge in considering our Company’s capital and liquidity needs.
Steven L. Soboroff
Independent Director
Director Since:2014
Age:69
Board Committees:Audit; Compensation; Nominating and Corporate Governance
Principal Occupation and Business Experience:
Steve Soboroff is the managing partner of Soboroff Partners, a shopping center development and leasing company, and has served in such capacity since 1978. In September 2017, Mr. Soboroff was selected to serve a secondtwo-year term as President of the Los Angeles Police Commission. In August 2013, Mr. Soboroff was appointed to the Board of Police Commissioners by Los Angeles Mayor Eric Garcetti and was chosen as the Commission’s President by his fellow commissioners. After serving the maximum of two consecutive years as President, he then served as the Commission’s Vice President from September 2015 to September 2017. During 2001 to 2010, he served in the United States, anyroles of which under certain circumstances could compete against us for an Anchor or a tenant. In addition, these companies,Chairman and CEO as well as other REITs,President of Playa Vista, one of the country’s most significantmulti-use real estate projects. Mr. Soboroff also was President of the Los Angeles Recreation and Parks Commission from 1995 to 2001 and a member of the Los Angeles Harbor Commission. In addition, Mr. Soboroff is a board member of severalnon-profit philanthropic and academic organizations.
Key Qualifications, Experience and Attributes:
Mr. Soboroff is a well-recognized business and government leader with a distinguished record of public and private accomplishments. Mr. Soboroff contributes to the mix of experience and qualifications of our Board through both his real estate and government experience and leadership. During his career in both the public and private sectors, Mr. Soboroff acquired significant financial, real estate, managerial, and public policy knowledge as well as substantial business and government relationships. Our Board values his extensive real estate knowledge and insight into retail operations, developments and strategy, and his wealth of government relations experience.
8
Andrea M. Stephen
Independent Director
Director Since:2013
Age:53
Board Committees:Compensation (Chair); Executive
Other Public Company Boards:First Capital Realty, Inc.; Boardwalk Real Estate Investment Trust; Slate Retail Real Estate Investment Trust
Principal Occupation and Business Experience:
Ms. Stephen served as Executive Vice President, Investments for The Cadillac Fairview Corporation Limited (“Cadillac Fairview”), one of North America’s largest real estate companies, or investors competefrom October 2002 to December 2011 and as Senior Vice President, Investments for Cadillac Fairview from May 2000 to October 2002, where she was responsible for developing and executing Cadillac Fairview’s investment strategy. Prior to joining Cadillac Fairview, Ms. Stephen held the position of Director, Real Estate with usthe Ontario Teachers’ Pension Plan Board, the largest single profession pension plan in termsCanada, from December 1999 to May 2000, as well as various portfolio manager positions from September 1995 to December 1999. Previously, Ms. Stephen served as Director, Financial Reporting for Bramalea Centres Inc. for approximately two years and as an Audit Manager for KPMG LLP at the end of property acquisitions. This results in competition both forher over six year tenure. Ms. Stephen is a member of the acquisitionboard of properties or centersdirectors of First Capital Realty Inc., Canada’s leading owner, developer and for tenants or Anchors to occupy space. Competition for property acquisitions may result in increased purchase pricesoperator of supermarket and may adversely affect our ability to make suitable property acquisitions on favorable terms. The existence of competingdrugstore anchored neighborhood and community shopping centers, could have a material adverse impact on our ability to lease space andserving on the level of rents that can
be achieved. There is also increasing competition from other retail formatsaudit committee, compensation committee, governance committee and technologies, such as lifestyle centers, power centers, outlet centers, Internet shopping, home shopping networks, catalogs, telemarketing and discount shopping clubs that could adversely affect our revenues.
We may be unable to renew leases, lease vacant space or re-let space as leases expire on favorable terms or at all, which could adversely affect our financial condition and results of operations.
There are no assurances that our leases will be renewed or that vacant space in our Centers will be re-let at net effective rental rates equal to or above the current average net effective rental rates or that substantial rent abatements, tenant improvements, early termination rights or below‑market renewal options will not be offered to attract new tenants or retain existing tenants. If the rental rates at our Centers decrease, if our existing tenants do not renew their leases or if we do not re-let a significant portion of our available space and space for which leases will expire, our financial condition and results of operations could be adversely affected.
If Anchors or other significant tenants experience a downturn in their business, close or sell stores or declare bankruptcy, our financial condition and results of operations could be adversely affected.
Our financial condition and results of operations could be adversely affected if a downturn in the business of, or the bankruptcy or insolvency of, an Anchor or other significant tenant leads them to close retail stores or terminate their leases after seeking protection under the bankruptcy laws from their creditors, including us as lessor. In recent years a number of companies in the retail industry, including some of our tenants, have declared bankruptcy, have gone out of business or have significantly reduced the number of their retail stores. We may be unable to re-let stores vacated as a result of voluntary closures or the bankruptcy of a tenant. Furthermore, certain department stores and other national retailers have experienced, and may continue to experience, decreases in customer traffic in their retail stores, increased competition from alternative retail options such as those accessible via the Internet and other forms of pressure on their business models. If the store sales of retailers operating at our Centers decline significantly due to adverse economic conditions or for any other reason, 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.
In addition, Anchors and/or tenants at one or more Centers might terminate their leases as a result of mergers, acquisitions, consolidations or dispositions in the retail industry. The sale of an Anchor or store to a less desirable retailer may reduce occupancy levels, customer traffic and rental income. Depending on economic conditions, thereexecutive committee. She is also a risk that Anchors or other significant tenants may sell stores operating in our Centers or consolidate duplicate or geographically overlapping store locations. Store closures by an Anchor and/ormember of the board of trustees, serving on the audit committee, of Boardwalk Real Estate Investment Trust, Canada’s leading owner and operator of multifamily communities. In June 2017, Ms. Stephen was elected to the board of trustees of Slate Retail Real Estate Investment Trust and serves on its audit, compensation and investment committees. Ms. Stephen also previously served on the board of directors of Multiplan Empreendimentos Imobiliários, S.A., a significant number of tenants may allow other Anchors and/or certain other tenants to terminate their leases, receive reduced rent and/or cease operating their stores at the Center or otherwise adversely affect occupancy at the Center.
OurBrazilian real estate
acquisition, developmentoperating company, from June 2006 to March 2012.Key Qualifications, Experience and redevelopment strategies may not be successful.
Our historical growth in revenues, net income and funds from operations has been in part tied to the acquisition, development and redevelopment of shopping centers. Many factors, including the availability and cost of capital, our total amount of debt outstanding, our ability to obtain financing on attractive terms, if at all, interest rates and the availability of attractive acquisition targets, among others, will affect our ability to acquire, develop and redevelop additional propertiesAttributes:With over 25 years in the future. We may not be successful in pursuing acquisition opportunities,real estate industry and newly acquired properties may not performextensive transactional and management experience, Ms. Stephen has a broad understanding of the operational, financial and strategic issues facing real estate companies. She brings management expertise, leadership capabilities, financial knowledge and business acumen to our Board. Her significant international investment experience also provides a global perspective as well as expected. Expenses arising from our efforts to complete acquisitions, developinternational relationships. In addition, her service on various boards provides valuable insight and 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 or investors. Some of our competitors have greater financial and other resources. Increased competition for shopping center acquisitions may result in increased purchase prices and 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 ability to integrate and manage new properties, including increasing occupancy rates and rents at such properties;
the disposal of non-core assets withinmakes her an expected time frame; and
our ability to raise long-term financing to implement a capital structure at a cost of capital consistent with our business strategy.
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 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 dividendsimportant contributor to our
stockholdersBoard.John M. Sullivan
Independent Director
Director Since:2014
Age:57
Other Public Company Boards:Multiplan Empreendimentos Imobiliários, S.A.; Dream Global REIT
Principal Occupation and service our indebtedness could be adversely affected.
Real estate investments are relatively illiquidBusiness Experience:Mr. Sullivan is the President and we may be unableChief Executive Officer of Cadillac Fairview and has served in such position since January 2011. Mr. Sullivan was previously the Executive Vice President of Development of Cadillac Fairview from November 2006 to sell properties at the time we desireJanuary 2011. Prior to joining Cadillac Fairview, he held positions with Brookfield Properties Corporation and on favorable terms.
Investments in real estate are relatively illiquid, which limits our ability to adjust our portfolio in response to changes in economic, market or other conditions. Moreover, there are some limitations under federal income tax laws applicable to REITs that limit our ability to sell assets. In addition, because our properties are generally mortgaged to secure our debts, we may not be able to obtain a release of a lien on a mortgaged property without the payment of the associated debt and/or a substantial prepayment penalty, which restricts our ability to dispose of a property, even though the sale might otherwise be desirable. Furthermore, 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.
Our success depends, in part, on our ability to attract and retain talented employees, and the loss of any one of our key personnel could adversely impact our business.
The success of our business depends, in part,Marathon Realty Company Limited. Mr. Sullivan serves on the leadership and performance of our executive management team and key employees, and our ability to attract, retain and motivate talented employees could significantly impact our future performance. Competition for these individuals is intense, and we cannot assure you that we will retain our executive management team and key employees or that we will be able to attract and retain other highly qualified individuals for these positions in the future. Losing any one or more of these persons could have a material adverse effect on our results of operations, financial condition and cash flows.
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 asbestos containing materials (“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.
Some of our properties are subject to potential natural or other disasters.
Some of our Centers are located in areas that are subject to natural disasters, including our Centers in California or in other areas with higher risk of earthquakes, our Centers in flood plains or in areas that may be adversely affected by tornados, as well as our Centers in coastal regions that may be adversely affected by increases in sea levels or in the frequency or severity of hurricanes, tropical storms or other severe weather conditions. The occurrence of natural disasters can delay redevelopment or development projects, increase investment costs to repair or replace damaged properties, increase future property insurance costs and negatively impact the tenant demand for lease space. If insurance is unavailable to us or is unavailable on acceptable terms, or our insurance is not adequate to cover losses from these events, our financial condition and results of operations could be adversely affected.
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 specific 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 $150 million on these Centers. We or the relevant joint venture, as applicable, carry specific earthquake insurance on the Centers located in the Pacific Northwest and in the New Madrid Seismic Zone. However, the policies are subject to a deductible equal to 2% of the total insured value of each Center, a $50,000 per occurrence minimum and a combined annual aggregate loss limit of $200 million on these Centers. While we or the relevant joint venture also carries standalone terrorism insurance on the Centers, the policies are subject to a $50,000 deductible and a combined annual aggregate loss limit of $1.2 billion. Each Center has environmental insurance covering eligible third‑party losses, remediation and non-owned disposal sites, subject to a $100,000 retention and a $50 million three-year aggregate loss limit, with the exception of one Center, which has a $5 million ten-year aggregate loss limit and another Center has a $20 million ten-year aggregate loss limit. Some environmental losses are not covered by this insurance because they are uninsurable or not economically insurable. Furthermore, we carry title insurance on substantially all of the Centers for generally less than their full value.
If an uninsured loss or a loss in excess of insured limits occurs, we could lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenue from the property, but may remain obligated for any mortgage debt or other financial obligations related to the property.
We face risks associated with security breaches through cyber attacks, cyber intrusions or otherwise, as well as other significant disruptions of our information technology (IT) networks and related systems.
We face risks associated with security breaches, whether through cyber attacks or cyber intrusions over the Internet, malware, computer viruses, attachments to e-mails, persons inside our organization or persons with access to systems inside our organization, and other significant disruptions of our IT networks and related systems. The risk of a security breach or disruption, particularly through cyber attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Our IT networks and related systems are essential to the operation of our business and our ability to perform day-to-day operations and, in some cases, may be critical to the operations of certain of our tenants. Although we make efforts to maintain the security and integrity of these types of IT networks and related systems, and we have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. A security breach or other significant disruption involving our IT networks and related systems could disrupt the proper functioning of our networks and systems; result in misstated financial reports, violations of loan covenants and/or missed reporting deadlines; result in our inability to properly monitor our compliance with the rules and regulations regarding our qualification as a REIT; result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive or otherwise valuable information of ours or others, which others could use to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes; require significant management attention and resources to remedy any damages that result; subject us to claims for breach of contract, damages, credits, penalties or termination of leases or other agreements; or damage our reputation among our tenants and investors generally. Moreover, cyber attacks perpetrated against our Anchors and tenants, including unauthorized access to customers’ credit card data and other confidential information, could diminish consumer confidence and consumer spending and negatively impact our business.
Possible terrorist activity or other acts or threats of violence and threats to public safety could adversely affect our financial condition and results of operations.
Terrorist attacks and threats of terrorist attacks in the United States or other acts or threats of violence may result in declining economic activity, which could harm the demand for goods and services offered by our tenants and the value of our properties and might adversely affect the value of an investment in our securities. Such a resulting decrease in retail demand could make it difficult for us to renew or re-lease our properties.
Terrorist activities or violence also could directly affect the value of our properties through damage, destruction or loss, and the availability of insurance for such acts, or of insurance generally, might be reduced or cost more, which could increase our operating expenses and adversely affect our financial condition and results of operations. To the extent that our tenants are affected by such attacks and threats of attacks, their businesses similarly could be adversely affected, including their ability to continue to meet obligations under their existing leases. These acts and threats might erode business and consumer confidence and spending and might result in increased volatility in national and international financial markets and economies. Any one of these events might decrease demand for real estate, decrease or delay the occupancy of our new or redeveloped properties, and limit our access to capital or increase our cost of raising capital.
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:
Difficulty in replacing or renewing expiring leases with new leases at higher rents;
Decreasing tenant sales as a result of decreased consumer spending which could adversely affect the ability of our tenants to meet their rent obligations and/or result in lower percentage rents; and
An inability to receive reimbursement from our tenants for their share of certain operating expenses, including common area maintenance, real estate taxes and insurance.
Inflation also poses a risk to us due to the possibility of future increases in interest rates. Such increases would adversely impact us due to our outstanding floating-rate debt as well as result in higher interest rates on new fixed-rate debt. In certain cases, we may limit our exposure to interest rate fluctuations related to a portion of our floating-rate debt by the use of interest rate cap and swap agreements. Such agreements, subject to current market conditions, allow us to replace floating-rate debt with fixed-rate debt in order to achieve our desired ratio of floating-rate to fixed-rate debt. However, in an increasing interest rate environment the fixed rates we can obtain with such replacement fixed-rate cap and swap agreements or the fixed-rate on new debt will also continue to increase.
We have substantial debt that could affect our future operations.
Our total outstanding loan indebtedness at December 31, 2016 was $7.6 billion (consisting of $5.0 billion of consolidated debt, less $0.2 billion attributable to noncontrolling interests, plus $2.8 billion of our pro rata share of unconsolidated joint venture mortgage notes and $60.0 million of our pro rata share of an unconsolidated joint venture term loan). Approximately $99.5 million of such indebtedness (at our pro rata share) matures in 2017 after giving effect to refinancing transactions and loan commitments that occurred after December 31, 2016 (See "Item 1. Business—Recent Developments—Acquisitions and Dispositions and Financing Activity"). 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 amount of cash available for other business opportunities. We are also 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. In addition, our use of interest rate hedging arrangements may expose us to additional risks, including that the counterparty to the arrangement may fail to honor its obligations and that termination of these arrangements typically involves costs such as transaction fees or breakage costs. Furthermore, most 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. Certain Centers also have debt that could become recourse debt to us if the Center is unable to discharge such debt obligation and, in certain circumstances, we may incur liability with respect to such debt greater than our legal ownership.
We are obligated to comply with financial and other covenants that could affect our operating activities.
Our unsecured credit facilities contain financial covenants, including interest coverage requirements, as well as limitations on our ability to incur debt, make dividend payments and make certain acquisitions. These covenants may restrict our ability to pursue certain business initiatives or certain transactions that might otherwise be advantageous. In addition, failure to meet certain of these financial covenants could cause an event of default under and/or accelerate some or all of such indebtedness which could have a material adverse effect on us.
We depend on external financings for our growth and ongoing debt service requirements.
We depend primarily on external financings, principally debt financings and, in more limited circumstances, equity 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, lenders and other institutions to lend to us based on their underwriting criteria which can fluctuate with market conditions and on conditions in the capital markets in general. In addition, levels of market disruption and volatility could materially adversely impact our ability to access the capital markets for equity financings. There are no assurances that we will continue to be able to obtain the financing we need for future growth or to meet our debt service as obligations mature, or that the financing will be available to us on acceptable terms, or at all. Any debt refinancing could also impose more restrictive terms.
RISKS RELATED TO OUR ORGANIZATIONAL STRUCTURE
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. Two of the principals of the Operating Partnership serve as our executive officers and as members of our board of directors. Accordingly, these principals have substantial influence over our management and the management of the Operating Partnership. As a result, certain decisions concerning our operations or other matters affecting us may present conflicts of interest for these individuals.
Outside partners in Joint Venture Centers result in additional risks to our stockholders.
We own partial interests in property partnerships that own 25 Joint Venture Centers as well as several development sites. We may acquire partial interests in additional properties through joint venture arrangements. Investments in Joint Venture Centers involve risks different from those of investments in Wholly Owned Centers.
We have fiduciary responsibilities to our joint venture partners that could affect decisions concerning the Joint Venture Centers. Third parties in certain Joint Venture Centers (notwithstanding our majority legal ownership) 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 us.
In addition, we may lose our management and other rights relating to the Joint Venture Centers if:
we fail to contribute our share of additional capital needed by the property partnerships; or
we default under a partnership agreement for a property partnership or other agreements relating to the property partnerships or the Joint Venture Centers.
Furthermore, the bankruptcy of one of the other investors in our Joint Venture Centers could materially and adversely affect the respective property or properties. Pursuant to the bankruptcy code, we could be precluded from taking some actions affecting the estate of the other investor without prior court approval which would, in most cases, entail prior notice to other parties and a hearing. At a minimum, the requirement to obtain court approval may delay the actions we would or might want to take. If the relevant joint venture through which we have invested in a Joint Venture Center has incurred recourse obligations, the discharge in bankruptcy of one of the other investors might result in our ultimate liability for a greater portion of those obligations than would otherwise be required.
Our legal ownership interest in a joint venture vehicle may, at times, not equal our economic interest in the entity because of various provisions in certain joint venture agreements regarding distributions of cash flow based on capital account balances, allocations of profits and losses and payments of preferred returns. As a result, our actual economic interest (as distinct from our legal ownership interest) in certain of the Joint Venture Centers could fluctuate from time to time and may not
wholly align with our legal ownership interests. Substantially all of our joint venture agreements contain rights of first refusal, buy-sell provisions, exit rights, default dilution remedies and/or other break up provisions or remedies which are customary in real estate joint venture agreements and which may, positively or negatively, affect the ultimate realization of cash flow and/or capital or liquidation proceeds.
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 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.
An ownership limit and certain of our Charter and bylaw provisions 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 certain options to acquire stock) may be owned, directly or indirectly or through the application of certain attribution rules, by five or fewer individuals (as defined in the Internal Revenue Code to include some entities that would not ordinarily be considered “individuals”) at any time during the last half of a taxable year. To assist us in maintaining our qualification as a REIT, among other purposes, 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). In addition to enhancing preservation of our status as a REIT, the Ownership Limit may:
have the effect of delaying, deferring or preventing a change in control of us or other transaction without the approval of our board of directors even if the change in control or other transactionof Multiplan Empreendimentos Imobiliários, S.A., a Brazilian real estate operating company, and is in the best interests of our stockholders; and
limit the opportunity for our stockholders to receive a premium for their common stock or preferred stock that they might otherwise receive if an investor were attempting to acquire a block of stock in excess of the Ownership Limit or otherwise effect a change in control of us.
Our board of directors, in its sole discretion, may waive or modify (subject to limitations and upon any conditions as it may direct) 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.
Selected Provisions of our Charter, Bylaws and Maryland Law. Some of the provisions of our Charter, bylaws and Maryland law 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 holders of some, or a majority, of our shares might believe to be in their best interests or that could give our stockholders the opportunity to realize a premium over the then-prevailing market prices for our shares. These provisions include the following:
advance notice requirements for stockholder nominations of directors and stockholder proposals to be considered at stockholder meetings;
the obligation of our directors to consider a variety of factors with respect to a proposed business combination or other change of control transaction;
the authority of our directors to classify or reclassify unissued shares and cause the Company to issue shares of one or more classes or series of common stock or preferred stock;
the authority of our directors to create and cause the Company to issue rights entitling the holders thereof to purchase shares of stock or other securities from us; and
limitations on the amendment of our Charter and bylaws, the change in control of us, and the liability of our directors and officers.
In addition, 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 outstanding voting stock or any affiliate or associate of ours who was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the corporation's outstanding stock at any time within the two-year period prior to the date in question) 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 recommendationmember of the board of directors and
two supermajority stockholder votesaudit committee of Dream Global REIT, an open ended Canadian REIT focusing on international commercial real estate. In addition, Mr. Sullivan serves as a trustee of the International Council of Shopping Centers, an international shopping center industry trade association, and as Chairman of the Real Property Association of Canada, a national industry association for owners and managers of investment real estate.9
Key Qualifications, Experience and Attributes:
Our Board values Mr. Sullivan’s over 25 years of extensive real estate experience and relationships which enhances our Company and Board. Mr. Sullivan brings to approveour Board strong executive management expertise, leadership and financial acumen, as well as significant transactional, leasing, finance, asset management and development experience in the commercial real estate industry. As a business combination unlessCEO, he has a unique knowledge of the issues companies address, ranging from strategic and operational to corporate governance and risk management. In addition, Mr. Sullivan has international expertise and public company board service that augment his understanding of the commercial real estate industry and our Company.
10
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC and the NYSE. Officers, directors and greater than 10% stockholders receive a minimum price determinedare required by the statute. As permitted by Maryland law,SEC’s regulations to furnish our Charter exempts from these provisions any business combination between us and the principals and their respective affiliates and related persons. Maryland law also allows the boardCompany with copies 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 excessall Section 16(a) forms they file. To our knowledge, based solely on our review of the applicable threshold, unless voting rights for the shares are approved by holderscopies 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 insuch reports furnished to 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 principalsCompany during 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 certain provisions of our Charter, merge, or sell all or substantially all of our assets. Furthermore, the Maryland General Corporation Law permits our board of directors, without stockholder approval and regardless of what is currently provided in our Charter or bylaws, to adopt certain Charter and bylaw provisions, such as a classified board, that may have the effect of delaying or preventing a third party from making an acquisition proposal for us.
FEDERAL INCOME TAX RISKS
The tax consequences of the sale of some of the Centers and certain holdings of the principals 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. In addition, the principals may have different interests than our stockholders because they are significant holders of limited partnership units in the Operating Partnership.
If we were to fail to qualify as a REIT, we would 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 through the Operating Partnership and joint ventures. 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.
In addition, we currently hold certain of our properties through subsidiaries that have elected to be taxed as REITs and we may in the future determine that it is in our best interests to hold one or more of our other properties through one or more subsidiaries that elect to be taxed as REITs. If any of these subsidiaries fails to qualify as a REIT for U.S. federal income tax purposes, then we may also fail to qualify as a REIT for U.S. federal income tax purposes.
If in any taxable year we were to fail to qualify as a REIT, we will suffer the following negative results:
we will not be allowed a deduction for distributions to stockholders in computing our taxable income; and
we will be subject to U.S. federal income tax on our taxable income at regular corporate rates.
In addition, if we were to lose our REIT status, we would 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. Such a challenge, if successful, could result in us owing a material amount of tax, interest and penalties 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.
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 do not qualify for a statutory safe harbor if such assets 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 prohibited transactions.
Complying with REIT requirements may force us to borrow or take other measures 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, liquidate or sell a portion of our properties or investments (potentially at disadvantageous or unfavorable prices), in certain limited cases distribute a combination of cash and stock (at our stockholders' election but subject to an aggregate cash limit established by the Company) or find another alternative source of funds. These alternatives could increase our costs or reduce our equity. In addition, to the extent we borrow funds to pay distributions, the amount of cash available to us in future periods will be decreased by the amount of cash flow we will need to service principal and interest on the amounts we borrow, which will limit cash flow available to us for other investments or business opportunities.
We may face risks in connection with Section 1031 Exchanges.
If a transaction intended to qualify as a Section 1031 Exchange is later determined to be taxable, we may face adverse consequences, and if the laws applicable to such transactions are amended or repealed, we may not be able to dispose of properties on a tax deferred basis.
If our Operating Partnership fails to maintain its status as a partnership for tax purposes, we would face adverse tax consequences.
We intend to maintain the status of the Operating Partnership as a partnership for federal income tax purposes. However, if the Internal Revenue Service were to successfully challenge the status of the Operating Partnership as an entity taxable as a partnership, the Operating Partnership would be taxable as a corporation. This would reduce the amount of distributions that the Operating Partnership could make to us. This could also result in our losing REIT status, and becoming subject to a corporate level tax on our income. This would substantially reduce the cash available to us to make distributions and the return on your investment. In addition, if any of the partnerships or limited liability companies through which the Operating Partnership owns its property, in whole or in part, loses its characterization as a partnership or disregarded entity for federal income tax purposes, it would be subject to taxation as a corporation, thereby reducing distributions to the Operating Partnership. Such a recharacterization of an underlying entity could also threaten our ability to maintain REIT status.
Tax legislative or regulatory action could adversely affect us or our investors.
In recent years, numerous legislative, judicial and administrative changes have been made to the U.S. federal income tax laws applicable to investments similar to an investment in our stock. Additional changes to tax laws are likely to continue in the future, and we cannot assure you that any such changes will not adversely affect the taxation of us or our stockholders. Any such changes could have an adverse effect on an investment in our stock or on the market value or the resale potential of our properties. In addition, according to publicly released statements, a top legislative priority of the Trump administration and the current Congress may be significant reform of the Code, including significant changes to taxation of business entities and the deductibility of interest expense. There is a substantial lack of clarity around the likelihood, timing and details of any such tax reform and the impact of any potential tax reform on our business and on the price of our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The following table sets forth certain information regarding the Centers and other locations that are wholly owned or partly owned by the Company as of December 31, 2016, excluding Cascade Mall and Northgate Mall, which were sold on January 18, 2017.
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| | | | | | | | | | | | | | | | | | | | | | |
| Count | | 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 | | Non-Owned Anchors (3) | | Company-Owned Anchors (3) | |
| | | CONSOLIDATED CENTERS: | | | | | | | | | | | |
| 1 | | 50.1% | | Chandler Fashion Center | | 2001/2002 | | - | | 1,319,000 |
| | 634,000 |
| | 95.2 | % | | Dillard's, Macy's, Nordstrom | | Sears | |
| | | | Chandler, Arizona | | | | | | | | | | | | | | |
| 2 | | 100% | | Danbury Fair Mall | | 1986/2005 | | 2016 | | 1,269,000 |
| | 524,000 |
| | 95.9 | % | | JCPenney, Macy's | | Dick's Sporting Goods, Forever 21, Lord & Taylor, Primark, Sears | |
| | | | | Danbury, Connecticut | | | | | | | | | | | | | |
| 3 | | 100% | | Desert Sky Mall | | 1981/2002 | | 2007 | | 890,000 |
| | 279,000 |
| | 97.5 | % | | Burlington, Dillard's, Sears | | La Curacao, Mercado de los Cielos | |
| | | | | Phoenix, Arizona | | | | | | | | | | | | | |
| 4 | | 100% | | Eastland Mall(4) | | 1978/1998 | | 1996 | | 1,044,000 |
| | 555,000 |
| | 96.3 | % | | Dillard's, Macy's | | JCPenney | |
| | | | | Evansville, Indiana | | | | | | | | | | | | | |
| 5 | | 100% | | Fashion Outlets of Chicago | | 2013/— | | - | | 538,000 |
| | 538,000 |
| | 97.7 | % | | — | | — | |
| | | | | Rosemont, Illinois | | | | | | | | | | | | | | | |
| 6 | | 100% | | Fashion Outlets of Niagara Falls USA | | 1982/2011 | | 2014 | | 686,000 |
| | 686,000 |
| | 92.9 | % | | — | | — | |
| | | | | Niagara Falls, New York | | | | | | | | | | | | | | | |
| 7 | | 50.1% | | Freehold Raceway Mall | | 1990/2005 | | 2007 | | 1,674,000 |
| | 776,000 |
| | 97.8 | % | | JCPenney, Lord & Taylor, Macy's, Nordstrom | | Dick's Sporting Goods, Primark, Sears | |
| | | | | Freehold, New Jersey | | | | | | | | | | | | | |
| 8 | | 100% | | Fresno Fashion Fair | | 1970/1996 | | 2006 | | 963,000 |
| | 403,000 |
| | 95.6 | % | | Macy's | | Forever 21, JCPenney, Macy's | |
| | | | | Fresno, California | | | | | | | | | | | | | |
| 9 | | 100% | | Green Acres Mall(4) | | 1956/2013 | | 2016 | | 2,089,000 |
| | 901,000 |
| | 93.5 | % | | — | | BJ's Wholesale Club, Dick's Sporting Goods, Century 21, JCPenney, Kohl's, Macy's (two), Sears, Walmart | |
| | | | | Valley Stream, New York | | | | | | | | | | | | | | |
| 10 | | 100% | | Inland Center(4) | | 1966/2004 | | 2016 | | 866,000 |
| | 204,000 |
| | 98.1 | % | | Macy's, Sears | | Forever 21, JCPenney | |
| | | | | San Bernardino, California | | | | | | | | | | | | | |
| 11 | | 100% | | Kings Plaza Shopping Center(4)(5)(6) | | 1971/2012 | | 2002 | | 1,189,000 |
| | 460,000 |
| | 95.2 | % | | Macy's | | Lowe's | |
| | | | | Brooklyn, New York | | | | | | | | | | | | | |
| 12 | | 100% | | La Cumbre Plaza(4) | | 1967/2004 | | 1989 | | 491,000 |
| | 174,000 |
| | 85.2 | % | | Macy's | | Sears | |
| | | | | Santa Barbara, California | | | | | | | | | | | | | |
| 13 | | 100% | | NorthPark Mall | | 1973/1998 | | 2001 | | 1,035,000 |
| | 385,000 |
| | 87.7 | % | | Dillard's, JCPenney, Sears, Von Maur | | Younkers | |
| | | | | Davenport, Iowa | | | | | | | | | | | | | |
| 14 | | 100% | | Oaks, The | | 1978/2002 | | 2009 | | 1,191,000 |
| | 589,000 |
| | 95.6 | % | | JCPenney, Macy's (two) | | Dick's Sporting Goods, Nordstrom | |
| | | | | Thousand Oaks, California | | | | | | | | | | | | | |
| 15 | | 100% | | Pacific View | | 1965/1996 | | 2001 | | 1,021,000 |
| | 372,000 |
| | 94.5 | % | | JCPenney, Sears, Target | | Macy's | |
| | | | | Ventura, California | | | | | | | | | | | | | |
| 16 | | 100% | | Queens Center(4) | | 1973/1995 | | 2004 | | 963,000 |
| | 407,000 |
| | 98.5 | % | | JCPenney, Macy's | | — | |
| | | | | Queens, New York | | | | | | | | | | | | | | |
| 17 | | 100% | | Santa Monica Place | | 1980/1999 | | 2015 | | 517,000 |
| | 294,000 |
| | 86.5 | % | | — | | Bloomingdale's, Nordstrom | |
| | | | | Santa Monica, California | | | | | | | | | | | | | | |
| 18 | | 84.9% | | SanTan Village Regional Center | | 2007/— | | 2009 | | 1,057,000 |
| | 650,000 |
| | 97.5 | % | | Dillard's, Macy's | | Dick's Sporting Goods | |
| | | | | Gilbert, Arizona | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| Count | | 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 | | Non-Owned Anchors (3) | | Company-Owned Anchors (3) | |
| 19 | | 100% | | SouthPark Mall | | 1974/1998 | | 2015 | | 862,000 |
| | 348,000 |
| | 83.1 | % | | Dillard's, Von Maur | | Dick's Sporting Goods, JCPenney, Younkers | |
| | | | | Moline, Illinois | | | | | | | | | | | | | |
| 20 | | 100% | | Stonewood Center(4) | | 1953/1997 | | 1991 | | 932,000 |
| | 359,000 |
| | 94.0 | % | | — | | JCPenney, Kohl's, Macy's, Sears | |
| | | | | Downey, California | | | | | | | | | | | | | | |
| 21 | | 100% | | Superstition Springs Center(5) | | 1990/2002 | | 2002 | | 1,040,000 |
| | 388,000 |
| | 92.9 | % | | Dillard's, JCPenney, Macy's, Sears | | — | |
| | | | | Mesa, Arizona | | | | | | | | | | | | | |
| 22 | | 100% | | Towne Mall | | 1985/2005 | | 1989 | | 350,000 |
| | 179,000 |
| | 87.2 | % | | — | | Belk, JCPenney, Sears | |
| | | | | Elizabethtown, Kentucky | | | | | | | | | | | | | | |
| 23 | | 100% | | Tucson La Encantada | | 2002/2002 | | 2005 | | 243,000 |
| | 243,000 |
| | 94.6 | % | | — | | — | |
| | | | | Tucson, Arizona | | | | | | | | | | | | | | | |
| 24 | | 100% | | Valley Mall | | 1978/1998 | | 1992 | | 505,000 |
| | 190,000 |
| | 99.0 | % | | Target | | Belk, Dick's Sporting Goods, JCPenney | |
| | | | | Harrisonburg, Virginia | | | | | | | | | | | | | |
| 25 | | 100% | | Valley River Center(5) | | 1969/2006 | | 2007 | | 921,000 |
| | 344,000 |
| | 99.0 | % | | Macy's | | JCPenney | |
| | | | | Eugene, Oregon | | | | | | | | | | | | | |
| 26 | | 100% | | Victor Valley, Mall of | | 1986/2004 | | 2012 | | 577,000 |
| | 254,000 |
| | 97.8 | % | | Macy's | | Dick's Sporting Goods, JCPenney, Sears | |
| | | | | Victorville, California | | | | | | | | | | | | | |
| 27 | | 100% | | Vintage Faire Mall | | 1977/1996 | | 2008 | | 1,140,000 |
| | 406,000 |
| | 95.4 | % | | Forever 21, Macy's | | Dick's Sporting Goods, JCPenney, Macy's, Sears | |
| | | | | Modesto, California | | | | | | | | | | | | | |
| 28 | | 100% | | Wilton Mall | | 1990/2005 | | 1998 | | 737,000 |
| | 452,000 |
| | 97.1 | % | | JCPenney | | Bon-Ton, Dick's Sporting Goods, Sears | |
| | | | | Saratoga Springs, New York | | | | | | | | | | | | | |
| | | | | Total Consolidated Centers | | | | 26,109,000 |
| | 11,994,000 |
| | 94.8 | % | | | | | |
| | | UNCONSOLIDATED JOINT VENTURE CENTERS: | | | | | | | | | | | |
| 29 | | 60% | | Arrowhead Towne Center | | 1993/2002 | | 2015 | | 1,197,000 |
| | 389,000 |
| | 94.7 | % | | Dillard's, JCPenney, Macy's | | Dick's Sporting Goods, Forever 21, Sears | |
| | | | | Glendale, Arizona | | | | | | | | | | | | | |
| 30 | | 50% | | Biltmore Fashion Park | | 1963/2003 | | 2006 | | 517,000 |
| | 212,000 |
| | 98.4 | % | | — | | Macy's, Saks Fifth Avenue | |
| | | | | Phoenix, Arizona | | | | | | | | | | | | | | |
| 31 | | 50.1% | | Corte Madera, The Village at | | 1985/1998 | | 2005 | | 461,000 |
| | 224,000 |
| | 90.1 | % | | Macy's, Nordstrom | | — | |
| | | | | Corte Madera, California | | | | | | | | | | | | | | |
| 32 | | 50% | | Country Club Plaza | | 1922/2016 | | 2015 | | 1,004,000 |
| | 1,004,000 |
| | n/a |
| | — | | — | |
| | | | | Kansas City, Missouri | | | | | | | | | | | | | | | |
| 33 | | 51% | | Deptford Mall | | 1975/2006 | | 1990 | | 1,039,000 |
| | 342,000 |
| | 95.3 | % | | JCPenney, Macy's | | Boscov's, Sears | |
| | | | | Deptford, New Jersey | | | | | | | | | | | | | |
| 34 | | 51% | | FlatIron Crossing | | 2000/2002 | | 2009 | | 1,431,000 |
| | 787,000 |
| | 95.1 | % | | Dillard's, Macy's, Nordstrom | | Dick's Sporting Goods | |
| | | | | Broomfield, Colorado | | | | | | | | | | | | | |
| 35 | | 50% | | Kierland Commons | | 1999/2005 | | 2003 | | 436,000 |
| | 436,000 |
| | 97.6 | % | | — | | — | |
| | | | | Scottsdale, Arizona | | | | | | | | | | | | | | | |
| 36 | | 60% | | Lakewood Center(5) | | 1953/1975 | | 2008 | | 2,064,000 |
| | 956,000 |
| | 98.3 | % | | — | | Costco, Forever 21, Home Depot, JCPenney, Macy's, Target | |
| | | | | Lakewood, California | | | | | | | | | | | | | | |
| 37 | | 60% | | Los Cerritos Center(4) | | 1971/1999 | | 2016 | | 1,298,000 |
| | 538,000 |
| | 94.9 | % | | Macy's, Nordstrom | | Dick's Sporting Goods, Forever 21, Sears | |
| | | | | Cerritos, California | | | | | | | | | | | | | |
| 38 | | 50% | | North Bridge, The Shops at(4) | | 1998/2008 | | - | | 671,000 |
| | 411,000 |
| | 99.3 | % | | — | | Nordstrom | |
| | | | | Chicago, Illinois | | | | | | | | | | | | | | |
| 39 | | 50% | | Scottsdale Fashion Square(5) | | 1961/2002 | | 2015 | | 1,812,000 |
| | 791,000 |
| | 96.4 | % | | Dillard's | | Dick's Sporting Goods, Macy's, Neiman Marcus, Nordstrom | |
| | | | | Scottsdale, Arizona | | | | | | | | | | | | | |
| 40 | | 60% | | South Plains Mall | | 1972/1998 | | 2016 | | 1,127,000 |
| | 469,000 |
| | 90.1 | % | | — | | Bealls, Dillard's (two), JCPenney, Sears | |
| | | | | Lubbock, Texas | | | | | | | | | | | | | |
| 41 | | 51% | | Twenty Ninth Street(4) | | 1963/1979 | | 2007 | | 847,000 |
| | 555,000 |
| | 98.1 | % | | Macy's | | Home Depot | |
| | | | | Boulder, Colorado | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| Count | | 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 | | Non-Owned Anchors (3) | | Company-Owned Anchors (3) | |
| 42 | | 50% | | Tysons Corner Center | | 1968/2005 | | 2014 | | 1,974,000 |
| | 1,089,000 |
| | 98.4 | % | | — | | Bloomingdale's, L.L. Bean, Lord & Taylor, Macy's, Nordstrom | |
| | | | | Tysons Corner, Virginia | | | | | | | | | | | | | | |
| 43 | | 60% | | Washington Square | | 1974/1999 | | 2005 | | 1,440,000 |
| | 505,000 |
| | 99.5 | % | | Macy's | | Dick's Sporting Goods, JCPenney, Nordstrom, Sears | |
| | | | | Portland, Oregon | | | | | | | | | | | | | |
| 44 | | 19% | | West Acres | | 1972/1986 | | 2001 | | 971,000 |
| | 418,000 |
| | 98.9 | % | | Herberger's, Macy's | | JCPenney, Sears(7) | |
| | | | | Fargo, North Dakota | | | | | | | | | | | | | |
| | | | | Total Unconsolidated Joint Ventures | | 18,289,000 |
| | 9,126,000 |
| | 96.2 | % | | | | | |
| | | REGIONAL SHOPPING CENTERS UNDER REDEVELOPMENT | | | | | | | | | | | |
| 45 | | 50% | | Broadway Plaza(4)(8) | | 1951/1985 | | 2016 | | 923,000 |
| | 375,000 |
| | (9) |
| | Macy's | | Neiman Marcus, Nordstrom | |
| | | | | Walnut Creek, California | | | | | | | | | | | | | |
| 46 | | 50% | | Fashion Outlets of Philadelphia(8) | | 1977/2014 | | ongoing | | 850,000 |
| | 624,000 |
| | (9) |
| | — | | Burlington, Century 21 | |
| | | | | Philadelphia, Pennsylvania | | | | | | | | | | | | | | |
| 47 | | 100% | | Paradise Valley Mall(10) | | 1979/2002 | | 2009 | | 1,203,000 |
| | 424,000 |
| | (9) |
| | Dillard's, JCPenney, Macy's | | Costco, Sears | |
| | | | | Phoenix, Arizona | | | | | | | | | | | | | |
| 48 | | 100% | | Westside Pavilion(10) | | 1985/1998 | | 2007 | | 755,000 |
| | 397,000 |
| | (9) |
| | Macy's(7) | | Nordstrom(7) | |
| | | | | Los Angeles, California | | | | | | | | | | | | | |
| 48 | | | | Total Regional Shopping Centers | | 48,129,000 |
| | 22,940,000 |
| | 95.4 | % | | | | | |
| | | COMMUNITY/POWER SHOPPING CENTERS | | | | | | | | | | | |
| 1 | | 50% | | Atlas Park, The Shops at(8) | | 2006/2011 | | 2013 | | 371,000 |
| | 371,000 |
| | 76.6 | % | | — | | — | |
| | | | | Queens, New York | | | | | | | | | | | | | | | |
| 2 | | 50% | | Boulevard Shops(8) | | 2001/2002 | | 2004 | | 185,000 |
| | 185,000 |
| | 98.2 | % | | — | | — | |
| | | | | Chandler, Arizona | | | | | | | | | | | | | | | |
| 3 | | Various | | Estrella Falls, The Market at(8) | | 2009/— | | 2016 | | 355,000 |
| | 355,000 |
| | 97.6 | % | | — | | — | |
| | | | | Goodyear, Arizona | | | | | | | | | | | | | | | |
| 4 | | 89.4% | | Promenade at Casa Grande(5)(10) | | 2007/— | | 2009 | | 761,000 |
| | 431,000 |
| | 92.9 | % | | Dillard's, JCPenney, Kohl's | | — | |
| | | | | Casa Grande, Arizona | | | | | | | | | | | | | | |
| 5 | | 100% | | Southridge Center(5)(10) | | 1975/1998 | | 2013 | | 823,000 |
| | 434,000 |
| | 81.6 | % | | Des Moines Area Community College | | Target, Younkers | |
| | | | | Des Moines, Iowa | | | | | | | | | | | | | |
| 6 | | 100.0% | | Superstition Springs Power Center(10) | | 1990/2002 | | - | | 206,000 |
| | 53,000 |
| | 100.0 | % | | Best Buy, Burlington | | — | |
| | | | | Mesa, Arizona | | | | | | | | | | | | | | |
| 7 | | 100% | | The Marketplace at Flagstaff(4)(10) | | 2007/— | | - | | 268,000 |
| | 147,000 |
| | 100.0 | % | | — | | Home Depot | |
| | | | | Flagstaff, Arizona | | | | | | | | | | | | | | |
| 7 | | | | Total Community/Power Shopping Centers | | 2,969,000 |
| | 1,976,000 |
| | | | | | | |
| 55 | | | | Total before Other Assets | | 51,098,000 |
| | 24,916,000 |
| | | | | | | |
| | | OTHER ASSETS: | | | | | | | | | | | |
| | | 100% | | Various(10)(11) | | | | | | 447,000 |
| | 169,000 |
| | 100.0 | % | | — | | Forever 21, Kohl's | |
| | | 100% | | 500 North Michigan Avenue(10) | |
| |
| | 326,000 |
| | — |
| | — | | — | | — | |
| | | | | Chicago, Illinois | | | | | | | | | | | | | | | |
| | | 50% | | Valencia Place at Country Club Plaza(8) | | | | | | 242,000 |
| | — |
| | — | | — | | — | |
| | | | | Kansas City, Missouri | | | | | | | | | | | | | | | |
| | | 50% | | Fashion Outlets of Philadelphia-Office(8) | |
| |
| | 526,000 |
| | — |
| | — | | — | | — | |
| | | | | Philadelphia, Pennsylvania | | | | | | | | | | | | | | | |
| | | 50% | | Scottsdale Fashion Square-Office(8) | | | | | | 123,000 |
| | — |
| | — | | — | | — | |
| | | | | Scottsdale, Arizona | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| Count | | 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 | | Non-Owned Anchors (3) | | Company-Owned Anchors (3) | |
| | | 50% | | Tysons Corner Center-Office(8) | | | | | | 174,000 |
| | — |
| | — | | — | | — | |
| | | | | Tysons Corner, Virginia | | | | | | | | | | | | | | | |
| | | 50% | | Hyatt Regency Tysons Corner Center(8) | | | | | | 290,000 |
| | — |
| | — | | — | | — | |
| | | | | Tysons Corner, Virginia | | | | | | | | | | | | | | | |
| | | 50% | | VITA Tysons Corner Center(8) | | | | | | 510,000 |
| | — |
| | — | | — | | — | |
| | | | | Tysons Corner, Virginia | | | | | | | | | | | | | | | |
| | | 50% | | Tysons Tower(8) | | | | | | 528,000 |
| | — |
| | — | | — | | — | |
| | | | | Tysons Corner, Virginia | | | | | | | | | | | | | | | |
| | | | | Total Other Assets | | 3,166,000 |
| | 169,000 |
| | | | | | | |
| | | | | Grand Total | | 54,264,000 |
| | 25,085,000 |
| | | | | | | |
________________________
| |
(1) | The Company's ownership interest in this table reflects its direct or indirect legal ownership interest. Legal ownership may, at times, not equal the Company's economic interest in the listed properties because of various provisions in certain joint venture agreements regarding distributions of cash flow based on capital account balances, allocations of profits and losses and payments of preferred returns. As a result, the Company's actual economic interest (as distinct from its legal ownership interest) in certain of the properties could fluctuate from time to time and may not wholly align with its legal ownership interests. Substantially all of the Company's joint venture agreements contain rights of first refusal, buy-sell provisions, exit rights, default dilution remedies and/or other break up provisions or remedies which are customary in real estate joint venture agreements and which may, positively or negatively, affect the ultimate realization of cash flow and/or capital or liquidation proceeds. See “Item 1A.-Risks Related to Our Organizational Structure-Outside partners in Joint Venture Centers result in additional risks to our stockholders.” |
| |
(2) | With respect to 43 Centers, the underlying land controlled by the Company is owned in fee entirely by the Company or, in the case of Joint Venture Centers, by the joint venture property partnership or limited liability company. With respect to the remaining 12 Centers, portions of the underlying land controlled by the Company are owned by third parties and leased to the Company, or the joint venture property partnership or limited liability company, pursuant to long-term ground leases. Under the terms of a typical ground lease, the Company, or the joint venture property partnership or limited liability company, has an option or right of first refusal to purchase the land. The termination dates of the ground leases range from 2017 to 2098. |
| |
(3) | Total GLA includes GLA attributable to Anchors (whether owned or non-owned) and Mall and Freestanding Stores as of December 31, 2016. “Non-owned Anchors” is space not owned by the Company (or, in the case of Joint Venture Centers, by the joint venture property partnership or limited liability company) which is occupied by Anchor tenants. “Company-owned Anchors” is space owned (or leased) by the Company (or, in the case of Joint Venture Centers, by the joint venture property partnership or limited liability company) and leased (or subleased) to Anchor tenants. |
| |
(4) | Portions of the land on which the Center is situated are subject to one or more long-term ground leases. |
| |
(5) | These Centers have vacant Anchor locations. The Company is seeking replacement tenants and/or contemplating redevelopment opportunities for these vacant sites. The Company continues to collect rent under the terms of an agreement regarding two of these vacant Anchor locations. |
| |
(6) | The Company anticipates that Primark will open a store at Kings Plaza Shopping Center in 2018. |
| |
(7) | The anchor tenant has announced its intent to close this location. |
| |
(8) | Included in Unconsolidated Joint Venture Centers. |
| |
(9) | Tenant spaces have been intentionally held off the market and remain vacant because of redevelopment plans. As a result, the Company believes the percentage of mall and freestanding GLA leased at this redevelopment property is not meaningful data. |
| |
(10) | Included in Consolidated Centers. |
| |
(11) | The Company owns an office building and seven stores located at shopping centers not owned by the Company. Of the seven stores, two have been leased to Forever 21, one has been leased to Kohl's, one is vacant and three have been leased for non-Anchor usage. With respect to the office building and four of the seven stores, the underlying land is owned in fee entirely by the Company. With respect to the remaining three stores, the underlying land is owned by third parties and leased to the Company pursuant to long-term building or ground leases. Under the terms of a typical building or ground lease, the Company pays rent for the use of the building or land and is generally responsible for all costs and expenses associated with the building and improvements. In some cases, the Company has an option or right of first refusal to purchase the land. The termination dates of the ground leases range from 2018 to 2027. |
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, 2016 (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | |
| Property Pledged as Collateral | | Fixed or Floating | | Carrying Amount(1) | | Effective Interest Rate(2) | | Annual Debt Service(3) | | Maturity Date(4) | | Balance Due on Maturity | | Earliest Date Notes Can Be Defeased or Be Prepaid |
| Consolidated Centers: | | | | | | | | | | | | | | |
| Chandler Fashion Center(5) | | Fixed | | $ | 199,833 |
| | 3.77 | % | | $ | 7,500 |
| | 7/1/19 | | $ | 200,000 |
| | Any Time |
| Danbury Fair Mall(6) | | Fixed | | 215,857 |
| | 5.53 | % | | 18,456 |
| | 10/1/20 | | 188,854 |
| | Any Time |
| Fashion Outlets of Chicago(7) | | Floating | | 198,966 |
| | 2.43 | % | | 4,536 |
| | 3/31/20 | | 200,000 |
| | Any Time |
| Fashion Outlets of Niagara Falls USA | | Fixed | | 115,762 |
| | 4.89 | % | | 8,724 |
| | 10/6/20 | | 103,810 |
| | Any Time |
| Freehold Raceway Mall(5) | | Fixed | | 220,643 |
| | 4.20 | % | | 13,584 |
| | 1/1/18 | | 216,258 |
| | Any Time |
| Fresno Fashion Fair(8) | | Fixed | | 323,062 |
| | 3.67 | % | | 11,652 |
| | 11/1/26 | | 325,000 |
| | 2/28/19 |
| Green Acres Mall | | Fixed | | 297,798 |
| | 3.61 | % | | 17,364 |
| | 2/3/21 | | 269,922 |
| | Any Time |
| Kings Plaza Shopping Center | | Fixed | | 456,958 |
| | 3.67 | % | | 26,748 |
| | 12/3/19 | | 427,423 |
| | Any Time |
| Northgate Mall(9) | | Floating | | 63,434 |
| | 3.50 | % | | 2,472 |
| | 3/1/17 | | 63,350 |
| | Any Time |
| Oaks, The | | Fixed | | 201,235 |
| | 4.14 | % | | 12,768 |
| | 6/5/22 | | 174,433 |
| | Any Time |
| Pacific View | | Fixed | | 127,311 |
| | 4.08 | % | | 8,016 |
| | 4/1/22 | | 110,597 |
| | 4/12/2017 |
| Queens Center | | Fixed | | 600,000 |
| | 3.49 | % | | 20,928 |
| | 1/1/25 | | 600,000 |
| | Any Time |
| Santa Monica Place | | Fixed | | 219,564 |
| | 2.99 | % | | 12,048 |
| | 1/3/18 | | 214,118 |
| | Any Time |
| SanTan Village Regional Center | | Fixed | | 127,724 |
| | 3.14 | % | | 7,068 |
| | 6/1/19 | | 120,238 |
| | Any Time |
| Stonewood Center | | Fixed | | 99,520 |
| | 1.80 | % | | 7,680 |
| | 11/1/17 | | 94,471 |
| | Any Time |
| Towne Mall | | Fixed | | 21,570 |
| | 4.48 | % | | 1,404 |
| | 11/1/22 | | 18,886 |
| | Any Time |
| Tucson La Encantada(10) | | Fixed | | 68,513 |
| | 4.23 | % | | 4,416 |
| | 3/1/22 | | 59,788 |
| | Any Time |
| Victor Valley, Mall of | | Fixed | | 114,559 |
| | 4.00 | % | | 4,560 |
| | 9/1/24 | | 115,000 |
| | Any Time |
| Vintage Faire Mall | | Fixed | | 269,228 |
| | 3.55 | % | | 15,072 |
| | 3/6/26 | | 210,825 |
| | 3/26/2017 |
| Westside Pavilion | | Fixed | | 143,881 |
| | 4.49 | % | | 9,396 |
| | 10/1/22 | | 125,489 |
| | Any Time |
| | | | | $ | 4,085,418 |
| | |
| | |
| | | | |
| | |
|
| | | | | | | | | | | | | | | | | | | | | |
| Property Pledged as Collateral | | Fixed or Floating | | Carrying Amount(1) | | Effective Interest Rate(2) | | Annual Debt Service(3) | | Maturity Date(4) | | Balance Due on Maturity | | Earliest Date Notes Can Be Defeased or Be Prepaid |
| Unconsolidated Joint Venture Centers (at Company's Pro Rata Share): | | | | | | | | | | | | | | |
| Arrowhead Towne Center(60.0%)(11) | | Fixed | | $ | 240,000 |
| | 4.05 | % | | $ | 9,720 |
| | 2/1/28 | | $ | 212,719 |
| | 2/1/22 |
| Atlas Park, The Shops at(50.0%)(12) | | Floating | | 23,665 |
| | 2.98 | % | | 602 |
| | 10/28/20 | | 24,651 |
| | Any Time |
| Boulevard Shops(50.0%)(13) | | Floating | | 9,557 |
| | 2.50 | % | | 417 |
| | 12/16/18 | | 9,133 |
| | Any Time |
| Corte Madera, The Village at(50.1%)(14) | | Fixed | | 112,327 |
| | 3.53 | % | | 3,945 |
| | 9/1/28 | | 98,753 |
| | 9/30/19 |
| Country Club Plaza(50.0%)(15) | | Fixed | | 159,561 |
| | 3.88 | % | | 6,160 |
| | 4/1/26 | | 137,525 |
| | 4/1/21 |
| Deptford Mall(51.0%)(16) | | Fixed | | 97,762 |
| | 3.55 | % | | 5,795 |
| | 4/3/23 | | 81,750 |
| | Any Time |
| Estrella Falls, The Market at(40.1%)(17) | | Floating | | 10,325 |
| | 2.60 | % | | 330 |
| | 2/5/20 | | 10,087 |
| | Any Time |
| FlatIron Crossing(51.0%)(16) | | Fixed | | 131,361 |
| | 2.81 | % | | 8,525 |
| | 1/5/21 | | 110,538 |
| | Any Time |
| Kierland Commons(50.0%)(18) | | Floating | | 65,273 |
| | 2.78 | % | | 2,502 |
| | 1/2/18 | | 64,281 |
| | Any Time |
| Lakewood Center(60.0%) | | Fixed | | 225,655 |
| | 4.15 | % | | 13,144 |
| | 6/1/26 | | 185,306 |
| | 8/6/17 |
| Los Cerritos Center(60.0%) | | Fixed | | 315,000 |
| | 4.00 | % | | 12,600 |
| | 11/1/27 | | 278,711 |
| | 11/1/21 |
| North Bridge, The Shops at(50.0%)(19) | | Fixed | | 186,882 |
| | 3.71 | % | | 6,900 |
| | 6/1/28 | | 159,785 |
| | Any Time |
| Scottsdale Fashion Square(50.0%) | | Fixed | | 241,581 |
| | 3.02 | % | | 13,281 |
| | 4/3/23 | | 201,331 |
| | Any Time |
| South Plains Mall(60.0%) | | Fixed | | 120,000 |
| | 4.22 | % | | 5,065 |
| | 11/6/25 | | 120,000 |
| | 3/6/18 |
| Twenty Ninth Street(51.0%)(20) | | Fixed | | 76,500 |
| | 4.10 | % | | 3,137 |
| | 2/6/26 | | 76,500 |
| | 6/7/18 |
| Tysons Corner Center(50.0%)(21) | | Fixed | | 398,795 |
| | 4.13 | % | | 24,643 |
| | 1/1/24 | | 333,233 |
| | Any Time |
| Washington Square(60.0%) | | Fixed | | 330,000 |
| | 3.65 | % | | 12,045 |
| | 11/1/22 | | 311,863 |
| | 11/1/18 |
| West Acres(19.0%)(22) | | Fixed | | 10,213 |
| | 6.41 | % | | 1,069 |
| | 2/1/17 | | 10,179 |
| | Any Time |
| | | | | $ | 2,754,457 |
| | |
| | |
| | | | |
| | |
| |
(1) | The mortgage notes payable balances include the unamortized debt premiums (discounts). Debt premiums (discounts) represent the excess (deficiency) of the fair value of debt over (under) the principal value of debt assumed in various acquisitions. The debt premiums (discounts) are being amortized into interest expense over the term of the related debt in a manner which approximates the effective interest method. |
The debt premiums (discounts) as of December 31, 2016 consisted of the following: |
| | | |
| Property Pledged as Collateral | |
| Consolidated Centers | |
| Fashion Outlets of Niagara Falls USA | $ | 3,558 |
|
| Stonewood Center | 2,349 |
|
| | $ | 5,907 |
|
| Unconsolidated Joint Venture Center (at Company's Pro Rata Share) | |
| Deptford Mall | $ | 977 |
|
| FlatIron Crossing | 5,030 |
|
| Lakewood Center | (13,333 | ) |
| | $ | (7,326 | ) |
The mortgage notes payable balances also include unamortized deferred finance costs that are amortized into interest expense over the remaining term of the related debt in a manner that approximates the effective interest method. Unamortized deferred finance costs at December 31, 2016 were $12,716 for Consolidated Centers and $4,151 for Unconsolidated Joint Ventures (at Company's pro rata share).
| |
(2) | The interest rate disclosed represents the effective interest rate, including the debt premiums (discounts) and deferred finance costs. |
| |
(3) | The annual debt service represents the annual payment of principal and interest. |
| |
(4) | The maturity date assumes that all extension options are fully exercised and that the Company does not opt to refinance the debt prior to these dates. These extension options are at the Company's discretion, subject to certain conditions, which the Company believes will be met. |
| |
(5) | A 49.9% interest in the loan has been assumed by a third party in connection with a co-venture arrangement. |
| |
(6) | Northwestern Mutual Life ("NML") is the lender of 50% of the loan. NML is considered a related party as it is a joint venture partner with the Company in Broadway Plaza. |
| |
(7) | The loan bears interest at LIBOR plus 1.50%. |
| |
(8) | On October 6, 2016, the Company placed a $325,000 loan on the property that bears interest at an effective rate of 3.67% and matures on November 1, 2026. |
| |
(9) | On January 18, 2017, the Company paid off the loan in full in connection with the sale of the underlying property (See "Item 1. Business—Recent Developments—Acquisitions and Dispositions"). |
| |
(10) | NML is the lender of this loan. |
| |
(11) | On January 6, 2016, the Company replaced the existing loan on the property with a new $400,000 loan that bears interest at an effective rate of 4.05% and matures on February 1, 2028. Concurrently, a 40% interest in the loan was assumed by a third party in connection with the sale of a 40% ownership interest in the underlying property (See "Item 1. Business—Recent Developments—Acquisitions and Dispositions"). |
| |
(12) | The loan bears interest at LIBOR plus 2.25%. |
| |
(13) | The loan bears interest at LIBOR plus 1.75%. |
| |
(14) | On August 5, 2016, the Company’s joint venture in The Village at Corte Madera replaced the existing loan on the property with a new $225,000 loan that bears interest at an effective rate of 3.53% and matures on September 1, 2028. |
| |
(15) | On March 28, 2016, the Company's joint venture in Country Club Plaza placed a $320,000 loan on the property that bears interest at an effective rate of 3.88% and matures on April 1, 2026. |
| |
(16) | On January 14, 2016, a 49% interest in the loan was assumed by a third party in connection with the sale of a 49% ownership interest in the MAC Heitman Portfolio (See "Item 1. Business—Recent Developments—Acquisitions and Dispositions"). |
| |
(17) | The loan bears interest at LIBOR plus 1.70%. |
| |
(18) | The loan bears interest at LIBOR plus 1.9%. On February 2, 2017, the Company's joint venture in Kierland Commons entered into a loan commitment with a lender to replace this loan with a new $225.0 million loan on the property. The new 3.95% ten-year loan is expected to close in March 2017. |
| |
(19) | On May 27, 2016, the Company's joint venture in The Shops at North Bridge replaced the existing loan on the property with a new $375,000 loan that bears interest at an effective rate of 3.71% and matures on June 1, 2028. |
| |
(20) | On January 14, 2016, the Company placed a $150,000 loan on the property that bears interest at an effective rate of 4.10% and matures on February 6, 2026. Concurrently, a 49% interest in the loan was assumed by a third party in connection with the sale of a 49% ownership interest in the MAC Heitman Portfolio. |
| |
(21) | NML is the lender of 33.3% of the loan. |
| |
(22) | On February 1, 2017, the Company's joint venture in West Acres replaced the existing loan on the property with a new $80.0 million loan that bears interest at 4.61% and matures on March 1, 2032. The Company used its share of the excess proceeds to pay down its line of credit and for general corporate purposes. |
ITEM 3. LEGAL PROCEEDINGS
None of the Company, the Operating Partnership, the Management Companies or their respective affiliates is currently involved in any material legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
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 2016, the Company's shares traded at a high of $94.51 and a low of $66.00.
As of February 21, 2017, there were approximately 540 stockholders of record. The following table shows high and low sales prices per share of common stock during each quarter in 2016 and 2015 and dividends per share of common stock declared and paid by the Company during each quarter:
|
| | | | | | | | | | | | | | | | |
| | | Market Quotation Per Share | | | | |
| | | Dividends (1) |
| Quarter Ended | | High | | Low | | Declared | | Paid |
| March 31, 2016 | | $ | 82.88 |
| | $ | 72.99 |
| | $ | 0.68 |
| | $ | 2.68 |
|
| June 30, 2016 | | $ | 85.39 |
| | $ | 71.82 |
| | $ | 0.68 |
| | $ | 0.68 |
|
| September 30, 2016 | | $ | 94.51 |
| | $ | 78.76 |
| | $ | 0.68 |
| | $ | 0.68 |
|
| December 31, 2016 | | $ | 80.54 |
| | $ | 66.00 |
| | $ | 0.71 |
| | $ | 0.71 |
|
| March 31, 2015 | | $ | 95.93 |
| | $ | 81.61 |
| | $ | 0.65 |
| | $ | 0.65 |
|
| June 30, 2015 | | $ | 86.31 |
| | $ | 74.51 |
| | $ | 0.65 |
| | $ | 0.65 |
|
| September 30, 2015 | | $ | 81.52 |
| | $ | 71.98 |
| | $ | 0.65 |
| | $ | 0.65 |
|
| December 31, 2015 | | $ | 86.29 |
| | $ | 74.55 |
| | $ | 4.68 |
| | $ | 2.68 |
|
| |
(1) | The dividends declared for the quarter ended December 31, 2015 include a special dividend/distribution of $2.00 per share of common stock and per OP Unit that was paid on January 6, 2016 (See "Item 1. Business—Recent Developments—Other Transactions and Events"). |
To maintain its qualification as a REIT, the Company is required each year to distribute to stockholders at least 90% of its net taxable income after certain adjustments. The Company paid all of its 2016 and 2015 quarterly dividends in cash. The timing, amount and composition of future dividends will be determined in the sole discretion of the Company's board of directors and will depend on actual and projected cash flow, financial condition, funds from operations, earnings, capital requirements, annual REIT distribution requirements, contractual prohibitions or other restrictions, applicable law and such other factors as the board of directors deems relevant. For example, under the Company's existing financing arrangements, 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 ("FFO")") and only if no default under the financing agreements has occurred, unless, under certain circumstances, payment of the distribution is necessary to enable the Company to continue to qualify as a REIT under the Code.
Stock Performance Graph
The following graph provides a comparison, from December 31, 2011 through December 31, 2016, 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 FTSE NAREIT All Equity REITs Index, an industry index of publicly-traded REITs (including the Company).
The graph assumes that the value of the investment in each of the Company's common stock and the indices was $100 at the close of the market on December 31, 2011.
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 FTSE NAREIT All Equity REITs Index. The historical information set forth below is not necessarily indicative of future performance.
Data for the FTSE NAREIT All Equity REITs Index, the S&P 500 Index and the S&P Midcap 400 Index were provided by Research Data Group.
Copyright© 2017 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 12/31/11 | | 12/31/12 | | 12/31/13 | | 12/31/14 | | 12/31/15 | | 12/31/16 |
| The Macerich Company | | $ | 100.00 |
| | $ | 119.75 |
| | $ | 125.74 |
| | $ | 185.00 |
| | $ | 194.36 |
| | $ | 176.93 |
|
| S&P 500 Index | | 100.00 |
| | 116.00 |
| | 153.58 |
| | 174.60 |
| | 177.01 |
| | 198.18 |
|
| S&P Midcap 400 Index | | 100.00 |
| | 117.88 |
| | 157.37 |
| | 172.74 |
| | 168.98 |
| | 204.03 |
|
| FTSE NAREIT All Equity REITs Index | | 100.00 |
| | 119.70 |
| | 123.12 |
| | 157.63 |
| | 162.08 |
| | 176.07 |
|
Recent Sales of Unregistered Securities
During the fourth quarter of 2016, the Company, as general partner of the Operating Partnership, issued an aggregate of 65,000 shares of common stock to limited partners of the Operating Partnership in exchange for an equal number of units pursuant to the partnership agreement of the Operating Partnership, as follows: 58,000 shares on November 30, 2016, 2,500 shares on December 12, 2016, 2,500 shares on December 15, 2016, and 2,000 shares on December 22, 2016.
In each case, the issuance of the shares of common stock was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.
Issuer Purchases of Equity Securities
None.
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 consolidated 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. All dollars and share amounts are in thousands, except per share data.
|
| | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
| OPERATING DATA: | | | | | | | | | |
| Revenues: | | | | | | | | | |
| Minimum rents (1) | $ | 616,295 |
| | $ | 759,603 |
| | $ | 633,571 |
| | $ | 578,113 |
| | $ | 447,321 |
|
| Percentage rents | 20,902 |
| | 25,693 |
| | 24,350 |
| | 23,156 |
| | 21,388 |
|
| Tenant recoveries | 305,282 |
| | 415,129 |
| | 361,119 |
| | 337,772 |
| | 247,593 |
|
| Other | 59,328 |
| | 61,470 |
| | 52,226 |
| | 50,242 |
| | 39,980 |
|
| Management Companies | 39,464 |
| | 26,254 |
| | 33,981 |
| | 40,192 |
| | 41,235 |
|
| Total revenues | 1,041,271 |
| | 1,288,149 |
| | 1,105,247 |
| | 1,029,475 |
| | 797,517 |
|
| Expenses: | | | | | | | | | |
| Shopping center and operating expenses | 307,623 |
| | 379,815 |
| | 353,505 |
| | 329,795 |
| | 251,923 |
|
| Management Companies' operating expenses | 98,323 |
| | 92,340 |
| | 88,424 |
| | 93,461 |
| | 85,610 |
|
| REIT general and administrative expenses | 28,217 |
| | 29,870 |
| | 29,412 |
| | 27,772 |
| | 20,412 |
|
| Costs related to unsolicited takeover offer (2) | — |
| | 25,204 |
| | — |
| | — |
| | — |
|
| Depreciation and amortization | 348,488 |
| | 464,472 |
| | 378,716 |
| | 357,165 |
| | 277,621 |
|
| Interest expense | 163,675 |
| | 211,943 |
| | 190,689 |
| | 197,247 |
| | 164,392 |
|
| (Gain) loss on early extinguishment of debt, net (3) | (1,709 | ) | | (1,487 | ) | | 9,551 |
| | (1,432 | ) | | — |
|
| Total expenses | 944,617 |
| | 1,202,157 |
| | 1,050,297 |
| | 1,004,008 |
| | 799,958 |
|
| Equity in income of unconsolidated joint ventures (4) | 56,941 |
| | 45,164 |
| | 60,626 |
| | 167,580 |
| | 79,281 |
|
| Co-venture expense | (13,382 | ) | | (11,804 | ) | | (9,490 | ) | | (8,864 | ) | | (6,523 | ) |
| Income tax (expense) benefit (5) | (722 | ) | | 3,223 |
| | 4,269 |
| | 1,692 |
| | 4,159 |
|
| Gain (loss) on sale or write down of assets, net (6) | 415,348 |
| | 378,248 |
| | 73,440 |
| | (78,057 | ) | | 28,734 |
|
| Gain on remeasurement of assets (7) | — |
| | 22,089 |
| | 1,423,136 |
| | 51,205 |
| | 199,956 |
|
| Income from continuing operations | 554,839 |
| | 522,912 |
| | 1,606,931 |
| | 159,023 |
| | 303,166 |
|
| Discontinued operations: (8) | | | | | | | | | |
| Gain on disposition of assets, net | — |
| | — |
| | — |
| | 286,414 |
| | 50,811 |
|
| Income from discontinued operations | — |
| | — |
| | — |
| | 3,522 |
| | 12,412 |
|
| Total income from discontinued operations | — |
| | — |
| | — |
| | 289,936 |
| | 63,223 |
|
| Net income | 554,839 |
| | 522,912 |
| | 1,606,931 |
| | 448,959 |
| | 366,389 |
|
| Less net income attributable to noncontrolling interests | 37,844 |
| | 35,350 |
| | 107,889 |
| | 28,869 |
| | 28,963 |
|
| Net income attributable to the Company | $ | 516,995 |
| | $ | 487,562 |
| | $ | 1,499,042 |
| | $ | 420,090 |
| | $ | 337,426 |
|
| Earnings per common share ("EPS") attributable to the Company—basic: | | | | | | | | | |
| Income from continuing operations | $ | 3.52 |
| | $ | 3.08 |
| | $ | 10.46 |
| | $ | 1.07 |
| | $ | 2.07 |
|
| Discontinued operations | — |
| | — |
| | — |
| | 1.94 |
| | 0.44 |
|
| Net income attributable to common stockholders | $ | 3.52 |
| | $ | 3.08 |
| | $ | 10.46 |
| | $ | 3.01 |
| | $ | 2.51 |
|
| EPS attributable to the Company—diluted: (9)(10) | | | | | | | | | |
| Income from continuing operations | $ | 3.52 |
| | $ | 3.08 |
| | $ | 10.45 |
| | $ | 1.06 |
| | $ | 2.07 |
|
| Discontinued operations | — |
| | — |
| | — |
| | 1.94 |
| | 0.44 |
|
| Net income attributable to common stockholders | $ | 3.52 |
| | $ | 3.08 |
| | $ | 10.45 |
| | $ | 3.00 |
| | $ | 2.51 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | As of December 31, |
| | 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
| BALANCE SHEET DATA: | | | | | | | | | |
| Investment in real estate (before accumulated depreciation) | $ | 9,209,211 |
| | $ | 10,689,656 |
| | $ | 12,777,882 |
| | $ | 9,181,338 |
| | $ | 9,012,706 |
|
| Total assets | $ | 9,958,148 |
| | $ | 11,235,584 |
| | $ | 13,094,948 |
| | $ | 9,038,972 |
| | $ | 9,280,997 |
|
| Total mortgage and notes payable | $ | 4,965,900 |
| | $ | 5,260,750 |
| | $ | 6,265,570 |
| | $ | 4,546,449 |
| | $ | 5,231,158 |
|
| Equity (11) | $ | 4,427,168 |
| | $ | 5,071,239 |
| | $ | 6,039,849 |
| | $ | 3,718,717 |
| | $ | 3,416,251 |
|
| OTHER DATA: | | | | | | | | | |
| Funds from operations ("FFO")—diluted (12) | $ | 642,304 |
| | $ | 642,268 |
| | $ | 542,754 |
| | $ | 527,574 |
| | $ | 577,862 |
|
| Cash flows provided by (used in): | | | | | | | | | |
| Operating activities | $ | 417,506 |
| | $ | 540,377 |
| | $ | 400,706 |
| | $ | 422,035 |
| | $ | 351,296 |
|
| Investing activities | $ | 443,113 |
| | $ | (101,024 | ) | | $ | (255,791 | ) | | $ | 271,867 |
| | $ | (963,374 | ) |
| Financing activities | $ | (853,083 | ) | | $ | (437,750 | ) | | $ | (129,723 | ) | | $ | (689,980 | ) | | $ | 610,623 |
|
| Number of Centers at year end | 57 |
| | 58 |
| | 60 |
| | 64 |
| | 70 |
|
| Regional Shopping Centers portfolio occupancy (13) | 95.4 | % | | 96.1 | % | | 95.8 | % | | 94.6 | % | | 93.8 | % |
| Regional Shopping Centers portfolio sales per square foot (14) | $ | 630 |
| | $ | 635 |
| | $ | 587 |
| | $ | 562 |
| | $ | 517 |
|
| Weighted average number of shares outstanding—EPS basic | 146,599 |
| | 157,916 |
| | 143,144 |
| | 139,598 |
| | 134,067 |
|
| Weighted average number of shares outstanding—EPS diluted(10) | 146,711 |
| | 158,060 |
| | 143,291 |
| | 139,680 |
| | 134,148 |
|
| Distributions declared per common share (15) | $ | 2.75 |
| | $ | 6.63 |
| | $ | 2.51 |
| | $ | 2.36 |
| | $ | 2.23 |
|
| |
(1) | Minimum rents were increased by amortization of above and below-market leases of $12.8 million, $16.5 million, $9.1 million, $6.6 million and $5.2 million for the years ended December 31, 2016, 2015, 2014, 2013 and 2012, respectively.
|
| |
(2) | Costs related to unsolicited takeover offer from Simon. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Other Transactions and Events." |
| |
(3) | The (gain) loss on early extinguishment of debt, net for the years ended December 31, 2016, 2015, 2014 and 2013 includes the (gain) loss on the extinguishment of mortgage notes payable of $(1.7) million, $(2.1) million, $9.6 million and $(1.4) million, respectively. The (gain) loss on early extinguishment of debt, net for the year ended December 31, 2015 also includes the loss on the extinguishment of a term loan of $0.6 million. |
| |
(4) | On March 30, 2012, the Company sold its 50% ownership interest in Chandler Village Center for a total sales price of $14.8 million, resulting in a gain on the sale of assets of $8.2 million. The sales price was funded by a cash payment of $6.0 million and the assumption of the Company's share of the mortgage note payable on the property of $8.8 million. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes.
|
On March 30, 2012, the Company sold its 50% ownership interest in Chandler Festival for a total sales price of $31.0 million, resulting in a gain on the sale of assets of $12.3 million. The sales price was funded by a cash payment of $16.2 million and the assumption of the Company's share of the mortgage note payable on the property of $14.8 million. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes.
On March 30, 2012, the Company's joint venture in SanTan Village Power Center sold the property for $54.8 million, resulting in a gain on the sale of assets of $23.3 million for the joint venture. The Company's pro rata share of the gain recognized was $7.9 million, net of noncontrolling interests of $3.6 million. The Company used its share of the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On May 31, 2012, the Company sold its 50% ownership interest in Chandler Gateway for a total sales price of $14.3 million, resulting in a gain on the sale of assets of $3.4 million. The sales price was funded by a cash payment of $4.9 million and the assumption of the Company's share of the mortgage note payable on the property of $9.4 million. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes.
On August 10, 2012, the Company was bought out of its ownership interest in NorthPark Center for $118.8 million, resulting in a gain on the sale of assets of $24.6 million. The Company used the cash proceeds from the sale to pay down its line of credit.
On October 3, 2012, the Company acquired the remaining 75% ownership interest in FlatIron Crossing that it did not previously own for $310.4 million. The purchase price was funded by a cash payment of $195.9 million and the assumption of the third party's pro rata share of the mortgage note payable on the property of $114.5 million. As a result of this transaction, the Company recognized a remeasurement gain of $84.2 million.
On October 26, 2012, the Company acquired the remaining 33.3% ownership interest in Arrowhead Towne Center that it did not previously own for $144.4 million. The purchase price was funded by a cash payment of $69.0 million and the assumption of the third party's pro rata share of the mortgage note payable on the property of $75.4 million. As a result of this transaction, the Company recognized a remeasurement gain of $115.7 million.
On May 29, 2013, the Company's joint venture in Pacific Premier Retail LLC sold Redmond Town Center Office for $185.0 million, resulting in a gain on the sale of assets of $89.2 million to the joint venture. The Company's share of the gain was $44.4 million. The Company used its share of the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On June 12, 2013, the Company's joint venture in Pacific Premier Retail LLC sold Kitsap Mall for $127.0 million, resulting in a gain on the sale of assets of $55.2 million to the joint venture. The Company's share of the gain was $28.1 million. The Company used its share of the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On August 1, 2013, the Company's joint venture in Pacific Premier Retail LLC sold Redmond Town Center for $127.0 million, resulting in a gain on the sale of assets of $38.4 million to the joint venture. The Company's share of the gain was $18.3 million. The Company used its share of the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On September 17, 2013, the Company’s joint venture in Camelback Colonnade was restructured. As a result of the restructuring, the Company’s ownership interest in Camelback Colonnade decreased from 73.2% to 67.5%. Prior to the restructuring, the Company had accounted for its investment in Camelback Colonnade under the equity method of accounting due to substantive participation rights held by the outside partners. Upon completion of the restructuring, these substantive participation rights were terminated and the Company obtained voting control of the joint venture. As a result of this transaction, the Company recognized a remeasurement gain of $36.3 million. Since the date of the restructuring, the Company included Camelback Colonnade in its consolidated financial statements until it was sold on December 29, 2014.
On October 8, 2013, the Company's joint venture in Ridgmar Mall sold the property for $60.9 million, which resulted in a gain on the sale of assets of $6.2 million to the joint venture. The Company's share of the gain was $3.1 million. The cash proceeds from the sale were used to pay off the $51.7 million mortgage loan on the property and the remaining $9.2 million net of closing costs was distributed to the partners. The Company used its share of the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On October 24, 2013, the Company acquired the remaining 33.3% ownership interest in Superstition Springs Center that it did not previously own for $46.2 million. The purchase price was funded by a cash payment of $23.7 million and the assumption of the third party's pro rata share of the mortgage note payable on the property of $22.5 million. Prior to the acquisition, the Company had accounted for its investment in Superstition Springs Center under the equity method of accounting. As a result of this transaction, the Company recognized a remeasurement gain of $14.9 million. Since the date of acquisition, the Company has included Superstition Springs Center in its consolidated financial statements.
On June 4, 2014, the Company acquired the remaining 49.0% ownership interest in Cascade Mall that it did not previously own for a cash payment of $15.2 million. The Company purchased Cascade Mall from its joint venture in Pacific Premier Retail LLC. Prior to the acquisition, the Company had accounted for its investment in Cascade Mall under the equity method of accounting. Since the date of acquisition, the Company has included Cascade Mall in its consolidated financial statements.
On July 30, 2014, the Company formed a joint venture to redevelop Fashion Outlets of Philadelphia. The Company invested $106.8 million for a 50% ownership interest in the joint venture, which was funded by borrowings under its line of credit.
On August 28, 2014, the Company sold its 30% ownership interest in Wilshire Boulevard for a total sales price of $17.1 million, resulting in a gain on the sale of assets of $9.0 million. The sales price was funded by a cash payment of $15.4 million and the assumption of the Company's share of the mortgage note payable on the property of $1.7 million. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes.
On November 14, 2014, the Company acquired the remaining 49% ownership interest that it did not previously own in two separate joint ventures, Pacific Premier Retail LLC and Queens JV LP, which together owned five Centers: Lakewood Center, Los Cerritos Center, Queens Center, Stonewood Center and Washington Square (collectively referred to herein as the "PPR Queens Portfolio.") The total consideration of approximately $1.8 billion was funded by the direct issuance of approximately $1.2 billion of common stock of the Company and the assumption of the third party's pro rata share of the mortgage notes payable on the properties of $672.1 million. The Company has included Stonewood Center and Queens Center in its consolidated financial statements since the date of acquisition and has included Lakewood Center, Los Cerritos Center and Washington Square in its consolidated financial statements from the date of acquisition until the Company sold a 40% interest in Pacific Premier Retail LLC (the "PPR Portfolio") on October 30, 2015 as provided below.
On February 17, 2015, the Company acquired the remaining 50% ownership interest in Inland Center that it did not previously own for $51.3 million. The purchase price was funded by a cash payment of $26.3 million and the assumption of the third party's share of the mortgage note payable on the property of $25.0 million. Concurrent with the purchase of the joint venture interest, the Company paid off the $50.0 million mortgage note payable on the property. The cash payment was funded by borrowings under the Company's line of credit.
On April 30, 2015, the Company entered into a 50/50 joint venture with Sears to own nine freestanding stores located at Arrowhead Towne Center, Chandler Fashion Center, Danbury Fair Mall, Deptford Mall, Freehold Raceway Mall, Los Cerritos Center, South Plains Mall, Vintage Faire Mall and Washington Square. The Company invested $150.0 million for a 50% interest in the joint venture, which was funded by borrowings under the Company's line of credit.
On October 30, 2015, the Company sold a 40% ownership interest in the PPR Portfolio, which owns Lakewood Center, Los Cerritos Center, South Plains Mall and Washington Square for a total sales price of $1.3 billion, resulting in a gain on sale of assets of $311.2 million. The sales price was funded by a cash payment of $545.6 million and the assumption of the pro rata share of the mortgage and other notes payable on the properties of $713.0 million. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes, which included funding the accelerated share repurchase program ("ASR") and Special Dividend (See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Other Transactions and Events"). Upon completion of the sale of the ownership interest, the Company has accounted for its investment in the PPR Portfolio under the equity method of accounting.
On January 6, 2016, the Company sold a 40% ownership interest in Arrowhead Towne Center for $289.5 million, resulting in a gain on the sale of assets of $101.6 million. The sales price was funded by a cash payment of $129.5 million and the assumption of a pro rata share of the mortgage note payable on the property of $160.0 million. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes, which included funding the Special Dividend (See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Other Transactions and Events"). Upon completion of the sale of the ownership interest, the Company has accounted for its investment in Arrowhead Towne Center under the equity method of accounting.
On January 14, 2016, the Company formed a joint venture, whereby the Company sold a 49% ownership interest in Deptford Mall, FlatIron Crossing and Twenty Ninth Street (the "MAC Heitman Portfolio"), for $771.5 million, resulting in a gain on the sale of assets of $340.7 million. The sales price was funded by a cash payment of $478.6 million and the assumption of a pro rata share of the mortgage notes payable on the properties of $292.9 million. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes. Upon completion of the sale of the ownership interest, the Company has accounted for its investment in the MAC Heitman Portfolio under the equity method of accounting.
On March 1, 2016, the Company, through a 50/50 joint venture, acquired Country Club Plaza for a purchase price of $660.0 million. The Company funded its pro rata share of the purchase price of $330.0 million from borrowings under its line of credit. On March 28, 2016, the joint venture placed a $320.0 million loan on the property that bears interest at an effective rate of 3.88% and matures on April 1, 2026. The Company used its pro rata share of the proceeds to pay down its line of credit.
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(5) | The Company's taxable REIT subsidiaries are subject to corporate level income taxes (See Note 20—Income Taxes in the Company's Notes to the Consolidated Financial Statements).
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(6) | Gain (loss) on sale or write down of assets, net includes the gain of $340.7 million from the sale of a 49% ownership interest in the MAC Heitman Portfolio and $101.6 million from the sale of a 40% ownership interest in the Arrowhead Towne Center during the year ended December 31, 2016. Gain (loss) on sale or write down of assets, net includes the gain of $311.2 million from the sale of a 40% ownership interest in the PPR Portfolio and $73.7 million from the sale of Panorama Mall during the year ended December 31, 2015 and the gain of $121.9 million from the sale of South Towne Center during the year ended December 31, 2014.
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(7) | Gain on remeasurement of assets includes $22.1 million from the acquisition of Inland Center during the year ended December 31, 2015, $1.4 billion from the acquisition of the PPR Queens Portfolio during the year ended December 31, 2014, $36.3 million from the acquisition of Camelback Colonnade and $14.9 million from the acquisition of Superstition Springs Center during the year ended December 31, 2013, $84.2 million from the acquisition of FlatIron Crossing and $115.7 million from the acquisition of Arrowhead Towne Center during the year ended December 31, 2012. |
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(8) | Discontinued operations include the following: |
In March 2012, the Company recorded an impairment charge of $54.3 million related to Valley View Center. As a result of the sale of the property on April 23, 2012, the Company wrote down the carrying value of the long-lived assets to their estimated fair value of $33.5 million, which was equal to the sales price of the property. On April 23, 2012, the property was sold by a court appointed receiver, which resulted in a gain on the extinguishment of debt of $104.0 million.
On April 30, 2012, the Company sold The Borgata for $9.2 million, resulting in a loss on the sale of assets of $1.3 million. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On May 11, 2012, the Company sold a former Mervyn's store in Montebello, California for $20.8 million, resulting in a loss on the sale of assets of $0.4 million. The proceeds from the sale were used for general corporate purposes.
On May 17, 2012, the Company sold Hilton Village for $24.8 million, resulting in a gain on the sale of assets of $3.1 million. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On May 31, 2012, the Company conveyed Prescott Gateway to the mortgage note lender by a deed-in-lieu of foreclosure. As a result of the conveyance, the Company recognized a gain on the extinguishment of debt of $16.3 million.
On June 28, 2012, the Company sold Carmel Plaza for $52.0 million, resulting in a gain on the sale of assets of $7.8 million. The Company used the proceeds from the sale to pay down its line of credit.
On May 31, 2013, the Company sold Green Tree Mall for $79.0 million, resulting in a gain on the sale of assets of $59.8 million. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On June 4, 2013, the Company sold Northridge Mall and Rimrock Mall in a combined transaction for $230.0 million, resulting in a gain on the sale of assets of $82.2 million. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On September 11, 2013, the Company sold a former Mervyn's store in Milpitas, California for $12.0 million, resulting in a loss on the sale of assets of $2.6 million. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On September 30, 2013, the Company conveyed Fiesta Mall to the mortgage note lender by a deed-in-lieu of foreclosure. The mortgage loan was non-recourse. As a result of the conveyance, the Company recognized a gain on the extinguishment of debt of $1.3 million.
On October 15, 2013, the Company sold a former Mervyn's store in Midland, Texas for $5.7 million, resulting in a loss on the sale of assets of $2.0 million. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On October 23, 2013, the Company sold a former Mervyn's store in Grand Junction, Colorado for $5.4 million, resulting in a gain on the sale of assets of $1.7 million. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On December 4, 2013, the Company sold a former Mervyn's store in Livermore, California for $10.5 million, resulting in a loss on the sale of assets of $5.3 million. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On December 11, 2013, the Company sold Chesterfield Towne Center and Centre at Salisbury in a combined transaction for $292.5 million, resulting in a gain on the sale of assets of $151.5 million. The sales price was funded by a cash payment of $67.8 million, the assumption of the $109.7 million mortgage note payable on Chesterfield Towne Center and the assumption of the $115.0 million mortgage note payable on Centre at Salisbury. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
The Company has classified the results of operations and gain or loss on sale for all of the above dispositions as discontinued operations for the years ended December 31, 2013 and 2012. On April 10, 2014, the Financial Accounting Standards Board issued Accounting Standards Update 2014-08, which amended the definition of discontinued operations and requires additional disclosures for disposal transactions that do not meet the revised discontinued operations criteria. The Company adopted this pronouncement on January 1, 2014. As a result, properties sold after 2013 have been included in gain (loss) on sale or write down of assets, net in continuing operations.
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(9) | Assumes the conversion of Operating Partnership units to the extent they are dilutive to the EPS computation. It also assumes the conversion of MACWH, LP common and preferred units to the extent that they are dilutive to the EPS computation. |
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(10) | Includes the dilutive effect, if any, of share and unit-based compensation plans and the senior convertible notes then outstanding calculated using the treasury stock method and the dilutive effect, if any, of all other dilutive securities calculated using the "if converted" method. |
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(11) | Equity includes the noncontrolling interests in the Operating Partnership, nonredeemable noncontrolling interests in consolidated joint ventures and common and non-participating convertible preferred units of MACWH, LP. |
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(12) | See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Funds From Operations ("FFO")". |
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(13) | Occupancy is the percentage of Mall and Freestanding GLA leased as of the last day of the reporting period. Centers under development and redevelopment are excluded from occupancy. As a result, occupancy for the year ended December 31, 2016 excluded Broadway Plaza, Fashion Outlets of Philadelphia, Paradise Valley Mall and Westside Pavilion. Occupancy for the years ended December 31, 2015 and 2014 excluded Broadway Plaza, Fashion Outlets of Niagara Falls USA, Fashion Outlets of Philadelphia, Paradise Valley Mall, SouthPark Mall and Westside Pavilion. Occupancy for the year ended December 31, 2013 excluded Paradise Valley Mall. Occupancy for the year ended December 31, 2012 excluded The Shops at Atlas Park and Southridge Center.
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In addition, occupancy for thefiscal year ended December 31,
2016 excluded Cascade Mall2017, all Section 16(a) filing requirements applicable to our executive officers, directors and
Northgate Mall, whichgreater than 10% beneficial owners were
soldsatisfied on
January 18,a timely basis, with the exception of a failure to file a Form 5 by Mr. O’Hern to report one gift transaction of 1,063 shares of the Company’s Common Stock.Audit Committee
The Board has a separately-designated Audit Committee established in accordance with Section 3(a)(58)(A) and Section 10A(m) of the Exchange Act. The following table identifies the current members of the Audit Committee, its principal functions and the number of meetings held in 2017. Occupancy for the year ended December 31, 2015 excluded Flagstaff Mall, which was conveyed to the mortgage lender by a deed-in-lieu of foreclosure on July 15, 2016. Occupancy for the year ended December 31, 2014 excluded Great Northern Mall, which was conveyed to the mortgage lender by a deed-in-lieu of foreclosure in 2015. Occupancy for the year ended December 31, 2013 excluded Rotterdam Square, which was sold on January 15, 2014.
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(14)Name of Committee and Current Members | Sales per square foot are based on reports by retailers leasing Mall Stores and Freestanding Stores for the trailing twelve months for tenants which have occupied such stores for a minimum
| Committee Functions | | Number of twelve months. Sales per square foot also are based on tenants 10,000 square feet and under for Regional Shopping Centers. The sales per square foot exclude Centers under development and redevelopment. As a result, sales per square foot for the years ended December 31, 2016 excluded Broadway Plaza, Fashion Outlets of Philadelphia, Paradise Valley Mall and Westside Pavilion. Sales per square foot for the years ended December 31, 2015 and 2014 excluded Broadway Plaza, Fashion Outlets of Niagara Falls USA, Fashion Outlets of Philadelphia, Paradise Valley Mall, SouthPark Mall and Westside Pavilion. Sales per square foot for the year ended December 31, 2013 excluded Paradise Valley Mall. |
In addition, sales per square foot for the year ended December 31, 2016 excluded Cascade Mall and Northgate Mall, which were sold on January 18, 2017. Sales per square foot for the year ended December 31, 2015 excluded Flagstaff Mall, which was conveyed to the mortgage lender by a deed-in-lieu of foreclosure on July 15, 2016. Sales per square foot for the year ended December 31, 2014 excluded Great Northern Mall, which was conveyed to the mortgage lender by a deed-in-lieu of foreclosure in 2015. Sales per square foot for the year ended December 31, 2013 excluded Rotterdam Square, which was sold on January 15, 2014.
| Meetings |
(15)Audit: Steven R. Hash, Chair* Peggy Alford** Diana M. Laing* Steven L. Soboroff * Audit Committee Financial Expert ** Audit Committee Financial Expert; Appointed to the Audit Committee March 29, 2018 | On October 30, 2015, | • appoints, evaluates, approves the Company declared two special dividends/distributions ("Special Dividend"), eachcompensation of, $2.00 per share of common stock and, per OP Unit to stockholderswhere appropriate, replaces our independent registered public accountants • reviews our financial statements with management and OP Unit holders of record on November 12, 2015. The first Special Dividend was paid on December 8, 2015our independent registered public accountants • reviews and approves with our independent registered public accountants the second Special Dividend was paid on January 6, 2016. The Special Dividends were funded from proceeds in connection with the financingscope and sale of ownership interests in the PPR Portfolio and Arrowhead Towne Center. |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Overview and Summary
The Company is involved in the acquisition, ownership, development, redevelopment, management and leasing of regional and community/power 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, 2016, the Operating Partnership owned or had an ownership interest in 50 regional shopping centers and seven community/power shopping centers. These 57 regional and community/power shopping centers (which include any related office space) consist of approximately 56 million square feet of gross leasable area (“GLA”) and are referred to herein as the “Centers”. The Centers consist of consolidated Centers (“Consolidated Centers”) and unconsolidated joint venture Centers (“Unconsolidated Joint Venture Centers”) as set forth in “Item 2. Properties,” 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 Management Companies.
The following discussion is based primarily on the consolidated financial statements of the Company for the years ended December 31, 2016, 2015 and 2014. It compares the results of operations and cash flows for the year ended December 31, 2016 to the results of operations and cash flows for the year ended December 31, 2015. Also included is a comparison of the results of operations and cash flows for the year ended December 31, 2015 to the results of operations and cash flows for the year ended December 31, 2014. 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 15, 2014, the Company sold Rotterdam Square, a 585,000 square foot regional shopping center in Schenectady, New York, for $8.5 million, resulting in a loss on the sale of assets of $0.5 million. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On February 14, 2014, the Company sold Somersville Towne Center, a 348,000 square foot regional shopping center in Antioch, California, for $12.3 million, resulting in a loss on the sale of assets of $0.3 million. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On March 17, 2014, the Company sold Lake Square Mall, a 559,000 square foot regional shopping center in Leesburg, Florida, for $13.3 million, resulting in a loss on the sale of assets of $0.9 million. The sales price was funded by a cash payment of $3.7 million and the issuance of two notes receivable totaling $9.6 million. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes.
On June 4, 2014, the Company acquired the remaining 49% ownership interest in Cascade Mall, a 589,000 square foot regional shopping center in Burlington, Washington, that it did not previously own for a cash payment of $15.2 million. The Company purchased Cascade Mall from its joint venture partner in Pacific Premier Retail LLC. The cash payment was funded by borrowings under the Company's line of credit. Since the date of acquisition, the Company has included Cascade Mall in its consolidated financial statements (See Note 13—Acquisitions).
On July 7, 2014, the Company sold a former Mervyn's store in El Paso, Texas for $3.6 million, resulting in a loss on the sale of assets of $0.2 million. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On July 30, 2014, the Company formed a joint venture to redevelop Fashion Outlets of Philadelphia, a 1,376,000 square foot regional shopping center in Philadelphia, Pennsylvania. The Company invested $106.8 million for a 50% interest in the joint venture, which was funded by borrowings under its line of credit.
On August 28, 2014, the Company sold a former Mervyn's store in Thousand Oaks, California for $3.5 million, resulting in a loss on the sale of assets of $0.1 million. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On August 28, 2014, the Company sold its 30% ownership interest in Wilshire Boulevard, a 40,000 square foot freestanding store in Santa Monica, California, for a total sales price of $17.1 million, resulting in a gain on the sale of assets of $9.0 million. The sales price was funded by a cash payment of $15.4 million and the assumption of the Company's share of the mortgage note payable on the property of $1.7 million. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes.
On September 11, 2014, the Company sold a leasehold interest in a former Mervyn's store in Laredo, Texas for $1.2 million, resulting in a gain on the sale of assets of $0.3 million. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On October 10, 2014, the Company sold a former Mervyn's store in Marysville, California for $1.9 million. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On October 31, 2014, the Company sold South Towne Center, a 1,278,000 square foot regional shopping center in Sandy, Utah, for $205.0 million, resulting in a gain on the sale of assets of $121.9 million. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On October 31, 2014, the Company acquired the remaining 40% ownership interest in Fashion Outlets of Chicago, a 538,000 square foot outlet center in Rosemont, Illinois, that it did not previously own for $70.0 million. The purchase price was funded by a cash payment of $55.9 million and the settlement of $14.1 million in notes receivable. The cash payment was funded by borrowings under the Company's line of credit. The purchase agreement included contingent consideration based on the financial performance of Fashion Outlets of Chicago at an agreed upon date in 2016. On August 19, 2016, the Company paid $23.8 million in full settlement of the contingent consideration obligation.
On November 13, 2014, the Company formed a joint venture to develop Fashion Outlets of San Francisco, a 500,000 square foot outlet center, in San Francisco, California. In connection with the formation of the joint venture, the Company issued a note receivable for $65.1 million to its joint venture partner that bears interest at LIBOR plus 2.0% and matures upon the completion of certain milestones in connection with the development of Fashion Outlets of San Francisco. The note receivable was funded by borrowings under the Company's line of credit.
On November 14, 2014, the Company acquired the remaining 49% ownership interest that it did not previously own in two separate joint ventures, Pacific Premier Retail LLC and Queens JV LP, which together owned five Centers: Lakewood Center, a 2,064,000 square foot regional shopping center in Lakewood, California; Los Cerritos Center, a 1,298,000 square foot regional shopping center in Cerritos, California; Queens Center, a 963,000 square foot regional shopping center in Queens, New York; Stonewood Center, a 932,000 square foot regional shopping center in Downey, California; and Washington Square, a 1,440,000 square foot regional shopping center in Portland, Oregon (collectively referred to herein as the "PPR Queens Portfolio"). The total consideration of approximately $1.8 billion was funded by the direct issuance of approximately $1.2 billion of common stock of the Company and the assumption of the third party's pro rata share of the mortgage notes payable on the properties of $672.1 million. As a result of the acquisition, the Company recognized a gain on remeasurement of assets of $1.4 billion. The Company has included Stonewood Center and Queens Center in its consolidated financial statements since the date of acquisition and has included Lakewood Center, Los Cerritos Center and Washington Square in its consolidated financial statements from the date of acquisition until the Company sold a 40% interest in the PPR Portfolio on October 30, 2015, as provided below.
On November 20, 2014, the Company purchased a 45% ownership interest in 443 North Wabash Avenue, a 65,000 square foot undeveloped site adjacent to the Company's joint venture in The Shops at North Bridge in Chicago, Illinois, for a cash payment of $18.9 million. The cash payment was funded by borrowings under the Company's line of credit.
On December 29, 2014, the Company sold its 67.5% ownership interest in its consolidated joint venture in Camelback Colonnade, a 619,000 square foot community center in Phoenix, Arizona, for $92.9 million, resulting in a gain on the sale of assets of $24.6 million. The sales price was funded by a cash payment of $61.2 million and the assumption of the Company's share of the mortgage note payable on the property of $31.7 million. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes.
On February 17, 2015, the Company acquired the remaining 50% ownership interest in Inland Center, an 866,000 square foot regional shopping center in San Bernardino, California, that it did not previously own for $51.3 million. The purchase price was funded by a cash payment of $26.3 million and the assumption of the third party's share of the mortgage note payable on the property of $25.0 million. Concurrent with the purchase of the joint venture interest, the Company paid off the $50.0 million loan on the property. The cash payment was funded by borrowings under the Company's line of credit. As a result of the acquisition, the Company recognized a gain on the remeasurement of assets of $22.1 million. Since the date of acquisition, the Company has included Inland Center in its consolidated financial statements (See Note 13—Acquisitions).
On April 30, 2015, the Company entered into a 50/50 joint venture with Sears to own nine freestanding stores located at Arrowhead Towne Center, Chandler Fashion Center, Danbury Fair Mall, Deptford Mall, Freehold Raceway Mall, Los Cerritos Center, South Plains Mall, Vintage Faire Mall and Washington Square. The Company invested $150.0 million for a 50% ownership interest in the joint venture, which was funded by borrowings under the Company's line of credit.
On October 30, 2015, the Company sold a 40% ownership interest in Pacific Premier Retail LLC (the "PPR Portfolio"), which owns Lakewood Center, a 2,064,000 square foot regional shopping center in Lakewood, California; Los Cerritos Center, a 1,298,000 square foot regional shopping center in Cerritos, California; South Plains Mall, a 1,127,000 square foot regional shopping center in Lubbock, Texas; and Washington Square, a 1,440,000 square foot regional shopping center in Portland, Oregon, for a total sales price of $1.3 billion, resulting in a gain on the sale of assets of $311.2 million. The sales price was funded by a cash payment of $545.6 million and the assumption of a pro rata share of the mortgage and other notes payable on the properties of $713.0 million. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes, which included funding the ASR and Special Dividend (See "Other Transactions and Events"). Upon completion of the sale of the ownership interest, the Company no longer has a controlling interest in the joint venture due to the substantive participation rights of the outside partner. Accordingly, the Company accounts for its investment in the PPR Portfolio under the equity method of accounting.
On November 19, 2015, the Company sold Panorama Mall, a 312,000 square foot community center in Panorama City, California, for $98.0 million, resulting in a gain on the sale of assets of $73.7 million. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On January 6, 2016, the Company sold a 40% ownership interest in Arrowhead Towne Center, a 1,197,000 square foot regional shopping center in Glendale, Arizona, for $289.5 million, resulting in a gain on the sale of assets of $101.6 million. The sales price was funded by a cash payment of $129.5 million and the assumption of a pro rata share of the mortgage note payable on the property of $160.0 million. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes, which included funding the Special Dividend (See "Other Transactions and Events"). Upon completion of the sale of the ownership interest, the Company no longer has a controlling interest in the joint venture due to the substantive participation rights of the outside partner. Accordingly, the Company accounts for its investment in Arrowhead Towne Center under the equity method of accounting.
On January 14, 2016, the Company formed a joint venture, whereby the Company sold a 49% ownership interest in Deptford Mall, a 1,039,000 square foot regional shopping center in Deptford, New Jersey; FlatIron Crossing, a 1,431,000 square foot regional shopping center in Broomfield, Colorado; and Twenty Ninth Street, an 847,000 square foot regional shopping center in Boulder, Colorado (the "MAC Heitman Portfolio"), for $771.5 million, resulting in a gain on the sale of assets of $340.7 million. The sales price was funded by a cash payment of $478.6 million and the assumption of a pro rata share of the mortgage notes payable on the properties of $292.9 million. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes. Upon completion of the sale of the ownership interest, the Company no longer has a controlling interest in the joint venture due to the substantive participation rights of the outside partner. Accordingly, the Company accounts for its investment in the MAC Heitman Portfolio under the equity method of accounting.
The sale of ownership interests in the PPR Portfolio, Arrowhead Towne Center and the MAC Heitman Portfolio are collectively referred to herein as the Joint Venture Transactions.
On March 1, 2016, the Company through a 50/50 joint venture, acquired Country Club Plaza, a 1,246,000 square foot regional shopping center in Kansas City, Missouri, for a purchase price of $660.0 million. The Company funded its pro rata share of $330.0 million with borrowings under its line of credit.
On April 13, 2016, the Company sold Capitola Mall, a 586,000 square foot regional shopping center in Capitola, California, for $93.0 million, resulting in a gain on the sale of assets of $24.9 million. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On May 31, 2016, the Company sold a former Mervyn's store in Yuma, Arizona, for $3.2 million, resulting in a loss on the sale of assets of $3.1 million. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On January 18, 2017, the Company sold Cascade Mall, a 589,000 square foot regional shopping center in Burlington, Washington; and Northgate Mall, a 750,000 square foot regional shopping center in San Rafael, California, in a combined transaction for $170.0 million. The proceeds from the sale were used to pay off the mortgage note payable on Northgate Mall, pay down the Company's line of credit and for general corporate purposes.
Financing Activity:
On August 28, 2014, the Company replaced the existing loan on Mall of Victor Valley with a new $115.0 million loan that bears interest at an effective rate of 4.00% and matures on September 1, 2024.
On November 14, 2014, in connection with the acquisition of the PPR Queens Portfolio (See “Acquisitions and Dispositions”), the Company assumed the loans on the following Centers: Lakewood Center with a fair value of $254.9 million that bore interest at an effective rate of 1.80% and was to mature on June 1, 2015, Los Cerritos Center with a fair value of $207.5 million that bore interest at an effective rate of 1.65% and was to mature on July 1, 2018, Queens Center with a fair value of $600.0 million that bears interest at an effective rate of 3.49% and matures on January 1, 2025, Stonewood Center with a fair value of $111.9 million that bears interest at an effective rate of 1.80% and matures on November 1, 2017, and Washington Square with a fair value of $240.3 million that bore interest at an effective rate of 1.65% and was to mature on January 1, 2016.
On December 22, 2014, the Company prepaid a total of $254.2 million of mortgage debt on Fresno Fashion Fair and Vintage Faire Mall with a weighted average interest rate of 6.4%. The Company incurred a charge of $9.0 million in connection with the early extinguishment of debt.
On February 3, 2015, the Company’s joint venture in The Market at Estrella Falls replaced the existing loan on the property with a new $26.5 million loan that bears interest at LIBOR plus 1.70% and matures on February 5, 2020, including the exercise of a one-year extension option.
On February 19, 2015, the Company placed a $280.0 million loan on Vintage Faire Mall that bears interest at an effective rate of 3.55% and matures on March 6, 2026.
On March 2, 2015, the Company paid off in full the loan on Lakewood Center, which resulted in a gain of $2.2 million on the early extinguishment of debt as a result of writing off the related debt premium. On May 12, 2015, the Company placed a new $410.0 million loan on the property that bears interest at an effective rate of 4.15% and matures on June 1, 2026. On October 30, 2015, a 40% interest in the loan was assumed by a third party in connection with the sale of a 40% ownership interest in the PPR Portfolio (See "Acquisitions and Dispositions").
On March 3, 2015, the Company amended the loan on Fashion Outlets of Chicago. The amended $200.0 million loan bears interest at LIBOR plus 1.50% and matures on March 31, 2020.
On October 5, 2015, the Company paid off in full the existing loan on Washington Square. On October 29, 2015, the Company placed a new $550.0 million loan on the property that bears interest at an effective rate of 3.65% and matures on November 1, 2022. On October 30, 2015, a 40% interest in the loan was assumed by a third party in connection with the sale of a 40% ownership interest in the PPR Portfolio (See "Acquisitions and Dispositions").
On October 23, 2015, the Company placed a $200.0 million loan on South Plains Mall that bears interest at an effective rate of 4.22% and matures on November 6, 2025. On October 30, 2015, a 40% interest in the loan was assumed by a third party in connection with the sale of a 40% ownership interest in the PPR Portfolio (See "Acquisitions and Dispositions").
On October 28, 2015, the Company's joint venture in The Shops at Atlas Park placed a $57.8 million loan on the property that bears interest at LIBOR plus 2.25% and matures on October 22, 2020, including two one-year extension options.
On October 30, 2015, the Company replaced the existing loan on Los Cerritos Center with a new $525.0 million loan that bears interest at an effective rate of 4.00% and matures on November 1, 2027, which resulted in a loss of $0.9 million on the early extinguishment of debt. Concurrently, a 40% interest in the loan was assumed by a third party in connection with the sale of a 40% ownership interest in the PPR Portfolio (See "Acquisitions and Dispositions").
On October 30, 2015, the Company obtained a $100.0 million term loan ("PPR Term Loan") that bears interest at LIBOR plus 1.20% and matures on October 31, 2022. Concurrently, a 40% interest in the loan was assumed by a third party in connection with the sale of a 40% ownership interest in the PPR Portfolio (See "Acquisitions and Dispositions").
On January 6, 2016, the Company replaced the existing loan on Arrowhead Towne Center with a new $400.0 million loan that bears interest at an effective rate of 4.05% and matures on February 1, 2028, which resulted in a loss of $3.6 million on the early extinguishment of debt. Concurrently, a 40% interest in the loan was assumed by a third party in connection with the sale of a 40% ownership interest in the underlying property (See "Acquisitions and Dispositions").
On January 14, 2016, the Company placed a $150.0 million loan on Twenty Ninth Street that bears interest at an effective rate of 4.10% and matures on February 6, 2026. Concurrently, a 49% interest in the loan was assumed by a third party in connection with the sale of a 49% ownership interest in the MAC Heitman Portfolio (See "Acquisitions and Dispositions").
On March 28, 2016, the Company's joint venture in Country Club Plaza placed a $320.0 million loan on the property that bears interest at an effective rate of 3.88% and matures on April 1, 2026. The Company used its share of the proceeds to pay down its line of credit and for general corporate purposes.
On May 27, 2016, the Company's joint venture in The Shops at North Bridge replaced the existing loan on the property with a new $375.0 million loan that bears interest at an effective rate of 3.71% and matures on June 1, 2028. The Company used its share of the excess proceeds to pay down its line of credit and for general corporate purposes.
On July 6, 2016, the Company modified and amended its line of credit. The amended $1.5 billion line of credit bears interest at LIBOR plus a spread of 1.30% to 1.90%, depending on the Company's overall leverage level, and matures on July 6, 2020 with a one-year extension option. Based on the Company's leverage level as of the amendment date, the initial borrowing rate on the facility was LIBOR plus 1.33%. The line of credit can be expanded, depending on certain conditions, up to a total facility of $2.0 billion.
On August 5, 2016, the Company’s joint venture in The Village at Corte Madera replaced the existing loan on the property with a new $225.0 million loan that bears interest at an effective rate of 3.53% and matures on September 1, 2028. The Company used its share of the excess proceeds to pay down its line of credit and for general corporate purposes.
On October 6, 2016, the Company placed a $325.0 million loan on Fresno Fashion Fair that bears interest at an effective rate of 3.67% and matures on November 1, 2026. The Company used the proceeds to pay down its line of credit and for general corporate purposes.
On February 1, 2017, the Company's joint venture in West Acres replaced the existing loan on the property with a new $80.0 million loan that bears interest at an effective rate of 4.61% and matures on March 1, 2032. The Company used its share of the excess proceeds to pay down its line of credit and for general corporate purposes.
On February 2, 2017, the Company's joint venture in Kierland Commons entered into a loan commitment with a lender to replace the existing loan on the property with a new $225.0 million loan that will bear interest at a fixed rate of 3.95% for ten-years. The new loan is expected to close in March 2017. The Company expects to use its share of the excess proceeds to pay down its line of credit and for general corporate purposes.
Redevelopment and Development Activity:
In February 2014, the Company's joint venture in Broadway Plaza started construction on the 235,000 square foot expansion of the 923,000 square foot regional shopping center in Walnut Creek, California. The joint venture completed a portion of the first phase of the project in November 2015 and the remaining portion of the first phase was completed in September 2016. The second phase will be completed through Summer 2018. The total cost of the project is estimated to be $305.0 million, with $152.5 million estimated to be the Company's pro rata share. The Company has funded $127.7 million of the total $255.4 million incurred by the joint venture as of December 31, 2016.
In July 2015, the Company started construction on a 335,000 square foot expansion of Green Acres Mall, a 2,089,000 square foot regional shopping center in Valley Stream, New York. The Company completed the project in October 2016. As of December 31, 2016, the Company has incurred $104.9 million in costs.
The Company's joint venture is proceeding with the development of Fashion Outlets of Philadelphia, a redevelopment of an 850,000 square foot regional shopping center in Philadelphia, Pennsylvania. The project is expected to be completed in 2018. The total cost of the project is estimated to be between $305.0 million and $365.0 million, with $152.5 million to $182.5 million estimated to be the Company's pro rata share. The Company has funded $46.9 million of the total $93.7 million incurred by the joint venture as of December 31, 2016.
The Company is currently in the process of redeveloping the 250,000 square foot former Sears store at Kings Plaza Shopping Center. The Company expects to complete the project in Summer 2018. As of December 31, 2016, the Company has incurred $10.0 million in costs and anticipates the total cost of the project to be between $95.0 million and $100.0 million.
Other Transactions and Events:
On March 9, 2015, the Company received an unsolicited, conditional proposal from Simon Property Group, Inc. (“Simon”) to acquire the Company. The Company’s Board of Directors, after consulting with its financial, real estate and legal advisors, unanimously determined that the Simon proposal substantially undervalued the Company and was not in the best interests of the Company and its stockholders. On March 20, 2015, the Company received a revised, unsolicited proposal to acquire the Company from Simon, which Simon described as its best and final proposal. The Company’s Board of Directors carefully reviewed the revised proposal with the assistance of its financial, real estate and legal advisors, and determined that the revised proposal continued to substantially undervalue the Company and that pursuing the proposed transaction at that time was not in the best interests of the Company and its stockholders.
On June 30, 2015, the Company conveyed Great Northern Mall, an 895,000 square foot regional shopping center in Clay, New York, to the mortgage lender by a deed-in-lieu of foreclosure and was discharged from the mortgage note payable. The mortgage note payable was a non-recourse loan. As a result, the Company recognized a loss of $1.6 million on the extinguishment of debt.
On September 30, 2015, the Company's Board of Directors authorized the repurchase of up to $1.2 billion of the Company's outstanding common shares over the period ending September 30, 2017, as market conditions warranted (the "2015 Stock Buyback Program"). On November 12, 2015, the Company entered into an accelerated share repurchase program ("ASR") to repurchase $400.0 million of the Company's common stock. In accordance with the ASR, the Company made a prepayment of $400.0 million and received an initial share delivery of 4,140,788 shares. On January 19, 2016, the ASR was completed and the Company received an additional delivery of 970,609 shares. The average price of the 5,111,397 shares repurchased under the ASR was $78.26 per share. The ASR was funded from proceeds in connection with the financing and sale of the ownership interest in the PPR Portfolio (See "Acquisitions and Dispositions" and "Financing Activity").
On October 30, 2015, the Company declared two special dividends/distributions ("Special Dividend"), each of $2.00 per share of common stock and per OP Unit. The first Special Dividend was paid on December 8, 2015 to stockholders and OP Unit holders of record on November 12, 2015. The second Special Dividend was paid on January 6, 2016 to common stockholders and OP Unit holders of record on November 12, 2015. The Special Dividends were funded from proceeds in connection with the financing and sale of ownership interests in the PPR Portfolio and Arrowhead Towne Center (See "Acquisitions and Dispositions" and "Financing Activity").
On February 17, 2016, the Company entered into an ASR to repurchase $400.0 million of the Company's common stock. In accordance with the ASR, the Company made a prepayment of $400.0 million and received an initial share delivery of 4,222,193 shares. On April 19, 2016, the ASR was completed and the Company received delivery of an additional 861,235 shares. The average price of the 5,083,428 shares repurchased under the ASR was $78.69 per share. The ASR was funded from borrowings under the Company's line of credit, which had been paid down from the proceeds from the recently completed Joint Venture Transactions (See "Acquisitions and Dispositions" and "Financing Activity").
On May 9, 2016, the Company entered into an ASR to repurchase the remaining $400.0 million of the Company's common stock authorized for repurchase. In accordance with the ASR, the Company made a prepayment of $400.0 million and received an initial share delivery of 3,964,812 shares. On July 11, 2016, the ASR was completed and the Company received delivery of an additional 1,104,162 shares. The average price of the 5,068,974 shares repurchased under the ASR was $78.91 per share. The ASR was funded from borrowings under the Company's line of credit, which had been recently paid down from the proceeds from the recently completed Joint Venture Transactions (See "Acquisitions and Dispositions" and "Financing Activity"). The total number of shares repurchased under the 2015 Stock Buyback Program was 15,263,799 at an average price of $78.62.
On July 15, 2016, the Company conveyed Flagstaff Mall, a 347,000 square foot regional shopping center in Flagstaff, Arizona, to the mortgage lender by a deed-in-lieu of foreclosure and was discharged from the mortgage note payable. The mortgage note payable was a non-recourse loan. As a result, the Company recognized a gain of $5.3 million on the extinguishment of debt.
On February 13, 2017, the Company announced that the Board of Directors has authorized the repurchase of up to $500.0 million of its outstanding common shares as market conditions and the Company’s liquidity warrant (the "2017 Stock Buyback Program"). Repurchases may be made through open market purchases, privately negotiated transactions, structured or derivative transactions, including ASR transactions, or other methods of acquiring shares and pursuant to Rule 10b5-1 of the Securities Act of 1934, from time to time as permitted by securities laws and other legal requirements.
Inflation:
In the last five 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 throughout 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, approximately 6% to 13% of the leases for spaces 10,000 square feet and under 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. The Company has generally entered 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, which places the burden of cost control on the Company. Additionally, certain leases require the tenants to pay their pro rata share of operating expenses.
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 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, capitalization of costs and fair value measurements. The Company's significant accounting policies are described in more detail in Note 2—Summary of Significant Accounting Policies in the Company's Notes 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, 57% of the 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 are recognized as revenues on a straight-line basis over the term of the related leases.
Property:
Maintenance and repair 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:
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Buildings and improvements | 5 - 40 years |
Tenant improvements | 5 - 7 years |
Equipment and furnishings | 5 - 7 years |
Capitalization of Costs:
The Company capitalizes costs incurred in redevelopment, development, renovation and improvement of properties. 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. These capitalized costs include direct and certain indirect costs clearly associated with the project. Indirect costs include real estate taxes, insurance and certain shared administrative costs. In assessing the amounts of direct and indirect costs to be capitalized, allocations are made to projects based on estimates of the actual amount of time spent on each activity. Indirect costs not clearly associated with specific projects are expensed as period costs. Capitalized indirect costs are allocated to development and redevelopment activities based on the square footage of the portion of the building not held available for immediate occupancy. If costs and activities incurred to ready the vacant space cease, then cost capitalization is also discontinued until such activities are resumed. Once work has been completed on a vacant space, project costs are no longer capitalized. For projects with extended lease-up periods, the Company ends the capitalization when significant activities have ceased, which does not exceed the shorter of a one-year period after the completion of the building shell or when the construction is substantially complete.
Acquisitions:
The Company allocates the estimated fair value of acquisitions to land, building, tenant improvements and identified intangible assets and liabilities, based on their estimated fair values. In addition, any assumed mortgage notes payable are recorded at their estimated fair values. The estimated fair value of the land and buildings is determined utilizing an “as if vacant” methodology. Tenant improvements represent the tangible assets associated with the existing leases valued on a fair value basis at the acquisition date prorated over the remaining lease terms. The tenant improvements are classified as an asset under property 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 any below-market fixed rate renewal options. 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. The remaining lease terms of below-market leases may include certain below-market fixed-rate renewal periods. In considering whether or not a lessee will execute a below-market fixed-rate lease renewal option, the Company evaluates economic factors and certain qualitative factors at the time of acquisition such as tenant mix in the Center, the Company's relationship with the tenant and the availability of competing tenant space. The initial allocation of purchase price is based on management's preliminary assessment, which may change when final information becomes available. Subsequent adjustments made to the initial purchase price allocation are made within the allocation period, which does not exceed one year. The purchase price allocation is described as preliminary if it is not yet final. The use of different assumptions in the allocation of the purchase price of the acquired assets and liabilities assumed could affect the timing of recognition of the related revenues and expenses.
The Company immediately expenses costs associated with business combinations as period costs.
Remeasurement gains are recognized when the Company obtains control of an existing equity method investment to the extent that the fair value of the existing equity investment exceeds the carrying value of the investment.
Asset Impairment:
The Company assesses whether an indicator of impairment in the value of its properties exists by considering expected future operating income, trends and prospects, as well as the effects of demand, competition and other economic factors. Such factors include projected rental revenue, operating costs and capital expenditures as well as estimated holding periods and capitalization rates. If an impairment indicator exists, the determination of recoverability is made based upon the estimated undiscounted future net cash flows, excluding interest expense. The amount of impairment loss, if any, is determined by comparing the fair value, as determined by a discounted cash flows analysis, with the carrying value of the related assets. The Company generally holds and operates its properties long-term, which decreases the likelihood of their carrying values not being recoverable. Properties classified as held for sale are measured at the lower of the carrying amount or fair value less cost to sell.
The Company reviews its investments in unconsolidated joint ventures for a series of operating losses and other factors that may indicate that a decrease in the value of its investments has occurred which is other-than-temporary. The investment in each unconsolidated joint venture is evaluated periodically, and as deemed necessary, for recoverability and valuation declines that are other-than-temporary.
Fair Value of Financial Instruments:
The fair value hierarchy distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity and the reporting entity's own assumptions about market participant assumptions.
Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which is typically based on an entity's own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the
fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
The Company calculates the fair value of financial instruments and includes this additional information in the notes to consolidated financial statements when the fair value is different than the carrying value of those financial instruments. When the fair value reasonably approximates the carrying value, no additional disclosure is made.
Deferred Charges:
Costs relating to obtaining tenant leases are deferred and amortized over the initial term of the agreement using the straight-line method. As these deferred leasing costs represent productive assets incurred in connection with the Company's provision of leasing arrangements at the Centers, the related cash flows are classified as investing activities within the Company's consolidated statements of cash flows. 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. The ranges of the terms of the agreements are as follows:
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Deferred lease costs | 1 - 15 years |
Deferred financing costs | 1 - 15 years |
Results of Operations
Many of the variations in the results of operations, discussed below, occurred because of the transactions affecting the Company's properties described above, including those related to the Redevelopment Properties, the Joint Venture Centers and the Disposition Properties (as defined below).
For purposes of the discussion below, the Company defines "Same Centers" as those Centers that are substantially complete and in operation for the entirety of both periods of the comparison. Non-Same Centers for comparison purposes include those Centers or properties that are going through a substantial redevelopment often resulting in the closing of a portion of the Center (“Redevelopment Properties”), those properties that have recently transitioned to or from equity method joint ventures to consolidated assets ("Joint Venture Centers") and properties that have been disposed of ("Disposition Properties"). The Company moves a Center in and out of Same Centers based on whether the Center is substantially complete and in operation for the entirety of both periods of the comparison. Accordingly, the Same Centers consist of all consolidated Centers, excluding the Redevelopment Properties, the Joint Venture Centers and the Disposition Properties for the periods of comparison.
For the comparison of the year ended December 31, 2016 to the year ended December 31, 2015, the Redevelopment Properties are the expansion portion of Green Acres Mall, Paradise Valley Mall and Westside Pavilion. For the comparison of the year ended December 31, 2015 to the year ended December 31, 2014, the Redevelopment Properties are Paradise Valley Mall, the expansion portion of Fashion Outlets of Niagara Falls USA, SouthPark Mall and Westside Pavilion.
For the comparison of the year ended December 31, 2016 to the year ended December 31, 2015, the Joint Venture Centers are Inland Center, the PPR Portfolio, Arrowhead Towne Center and the MAC Heitman Portfolio. For the comparison of the year ended December 31, 2015 to the year ended December 31, 2014, the Joint Venture Centers are Inland Center, Lakewood Center, Los Cerritos Center, South Plains Mall, Washington Square, Stonewood Center, Queens Center and Cascade Mall. The change in revenues and expenses at the Joint Venture Centers for the comparison of the year ended December 31, 2016 to the year ended December 31, 2015 is primarily due to the conversion of the PPR Portfolio, Arrowhead Towne Center and the MAC Heitman Portfolio from consolidated Centers to unconsolidated joint ventures. The change in revenues and expenses at the Joint Venture Centers for the comparison of the year ended December 31, 2015 to the year ended December 31, 2014 is primarily due to the conversion of the PPR Queens Portfolio from unconsolidated joint ventures to consolidated Centers in 2014.
For comparison of the year ended December 31, 2016 to the year ended December 31, 2015, the Disposition Properties are Flagstaff Mall, Capitola Mall, Panorama Mall and Great Northern Mall. For the comparison of the year ended December 31, 2015 to the year ended December 31, 2014, the Disposition Properties are Panorama Mall, Great Northern Mall, Rotterdam Square, Somersville Towne Center, Lake Square Mall, South Towne Center and Camelback Colonnade.
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 of unconsolidated joint ventures.
The Company considers tenant annual sales per square foot (for tenants in place for a minimum of 12 months or longer and 10,000 square feet and under) for regional shopping centers, occupancy rates (excluding large retail stores or "Anchors") for the Centers and releasing spreads (i.e. a comparison of initial average base rent per square foot on leases executed during the trailing twelve months to average base rent per square foot at expiration for the leases expiring during the year based on the spaces 10,000 square feet and under) to be key performance indicators of the Company's internal growth.
Tenant sales per square foot decreased from $635 for the twelve months ended December 31, 2015 to $630 for the twelve months ended December 31, 2016. Occupancy rate decreased from 96.1% at December 31, 2015 to 95.4% at December 31, 2016. Releasing spreads increased 17.7% for the twelve months ended December 31, 2016. These calculations exclude Centers under development or redevelopment and property dispositions (See "Acquisitions and Dispositions" and "Other Transactions and Events" in Management's Overview and Summary).
Releasing spreads remained positive as the Company was able to lease available space at average higher rents than the expiring rental rates, resulting in a releasing spread of $8.49 per square foot ($56.57 on new and renewal leases executed compared to $48.08 on leases expiring), representing a 17.7% increase for the trailing twelve months ended December 31, 2016. The Company expects that releasing spreads will continue to be positive for 2017 as it renews or relets leases that are scheduled to expire. These leases that are scheduled to expire represent approximately 900,000 square feet of the Centers, accounting for 11.3% of the GLA of mall stores and freestanding stores, for spaces 10,000 square feet and under, as of December 31, 2016.
During the trailing twelve months ended December 31, 2016, the Company signed 231 new leases and 406 renewal leases comprising approximately 1.2 million square feet of GLA, of which 0.9 million square feet related to the consolidated Centers. The annual initial average base rent for new and renewal leases was $56.57 per square foot for the trailing twelve months ended December 31, 2016 with an average tenant allowance of $16.29 per square foot.
Comparison of Years Ended December 31, 2016 and 2015
Revenues:
Minimum and percentage rents (collectively referred to as "rental revenue") decreased by $148.1 million, or 18.9%, from 2015 to 2016. The decrease in rental revenue is attributed to a decrease of $179.3 million from the Joint Venture Centers and $15.4 million from the Disposition Properties offset in part by an increase of $44.9 million from the Same Centers and $1.7 million from the Redevelopment Properties. The increase in rental revenue at the Same Centers is primarily due to an increase in lease termination income, as provided below, and an increase in leasing spreads.
Rental revenue includes the amortization of above and below-market leases, the amortization of straight-line rents and lease termination income. The amortization of above and below-market leases decreased from $16.5 million in 2015 to $12.8 million in 2016 primarily due to the Joint Venture Centers. The amortization of straight-line rents decreased from $7.2 million in 2015 to $5.2 million in 2016. Lease termination income increased from $9.7 million in 2015 to $20.4 million in 2016.
Tenant recoveries decreased$109.8 million, or 26.5%, from 2015 to 2016. The decrease in tenant recoveries is attributed to a decrease of $88.5 million from the Joint Venture Centers, $13.6 million from the Same Centers, $6.8 million from the Disposition Properties and $0.9 million from the Redevelopment Properties.
Management Companies' revenue increased from $26.3 million in 2015 to $39.5 million in 2016. The increase in Management Companies' revenue is due to an increase in management fees as a result of the conversion of the PPR Portfolio, Arrowhead Towne Center and the MAC Heitman Portfolio from consolidated Centers to unconsolidated joint ventures (See "Acquisitions and Dispositions" in Management's Overview and Summary) and an increase in development and leasing fees from other joint ventures.
Shopping Center and Operating Expenses:
Shopping center and operating expenses decreased $72.2 million, or 19.0%, from 2015 to 2016. The decrease in shopping center and operating expenses is attributed to a decrease of $69.5 million from the Joint Venture Centers and $8.1 million from the Disposition Properties offset in part by an increase of $5.1 million from the Same Centers and $0.3 million from the Redevelopment Properties. The increase in shopping center and operating expenses at the Same Centers is primarily due to an increase in property tax expense.
Management Companies' Operating Expenses:
Management Companies' operating expenses increased $6.0 million from 2015 to 2016 due to the conversion of the PPR Portfolio, Arrowhead Towne Center and the MAC Heitman Portfolio from consolidated Centers to unconsolidated joint ventures (See "Acquisitions and Dispositions" in Management's Overview and Summary) and an increase in share and unit-based compensation costs.
REIT General and Administrative Expenses:
REIT general and administrative expenses decreased by $1.7 million from 2015 to 2016.
Costs related to Unsolicited Takeover Offer:
The Company incurred $25.2 million in costs in 2015 related to evaluating and responding to an unsolicited takeover offer (See "Other Transactions and Events" in Management's Overview and Summary).
Depreciation and Amortization:
Depreciation and amortization decreased$116.0 million from 2015 to 2016. The decrease in depreciation and amortization is primarily attributed to a decrease of $116.8 million from the Joint Venture Centers and $5.5 million from the Disposition Properties offset in part by an increase of $4.3 million from the Same Centers and $2.0 million from the Redevelopment Properties.
Interest Expense:
Interest expense decreased$48.3 million from 2015 to 2016. The decrease in interest expense is primarily attributed to a decrease of $34.9 million from the Joint Venture Centers, $9.3 million from the Same Centers, $2.3 million from a term loan, $1.9 million from the Disposition Properties and $1.0 million from the Redevelopment Properties offset in part by an increase of $1.1 million from borrowings under the line of credit. The decrease in interest expense at the Same Centers is primarily due to the payoff of the mortgage notes payable on Eastland Mall, Valley Mall and Valley River Center in 2015 offset in part by the new loan on Fresno Fashion Fair in 2016 (See "Financing Activity" in Management's Overview and Summary).
The above interest expense items are net of capitalized interest, which decreased from $13.1 million in 2015 to $10.3 million in 2016.
Equity in Income of Unconsolidated Joint Ventures:
Equity in income of unconsolidated joint ventures increased $11.8 million from 2015 to 2016. The increase is primarily due the opening of the Hyatt Regency Tysons Corner Center and VITA Tysons Corner Center in 2015 and the conversion of the PPR Portfolio, Arrowhead Towne Center and the MAC Heitman Portfolio from consolidated Centers to unconsolidated joint ventures (See "Acquisitions and Dispositions" in Management's Overview and Summary).
Gain on Sale or Write down of Assets, net:
Gain on sale or write down of assets, net increased $37.1 million from 2015 to 2016. The increase in gain on sale of assets is primarily due to the increase in gain of $82.4 million on the Joint Venture Transactions and the sale of properties (See "Acquisitions and Dispositions" in Management's Overview and Summary) offset in part by an increase in impairment loss of $29.0 million and a charge of $12.2 million from the settlement of a contingent consideration obligation in 2016.
Gain on Remeasurement of Assets:
The gain on remeasurement of assets of $22.1 million in 2015 is attributed to the purchase of the remaining 50% ownership interest in Inland Center that the Company did not previously own (See "Acquisitions and Dispositions" in Management's Overview and Summary).
Net Income:
Net income increased $31.9 million from 2015 to 2016. The increase in net income is primarily attributed to an increase of $37.1 million from gain on sale or write down of assets as discussed above.
Funds From Operations ("FFO"):
Primarily as a result of the factors mentioned above, FFO—diluted was $642.3 million in 2015 and 2016. For a reconciliation of FFO and FFO—diluted to net income available to common stockholders, the most directly comparable GAAP financial measure, see "Funds From Operations ("FFO")" below.
Operating Activities:
Cash provided by operating activities decreased from $540.4 million in 2015 to $417.5 million in 2016. The decrease is primarily due to the conversion of the PPR Portfolio, Arrowhead Towne Center and the MAC Heitman Portfolio from consolidated Centers to unconsolidated joint ventures (See "Acquisitions and Dispositions" in Management's Overview and Summary), changes in assets and liabilities and the results as discussed above.
Investing Activities:
Cash provided by investing activities increased $544.1 million from 2015 to 2016. The increase in cash provided by investing activities was primarily due to an increase in distributions from unconsolidated joint ventures of $338.5 million, an increase in proceeds from the sale of assets of $77.4 million, a decrease in development, redevelopment and renovations of $60.7 million, a decrease in acquisition of property of $26.3 million and a decrease in restricted cash of $19.9 million.
The increase in distributions from unconsolidated joint ventures is primarily due to the receipt of the Company's share of the net proceeds from the loans placed on Country Club Plaza, The Shops at North Bridge and The Village at Corte Madera in 2016 (See "Financing Activity" in Management's Overview and Summary).
Financing Activities:
Cash used in financing activities increased $415.3 million from 2015 to 2016. The increase in cash used in financing activities was primarily due to a decrease in proceeds from mortgages, bank and other notes payable of $879.5 million and an increase in the repurchases of the Company's common stock of $399.9 million (See "Other Transactions" in Management's Overview and Summary) offset in part by a decrease in payments on mortgages, bank and other notes payable of $846.3 million.
Comparison of Years Ended December 31, 2015 and 2014
Revenues:
Rental revenue increased by $127.4 million, or 19.4%, from 2014 to 2015. The increase in rental revenue is attributed to an increase of $150.4 million from the Joint Venture Centers, $2.4 million from the Redevelopment Properties and $0.3 million from the Same Centers offset in part by a decrease of $25.7 million from the Disposition Properties.
The amortization of above and below-market leases increased from $9.1 million in 2014 to $16.5 million in 2015 primarily due to the Joint Venture Centers. The amortization of straight-line rents increased from $5.8 million in 2014 to $7.2 million in 2015. Lease termination income increased from $9.1 million in 2014 to $9.7 million in 2015.
Tenant recoveries increased $54.0 million, or 15.0%, from 2014 to 2015. The increase in tenant recoveries is attributed to an increase of $63.8 million from the Joint Venture Centers and $4.8 million from the Same Centers offset in part by a decrease of $13.3 million from the Disposition Properties and $1.3 million from the Redevelopment Properties.
Other revenues increased $9.2 million from 2014 to 2015. The increase in other revenues is attributed to an increase of $12.5 million from the Joint Venture Centers offset in part by a decrease of $1.7 million from the Same Centers, $1.1 million from the Disposition Properties and $0.5 million from the Redevelopment Properties.
Management Companies' revenue decreased from $34.0 million in 2014 to $26.3 million in 2015. The decrease in Management Companies' revenue is primarily due to a reduction in management fees as a result of the conversion from unconsolidated joint ventures to consolidated Centers of Cascade Mall and the PPR Queens Portfolio in 2014 and Inland Center in 2015 (See "Acquisitions and Dispositions" in Management's Overview and Summary).
Shopping Center and Operating Expenses:
Shopping center and operating expenses increased $26.3 million, or 7.4%, from 2014 to 2015. The increase in shopping center and operating expenses is attributed to an increase of $59.9 million from the Joint Venture Centers offset in part by a decrease of $18.0 million from the Same Centers, $14.3 million from the Disposition Properties and $1.3 million from the Redevelopment Properties. The decrease in shopping center and operating expenses at the Same Centers is primarily due to a reduction in maintenance and utility costs offset in part by an increase in property tax expense.
Management Companies' Operating Expenses:
Management Companies' operating expenses increased $3.9 million from 2014 to 2015 due to an increase in share and unit-based compensation costs.
REIT General and Administrative Expenses:
REIT general and administrative expenses increased by $0.5 million from 2014 to 2015.
Costs related to Unsolicited Takeover Offer:
The Company incurred $25.2 million in costs in 2015 related to evaluating and responding to an unsolicited takeover offer (See "Other Transactions and Events" in Management's Overview and Summary).
Depreciation and Amortization:
Depreciation and amortization increased $85.8 million from 2014 to 2015. The increase in depreciation and amortization is primarily attributed to an increase of $99.5 million from the Joint Venture Centers and $4.0 million from the Redevelopment Properties offset in part by a decrease of $12.5 million from the Disposition Properties and $5.2 million from the Same Centers.
Interest Expense:
Interest expense increased $21.3 million from 2014 to 2015. The increase in interest expense is primarily attributed to an increase of $27.5 million from the Joint Venture Centers, $8.6 million from borrowings under the line of credit and $3.0 million from the Redevelopment Properties offset in part by a decrease of $16.1 million from the Same Centers, $1.5 million from the Disposition Properties and $0.2 million from the term loan. The decrease in interest expense at the Same Centers is due to the early payoff of the mortgage notes payable on Fresno Fashion Fair in 2014 and Valley River Center in 2015.
The above interest expense items are net of capitalized interest, which increased from $12.6 million in 2014 to $13.1 million in 2015.
(Gain) Loss on Early Extinguishment of Debt, net:
The change in (gain) loss on early extinguishment of debt was $11.0 million from 2014 to 2015, resulting from a gain on early extinguishment of debt of $1.5 million in 2015 compared to a loss on early extinguishment of debt of $9.6 million in 2014. This change is primarily due to the one-time charge of $9.0 million in connection with the early extinguishment of the mortgage notes payable on Fresno Fashion Fair and Vintage Faire Mall in 2014 (See "Financing Activities" in Management's Overview and Summary).
Equity in Income of Unconsolidated Joint Ventures:
Equity in income of unconsolidated joint ventures decreased $15.5 million from 2014 to 2015. The decrease is primarily due to the conversion of the PPR Queens Portfolio from unconsolidated joint ventures to consolidated Centers in 2014 offset in part by the acquisition of the Sears Portfolio in 2015 (See "Acquisitions and Dispositions" in Management's Overview and Summary).
Gain on Sale or Write down of Assets, net:
The gain on sale or write down of assets, net increased $304.8 million from 2014 to 2015. This increase is primarily attributed to the gain on sale of the 40% interest in the PPR Portfolio of $311.2 million in 2015, the gain on the sale of Panorama Mall of $73.7 million in 2015, a decrease in development write down of $40.3 million in 2015 and a decrease in impairment losses of $30.6 million in 2015 offset in part by the gain on the sale of South Towne Center of $121.9 million in 2014 (See "Acquisitions and Dispositions" in Management's Overview and Summary).
Gain on Remeasurement of Assets:
Gain on remeasurement of assets decreased $1.4 billion from 2014 to 2015. The decrease is due to the remeasurement gain of $1.4 billion from the acquisition of the PPR Queens Portfolio in 2014 offset in part by the remeasurement gain of $22.1 million from the acquisition of the remaining 50% ownership interest in Inland Center in 2015 (See "Acquisitions and Dispositions" in Management's Overview and Summary).
Net Income:
Net income decreased $1.1 billion from 2014 to 2015. The decrease in net income is primarily attributed to a decrease of$1.4 billion from gain on remeasurement of assets offset in part by an increase of $304.8 million from gain on sale or write down of assets as discussed above.
Funds From Operations:
Primarily as a result of the factors mentioned above, FFO—diluted increased 18.3% from $542.8 million in 2014 to $642.3 million in 2015. For a reconciliation of FFO and FFO—diluted to net income available to common stockholders, the most directly comparable GAAP financial measure, see "Funds From Operations ("FFO")" below.
Operating Activities:
Cash provided by operating activities increased from $400.7 million in 2014 to $540.4 million in 2015. The increase was primarily due to changes in assets and liabilities and the results as discussed above.
Investing Activities:
Cash used in investing activities decreased $154.8 million from 2014 to 2015. The decrease in cash used in investing activities was primarily due to an increase in proceeds from the sale of assets of $326.8 million offset in part by an increase in contributions to unconsolidated joint ventures of $89.6 million and an increase in development, redevelopment and renovations of $86.9 million.
The increase in cash proceeds from the sale of assets is primarily attributed to the sale of a 40% interest in the PPR Portfolio and the sale of Panorama Mall in 2015 (See "Acquisitions and Dispositions" in Management's Overview and Summary). The increase in contributions to unconsolidated joint ventures is primarily due to the acquisition of the 50% ownership interest in the Sears Portfolio in 2015 (See "Acquisitions and Dispositions" in Management's Overview and Summary).
Financing Activities:
Cash used in financing activities increased $308.0 million from 2014 to 2015. The increase in cash used in financing activities was primarily due to an increase in payments on mortgages, bank and other notes payable of $2.4 billion, an increase in dividends and distributions of $401.4 million and the repurchase of the Company's common stock of $400.1 million (See "Other Transactions and Events" in Management's Overview and Summary) offset in part by an increase in proceeds from mortgages, bank and other notes payable of $2.9 billion.
Liquidity and Capital Resources
The Company anticipates meeting its liquidity needs for its operating expenses and debt service and dividend requirements for the next twelve months through cash generated from operations, working capital reserves and/or borrowings under its unsecured line of credit.
The following tables summarize capital expenditures and lease acquisition costs incurred at the Centers for the years ended December 31:
|
| | | | | | | | | | | |
| (Dollars in thousands) | 2016 | | 2015 | | 2014 |
| Consolidated Centers: | | | | | |
| Acquisitions of property and equipment (1) | $ | 56,759 |
| | $ | 79,753 |
| | $ | 97,919 |
|
| Development, redevelopment, expansion and renovation of Centers | 183,220 |
| | 218,741 |
| | 197,934 |
|
| Tenant allowances | 19,229 |
| | 30,368 |
| | 30,464 |
|
| Deferred leasing charges | 24,845 |
| | 26,835 |
| | 26,605 |
|
| | $ | 284,053 |
| | $ | 355,697 |
| | $ | 352,922 |
|
| Joint Venture Centers (at Company's pro rata share): | | | | | |
| Acquisitions of property and equipment | $ | 349,819 |
| | $ | 160,001 |
| | $ | 158,792 |
|
| Development, redevelopment, expansion and renovation of Centers | 101,124 |
| | 132,924 |
| | 201,843 |
|
| Tenant allowances | 11,271 |
| | 6,285 |
| | 4,847 |
|
| Deferred leasing charges | 7,070 |
| | 3,348 |
| | 2,965 |
|
| | $ | 469,284 |
| | $ | 302,558 |
| | $ | 368,447 |
|
| |
(1) | Acquisitions of property and equipment excludes the acquisition of the PPR Queens Portfolioaudit engagement• pre-approves audit and permissiblenon-audit services provided by our independent registered public accountants • reviews the independence and qualifications of our independent registered public accountants • reviews the adequacy of our internal accounting controls and legal and regulatory compliance • reviews and approves related-party transactions in 2014, which was funded by the direct issuance of approximately $1.2 billion of common stock of the Companyaccordance with our Related Party Transaction Policies and the assumption of the third party's pro rata share of the mortgage notes payable on the properties of $672.1 million (See "Acquisitions and Dispositions" in Management's Overview and Summary).Procedures | | 8 |
Code of Business Conduct and Ethics
The Company expects amounts to be incurred during the next twelve months for tenant allowances and deferred leasing charges to be comparable or less than 2016 and that capital for those expenditures will be available from working capital, cash flow from operations, borrowings on property specific debt or unsecured corporate borrowings. The Company expects to incur between $200 million and $300 million during the next twelve months for development, redevelopment, expansion and renovations. Capital for these major expenditures, developments and/or redevelopments has been, and is expected to continue to be, obtained from a combination of debt or equity financings, which are expected to include borrowings under the Company's line of credit and construction loans.
The Company has also generated liquidity in the past through equity offerings and issuances, property refinancings, joint venture transactions and the sale of non-core assets. For example, the Company recently completed the Joint Venture Transactions to which the Company sold ownership interests in eight properties with total cash proceeds to the Company of approximately $2.3 billion (See "Acquisitions and Dispositions" in Management's Overview and Summary), which included new debt or refinancings of existing debt on these properties with excess financing proceeds of approximately $1.1 billion (See "Financing Activity" in Management's Overview and Summary). The Company used these proceeds to pay down its line of credit, fund the Special Dividend (See "Other Transactions and Events" in Management's Overview and Summary) and for other general corporate purposes, which included the repurchases of the Company's common stock under the 2015 Stock Buyback Program, which was completed in May 2016 (See "Other Transactions and Events" in Management's Overview and Summary). Furthermore, the Company has filed a shelf registration statement, which registered an unspecified amount of common stock, preferred stock, depositary shares, debt securities, warrants, rights, stock purchase contracts and units that may be sold from time to time by the Company. The Company expects any repurchases of the Company's common stock under the recently authorized 2017 Stock Buyback Program (See "Other Transactions and Events" in Management's Overview and Summary) to be funded by future sales of non-core assets, borrowings under its line of credit and/or refinancing transactions.
The capital and credit markets can fluctuate and, at times, limit access to debt and equity financing for companies. As demonstrated by the Company's recent activity as discussed below and its recently amended $1.5 billion line of credit, the Company has been able to access capital; however, there is no assurance the Company will be able to do so in future periods or on similar terms and conditions. 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. In the event that the Company has significant tenant defaults as a result of the overall economy and general market conditions, the Company could have a decrease in cash flow from operations, which could result in increased borrowings under its line of credit. These events could result in an increase in the Company's proportion of floating rate debt, which would cause it to be subject to interest rate fluctuations in the future.
The Company has an equity distribution agreement with a number of sales agents (the "ATM Program") to issue and sell, from time to time, shares of common stock, par value $0.01 per share, having an aggregate offering price of up to $500 million (the “ATM Shares”). Sales of the ATM Shares can be made in privately negotiated transactions and/or any other method permitted by law, including sales deemed to be an “at the market” offering, which includes sales made directly on the New York Stock Exchange or sales made to or through a market maker other than on an exchange. The Company did not sell any shares under the ATM Program during the year ended December 31, 2016.
As of December 31, 2016, $500 million of the ATM Shares were available to be sold under the ATM Program. Actual future sales of the ATM Shares will depend upon a variety of factors including but not limited to market conditions, the trading price of the Company's common stock and the Company's capital needs. The Company has no obligation to sell the ATM Shares under the ATM Program.
The Company's total outstanding loan indebtedness at December 31, 2016 was $7.6 billion (consisting of $5.0 billion of consolidated debt, less $0.2 billion of noncontrolling interests, plus $2.8 billion of its pro rata share of unconsolidated joint venture mortgage notes and $60.0 million of its pro rata share of the PPR Term Loan (See "Financing Activity" in Management's Overview and Summary). The majority of the Company's debt consists of fixed-rate conventional mortgage notes collateralized by individual properties. The Company expects that all of the maturities during the next twelve months will be refinanced, restructured, extended and/or paid off from the Company's line of credit or cash on hand.
The Company believes that the pro rata debt provides useful information to investors regarding its financial condition because it includes the Company’s share of debt from unconsolidated joint ventures and, for consolidated debt, excludes the Company’s partners’ share from consolidated joint ventures, in each case presented on the same basis. The Company has several significant joint ventures and presenting its pro rata share of debt in this manner can help investors better understand the Company’s financial condition after taking into account our economic interest in these joint ventures. The Company’s pro rata share of debt should not be considered as a substitute for the Company’s total consolidated debt determined in accordance with GAAP or any other GAAP financial measures and should only be considered together with and as a supplement to the Company’s financial information prepared in accordance with GAAP.
The Company has a $1.5 billion revolving line of credit facility that bore interest at LIBOR plus a spread of 1.38% to 2.0%, depending on the Company's overall leverage level, and was to mature on August 6, 2018. On July 6, 2016, the Company amended its line of credit. The amended $1.5 billion line of credit bears interest at LIBOR plus a spread of 1.30% to 1.90%, depending on the Company's overall leverage level, and matures on July 6, 2020 with a one-year extension option. The line of credit can be expanded, depending on certain conditions, up to a total facility of $2.0 billion. All obligations under the facility are unconditionally guaranteed only by the Company. Based on the Company's leverage level as of December 31, 2016, the borrowing rate on the facility was LIBOR plus 1.45%. At December 31, 2016, total borrowings under the line of credit were $885.0 million less unamortized deferred finance costs of $10.0 million with a total interest rate of 2.40%.
Cash dividends and distributions for the year ended December 31, 2016 were $779.3 million, which included $337.7 million of the Special Dividend (See "Other Transactions and Events" in Management's Overview and Summary). A total of $417.5 million was funded by operations. The remaining $361.8 million was funded from proceeds from the sale of assets, which were included in the cash flows from investing activities section of the Company's Consolidated Statement of Cash Flows.
At December 31, 2016, the Company was in compliance with all applicable loan covenants under its agreements.
At December 31, 2016, the Company had cash and cash equivalents of $94.0 million.
Off-Balance Sheet Arrangements:
The Company accounts for its investments in joint ventures 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.
Additionally, as of December 31, 2016, the Company is contingently liable for $61.0 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.
Contractual Obligations:
The following is a schedule of contractual obligations as of December 31, 2016 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)(1) | | $ | 5,707,918 |
| | $ | 225,658 |
| | $ | 1,325,079 |
| | $ | 2,313,438 |
| | $ | 1,843,743 |
|
| Operating lease obligations(2) | | 239,969 |
| | 13,712 |
| | 17,263 |
| | 15,335 |
| | 193,659 |
|
| Purchase obligations(2) | | 41,906 |
| | 41,906 |
| | — |
| | — |
| | — |
|
| Other liabilities | | 340,437 |
| | 305,029 |
| | 3,652 |
| | 4,044 |
| | 27,712 |
|
| | | $ | 6,330,230 |
| | $ | 586,305 |
| | $ | 1,345,994 |
| | $ | 2,332,817 |
| | $ | 2,065,114 |
|
| |
(1) | Interest payments on floating rate debt were based on rates in effect at December 31, 2016. |
| |
(2) | See Note 16—Commitments and Contingencies in the Company's Notes to the Consolidated Financial Statements. |
Funds From Operations ("FFO")
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 Generally Accepted Accounting Principles ("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, impairment write-downs of real estate and write-downs of investments in an affiliate where the write-downs have been driven by a decrease in the value of real estate held by the affiliate and after adjustments for unconsolidated joint ventures. Adjustments for unconsolidated joint ventures are calculated to reflect FFO on the same basis. The Company also presents FFO excluding early extinguishment of debt, net and costs related to unsolicited takeover offer.
FFO and FFO on a 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. The Company believes that such a presentation also provides investors with a more meaningful measure of its operating results in comparison to the operating results of other REITs. The Company believes that FFO excluding early extinguishment of debt, net and costs related to unsolicited take over offer provides useful supplemental information regarding the Company's performance as it shows a more meaningful and consistent comparison of the Company's operating performance and allows investors to more easily compare the Company's results. The Company believes that FFO on a diluted basis is a measure investors find most useful in measuring the dilutive impact of outstanding convertible securities.
The Company believes that 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. The Company also cautions that FFO, as presented, may not be comparable to similarly titled measures reported by other real estate investment trusts.
Management compensates for the limitations of FFO by providing investors with financial statements prepared according to GAAP, along with this detailed discussion of FFO and a reconciliation of FFO and FFO-diluted to net income available to common stockholders. Management believes that to further understand the Company's performance, FFO should be compared with the Company's reported net income as presented in the Company's consolidated financial statements.
The following reconciles net income attributable to the Company to FFO and FFO-diluted for the years ended December 31, 2016, 2015, 2014, 2013 and 2012 (dollars and shares in thousands):
|
| | | | | | | | | | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
| Net income attributable to the Company | $ | 516,995 |
| | $ | 487,562 |
| | $ | 1,499,042 |
| | $ | 420,090 |
| | $ | 337,426 |
|
| Adjustments to reconcile net income attributable to the Company to FFO attributable to common stockholders and unit holders—basic: | | | | | | | | | |
| Noncontrolling interests in the Operating Partnership | 37,780 |
| | 32,615 |
| | 105,584 |
| | 29,637 |
| | 27,359 |
|
| (Gain) loss on sale or write down of consolidated assets, net | (415,348 | ) | | (378,248 | ) | | (73,440 | ) | | (207,105 | ) | | 40,381 |
|
| Gain on remeasurement of consolidated assets | — |
| | (22,089 | ) | | (1,423,136 | ) | | (51,205 | ) | | (199,956 | ) |
| Add: gain (loss) on undepreciated assets—consolidated assets | 3,717 |
| | 1,326 |
| | 1,396 |
| | 2,546 |
| | (390 | ) |
| Add: noncontrolling interests share of (loss) gain on sale of assets—consolidated assets | (1,662 | ) | | 481 |
| | 146 |
| | (2,082 | ) | | 1,899 |
|
| Loss (gain) on sale or write down of assets—unconsolidated joint ventures(1) | 189 |
| | (4,392 | ) | | 1,237 |
| | (94,372 | ) | | (2,019 | ) |
| Add: (loss) gain on sale of undepreciated assets—unconsolidated joint ventures(1) | (2 | ) | | 4,395 |
| | 2,621 |
| | 602 |
| | 1,163 |
|
| Depreciation and amortization on consolidated assets | 348,488 |
| | 464,472 |
| | 378,716 |
| | 374,425 |
| | 307,193 |
|
| Less: noncontrolling interests in depreciation and amortization—consolidated assets | (15,023 | ) | | (14,962 | ) | | (20,700 | ) | | (19,928 | ) | | (18,561 | ) |
| Depreciation and amortization—unconsolidated joint ventures(1) | 179,600 |
| | 84,160 |
| | 82,570 |
| | 86,866 |
| | 96,228 |
|
| Less: depreciation on personal property | (12,430 | ) | | (13,052 | ) | | (11,282 | ) | | (11,900 | ) | | (12,861 | ) |
| FFO attributable to common stockholders and unit holders—basic and diluted | 642,304 |
| | 642,268 |
| | 542,754 |
| | 527,574 |
| | 577,862 |
|
| (Gain) loss on early extinguishment of debt, net—consolidated assets | (1,709 | ) | | (1,487 | ) | | 9,551 |
| | (2,684 | ) | | — |
|
| Gain on early extinguishment of debt, net—unconsolidated joint ventures(1) | — |
| | — |
| | — |
| | (352 | ) | | — |
|
| FFO attributable to common stockholders and unit holders excluding early extinguishment of debt, net—diluted | 640,595 |
| | 640,781 |
| | 552,305 |
| | 524,538 |
| | 577,862 |
|
| Costs related to unsolicited takeover offer | — |
| | 25,204 |
| | — |
| | — |
| | — |
|
| FFO attributable to common stockholders and unit holders excluding early extinguishment of debt, net and costs related to unsolicited takeover offer—diluted | $ | 640,595 |
| | $ | 665,985 |
| | $ | 552,305 |
| | $ | 524,538 |
| | $ | 577,862 |
|
| Weighted average number of FFO shares outstanding for: | | | | | | | | | |
| FFO attributable to common stockholders and unit holders—basic(2) | 157,320 |
| | 168,478 |
| | 153,224 |
| | 149,444 |
| | 144,937 |
|
| Adjustments for the impact of dilutive securities in computing FFO—diluted: | | | | | | | | | |
| Share and unit-based compensation plans | 112 |
| | 144 |
| | 147 |
| | 82 |
| | — |
|
| FFO attributable to common stockholders and unit holders—diluted(3) | 157,432 |
| | 168,622 |
| | 153,371 |
| | 149,526 |
| | 144,937 |
|
| |
(1) | Unconsolidated assets are presented at the Company's pro rata share. |
| |
(2) | Calculated based upon basic net income as adjusted to reach basic FFO. During the years ended December 31, 2016, 2015, 2014, 2013 and 2012, there were 10.7 million, 10.6 million, 10.1 million, 9.8 million and 10.9 million OP Units outstanding, respectively. |
| |
(3) | The computation of FFO—diluted shares outstanding includes the effect of share and unit-based compensation plans and the convertible senior notes using the treasury stock method. It also assumes the conversion of MACWH, LP common and preferred units to the extent that they are dilutive to the FFO-diluted computation. |
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 matching maturities where appropriate, (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, 2016 concerning the Company's long term debt obligations, including principal cash flows by scheduled maturity, weighted average interest rates and estimated fair value (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Expected Maturity Date | | | | |
| | For the years ending December 31, | | | | | | |
| | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter | | Total | | Fair Value |
| CONSOLIDATED CENTERS: | | | | | | | | | | | | | | | |
| Long term debt: | | | | | | | | | | | | | | | |
| Fixed rate | $ | 155,885 |
| | $ | 480,999 |
| | $ | 797,460 |
| | $ | 329,371 |
| | $ | 293,867 |
| | $ | 1,776,708 |
| | $ | 3,834,290 |
| | $ | 3,867,921 |
|
| Average interest rate | 2.63 | % | | 3.65 | % | | 3.64 | % | | 5.19 | % | | 3.65 | % | | 3.77 | % | | 3.80 | % | | |
|
| Floating rate | 63,458 |
| | — |
| | — |
| | 200,000 |
| | 885,000 |
| | — |
| | 1,148,458 |
| | 1,130,605 |
|
| Average interest rate | 3.50 | % | | — | % | | — | % | | 2.43 | % | | 2.40 | % | | — | % | | 2.47 | % | | |
|
| Total debt—Consolidated Centers | $ | 219,343 |
| | $ | 480,999 |
| | $ | 797,460 |
| | $ | 529,371 |
| | $ | 1,178,867 |
| | $ | 1,776,708 |
| | $ | 4,982,748 |
| | $ | 4,998,526 |
|
| UNCONSOLIDATED JOINT VENTURE CENTERS: | | | | | | | | | | | | | | | |
| Long term debt (at Company's pro rata share): | | | | | | | | | | | | | | | |
| Fixed rate | $ | 35,423 |
| | $ | 26,149 |
| | $ | 29,543 |
| | $ | 37,038 |
| | $ | 146,023 |
| | $ | 2,381,843 |
| | $ | 2,656,019 |
| | $ | 2,648,514 |
|
| Average interest rate | 4.43 | % | | 3.63 | % | | 3.64 | % | | 3.65 | % | | 3.04 | % | | 3.85 | % | | 3.80 | % | | |
|
| Floating rate | 1,299 |
| | 73,755 |
| | 114 |
| | 38,497 |
| | 15,000 |
| | 41,250 |
| | 169,915 |
| | 165,583 |
|
| Average interest rate | 2.69 | % | | 2.75 | % | | 2.63 | % | | 2.77 | % | | 1.82 | % | | 1.82 | % | | 2.44 | % | | |
|
| Total debt—Unconsolidated Joint Venture Centers | $ | 36,722 |
| | $ | 99,904 |
| | $ | 29,657 |
| | $ | 75,535 |
| | $ | 161,023 |
| | $ | 2,423,093 |
| | $ | 2,825,934 |
| | $ | 2,814,097 |
|
The Consolidated Centers' total fixed rate debt at December 31, 2016 and 2015 was $3.8 billion and $4.3 billion, respectively. The average interest rate on such fixed rate debt at December 31, 2016 and 2015 was 3.80%. The Consolidated Centers' total floating rate debt at December 31, 2016 and 2015 was $1.1 billion and $1.0 billion, respectively. The average interest rate on such floating rate debt at December 31, 2016 and 2015 was 2.47% and 2.03%, respectively.
The Company's pro rata share of the Unconsolidated Joint Venture Centers' fixed rate debt at December 31, 2016 and 2015 was $2.7 billion and $1.8 billion, respectively. The average interest rate on such fixed rate debt at December 31, 2016 and 2015 was 3.80% and 4.13%, respectively. The Company's pro rata share of the Unconsolidated Joint Venture Centers' floating rate debt at December 31, 2016 and 2015 was $169.9 million and $170.5 million, respectively. The average interest rate on such floating rate debt at December 31, 2016 and 2015 was 2.44% and 2.06%, respectively.
The Company has used 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. Interest rate cap agreements offer protection against floating rates on the notional amount from exceeding the rates noted in the above schedule, and interest rate swap agreements effectively replace a floating rate on the notional amount with a fixed rate as noted above. As of December 31, 2016, the Company did not have any interest rate cap or swap agreements in place.
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 $13.2 million per year based on $1.3 billion of floating rate debt outstanding at December 31, 2016.
The fair value of the Company's long-term debt is estimated based on a present value model utilizing interest rates that reflect the risks associated with long-term debt of similar risk and duration. In addition, the method of computing fair value for mortgage notes payable included a credit value adjustment based on the estimated value of the property that serves as collateral for the underlying debt (See Note 8—Mortgage Notes Payable and Note 9—Bank and Other Notes Payable in the Company's Notes to the Consolidated Financial Statements).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Refer to the 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
Conclusion Regarding Effectiveness of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), management carried out an evaluation, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on their evaluation as of December 31, 2016, 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 Exchange Act) were effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act 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 Exchange Act). The Company's management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2016. In making this assessment, the Company's management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013). The Company's management concluded that, as of December 31, 2016, its internal control over financial reporting was effective based on this assessment.
KPMG LLP, the independent registered public accounting firm that audited the Company's 2016 consolidated financial statements included in this Annual Report on Form 10-K, has issued a report on the Company's internal control over financial reporting which follows below.
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, 2016 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
The Macerich Company:
We have audited The Macerich Company’s (the “Company”) internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). 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, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included 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 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 its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, The Macerich Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2016 and 2015, and the related consolidated statements of operations, equity and cash flows for each of the years in the three‑year period ended December 31, 2016, and our report dated February 24, 2017 expressed an unqualified opinion on those consolidated financial statements. Our report refers to a change in method of reporting discontinued operations.
/s/ KPMG LLP
Los Angeles, California
February 24, 2017
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
There is hereby incorporated by reference the information which appears under the captions "Information Regarding our Director Nominees," "Executive Officers," "Section 16(a) Beneficial Ownership Reporting Compliance" and "Audit Committee Matters" in the Company's definitive proxy statement for its 2017 Annual Meeting of Stockholders that is responsive to the information required by this Item.
The Company has adopted a Code of Business Conduct and Ethics that provides principles of conduct and ethics for its directors, officers and employees. This Code complies with the requirements of the Sarbanes-Oxley Act of 2002 and applicable rules of the Securities and Exchange CommissionSEC and the New York Stock Exchange.NYSE. In addition, theour Company has adopted a Code of Ethics for our CEO and Senior Financial Officerssenior financial officers which supplements theour Code of Business Conduct and Ethics applicable to all employees and complies with the additional requirements of the Sarbanes-Oxley Act of 2002 and applicable rules of the Securities and Exchange Commission for those officers.SEC rules. To the extent required by applicable SEC rules of the Securities and Exchange Commission and the New York Stock Exchange, the Company intendsNYSE Rules, we intend to promptly disclose future amendments to certain provisions of these Codes or waivers of such provisions granted to directors and executive officers, including the Company’sour principal executive officer, principal financial officer, principal accounting officer or persons performing similar functions, on the Company’sour website atwww.macerich.com under "Investors—“Investors—Corporate Governance-CodeGovernance—Code of Ethics."” Each of these Codes of Conduct is available on the Company’sour website atwww.macerich.com under "Investors—“Investors—Corporate Governance."
”Procedures for Recommending Director Nominees
During
2016,2017, there were no material changes to the procedures described in the Company'sCompany’s proxy statement relating to the 20162017 Annual Meeting of Stockholders by which stockholders may recommend director nominees to the Company. ITEMItem 11. EXECUTIVE COMPENSATION
Executive CompensationCompensation ofThere is hereby incorporatedNon-Employee Directors
Ournon-employee directors are compensated for their services according to an arrangement approved by reference the information which appears under the captions "Compensation of Non-Employee Directors," "Compensation Committee Report," "Compensation Discussion and Analysis," "Executive Compensation" and "Compensation Committee Interlocks and Insider Participation" in the Company's definitive proxy statement for its 2017 Annual Meeting of Stockholders that is responsive to the information required by this Item.
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 Our Director Nominees," "Executive Officers" and "Equity Compensation Plan Information" in the Company's definitive proxy statement for its 2017 Annual Meeting of Stockholders that is responsive to the information required by this Item.
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 "Theour Board of Directors and its Committees"recommended by the Compensation Committee. The Compensation Committee generally reviews director compensation annually. A Board member who is also an employee of our Company or a subsidiary does not receive compensation for service as a director. Messrs. A. Coppola and E. Coppola are currently the only directors who are also employees of our Company or a subsidiary. Upon his election to our Board of Directors in place of Mr. A. Coppola, Mr. O’Hern will be a director who is also an employee of the Company. Mr. Sullivan received no compensation from our Company as a director because his employer’s policies do not allow it, but he was reimbursed for his reasonable expenses.In July 2016, FW Cook conducted a competitive review of ournon-employee director compensation program, including the review of the director compensation programs of companies within our peer group, and suggested changes for the Compensation Committee’s consideration. Based on the recommendations of the Compensation Committee, our Board of Directors revised certain aspects of ournon-employee director compensation. The following sets forth the compensation structure effective July 21, 2016:
| | |
| Annual Retainer for Service on our Board | | $70,000 |
| Annual Equity Award for Service on our Board | | $125,000 of restricted stock units based upon the closing price of our Common Stock on the grant date, which is in March of each year. The restricted stock units are granted under our 2003 Incentive Plan and have aone-year vesting period. |
| Annual Retainer for Lead Director | | $50,000 |
Annual Retainers for Chairs of Audit, Compensation and Nominating & Corporate Governance Committees (in addition to membership retainer) | | Audit: $20,000 Compensation: $20,000 Nominating & Corp. Governance: $12,500 |
| Annual Retainer for Committee Membership | | $12,500 |
| Expenses | | The reasonable expenses incurred by each director (including employee directors) in connection with the performance of their duties are reimbursed. |
Non-Employee Director Equity Award Programs
In addition, our Director Phantom Stock Plan offers ournon-employee directors the opportunity to defer cash compensation otherwise payable and to receive that compensation (to the extent that it is actually earned by service during that period) in cash or in shares of Common Stock as elected by the director, after termination of the director’s service or on a specified payment date. Such compensation includes the annual cash retainers payable to ournon-employee directors. A majority of ournon-employee directors serving in 2017 elected to receive all or a portion of their 2017 cash retainers in Common Stock. Deferred amounts are generally credited as stock units at the beginning of the applicable deferral period based on the present value of such deferred compensation divided by the average fair market value of our Common Stock for the preceding 10 trading days. Stock unit balances are credited with additional stock units as dividend equivalents and are ultimately paid out in shares of our Common Stock on aone-for-one basis. A maximum of 500,000 shares of our Common Stock may be issued in total under our Director Phantom Stock Plan, subject to certain customary adjustments for stock splits, stock dividends and similar events. The vesting of the stock units is accelerated in case of the death or disability of a director or, upon the termination of service as a director at the time of or after a change of control event. Our Company has a deferral program for the equity compensation of ournon-employee directors which allows them to defer the receipt of all or a portion of their restricted stock unit awards and receive the underlying Common Stock after termination of service or a specified payment date. Any dividends payable with respect to those deferred restricted stock units will also be deferred and will be paid in accordance with their payment election. The deferred dividend equivalents may be paid in cash or converted into additional restricted stock units and ultimately paid in shares of our Common Stock on aone-to-one basis. The vesting of the deferred restricted stock units is accelerated in case of the death or disability of a director or upon a change of control event.
12
2017Non-Employee Director Compensation
The following table sets forth the compensation paid, awarded or earned with respect to each of ournon-employee directors during 2017. We do not provide ournon-employee directors with initial inducement awards upon joining our Board other than the regular annual equity award granted to our existing directors. Mr. Hubbell resigned from our Board on March 29, 2018 and Ms. Alford joined our Board on March 29, 2018.
| | | | | | | | | | | | |
Name | | Fees
Earned or
Paid in
Cash
($)(1) | | | Stock
Awards
($)(2) | | | Total
($) | |
John H. Alschuler | | | 82,500 | | | | 125,000 | | | | 207,500 | |
Steven R. Hash | | | 139,658 | | | | 125,000 | | | | 264,658 | |
Fred S. Hubbell | | | 125,274 | | | | 125,000 | | | | 250,274 | |
Diana M. Laing | | | 82,500 | | | | 125,000 | | | | 207,500 | |
Mason G. Ross | | | 95,000 | | | | 125,000 | | | | 220,000 | |
Steven L. Soboroff | | | 107,500 | | | | 125,000 | | | | 232,500 | |
Andrea M. Stephen | | | 115,000 | | | | 125,000 | | | | 240,000 | |
John M. Sullivan(3) | | | — | | | | — | | | | — | |
| (1) | Pursuant to our Director Phantom Stock Plan, each director receiving compensation, except Messrs. Hash, Ross and Soboroff, elected to defer fully his or her annual cash retainers for 2017 and to receive such compensation in Common Stock at a future date. Therefore, for 2017 compensation, Messrs. Alschuler and Hubbell and Mses. Laing and Stephen were credited with 1,191, 1,356, 953 and 1,660 stock units, respectively, which vested during 2017 as their service was provided. |
| (2) | The amounts shown represent the grant date fair value computed in accordance with Statement of Financial Accounting Standards Bulletin ASC Topic 718 referred to as “FASB ASC Topic 718,” of restricted stock awards granted under our 2003 Incentive Plan. Any estimated forfeitures were excluded from the determination of these amounts and there were no forfeitures of stock awards during 2017 by our directors. Assumptions used in the calculation of these amounts are set forth in footnote 19 to our audited financial statements for the fiscal year ended December 31, 2017 included in our Annual Report on Form10-K filed with the SEC on February 23, 2018. |
Except for Mr. Sullivan, each of ournon-employee directors received 1,877 restricted stock units on March 3, 2017 under our 2003 Incentive Plan. The closing price per share of our Common Stock on that date was $66.57.
| (3) | Mr. Sullivan’s employer has a policy that does not allow him to hold shares of stock of our Company. |
13
As of December 31, 2017, ournon-employee directors held the following number of unpaid phantom stock units and unvested restricted stock units:
| | | | | | | | |
Name | | Unpaid
Phantom
Stock
Units (#) | | | Unvested
Restricted
Stock
Units (#) | |
John H. Alschuler | | | 2,860 | | | | 1,877 | |
Steven R. Hash | | | — | | | | 1,877 | |
Fred S. Hubbell | | | 72,589 | | | | 1,877 | |
Diana M. Laing | | | 34,232 | | | | 1,877 | |
Mason G. Ross | | | 10,382 | | | | 1,877 | |
Steven L. Soboroff | | | — | | | | 1,877 | |
Andrea M. Stephen | | | 10,025 | | | | 1,877 | |
John M. Sullivan | | | — | | | | — | |
Compensation Committee Report
The Compensation Committee of the Board of Directors of The Macerich Company, a Maryland corporation, has reviewed and discussed the Compensation Discussion and Analysis in this Amendment with management. Based on such review and discussion, the Compensation Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in our Annual Report onForm 10-K for the year ended December 31, 2017.
|
| The Compensation Committee |
|
Andrea M. Stephen, Chair Steven R. Hash Steven L. Soboroff |
14
COMPENSATION DISCUSSION AND ANALYSIS
The Compensation Discussion & Analysis (“CD&A”) describes the material elements of our executive compensation program, how it is designed to support the achievement of our key strategic and financial objectives, and the compensation decisions the Compensation Committee made under the program for our named executive officers, who for 2017 were:
| | |
Named Executive Officers | | Title |
| Arthur M. Coppola(1) | | Chairman of the Board of Directors and Chief Executive Officer |
| |
| Edward C. Coppola | | President |
| |
| Thomas E. O’Hern | | Senior Executive Vice President, Chief Financial Officer and Treasurer |
| |
| Robert D. Perlmutter(2) | | Former Senior Executive Vice President and Chief Operating Officer |
| |
| Thomas J. Leanse(3) | | Former Senior Executive Vice President, Chief Legal Officer and Secretary |
| (1) | Mr. A. Coppola will retire from his position as Chairman of the Board effective as of our 2018 Annual Meeting and from his position as CEO effective December 31, 2018. |
| (2) | Mr. Perlmutter resigned as Senior Executive Vice President and Chief Operating Officer on April 20, 2018. |
| (3) | Mr. Leanse retired from his full time position as Senior Executive Vice President, Chief Legal Officer and Secretary on February 28, 2018; he will continue to consult with the Company on several projects and advise on other matters, as requested. |
For purposes of this CD&A, we refer to the Compensation Committee as the “Committee.”
15
Executive Summary
Business Highlights
2017 demonstrated continued strength in our operating results and portfolio metrics. As a result of our strong leadership, we continued to seize opportunities and further strengthen our Company and our growth opportunities, as evidenced by our accomplishments below:
| | |
| Operational | | • Mall tenant annual sales per square foot for the portfolio increased by 4.8% to $660 for the year ended December 31, 2017 compared to $630 for the year ended December 31, 2016. • Same Center NOI grew 2.73% • FFO per diluted share was $3.83 in 2017 |
| |
| Leasing | | • Occupancy levels continued to be stable, ending the year at 95.0% • Releasing spreads for 2017 were up 15.2% from 2016 • Average rent per square foot increased to $56.97, up 3.8% from $54.87 at December 31, 2016 |
| |
Development and Redevelopment | | • $250 millionin-process pipeline in Philadelphia and New York • Kings Plaza Shopping Center $100 million redevelopment nears completion |
| |
| Sustainability | | Macerich is focused on sustainability as a long-term, fully-integrated business approach • Retail “Leader in the Light” Environmental Award for the fourth consecutive year from the National Association of Real Estate Investment Trusts • #1 ranking in the U.S. Retail Sector for sustainability performance for real estate portfolios around the world for third straight year, according to scores published by Global Real Estate Sustainability Benchmark (GRESB) • Recipient of U.S. BREEAM in use building certification at 11 properties |
16
In 2017, our Company continued the sector-leading progress we have made in recent years, demonstrating our ability to consistently seize opportunities and further strengthen our Company and our growth prospects.For additional information about the following financial metrics, see Exhibit 99.1 of this Amendment and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Funds for Operations” in the Company's definitive proxy statementOriginal Filing.
| (1) | FFO per share-diluted represents funds from operations per share on a diluted basis, excluding the gain or loss on early extinguishment of debt. For 2015, FFO per share-diluted also excludes costs related to an unsolicited hostile takeover attempt and proxy contest. For the definition of FFO per share-diluted and a reconciliation of FFO per share-diluted to net income per share attributable to common stockholders-diluted, see Exhibit 99.1 of this Amendment and “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Funds from Operations” in the Original Filing. |
17
Despite our strong operating performance, our total stockholder return (“TSR”) in 2017 underperformed the S&P 500 Index and FTSE NAREIT All Equity REITs Index.
| | | | | | | | | | | | |
| | | 1 year
(2017) | | | 3 year
(2015-2017) | | | 5 year
(2013-2017) | |
The Macerich Company | | | -2.8 | % | | | -7.2 | % | | | 43.4 | % |
S&P 500 Index | | | 21.8 | % | | | 38.3 | % | | | 108.1 | % |
FTSE NAREIT All Equity REITs Index | | | 8.7 | % | | | 21.4 | % | | | 59.8 | % |
In 2016 and 2017, REIT TSRs were generally lower than the broader market, and regional mall REITs in particular underperformed other REITs. We believe that our negative TSR in 2016 and 2017 has been driven primarily by bearish investor sentiment for its
2017 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"mall REIT sector in general, in the Company's definitive proxy statementwake of store closings and tenant bankruptcies announced by several high-profile retailers. However, our performance versus other mall REITs has been strong. Over the past five years we have generated a higher total return to our stockholders than any of our direct competitors, as illustrated in the following graph.
While store closings and tenant bankruptcies have adversely impacted our short-term TSR, these bankruptcies often present opportunities to secure more productive and more contemporary tenants that will generate higher sales productivity in the coming years. We remain well-positioned to take advantage of these opportunities.
18
Compensation Highlights
Compensation Elements. The following chart summarizes, for its
2017 Annual Meetingeach component of Stockholders that is responsive toour executive compensation program, the information requiredobjectives and key features and the compensation decisions made by this Item.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
the Committee for our named executive officers for 2017: | | | | | | | | |
Pay Element | | | | | | Objectives and Key Features | | Highlights for 2017 |
| Salary | | | | Cash | | • Relatively small, fixed cash pay based on the scope and complexity of each position, the officer’s experience, competitive pay levels and general economic conditions | | • 2017 salaries for each named executive officer remained unchanged from 2016 levels |
Annual Incentive Bonus | | | | Equity | | • Variable short-term incentive • Rewards achievement of both corporate and individual performance • Performance measured using annual scorecard designed to support our Company’s short-term financial and strategic objectives • Corporate goals (Same Center NOI growth, FFO per diluted share, releasing spreads, replacing lost rents, and succession planning) were weighted 80%, and evaluated formulaically againstpre-established threshold, target, and maximum goals • Individual performance againstpre-established goals was weighted 20% | | • Based on achievements versus the goals, 2017 earned annual bonuses ranged from 82% to 87% of target for each named executive officer • All such earned bonuses were paid in fully-vested LTIP units to further promote stockholder alignment |
| | | | |
| Long-Term Incentives | | | Page |
(a) and (c) | 1 |
| Financial Statements | |
| Performance-Based (75%) | | | |
| Equity | | | |
| outperform other equity REITs which are investment alternatives for our stockholders • Performance-based LTIP Units granted in 2017 may be earned from 0% to 150% of target based on our TSR over the three-year performance period compared to all publicly-traded equity REITs (the “Equity Peer REITs”) | | | Chief Operating Officer in early 2016. • Our shift from aone-year to a three-year performance period commenced with the 2016 performance-based LTIP Units • As a result, no performance-based LTIP Units vested in 2017 |
| | | | |
| | | |
| Service-Based (25%) | | | |
| Equity | | | |
| 2 |
| Financial Statement Schedule | |
| promote retention and stability of our management team | | | |
ITEM 16. FORM 10-K SUMMARY
Not applicable.
Report19
Target Total Direct Compensation Mix
20
Target vs. Realizable CEO Compensation
As illustrated above, the majority of Independent Registered Public Accounting Firm
our CEO’s compensation opportunity is “at risk” and tied to performance goals and our absolute and relative TSR. Ourpay-for-performance philosophy is further illustrated by comparing target total direct compensation to “realizable” compensation, after taking into account actual performance.Despite solid operating performance during 2016 and 2017, our TSR lagged the Equity Peer REITs. As a result, as of December 31, 2017, “realizable” compensation for our CEO was substantially below target for each of 2016 and 2017.
Target pay includes base salary, target annual incentive, and the target grant-date fair value of long-term incentives in each of 2016 and 2017 for Mr. A. Coppola. Realizable pay includes: (i) annual base salary earned; (ii) actual annual incentive earned in respect of the applicable year; and (iii) the value of performance-based LTIP Units (assuming the performance period had ended December 31, 2017) and service-based LTIP Units as of December 31, 2017, including earned dividend equivalents. None of the performance-based LTIP Units granted in 2016 and only 60% of the target number of performance-based LTIP Units granted in 2017 would have been earned at December 31, 2017 based on our relative TSR performance as of such date. The value of the service-based LTIP Units is based on our closing stock price on December 29, 2017, the last trading day of fiscal 2017. This chart and the total realizable pay reported in this chart provides supplemental information regarding the compensation paid to our CEO and should not be viewed as a substitute for the 2017 Summary Compensation Table. We believe that showing realizable compensation illustrates for stockholders the alignment between pay and performance.
21
2017Say-on-Pay Vote
At our 2017 annual stockholders’ meeting, approximately 89% of the votes cast were in favor of thenon-binding advisory resolution to approve the compensation of our named executive officers. Although the results of thesay-on-pay vote are advisory and not binding on the Company, the Board of Directors or the Committee, the Board of Directors and Stockholdersthe Committee value the opinions of
The Macerich Company:
We have audited the accompanying consolidated balance sheets of The Macerich Company our stockholders and subsidiaries (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of operations, equity and cash flows for each of the years in the three‑year period ended December 31, 2016. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule III - Real Estate and Accumulated Depreciation. These consolidated financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits 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 the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Macerich Company and subsidiaries as of December 31, 2016 and 2015, andtake the results of their operations and their cash flowsthesay-on-pay vote into account when making decisions regarding the compensation of our named executive officers. Following our 2015 annual meeting, the Committee, working with FW Cook, made meaningful changes to our executive compensation program in response to our stockholders’ feedback, including switching from aone-year performance period for eachour performance-based LTIP Units to a three-year performance period. In addition, we engaged in stockholder outreach on executive compensation matters throughout 2016. The Committee has considered the result of the years in the three‑year period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule III - Real Estate2017say-on-pay vote and, Accumulated Depreciation, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control ‑ Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 24, 2017, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
Los Angeles, California
February 24, 2017
THE MACERICH COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value)
|
| | | | | | | |
| | December 31, |
| | 2016 | | 2015 |
| ASSETS: | | | |
| Property, net | $ | 7,357,310 |
| | $ | 8,796,912 |
|
| Cash and cash equivalents | 94,046 |
| | 86,510 |
|
| Restricted cash | 49,951 |
| | 41,389 |
|
| Tenant and other receivables, net | 136,998 |
| | 130,002 |
|
| Deferred charges and other assets, net | 478,058 |
| | 564,291 |
|
| Due from affiliates | 68,227 |
| | 83,928 |
|
| Investments in unconsolidated joint ventures | 1,773,558 |
| | 1,532,552 |
|
| Total assets | $ | 9,958,148 |
| | $ | 11,235,584 |
|
| LIABILITIES AND EQUITY: | | | |
| Mortgage notes payable: | | | |
| Related parties | $ | 176,442 |
| | $ | 181,069 |
|
| Others | 3,908,976 |
| | 4,427,518 |
|
| Total | 4,085,418 |
| | 4,608,587 |
|
| Bank and other notes payable | 880,482 |
| | 652,163 |
|
| Accounts payable and accrued expenses | 61,316 |
| | 74,398 |
|
| Accrued dividend | — |
| | 337,703 |
|
| Other accrued liabilities | 366,165 |
| | 403,281 |
|
| Distributions in excess of investments in unconsolidated joint ventures | 78,626 |
| | 24,457 |
|
| Co-venture obligation | 58,973 |
| | 63,756 |
|
| Total liabilities | 5,530,980 |
| | 6,164,345 |
|
| Commitments and contingencies |
|
| |
|
|
| Equity: | | | |
| Stockholders' equity: | | | |
| Common stock, $0.01 par value, 250,000,000 shares authorized, 143,985,036 and 154,404,986 shares issued and outstanding at December 31, 2016 and 2015, respectively | 1,440 |
| | 1,544 |
|
| Additional paid-in capital | 4,593,229 |
| | 4,926,630 |
|
| Accumulated deficit | (488,782 | ) | | (212,760 | ) |
| Total stockholders' equity | 4,105,887 |
| | 4,715,414 |
|
| Noncontrolling interests | 321,281 |
| | 355,825 |
|
| Total equity | 4,427,168 |
| | 5,071,239 |
|
| Total liabilities and equity | $ | 9,958,148 |
| | $ | 11,235,584 |
|
The accompanying notes are an integral part of these consolidated financial statements.
THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
|
| | | | | | | | | | | |
| | For The Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| Revenues: | | | | | |
| Minimum rents | $ | 616,295 |
| | $ | 759,603 |
| | $ | 633,571 |
|
| Percentage rents | 20,902 |
| | 25,693 |
| | 24,350 |
|
| Tenant recoveries | 305,282 |
| | 415,129 |
| | 361,119 |
|
| Other | 59,328 |
| | 61,470 |
| | 52,226 |
|
| Management Companies | 39,464 |
| | 26,254 |
| | 33,981 |
|
| Total revenues | 1,041,271 |
| | 1,288,149 |
| | 1,105,247 |
|
| Expenses: | | | | | |
| Shopping center and operating expenses | 307,623 |
| | 379,815 |
| | 353,505 |
|
| Management Companies' operating expenses | 98,323 |
| | 92,340 |
| | 88,424 |
|
| REIT general and administrative expenses | 28,217 |
| | 29,870 |
| | 29,412 |
|
| Costs related to unsolicited takeover offer | — |
| | 25,204 |
| | — |
|
| Depreciation and amortization | 348,488 |
| | 464,472 |
| | 378,716 |
|
| | 782,651 |
| | 991,701 |
| | 850,057 |
|
| Interest expense: | | | | | |
| Related parties | 8,973 |
| | 10,515 |
| | 15,134 |
|
| Other | 154,702 |
| | 201,428 |
| | 175,555 |
|
| | 163,675 |
| | 211,943 |
| | 190,689 |
|
| (Gain) loss on extinguishment of debt, net | (1,709 | ) | | (1,487 | ) | | 9,551 |
|
| Total expenses | 944,617 |
| | 1,202,157 |
| | 1,050,297 |
|
| Equity in income of unconsolidated joint ventures | 56,941 |
| | 45,164 |
| | 60,626 |
|
| Co-venture expense | (13,382 | ) | | (11,804 | ) | | (9,490 | ) |
| Income tax (expense) benefit | (722 | ) | | 3,223 |
| | 4,269 |
|
| Gain on sale or write down of assets, net | 415,348 |
| | 378,248 |
| | 73,440 |
|
| Gain on remeasurement of assets | — |
| | 22,089 |
| | 1,423,136 |
|
| Net income | 554,839 |
| | 522,912 |
| | 1,606,931 |
|
| Less net income attributable to noncontrolling interests | 37,844 |
| | 35,350 |
| | 107,889 |
|
| Net income attributable to the Company | $ | 516,995 |
| | $ | 487,562 |
| | $ | 1,499,042 |
|
| Earnings per common share attributable to common stockholders: | | | | | |
| Basic | $ | 3.52 |
| | $ | 3.08 |
| | $ | 10.46 |
|
| Diluted | $ | 3.52 |
| | $ | 3.08 |
| | $ | 10.45 |
|
| Weighted average number of common shares outstanding: | | | | | |
| Basic | 146,599,000 |
| | 157,916,000 |
| | 143,144,000 |
|
| Diluted | 146,711,000 |
| | 158,060,000 |
| | 143,291,000 |
|
The accompanying notes are an integral part of these consolidated financial statements.
THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in thousands, except per share data)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Stockholders' Equity | | | | |
| | Common Stock | | Additional Paid-in Capital | | Retained Earnings (Accumulated
Deficit) | | Total Stockholders'
Equity | | | | |
| | Shares | | Par Value | | | | | Noncontrolling Interests | | Total Equity |
| Balance at January 1, 2014 | 140,733,683 |
| | $ | 1,407 |
| | $ | 3,906,148 |
| | $ | (548,806 | ) | | $ | 3,358,749 |
| | $ | 359,968 |
| | $ | 3,718,717 |
|
| Net income | — |
| | — |
| | — |
| | 1,499,042 |
| | 1,499,042 |
| | 107,889 |
| | 1,606,931 |
|
| Amortization of share and unit-based plans | 168,379 |
| | 2 |
| | 34,871 |
| | — |
| | 34,873 |
| | — |
| | 34,873 |
|
| Employee stock purchases | 25,007 |
| | — |
| | 1,231 |
| | — |
| | 1,231 |
| | — |
| | 1,231 |
|
| Stock issued to acquire properties | 17,140,845 |
| | 172 |
| | 1,161,102 |
| | — |
| | 1,161,274 |
| | — |
| | 1,161,274 |
|
| Distributions paid ($2.51) per share | — |
| | — |
| | — |
| | (353,495 | ) | | (353,495 | ) | | — |
| | (353,495 | ) |
| Distributions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | (32,230 | ) | | (32,230 | ) |
| Change in noncontrolling interests due to acquisition/disposition of consolidated entities | — |
| | — |
| | (3,858 | ) | | — |
| | (3,858 | ) | | (93,358 | ) | | (97,216 | ) |
| Conversion of noncontrolling interests to common shares | 134,082 |
| | 1 |
| | 2,409 |
| | — |
| | 2,410 |
| | (2,410 | ) | | — |
|
| Redemption of noncontrolling interests | — |
| | — |
| | (157 | ) | | — |
| | (157 | ) | | (79 | ) | | (236 | ) |
| Adjustment of noncontrolling interests in Operating Partnership | — |
| | — |
| | (59,949 | ) | | — |
| | (59,949 | ) | | 59,949 |
| | — |
|
| Balance at December 31, 2014 | 158,201,996 |
| | $ | 1,582 |
| | $ | 5,041,797 |
| | $ | 596,741 |
| | $ | 5,640,120 |
| | $ | 399,729 |
| | $ | 6,039,849 |
|
The accompanying notes are an integral part of these consolidated financial statements.
THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF EQUITY (Continued)
(Dollars in thousands, except per share data)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Stockholders' Equity | | | | |
| | Common Stock | | Additional Paid-in Capital | | Retained Earnings (Accumulated
Deficit) | | Total Stockholders' Equity | | | | |
| | Shares | | Par Value | | | | | Noncontrolling Interests | | Total Equity |
| Balance at December 31, 2014 | 158,201,996 |
| | $ | 1,582 |
| | $ | 5,041,797 |
| | $ | 596,741 |
| | $ | 5,640,120 |
| | $ | 399,729 |
| | $ | 6,039,849 |
|
| Net income | — |
| | — |
| | — |
| | 487,562 |
| | 487,562 |
| | 35,350 |
| | 522,912 |
|
| Amortization of share and unit-based plans | 241,186 |
| | 2 |
| | 34,373 |
| | — |
| | 34,375 |
| | — |
| | 34,375 |
|
| Employee stock purchases | 23,036 |
| | — |
| | 1,512 |
| | — |
| | 1,512 |
| | — |
| | 1,512 |
|
| Stock repurchase | (4,140,788 | ) | | (41 | ) | | (153,602 | ) | | (246,501 | ) | | (400,144 | ) | | — |
| | (400,144 | ) |
| Distributions declared ($6.63) per share | — |
| | — |
| | — |
| | (1,050,562 | ) | | (1,050,562 | ) | | — |
| | (1,050,562 | ) |
| Distributions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | (74,677 | ) | | (74,677 | ) |
| Contributions from noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | 23 |
| | 23 |
|
| Other | — |
| | — |
| | (1,593 | ) | | — |
| | (1,593 | ) | | — |
| | (1,593 | ) |
| Conversion of noncontrolling interests to common shares | 79,556 |
| | 1 |
| | 1,558 |
| | — |
| | 1,559 |
| | (1,559 | ) | | — |
|
| Redemption of noncontrolling interests | — |
| | — |
| | (343 | ) | | — |
| | (343 | ) | | (113 | ) | | (456 | ) |
| Adjustment of noncontrolling interests in Operating Partnership | — |
| | — |
| | 2,928 |
| | — |
| | 2,928 |
| | (2,928 | ) | | — |
|
| Balance at December 31, 2015 | 154,404,986 |
| | $ | 1,544 |
| | $ | 4,926,630 |
| | $ | (212,760 | ) | | $ | 4,715,414 |
| | $ | 355,825 |
| | $ | 5,071,239 |
|
The accompanying notes are an integral part of these consolidated financial statements.
THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF EQUITY (Continued)
(Dollars in thousands, except per share data)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Stockholders' Equity | | | | |
| | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Total Stockholders' Equity | | | | |
| | | Shares | | Par Value | | | | | Noncontrolling Interests | | Total Equity |
| Balance at December 31, 2015 | | 154,404,986 |
| | $ | 1,544 |
| | $ | 4,926,630 |
| | $ | (212,760 | ) | | $ | 4,715,414 |
| | $ | 355,825 |
| | $ | 5,071,239 |
|
| Net income | | — |
| | — |
| | — |
| | 516,995 |
| | 516,995 |
| | 37,844 |
| | 554,839 |
|
| Amortization of share and unit-based plans | | 139,671 |
| | 2 |
| | 40,527 |
| | — |
| | 40,529 |
| | — |
| | 40,529 |
|
| Employee stock purchases | | 28,147 |
| | — |
| | 1,697 |
| | — |
| | 1,697 |
| | — |
| | 1,697 |
|
| Stock repurchases | | (11,123,011 | ) | | (111 | ) | | (412,391 | ) | | (387,516 | ) | | (800,018 | ) | | — |
| | (800,018 | ) |
| Distributions declared ($2.75) per share | | — |
| | — |
| | — |
| | (405,501 | ) | | (405,501 | ) | | — |
| | (405,501 | ) |
| Distributions to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | (35,677 | ) | | (35,677 | ) |
| Contributions from noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | 90 |
| | 90 |
|
| Conversion of noncontrolling interests to common shares | | 535,243 |
| | 5 |
| | 12,443 |
| | — |
| | 12,448 |
| | (12,448 | ) | | — |
|
| Redemption of noncontrolling interests | | — |
| | — |
| | (23 | ) | | — |
| | (23 | ) | | (7 | ) | | (30 | ) |
| Adjustment of noncontrolling interests in Operating Partnership | | — |
| | — |
| | 24,346 |
| | — |
| | 24,346 |
| | (24,346 | ) | | — |
|
| Balance at December 31, 2016 | | 143,985,036 |
| | $ | 1,440 |
| | $ | 4,593,229 |
| | $ | (488,782 | ) | | $ | 4,105,887 |
| | $ | 321,281 |
| | $ | 4,427,168 |
|
The accompanying notes are an integral part of these consolidated financial statements.
THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| Cash flows from operating activities: | | | | | |
| Net income | $ | 554,839 |
| | $ | 522,912 |
| | $ | 1,606,931 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| (Gain) loss on early extinguishment of debt, net | (13,737 | ) | | (16,066 | ) | | 526 |
|
| Gain on sale or write down of assets, net | (415,348 | ) | | (378,248 | ) | | (73,440 | ) |
| Gain on remeasurement of assets | — |
| | (22,089 | ) | | (1,423,136 | ) |
| Depreciation and amortization | 355,358 |
| | 471,320 |
| | 387,785 |
|
| Amortization of net premium on mortgage notes payable | (4,048 | ) | | (20,232 | ) | | (8,906 | ) |
| Amortization of share and unit-based plans | 33,288 |
| | 28,367 |
| | 29,463 |
|
| Straight-line rent adjustment | (5,237 | ) | | (7,192 | ) | | (5,825 | ) |
| Amortization of above and below-market leases | (12,815 | ) | | (16,510 | ) | | (9,083 | ) |
| Provision for doubtful accounts | 3,586 |
| | 4,698 |
| | 3,962 |
|
| Income tax expense (benefit) | 722 |
| | (3,223 | ) | | (4,269 | ) |
| Equity in income of unconsolidated joint ventures | (56,941 | ) | | (45,164 | ) | | (60,626 | ) |
| Co-venture expense | 13,382 |
| | 11,804 |
| | 9,490 |
|
| Distributions of income from unconsolidated joint ventures | 7,248 |
| | 4,541 |
| | 2,412 |
|
| Changes in assets and liabilities, net of acquisitions and dispositions: | | | | | |
| Tenant and other receivables | (7,585 | ) | | 1,908 |
| | (12,356 | ) |
| Other assets | (20,033 | ) | | 13,892 |
| | (15,594 | ) |
| Due from affiliates | 15,983 |
| | (7,025 | ) | | (1,770 | ) |
| Accounts payable and accrued expenses | (8,929 | ) | | (4,014 | ) | | (123 | ) |
| Other accrued liabilities | (22,227 | ) | | 698 |
| | (24,735 | ) |
| Net cash provided by operating activities | 417,506 |
| | 540,377 |
| | 400,706 |
|
| Cash flows from investing activities: | | | | | |
| Acquisition of properties | — |
| | (26,250 | ) | | (15,233 | ) |
| Development, redevelopment, expansion and renovation of properties | (211,616 | ) | | (272,334 | ) | | (185,412 | ) |
| Property improvements | (47,863 | ) | | (53,335 | ) | | (66,718 | ) |
| Cash acquired from acquisitions | — |
| | — |
| | 28,890 |
|
| Proceeds from note receivable | 3,677 |
| | 1,833 |
| | 4,825 |
|
| Issuance of notes receivable | — |
| | — |
| | (65,130 | ) |
| Deposit on acquisition of property | — |
| | (12,500 | ) | | — |
|
| Deferred leasing costs | (28,074 | ) | | (33,902 | ) | | (28,019 | ) |
| Distributions from unconsolidated joint ventures | 444,095 |
| | 105,640 |
| | 78,222 |
|
| Contributions to unconsolidated joint ventures | (430,428 | ) | | (426,186 | ) | | (336,621 | ) |
| Collections of loans to unconsolidated joint ventures, net | — |
| | — |
| | 2,756 |
|
| Proceeds from sale of assets | 724,275 |
| | 646,898 |
| | 320,123 |
|
| Restricted cash | (10,953 | ) | | (30,888 | ) | | 6,526 |
|
| Net cash provided by (used in) investing activities | 443,113 |
| | (101,024 | ) | | (255,791 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| Cash flows from financing activities: | | | | | |
| Proceeds from mortgages, bank and other notes payable | 3,201,138 |
| | 4,080,671 |
| | 1,204,946 |
|
| Payments on mortgages, bank and other notes payable | (2,437,891 | ) | | (3,284,213 | ) | | (853,080 | ) |
| Deferred financing costs | (10,584 | ) | | (11,805 | ) | | (1,267 | ) |
| Payment of finance deposits, net of refunds received | — |
| | (11,138 | ) | | — |
|
| Proceeds from share and unit-based plans | 1,697 |
| | 1,512 |
| | 1,231 |
|
| Payment of stock issuance costs | — |
| | — |
| | (5,503 | ) |
| Stock repurchases | (800,018 | ) | | (400,144 | ) | | — |
|
| Redemption of noncontrolling interests | (30 | ) | | (456 | ) | | (236 | ) |
| Contributions from noncontrolling interests | 90 |
| | 23 |
| | — |
|
| Purchase of noncontrolling interest | — |
| | (1,593 | ) | | (55,867 | ) |
| Settlement of contingent consideration | (10,012 | ) | | — |
| | (18,667 | ) |
| Dividends and distributions | (779,308 | ) | | (787,109 | ) | | (385,725 | ) |
| Distributions to co-venture partner | (18,165 | ) | | (23,498 | ) | | (15,555 | ) |
| Net cash used in financing activities | (853,083 | ) | | (437,750 | ) | | (129,723 | ) |
| Net increase in cash and cash equivalents | 7,536 |
| | 1,603 |
| | 15,192 |
|
| Cash and cash equivalents, beginning of year | 86,510 |
| | 84,907 |
| | 69,715 |
|
| Cash and cash equivalents, end of year | $ | 94,046 |
| | $ | 86,510 |
| | $ | 84,907 |
|
| Supplemental cash flow information: | | | | | |
| Cash payments for interest, net of amounts capitalized | $ | 153,838 |
| | $ | 231,106 |
| | $ | 186,877 |
|
| Non-cash investing and financing activities: | | | | | |
| Accrued development costs included in accounts payable and accrued expenses and other accrued liabilities | $ | 49,484 |
| | $ | 52,983 |
| | $ | 83,108 |
|
| Acquisition of property by issuance of common stock | $ | — |
| | $ | — |
| | $ | 1,166,777 |
|
| Conversion of Operating Partnership Units to common stock | $ | 12,448 |
| | $ | 1,559 |
| | $ | 2,410 |
|
| Accrued dividend | $ | — |
| | $ | 337,703 |
| | $ | — |
|
| Acquisition of properties by assumption of mortgage note payable and other accrued liabilities | $ | — |
| | $ | — |
| | $ | 1,414,659 |
|
| Mortgage notes payable settled in deed-in-lieu of foreclosure | $ | 37,000 |
| | $ | 34,149 |
| | $ | — |
|
| Mortgage notes payable assumed by buyers in sales of properties | $ | — |
| | $ | — |
| | $ | 31,725 |
|
| Mortgage notes payable assumed by buyer in exchange for investment in unconsolidated joint venture | $ | 997,695 |
| | $ | 1,782,455 |
| | $ | — |
|
| Note receivable issued in connection with sale of property | $ | — |
| | $ | — |
| | $ | 9,603 |
|
| Acquisition of property in exchange for settlement of notes receivable | $ | — |
| | $ | — |
| | $ | 14,120 |
|
| Acquisition of property in exchange for investment in unconsolidated joint venture | $ | — |
| | $ | 76,250 |
| | $ | 15,767 |
|
| Contingent consideration in acquisition of property | $ | — |
| | $ | — |
| | $ | 10,012 |
|
| Assumption of mortgage notes payable and other liabilities from unconsolidated joint ventures | $ | — |
| | $ | 50,000 |
| | $ | — |
|
The accompanying notes are an integral part of these consolidated financial statements.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
1. Organization:
The Macerich Company (the "Company") is involved in the acquisition, ownership, development, redevelopment, management and leasing of regional and community/power shopping centers (the "Centers") located throughout the United States.
The Company commenced operations effective with the completion of its initial public offering on March 16, 1994. As of December 31, 2016, the Company was the sole general partner of and held a 93% ownership interest in The Macerich Partnership, L.P. (the "Operating Partnership"). The Company was organized to qualify as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code").
The property management, leasing and redevelopment of the Company's portfolio is provided by the Company's management companies, Macerich Property Management Company, LLC, a single member Delaware limited liability company, Macerich Management Company, a California corporation, Macerich Arizona Partners LLC, a single member Arizona limited liability company, Macerich Arizona Management LLC, a single member Delaware limited liability company, Macerich Partners of Colorado, LLC, a single member Colorado limited liability company, MACW Mall Management, Inc., a New York corporation, and MACW Property Management, LLC, a single member New York limited liability company. All seven of the management companies are owned by the Company and are collectively referred to herein as the "Management Companies."
2. Summary of Significant Accounting Policies:
Basis of Presentation:
These consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") in the United States of America. The accompanying consolidated financial statements include the accounts of the Company and the Operating Partnership. Investments in entities in which the Company has a controlling financial interest or entities that meet the definition of a variable interest entity in which the Company has, as a result of
the high percentage of votes cast in favor of this proposal, the Committee believes that the changes made to our compensation program in 2016 were supported by stockholders. Accordingly, the Committee decided to maintain our general approach to executive compensation and made no significant changes to our executive compensation program during 2017.Throughout 2017, we continued engagement with stockholders on a variety of issues, including executive compensation and corporate governance. As part of our commitment to ongoing, transparent communication with our stockholders, we will continue this open dialogue to ensure we understand stockholder views on these important issues.
Compensation Governance Highlights
Our executive compensation and corporate governance programs are designed to closely link pay with operational performance and increases in long-term stockholder value while minimizing excessive risk taking. To help us accomplish these important objectives, we have adopted the following policies and practices:
No Excessive Risk Taking. Our compensation program is designed to not incentivize excessive risk taking by participants. We conduct an annual risk assessment of all of our compensation programs.
No Tax Gross-Ups. None of our Company’s executives are entitled to any taxgross-ups.
Double-Trigger Equity Vesting. Effective with the 2016 equity grants, our equity awards are subject to double-trigger vesting acceleration in connection with a change of control.
Robust Stock Ownership Guidelines. We have robust stock ownership contractualpolicies for our named executive officers and directors and each individual who is subject to them is in compliance with those policies. See “Stock Ownership Policies” onpages 28-29 of this Amendment.
Holding Period. Until the minimum required stock ownership level is achieved, our named executive officers must retain 50% of theirnet-after-tax profit shares from equity compensation awards. See “Stock Ownership Policies” onpages 28-29 of this Amendment.
Clawback Policy. We have a clawback policy that allows us to recover cash and equity incentive compensation paid to our executive officers if the compensation was based on achieving financial results that were subsequently restated and the amount of the executive officer’s incentive compensation would have been lower had the financial results been properly reported.
No Repricing. We do not permit repricing of underwater options or SARs or permit exchange of underwater options or SARs for other awards or cash, without prior stockholder approval.
Anti-Hedging Policy. We have a policy prohibiting all of our directors, officers and employees from engaging in any hedging or monetization transactions that are designed to hedge or offset any decrease in the market value of our securities. This policy also prohibits short sales and the purchase and sale of publicly traded options of our Company.
Anti-Pledging Policy. In addition, we have a policy (a) prohibiting all our directors and executive officers from pledging our securities if they are unable to meet our stock ownership requirements without reference to such pledged shares and (b) recommending that our directors and executive officers not pledge our Company’s securities. Currently, no shares of our Company are pledged by our directors and executive officers.
22
Independent Compensation Consultant. The Committee engages an independent compensation consulting firm that provides us with no other services.
AnnualSay-on-Pay. We annually submit our executive compensation program for our named executive officers tosay-on-pay advisory votes for stockholder consideration.
Compensation Philosophy and Objectives
Our executive compensation program is designed to achieve the following objectives:
Attract, retain and reward experienced, highly-motivated executives who are capable of leading our Company in executing our ambitious growth strategy.
Link compensation earned to achievement of our Company’s short-term and long-term financial and strategic goals.
Align the interests bothof management with those of our stockholders by providing a substantial portion of compensation in the powerform of equity-based incentives and maintaining robust stock ownership requirements.
Adhere to direct activities that most significantly impacthigh standards of corporate governance.
The Committee believes strongly in linking compensation to corporate performance: the economicannual incentive awards (which for 2017 were paid entirely in the form of equity) are primarily based on overall corporate performance and the earned value of 75% of the long-term incentive equity awards depends on our three-year TSR relative to the Equity Peer REITs. The Committee also recognizes individual performance in making its executive compensation decisions. The Committee believes this is the best program overall to attract, motivate and retain highly skilled executives whose performance and contributions benefit our Company and our stockholders. The Committee believes it utilizes the right blend of cash and equity to provide appropriate incentives for executives while aligning their interests with those of our stockholders and encouraging the executives’ long-term commitment to our Company. The Committee does not have a strict policy for allocating a specific portion of compensation to our named executive officers between cash andnon-cash or short-term and long-term compensation. Instead, the Committee considers how each component promotes retention and/or motivates performance by the executive.
Inputs to Compensation Decisions
Role of the Compensation Committee
The Committee reviews and approves the compensation for our executive officers, reviews our overall compensation structure and philosophy and administers certain of our employee benefit and stock plans, with authority to authorize awards under our incentive plans. The Committee currently consists of three independent directors, Ms. Stephen (Chair) and Messrs. Soboroff and Hash.
Role of Management
Management, under the leadership of Mr. A. Coppola, develops our Company’s strategy and corresponding internal business plans, which our executive compensation program is designed to support. Mr. A. Coppola also provides the Committee with his evaluation of the performance of and his recommendations on compensation for his direct reports, including the variable interest entity andother named executive officers.
Role of Compensation Consultant
The Committee may, in its sole discretion, retain or obtain the obligationadvice of any compensation consultant as it deems necessary to absorb losses or the right to receive benefits that could potentially be significant to the variable interest entity are consolidated; otherwise they are accounted for under the equity method of accounting and are reflected as investments in unconsolidated joint ventures. All intercompany accounts and transactions have been eliminatedassist in the consolidated financial statements.
On January 1, 2016,evaluation of director or executive officer compensation and is directly responsible for the
Company adopted Accounting Standards Update (“ASU”) 2015-02, “Consolidation (Topic 810): Amendmentsappointment, compensation and oversight of the work of any such compensation consultant. The Committee retained FW Cook as its independent compensation consultant with respect to
our compensation programs. FW Cook’s role is to evaluate the
Consolidation Analysis,” which made certain changes to bothexisting executive andnon-employee director compensation programs, assess the
variable interest modeldesign and
competitive positioning of these programs, and make recommendations for change, as appropriate. The Committee considered the
voting model, including changes to (1) the identificationindependence of
variable interests (fees paid to a decision maker or service provider), (2) the variable interest entity ("VIE") characteristics for a limited partnership or similar entity and (3) the primary beneficiary determination. The Company evaluated the new standardFW Cook and determined that
its engagement of FW Cook does not raise any conflicts of interest with our Company or any of our directors or executive officers. FW Cook provides no
changeother consulting services to our Company, executive officers or directors.23
Role of Data for Peer Companies
FW Cook periodically conducts competitive reviews of our executive compensation program, including a competitive analysis of pay opportunities for our named executive officers as compared to the relevant peer group selected by the Committee. The Committee reviews compensation practices at peer companies to inform itself and aid it in its decision-making process so it can establish compensation programs that it believes are reasonably competitive.
FW Cook conducted a comprehensive review of our program in 2015, and made subsequent updates to competitive data for selected positions in 2016 with competitive comparisons based on twenty U.S.-based, publicly traded REITs of reasonably similar size to our Company, as measured by total capitalization, and/or with a focus on the retail sector. The group included our direct mall REIT competitors, both larger and smaller than us; REITs in other asset classes were primarily selected based on size. At the time FW Cook conducted the competitive reviews, our total capitalization was required to its accounting for variable interest entities. However, under the guidance of the new standard, all of the Company's consolidated joint ventures, including the Operating Partnership, now meet the definition and criteria as VIEs and the Company is the primary beneficiary of each VIE.
The Company's sole significant asset is its investment in the Operating Partnership and as a result, substantially all of the Company's assets and liabilities represent the assets and liabilities of the Operating Partnership. In addition, the Operating Partnership has investments in a number of VIEs.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
2. Summary of Significant Accounting Policies: (Continued)
The Operating Partnership's VIEs included the following assets and liabilities:
|
| | | | | | | |
| | December 31, |
| | 2016 | | 2015 |
| Assets: | | | |
| Properties, net | $ | 307,582 |
| | $ | 362,129 |
|
| Other assets | 68,863 |
| | 74,075 |
|
| Total assets | $ | 376,445 |
| | $ | 436,204 |
|
| Liabilities: | | | |
| Mortgage notes payable | $ | 133,245 |
| | $ | 139,767 |
|
| Other liabilities | 75,913 |
| | 79,984 |
|
| Total liabilities | $ | 209,158 |
| | $ | 219,751 |
|
Cash and Cash Equivalents and Restricted Cash:
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents, for which cost approximates fair value. Restricted cash includes impounds of property taxes and other capital reserves required under loan agreements.
Revenues:
Minimum rental revenues are recognized on a straight-line basis over the terms of the related leases. 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." Minimum rents were increased by $5,237, $7,192 and $5,825 duemedian range compared to the straight-line rent adjustment during the years ended December 31, 2016, 2015peer group. The Committee believes that these REITs best reflected a complexity and 2014, respectively. Percentage rents are recognized and accrued when tenants' specified sales targets have been met.
Estimated recoveries from certain tenants for their pro rata sharebreadth 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 are recognized as revenues on a straight-line basis over the term of the related leases.
The Management Companies provide property management, leasing, corporate, development, redevelopment and acquisition services to affiliated and non-affiliated shopping centers. In consideration for these services, the Management Companies receive monthly management fees generally ranging from 1.5% to 5% of the gross monthly rental revenue of the properties managed.
Property:
Maintenance and repair 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 |
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
2. Summary of Significant Accounting Policies: (Continued)
Capitalization of Costs:
The Company capitalizes costs incurred in redevelopment, development, renovation and improvement of properties. 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. These capitalized costs include direct and certain indirect costs clearly associated with the project. Indirect costs include real estate taxes, insurance and certain shared administrative costs. In assessing the amounts of direct and indirect costs to be capitalized, allocations are made to projects based on estimates of the actual amount of time spent on each activity. Indirect costs not clearly associated with specific projects are expensed as period costs. Capitalized indirect costs are allocated to development and redevelopment activities based on the square footage of the portion of the building not held available for immediate occupancy. If costs and activities incurred to ready the vacant space cease, then cost capitalization is also discontinued until such activities are resumed. Once work has been completed on a vacant space, project costs are no longer capitalized. For projects with extended lease-up periods, the Company ends the capitalization when significant activities have ceased, which does not exceed the shorter of a one-year period after the completion of the building shell or when the construction is substantially complete.
Investment in Unconsolidated Joint Ventures:
The Company accounts for its investments in joint ventures using the equity method of accounting unless the Company has a controlling financial interest in the joint venture or the joint venture meets the definition of a variable interest entity in which the Company is the primary beneficiary through both its power to direct activities that most significantly impact the economic performance of the variable interest entity and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the variable interest entity. Although the Company has a greater than 50% interest in Candlestick Center LLC, Corte Madera Village, LLC, Macerich HHF Centers LLC, New River Associates LLC and Pacific Premier Retail LLC, the Company does not have controlling financial interests in these joint ventures due to the substantive participation rights of the outside partners in these joint ventures and, therefore, accounts for its investments in these joint ventures using the equity method of accounting.
Equity method investments are initially recorded on the balance sheet at cost and are subsequently adjusted to reflect the Company’s proportionate share of net earnings and losses, distributions received, additional contributions and certain other adjustments, as appropriate. The Company separately reports investments in joint ventures when accumulated distributions have exceeded the Company’s investment, as distributions in excess of investments in unconsolidated joint ventures. The net investment of certain joint ventures is less than zero because of financing or operating distributions that are usually greater than net income, as net income includes charges for depreciation and amortization.
Acquisitions:
The Company allocates the estimated fair value of acquisitions to land, building, tenant improvements and identified intangible assets and liabilities, based on their estimated fair values. In addition, any assumed mortgage notes payable are recorded at their estimated fair values. The estimated fair value of the land and buildings is determined utilizing an “as if vacant” methodology. Tenant improvements represent the tangible assets associated with the existing leases valued on a fair value basis at the acquisition date prorated over the remaining lease terms. The tenant improvements are classified as an asset under property 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 any below-market fixed rate renewal options. 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. The remaining lease terms of below-market leases may include certain below-market fixed-rate renewal periods. In considering whether or not a lessee will execute a below-market fixed-rate lease renewal option, the Company evaluates
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
2. Summary of Significant Accounting Policies: (Continued)
economic factors and certain qualitative factors at the time of acquisition such as tenant mix in the Center, the Company's relationship with the tenant and the availability of competing tenant space. The initial allocation of purchase price is based on management's preliminary assessment, which may change when final information becomes available. Subsequent adjustments made to the initial purchase price allocation are made within the allocation period, which does not exceed one year. The purchase price allocation is described as preliminary if it is not yet final. The use of different assumptions in the allocation of the purchase price of the acquired assets and liabilities assumed could affect the timing of recognition of the related revenues and expenses.
The Company immediately expenses costs associated with business combinations as period costs.
Remeasurement gains are recognized when the Company obtains control of an existing equity method investment to the extent that the fair value of the existing equity investment exceeds the carrying value of the investment.
Deferred Charges:
Costs relating to obtaining tenant leases are deferred and amortized over the initial term of the lease agreement using the straight-line method. As these deferred leasing costs represent productive assets incurred in connection with the Company's leasing arrangements at the Centers, the related cash flows are classified as investing activities within the accompanying Consolidated Statements of Cash Flows. 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.
The range of the terms of the agreements is as follows:
|
| |
Deferred lease costs | 1 - 15 years |
Deferred financing costs | 1 - 15 years |
Accounting for Impairment:
The Company assesses whether an indicator of impairment in the value of its properties exists by considering expected future operating income, trends and prospects, as well as the
effectsamount of
demand, competitioncapital and
assets managed, similar to our Company at the time the studies were conducted. FW Cook again reviewed the peer group for a comprehensive review conducted in 2017. The peer group REITs resulting from the 2017 comprehensive review were: | | |
| Alexandria Real Estate Equities, Inc. | | Kimco Realty Corporation |
| Boston Properties, Inc. | | Regency Centers Corporation |
| Brixmor Property Group, Inc. | | Simon Property Group, Inc. |
| Digital Realty Trust, Inc. | | SL Green Realty Corp. |
| Douglas Emmett, Inc. | | Tanger Factory Outlets |
| Federal Realty Investment Trust | | Taubman Centers, Inc. |
| General Growth Properties, Inc. | | VEREIT, Inc. |
| HCP, Inc. | | Vornado Realty Trust |
| Kilroy Realty Corporation | | |
Relative to 2016, based on the 2017 comprehensive review FW Cook recommended and the Committee approved the following changes to the peer group, which are reflected in the peer group listed above: Four REITs were removed as they had become much larger than us in total capitalization: AvalonBay Communities, Inc.; Equity Residential; Prologis, Inc. and Ventas, Inc. Host Hotels & Resorts, Inc. was also removed as its asset class was deemed too different from ours. Two REITs were added, VEREIT, Inc. and Brixmor Property Group, Inc. because they are closer in size to us and have a substantial proportion of retail assets in their portfolios, albeit primarily single-tenant and/or shopping center retail as compared to our focus on Class-A regional malls.
The Committee does not set compensation components to meet specific benchmarks. Instead the Committee focuses on a balance of annual and long-term compensation, which is heavily weighted toward “at risk” performance-based compensation. Peer group data is not used as the determining factor in setting compensation because each officer’s role and experience is unique. The Committee believes that ultimately the decision as to appropriate compensation for a particular officer should be made based on a full review of that officer’s and our Company’s performance.
Compensation for 2017 Performance
Compensation opportunities for each named executive officer consisted of a base salary, an annual bonus opportunity, and long-term incentives, each of which is described in more detail below.
24
Base Salary:No Salary Increases in 2017
As they do annually, the Committee members reviewed base salaries of the named executive officers to determine whether they remain appropriate based on the factors identified above. Based on this review, the 2017 base salaries of our named executive officers remained unchanged from 2017.
Annual Incentive Structure:Rigorous Goals to Align Compensation with Performance.
Each executive officer has a target annual incentive opportunity, expressed as a percentage of base salary. Consistent with prior years, target bonus is 200% of base salary for the CEO and President, and 150% of base salary for the other economic factors. Such factors include projected rental revenue, operating costsnamed executive officers. The Committee sets target bonuses for Messrs. A. Coppola and capital expendituresE. Coppola at a higher percentage of base salary than the other executives because as the CEO and President, respectively, they are our strategic leaders and manage and direct our other named executive officers. Actual bonuses can range from 0% to 200% of each executive’s target bonus, based on the Committee’s assessment of annual performance against the objectives established for the year.
Under our annual incentive program, the Committee evaluates performance against a “scorecard” of performance objectives established at the beginning of the year. These rigorous scorecard goals are designed to reward the successful execution of our strategies, and were consistent with our external guidance as disclosed in the first quarter of 2017. For 2017, five corporate measures determined 80% of each executive’s earned bonus; the remaining 20% was based on the Committee’s assessment of the executive’s individual performance. The 2017 corporate scorecard measures, as well as estimated holding periodsactual achievement versus each goal, are outlined in the following table:
2017 Corporate Goals – Weighted 80%
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Weighting | | | 2017 Goals | | | 2017
Actual | | | Payout (%
of Target) | |
Measure | | | Threshold | | | Target | | | Max | | | |
| | | Payout® | | | 50% | | | 100% | | | 200% | | | | | | | |
Same Center NOI Growth | | | 20 | % | | | 3.0 | % | | | 3.5 | % | | | 4.0 | % | | | 2.73 | % | | | 0.0 | % |
FFO per Diluted Share (1) | | | 20 | % | | $ | 3.90 | | | $ | 3.95 | | | $ | 4.00 | | | $ | 3.95 | (2) | | | 100.0 | % |
Re-leasing Spreads | | | 20 | % | | | 12 | % | | | 14 | % | | | 16 | % | | | 15.2 | % | | | 160.0 | % |
Replacing Lost Rents from bankrupt specialty store tenants | | | 10 | % | | | 50 | % | | | 65 | % | | | 80 | % | | | 51 | % | | | 53.3 | % |
Succession Planning | | | 10 | % | |
| Deliver a uniform
evaluation and
documentation of a
succession plan for
each department |
| | | Achieved | | | | 100 | % |
| (1) | Excludes the impact of any assets returned to lenders or services and the impact of acquisitions/dispositions |
| (2) | Excludes $0.09 dilutive impact from new tax rates and $0.03 of dilution from the sales of Cascade Mall and Northgate Mall. |
At the time the goals were set, the Committee believed these goals were rigorous, in particular in the context of the anticipated slowing growth in the retail REIT sector. For the target incentive amount to be earned, Same Center NOI in 2017 had to grow 3.5% over 2016 and capitalization rates. Ifthe rent per square foot on new leases executed in 2017 had to increase by 14% over rent per square foot on expiring leases. Target FFO per diluted share for 2017 was below actual 2016 FFO per share as a result of a combination of items, including the significant number of tenant bankruptcies which occurred toward the end of 2016 and additional bankruptcies which were anticipated for 2017; asset dispositions in 2016 and anticipated for 2017; higher interest rates and reducing NOI for specific assets under development.
25
Individual Performance–Weighted 20%
The Committee evaluated the 2017 individual performance of our named executive officers, with Mr. A. Coppola providing the Committee with his evaluation with respect to the performance of the other executives. As part of this process, the Committee discussed with Mr. A. Coppola his evaluation of the contributions of each executive, including with respect to our 2017 corporate achievements.
The Committee noted the following:
With respect to Mr. E. Coppola: his continued leadership supporting our strategic dispositions, acquisitions and developments, including his role in the successful completion of Green Acres Commons and the redevelopment of Broadway Plaza and Sears store at Kings Plaza. Mr. E. Coppola was instrumental in building strategic relationships with key stakeholders. His knowledge of the real estate markets as well as his strong relationships with real estate owners, partners and governmental officials were also critical to the success of our dispositions, acquisitions and development strategies. Mr. E. Coppola was also actively involved in our Company’s succession planning initiatives and talent development.
With respect to Mr. O’Hern: his leadership in supporting and executing our strategic, financial and operational initiatives; success in maintaining the strength of our balance sheet; his continuing role in leading our capital market efforts, including successfully financing of $800 million including a $400 million12-year loan in Freehold Raceway Mall at an impairment indicator exists,average interest rate of 3.48%, completing the determination$221 million share repurchases resulting in the retirement of recoverability is made based upon2.6% of total shares previously outstanding. Mr. O’Hern also led the estimated undiscounted future net cash flows, excluding interest expense. The amount of impairment loss, if any, is determined by comparing the fair value, as determined by a discounted cash flows analysis,Company’s engagement and communication efforts with the carrying valueinvestment communities and articulating the compelling nature of our strategic plans, financial strength and business achievements.
With respect to Mr. Perlmutter: his contributions with members of the related assets. The Company generally holdsMacerich team to our industry-leading results, including strong occupancy and operates its properties long-term, which decreasesdouble-digit releasing spreads. In the likelihoodface of their carrying values not being recoverable. Properties classified as held for sale are measuredsignificant tenant bankruptcies at the lowerstart of the carrying amount or fair value less costyear which increased throughout 2017, Mr. Perlmutter helped maintain, and even improve, occupancy throughout the portfolio. He was also involved in securing a commitment from Nordstrom to sell.
The Company reviews its investments in unconsolidated joint ventures for a series of operating losses and other factors that may indicate that a decreaseopen at Country Club Plaza. He facilitated continuing improvements in the value of its investments has occurred which is other-than-temporary. The investment in each unconsolidatedproperty/asset management groups, joint venture is evaluated periodically,relationships, implementation of talent development for the leasing organization, and as deemed necessary,continued efforts to position lower-quality assets for recoverability and valuation declines that are other-than-temporary.
Share and Unit-based Compensation Plans:
The cost of share and unit-based compensation awards is measured at the grant date based on the calculated fair valuedisposition.With respect to Mr. Leanse: his support of the awardsexecutive team’s efforts in responding to and is recognized on a straight-line basis over the requisite service period, which is generally the vesting periodnegotiating new business opportunities, his support of the awards. For market-indexed LTIP awards, compensation cost is recognized underBoard in corporate governance issues, his work to develop a more efficient and effective way to deliver comprehensive legal services and his activities with respect to the graded attribution method.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
2. Summaryexisting anchor stores, continue the execution of Significant Accounting Policies: (Continued)
Income Taxes:
our long-term plan of recycling capital fromThe Company elected to be taxed as a REIT under the Code commencing with its taxable year ended December 31, 1994. To qualify as a REIT,non-core assets into our key development and redevelopment pipeline, and nurture succession planning and upward mobility throughout our Company. Mr. A. Coppola also guided the Company
must meet a numberto several high profile and industry leading awards in recognition of
organizationalsustainability initiatives and
operational requirements, including a requirement that it distribute at least 90% of its taxable income to its stockholders. It is management's current intention to adhere to these requirements and maintain the Company's REIT status. As a REIT, the Company generally will not be subject to corporate level federal income taxpractices.Based on taxable income it distributes currently to its stockholders. If the Company fails to qualifyeach executive’s accomplishments as a REIT in any taxable year, then it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualifywell as a REIT for
four subsequent taxable years. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property and to federal income and excise taxes on its undistributed taxable income, if any. Each partner is taxed individually on its share of partnership income or loss, and accordingly, no provision for federal and state income tax is providedconsidering performance scores for the
Operating Partnershipemployees reporting to each of the named executive officers, the Committee scored the individual performance category at 100% of target for Messrs. A. Coppola, O’Hern, and Perlmutter and at 75% of target for Messrs. E. Coppola and Leanse.Earned bonuses were awarded in the consolidated financial statements. The Company's taxable REIT subsidiaries ("TRSs")form of fully-vested LTIP Units, to further promote alignment with stockholders. Under applicable SEC rules, equity awards are subject to corporate level income taxes, which are provided forreported as compensation in the Company's consolidated financial statements.
Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effecttables below for the year in which the
differences are expectedaward was granted, not the year to
reverse. The deferred tax assetswhich the performance relates. Accordingly, the LTIP Units awarded as annual incentive compensation based on 2017 performance described above will be reported in those tables in next year’s proxy statement as compensation for 2018. Thus, the compensation for our named executive officers for 2017 reflected in the Summary Compensation Table and
liabilitiesGrants of Plan-Based Awards Table below includes the LTIP Units awarded to each executive early in 2017 for 2016 performance. See “2017 Total Compensation” below.26
Long-Term Incentives–75% Performance-Based and Tied to Achieving Strong Relative Returns
Since 2006, our Company has utilized a long-term equity-based incentive program as an important means to align the interests of our executives and our stockholders, to encourage our executives to adopt a longer-term perspective and to reward them for creating stockholder value in apay-for-performance structure.
For 2017, the Committee approved for each named executive officer an aggregate grant date fair value for these awards, to be granted in the form of LTIP Units. That amount was divided between two types of LTIP Units as follows:
Performance-Based LTIP Units (75%). May be earned from 0% to 100% of the TRSs relate primarilytarget number of units awarded based on our TSR performance relative to differencesthe Equity Peer REITs for the three-year performance period from January 1, 2017 through December 31, 2019. Payouts, as a percentage of target units, for the performance-based LTIP Units for various levels of absolute and relative performance are outlined in the bookfollowing table, with linear interpolation for performance between performance levels.
| | | | |
MAC’s Relative TSR Percentile Ranking | | Payout
(% of Target LTIP Units) | |
<25th Percentile | | | 0 | % |
25th Percentile | | | 50 | % |
50th Percentile | | | 100 | % |
³75th Percentile | | | 150 | % |
Performance-based LTIP Unit grants prior to 2016 had aone-year performance period. Starting with 2016 grants, we switched to a three-year performance period, to provide better alignment with long-term stockholder return performance. Due to the transition, no performance periods for performance-based LTIP units ended in 2017; as a result, no performance-based LTIP Units vested in 2017.
Service-Based LTIP Units (25%). Vest in equal annual installments over a three-year period to promote retention and further alignment of our executives’ interests with those of our stockholders.
The Committee reviewed peer group data relating to the allocation of long-term incentive equity awards between performance-based and service-based awards and determined that 75% performance-based was a higher percentage than the median mix between performance-based and service-based equity among the peer group, and therefore consistent with our emphasis on “at risk” compensation. For the performance-based component, the Committee considered the range of potential realizable values that our executives could earn to ensure that the awards would be both reasonably competitive and appropriate to motivate our leadership team.
2017 Total Compensation
We are including this supplemental information to provide a more meaningful view of the compensation of our named executive officers for their performance during 2017. The table below shows each named executive officer’s salary, annual long-term incentive equity award grant value, bonus for services performed in 2017 and all other compensation. This table, in contrast to the Summary Compensation Table on page 30 of this Amendment, includes equity awards granted under our annual incentive award program in March 2018 for services performed in 2017 and excludes equity awards granted under our annual incentive award program in March 2017 for services performed in 2016.
| | | | | | | | | | | | | | | | | | | | |
Executive | | Salary | | | Annual
Incentive
Earned
for 2017(1) | | | Long-Term
Incentive
Award
Value(2) | | | All Other
Compensation | | | Total
Compensation | |
Arthur M. Coppola | | $ | 1,000,000 | | | $ | 1,766,000 | | | $ | 8,999,943 | | | $ | 219,745 | | | $ | 11,985,688 | |
Edward C. Coppola | | $ | 800,000 | | | $ | 1,316,800 | | | $ | 3,599,901 | | | $ | 186,597 | | | $ | 5,903,298 | |
Thomas E. O’Hern | | $ | 600,000 | | | $ | 794,700 | | | $ | 1,999,972 | | | $ | 71,588 | | | $ | 3,466,260 | |
Robert D. Perlmutter | | $ | 600,000 | | | $ | 794,700 | | | $ | 1,999,972 | | | $ | 62,327 | | | $ | 3,456,999 | |
Thomas J. Leanse | | $ | 500,000 | | | $ | 617,250 | | | $ | 1,374,934 | | | $ | 57,884 | | | $ | 2,550,068 | |
27
| (1) | Earned annual incentives were awarded in the form of fully-vested LTIP Units on March 2, 2018, with the number of LTIP Units based on the closing price of our Common Stock on the New York Stock Exchange on such date. |
| (2) | These amounts represent the sum of the aggregate grant date fair value of performance-based LTIP Unit awards (75% of the aggregate grant value) and service-based LTIP Unit awards (25% of the aggregate grant value) granted in January 2017 to each of our named executive officers, the terms of which are described above. Had the performance period for the performance-based LTIP Unit awards ended on December 31, 2017, 60% of the target number of performance-based LTIP Units would have vested based on our 30th percentile relative TSR performance. |
Executive Benefits
Certain of our named executive officers participate in our deferred compensation plan available to all Vice Presidents and above who earn more than $115,000 annually. See the “Nonqualified Deferred Compensation” table on page 40 of this Amendment for more information. We also provide our named executive officers with life insurance, medical and disability insurance, and use of a private aircraft in which our Company owns a fractional interest, to allow them to devote more time to our business. Refer to footnote 6 to the Summary Compensation Table on page 34 of this Amendment for additional detail.
Offer Letter with Mr. O’Hern
In connection with Thomas E. O’Hern’s appointment to the role of Chief Executive Officer effective January 1, 2019, the Company entered into a letter agreement with Mr. O’Hern on April 26, 2018 that provides Mr. O’Hern with certain compensation and benefits during the period commencing April 26, 2018 and ending April 25, 2021 (the “Term”). During the Term, Mr. O’Hern’s annual rate of base salary will be $800,000 and his target annual bonus will equal 200% of his annual rate of base salary. With respect to Mr. O’Hern’s fiscal year 2018 bonus, his bonus will reflect his base salary and target bonus in effect during the applicable portions of the fiscal year. In addition, with respect to the annual bonuses payable in respect of fiscal years 2018, 2019 and 2020, all or a portion of his annual bonus may be paid in cash, fully vested LTIP units, fully vested shares or a combination thereof as determined by the Compensation Committee of the Board of Directors, with such allocation subject to Mr. O’Hern’s consent. Mr. O’Hern is also entitled to certain long-term incentive compensation, as follows: (1) for each calendar year of the Term, Mr. O’Hern will receive an annual equity grant in the form of LTIP units having a target grant date value of $6,000,000 per year, which shall be allocated in the same proportion, and vest on the same terms, as annual grants made to other executive officers and (2) Mr. O’Hern will receive a one-time grant of fully vested LTIP units on April 26, 2018 with a grant date value of $5,000,000, 50% of which will be subject to repayment if Mr. O’Hern is terminated for “cause” or resigns without “good reason” (as such terms are defined in the letter agreement) on or prior to April 25, 2019.
Mr. O’Hern will also continue to participate in the Severance Plan (as described below) during the Term. Upon a termination of Mr. O’Hern’s employment without cause or his resignation with good reason (other than in a circumstance that would entitle him to severance benefits under the Severance Plan) during the Term, Mr. O’Hern would be entitled to receive: (a) a prorated annual bonus for the year of termination, based on actual performance, (b) an amount equal to (i) the sum of his base salary and the average of the three annual incentive bonuses awarded to him in respect of his service as Chief Executive Officer the immediately preceding three years (or, if such termination occurs before the fiscal year 2018 bonus is payable, his target annual bonus, or, if one or two such bonuses have been awarded, the average of such bonuses) multiplied by (ii) the quotient of the number of days between his termination date and April 25, 2021, divided by 365, (c) a lump sum cash payment equal to the monthly COBRA continuation rate multiplied by 36, and (d) outplacement services for 12 months pursuant to our outplacement services for senior executives.
Severance Benefits
On November 2, 2017, we adopted The Macerich Company Change in Control Severance Pay Plan for Senior Executives, which we refer to as the “Severance Plan,” which covers all of our named executive officers who are not party to an individual agreement with us that provides for greater severance payments and benefits in the aggregate. The Severance Plan provides specified payments and benefits in connection with a qualifying termination of employment following a “change in control” (as defined in the Severance Plan). In addition, we entered into a management continuity agreement with Mr. Leanse in connection with his hire, which provided for certain payments and benefits upon a change in control and upon a qualifying termination following a change in control. Our goal in providing severance and change in control payments and benefits is to offer sufficient cash continuity protection such that our named executive officers will focus their full time and attention on the requirements of the business rather than potential implications for their respective positions. We prefer to have certainty regarding the potential severance amounts payable to our named executive officers following a change in control, rather than negotiating severance at the time that a named executive officer’s employment with us terminates. We have also determined that accelerated vesting provisions with respect to equity awards in connection with a change in control of the Company are appropriate because they encourage our named executive officers to stay focused on the business in those circumstances, rather than focusing on the potential implications for them personally. For a description of our severance and change in control agreements with certain of our named executive officers, see “Potential Payments Upon Termination or Change in Control” on page 41 of this Amendment.
Compensation Governance Policies
Stock Ownership Policies
The Board believes that our directors and executive officers should have a meaningful investment in our Common Stock in order to more closely align their interests with those of our stockholders. Accordingly, the Board has established stock ownership policies for executives andnon-employee directors.
Executive Stock Ownership Requirements. Executives must own Company Common Stock with a value equal to at least the following multiples of their respective base salaries.
28
| | | | |
Position | | Ownership Requirement as
Multiple of Base Salary | |
Chief Executive Officer | | | 6x | |
Other Named Executive Officers | | | 3x | |
Non-Employee Director Stock Ownership Requirements.Non-employee directors must own Common Stock with a value equal to at least five times the annual cash retainer for Board service.
Until the required ownership level is achieved, executives andnon-employee directors subject to the guidelines must retain at least 50% ofnet-after-tax profit shares from equity compensation awards.Net-after-tax profit shares are shares from vesting of equity grants and/or shares received upon exercise of stock options, net of shares tendered or withheld for payment of the exercise price and net of taxes. This retention requirement will also apply if an executive or director becomesnon-compliant due to a reduction in stock price.
These policies also set forth the forms of equity interests in our Company which count toward stock ownership (any pledged securities do not count) and allow the Board to approve exceptions from time to time for this stock ownership policy. Our policy further provides that anon-employee director who is prohibited by law or by the regulations of his or her employer from having an ownership interest in our Company’s securities shall be exempt. Refer to our Guidelines on Corporate Governance, which are posted on our website. All of our directors and named executive officers that are subject to these stock ownership policies are in compliance with them.
Clawback Policy
We have a clawback policy that allows us to recover cash and equity incentive compensation paid to our executive officers if the compensation was based on achieving financial results that were subsequently restated and the amount of the executive officer’s incentive compensation would have been lower had the financial results been properly reported.
Anti-Hedging/Anti-Pledging Policy
We have a policy prohibiting all of our directors, officers and employees from engaging in any hedging or monetization transactions that are designed to hedge or offset any decrease in the market value of our securities. This policy also prohibits short sales and the purchase and sale of publicly traded options of our Company. In addition, we have a policy (a) prohibiting all our directors and executive officers from pledging our securities if they are unable to meet our stock ownership requirements without reference to such pledged shares and (b) recommending that our directors and executive officers not pledge our securities. Currently, no shares of our Company are pledged by our directors and executive officers.
Accounting and Tax Issues
The Committee considers both the accounting and tax basesissues raised by the various compensation elements for our Company and our executives.
LTIP Units. As described on pages 36-37 of property andthis Amendment, LTIP Units of our Operating Partnership are intended to operating loss carryforwardsqualify as “profits interests” for federal and state income tax purposes. A valuation allowancepurposes and as such initially do not have full parity, on a per unit basis, with our common OP Units with respect to liquidating distributions. Such parity can be achieved over time through priority allocations of“book-up gains” attributable to appreciation of the Operating Partnership’s assets. LTIP Units, regardless of when they were issued, are eligible to share in allocable“book-up gains” since the most recentbook-up or book-down of the limited partners’ capital accounts.
Tax Deductibility of Compensation Expense. Prior to December 22, 2017, when the Tax Cuts and Jobs Act of 2017 (“TCJA”) was signed into law, Section 162(m) of the Internal Revenue Code generally disallowed a tax deduction to publicly held companies for deferredcompensation paid to certain executive officers in excess of $1 million per officer in any year that did not qualify as performance-based. In connection with fiscal 2017 compensation decisions, the Committee considered the potential tax assets is provideddeductibility of executive compensation under Section 162(m) and sought to qualify certain elements of these applicable executives’ compensation as performance-based while also delivering competitive levels and forms of compensation.
Under the TCJA, the performance-based exception has been repealed and the $1 million deduction limit now applies to anyone serving as the chief executive officer or the chief financial officer at any time during the taxable year and the top three other highest compensated executive officers serving at fiscal yearend. Additionally, any executive subject to the limit in one year will be subject to the limit in future years, even if the Company believes itexecutive would otherwise have been subject to the limit for the future year. The new rules generally apply to taxable years beginning after December 31, 2017, but do not apply to remuneration provided pursuant to a written binding contract in effect on November 2, 2017 that is more likely than not modified in any material respect after that all or some portiondate.
Because of ambiguities and uncertainties as to the application and interpretation of Section 162(m) and the regulations issued thereunder, including the uncertain scope of the deferred tax assetstransition relief under the legislation repealing Section 162(m)’s exception to the deduction limit for performance-based compensation, no assurance can be given that compensation intended to satisfy the requirements for exception from the Section 162(m) deduction limit will, in fact, satisfy the exception. The Committee reserves the right to grant or pay compensation that is not be realized. Realizationdeductible as a result of deferred tax assets is dependent on the Company generating sufficient taxable income in future periods.
Segment Information:
The Company currently operates in one business segment, the acquisition, ownership, development, redevelopment, management and leasing of regional and community shopping centers. Additionally, the Company operates in one geographic area, the United States.
Fair Value of Financial Instruments:
The fair value hierarchy distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity and the reporting entity's own assumptions about market participant assumptions.
Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets,Section 162(m), as well as
inputsthe right to modify compensation that
was initially intended to be exempt from Section 162(m) if it determines that such modifications are
observableconsistent with the company’s business needs.29
EXECUTIVE COMPENSATION
The following table and accompanying notes show for our named executive officers as of December 31, 2017, the aggregate compensation paid, awarded or earned with respect to such persons in 2015, 2016 and 2017.
Summary Compensation Table—Fiscal Years 2015-2017
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal Position | | Year | | | Salary
($)(1) | | | Bonus
($)(2)(3) | | | Stock
Awards
($)(2)(3)(4) | | | Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)(5) | | | All Other
Compensation
($)(6) | | | Total
($) | |
| Arthur M. Coppola | | | 2017 | | | | 1,000,000 | | | | — | | | | 11,614,879 | | | | — | | | | 219,745 | | | | 12,834,624 | |
| Chairman of the Board of Directors and Chief | | | 2016 | | | | 1,000,000 | | | | — | | | | 12,299,899 | | | | — | | | | 238,012 | | | | 13,537,911 | |
| Executive Officer | | | 2015 | | | | 1,000,000 | | | | — | | | | 11,999,938 | | | | — | | | | 200,767 | | | | 13,200,705 | |
| Edward C. Coppola | | | 2017 | | | | 800,000 | | | | — | | | | 5,711,901 | | | | — | | | | 186,597 | | | | 6,698,498 | |
| President | | | 2016 | | | | 800,000 | | | | — | | | | 6,239,875 | | | | — | | | | 139,183 | | | | 7,179,058 | |
| | | 2015 | | | | 800,000 | | | | — | | | | 5,399,859 | | | | — | | | | 126,080 | | | | 6,325,939 | |
| Thomas E. O’Hern | | | 2017 | | | | 600,000 | | | | — | | | | 3,187,914 | | | | — | | | | 71,588 | | | | 3,859,502 | |
| Senior Executive Vice President, Chief | | | 2016 | | | | 600,000 | | | | — | | | | 3,361,110 | | | | — | | | | 73,097 | | | | 4,034,207 | |
| Financial Officer and Treasurer | | | 2015 | | | | 550,000 | | | | — | | | | 2,549,796 | | | | — | | | | 69,256 | | | | 3,169,052 | |
| Robert D. Perlmutter | | | 2017 | | | | 600,000 | | | | — | | | | 3,187,914 | | | | — | | | | 62,327 | | | | 3,850,241 | |
| Former Senior Executive Vice President and Chief | | | 2016 | | | | 600,000 | | | | — | | | | 2,737,465 | | | | — | | | | 63,197 | | | | 3,400,662 | |
| Operating Officer | | | 2015 | | | | 500,000 | | | | — | | | | 2,199,907 | | | | — | | | | 57,330 | | | | 2,757,237 | |
| Thomas J. Leanse | | | 2017 | | | | 500,000 | | | | — | | | | 2,270,900 | | | | — | | | | 57,884 | | | | 2,828,784 | |
| Former Senior Executive Vice President, | | | 2016 | | | | 500,000 | | | | — | | | | 2,612,448 | | | | — | | | | 45,637 | | | | 3,158,085 | |
| Chief Legal Officer and Secretary | | | 2015 | | | | 500,000 | | | | — | | | | 2,449,808 | | | | — | | | | 45,229 | | | | 2,995,037 | |
| (1) | Includes any amount of salary deferred under our qualified and nonqualified deferred compensation plans. See “Nonqualified Deferred Compensation” table below for more information. |
| (2) | SEC Reporting of Cash and Equity Awards |
In reviewing the Summary Compensation Table, it is important to note that under SEC rules, cash incentive awards are reported in the table for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates and yield curvesyear that they are observable at commonly quoted intervals. Level 3 inputsearned regardless of when they are unobservable inputspaid, while equity awards are reported in the table for the asset or liability, whichyear that they are typically based on an entity's own assumptions, as there is little, if any, related market activity. In instances where the determinationgranted (as determined in accordance with applicable accounting rules) regardless of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the levelwhen they are earned.
| (3) | Annual Incentive Reported in Year 2017 |
As described in the fair value hierarchy within whichCompensation Discussion and Analysis above, the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
The Company calculates the fair value of financial instruments and includes this additional informationannual incentive compensation awards for our named executive officers for their 2017 performances were paid in the
notesform of fully-vested LTIP Units on March 2, 2018. Accordingly, the LTIP Unit bonuses granted to
consolidated financial statements whenthese named executive officers for their 2017 performance will be reported in the
fair“Stock Awards” column for 2018.30
Annual Incentive Reported in Year 2016
The annual incentive compensation awards for our named executive officers for their 2016 performances were paid in the form of fully-vested LTIP Units on March 3, 2017, and were previously described in the Compensation Discussion and Analysis of our proxy statement filed on April 18, 2017. In accordance with SEC rules, the LTIP Unit bonuses granted to these named executive officers for their 2016 performance are reported in the “Stock Awards” column for 2017. See also footnote (4) below.
Annual Incentive Reported in Year 2015
The annual incentive compensation awards for our named executive officers for their 2015 performance were paid in the form of fully-vested LTIP Units on March 4, 2016 and were previously described in the Compensation Discussion and Analysis of our proxy statement filed on April 15, 2016. In accordance with SEC rules, the LTIP Unit bonuses granted to these named executive officers for their 2015 performance are reported in the “Stock Awards” column for 2016. See also footnote (4) below.
| (4) | Stock Awards Reported in Year 2017 |
The amounts reflected in this column for 2017 relate to performance-based LTIP Units, service-based LTIP Units and fully-vested LTIP Units granted in 2017 under our LTIP and 2003 Incentive Plan. These amounts represent the value is different thanat the carrying valuegrant date computed in accordance with FASB ASC Topic 718, disregarding for this purpose the estimate of those financial instruments. Whenforfeitures related to service-based vesting conditions.
| a. | Performance-Based LTIP Units. The aggregate grant date fair values for performance-based LTIP Unit awards based upon the probable outcome of the performance conditions as of the grant date were as follows: |
| | | | |
Arthur M. Coppola | | $ | 6,749,994 | |
Edward C. Coppola | | $ | 2,699,950 | |
Thomas E. O’Hern | | $ | 1,499,983 | |
Robert D. Perlmutter | | $ | 1,499,983 | |
Thomas J. Leanse | | $ | 1,031,218 | |
The maximum aggregate values for performance-based LTIP Unit awards at the fair value reasonably approximatesgrant date assuming that the carrying value, no additional disclosure is made.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
2. Summary of Significant Accounting Policies: (Continued)
The fair values of interest rate agreements are determined using the market standard methodology of discounting the future expected cash receipts thatperformance conditions would
occur if variable interest rates fell below or rose above the strike rate of the interest rate agreements. The variable interest ratesbe achieved were as follows: | | | | |
Arthur M. Coppola | | $ | 10,141,454 | |
Edward C. Coppola | | $ | 4,056,511 | |
Thomas E. O’Hern | | $ | 2,253,633 | |
Robert D. Perlmutter | | $ | 2,253,633 | |
Thomas J. Leanse | | $ | 1,549,342 | |
| b. | Service-Based LTIP Units. The grant date fair values for service-based LTIP Unit awards were as follows: |
| | | | |
Arthur M. Coppola | | $ | 2,249,949 | |
Edward C. Coppola | | $ | 899,951 | |
Thomas E. O’Hern | | $ | 499,989 | |
Robert D. Perlmutter | | $ | 499,989 | |
Thomas J. Leanse | | $ | 343,716 | |
31
| c. | Fully-Vested LTIP Units. The grant date fair values for fully-vested LTIP Unit awards, which represent each named executive officer’s annual incentive award earned for 2016 performance, were as follows: |
| | | | |
Arthur M. Coppola | | $ | 2,614,936 | |
Edward C. Coppola | | $ | 2,112,000 | |
Thomas E. O’Hern | | $ | 1,187,942 | |
Robert D. Perlmutter | | $ | 1,187,942 | |
Thomas J. Leanse | | $ | 895,966 | |
Assumptions used in the calculation of projected receipts on the interest rate agreementsthese amounts are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. The Company incorporates credit valuation adjustmentsset forth in footnote 19 to appropriately reflect both its own nonperformance risk and the respective counterparty's nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contractsour audited financial statements for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.
Concentration of Risk:
The Company maintains its cash accounts in a number of commercial banks. Accounts at these banks are guaranteed by the Federal Deposit Insurance Corporation ("FDIC") up to $250. At various times during thefiscal year the Company had deposits in excess of the FDIC insurance limit.
No Center or tenant generated more than 10% of total revenues during the years ended December 31, 2017 included in our Annual Report onForm 10-K filed with the SEC on February 23, 2018.Stock Awards Reported in Year 2016
, 2015 or 2014.Management Estimates:
The preparation of financial statementsamounts reflected in conformity with GAAP requires managementthis column for 2016 relate to make estimatesperformance-based LTIP Units, service-based LTIP Units and assumptions that affectfully-vested LTIP Units granted in 2016 under our LTIP and 2003 Incentive Plan. These amounts represent the reported amounts of assets and liabilities and disclosure of contingent assets and liabilitiesvalue at the grant date computed in accordance with FASB ASC Topic 718, disregarding for this purpose the estimate of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements:
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, “Revenue From Contracts With Customers,” which outlines a comprehensive model for entitiesforfeitures related to
use in accounting for revenue arising from contracts with customers. ASU 2014-09 states that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” While ASU 2014-09 specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate or equipment. ASU 2014-09 is effectiveservice-based vesting conditions.| a. | Performance-Based LTIP Units. The aggregate grant date fair values for the performance-based LTIP Unit awards based upon the probable outcome of the performance conditions as of the grant date were as follows: |
| | | | |
Arthur M. Coppola | | $ | 6,749,992 | |
Edward C. Coppola | | $ | 2,699,965 | |
Thomas E. O’Hern | | $ | 1,499,945 | |
Robert D. Perlmutter | | $ | 1,124,999 | |
Thomas J. Leanse | | $ | 1,031,209 | |
The maximum aggregate values for the Company beginning January 1, 2018, with early adoption permitted beginning January 1, 2017. The Company is evaluating eachperformance-based LTIP Unit awards at the grant date assuming that the highest level of its revenue streams and related accounting policies under the standard. Rental revenues and tenant recoveries willperformance conditions would be evaluated with the adoption of the new lease accounting standard (discussed below). The Company does not believe ASU 2014-09 will significantly impact its accounting for minimum rents, percentage rents, tenant recoveries and other revenues. The Company expects to adopt this standard on a modified retrospective basis.
In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheetachieved were as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected. The Company's adoption of ASU 2015-03 on January 1, 2016 resulted in an adjustment of its consolidated balance sheet at December 31, 2015 to reflect the new presentation required by the standard.
In September 2015, the FASB issued ASU 2015-16, "Simplifying the Accounting for Measurement-Period Adjustments," which requires adjustments to provisional amounts used in business combinations during the measurement period to be recognized in the reporting period in which the adjustment amounts are determined. It also requires the disclosure of the impact on changes in estimates on earnings, depreciation, amortization and other income effects. The Company's adoption of this standard on January 1, 2016 did not have an impact on its consolidated financial statements.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
2. Summary of Significant Accounting Policies: (Continued)
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," which sets out principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The standard requires that lessors expense, on an as-incurred basis, certain initial direct costs that are not incremental in negotiating a lease. Under existing standards, certain of these costs are capitalizable and therefore this new standard may result in certain of these costs being expensed as incurred after adoption. This standard may also impact the timing, recognition and disclosures related to the Company's tenant recoveries from tenants earned from leasing its operating properties.
Under ASU 2016-02, lessees apply a dual approach, classifying leases as either finance or operating leases. A lessee is required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months, regardless of their lease classification. The Company is a lessee on ground leases at certain properties and on certain office space leases. ASU 2016-02 will impact the accounting and disclosure requirements for these leases. ASU 2016-02 is effective for the Company under a modified retrospective approach beginning January 1, 2019. The Company is evaluating the impact of the adoption of this standard on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, "Compensation-Stock Compensation (Topic 718)," which amends the accounting for share-based payments, including the income tax consequences, classification of awards and classification on the statement of cash flows. The Company's adoption of this standard on January 1, 2017 did not have a significant impact on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash flows (Topic 230)," which amends the accounting for the statement of cash flows by providing guidance on how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The Company's adoption of this standard on January 1, 2017 did not have a significant impact on its consolidated financial statements.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
3. Earnings Per Share ("EPS"):
The following table reconciles the numerator and denominatorfollows: | | | | |
Arthur M. Coppola | | $ | 10,214,870 | |
Edward C. Coppola | | $ | 4,085,890 | |
Thomas E. O’Hern | | $ | 2,269,890 | |
Robert D. Perlmutter | | $ | 1,702,478 | |
Thomas J. Leanse | | $ | 1,560,545 | |
| b. | Service-Based LTIP Units. The grant date fair values for service-based LTIP Unit awards were as follows: |
| | | | |
Arthur M. Coppola | | $ | 2,249,960 | |
Edward C. Coppola | | $ | 899,936 | |
Thomas E. O’Hern | | $ | 499,955 | |
Robert D. Perlmutter | | $ | 374,966 | |
Thomas J. Leanse | | $ | 343,739 | |
| c. | Fully-Vested LTIP Units. The grant date fair values for fully-vested LTIP Unit awards, which represent each named executive officer’s annual incentive award earned for 2015 performance, were as follows: |
| | | | |
Arthur M. Coppola | | $ | 3,299,947 | |
Edward C. Coppola | | $ | 2,639,974 | |
Thomas E. O’Hern | | $ | 1,361,210 | |
Robert D. Perlmutter | | $ | 1,237,500 | |
Thomas J. Leanse | | $ | 1,237,500 | |
Assumptions used in the computationcalculation of earnings per sharethese amounts are set forth in footnote 18 to our audited financial statements for the years ended December 31 (shares in thousands):
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Numerator | | | | | |
| Net Income | $ | 554,839 |
| | $ | 522,912 |
| | $ | 1,606,931 |
|
| Net income attributable to noncontrolling interests | (37,844 | ) | | (35,350 | ) | | (107,889 | ) |
| Net income attributable to the Company | 516,995 |
| | 487,562 |
| | 1,499,042 |
|
| Allocation of earnings to participating securities | (779 | ) | | (1,493 | ) | | (1,576 | ) |
| Numerator for basic and diluted EPS—net income attributable to common stockholders | $ | 516,216 |
| | $ | 486,069 |
| | $ | 1,497,466 |
|
| Denominator | | | | | |
| Denominator for basic EPS—weighted average number of common shares outstanding | 146,599 |
| | 157,916 |
| | 143,144 |
|
| Effect of dilutive securities (1) | | | | | |
| Share and unit based compensation | 112 |
| | 144 |
| | 147 |
|
| Denominator for diluted EPS—weighted average number of common shares outstanding | 146,711 |
| | 158,060 |
| | 143,291 |
|
| Earnings per common share—net income attributable to common stockholders: | | | | | |
| Basic | $ | 3.52 |
| | $ | 3.08 |
| | $ | 10.46 |
|
| Diluted | $ | 3.52 |
| | $ | 3.08 |
| | $ | 10.45 |
|
| |
(1) | Diluted EPS excludes 133,366, 139,186 and 179,667 convertible preferred units for the years ended December 31, 2016, 2015 and 2014, respectively, as their impact was antidilutive. |
Diluted EPS excludes 10,721,271 and 10,562,154 and 10,079,935 Operating Partnership units ("OP Units") for the years ended December 31, 2016, 2015 and 2014, respectively, as their effect was antidilutive.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
4. Investments in Unconsolidated Joint Ventures:
The following are the Company's direct or indirect investments in various joint ventures with third parties. The Company's direct or indirect ownership interest in each joint venture as of December 31, 2016 was as follows:
|
| | |
Joint Venture | Ownership %(1) |
443 Wabash MAB LLC | 45.0 | % |
AM Tysons LLC | 50.0 | % |
Biltmore Shopping Center Partners LLC | 50.0 | % |
Candlestick Center LLC—Fashion Outlets of San Francisco | 50.1 | % |
Coolidge Holding LLC | 37.5 | % |
Corte Madera Village, LLC | 50.1 | % |
Country Club Plaza KC Partners LLC | 50.0 | % |
Fashion Outlets of Philadelphia—Various Entities | 50.0 | % |
Jaren Associates #4 | 12.5 | % |
Kierland Commons Investment LLC | 50.0 | % |
Macerich HHF Centers LLC—Various Properties | 51.0 | % |
Macerich Northwestern Associates—Broadway Plaza | 50.0 | % |
MS Portfolio LLC | 50.0 | % |
New River Associates LLC—Arrowhead Towne Center | 60.0 | % |
North Bridge Chicago LLC | 50.0 | % |
One Scottsdale Investors LLC | 50.0 | % |
Pacific Premier Retail LLC—Various Properties | 60.0 | % |
Propcor II Associates, LLC—Boulevard Shops | 50.0 | % |
Scottsdale Fashion Square Partnership | 50.0 | % |
The Market at Estrella Falls LLC | 40.1 | % |
TM TRS Holding Company LLC—Valencia Place at Country Club Plaza | 50.0 | % |
Tysons Corner LLC | 50.0 | % |
Tysons Corner Hotel I LLC | 50.0 | % |
Tysons Corner Property Holdings II LLC | 50.0 | % |
Tysons Corner Property LLC | 50.0 | % |
West Acres Development, LLP | 19.0 | % |
Westcor/Gilbert, L.L.C. | 50.0 | % |
Westcor/Queen Creek LLC | 38.1 | % |
Westcor/Surprise Auto Park LLC | 33.3 | % |
WMAP, L.L.C.—Atlas Park, The Shops at | 50.0 | % |
| |
(1) | The Company's ownership interest in this table reflects its direct or indirect legal ownership interest. Legal ownership may, at times, not equal the Company’s economic interest in the listed entities because of various provisions in certain joint venture agreements regarding distributions of cash flow based on capital account balances, allocations of profits and losses and payments of preferred returns. As a result, the Company’s actual economic interest (as distinct from its legal ownership interest) in certain of the properties could fluctuate from time to time and may not wholly align with its legal ownership interests. Substantially all of the Company’s joint venture agreements contain rights of first refusal, buy-sell provisions, exit rights, default dilution remedies and/or other break up provisions or remedies which are customary in real estate joint venture agreements and which may, positively or negatively, affect the ultimate realization of cash flow and/or capital or liquidation proceeds. |
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
4. Investments in Unconsolidated Joint Ventures: (Continued)
The Company has made the following investments and dispositions in unconsolidated joint ventures during the years ended December 31, 2016, 2015 and 2014:
On June 4, 2014, the Company acquired the remaining 49% ownership interest in Cascade Mall, a 589,000 square foot regional shopping center in Burlington, Washington, that it did not previously own for a cash payment of $15,233. The Company purchased Cascade Mall from its joint venture in Pacific Premier Retail LLC. The cash payment was funded by borrowings under the Company's line of credit. Prior to the acquisition, the Company had accounted for its investment in Cascade Mall under the equity method of accounting. Since the date of acquisition, the Company has included Cascade Mall in its consolidated financial statements (See Note 13—Acquisitions).
On July 30, 2014, the Company formed a joint venture to redevelop Fashion Outlets of Philadelphia, a 1,376,000 square foot regional shopping center in Philadelphia, Pennsylvania. The Company invested $106,800 for a 50% interest in the joint venture, which was funded by borrowings under its line of credit.
On August 28, 2014, the Company sold its 30% ownership interest in Wilshire Boulevard, a 40,000 square foot freestanding store in Santa Monica, California, for a total sales price of $17,100, resulting in a gain on the sale of assets of $9,033, which was included in gain (loss) on sale or write down of assets, net. The sales price was funded by a cash payment of $15,386 and the assumption of the Company's share of the mortgage note payable on the property of $1,714. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes.
On November 13, 2014, the Company formed a joint venture to develop Fashion Outlets of San Francisco, a 500,000 square foot outlet center in San Francisco, California. In connection with the formation of the joint venture, the Company issued a note receivable for $65,130 to its joint venture partner that bears interest at LIBOR plus 2.0% and matures upon the completion of certain milestones in connection with the development of Fashion Outlets of San Francisco (See Note 17—Related Party Transactions).
On November 14, 2014, the Company acquired the remaining 49% ownership interest that it did not previously own in two separate joint ventures, Pacific Premier Retail LLC and Queens JV LP, which together owned five Centers: Lakewood Center, a 2,064,000 square foot regional shopping center in Lakewood, California; Los Cerritos Center, a 1,298,000 square foot regional shopping center in Cerritos, California; Queens Center, a 963,000 square foot regional shopping center in Queens, New York; Stonewood Center, a 932,000 square foot regional shopping center in Downey, California; and Washington Square, a 1,440,000 square foot regional shopping center in Portland, Oregon (collectively referred to herein as the "PPR Queens Portfolio"). The total consideration of $1,838,886 was funded by the direct issuance of $1,166,777 of common stock of the Company (See Note 12—Stockholders' Equity) and the assumption of the third party's pro rata share of the mortgage notes payable on the properties of $672,109. Prior to the acquisition, the Company had accounted for its investment in these joint ventures under the equity method of accounting. The Company has included Stonewood Center and Queens Center in its consolidated financial statements since the date of acquisition (See Note 13—Acquisitions) and has included Lakewood Center, Los Cerritos Center and Washington Square in its consolidated financial statements from the date of acquisition until the Company sold a 40% interest in the PPR Portfolio on October 30, 2015 as provided below.
On November 20, 2014, the Company purchased a 45% interest in 443 North Wabash Avenue, a 65,000 square foot undeveloped site adjacent to the Company's joint venture in The Shops at North Bridge in Chicago, Illinois, for a cash payment of $18,900. The cash payment was funded by borrowings under the Company's line of credit.
On February 17, 2015, the Company acquired the remaining 50% ownership interest in Inland Center, an 866,000 square foot regional shopping center in San Bernardino, California, that it did not previously own for $51,250. The purchase price was funded by a cash payment of $26,250 and the assumption of the third party's share of the mortgage note payable on the property of $25,000. Concurrent with the purchase of the joint venture interest, the Company paid off the $50,000 mortgage note payable on the property. The cash payment was funded by borrowings under the Company's line of credit. Prior to the acquisition, the Company had accounted for its investment in Inland Center under the equity method of accounting. Since the date of acquisition, the Company has included Inland Center in its consolidated financial statements (See Note 13—Acquisitions).
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
4. Investments in Unconsolidated Joint Ventures: (Continued)
On April 30, 2015, the Company entered into a 50/50 joint venture with Sears to own nine freestanding stores located at Arrowhead Towne Center, Chandler Fashion Center, Danbury Fair Mall, Deptford Mall, Freehold Raceway Mall, Los Cerritos Center, South Plains Mall, Vintage Faire Mall and Washington Square. The Company invested $150,000 for a 50% ownership interest in the joint venture, which was funded by borrowings under the Company's line of credit.
On October 30, 2015, the Company sold a 40% ownership interest in Pacific Premier Retail LLC (the "PPR Portfolio"), which owns Lakewood Center, a 2,064,000 square foot regional shopping center in Lakewood, California; Los Cerritos Center, a 1,298,000 square foot regional shopping center in Cerritos, California; South Plains Mall, a 1,127,000 square foot regional shopping center in Lubbock, Texas; and Washington Square, a 1,440,000 square foot regional shopping center in Portland, Oregon, for a total sales price of $1,258,643, resulting in a gain on sale of assets of $311,194. The sales price was funded by a cash payment of $545,643 and the assumption of a pro rata share of the mortgage and other notes payable on the properties of $713,000. The Company used the cash proceeds from the sales to pay down its line of credit and for general corporate purposes, which included funding the ASR and Special Dividend (See Note 12—Stockholders' Equity). Upon completion of the sale of the ownership interest, the Company no longer has a controlling interest in the joint venture due to the substantive participation rights of the outside partner. Accordingly, the Company accounts for its investment in the PPR Portfolio under the equity method of accounting.
On January 6, 2016, the Company sold a 40% ownership interest in Arrowhead Towne Center, a 1,197,000 square foot regional shopping center in Glendale, Arizona, for $289,496, resulting in a gain on the sale of assets of $101,629. The sales price was funded by a cash payment of $129,496 and the assumption of a pro rata share of the mortgage note payable on the property of $160,000. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes, which included funding the Special Dividend (See Note 12—Stockholders' Equity). Upon completion of the sale of the ownership interest, the Company no longer has a controlling interest in the joint venture due to the substantive participation rights of the outside partner. Accordingly, the Company accounts for its investment in Arrowhead Towne Center under the equity method of accounting.
On January 14, 2016, the Company formed a joint venture, whereby the Company sold a 49% ownership interest in Deptford Mall, a 1,039,000 square foot regional shopping center in Deptford, New Jersey; FlatIron Crossing, a 1,431,000 square foot regional shopping center in Broomfield, Colorado; and Twenty Ninth Street, an 847,000 square foot regional shopping center in Boulder, Colorado (the "MAC Heitman Portfolio"), for $771,478, resulting in a gain on the sale of assets of $340,734. The sales price was funded by a cash payment of $478,608 and the assumption of a pro rata share of the mortgage notes payable on the properties of $292,870. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes. Upon completion of the sale of the ownership interest, the Company no longer has a controlling interest in the joint venture due to the substantive participation rights of the outside partner. Accordingly, the Company accounts for its investment in the MAC Heitman Portfolio under the equity method of accounting.
On March 1, 2016, the Company, through a 50/50 joint venture, acquired Country Club Plaza, a 1,246,000 square foot regional shopping center in Kansas City, Missouri, for a purchase price of $660,000. The Company funded its pro rata share of the purchase price of $330,000 from borrowings under its line of credit. On March 28, 2016, the joint venture placed a $320,000 loan on the property that bears interest at an effective rate of 3.88% and matures on April 1, 2026. The Company used its pro rata share of the proceeds to pay down its line of credit and for general corporate purposes.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
4. Investments in Unconsolidated Joint Ventures: (Continued)
Combined and condensed balance sheets and statements of operations are presented below for all unconsolidated joint ventures.
Combined and Condensed Balance Sheets of Unconsolidated Joint Ventures as of December 31:
|
| | | | | | | |
| | 2016 | | 2015 |
| Assets(1): | | | |
| Properties, net | $ | 9,176,642 |
| | $ | 6,334,442 |
|
| Other assets | 614,607 |
| | 507,718 |
|
| Total assets | $ | 9,791,249 |
| | $ | 6,842,160 |
|
| Liabilities and partners' capital(1): | | | |
| Mortgage and other notes payable(2) | $ | 5,224,713 |
| | $ | 3,607,588 |
|
| Other liabilities | 403,369 |
| | 355,634 |
|
| Company's capital | 2,279,819 |
| | 1,585,796 |
|
| Outside partners' capital | 1,883,348 |
| | 1,293,142 |
|
| Total liabilities and partners' capital | $ | 9,791,249 |
| | $ | 6,842,160 |
|
| Investment in unconsolidated joint ventures: | | | |
| Company's capital | $ | 2,279,819 |
| | $ | 1,585,796 |
|
| Basis adjustment(3) | (584,887 | ) | | (77,701 | ) |
| | $ | 1,694,932 |
| | $ | 1,508,095 |
|
| | | | |
| Assets—Investments in unconsolidated joint ventures | $ | 1,773,558 |
| | $ | 1,532,552 |
|
| Liabilities—Distributions in excess of investments in unconsolidated joint ventures | (78,626 | ) | | (24,457 | ) |
| | $ | 1,694,932 |
| | $ | 1,508,095 |
|
| |
(1) | These amounts include the assets of $3,179,255 and $3,283,702 of Pacific Premier Retail LLC as of December 31, 2016 and 2015, respectively, and liabilities of $1,887,952 and $1,938,241 of Pacific Premier Retail LLC as of December 31, 2016 and 2015, respectively. |
| |
(2) | Included in mortgage and other notes payable are amounts due to affiliates of Northwestern Mutual Life ("NML") of $265,863 and $460,872 as of December 31, 2016 and 2015, respectively. NML is considered a related party because it is a joint venture partner with the Company in Macerich Northwestern Associates—Broadway Plaza. Interest expense incurred on these borrowings amounted to $16,898, $29,372 and $38,113 for the years ended December 31, 2016, 2015 and 2014, respectively. |
| |
(3) | The Company amortizes the difference between the cost of its investments in unconsolidated joint ventures and the book value of the underlying equity into income on a straight-line basis consistent with the lives of the underlying assets. The amortization of this difference was $17,610, $5,619 and $5,109 for the years ended December 31, 2016, 2015 and 2014, respectively. |
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
4. Investments in Unconsolidated Joint Ventures: (Continued)
Combined and Condensed Statements of Operations of Unconsolidated Joint Ventures:
|
| | | | | | | | | | | | | |
| | | | Pacific
Premier
Retail LLC(1) | | Other Joint Ventures | | Total |
| Year Ended December 31, 2016 | | | | | | | |
| Revenues: | | | | | | | |
| Minimum rents | | | $ | 129,145 |
| | $ | 471,139 |
| | $ | 600,284 |
|
| Percentage rents | | | 5,437 |
| | 15,480 |
| | 20,917 |
|
| Tenant recoveries | | | 47,856 |
| | 187,288 |
| | 235,144 |
|
| Other | | | 6,303 |
| | 49,937 |
| | 56,240 |
|
| Total revenues | | | 188,741 |
| | 723,844 |
| | 912,585 |
|
| Expenses: | | | | | | | |
| Shopping center and operating expenses | | | 39,804 |
| | 234,704 |
| | 274,508 |
|
| Interest expense | | | 64,626 |
| | 123,043 |
| | 187,669 |
|
| Depreciation and amortization | | | 108,880 |
| | 251,498 |
| | 360,378 |
|
| Total operating expenses | | | 213,310 |
| | 609,245 |
| | 822,555 |
|
| Loss on sale of assets | | | — |
| | (375 | ) | | (375 | ) |
| Net (loss) income | | | $ | (24,569 | ) | | $ | 114,224 |
| | $ | 89,655 |
|
| Company's equity in net (loss) income | | | $ | (3,088 | ) | | $ | 60,029 |
| | $ | 56,941 |
|
| | | | | | | | |
| Year Ended December 31, 2015 | | | | | | | |
| Revenues: | | | | | | | |
| Minimum rents | | | $ | 21,172 |
| | $ | 293,921 |
| | $ | 315,093 |
|
| Percentage rents | | | 2,569 |
| | 13,188 |
| | 15,757 |
|
| Tenant recoveries | | | 8,408 |
| | 129,059 |
| | 137,467 |
|
| Other | | | 1,182 |
| | 33,931 |
| | 35,113 |
|
| Total revenues | | | 33,331 |
| | 470,099 |
| | 503,430 |
|
| Expenses: | | | | | | | |
| Shopping center and operating expenses | | | 6,852 |
| | 165,795 |
| | 172,647 |
|
| Interest expense | | | 10,448 |
| | 78,279 |
| | 88,727 |
|
| Depreciation and amortization | | | 16,919 |
| | 133,707 |
| | 150,626 |
|
| Total operating expenses | | | 34,219 |
| | 377,781 |
| | 412,000 |
|
| Gain on sale of assets | | | — |
| | 9,850 |
| | 9,850 |
|
| Loss on early extinguishment of debt | | | — |
| | (3 | ) | | (3 | ) |
| Net (loss) income | | | $ | (888 | ) | | $ | 102,165 |
| | $ | 101,277 |
|
| Company's equity in net income | | | $ | 1,409 |
| | $ | 43,755 |
| | $ | 45,164 |
|
| | | | | | | | |
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
4. Investments in Unconsolidated Joint Ventures: (Continued)
|
| | | | | | | | | | | | | |
| | | | Pacific
Premier
Retail LLC(1) | | Other Joint Ventures | | Total |
| Year Ended December 31, 2014 | | | | | | | |
| Revenues: | | | | | | | |
| Minimum rents | | | $ | 88,831 |
| | $ | 299,532 |
| | $ | 388,363 |
|
| Percentage rents | | | 2,652 |
| | 14,509 |
| | 17,161 |
|
| Tenant recoveries | | | 40,118 |
| | 146,623 |
| | 186,741 |
|
| Other | | | 4,090 |
| | 36,615 |
| | 40,705 |
|
| Total revenues | | | 135,691 |
| | 497,279 |
| | 632,970 |
|
| Expenses: | | | | | | | |
| Shopping center and operating expenses | | | 37,113 |
| | 178,299 |
| | 215,412 |
|
| Interest expense | | | 34,113 |
| | 102,974 |
| | 137,087 |
|
| Depreciation and amortization | | | 29,688 |
| | 114,715 |
| | 144,403 |
|
| Total operating expenses | | | 100,914 |
| | 395,988 |
| | 496,902 |
|
| (Loss) gain on sale of assets | | | (7,044 | ) | | 10,687 |
| | 3,643 |
|
| Net income | | | $ | 27,733 |
| | $ | 111,978 |
| | $ | 139,711 |
|
| Company's equity in net income | | | $ | 9,743 |
| | $ | 50,883 |
| | $ | 60,626 |
|
| | | | | | | | |
| |
(1) | These amounts exclude the results of operations from November 14, 2014 to October 29, 2015, as Pacific Premier Retail LLC became wholly-owned as a result of the PPR Queens Portfolio acquisition. Pacific Premier Retail LLC was converted from wholly-owned to an unconsolidated joint venture effective October 30, 2015, as a result of the PPR Portfolio transaction, as discussed above. |
Significant accounting policies used by the unconsolidated joint ventures are similar to those used by the Company.
5. Property, net:
Property at December 31, 2016 and 2015 consists of the following:
|
| | | | | | | |
| | 2016 | | 2015 |
| Land | $ | 1,607,590 |
| | $ | 1,894,717 |
|
| Buildings and improvements | 6,511,741 |
| | 7,752,892 |
|
| Tenant improvements | 622,878 |
| | 637,355 |
|
| Equipment and furnishings | 177,036 |
| | 169,841 |
|
| Construction in progress | 289,966 |
| | 234,851 |
|
| | 9,209,211 |
| | 10,689,656 |
|
| Less accumulated depreciation | (1,851,901 | ) | | (1,892,744 | ) |
| | $ | 7,357,310 |
| | $ | 8,796,912 |
|
Depreciation expense for the years ended December 31, 2016, 2015 and 2014 was $277,270, $354,977 and $289,178, respectively.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
5. Property, net: (Continued)
The gain on sale or write down of assets, net for thefiscal year ended December 31, 2016
includes a gainincluded in our Annual Report onForm 10-K filed with the SEC on February 24, 2017.32
Stock Awards Reported in Year 2015
The amounts reflected in this column for 2015 relate to two types of $101,629 onperformance-based LTIP Units, service-based LTIP Units and fully-vested LTIP Units granted in 2015 under our LTIP and 2003 Incentive Plan. These amounts represent the salevalue at the grant date computed in accordance with FASB ASC Topic 718, disregarding for this purpose the estimate of a 40% ownership interest in Arrowhead Towne Center (See Note 4—Investments in Unconsolidated Joint Ventures), $340,734 onforfeitures related to service-based vesting conditions.
| a. | Performance-Based LTIP Units. The aggregate grant date fair values for the two types of performance-based LTIP Unit awards based upon the probable outcome of the performance conditions as of the grant date were as follows: |
| | | | |
Arthur M. Coppola | | $ | 6,749,961 | |
Edward C. Coppola | | $ | 2,249,944 | |
Thomas E. O’Hern | | $ | 937,409 | |
Robert D. Perlmutter | | $ | 749,982 | |
Thomas J. Leanse | | $ | 937,409 | |
The maximum aggregate values for the saletwo types of a 49% ownership interestperformance-based LTIP Unit awards at the grant date assuming that the highest level of performance conditions would be achieved were as follows:
| | | | |
Arthur M. Coppola | | $ | 12,724,446 | |
Edward C. Coppola | | $ | 4,241,399 | |
Thomas E. O’Hern | | $ | 1,767,124 | |
Robert D. Perlmutter | | $ | 1,413,800 | |
Thomas J. Leanse | | $ | 1,767,124 | |
| b. | Service-Based LTIP Units. The grant date fair values for service-based LTIP Unit awards were as follows: |
| | | | |
Arthur M. Coppola | | $ | 2,249,985 | |
Edward C. Coppola | | $ | 749,939 | |
Thomas E. O’Hern | | $ | 312,454 | |
Robert D. Perlmutter | | $ | 249,980 | |
Thomas J. Leanse | | $ | 312,454 | |
| c. | Fully-Vested LTIP Units. The grant date fair values for fully-vested LTIP Unit awards, which represent each named executive officer’s annual incentive award earned for 2014 performance, were as follows: |
| | | | |
Arthur M. Coppola | | $ | 2,999,992 | |
Edward C. Coppola | | $ | 2,399,976 | |
Thomas E. O’Hern | | $ | 1,299,933 | |
Robert D. Perlmutter | | $ | 1,199,945 | |
Thomas J. Leanse | | $ | 1,199,945 | |
Assumptions used in the MAC Heitman Portfolio (See Note 4—Investmentscalculation of these amounts are set forth in Unconsolidated Joint Ventures), $24,894 onfootnote 18 to our audited financial statements for the sale of Capitola Mall (See Note 14—Dispositions) and $4,546 on the sale of land. These gains were offset in part by a loss of $39,671 on impairment, a charge of $12,180 from a contingent consideration obligation, a loss of $3,066 on the sale of a former Mervyn's store (See Note 14—Dispositions) and $1,538 on the write-off of development costs. The loss on impairment was due to the reduction of the estimated holding periods of Cascade Mall (See Note 22—Subsequent Events), Promenade at Casa Grande, The Marketplace at Flagstaff and a freestanding store.
The gain on sale or write down of assets, net for thefiscal year ended December 31, 2015
includesincluded in our Annual Report onForm 10-K filed with the
gainSEC on February 23, 2016.| (5) | None of the earnings on the deferred compensation of our named executive officers for 2017 were considered above-market or preferential as determined under SEC rules. |
33
| (6) | “All Other Compensation” includes the following components for 2017: |
| | | | | | | | | | | | | | | | | | | | |
| | | Matching
Contributions
under
401(k) Plan
$ | | | Matching
Contributions
under
Nonqualified
Deferred
Compensation
Plan
$ | | | Life
Insurance
Premiums
$ | | | Other
Welfare
Benefit
Premiums
$ | | | Use of
Private
Aircraft
$ | |
Arthur M. Coppola | | | — | | | | — | | | | 3,727 | | | | 29,098 | | | | 186,920 | |
Edward C. Coppola | | | 10,800 | | | | — | | | | 2,973 | | | | 29,098 | | | | 143,726 | |
Thomas E. O’Hern | | | 10,800 | | | | 30,000 | | | | 1,690 | | | | 29,098 | | | | — | |
Robert D. Perlmutter | | | 10,800 | | | | 30,000 | | | | 1,007 | | | | 20,520 | | | | — | |
Thomas J. Leanse | | | 10,800 | | | | 25,000 | | | | 1,564 | | | | 20,520 | | | | — | |
Matching Contributions. Amounts shown include matching deferred compensation contributions by our Company as determined by our Board of $311,194 onDirectors annually under our nonqualified deferred compensation plan and matching contributions by our Company under our 401(k) Plan. The amount of the salematching contributions under these plans is determined in the same manner for all plan participants. See the “Nonqualified Deferred Compensation” table below.
Other Welfare Benefit Premiums. Amounts shown reflect the premiums paid by our Company for medical and disability insurance.
Private Aircraft Use. Amounts shown reflect the incremental cost to our Company of such executive’s personal use of a 40% ownership interestprivate aircraft in which our Company owns a fractional interest. The incremental cost is determined by using the PPR Portfolio (See Note 4—Investments in Unconsolidated Joint Ventures), $73,726amount our Company is billed for such use less the portion reimbursed by the executives and such amount may include: landing fees, parking and flight planning expenses; crew travel expenses; supplies and catering; aircraft fuel and oil expenses; maintenance, parts and external labor (inspections and repairs); engine insurance expenses; position flight costs; and passenger ground transportation. Since the aircraft is used primarily for business travel, our Company does not include the fixed costs that do not change based on the saleusage, such as management fees and acquisition costs.
34
Grants of Panorama Mall (See Note 14—Dispositions), $2,336 on the sale of assets and $1,807 on the sale of land offset in part by a loss of $10,633 on impairment and $182 on the write-off of development costs. The loss on impairment was due to the reduction of the estimated holding periods of Flagstaff Mall (See Note 14—Dispositions) and a freestanding store.
The gain on sale or write down of assets, net for the year ended December 31, 2014 includes the gain of $144,927 on the sales of Rotterdam Square, Somersville Towne Center, Lake Square Mall, South Towne Center, Camelback Colonnade and four former Mervyn's stores (See Note 14—Dispositions), $9,033 on the sale of Wilshire Boulevard (See Note 4—Investments in Unconsolidated Joint Ventures) and $1,257 on the sale of assets offset in part by a loss of $41,216 on impairment and $40,561 on the write-off of development costs. The loss on impairment was due to the reduction in the estimated holding periods of the long-lived assets of several properties including Great Northern Mall, Cascade Mall, a property adjacent to Fiesta Mall and three former Mervyn's stores sold in 2014 (See Note 14—Dispositions).
Plan-Based Awards—Fiscal 2017The following table summarizes certain of the Company's assets that were measured on a nonrecurring basis as a result of impairment charges recorded for the years ended December 31, 2016, 2015provides information regarding performance-based LTIP Units, service-based LTIP Units and 2014 as described above:
|
| | | | | | | | | | | | | | | | |
| Years ended December, 31 | | Total Fair Value Measurement | | Quoted Prices in Active Markets for Identical Assets | | Significant Other Unobservable Inputs | | Significant Unobservable Inputs |
| | | (Level 1) | | (Level 2) | | (Level 3) |
| 2016 | | $ | 86,100 |
| | $ | — |
| | $ | — |
| | $ | 86,100 |
|
| 2015 | | $ | 33,300 |
| | $ | — |
| | $ | — |
| | $ | 33,300 |
|
| 2014 | | $ | 44,500 |
| | $ | — |
| | $ | — |
| | $ | 44,500 |
|
The fair value relatingfully-vested LTIP Units granted to impairment assessments were based upon a discounted cash flow model that includes all cash inflows and outflows over a specific holding period. Such projected cash flows are comprised of contractual rental revenues and forecasted rental revenues and expenses based upon market conditions and expectations for growth. Terminal capitalization rates and discount rates utilizedour named executive officers in these models are based on a reasonable range of current market rates for each property analyzed. Based upon these inputs, the Company determined that its valuations of properties using a discounted cash flow model are classified within Level 3 of the fair value hierarchy.
The following table sets forth quantitative information about the unobservable inputs of the Company’s Level 3 real estate recorded as of December 31, 2016, 2015 and 2014:
|
| | | | | | |
| Unobservable Inputs | | 2016 | | 2015 | | 2014 |
| Terminal capitalization rate | | 7.0% - 10.0% | | 9.0% | | 8.0% - 9.0% |
| Discount rate | | 8.0% - 15.0% | | 9.5% | | 9.0% - 10.5% |
| Market rents per square foot | | $2.00 - $20.00 | | $5.00 - $150.00 | | $6.00 - $160.00 |
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
6. Tenant and Other Receivables, net:
Included in tenant and other receivables, net is an allowance for doubtful accounts of $1,991 and $3,072 at December 31, 2016 and 2015, respectively. Also included in tenant and other receivables, net are accrued percentage rents of $9,509 and $10,940 at December 31, 2016 and 2015, respectively, and a deferred rent receivable due to straight-line rent adjustments of $56,761 and $60,790 at December 31, 2016 and 2015, respectively.
On March 17, 2014, in connection with the sale of Lake Square Mall (See Note 14—Dispositions), the Company issued a note receivable for $6,500 that bears interest at an effective rate of 6.5% and matures on March 17, 2018 ("LSM Note A") and a note receivable for $3,103 that bore interest at 5.0% and was to mature on December 31, 2014 ("LSM Note B"). On September 2, 2014, the balance of LSM Note B was paid in full. The balance of LSM Note A at December 31, 2016 and 2015 was $6,284 and $6,351, respectively. LSM Note B is collateralized by a trust deed on Lake Square Mall.
7. Deferred Charges and Other Assets, net:
Deferred charges and other assets, net at December 31, 2016 and 2015 consist of the following:
|
| | | | | | | |
| | 2016 | | 2015 |
| Leasing | $ | 239,983 |
| | $ | 248,709 |
|
| Intangible assets: | | | |
| In-place lease values(1) | 140,437 |
| | 196,969 |
|
| Leasing commissions and legal costs(1) | 32,384 |
| | 52,000 |
|
| Above-market leases | 181,851 |
| | 220,847 |
|
| Deferred tax assets | 38,301 |
| | 38,847 |
|
| Deferred compensation plan assets | 42,711 |
| | 37,341 |
|
| Other assets | 72,206 |
| | 70,070 |
|
| | 747,873 |
| | 864,783 |
|
| Less accumulated amortization(2) | (269,815 | ) | | (300,492 | ) |
| | $ | 478,058 |
| | $ | 564,291 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | | Grant
Date | | | Approval
Date | | | Estimated Future Payouts
Under Equity Incentive
Plan Awards(1) | | | All Other Stock
Awards: Number
of Shares of Stock
or Units
(#) | | | Grant Date Fair
Value of Stock
and Option
Awards
($)(4) | |
| | | | Threshold
(#) | | | Target
(#) | | | Maximum
(#) | | | |
| | | | | | | |
Arthur M. Coppola | | | 1/1/2017 | | | | 12/14/2016 | | | | 47,672 | | | | 95,487 | | | | 143,160 | | | | — | | | | 6,749,994 | |
| | | 1/1/2017 | | | | 12/14/2016 | | | | — | | | | — | | | | — | | | | 31,761 | (2) | | | 2,249,949 | |
| | | 3/3/2017 | | | | 3/3/2017 | | | | — | | | | — | | | | — | | | | 39,281 | (3) | | | 2,614,936 | |
Edward C. Coppola | | | 1/1/2017 | | | | 12/14/2016 | | | | 19,068 | | | | 38,194 | | | | 57,263 | | | | — | | | | 2,699,950 | |
| | | 1/1/2017 | | | | 12/14/2016 | | | | — | | | | — | | | | — | | | | 12,704 | (2) | | | 899,951 | |
| | | 3/3/2017 | | | | 3/3/2017 | | | | — | | | | — | | | | — | | | | 31,726 | (3) | | | 2,112,000 | |
Thomas E. O’Hern | | | 1/1/2017 | | | | 12/14/2016 | | | | 10,593 | | | | 21,219 | | | | 31,813 | | | | — | | | | 1,499,983 | |
| | | 1/1/2017 | | | | 12/14/2016 | | | | — | | | | — | | | | — | | | | 7,058 | (2) | | | 499,989 | |
| | | 3/3/2017 | | | | 3/3/2017 | | | | — | | | | — | | | | — | | | | 17,845 | (3) | | | 1,187,942 | |
Robert D. Perlmutter | | | 1/1/2017 | | | | 12/14/2016 | | | | 10,593 | | | | 21,219 | | | | 31,813 | | | | — | | | | 1,499,983 | |
| | | 1/1/2017 | | | | 12/14/2016 | | | | — | | | | — | | | | — | | | | 7,058 | (2) | | | 499,989 | |
| | | 3/3/2017 | | | | 3/3/2017 | | | | — | | | | — | | | | — | | | | 17,845 | (3) | | | 1,187,942 | |
Thomas J. Leanse | | | 1/1/2017 | | | | 12/14/2016 | | | | 7,283 | | | | 14,587 | | | | 21,871 | | | | — | | | | 1,031,218 | |
| | | 1/1/2017 | | | | 12/14/2016 | | | | — | | | | — | | | | — | | | | 4,852 | (2) | | | 343,716 | |
| | | 3/3/2017 | | | | 3/3/2017 | | | | — | | | | — | | | | — | | | | 13,459 | (3) | | | 895,966 | |
| |
| (1) | The estimated amortizationRepresents awards of these intangible assets forperformance-based LTIP Units granted under our LTIP and 2003 Incentive Plan as more fully described on pages 36-37 of this Amendment. Performance will be measured on a cumulative basis at the next five years and thereafter is as follows: |
|
| | | |
| Year Ending December 31, | |
| 2017 | $ | 18,700 |
|
| 2018 | 14,606 |
|
| 2019 | 12,170 |
|
| 2020 | 9,221 |
|
| 2021 | 7,379 |
|
| Thereafter | 21,960 |
|
| | $ | 84,036 |
|
| |
(2) | Accumulated amortization includes $88,785 and $109,453 relating to in-place lease values, leasing commissions and legal costs at end of the three-year performance period from January 1, 2017 through December 31, 2016 and 2015, respectively. Amortization expense for in-place lease values, leasing commissions and legal costs was $33,048, $69,460 and $52,668 for2019. The number of LTIP Units reported under the years ended December 31, 2016, 2015 and 2014, respectively.
|
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
7. Deferred Charges and Other Assets, net: (Continued)
The allocated values of above-market leases and below-market leases consist of the following:
|
| | | | | | | |
| | 2016 | | 2015 |
| Above-Market Leases | | | |
| Original allocated value | $ | 181,851 |
| | $ | 220,847 |
|
| Less accumulated amortization | (57,505 | ) | | (73,520 | ) |
| | $ | 124,346 |
| | $ | 147,327 |
|
| Below-Market Leases(1) | | | |
| Original allocated value | $ | 144,713 |
| | $ | 227,063 |
|
| Less accumulated amortization | (58,400 | ) | | (101,872 | ) |
| | $ | 86,313 |
| | $ | 125,191 |
|
| |
(1) | Below‑market leases are included in other accrued liabilities. |
The allocated values of above and below-market leases will be amortized into minimum rents on a straight-line basis over the individual remaining lease terms. The estimated amortization of these values for the next five years and thereafter is as follows:
|
| | | | | | | | |
| Year Ending December 31, | | Above Market | | Below Market |
| 2017 | | $ | 14,369 |
| | $ | 14,094 |
|
| 2018 | | 12,152 |
| | 13,191 |
|
| 2019 | | 10,087 |
| | 11,639 |
|
| 2020 | | 8,720 |
| | 9,146 |
|
| 2021 | | 7,503 |
| | 6,883 |
|
| Thereafter | | 71,515 |
| | 31,360 |
|
| | | $ | 124,346 |
| | $ | 86,313 |
|
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
8. Mortgage Notes Payable:
Mortgage notes payable at December 31, 2016 and 2015 consist of the following:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Carrying Amount of Mortgage Notes(1) | | | | | | |
| | | 2016 | | 2015 | | Effective Interest Rate(2) | | Monthly Debt Service(3) | | Maturity Date(4) |
| Property Pledged as Collateral | | Related Party | | Other | | Related Party | | Other | |
| Arrowhead Towne Center(5) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 221,194 |
| | — |
| | $ | — |
| | — |
|
| Chandler Fashion Center(6) | | — |
| | 199,833 |
| | — |
| | 199,766 |
| | 3.77 | % | | 625 |
| | 2019 |
|
| Danbury Fair Mall | | 107,929 |
| | 107,928 |
| | 111,078 |
| | 111,079 |
| | 5.53 | % | | 1,538 |
| | 2020 |
|
| Deptford Mall(7) | | — |
| | — |
| | — |
| | 193,337 |
| | — |
| | — |
| | — |
|
| Deptford Mall(8) | | — |
| | — |
| | — |
| | 13,999 |
| | — |
| | — |
| | — |
|
| Fashion Outlets of Chicago(9) | | — |
| | 198,966 |
| | — |
| | 198,653 |
| | 2.43 | % | | 378 |
| | 2020 |
|
| Fashion Outlets of Niagara Falls USA | | — |
| | 115,762 |
| | — |
| | 117,708 |
| | 4.89 | % | | 727 |
| | 2020 |
|
| Flagstaff Mall(10) | | — |
| | — |
| | — |
| | 37,000 |
| | — |
| | — |
| | — |
|
| FlatIron Crossing(7) | | — |
| | — |
| | — |
| | 254,075 |
| | — |
| | — |
| | — |
|
| Freehold Raceway Mall(6) | | — |
| | 220,643 |
| | — |
| | 224,836 |
| | 4.20 | % | | 1,132 |
| | 2018 |
|
| Fresno Fashion Fair(11) | | — |
| | 323,062 |
| | — |
| | — |
| | 3.67 | % | | 971 |
| | 2026 |
|
| Green Acres Mall | | — |
| | 297,798 |
| | — |
| | 303,960 |
| | 3.61 | % | | 1,447 |
| | 2021 |
|
| Kings Plaza Shopping Center | | — |
| | 456,958 |
| | — |
| | 466,266 |
| | 3.67 | % | | 2,229 |
| | 2019 |
|
| Northgate Mall(12) | | — |
| | 63,434 |
| | — |
| | 63,783 |
| | 3.50 | % | | 206 |
| | 2017 |
|
| Oaks, The | | — |
| | 201,235 |
| | — |
| | 205,555 |
| | 4.14 | % | | 1,064 |
| | 2022 |
|
| Pacific View | | — |
| | 127,311 |
| | — |
| | 130,108 |
| | 4.08 | % | | 668 |
| | 2022 |
|
| Queens Center | | — |
| | 600,000 |
| | — |
| | 600,000 |
| | 3.49 | % | | 1,744 |
| | 2025 |
|
| Santa Monica Place | | — |
| | 219,564 |
| | — |
| | 224,815 |
| | 2.99 | % | | 1,004 |
| | 2018 |
|
| SanTan Village Regional Center | | — |
| | 127,724 |
| | — |
| | 130,638 |
| | 3.14 | % | | 589 |
| | 2019 |
|
| Stonewood Center | | — |
| | 99,520 |
| | — |
| | 105,494 |
| | 1.80 | % | | 640 |
| | 2017 |
|
| Superstition Springs Center(13) | | — |
| | — |
| | — |
| | 67,749 |
| | — |
| | — |
| | — |
|
| Towne Mall | | — |
| | 21,570 |
| | — |
| | 21,956 |
| | 4.48 | % | | 117 |
| | 2022 |
|
| Tucson La Encantada | | 68,513 |
| | — |
| | 69,991 |
| | — |
| | 4.23 | % | | 368 |
| | 2022 |
|
| Victor Valley, Mall of | | — |
| | 114,559 |
| | — |
| | 114,500 |
| | 4.00 | % | | 380 |
| | 2024 |
|
| Vintage Faire Mall | | — |
| | 269,228 |
| | — |
| | 274,417 |
| | 3.55 | % | | 1,256 |
| | 2026 |
|
| Westside Pavilion | | — |
| | 143,881 |
| | — |
| | 146,630 |
| | 4.49 | % | | 783 |
| | 2022 |
|
| | | $ | 176,442 |
| | $ | 3,908,976 |
| | $ | 181,069 |
| | $ | 4,427,518 |
| | |
| | |
| | |
|
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
8. Mortgage Notes Payable: (continued)
| |
(1) | The mortgage notes payable balances include the unamortized debt premiums (discounts). Debt premiums (discounts) represent the excess (deficiency) of the fair value of debt over (under) the principal value of debt assumed in various acquisitions and are amortized into interest expense over the remaining term of the related debt in a manner that approximates the effective interest method. |
The debt premiums (discounts) as of December 31, 2016 and 2015 consist of the following:
|
| | | | | | | | |
| Property Pledged as Collateral | | 2016 | | 2015 |
| Arrowhead Towne Center | | $ | — |
| | $ | 8,494 |
|
| Deptford Mall | | — |
| | (3 | ) |
| Fashion Outlets of Niagara Falls USA | | 3,558 |
| | 4,486 |
|
| Stonewood Center | | 2,349 |
| | 5,168 |
|
| Superstition Springs Center | | — |
| | 263 |
|
| | | $ | 5,907 |
| | $ | 18,408 |
|
The mortgage notes payable balances also include unamortized deferred finance costs that are amortized into interest expense over the remaining term of the related debt in a manner that approximates the effective interest method. Unamortized deferred finance costs were $12,716 and $16,025 at December 31, 2016 and 2015, respectively.
| |
(2) | The interest rate disclosed“Threshold (#)” subcolumn represents the effective interest rate, includingnumber of LTIP Units that would be awarded if our performance relative to our Equity Peer REITs was at the debt premiums (discounts) and deferred finance costs.25th percentile, which represents the minimum percentile rank that would entitle recipients to awards under the LTIP. The number of LTIP Units reported under the “Target (#)” subcolumn represents the number of LTIP Units that would be awarded if our performance relative to our Equity Peer REITs was at the 50th percentile. The number of LTIP Units reported under the “Maximum (#)” subcolumn represents the number of LTIP Units that would be awarded if our performance relative to our Equity Peer REITs was at or above the 75th percentile. |
| (2) | |
(3) | The monthly debt service represents the paymentRepresents awards of principalservice-based LTIP Units granted under our LTIP and interest.2003 Incentive Plan as more fully described on page 37 of this Amendment. |
| (3) | Represents awards of fully-vested LTIP Units granted under our LTIP and 2003 Incentive Plan. These awards represent each executive’s bonus under our annual incentive compensation program for 2016 performance and were previously described in the Compensation Discussion and Analysis of our proxy statement filed on April 18, 2017. |
| (4) | The maturityamounts reflected in this column represent the grant date assumes that all extension options are fully exercised and thatfair value of these awards computed in accordance with FASB ASC Topic 718 as described in note (4) to the Company does not opt to refinance the debt prior to these dates. These extension options are at the Company's discretion, subject to certain conditions, which the Company believes will be met. |
| |
(5) | On January 6, 2016, the Company replaced the existing loan on the property with a new $400,000 loan that bears interest at an effective rate of 4.05% and matures on February 1, 2028, which resulted in a loss of $3,575 on early extinguishment of debt. Concurrently, a 40% interest“Summary Compensation Table” above. Assumptions used in the loan was assumed by a third partycalculation of these amounts are set forth in connection withfootnote 19 to our audited financial statements for the sale of a 40% ownership interestfiscal year ended December 31, 2017 included in the underlying property (See Note 4—Investments in Unconsolidated Joint Ventures).Original Filing. |
| |
(6) | A 49.9% interest in the loan has been assumed by a third party in connection with a co-venture arrangement (See Note 10—Co-Venture Arrangement).
|
| |
(7) | On January 14, 2016, a 49% interest in the loan was assumed by a third party in connection with the sale of a 49% ownership interest in the MAC Heitman Portfolio (See Note 4—Investments in Unconsolidated Joint Ventures). |
| |
(8) | On March 1, 2016, the Company paid off in full the loan on the property. |
| |
(9) | The loan bears interest at LIBOR plus 1.50% and matures on March 31, 2020. At December 31, 2016 and 2015, the total interest rate was 2.43% and 1.84%, respectively. |
| |
(10) | On July 15, 2016, the Company conveyed the property to the mortgage lender by a deed-in-lieu of foreclosure, which resulted in a gain of $5,284 on the extinguishment of debt (See Note 14—Dispositions). |
| |
(11) | On October 6, 2016, the Company placed a new $325,000 loan on the property that bears interest at an effective rate of 3.67% and matures on November 1, 2026.
|
| |
(12) | The loan bore interest at LIBOR plus 2.25% and was to mature on March 1, 2017. At December 31, 2016 and 2015, the total interest rate was 3.50% and 3.30%, respectively. On January 18, 2017, the Company paid off the loan in full in connection with the sale of the underlying property (See Note 22—Subsequent Events). |
| |
(13) | On October 14, 2016, the Company paid off in full the loan on the property. |
Most35
Discussion of Summary Compensation and Grants of Plan-Based Awards Table
Our executive compensation policies and practices, pursuant to which the mortgage loan agreements contain a prepayment penalty provision forcompensation set forth in the early extinguishmentSummary Compensation Table and the Grants of Plan-Based Awards Table was paid, awarded or earned, are generally described under “Compensation Discussion and Analysis” and in the debt.
As of December 31, 2016, all of the Company's mortgage notes payable are secured by the properties on which they are placed and are non-recoursefootnotes to the Company.
compensation tables. The Company expects all loan maturities during the next twelve months, will be refinanced, restructured, extended and/material terms of our LTIP, pursuant to which LTIP Units are granted, are described below. For a description of our severance and change of control agreements with certain of our named executive officers, see “Potential Payments Upon Termination or paid-off from the Company's lineChange of credit or with cash on hand.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
8. Mortgage Notes Payable: (continued)
Total interest expense capitalized during the years ended December 31, 2016, 2015 and 2014 was $10,316, $13,052 and $12,559, respectively.
Related party mortgage notes payable are amounts due to affiliates of NML. See Note 17—Related Party Transactions for interest expense associated with loans from NML.
The estimated fair value (Level 2 measurement) of mortgage notes payable at December 31, 2016 and 2015 was $4,126,819 and $4,628,781, respectively, based on current interest rates for comparable loans. Fair value was determined using a present value model and an interest rate that included a credit value adjustment based on the estimated value of the property that serves as collateral for the underlying debt.
The future maturities of mortgage notes payable are as follows:
|
| | | |
| Year Ending December 31, | |
| 2017 | $ | 218,562 |
|
| 2018 | 480,176 |
|
| 2019 | 796,592 |
|
| 2020 | 528,456 |
|
| 2021 | 291,733 |
|
| Thereafter | 1,776,708 |
|
| | 4,092,227 |
|
| Debt premium, net | 5,907 |
|
| Deferred finance cost, net | (12,716 | ) |
| | $ | 4,085,418 |
|
The future maturities reflected above reflect the extension options that the Company believes will be exercised.
9. Bank and Other Notes Payable:
Bank and other notes payable at December 31, 2016 and 2015 consist of the following:
Line of Credit:
The Company has a $1,500,000 revolving line of credit that bore interest at LIBOR plus a spread of 1.38% to 2.0%, depending on the Company's overall leverage level, and was to mature on August 6, 2018. On July 6, 2016, the Company amended its line of credit. The amended $1,500,000 line of credit bears interest at LIBOR plus a spread of 1.30% to 1.90%, depending on the Company's overall leverage level, and matures on July 6, 2020 with a one-year extension option. The line of credit can be expanded, depending on certain conditions, up to a total facility of $2,000,000.
Based on the Company's leverage level as of December 31, 2016, the borrowing rate on the facility was LIBOR plus 1.45%. As of December 31, 2016 and 2015, borrowings under the line of credit, were $885,000 and $650,000, respectively, less unamortized deferred finance costs of $10,039 and $6,967, respectively, at a total interest rate of 2.40% and 1.95%, respectively. The estimated fair value (Level 2 measurement) of the line of credit at December 31, 2016 and 2015 was $865,921 and $640,260, respectively, based on a present value model using a credit interest rate spread offered to the Company for comparable debt.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
9. Bank and Other Notes Payable: (Continued)
Term Loan:
On December 8, 2011, the Company obtained a $125,000 unsecured term loan under the line of credit that bore interest at LIBOR plus a spread of 1.95% to 3.20%, depending on the Company's overall leverage level, and was to mature on December 8, 2018. On October 23, 2015, the Company paid off in full the term loan, which resulted in a loss of $578 on the early extinguishment of debt.
Prasada Note:
On March 29, 2013, the Company issued a $13,330 note payable that bears interest at 5.25% and was to mature on May 30, 2016. The maturity date of the note was extended to May 30, 2021. The note payable is collateralized by a portion of a development reimbursement agreement with the City of Surprise, Arizona. At December 31, 2016 and 2015, the note had a balance of $5,521 and $9,130, respectively. The estimated fair value (Level 2 measurement) of the note at December 31, 2016 and 2015 was $5,786 and $9,168, respectively, based on current interest rates for comparable notes. Fair value was determined using a present value model and an interest rate that included a credit value adjustment based on the estimated value of the collateral for the underlying debt.
As of December 31, 2016 and 2015, the Company was in compliance with all applicable financial loan covenants.
The future maturities of bank and other notes payable are as follows:
|
| | | |
| Year Ending December 31, | |
| 2017 | $ | 781 |
|
| 2018 | 823 |
|
| 2019 | 868 |
|
| 2020 | 915 |
|
| 2021 | 887,134 |
|
| Thereafter | — |
|
| | 890,521 |
|
| Deferred finance cost | (10,039 | ) |
| | $ | 880,482 |
|
10. Co-Venture Arrangement:
On September 30, 2009, the Company formed a joint venture, whereby a third party acquired a 49.9% interest in Freehold Raceway Mall, a 1,674,000 square foot regional shopping center in Freehold, New Jersey, and Chandler Fashion Center, a 1,319,000 square foot regional shopping center in Chandler, Arizona. As part of this transaction, the Company issued a warrant in favor of the third party to purchase 935,358 shares of common stock of the Company at an exercise price of $46.68 per share (See "Stock Warrants" in Note 12—Stockholders' Equity). The Company received approximately $174,650 in cash proceeds for the overall transaction, of which $6,496 was attributed to the warrants. The Company used the proceeds from this transaction to pay down its line of credit and for general corporate purposes.
As a result of the Company having certain rights under the agreement to repurchase the assets after the seventh year of the venture formation, the transaction did not qualify for sale treatment. The Company, however, is not obligated to repurchase the assets. The transaction has been accounted for as a profit-sharing arrangement, and accordingly the assets, liabilities and operations of the properties remain on the books of the Company and a co-venture obligation was established for the amount of $168,154, representing the net cash proceeds received from the third party less costs allocated to the warrant. The co-venture obligation is increased for the allocation of income to the co-venture partner and decreased for distributions to the co-venture partner. The co-venture obligation was $58,973 and $63,756 at December 31, 2016 and 2015, respectively.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
11. Noncontrolling Interests:
The Company allocates net income of theour Operating Partnership based on the weighted-average ownership interest during the period. The netare structured to qualify as “profits interests” for federal income of the Operating Partnership that is not attributable to the Company is reflected in the consolidated statements of operations as noncontrolling interests. The Company adjusts the noncontrolling interests in the Operating Partnership periodically to reflect its ownership interest in the Company. The Company had a 93% ownership interest in the Operating Partnership as of December 31, 2016 and 2015. The remaining 7% limited partnership interest as of December 31, 2016 and 2015, was owned by certain of the Company's executive officers and directors, certain of their affiliates, and other third party investors in the form of OP Units. The OPtax purposes. Accordingly, LTIP Units may be redeemed for shares of registered or unregistered stock or cash, at the Company's option. The redemption value for each OP Unit as of any balance sheet date is the amount equal to the average of the closing price per share of the Company's common stock, par value $0.01 per share, as reported on the New York Stock Exchange for the ten trading days ending on the respective balance sheet date. Accordingly, as of December 31, 2016 and 2015, the aggregate redemption value of the then-outstanding OP Units not owned by the Company was $733,141 and $870,625, respectively.
The Company issued common and cumulative preferred units of MACWH, LP in April 2005 in connection with the acquisition of the Wilmorite portfolio. The common and preferred units of MACWH, LP are redeemable at the election of the holder, the Company may redeem them for cash or shares of the Company's stock at the Company's option, and they are classified as permanent equity.
Included in permanent equity are outside ownership interests in various consolidated joint ventures. The joint venturesinitially do not have rights that require the Company to redeem the ownership interests in either cash or stock.
12. Stockholders' Equity:
Stock Buyback Program:
On September 30, 2015, the Company's Board of Directors authorized the repurchase of up to $1,200,000 of the Company's outstanding common shares over the period ending September 30, 2017, as market conditions warranted.
On November 12, 2015, the Company entered into an accelerated share repurchase program ("ASR") to repurchase $400,000 of the Company's common stock. In accordance with the ASR, the Company made a prepayment of $400,000 and received an initial share delivery of 4,140,788 shares. On January 19, 2016, the ASR was completed and the Company received delivery of an additional 970,609 shares. The average price of the 5,111,397 shares repurchased under the ASR was $78.26 per share. The ASR was funded from proceeds in connection with the financing and sale of the ownership interest in the PPR Portfolio (See Note 4—Investments in Unconsolidated Joint Ventures).
On February 17, 2016, the Company entered into an ASR to repurchase an additional $400,000 of the Company's common stock. In accordance with the ASR, the Company made a prepayment of $400,000 and received an initial share delivery of 4,222,193 shares. On April 19, 2016, the ASR was completed and the Company received delivery of an additional 861,235 shares. The average price of the 5,083,428 shares repurchased under the ASR was $78.69 per share. The ASR was funded from borrowings under the Company's line of credit, which had been recently paid down from the proceeds from the recently completed financings and sale of ownership interests (See Note 4—Investments in Unconsolidated Joint Ventures).
On May 9, 2016, the Company entered into an ASR to repurchase the remaining $400,000 of the Company's common stock authorized for repurchase. In accordance with the ASR, the Company made a prepayment of $400,000 and received an initial share delivery of 3,964,812 shares. On July 11, 2016, the ASR was completed and the Company received delivery of an additional 1,104,162 shares. The average price of the 5,068,974 shares repurchased under the ASR was $78.91 per share. The ASR was funded from borrowings under the Company's line of credit, which had been recently paid down from the proceeds from the recently completed financings and sale of ownership interests (See Note 4—Investments in Unconsolidated Joint Ventures).
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
12. Stockholders' Equity: (Continued)
Special Dividends:
On October 30, 2015, the Company declared two special dividends/distributions ("Special Dividend"), each of $2.00 per share of common stock and per OP Unit. The first Special Dividend was paid on December 8, 2015 to stockholders and OP Unit holders of record on November 12, 2015. The second Special Dividend was paid on January 6, 2016 to common stockholders and OP Unit holders of record on November 12, 2015. The Special Dividends were funded from proceeds in connection with the financing and sale of ownership interests in the PPR Portfolio and Arrowhead Towne Center (See Note 4—Investments in Unconsolidated Joint Ventures).
At-The-Market Stock Offering Program ("ATM Program"):
On August 17, 2012, the Company entered into an equity distribution agreement ("2012 ATM Program") with a number of sales agents to issue and sell, from time to time, shares of common stock, par value $0.01 per share, having an aggregate offering price of up to $500,000 (the “2012 ATM Shares”). Sales of the 2012 ATM Shares, could have been made in privately negotiated transactions and/or any other method permitted by law, including sales deemed to be an “at the market” offering, which includes sales made directly on the New York Stock Exchange or sales made to or through a market maker other than on an exchange. The Company agreed to pay each sales agent a commission that was not to exceed, but could have been lower than, 2% of the gross proceeds of the 2012 ATM Shares sold through such sales agent under the 2012 Distribution Agreement.
During the year ended December 31, 2012, the Company sold 2,961,903 shares of common stock under the 2012 ATM Program in exchange for aggregate gross proceeds of $177,896 and net proceeds of $175,649 after commissions and other transaction costs. During the year ended December 31, 2013, the Company sold 2,456,956 shares of common stock under the 2012 ATM Program in exchange for aggregate gross proceeds of $173,011 and net proceeds of $171,102 after commissions and other transaction costs. The proceeds from the sales were used to pay down the Company's line of credit.
On August 20, 2014, the Company terminated and replaced the 2012 ATM Program with a new ATM Program (the "2014 ATM Program") to sell, from time to time, shares of common stock, par value $0.01 per share, having an aggregate offering price of up to $500,000 (the "ATM Shares"). The terms of the 2014 ATM Program are substantially the same as the 2012 ATM Program. The Company did not sell any shares under the 2014 ATM Program during the year ended December 31, 2016.
As of December 31, 2016, $500,000 of the ATM Shares were available to be sold under the 2014 ATM Program. The unsold 2012 ATM Shares are no longer available for issuance. Actual future sales of the ATM Shares under the 2014 ATM Program will depend upon a variety of factors including but not limited to market conditions, the trading price of the Company's common stock and the Company's capital needs. The Company has no obligation to sell the ATM Shares under the 2014 ATM Program.
Stock Issued to Acquire Property:
On November 14, 2014, the Company issued 17,140,845 shares of common stock in connection with the acquisition of the PPR Queens Portfolio (See Note 13—Acquisitions) for a value of $1,166,777, based on the closing price of the Company's common stock on the date of the transaction.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
13. Acquisitions:
Cascade Mall:
On June 4, 2014, the Company acquired the remaining 49% ownership interest in Cascade Mall that it did not previously own for $15,233. Prior to the acquisition, the Company had accounted for its investment under the equity method of accounting (See Note 4—Investments in Unconsolidated Joint Ventures). As a result of this transaction, the Company obtained 100% ownership of Cascade Mall. The acquisition was completed in order to obtain 100% ownership and control over this asset.
The following is a summary of the allocation of the fair value of Cascade Mall:
|
| | | |
| Property | $ | 28,924 |
|
| Deferred charges | 6,660 |
|
| Other assets | 202 |
|
| Total assets acquired | 35,786 |
|
| Other accrued liabilities | 4,786 |
|
| Total liabilities assumed | 4,786 |
|
| Fair value of acquired net assets (at 100% ownership) | $ | 31,000 |
|
The Company determined that the purchase price represented the fair value of the additional ownership interest in Cascade Mall that was acquired.
The following is the reconciliation of the purchase price to the fair value of the acquired net assets:
|
| | | |
| Purchase price | $ | 15,233 |
|
| Distributions in excess of investment | 15,767 |
|
| Fair value of acquired net assets (at 100% ownership) | $ | 31,000 |
|
Since the date of acquisition, the Company has included Cascade Mall in its consolidated financial statements.
Fashion Outlets of Chicago:
On October 31, 2014, the Company purchased AWE/Talisman's ownership interest in its consolidated joint venture in Fashion Outlets of Chicago, for $69,987. The purchase price was funded by a cash payment of $55,867 and the settlement of the balance on the Talisman Notes of $14,120 (See Note 17—Related Party Transactions). The cash payment was funded by borrowings under the Company's line of credit. The purchase agreement included contingent consideration based on the financial performance of Fashion Outlets of Chicago at an agreed upon date in 2016. On August 19, 2016, the Company paid $23,800 in full settlement of the contingent consideration obligation.
PPR Queens Portfolio:
On November 14, 2014, the Company acquired the remaining 49% ownership interest in the PPR Queens Portfolio that it did not previously own for $1,838,886. The acquisition was completed in order to gain 100% ownership and control over this portfolio of prominent shopping centers. The purchase price was funded by the assumption of the third party's pro rata share of the mortgage notes payable on the property of $672,109 and the issuance of $1,166,777 in common stock of the Company. Prior to the acquisition, the Company had accounted for its investment under the equity method of accounting (See Note 4—Investments in Unconsolidated Joint Ventures). As a result of this transaction, the Company obtained 100% ownership of the PPR Queens Portfolio.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
13. Acquisitions: (Continued)
The following is a summary of the allocation of the fair value of the PPR Queens Portfolio:
|
| | | |
| Property | $ | 3,711,819 |
|
| Deferred charges | 155,892 |
|
| Cash and cash equivalents | 28,890 |
|
| Restricted cash | 5,113 |
|
| Tenant receivables | 5,438 |
|
| Other assets | 127,244 |
|
| Total assets acquired | 4,034,396 |
|
| Mortgage notes payable | 1,414,659 |
|
| Accounts payable | 5,669 |
|
| Due to affiliates | 2,680 |
|
| Other accrued liabilities | 230,210 |
|
| Total liabilities assumed | 1,653,218 |
|
| Fair value of acquired net assets (at 100% ownership) | $ | 2,381,178 |
|
The Company determined that the purchase price represented the fair value of the additional ownership interest in the PPR Queens Portfolio that was acquired.
|
| | | |
| Fair value of existing ownership interest (at 51% ownership) | $ | 1,214,401 |
|
| Distributions in excess of investment | 208,735 |
|
| Gain on remeasurement of assets | $ | 1,423,136 |
|
The following is the reconciliation of the purchase price to the fair value of the acquired net assets:
|
| | | |
| Purchase price | $ | 1,838,886 |
|
| Less debt assumed | (672,109 | ) |
| Distributions in excess of investment | (208,735 | ) |
| Gain on remeasurement of assets | 1,423,136 |
|
| Fair value of acquired net assets (at 100% ownership) | $ | 2,381,178 |
|
The Company has included Lakewood Center, Los Cerritos Center and Washington Square in its consolidated financial statements until the Company sold a 40% ownership interest in the PPR Portfolio on October 30, 2015 (See Note 4—Investments in Unconsolidated Joint Ventures). The remaining properties of the PPR Queens Portfolio have been included in the Company's consolidated financial statements from the date of acquisition.
Inland Center:
On February 17, 2015, the Company acquired the remaining 50% ownership interest in Inland Center that it did not previously own for $51,250. The purchase price was funded by a cash payment of $26,250 and the assumption of the third party's share of the mortgage note payable on the property of $25,000. Prior to the acquisition, the Company had accounted for its investment in Inland Center under the equity method of accounting (See Note 4—Investments in Unconsolidated Joint Ventures). As a result of this transaction, the Company obtained 100% ownership of Inland Center. The acquisition was completed in order to obtain 100% ownership and control over this asset.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
13. Acquisitions: (Continued)
The following is a summary of the allocation of the fair value of Inland Center:
|
| | | |
| Property | $ | 91,871 |
|
| Deferred charges | 9,752 |
|
| Other assets | 5,782 |
|
| Total assets acquired | 107,405 |
|
| Mortgage note payable | 50,000 |
|
| Other accrued liabilities | 4,905 |
|
| Total liabilities assumed | 54,905 |
|
| Fair value of acquired net assets (at 100% ownership) | $ | 52,500 |
|
The Company determined that the purchase price represented the fair value of the additional ownership interest in Inland Center that was acquired.
|
| | | |
| Fair value of existing ownership interest (at 50% ownership) | $ | 26,250 |
|
| Carrying value of investment | (4,161 | ) |
| Gain on remeasurement of assets | $ | 22,089 |
|
The following is the reconciliation of the purchase price to the fair value of the acquired net assets:
|
| | | |
| Purchase price | $ | 51,250 |
|
| Less debt assumed | (25,000 | ) |
| Carrying value of investment | 4,161 |
|
| Gain on remeasurement of assets | 22,089 |
|
| Fair value of acquired net assets (at 100% ownership) | $ | 52,500 |
|
From the date of acquisition, the Company has included Inland Center in its consolidated financial statements.
14. Dispositions:
On January 15, 2014, the Company sold Rotterdam Square, a 585,000 square foot regional shopping center in Schenectady, New York, for $8,500, resulting in a loss on the sale of assets of $472. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On February 14, 2014, the Company sold Somersville Towne Center, a 348,000 square foot regional shopping center in Antioch, California, for $12,337, resulting in a loss on the sale of assets of $263. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On March 17, 2014, the Company sold Lake Square Mall, a 559,000 square foot regional shopping center in Leesburg, Florida, for $13,280, resulting in a loss on the sale of assets of $876. The sales price was funded by a cash payment of $3,677 and the issuance of two notes receivable totaling $9,603 (See Note 6—Tenant and Other Receivables, net). The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes.
On July 7, 2014, the Company sold a former Mervyn's store in El Paso, Texas for $3,560, resulting in a loss on the sale of assets of $158. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
14. Dispositions: (Continued)
On August 28, 2014, the Company sold a former Mervyn's store in Thousand Oaks, California for $3,500, resulting in a loss on the sale of assets of $80. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On September 11, 2014, the Company sold a leasehold interest in a former Mervyn's store in Laredo, Texas for $1,200, resulting in a gain on the sale of assets of $315. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On October 10, 2014, the Company sold a former Mervyn's store in Marysville, California for $1,900, resulting in a loss on the sale of assets of $3. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On October 31, 2014, the Company sold South Towne Center, a 1,278,000 square foot regional shopping center in Sandy, Utah, for $205,000, resulting in a gain on the sale of assets of $121,873. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On December 29, 2014, the Company sold its 67.5% ownership interest in its consolidated joint venture in Camelback Colonnade, a 619,000 square foot community center in Phoenix, Arizona, for $92,898, resulting in a gain on the sale of assets of $24,554. The sales price was funded by a cash payment of $61,173 and the assumption of the Company's share of the mortgage note payable on the property of $31,725. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes. As a result of the sale, the Company was discharged of the $47,946 mortgage note payable on the property and $17,217 of noncontrolling interest was reversed.
On June 30, 2015, the Company conveyed Great Northern Mall, an 895,000 square foot regional shopping center in Clay, New York, to the mortgage lender by a deed-in-lieu of foreclosure and was discharged from the mortgage note payable. The loan was nonrecourse to the Company. As a result, the Company recognized a loss on the extinguishment of debt of $1,627.
On November 19, 2015, the Company sold Panorama Mall, a 312,000 square foot community center in Panorama City, California, for $98,000, resulting in a gain on the sale of assets of $73,726. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On April 13, 2016, the Company sold Capitola Mall, a 586,000 square foot regional shopping center in Capitola, California, for $93,000, resulting in a gain on the sale of assets of $24,894. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On May 31, 2016, the Company sold a former Mervyn's store in Yuma, Arizona, for $3,200, resulting in a loss on the sale of assets of $3,066. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On July 15, 2016, the Company conveyed Flagstaff Mall, a 347,000 square foot regional shopping center in Flagstaff, Arizona, to the mortgage lender by a deed-in-lieu of foreclosure and was discharged from the mortgage note payable. The loan was non-recourse to the Company. As a result, the Company recognized a gain on the extinguishment of debt of $5,284 (See Note 8—Mortgage Notes Payable).
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
15. Future Rental Revenues:
Under existing non-cancelable operating lease agreements, tenants are committed to pay the following minimum rental payments to the Company:
|
| | | |
| Year Ending December 31, | |
| 2017 | $ | 536,826 |
|
| 2018 | 456,976 |
|
| 2019 | 396,405 |
|
| 2020 | 349,394 |
|
| 2021 | 298,641 |
|
| Thereafter | 989,259 |
|
| | $ | 3,027,501 |
|
16. Commitments and Contingencies:
The Company has certain properties subject to non-cancelable operating ground leases. The leases expire at various times through 2098, subject in some cases to options to extend the terms of the lease. Certain leases provide for contingent rent payments basedparity, on a percentage of base rental income, as defined in the lease. Ground lease rent expenses were $9,894, $11,870 and $10,968 for the years ended December 31, 2016, 2015 and 2014, respectively. No contingent rent was incurred for the years ended December 31, 2016, 2015 or 2014.
Minimum future rental payments required under the leases are as follows:
|
| | | |
| Year Ending December 31, | |
| 2017 | $ | 13,712 |
|
| 2018 | 9,423 |
|
| 2019 | 7,840 |
|
| 2020 | 7,848 |
|
| 2021 | 7,487 |
|
| Thereafter | 193,659 |
|
| | $ | 239,969 |
|
As of December 31, 2016, the Company was contingently liable for $61,002 in letters of credit guaranteeing performance by the Company of certain obligations relating to the Centers. The Company does not believe that these letters of credit will result in a liability to the Company.
The Company has entered into a number of construction agreements related to its redevelopment and development activities. Obligations under these agreements are contingent upon the completion of the services within the guidelines specified in the relevant agreement. At December 31, 2016, the Company had $41,906 in outstanding obligations, which it believes will be settled in the next twelve months.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
17. Related Party Transactions:
Certain unconsolidated joint ventures have engaged the Management Companies to manage the operations of the Centers. Under these arrangements, the Management Companies are reimbursed for compensation paid to on-site employees, leasing agents and project managers at the Centers, as well as insurance costs and other administrative expenses. The following are fees charged to unconsolidated joint ventures for the years ended December 31:
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Management fees | $ | 17,937 |
| | $ | 10,064 |
| | $ | 16,751 |
|
| Development and leasing fees | 13,907 |
| | 9,615 |
| | 10,528 |
|
| | $ | 31,844 |
| | $ | 19,679 |
| | $ | 27,279 |
|
Certain mortgage notes on the properties are held by NML (See Note 8—Mortgage Notes Payable). Interest expense in connectionunit basis, with these notes was $8,973, $10,515 and $15,134 for the years ended December 31, 2016, 2015 and 2014, respectively. Included in accounts payable and accrued expenses is interest payable to this related party of $736 and $756 at December 31, 2016 and 2015, respectively.
During the year ended December 31, 2014, the Company had loans to unconsolidated joint ventures to fund development stage projects prior to construction loan funding. Correspondingly, loan payables in the same amount have been accrued as an obligation by the various joint ventures. Interest income associated with these notes was $164 for the year ended December 31, 2014.
Due (to) from affiliates includes $(6,809) and $7,467 of (prepaid) unreimbursed costs and fees due (to) from unconsolidated joint ventures under management agreements at December 31, 2016 and 2015, respectively.
Due from affiliates at December 31, 2013 also included two notes receivable from principals of AWE/Talisman ("Talisman Notes") that bore interest at 5.0% and were to mature based on the refinancing or sale of Fashion Outlets of Chicago, a 538,000 square foot outlet center in Rosemont, Illinois, or certain other specified events. AWE/Talisman was considered a related party because it had a 40% noncontrolling ownership interest in Fashion Outlets of Chicago. On October 31, 2014, in connection with the Company's acquisition of AWE/Talisman's ownership interest in Fashion Outlets of Chicago, the balance of the Talisman Notes were settled (See Note 13—Acquisitions). Interest income earned on these notes was $516 for the year ended December 31, 2014.
In addition, due from affiliates at December 31, 2016 and 2015 includes a note receivable from RED/303 LLC ("RED") that bears interest at 5.25% and was to mature on May 30, 2016. The maturity date of the note was extended to May 30, 2021. Interest income earned on this note was $366, $520 and $614 for the years ended December 31, 2016, 2015 and 2014, respectively. The balance on this note receivable was $5,593 and $9,252 at December 31, 2016 and 2015, respectively. RED is considered a related party because it is a partner in a joint venture development project. The note is collateralized by RED's interest in a development agreement.
Also included in due from affiliates is a note receivable from Lennar Corporation that bears interest at LIBOR plus 2% and matures upon the completion of certain milestones in connection with the development of Fashion Outlets of San Francisco (See Note 4—Investments in Unconsolidated Joint Ventures). Interest income earned on this note was $2,234, $1,872 and $206 for the years ended December 31, 2016, 2015 and 2014, respectively. The balance on this note was $69,443 and $67,209 at December 31, 2016 and 2015, respectively. Lennar Corporation is considered a related party because it has an ownership interest in Fashion Outlets of San Francisco.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
18. Share and Unit-based Plans:
The Company has established share and unit-based compensation plans for the purpose of attracting and retaining executive officers, directors and key employees.
2003 Equity Incentive Plan:
The 2003 Equity Incentive Plan ("2003 Plan") authorizes the grant of stock awards, stock options, stock appreciation rights, stock units, stock bonuses, performance-based awards, dividend equivalent rights andour Operating Partnership’s common OP Units or other convertible or exchangeable units. As of December 31, 2016, stock awards, stock units, LTIP Units (as defined below), stock appreciation rights ("SARs") and stock options have been granted under the 2003 Plan. All stock options or other rightswith respect to acquire common stock granted under the 2003 Plan have a term of 10 years or less. These awards were generally granted based on the performance of the Company and the employees. None of the awards have performance requirements other than a service condition of continued employment unless otherwise provided. All awards are subject to restrictions determined by the Company's compensation committee. The aggregate number of shares of common stock that may be issued under the 2003 Plan is 19,825,428 shares. As of December 31, 2016, there were 6,791,618 shares available for issuance under the 2003 Plan.
Stock Awards:
The value of the stock awards was determined by the market price of the Company's common stock on the date of the grant. The following table summarizes the activity of non-vested stock awards during the years ended December 31, 2016, 2015 and 2014:
|
| | | | | | | | | | | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| | Shares | | Weighted Average Grant Date Fair Value | | Shares | | Weighted Average Grant Date Fair Value | | Shares | | Weighted Average Grant Date Fair Value |
| Balance at beginning of year | 1,612 |
| | $ | 62.01 |
| | 9,189 |
| | $ | 59.25 |
| | 19,001 |
| | $ | 56.77 |
|
| Granted | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Vested | (1,612 | ) | | 62.01 |
| | (7,577 | ) | | 58.67 |
| | (9,812 | ) | | 54.45 |
|
| Balance at end of year | — |
| | $ | — |
| | 1,612 |
| | $ | 62.01 |
| | 9,189 |
| | $ | 59.25 |
|
Stock Units:
The stock units represent the right to receive upon vesting one share of the Company's common stock for one stock unit. The value of the stock units was determined by the market price of the Company's common stock on the date of the grant. The following table summarizes the activity of non-vested stock units during the years ended December 31, 2016, 2015 and 2014:
|
| | | | | | | | | | | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| | Units | | Weighted Average Grant Date Fair Value | | Units | | Weighted Average Grant Date Fair Value | | Units | | Weighted Average Grant Date Fair Value |
| Balance at beginning of year | 132,086 |
| | $ | 74.58 |
| | 144,374 |
| | $ | 59.94 |
| | 137,318 |
| | $ | 57.24 |
|
| Granted | 85,601 |
| | 79.22 |
| | 77,282 |
| | 86.53 |
| | 75,309 |
| | 60.50 |
|
| Vested | (69,259 | ) | | 71.82 |
| | (86,761 | ) | | 61.29 |
| | (68,253 | ) | | 55.14 |
|
| Forfeited | — |
| | — |
| | (2,809 | ) | | 86.72 |
| | — |
| | — |
|
| Balance at end of year | 148,428 |
| | $ | 78.53 |
| | 132,086 |
| | $ | 74.58 |
| | 144,374 |
| | $ | 59.94 |
|
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
18. Share and Unit-Based Plans: (Continued)
SARs:
The executives and key employees have up to 10 years from the grant date to exercise the SARs. Upon exercise, the executives and key employees will receive unrestricted common shares for the appreciation in value of the SARs from the grant date to the exercise date.
The Company determined the value of each SAR awarded during the year ended December 31, 2012 to be $9.67 using the Black‑Scholes Option Pricing Model based upon the following assumptions: volatility of 25.85%, dividend yield of 3.69%, risk free rate of 1.20%, current value of $59.57 and an expected term of 8 years. The value of each of the other outstanding SARs was determined at the grant date to be $7.68 based upon the following assumptions: volatility of 22.52%, dividend yield of 5.23%, risk free rate of 3.15%, current value of $61.17 and an expected term of 8 years. The assumptions for volatility and dividend yield were based on the Company's historical experience as a publicly traded company, the current value was based on the closing price on the date of grant and the risk free rate was based upon the interest rate of the 10-year Treasury bond on the date of grant.
In connection with the payment of the Special Dividend (See Note 12—Stockholders' Equity), the compensation committee approved an adjustment to all outstanding SARs. The exercise price and number of outstanding SARs were adjusted such that each SAR had the same fair value to the holder before and after giving effect to the payment of the special dividend. As a result, the 407,823 outstanding SARs on December 8, 2015 with a weighted-average price of $56.49 were adjusted to 417,783 outstanding SARs with a weighted average price of $55.13 and the 417,783 outstanding SARs on January 6, 2016 with a weighted-average price of $55.13 were adjusted to 427,968 outstanding SARs with a weighted average price of $53.85.
The following table summarizes the activity of SARs awards during the years ended December 31, 2016, 2015 and 2014:
|
| | | | | | | | | | | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| | Units | | Weighted Average Exercise Price | | Units | | Weighted Average Exercise Price | | Units | | Weighted Average Exercise Price |
| Balance at beginning of year | 417,783 |
| | $ | 55.13 |
| | 772,639 |
| | $ | 56.67 |
| | 1,070,991 |
| | $ | 56.66 |
|
| Granted | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Exercised | (143,822 | ) | | 53.73 |
| | (364,807 | ) | | 56.86 |
| | (298,352 | ) | | 56.63 |
|
| Special dividend adjustment | 10,185 |
| | 53.88 |
| | 9,951 |
| | 55.13 |
| | — |
| | — |
|
| Balance at end of year | 284,146 |
| | $ | 53.85 |
| | 417,783 |
| | $ | 55.13 |
| | 772,639 |
| | $ | 56.67 |
|
Long-Term Incentive Plan Units:
Under the Long-Term Incentive Plan ("LTIP"), each award recipient is issued a form of operating partnership units ("LTIP Units") in the Operating Partnership.liquidating distributions. Upon the occurrence of specified events,
andthe LTIP Units can over time achieve full parity with the common OP Units, at which time LTIP Units are convertible, subject to the satisfaction of applicable vesting conditions,
on aone-for-one basis into common OP Units. LTIP Units
(after conversionthat have been converted into
common OP
Units)Units and have become vested are
ultimately redeemable
by the holder for
common stockshares of Common Stock on aone-for-one basis or the cash value of such shares, at our Company’s election. LTIP Units generally may be subject to performance-based vesting or service-based vesting.2017 Performance-Based and Service-Based LTIP Units. Our named executive officers were granted LTIP Units effective January 1, 2017, with 75% of the Company, or cash at the Company's option, on a one-unit for one-share basis.total award consisting of performance-based LTIP Units receive cash dividends basedand 25% consisting of service-based LTIP Units. Service-based awards were granted in 2017 to support the long-term retention of our executives.
a.Performance-Based LTIP Units. Performance-based awards were granted in 2017 to encourage executives to a longer-term perspective and to reward them for creating stockholder value in apay-for-performance structure. The 2017 performance-based LTIP Units are subject to performance-based vesting over the three-year period from January 1, 2017 through December 31, 2019, with the number of LTIP Units vesting, if any, depending on our relative total stockholder return over the dividend amount paid onperformance period as described below. These LTIP Units are subject to forfeiture to the common stockextent the applicable performance requirements are not achieved. Vesting of the Company. The LTIP may include both market-indexed awards and service-based awards.
The market-indexed LTIP Units vest over the service period of the awardis based on the percentile ranking of the Company in termsour total stockholder return per share of total return to stockholders (the "Total Return") per common stock shareCommon Stock relative to the Total Return of a group of peerour Equity Peer REITs, as measured at the end of the measurementperformance period.
The fair value Total stockholder return will be measured by the compounded total annual return per share achieved by the shares of common stock of our Company or such Equity Peer REIT and assumed reinvestment of all dividends and distributions.Depending on our total stockholder return relative to the total stockholder return of our Equity Peer REITs, vesting of these LTIP Units will occur in accordance with the schedule below, with linear interpolation between performance levels. Determination of the market-indexedvesting of our performance-based LTIP Units will occur earlier in the event of a change of control or qualified termination of employment (which generally includes a termination by our Company without cause or by the executive for good reason) based on our performance through the date of such event.
| | | | |
| Company Percentile Ranking Relative to the Equity Peer REITs | | Percentage of Target LTIP
Units That Vest* | |
Below the 25th | | | 0 | % |
At the 25th | | | 50 | % |
At the 50th | | | 100 | % |
At or above the 75th | | | 150 | % |
| * | Linear interpolation between performance levels. |
Prior to the vesting of the 2017 performance-based LTIP Units, holders of the 2017 performance-based LTIP Units will be entitled to receive per unit distributions equal to 10% of the regular periodic distributions payable on a common OP Unit, but will not be entitled to receive any special distributions. Distributions on vested LTIP Units are estimatedequal in amount to the regular distributions paid on an equal number of common OP Units, which are equal in amount to the datedividends paid on an equal number of grant using a Monte Carlo Simulation model. The stock priceshares of the Company, along with the stock prices of the group of peer REITs (for market-indexed awards), is assumed to follow the Multivariate Geometric Brownian Motion Process. Multivariate Geometric Brownian Motion is a common assumption when modeling in financial markets, as it allows the modeled quantity (in this case, the stock price) to vary randomly from its current value and take any value greater than zero. The volatilities of the returns on the share price of
Common Stock.36
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
18. Share and Unit-Based Plans: (Continued)
the Company and the peer group REITs were estimated based on a look-back period. The expected growth rate of the stock prices over the "derived service period" is determined with consideration of the risk free rate as of the grant date.
On January 1, 2014, the Company granted 70,042b.Service-Based LTIP Units with a grant date fair value of $58.89 that vested in equal annual installments over a service period ending December 31, 2016. Concurrently, the Company granted 272,930 market-indexed LTIP Units ("2014 LTIP Units") at a grant date fair value of $45.34 per LTIP Unit that vested over a service period ending December 31, 2014. The 2014 LTIP Units were equally divided between two types of awards. The terms of both types ofUnits. Service-based awards were granted in 2017 to support the same, except one award had an additional 3% absolute Total Return requirement, which if it was not met, then suchlong-term retention of our executives. The 2017 service-based LTIP Units would not have vested. On January 12, 2015, the compensation committee determined that the 2014 LTIP Units had vested at a 150% level, based on the Company's percentile ranking in terms of Total Return per common stock share compared to the Total Return of a group of peer REITs during the period of January 1, 2014 to December 31, 2014. In addition, the compensation committee determined that the applicable 3% absolute Total Return requirement was exceeded. As a result, an additional 136,465 fully-vested LTIP Units were granted on December 31, 2014.
On March 7, 2014, the Company granted 246,471 LTIP Units at a fair value of $60.25 per LTIP Unit that were fully vested on the grant date.
On January 1, 2015, the Company granted 49,451 LTIP Units with a grant date fair value of $83.41 per LTIP Unit that will vest in equal annual installments over a
three-year period. Vesting is conditioned upon the executive remaining an employee of our Company through the applicable vesting dates, and subject to acceleration of vesting in the event of a change of control of our Company or the executive’s death or disability. Following the termination of the executive’s service
relationship with our Company under specified circumstances, including termination by our Company without cause, or by the executive for good reason, his service-based LTIP Units will continue to vest in accordance with the vesting schedule.Regular and othernon-liquidating distributions were made with respect to the service-based LTIP Units from the date of their issuance to the executive. Distributions were in the same amount and at the same time as those made with respect to common OP Units. At the end of the vesting period, endingdistributions will continue to be made only to the extent that the service-based LTIP Units have become vested.
2018 Performance-Based and Service-Based LTIP Units. The Committee continued the LTIP program for 2018 and awarded LTIP Units to our named executive officers, with 75% of the total award consisting of performance-based LTIP Units and 25% consisting of service-based LTIP Units. The performance period for the 2018 performance-based LTIP Unit awards is January 1, 2018 through December 31, 2017. Concurrently,2020. For purposes of determining the Company granted 186,450 market-indexedvesting of the performance-based LTIP Units, ("2015the Equity Peer REITs will continue to be the peer group. The number of 2018 performance-based LTIP Units") at a grant date fair value of $66.37 per LTIP Unit that vested over a service period ending December 31, 2015. The 2015 LTIP Units were equally divided between two types of awards. The terms of both types of awards were the same, except one award has an additional 3% absolute Total Return requirement, which if it is not met, then such LTIP Units would not have vested. The grant date fair value of the 2015 LTIP Units assumed a risk free interest rate of 0.25% and an expected volatility of 16.81%. On January 7, 2016, the compensation committee determined that the 2015 LTIP Units had vested at a 130% level, based on the Company's percentile ranking in terms of Total Return per common stock share compared to the Total Return of a group of peer REITs during the period of January 1, 2015 to December 31, 2015. In addition, the compensation committee determined that the applicable 3% absolute Total Return requirement was exceeded. As a result, an additional 55,934 fully-vested LTIP Units were granted on December 31, 2015.
On March 6, 2015, the Company granted 132,607 LTIP Units at a fair value of $86.72 per LTIP Unit that were fully vested on the grant date.
On January 1, 2016, the Company granted 58,786 LTIP Units with a grant date fair value of $80.69 per LTIP Unit that will vest
in equal annual installments over a service period endingwill depend solely on our relative TSR versus the peer group.Outstanding Equity Awards at December 31, 2018. Concurrently, the Company granted 266,899 market-indexed LTIP Units ("2016 LTIP Units") at a grant date fair value of $53.32 per LTIP Unit that vest over a service period ending December 31, 2018. The fair value of the 2016 LTIP Units was estimated on the date of grant using a Monte Carlo Simulation model that assumed a risk free interest rate of 1.32% and an expected volatility of 20.31%.
On March 4, 2016, the Company granted 154,686 LTIP Units at a fair value of $79.20 per LTIP Unit that were fully vested on the grant date.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
18. Share and Unit-Based Plans: (Continued)
2017The following table summarizesprovides information on the activityholdings of the non-vestedour named executive officers of SARs, stock options, service-based LTIP Units and performance-based LTIP Units as of December 31, 2017.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Option Awards(1) | | | Stock Awards | |
| Name | | Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable | | | Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable | | | Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#) | | | Option
Exercise
Price
($) | | | Option
Expiration
Date | | | Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)(3) | | | Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(4) | | | Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#)(5) | | | Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
($)(6) | |
Arthur M. Coppola | | | 107,679 | (1) | | | — | | | | — | | | | 53.947 | (1) | | | 3/7/2018 | | | | 30,469 | | | | 2,001,204 | | | | 99,447 | | | | 6,531,679 | |
Edward C. Coppola | | | 76,508 | (1) | | | — | | | | — | | | | 53.947 | (1) | | | 3/7/2018 | | | | 12,188 | | | | 800,508 | | | | 39,778 | | | | 2,612,619 | |
Thomas E. O’Hern | | | — | | | | — | | | | — | | | | — | | | | — | | | | 6,772 | | | | 444,785 | | | | 22,098 | | | | 1,451,397 | |
Robert D. Perlmutter | | | — | | | | — | | | | — | | | | — | | | | — | | | | 6,255 | | | | 410,828 | | | | 19,756 | | | | 1,297,574 | |
Thomas J. Leanse | | | 10,565 | (2) | | | — | | | | — | | | | 56.768 | (2) | | | 9/1/2022 | | | | 4,655 | | | | 305,740 | | | | 15,192 | | | | 997,811 | |
| (1) | Represents SAR awards that vested on March 15, 2011 and the number and exercise price reflect certain anti-dilutive adjustments made since the date of grant under our 2003 Incentive Plan. |
| (2) | Represents Mr. Leanse’s stock option award which has vested and the number and exercise price reflect certain anti-dilutive adjustments made since the grant date under our 2003 Incentive Plan. |
| (3) | Represents the unvested portion of the 2016 service-based LTIP Units that will vest on December 31, 2018 and the unvested portion of the 2017 service-based LTIP Units that will vest on December 31, 2018 and December 31, 2019. |
37
| (4) | Based on a price of $65.68 per unit, which was the closing price on the NYSE of one share of our Common Stock on December 29, 2017, the last trading day of 2017. Assumes that the value of LTIP Units on a per unit basis is equal to the per share value of our Common Stock. |
| (5) | Represents awards of performance-based LTIP Units granted on January 1, 2016 and January 1, 2017 to our named executive officers under our LTIP and 2003 Incentive Plan. The number of LTIP Units reported in this table represents 60% of the target number of performance-based LTIP Units granted in 2017, which is based on our performance relative to our Equity Peer REITs during 2017 at the 30th percentile and 50% of the target number of performance-based LTIP Units granted in 2016, which is based on our performance relative to our Equity Peer REITs at the 25th percentile, which is the minimum percentile rank that would entitle recipients to awards under the LTIP. As discussed in the “Compensation Discussion and Analysis” above, none of the performance-based LTIP Units granted in 2016 and 60% of the target number of performance-based LTIP Units granted in 2017 would have been earned assuming the performance period ended on December 31, 2017 based on our relative TSR performance through such date. |
| (6) | The vesting of the 2016 performance-based LTIP Units will be measured on a cumulative basis at the end of the three-year performance period from January 1, 2016 through December 31, 2018 and the 2017 performance-based LTIP Units will be measured on a cumulative basis at the end of the three-year performance period from January 1, 2017 through December 31, 2019. Although these LTIP Units have not vested, for purposes of this table, it is assumed that one performance-based LTIP Unit represents the economic equivalent of one share of Common Stock. The market value is based upon the closing price of our Common Stock on the NYSE on December 29, 2017 (the last trading day of 2017) of $65.68. |
Option Exercises and Stock Vested—Fiscal 2017
The following table presents information regarding vesting of LTIP Units during 2017 that were previously granted to the years ended
December 31, 2016, 2015 and 2014: |
| | | | | | | | | | | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| | Units | | Weighted Average Grant Date Fair Value | | Units | | Weighted Average Grant Date Fair Value | | Units | | Weighted Average Grant Date Fair Value |
| Balance at beginning of year | 56,315 |
| | $ | 73.24 |
| | 46,695 |
| | $ | 58.89 |
| | — |
| | $ | — |
|
| Granted | 480,371 |
| | 65.00 |
| | 424,442 |
| | 74.71 |
| | 725,908 |
| | 51.71 |
|
| Vested | (214,114 | ) | | 77.45 |
| | (414,822 | ) | | 73.13 |
| | (679,213 | ) | | 51.22 |
|
| Forfeited | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Balance at end of year | 322,572 |
| | $ | 58.18 |
| | 56,315 |
| | $ | 73.24 |
| | 46,695 |
| | $ | 58.89 |
|
Stock Options:
The Company measured the value of each option awarded during the year ended December 31, 2012 to be $9.67 using the Black-Scholes Option Pricing Model based upon the following assumptions: volatility of 25.85%, dividend yield of 3.69%, risk free rate of 1.20%, current value of $59.57 and an expected term of 8 years. The assumptions for volatility and dividend yield were based on the Company's historical experience as a publicly traded company, the current value was based on the closing price on the date of grant and the risk free rate was based upon the interest ratenamed executive officers. None of the
10-year Treasury bondnamed executive officers exercised option awards during 2017. | | | | | | | | | | | | | | | | |
| | | Option Awards | | | Stock Awards | |
Name | | Number of
Shares
Acquired
on Exercise
(#) | | | Value Realized
on Exercise
($)(1) | | | Number of
Shares
Acquired
on Vesting
(#)(2) | | | Value Realized
on Vesting
($)(2) | |
Arthur M. Coppola | | | — | | | | — | | | | 68,155 | (3) | | | 4,511,380 | |
Edward C. Coppola | | | — | | | | — | | | | 42,675 | (4) | | | 2,831,130 | |
Thomas E. O’Hern | | | — | | | | — | | | | 23,511 | (5) | | | 1,560,085 | |
Robert D. Perlmutter | | | — | | | | — | | | | 22,745 | (6) | | | 1,509,774 | |
Thomas J. Leanse | | | — | | | | — | | | | 17,745 | (7) | | | 1,177,470 | |
| (1) | Represents the amounts realized based on the difference between the market price of our stock on the date of exercise and the exercise price. |
| (2) | This number represents (a) the vesting of service-based LTIP Units on December 29, 2017 and (b) the grant of fully-vested LTIP Units on March 3, 2017, representing the annual incentive compensation award for 2016 performance. An individual, upon the vesting of an equity award, does not receive cash equal to the amount contained in the Value Realized on Vesting column of this table. Instead, the amounts contained in the Value Realized on Vesting column reflect the market value of our Common Stock on the applicable vesting date. For purposes of this table, it is assumed one LTIP Unit represents the economic equivalent of one share of Common Stock. The LTIP Units do not realize their full economic value until certain conditions are met, as described on pages 36-37 of this Amendment, and such conditions have been met for the 2015 and 2016 service-based LTIP Units included in this table. |
38
| (3) | This number represents (a) the vesting of 28,874 service-based LTIP Units and (b) the grant of 39,281 fully-vested LTIP Units, representing the annual incentive compensation award for 2016 performance. |
| (4) | This number represents (a) the vesting of 10,949 service-based LTIP Units and (b) the grant of 31,726 fully-vested LTIP Units, representing the annual incentive compensation award for 2016 performance. |
| (5) | This number represents (a) the vesting of 5,666 service-based LTIP Units and (b) the grant of 17,845 fully-vested LTIP Units, representing the annual incentive compensation award for 2016 performance. |
| (6) | This number represents (a) the vesting of 4,900 service-based LTIP Units and (b) the grant of 17,845 fully-vested LTIP Units, representing the annual incentive compensation award for 2016 performance. |
| (7) | This number represents (a) the vesting of 4,286 service-based LTIP Units and (b) the grant of 13,459 fully-vested LTIP Units, representing the annual incentive compensation award for 2016 performance. |
39
Nonqualified Deferred Compensation—Fiscal 2017
Certain of grant.
In connection with the payment of the Special Dividend (See Note 12—Stockholders' Equity), the compensation committee approved an adjustmentour named executive officers participate or participated in our 2005 Deferred Compensation Plan for Senior Executives, which was amended and restated as our 2013 Deferred Compensation Plan, effective January 1, 2013, referred to all outstanding stock options. The exercise price and number of outstanding stock options were adjusted such that each stock option had the same fair valueas our “Deferred Compensation Plan,” which also includes certain amounts deferred prior to the holder before and after giving effect to the payment of the Special Dividend. As2005 under a result, the 10,068 outstanding stock options on December 8, 2015 with a weighted-average price of $59.57 were adjusted to 10,314 outstanding stock options with a weighted average price of $58.15 and the 10,314 outstanding stock options on January 6, 2016 with a weighted-average price of $58.15 were adjusted to 10,565 outstanding stock options with a weighted average price of $56.77.
predecessor plan. The following table summarizes the activity of stock optionsprovides information with respect to our named executive officers for the years ended December 31, 2016, 2015 and 2014:
|
| | | | | | | | | | | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| | Options | | Weighted Average Exercise Price | | Options | | Weighted Average Exercise Price | | Options | | Weighted Average Exercise Price |
| Balance at beginning of year | 10,314 |
| | $ | 58.15 |
| | 10,068 |
| | $ | 59.57 |
| | 10,068 |
| | $ | 59.57 |
|
| Granted | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Exercised | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Special dividend adjustment | 251 |
| | 56.77 |
| | 246 |
| | 58.15 |
| | — |
| | — |
|
| Balance at end of year | 10,565 |
| | $ | 56.77 |
| | 10,314 |
| | $ | 58.15 |
| | 10,068 |
| | $ | 59.57 |
|
TableDeferred Compensation Plan for the fiscal year 2017. | | | | | | | | | | | | | | | | | | | | |
Name | | Executive
Contributions
in 2017
($)(1) | | | Registrant
Contributions
in 2017
($)(2) | | | Aggregate
Earnings
in 2017
($)(3) | | | Aggregate
Withdrawals/
Distributions
during 2017
($) | | | Aggregate
Balance
at 12/31/17
($)(4) | |
Arthur M. Coppola | | | — | | | | — | | | | — | | | | — | | | | — | |
Edward C. Coppola | | | — | | | | — | | | | 71,429 | | | | — | | | | 500,533 | |
Thomas E. O’Hern | | | 120,000 | | | | 30,000 | | | | 486,682 | | | | — | | | | 2,885,066 | |
Robert D. Perlmutter | | | 120,000 | | | | 30,000 | | | | 52,474 | | | | — | | | | 1,152,476 | |
Thomas J. Leanse | | | 100,000 | | | | 25,000 | | | | 98,738 | | | | — | | | | 798,589 | |
| (1) | The amounts in this column are included in the “Salary” column of the Summary Compensation Table. |
| (2) | Our Company’s contributions to the Deferred Compensation Plan are included in the “All Other Compensation” column of the Summary Compensation Table. |
| (3) | None of the earnings set forth in this column are considered above-market or preferential as determined under SEC rules, and, therefore, none of such amounts are reflected in the Summary Compensation Table. |
| (4) | The balances shown represent compensation already reported in the “Summary Compensation Table” in this Amendment and prior-year proxy statements, except for any earnings that were not above-market or preferential as determined under SEC rules. |
Description of Contents
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
18. Share and Unit-Based Plans: (Continued)
Directors' Phantom Stock Plan:
The Directors' Phantom StockOur Deferred Compensation Plan
offers non-employee members of the board of directors ("Directors") the opportunity to defer their cash compensation and to receive that compensation in common stock rather than in cash after termination of service or a predetermined period. Compensation generally includes the annual retainers payable by the Company to the Directors. Deferred amounts are generally credited as units of phantom stock at the beginning of each three-year deferral period by dividing the present value of the deferred compensation by the average fair market value of the Company's common stock at the date of award. Compensation expense related to the phantom stock awards was determined by the amortization of the value of the stock units on a straight-line basis over the applicable service period. The stock units (including dividend equivalents) vest as the Directors' services (to which the fees relate) are rendered. Vested phantom stock units are ultimately paid out in common stock on a one-unit for one-share basis. To the extent elected by a Director, stock units receive dividend equivalents in the form of additional stock units based on the dividend amount paid on the common stock. The aggregate number of phantom stock units that may be granted under the Directors' Phantom Stock Plan is 500,000. As of December 31, 2016, there were 178,515 stock units available for grant2017, Messrs. E. Coppola, O’Hern, Perlmutter and Leanse had account balances under the Directors' Phantom Stockour Deferred Compensation Plan.
The following table summarizes the activity of the non-vested phantom stock units for the years ended December 31, 2016, 2015 and 2014:
|
| | | | | | | | | | | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| | Stock Units | | Weighted Average Grant Date Fair Value | | Stock Units | | Weighted Average Grant Date Fair Value | | Stock Units | | Weighted Average Grant Date Fair Value |
| Balance at beginning of year | — |
| | $ | — |
| | 9,269 |
| | $ | 58.35 |
| | 17,575 |
| | $ | 58.66 |
|
| Granted | 21,088 |
| | 80.21 |
| | 13,351 |
| | 78.72 |
| | 10,747 |
| | 65.54 |
|
| Vested | (15,243 | ) | | 79.73 |
| | (20,162 | ) | | 72.17 |
| | (19,053 | ) | | 62.69 |
|
| Forfeited | — |
| | — |
| | (2,458 | ) | | 55.62 |
| | — |
| | — |
|
| Balance at end of year | 5,845 |
| | $ | 81.47 |
| | — |
| | $ | — |
| | 9,269 |
| | $ | 58.35 |
|
Employee Stock Purchase Plan ("ESPP"):
The ESPP authorizes eligible employees to purchase the Company's common stock through voluntary payroll deductions made during periodic offering periods. Under the ESPP common stock is purchased atDeferred Compensation Plan, our key executives who satisfy certain eligibility requirements may make annual irrevocable elections to defer a 15% discount from the lesserspecified portion of the fair value of common stock at the beginningtheir base salary and end of the offering period. A maximum of 750,000 shares of common stock is available for purchase under the ESPP. The number of shares available for future purchase under the plan at December 31, 2016 was 489,138.
Compensation:
The following summarizes the compensation cost under the share and unit-based plans for the years ended December 31, 2016, 2015 and 2014:
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Stock awards | $ | 20 |
| | $ | 252 |
| | $ | 365 |
|
| Stock units | 6,305 |
| | 6,041 |
| | 4,689 |
|
| LTIP units | 32,957 |
| | 26,622 |
| | 28,598 |
|
| Stock options | 16 |
| | 16 |
| | 16 |
|
| Phantom stock units | 1,231 |
| | 1,444 |
| | 1,205 |
|
| | $ | 40,529 |
| | $ | 34,375 |
| | $ | 34,873 |
|
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
18. Share and Unit-Based Plans: (Continued)
The Company capitalized share and unit-based compensation costs of $7,241, $6,008 and $5,410 for the years ended December 31, 2016, 2015 and 2014, respectively.
The fair value of the stock awards and stock units that vestedbonus to be earned during the years ended December 31, 2016, 2015following calendar year. Deferral of amounts earned in 2017 by participants were limited to 85% of base salary and 2014 was $5,644, $8,794 and $4,685, respectively. Unrecognized compensation costs85% of share and unit-based plans at December 31, 2016 consisted of $2,397 from LTIP Units, $4,380 from stock units, $11 from stock options and $476 from phantom stock units.
19. Employee Benefit Plans:
401(k) Plan:
Thebonus. Our Company has a defined contribution retirement plan that covers its eligible employees (the "Plan"). The Plan is a defined contribution retirement plan covering eligible employees of the Macerich Property Management Company, LLC and participating affiliates. The Plan is qualified in accordance with section 401(a) of the Code. Effective January 1, 1995, the Plan was amended to constitute a qualified cash or deferred arrangement under section 401(k) of the Code, whereby employees can elect to defer compensation subject to Internal Revenue Service withholding rules. This Plan was further amended effective as of February 1, 1999 to add The Macerich Company Common Stock Fund as a new investment alternative under the Plan. A total of 150,000 shares of common stock were reserved for issuance under the Plan, which was subsequently increased bywill credit an additional 500,000 shares in February 2013. On January 1, 2004, the Plan adopted the "Safe Harbor" provision under Sections 401(k)(12) and 401(m)(11) of the Code. In accordance with adopting these provisions, the Company makes matching contributionsamount equal to 100 percent of the first three percent of compensation deferred by a participant and 50 percent ofto that participant’s deferral account under the next two percent of compensation deferred by a participant. During the years ended December 31, 2016, 2015 and 2014, these matching contributions made by the Company were $3,384, $3,299 and $3,253, respectively. Contributions and matching contributions to the Plan by the plan sponsor and/or participating affiliates are recognized as an expense of the Company in the period that they are made.
Deferred Compensation Plans:
The Company has established deferred compensation plans under which executives and key employees of thePlan. In addition, our Company may electcredit matching amounts to defer receivingan account established for each participant in an amount equal to a portion of their cash compensation otherwise payable in one calendar year until a later year. Thepercentage, established by our Company may, as determined by the Board of Directors in its sole discretion prior to the beginning of the plan year, creditof the amount of compensation deferred by each participant under the plan. For 2017, our Company matched 25% of the amount of salary and bonus deferred by a participant's accountparticipant up to a limit of 5% of the participant’s total salary and bonus.Account balances under the Deferred Compensation Plan will be credited with income, gains and losses based on the performance of investment funds selected by the participant from a list of funds designated by our Company. The amounts credited to participants’ deferred accounts and Company matching accounts are at all times 100% vested. Participants will be eligible to receive distributions of the amounts credited to their accounts, at up to six different times that they may specify, in a lump sum or installments pursuant to elections made under the rules of the Deferred Compensation Plan. Changes to these elections under the plan may be made under limited circumstances. Under the Deferred Compensation Plan, key employees who have elected a payment at termination of employment must generally wait six months after termination, other than as a result of death, to receive a distribution. Our Company is contributing assets to a trust, which assets remain subject to the claims of our Company’s general creditors, to provide a source of funds for payment of our Company’s obligations under the Deferred Compensation Plan. Employees who are eligible to participate in the Deferred Compensation Plan may also be eligible for life insurance coverage in an amount equal to two times their annual salaries.
40
Potential Payments Upon Termination or Change of Control
The following section describes potential payments and benefits to our named executive officers under our current compensation and benefit plans and arrangements had a percentagetermination of employment or a change of control of our Company occurred on December 31, 2017.
On November 2, 2017, we adopted the Change in Control Severance Pay Plan for Senior Executives (the “Severance Plan”) which provides for the payment and benefits set forth below upon a qualifying termination of employment following a change in control. We also entered into a management continuity agreement with Mr. Leanse in connection with his hire.
In addition, our 2003 Incentive Plan contains provisions regarding the acceleration of vesting and modification of equity awards. The Compensation Committee is authorized to accelerate the vesting of and modify outstanding awards as well as authorize discretionary severance payments to our named executive officers upon termination. None of our named executive officers, other than Mr. O’Hern, has an employment agreement with our Company.
Regardless of the participant's deferral.manner in which a named executive officer’s employment terminates, he is entitled to receive all accrued, vested or earned but deferred compensation and benefits during his term of employment. The Company contributed
$1,032, $933 and $845information below sets forth the additional payments and/or benefits to our named executive officers under the specified circumstances.Change in Control Severance Pay Plan for Senior Executives
Under the Severance Plan, in the event that the employment of any of the named executive officers is terminated by us other than for “cause” (as defined in the Severance Plan) or due to the plans during the years ended
December 31, 2016, 2015 and 2014, respectively. Contributions are recognized as compensationexecutive’s death or “total disability” (as defined in the periods theySeverance Plan) or by the executive for “good reason” (as defined in the Severance Plan), in each case upon or within 24 months following a change in control, the named executive officer will be entitled to the following: (i) a lump sum payment equal to three times the sum of (A) the higher of the executive’s annual base salary as of the date of termination or the date of the change in control and (B) the average annual incentive bonus award to the executive in respect of the immediately preceding three fiscal years, (ii) apro-rated portion of the executive’s target annual incentive bonus for the year of termination, payable in a lump sum, (iii) outplacement services pursuant to the Company’s outplacement services plan for a period of 12 months following termination and (iv) a lump sum payment equal to the product of (A) the total amount of COBRA continuation monthly premium rate that would have otherwise been payable by the executive for COBRA continuation for medical, vision and dental coverage for the executive and his eligible dependents and (B) 36. The Severance Plan does not provide for an excise taxgross-up payment to any eligible participant. Instead, if any payment by our Company would subject an executive to the excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended, such payments shall be reduced or the full amount of such payments shall be made, whichever leaves the executive in the best netafter-tax position. Receipt of the payments and benefits set forth above is subject to the execution and effectiveness of a general release of claims in favor of the Company and its affiliates.Offer Letter with Mr. O’Hern
Our Company entered into an offer letter with Mr. O’Hern on April 26, 2018 which provides for certain benefits upon a qualifying termination of employment, which are made.described above in the Compensation Discussion and Analysis under “Offer Letter with Mr. O’Hern.”
Management Continuity Agreement
Our Company entered into a management continuity agreement with Mr. Leanse in connection with his hiring as our Senior Executive Vice President, Chief Legal Officer and Secretary, effective January 1, 2013, which provided that if, within two years following a change of control (as defined in the management continuity agreement), his employment is terminated (i) by us for no reason or any reason other than for cause (as defined in the management continuity agreement) or by reason of death or disability (as defined in the management continuity agreement) or (ii) by Mr. Leanse for good reason (as defined in the management continuity agreement), he would have been entitled to receive an amount equal to three times the sum of (i) his base salary; and (ii) the amount of the cash and stock/unit portion of his annual incentive bonus awarded for performance for the fiscal year immediately preceding his termination date (including any supplemental or special cash and/or stock bonus awarded to him for the applicable year) or, if the annual incentive bonus had not yet been awarded for that fiscal year, the amount of his annual incentive bonus awarded for performance for the second fiscal year immediately preceding his termination date.
In addition, Mr. Leanse would have been entitled to receive all accrued obligations, including a pro rata share of his bonus amount for the year in which the termination occurred. We would also have generally continued welfare benefits for Mr. Leanse and his family at least equal to, and at the sameafter-tax cost to him and/or his family, as those that would have been provided to them in accordance with the plans, programs, practices and policies as in effect immediately prior to the change of control, generally until up to the third anniversary of the termination date (subject to earlier termination if the executive becomes eligible for health coverage under another employer’s plans).
41
Upon a change of control, any shares of restricted stock, stock units or service-based LTIP Units held by Mr. Leanse that remained unvested would have immediately vested, any unvested stock options or SARs held by him would have vested in full and been immediately exercisable and any outstanding performance-based LTIP Units would have vested as provided in the applicable award agreement. See “Discussion of Summary Compensation and Grants of Plan-Based Awards Table—LTIP Unit Awards.” Any such stock options or SARs would have remained exercisable for a period at least until the first to occur of (1) the expiration of the full term of the option or SAR and (2) one year after the date on which the change of control occurs.
Mr. Leanse’s management continuity agreement did not provide for an excise taxgross-up payment. Instead, if any payment by our Company would have subjected Mr. Leanse to an excise tax, the payments under his management continuity agreement would have been reduced if the selected accounting firm determined that he would have received greater net after tax aggregate payments if his payments under his management continuity agreement were so reduced.
Under the management continuity agreement, Mr. Leanse agreed to certain covenants, including confidentiality in perpetuity andnon-solicitation of employees for two years after the termination date. Mr. Leanse retired from our Company effective February 28, 2018.
Treatment of Equity Awards Upon Termination or Change in Control
Upon a Termination of Employment by the Company for Cause
If a named executive officer’s employment is terminated with cause, he will forfeit all unvested equity awards as of the termination date.
Upon a Termination of Employment by the Company Without Cause
If a named executive officer’s employment is terminated for any reason, other than (i) by death, disability, resignation or retirement of such officer or (ii) by termination with cause,
except as provided below, his equity awards that have not vested as of such termination date will be forfeited,
he will have three months (or such other period in the Compensation Committee’s discretion) from the termination date to exercise vested options and SARs, subject to specified limitations,
his unvested performance-based LTIP Units will be eligible to vest based on performance through the executive’s termination date (this will also occur if the executive terminates his employment for good reason), and
107his unvested service-based LTIP Units will continue to vest in accordance with the vesting schedule (this will also occur if the executive terminates his employment for good reason).
Upon Resignation by the Named Executive Officer
In the event of the resignation of a named executive officer,
his equity awards that have not vested as of such termination date will be forfeited, and
he will have three months (or such other period in the Compensation Committee’s discretion) from the termination date to exercise vested options and SARs, subject to specified limitations.
Upon Retirement
In the event of the retirement of a named executive officer,
under our current retirement policy and except as provided below, all outstanding equity awards will continue to vest in accordance with the vesting schedule originally set forth in his award agreement provided the named executive officer retires at age 55 or older, has at least five years of service with our Company and has not been directly or indirectly employed by a competitor at any time after his retirement,
42
if a named executive officer does not meet the requirements for retirement under our current retirement policy, and the Compensation Committee does not otherwise provide, THE MACERICH COMPANYhe will have 12 months from his retirement date to exercise vested options and SARs, subject to specified limitations, and
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollarshe will forfeit all unvested performance-based and service-based LTIP Units, unless the Compensation Committee determines in thousands, its sole discretion to provide for vesting of some or all such LTIP Units.
Upon Death or Disability
In the event of death or disability of a named executive officer while employed,
his benefits under our long-term disability plan or payments under our life insurance plan(s), as appropriate, will be distributed,
except per share amounts)as provided below, his unvested equity awards will immediately vest,
20. Income Taxes:
For income tax purposes, distributions paidhis unvested performance-based LTIP Units will be eligible to common stockholders consistvest based on performance through the executive’s date of ordinary income, capital gains, unrecaptured Section 1250 gaindeath or disability, and return
his vested stock options or SARs may be exercised for 12 months after the date of capitalhis disability or a combination thereof. death.
Termination/Change of Control Payments Table
The following table detailsprovides the componentspotential payments and benefits to the named executive officers, upon termination of employment or a change in control, assuming such event occurred on December 31, 2017. These numbers do not reflect the actual amounts that may be paid to such persons, which will only be known at the time that they become eligible for payment and will only be payable if the specified event occurs.
Items Not Reflected in Table
The following items are not reflected in the table set forth below:
Accrued salary, bonus, personal time and vacation.
Costs of COBRA or any other mandated governmental assistance program to former employees.
Welfare benefits, including life insurance, provided to all salaried employees.
Amounts outstanding under our 401(k) plan or any deferred compensation plan. There are no special or enhanced benefits under these plans for our named executive officers, and all of such participating officers are fully vested in these plans. See “Nonqualified Deferred Compensation” table.
Other Notes Applicable to the Table
For the accelerated vesting of the distributions,unvested service-based LTIP Units, the table reflects the intrinsic value of such acceleration. The value for each unvested LTIP Unit is $65.68, which represents the closing price of our Common Stock on the NYSE on December 29, 2017, the last trading day of 2017.
For the accelerated vesting of Mr. Leanse’s unvested stock options, the table reflects the intrinsic value of such acceleration. The value for each unvested stock option is the amount by which the closing price of our Common Stock on the NYSE on December 29, 2017 ($65.68) exceeded the exercise price of the option ($56.768).
43
Life insurance amounts only reflect policies paid for by our Company and in effect on December 31, 2017.
The table assumes that a per“disability” is of a long-term nature, which triggers vesting of unvested equity awards and the accelerated vesting determination of any unvested performance-based LTIP Units.
Messrs. A. Coppola and E. Coppola also have death benefit coverage under a split-dollar life insurance policy. No premiums have been paid by our Company under this policy since July 30, 2002. At the time of their death, the total premiums our Company previously paid for the policies will be recovered and the remaining death benefits will be paid to their designated beneficiaries.
The “Termination without cause” and “Change in Control/Termination” rows in the following table include a termination by our Company without cause and a termination for good reason by the named executive officer.
The amounts shown are only estimates of the amounts that would be payable to the executives upon termination of employment and do not reflect tax positions we may take or the accounting treatment of such payments. Actual amounts to be paid can only be determined at the time of separation.
44
Termination/Change in Control Payments
| | | | | | | | | | | | | | | | | | | | |
| | | Cash
Severance
($) | | | Miscellaneous
Benefits
($) | | | Service-Based
Awards
($) | | | Life
Insurance
Proceeds
($) | | | Total
($) | |
Arthur M. Coppola | | | | | | | | | | | | | | | | | | | | |
Termination with cause | | | — | | | | — | | | | — | | | | — | | | | — | |
Termination without cause | | | — | | | | — | | | | 2,001,204 | (2) | | | — | | | | 2,001,204 | |
Resignation | | | — | | | | — | | | | — | | | | — | | | | — | |
Retirement | | | — | | | | — | | | | — | | | | — | | | | — | |
Death | | | — | | | | — | | | | 2,001,204 | (3) | | | 2,000,000 | | | | 4,001,204 | |
Disability | | | — | | | | | (1) | | | 2,001,204 | (3) | | | — | | | | 2,001,204 | |
Change in control | | | — | | | | — | | | | 2,001,204 | (3) | | | — | | | | 2,001,204 | |
Change in control/Termination | | | 13,914,875 | | | | 87,294 | (4) | | | 2,001,204 | (3) | | | — | | | | 16,003,373 | |
Edward C. Coppola | | | | | | | | | | | | | | | | | | | | |
Termination with cause | | | — | | | | — | | | | — | | | | — | | | | — | |
Termination without cause | | | — | | | | — | | | | 800,508 | (2) | | | — | | | | 800,508 | |
Resignation | | | — | | | | — | | | | — | | | | — | | | | — | |
Retirement | | | — | | | | — | | | | — | | | | — | | | | — | |
Death | | | — | | | | — | | | | 800,508 | (3) | | | 1,600,000 | | | | 2,400,508 | |
Disability | | | — | | | | | (1) | | | 800,508 | (3) | | | — | | | | 800,508 | |
Change in control | | | — | | | | — | | | | 800,508 | (3) | | | — | | | | 800,508 | |
Change in control/Termination | | | 11,151,950 | | | | 87,294 | (4) | | | 800,508 | (3) | | | — | | | | 12,039,752 | |
Thomas E. O’Hern | | | | | | | | | | | | | | | | | | | | |
Termination with cause | | | — | | | | — | | | | — | | | | — | | | | — | |
Termination without cause | | | — | | | | — | | | | 444,785 | (2) | | | — | | | | 444,785 | |
Resignation | | | — | | | | — | | | | — | | | | — | | | | — | |
Retirement | | | — | | | | — | | | | — | | | | — | | | | — | |
Death | | | — | | | | — | | | | 444,785 | (3) | | | 1,200,000 | | | | 1,644,785 | |
Disability | | | — | | | | | (1) | | | 444,785 | (3) | | | — | | | | 444,785 | |
Change in control | | | — | | | | — | | | | 444,785 | (3) | | | — | | | | 444,785 | |
Change in control/Termination | | | 6,549,085 | | | | 87,294 | (4) | | | 444,785 | (3) | | | — | | | | 7,081,164 | |
Robert D. Perlmutter | | | | | | | | | | | | | | | | | | | | |
Termination with cause | | | — | | | | — | | | | — | | | | — | | | | — | |
Termination without cause | | | — | | | | — | | | | 410,828 | (2) | | | — | | | | 410,828 | |
Resignation | | | — | | | | — | | | | — | | | | — | | | | — | |
Retirement | | | — | | | | — | | | | — | | | | — | | | | — | |
Death | | | — | | | | — | | | | 410,828 | (3) | | | 1,200,000 | | | | 1,610,828 | |
Disability | | | — | | | | | (1) | | | 410,828 | (3) | | | — | | | | 410,828 | |
Change in control | | | — | | | | — | | | | 410,828 | (3) | | | — | | | | 410,828 | |
Change in control/Termination | | | 6,325,387 | | | | 61,560 | (4) | | | 410,828 | (3) | | | — | | | | 6,797,775 | |
Thomas J. Leanse | | | | | | | | | | | | | | | | | | | | |
Termination with cause | | | — | | | | — | | | | — | | | | — | | | | — | |
Termination without cause | | | — | | | | — | | | | 305,740 | (2) | | | — | | | | 305,740 | |
Resignation | | | — | | | | — | | | | — | | | | — | | | | — | |
Retirement | | | — | | | | — | | | | — | | | | — | | | | — | |
Death | | | — | | | | — | | | | 305,740 | (5) | | | 1,000,000 | | | | 1,305,740 | |
Disability | | | — | | | | | (1) | | | 305,740 | (5) | | | — | | | | 305,740 | |
Change in control | | | — | | | | — | | | | 305,740 | (5) | | | — | | | | 305,740 | |
Change in control/Termination | | | 4,805,101 | | | | 66,252 | (4) | | | 305,740 | (5) | | | — | | | | 5,177,093 | |
45
| (1) | Upon disability, the executive officer will generally receive up to $25,000 monthly until his return to employment. |
| (2) | Amount reflects the vesting of service-based LTIP Units. The executive officer’s unvested service-based LTIP Units will continue to vest in accordance with the vesting schedule upon a termination without cause or if the executive officer terminates his employment for good reason. |
| (3) | Amount represents the vesting of service-based LTIP Units. |
| (4) | Amount represents the estimated value of continuing welfare benefits for 36 months after December 31, 2017. |
| (5) | Amount represents the vesting of service-based LTIP Units and stock options. |
Compensation Committee Interlocks and Insider Participation
Messrs. Hash and Soboroff and Ms. Stephen each served as a member of the Compensation Committee during 2017. No member of the Compensation Committee is a past or present officer or employee of our Company or had any relationship with us requiring disclosure under SEC rules requiring disclosure of certain transactions with related persons. In addition, none of our executive officers served as a director or a member of a compensation committee (or other committee serving an equivalent function) of any other entity, the executive officer of which served as a director or member of the Compensation Committee during 2017.
CEO Compensation Pay Ratio
In August 2015, pursuant to a mandate of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the SEC adopted a rule requiring annual disclosure of the ratio of the median employee’s annual total compensation to the total annual compensation of the CEO. We believe that executive pay should be internally consistent and equitable to motivate our employees to create stockholder value. The annual total compensation for 2017 for Mr. A. Coppola, our CEO, was $12,834,624 as reported under the heading “Summary Compensation Table.” Our median employee’s total compensation for 2017 was $75,369. As a result, we estimate that Mr. A. Coppola’s 2017 total compensation was approximately 170 times that of our median employee.
Our CEO to median employee pay ratio was calculated in accordance with Item 402(u) of RegulationS-K. We identified the median employee by examining 2017 total compensation consisting of base salary, annual bonus amounts, stock-based compensation (based on the grant date fair value of awards during 2017) and other incentive payments for all full-time, part-time, seasonal and hourly employees who were employed by the Company on December 31, 2017, other than our CEO. After identifying the median employee based on 2017 total compensation, we calculated annual total compensation for such employee using the same methodology we use for our named executive officers as set forth in the “Total” column in the Summary Compensation Table.
The pay ratio reported above is a reasonable estimate calculated in a manner consistent with SEC rules, based on our internal records and the methodology described above. The SEC rules for identifying the median compensated employee allow companies to adopt a variety of methodologies, to apply certain exclusions and to make reasonable estimates and assumptions that reflect their employee populations and compensation practices. Accordingly, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies have different employee populations and compensation practices and may use different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.
46
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
Equity Compensation Plan Information
Our Company currently maintains two equity compensation plans for the granting of equity awards to directors, officers and employees: our 2003 Incentive Plan and our Director Phantom Stock Plan. Our Company also maintains our Employee Stock Purchase Plan (“ESPP”). Except as described in footnote 4 to the table, each of these plans has been approved by our Company’s stockholders.
The following table sets forth, for each of our Company’s equity compensation plans, the number of shares of Common Stock subject to outstanding awards, the weighted-average exercise price of outstanding options, and the number of shares remaining available for future award grants as of December 31, 2017.
| | | | | | | | | | | | |
Plan category | | Number of shares of
Common Stock to be
issued upon exercise
of outstanding
options, warrants
and rights | | | Weighted-average
exercise price of
outstanding options,
warrants and
rights(1) | | | Number of shares of Common
Stock remaining available for
future issuance under equity
compensation plans (excluding
shares reflected in the first
column) | |
Equity compensation plans approved by stockholders | | | 3,740,995 | (2) | | $ | 53.96 | | | | 6,626,785 | (3) |
Equity compensation plans not approved by stockholders(4) | | | 80,245 | | | | — | | | | 169,755 | (5) |
| | | | | | | | | | | | |
Total | | | 3,821,240 | | | $ | 53.96 | | | | 6,796,540 | |
| | | | | | | | | | | | |
| (1) | These weighted-average exercise prices do not reflect the shares that will be issued upon the payment of outstanding stock units, OP Units or LTIP Units. |
| (2) | Includes (a) 235,439 outstanding options and SARs with a weighted average exercise price of $53.83 and a weighted average term to expiration of 0.24 years and (b) 151,355 unvested RSUs. Also includes 3,304,355 LTIP Units (of which 636,632 were unvested and 2,667,723 were vested) which may be redeemed for shares under our 2003 Incentive Plan, and 49,846 fully vested shares subject to stock units credited under our Director Phantom Stock Plan. This number of shares is presented before giving effect to the shares that will be purchased under our ESPP for the purchase period ending May 31, 2018. |
| (3) | Of these shares, 6,176,479 were available for options, SARs, restricted stock, stock units, stock bonuses, performance-based awards, dividend equivalent rights and OP Units or other units convertible into or exchangeable for Common Stock under our 2003 Incentive Plan and 450,306 were available for issuance under our ESPP. |
| (4) | In February 2010, our Board of Directors approved an amendment to our Director Phantom Stock Plan to increase the number of shares of Common Stock that may be issued pursuant to the plan. In accordance with applicable NYSE listing rules, this share increase was not required to be approved by our stockholders because the shares of Common Stock issued under the plan are issued solely in payment of deferred compensation in accordance with the terms of the plan. |
| (5) | These shares were available for the issuance of stock units under our Director Phantom Stock Plan. See “Compensation ofNon-Employee Directors” on page 12 of this Amendment for a description of our Director Phantom Stock Plan. |
47
Director Stock Ownership
The following table sets forth certain stock ownership information with respect to each of our directors based on information furnished by each director. The following information is as of March 23, 2018, unless otherwise specified.
| | | | | | | | | | | | | | | | |
Name | | Amount and Nature of
Beneficial Ownership
of Common Stock
and OP Units(1) | | | Percent of
Common
Stock(2) | | | Amount and Nature of
Beneficial Ownership
of OP Units(1)(3) | | | Percent of
Common
Stock(2) | |
Peggy Alford | | | — | (4) | | | * | | | | — | | | | * | |
John H. Alschuler | | | — | (5) | | | * | | | | — | | | | * | |
Arthur M. Coppola(6) | | | 2,770,512 | (7)(8) | | | 1.93 | % | | | 2,664,450 | (9) | | | 1.86 | % |
Edward C. Coppola(6) | | | 1,944,679 | (10)(11) | | | 1.36 | % | | | 1,633,272 | (12) | | | 1.15 | % |
Steven R. Hash | | | 1,888 | (13) | | | * | | | | — | | | | * | |
Diana M. Laing | | | 12,479 | (14) | | | * | | | | — | | | | * | |
Mason G. Ross | | | 8,951 | (15) | | | * | | | | — | | | | * | |
Steven L. Soboroff | | | 22 | (16) | | | * | | | | — | | | | * | |
Andrea M. Stephen | | | 8,348 | (17) | | | * | | | | — | | | | * | |
John M. Sullivan | | | — | | | | * | | | | — | | | | * | |
| * | The percentage of shares beneficially owned by this director does not exceed one percent of our outstanding shares of Common Stock. |
| (1) | Except as provided under applicable state marital property laws or as otherwise noted, each individual in the table above has sole voting and investment power over the shares of Common Stock and/or OP Units (as defined in Note 3 below) listed. |
| (2) | Assumes that all OP Units and LTIP Units (as defined in Note 3) held by the person are redeemed for shares of Common Stock (assuming, in the case of any LTIP Units, they have first been converted into OP Units) and that none of our OP Units or LTIP Units held by other persons are redeemed for or converted into shares of Common Stock. |
| (3) | Our Company is the sole general partner of, and owns an aggregate of approximately 93% of the ownership interests referred to as “OP Units” in, The Macerich Partnership, L.P. or our “Operating Partnership.” Our Operating Partnership holds directly or indirectly substantially all of our interests in our regional shopping centers and our community/power shopping centers (the “Centers”). Our Company conducts all of its business through our Operating Partnership, the property partnerships, corporations and limited liability companies that own title to our Centers and various management companies. In connection with our formation as well as subsequent acquisitions of certain Centers, OP Units were issued to certain persons in connection with the transfer of their interests in such Centers. The OP Units are redeemable at the election of the holder and our Company may redeem them for cash or shares of Common Stock on aone-for-one basis (subject to anti-dilution provisions), at the Company’s election. |
Our Long Term Incentive Plan or “LTIP” allows for the issuance of limited partnership units in the form of a class of units of our Operating Partnership referred to as “LTIP Units,” as more fully described on pages 36-37 of this Amendment. LTIP Units may be performance-based, service-based or fully-vested. Upon the occurrence of specified events, any vested LTIP Units can over time achieve full parity with the common OP Units of our Operating Partnership at which time LTIP Units are convertible, subject to the satisfaction of applicable vesting conditions, on aone-for-one basis into common OP Units.
| (4) | Ms. Alford joined our Board on March 29, 2018 and received 2,066 stock units that will vest after May 22, 2018 under our Amended and Restated 2003 Equity Incentive Plan as currently in effect (“2003 Incentive Plan”) and has 1,005 phantom stock units credited under the terms of our Eligible Directors’ Deferred Compensation/Phantom Stock Plan referred to as our “Director Phantom Stock Plan,” the vesting and terms of which are described under “Compensation ofNon-Employee Directors”. Stock units, including the stock units issued under our Director Phantom Stock Plan, are payable solely in shares of Common Stock, do not represent outstanding shares, do not have voting rights and arenon-transferrable. |
48
| (5) | Mr. Alschuler has 3,765 vested stock units, 307 stock units credited as dividend equivalents and 2,117 stock units that will vest after May 22, 2018 under our 2003 Incentive Plan and 4,172 phantom stock units credited under the terms of our Director Phantom Stock Plan. |
| (6) | Arthur Coppola and Edward Coppola are brothers. |
| (7) | Includes 488 shares held by Mr. A. Coppola as custodian for his minor child and 1,764,055 OP Units that are held by family limited liability companies of which Mr. A. Coppola is the sole manager. |
| (8) | Includes 98,066 vested LTIP Units and 64,726 service-based LTIP Units that will vest after May 22, 2018. In addition to the securities disclosed in the above table, Mr. A. Coppola has 422,193 unvested performance-based LTIP Units. |
| (9) | Includes 1,764,055 OP Units that are held by family limited liability companies of which Mr. A. Coppola is the sole manager, 98,066 vested LTIP Units and 64,726 service-based LTIP Units that will vest after May 22, 2018. In addition to the securities disclosed in the above table, Mr. A. Coppola has 422,193 unvested performance-based LTIP Units. |
| (10) | Includes 5,993 shares of Common Stock held for Mr. E. Coppola under our 401(k)/Profit Sharing Plan. Also includes 39,969 shares held by a family limited partnership of which Mr. E. Coppola has sole beneficial ownership, 155,952 OP Units held in a family trust of which Mr. E. Coppola has shared beneficial ownership and 1,800 shares held by Mr. E. Coppola as custodian for his children. |
| (11) | Includes 64,978 vested LTIP Units and 25,890 service-based LTIP Units that will vest after May 22, 2018. In addition to the securities disclosed in the above table, Mr. E. Coppola has 168,875 unvested performance-based LTIP Units. |
| (12) | Includes 155,952 OP Units held in a family trust of which Mr. E. Coppola has shared beneficial ownership, 64,978 vested LTIP Units and 25,890 service-based LTIP Units that will vest after May 22, 2018. In addition to the securities disclosed in the above table, Mr. E. Coppola has 168,875 unvested performance-based LTIP Units. |
| (13) | In addition to the securities disclosed in the above table, Mr. Hash has 1,877 vested stock units, 94 stock units credited as dividend equivalents and 2,117 stock units that will vest after May 22, 2018 under our 2003 Incentive Plan. |
| (14) | In addition to the securities disclosed in the above table, Ms. Laing has 6,358 vested stock units, 868 stock units credited as dividend equivalents and 2,117 stock units that will vest after May 22, 2018 under our 2003 Incentive Plan and 34,661 phantom stock units credited under the terms of our Director Phantom Stock Plan. |
| (15) | In addition to the securities disclosed in the above table, Mr. Ross has 4,812 vested stock units, 544 stock units credited as dividend equivalents and 2,117 stock units that will vest after May 22, 2018 under our 2003 Incentive Plan and 11,982 phantom stock units credited under the terms of our Director Phantom Stock Plan. |
| (16) | In addition to the securities disclosed in the above table, Mr. Soboroff has 6,836 vested stock units, 983 stock units credited as dividend equivalents and 2,117 stock units that will vest after May 22, 2018 under our 2003 Incentive Plan. |
| (17) | In addition to the securities disclosed in the above table, Ms. Stephen has 1,877 vested stock units, 94 stock units credited as dividend equivalents and 2,117 stock units that will vest after May 22, 2018 under our 2003 Incentive Plan and 10,151 phantom stock units credited under the terms of our Director Phantom Stock Plan. |
49
Executive Officer Stock Ownership
The following table sets forth, as of March 23, 2018, the number of shares of our Common Stock and OP Units beneficially owned by each of the executive officers named in the Summary Compensation Table on page 30 of this Amendment, whom we refer to as our “named executive officers.”
| | | | | | | | | | | | | | | | |
| Name | | Amount and Nature
of Beneficial
Ownership of
Common Stock and
OP Units(1) | | | Percent of
Common
Stock(2) | | | Amount and
Nature of
Beneficial
Ownership of
OP Units(1) | | | Percent of
Common
Stock(2) | |
Arthur M. Coppola | | | 2,770,512 | (3)(4) | | | 1.93 | % | | | 2,664,450 | (5) | | | 1.86 | % |
Edward C. Coppola | | | 1,944,679 | (6)(7) | | | 1.36 | % | | | 1,633,272 | (8) | | | 1.15 | % |
Thomas E. O’Hern | | | 270,736 | (9) | | | * | | | | 214,319 | (10) | | | * | |
Robert D. Perlmutter | | | 166,188 | (11) | | | * | | | | 137,049 | (11) | | | * | |
Thomas J. Leanse | | | 148,875 | (12) | | | * | | | | 138,310 | (13) | | | * | |
| * | The percentage of shares beneficially owned by this executive officer does not exceed one percent of our outstanding shares of Common Stock. |
| (1) | Except as provided under applicable state marital property laws or as otherwise noted, each individual in the table above has sole voting and investment power over the shares of Common Stock and/or OP Units listed. |
| (2) | Assumes that all OP Units and LTIP Units held by the person are redeemed for shares of Common Stock (assuming, in the case of any LTIP Units, they have first been converted into OP Units) and that none of our OP Units or LTIP Units held by other persons are redeemed for or converted into shares of Common Stock. |
| (3) | Includes 488 shares held by Mr. A. Coppola as custodian for his minor child and 1,764,055 OP Units that are held by family limited liability companies of which Mr. A. Coppola is the sole manager. |
| (4) | Includes 98,066 vested LTIP Units and 64,726 service-based LTIP Units that will vest after May 22, 2018. In addition to the securities disclosed in the above table, Mr. A. Coppola has 422,193 unvested performance-based LTIP Units. |
| (5) | Includes 1,764,055 OP Units that are held by family limited liability companies of which Mr. A. Coppola is the sole manager, 98,066 vested LTIP Units and 64,726 service-based LTIP Units that will vest after May 22, 2018. In addition to the securities disclosed in the above table, Mr. A. Coppola has 422,193 unvested performance-based LTIP Units. |
| (6) | Includes 5,993 shares of Common Stock held for Mr. E. Coppola under our 401(k)/Profit Sharing Plan. Also includes 39,969 shares held by a family limited partnership of which Mr. E. Coppola has sole beneficial ownership, 155,952 OP Units held in a family trust where Mr. E. Coppola has shared beneficial ownership and 1,800 shares held by Mr. E. Coppola as custodian for his children. |
| (7) | Includes 64,978 vested LTIP Units and 25,890 service-based LTIP Units that will vest after May 22, 2018. In addition to the securities disclosed in the above table, Mr. E. Coppola has 168,875 unvested performance-based LTIP Units. |
| (8) | Includes 155,952 OP Units held in a family trust of which Mr. E. Coppola has shared beneficial ownership, 64,978 vested LTIP Units and 25,890 service-based LTIP Units that will vest after May 22, 2018. In addition to the securities disclosed in the above table, Mr. E. Coppola has 168,875 unvested performance-based LTIP Units. |
| (9) | Includes 4,814 shares of Common Stock held for Mr. O’Hern under our 401(k)/Profit Sharing Plan. Also includes 2,982 shares held by Mr. O’Hern as custodian for his children, 2,441 shares Mr. O’Hern holds jointly with two of his sons, 36,971 vested LTIP Units and 14,384 service-based LTIP Units that will vest after May 22, 2018. In addition to the securities disclosed in the above table, Mr. O’Hern has 93,819 unvested performance-based LTIP Units. |
| (10) | Includes 36,971 vested LTIP Units and 14,384 service-based LTIP Units that will vest after May 22, 2018. In addition to the securities disclosed in the above table, Mr. O’Hern has 93,819 unvested performance-based LTIP Units. |
50
| (11) | Includes 86,977 OP Units held in trust by Mr. Perlmutter as trustee, 36,205 vested LTIP Units and 13,867 service-based LTIP Units that will vest after May 22, 2018. In addition to the securities disclosed in the above table, Mr. Perlmutter has 86,787 unvested performance-based LTIP Units. |
| (12) | Includes 10,565 shares subject to options granted to Mr. Leanse under our 2003 Incentive Plan that are currently exercisable, 29,619 vested LTIP Units and 4,655 service-based LTIP Units that will vest after May 22, 2018. In addition to the securities disclosed in the above table, Mr. Leanse has 41,211 unvested performance-based LTIP Units. |
| (13) | Includes 29,619 vested LTIP Units and 4,655 service-based LTIP Units that will vest after May 22, 2018. In addition to the securities disclosed in the above table, Mr. Leanse has 41,211 unvested performance-based LTIP Units. |
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of March 23, 2018, with respect to the only persons known by our Company to own beneficially more than 5% of our outstanding shares of Common Stock, based solely upon Schedule 13G and Schedule 13D reports filed with the SEC, and the number of shares of Common Stock and OP Units beneficially owned by our directors and executive officers as a group. The number of shares of Common Stock and OP Units beneficially owned by each director is set forth in “Director Stock Ownership” and the number of shares of Common Stock and OP Units beneficially owned by each named executive officer is set forth in “Executive Officer Stock Ownership.”
| | | | | | | | |
| Name and Address of Beneficial Owner | | Amount and Nature of
Beneficial Ownership | | | Percent of
Class | |
Ontario Teachers’ Pension Plan Board (1) 5650 Yonge Street, 3rd Floor Toronto, Ontario M2M 4H5, Canada | | | 23,286,237 | | | | 16.52 | % |
The Vanguard Group, Inc. (2) 100 Vanguard Boulevard Malvern, Pennsylvania 19355 | | | 22,382,637 | | | | 15.88 | % |
GIC Private Limited (3) 168 Robinson Road,#37-01 Capital Tower Singapore 068912 | | | 11,498,874 | | | | 8.16 | % |
BlackRock, Inc. (4) 55 East 52nd Street New York, New York 10055 | | | 11,422,384 | | | | 8.10 | % |
All directors and executive officers as a group (14 persons) (5) c/o The Macerich Company 401 Wilshire Blvd., Suite 700 Santa Monica, California 90401 | | | 5,399,964 | | | | 3.71 | % |
| (1) | The Schedule 13D/A indicates that the reporting entity is a pension plan and has shared voting and dispositive power with respect to 23,286,237 shares. The Schedule 13D/A indicates that 1700480 Ontario Inc., a wholly-owned subsidiary of the reporting entity, may be deemed to share voting and dispositive power with respect to the 23,286,237 shares. The address for 1700480 Ontario Inc. is 20 Queen Street West, 5th Floor, Toronto, Ontario 8M5H 3R4, Canada. |
| (2) | The Schedule 13G/A indicates that the reporting entity is a registered investment advisor and has sole voting power with respect to 319,806 shares, shared voting power with respect to 189,075 shares, sole dispositive power with respect to 22,034,258 shares and shared dispositive power with respect to 348,379 shares. The Schedule 13G/A indicates that Vanguard Fiduciary Trust Company is the beneficial owner of 124,004 shares as the result of serving as investment manager of collective trust accounts and Vanguard Investments Australia, Ltd. is the beneficial owner of 420,177 shares as a result of serving as investment manager of Australian investment offerings, and each entity is a wholly-owned subsidiary of the reporting entity. In addition, the number of shares reported as beneficially owned by The Vanguard Group, Inc. includes the 8,093,198 shares, representing 5.74% of our outstanding shares of Common Stock, separately reported as beneficially owned by Vanguard Specialized Funds—Vanguard REIT Index Fund on a Schedule 13G/A. |
51
| (3) | The Schedule 13G/A indicates that the reporting entity is a fund manager and has sole voting power with respect to 493,078 shares, shared voting power with respect to 123,419 shares, sole dispositive power with respect to 493,078 shares and shared dispositive power with respect to 123,419 shares as the result of managing shares on behalf of its two only clients, the Government of Singapore and the Monetary Authority of Singapore. The Schedule 13G/A indicates 10,882,377 shares, representing 7.72% of our outstanding shares of Common Stock, are owned beneficially by US Shops LLC. GIC Real Estate, Inc., as the result of serving as investment manager, has voting power and dispositive power with respect to such shares. GIC Real Estate, Inc. shares such powers with the reporting entity and GIC Real Estate Private Limited. |
| (4) | The Schedule 13G/A indicates that the reporting entity is a parent holding company and has sole voting power with respect to 10,251,004 shares and sole dispositive power with respect to 11,422,384 shares, reporting on behalf of the following subsidiaries: BlackRock Life Limited, BlackRock International Limited, BlackRock Advisors, LLC, BlackRock Capital Management, Inc., BlackRock (Netherlands) B.V., BlackRock Institutional Trust Company, National Association, BlackRock Asset Management Ireland Limited, BlackRock Financial Management, Inc., BlackRock Japan Co., Ltd., BlackRock Asset Management Schweiz AG, BlackRock Investment Management, LLC, BlackRock Investment Management (UK) Limited, BlackRock Asset Management Canada Limited, BlackRock (Luxembourg) S.A., BlackRock Investment Management (Australia) Limited, BlackRock Advisors (UK) Limited, BlackRock Fund Advisors, BlackRock Asset Management North Asia Limited, BlackRock (Singapore) Limited and BlackRock Fund Managers Ltd. |
| (5) | Includes options to purchase shares under our 2003 Incentive Plan which are currently exercisable or become exercisable before May 22, 2018 and certain LTIP Units. See the Notes to the tables on pages 48-51 of this Amendment. |
52
| Item 13. | Certain Relationships and Related Party Transactions, and Director Independence |
Related Party Transaction Policies and Procedures
The Audit Committee administers our written Related Party Transaction Policies and Procedures. These policies are designed to assist with the proper identification, review and disclosure of related party transactions and apply generally to any transaction, arrangement or relationship, or series of similar transactions, arrangements or relationships, in which our Company or an affiliate is a participant, the amount involved exceeds $120,000 and a related party has a direct or indirect material interest. A related party generally includes any person who is, or was in the last fiscal year, a director, director nominee, executive officer, stockholder of more than 5% of our Common Stock, an immediate family member of any of the foregoing, or an entity in which one of the foregoing serves as an executive officer, general partner, principal or has a 10% or greater beneficial interest to the extent such information is provided to our Company or is otherwise publicly available. Under the policies and procedures, transactions that fall within this definition will be reported to our Chief Legal Officer or Chief Financial Officer and referred to the Audit Committee for approval, ratification or other action. In determining whether to approve or ratify a transaction, the Audit Committee will consider all of the relevant facts and circumstances, including the related party’s interest, the amount involved in the transaction, and whether the transaction has terms no less favorable than those generally available from an unrelated third party. The Audit Committee will approve or ratify such transaction if it determines, in good faith, that under all of the circumstances the transaction is fair to our Company. In addition, any related party transaction previously approved by the Audit Committee or otherwise already existing that is ongoing in nature will be reviewed by the Audit Committee annually to ensure that such transaction has been conducted in accordance with the previous approval granted by the Audit Committee, if any, and remains appropriate.
Certain Transactions
The following provides a description of certain relationships and related transactions between our executive officers or members of their immediate families and our Company or our subsidiaries and affiliates. All of these relationships and related transactions were approved or ratified by the Audit Committee in accordance with our Related Party Transaction Policies and Procedures.
Macerich Management Company employs Mr. A. Coppola’sson-in-law as a Senior Vice President of Leasing. He receives compensation commensurate with his level of experience and other employees having similar responsibilities, and based upon an annual review of his individual performance conducted in the same manner as for all employees. The total compensation and benefits paid to Mr. A. Coppola’sson-in-law for 2017 did not exceed $610,000 and he is not considered an officer under Section 16 of the Exchange Act.
Director Independence
Eight of our ten directors are independent under the rules of the NYSE.
All of the members of our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee are independent.
For a director to be considered independent, our Board must determine that the director does not have any material relationship with our Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with our Company). Our Board has established Director Independence Standards to assist it in determining director independence. The Director Independence Standards establish exclusionary standards that conform to the independence requirements of the NYSE Rules and categorical standards that identify permissible immaterial relationships between our directors and our Company. These Director Independence Standards are included in our Guidelines on Corporate Governance which are available atwww.macerich.com under “Investors—Corporate Governance.” Our Board has determined that the following eight currentnon-employee directors do not have any material relationship with our Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with our Company) and each is an independent director under our Director Independence Standards: Messrs. Alschuler, Hash, Ross, Soboroff and Sullivan and Mses. Alford, Laing and Stephen. Our Board also previously determined that Fred S. Hubbell, who resigned from our Board in March 2018, was an independent director under the NYSE Rules and our Director Independence Standards during his service on our Board. Messrs. A. Coppola and E. Coppola are not independent directors under our Director Independence Standards.
53
| Item 14. | Principal Accountant Fees and Services |
Principal Accountant Fees and Services
For the years ended December 31, 2017 and 2016, 2015our Company was billed by KPMG LLP for services in the following categories:
Audit Fees. Fees for audit services totaled $3,642,500 in 2017 and 2014 are as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| | 2016 (1) | | 2015 (1) | | 2014 |
| Ordinary income | $ | 0.94 |
| | 20.8 | % | | $ | 1.20 |
| | 24.8 | % | | $ | 1.92 |
| | 76.5 | % |
| Capital gains | 3.60 |
| | 79.2 | % | | 3.64 |
| | 75.2 | % | | 0.16 |
| | 6.4 | % |
| Unrecaptured Section 1250 gain | — |
| | — | % | | — |
| | — | % | | 0.05 |
| | 2.0 | % |
| Return of capital | — |
| | — | % | | — |
| | — | % | | 0.38 |
| | 15.1 | % |
| Dividends paid | $ | 4.54 |
| | 100.0 | % | | $ | 4.84 |
| | 100.0 | % | | $ | 2.51 |
| | 100.0 | % |
$3,815,000 in 2016, including fees associated with the annual audit of our Company and its subsidiaries and affiliates, audit of internal control over financial reporting, the performance of interim reviews of our quarterly unaudited financial information and review of our registration statement and offering documents.Audit-Related Fees. No fees for audit-related services were paid to KPMG LLP in 2017 or 2016.
| |
(1) | During the year ended December 31, 2015, the Company paid cash dividends of $4.63 per common share. In addition, the Company declared a $2.00 special cash dividend to shareholders of record as of November 12, 2015 which was paid on January 6, 2016 (See Note 12—Stockholders' Equity). Pursuant to relevant U.S. tax rules, $0.21 per common share of this dividend is treated as having been paid by the Company on December 31, 2015, and received by each shareholder of record as of November 12, 2015 on December 31, 2015. The balance of the special cash dividend has been included in the amount of dividends paid for the year ended December 31, 2016. |
TheTax Fees. No fees for tax services were paid to KPMG LLP in 2017 or 2016.
All Other Fees. All other fees consist of an annual license fee of $2,000 in each of 2017 and 2016 for use of accounting research software.
Our Company has made Taxable REIT Subsidiary elections for all of its corporate subsidiaries other than its Qualified REIT Subsidiaries. The elections, effective forbeen advised by KPMG LLP that neither the year beginning January 1, 2001 and future years, were made pursuant to Section 856(l)firm, nor any member of the Code.
The income tax provisionfirm, has any financial interest, direct or indirect, in any capacity in our Company or its subsidiaries.Audit CommitteePre-Approval Policy
Consistent with the SEC rules regarding independence, the Audit Committee has responsibility for appointing, setting compensation and overseeing the work of the TRSs for the years ended December 31, 2016, 2015 and 2014 are as follows:
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Current | $ | (176 | ) | | $ | — |
| | $ | — |
|
| Deferred | (546 | ) | | 3,223 |
| | 4,269 |
|
| Income tax (expense) benefit | $ | (722 | ) | | $ | 3,223 |
| | $ | 4,269 |
|
The income tax provision of the TRSs for the years ended December 31, 2016, 2015 and 2014 are reconciled to the amount computed by applying the Federal Corporate tax rate as follows:
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Book loss for TRSs | $ | 5,254 |
| | $ | 10,681 |
| | $ | 10,785 |
|
| Tax at statutory rate on earnings from continuing operations before income taxes | $ | 1,786 |
| | $ | 3,632 |
| | $ | 3,667 |
|
| Other | (2,508 | ) | | (409 | ) | | 602 |
|
| Income tax (expense) benefit | $ | (722 | ) | | $ | 3,223 |
| | $ | 4,269 |
|
The net operating loss carryforwards are currently scheduled to expire through 2035, beginning in 2024. Net deferred tax assets of $38,301 and $38,847 were included in deferred charges and other assets, net at December 31, 2016 and 2015, respectively.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
20. Income Taxes: (Continued)
The tax effects of temporary differences and carryforwards of the TRSs included in the net deferred tax assets at December 31, 2016 and 2015 are summarized as follows:
|
| | | | | | | |
| | 2016 | | 2015 |
| Net operating loss carryforwards | $ | 22,335 |
| | $ | 25,340 |
|
| Property, primarily differences in depreciation and amortization, the tax basis of land assets and treatment of certain other costs | 12,720 |
| | 10,600 |
|
| Other | 3,246 |
| | 2,907 |
|
| Net deferred tax assets | $ | 38,301 |
| | $ | 38,847 |
|
For the years ended December 31, 2016, 2015 and 2014 there were no unrecognized tax benefits.
The tax years 2012 through 2016 remain open to examination by the taxing jurisdictions to which the Company is subject. The Company does not expect that the total amount of unrecognized tax benefit will materially change within the next 12 months.
21. Quarterly Financial Data (Unaudited):
The following is a summary of quarterly results of operations for the years ended December 31, 2016 and 2015:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2016 Quarter Ended | | 2015 Quarter Ended |
| | Dec 31 | | Sep 30 | | Jun 30 | | Mar 31 | | Dec 31 | | Sep 30 | | Jun 30 | | Mar 31 |
| Revenues | $ | 272,000 |
| | $ | 253,367 |
| | $ | 259,904 |
| | $ | 256,000 |
| | $ | 320,758 |
| | $ | 326,262 |
| | $ | 322,794 |
| | $ | 318,335 |
|
| Net income attributable to the Company(1) | $ | 37,128 |
| | $ | 13,730 |
| | $ | 45,222 |
| | $ | 420,915 |
| | $ | 414,959 |
| | $ | 33,597 |
| | $ | 14,395 |
| | $ | 24,611 |
|
| Net income attributable to common stockholders per share-basic | $ | 0.26 |
| | $ | 0.09 |
| | $ | 0.31 |
| | $ | 2.77 |
| | $ | 2.65 |
| | $ | 0.21 |
| | $ | 0.09 |
| | $ | 0.15 |
|
| Net income attributable to common stockholders per share-diluted | $ | 0.26 |
| | $ | 0.09 |
| | $ | 0.31 |
| | $ | 2.76 |
| | $ | 2.65 |
| | $ | 0.21 |
| | $ | 0.09 |
| | $ | 0.15 |
|
_____________________
| |
(1) | Net income attributable to the Company for the quarter ended March 31, 2016 includes the gain on sale of assets of $101,629 from the Arrowhead Towne Center transaction (See Note 4—Investments in Unconsolidated Joint Ventures) and $340,734 from the MAC Heitman Portfolio transaction (See Note 4—Investments in Unconsolidated Joint Ventures). Net income attributable to the Company for the quarter ended December 31, 2015 includes the gain on sale of assets of $311,194 from the sale of the PPR Portfolio transaction (See Note 4—Investments in Unconsolidated Joint Ventures) and $73,726 from the sale of Panorama Mall (See Note 14—Dispositions).
|
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
22. Subsequent Events:
On January 18, 2017, the Company sold Cascade Mall, a 589,000 square foot regional shopping center in Burlington, Washington; and Northgate Mall, a 750,000 square foot regional shopping center in San Rafael, California, in a combined transaction for $170,000. The proceeds were used to payoff the mortgage note payable on Northgate Mall, pay down the Company's line of credit and for general corporate purposes.
On February 1, 2017, the Company's joint venture in West Acres replaced the existing loan on the property with a new $80,000 loan that bears interest at an effective rate of 4.61% and matures on March 1, 2032. The Company used its share of the excess proceeds to pay down its line of credit and for general corporate purposes.
On February 2, 2017, the Company's joint venture in Kierland Commons entered into a loan commitment with a lender to replace the existing loan on the property with a new $225,000 loan that will bear interest at a fixed rate of 3.95% for ten-years. The new loan is expected to close in March 2017. The Company expects to use its share of the excess proceeds to pay down its line of credit and for general corporate purposes.
On February 9, 2017, the Company announced a dividend/distribution of $0.71 per share for common stockholders and OP Unit holders of record on February 21, 2017. All dividends/distributions will be paid 100% in cash on March 3, 2017.
On February 13, 2017, the Company announced that the Board of Directors has authorized the repurchase of up to $500,000 of its outstanding common shares as market conditions and the Company’s liquidity warrant. Repurchases may be made through open market purchases, privately negotiated transactions, structured or derivative transactions, including ASR transactions, or other methods of acquiring shares and pursuant to Rule 10b5-1 of the Securities Act of 1934, from time to time as permitted by securities laws and other legal requirements.
THE MACERICH COMPANY
Schedule III—Real Estate and Accumulated Depreciation
December 31, 2016
(Dollars in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Initial Cost to Company | | | | Gross Amount at Which Carried at Close of Period | | | | |
| Shopping Centers/Entities | Land | | Building and Improvements | | Equipment and Furnishings | | Cost Capitalized Subsequent to Acquisition | | Land | | Building and Improvements | | Equipment and Furnishings | | Construction in Progress | | Total | | Accumulated Depreciation | | Total Cost Net of Accumulated Depreciation |
| Cascade Mall | $ | 19,253 |
| | $ | 9,671 |
| | $ | — |
| | $ | (8,495 | ) | | $ | 12,728 |
| | $ | 7,616 |
| | $ | 85 |
| | $ | — |
| | $ | 20,429 |
| | $ | 1,250 |
| | $ | 19,179 |
|
| Chandler Fashion Center | 24,188 |
| | 223,143 |
| | — |
| | 17,987 |
| | 24,188 |
| | 235,804 |
| | 5,326 |
| | — |
| | 265,318 |
| | 98,095 |
| | 167,223 |
|
| Danbury Fair Mall | 130,367 |
| | 316,951 |
| | — |
| | 105,275 |
| | 142,751 |
| | 402,975 |
| | 6,682 |
| | 185 |
| | 552,593 |
| | 130,195 |
| | 422,398 |
|
| Desert Sky Mall | 9,447 |
| | 37,245 |
| | 12 |
| | 4,364 |
| | 9,082 |
| | 40,869 |
| | 1,117 |
| | — |
| | 51,068 |
| | 8,534 |
| | 42,534 |
|
| Eastland Mall | 22,050 |
| | 151,605 |
| | — |
| | 9,944 |
| | 22,066 |
| | 160,374 |
| | 1,041 |
| | 118 |
| | 183,599 |
| | 23,376 |
| | 160,223 |
|
| Estrella Falls | 10,550 |
| | — |
| | — |
| | 69,998 |
| | 10,747 |
| | 13,874 |
| | — |
| | 55,927 |
| | 80,548 |
| | 231 |
| | 80,317 |
|
| Fashion Outlets of Chicago | — |
| | — |
| | — |
| | 259,054 |
| | 40,575 |
| | 215,298 |
| | 3,020 |
| | 161 |
| | 259,054 |
| | 34,610 |
| | 224,444 |
|
| Fashion Outlets of Niagara Falls USA | 18,581 |
| | 210,139 |
| | — |
| | 111,293 |
| | 22,963 |
| | 314,797 |
| | 2,218 |
| | 35 |
| | 340,013 |
| | 50,599 |
| | 289,414 |
|
| The Marketplace at Flagstaff | — |
| | — |
| | — |
| | 45,887 |
| | — |
| | 45,885 |
| | 2 |
| | — |
| | 45,887 |
| | 20,613 |
| | 25,274 |
|
| Freehold Raceway Mall | 164,986 |
| | 362,841 |
| | — |
| | 107,159 |
| | 168,098 |
| | 460,606 |
| | 6,281 |
| | 1 |
| | 634,986 |
| | 164,369 |
| | 470,617 |
|
| Fresno Fashion Fair | 17,966 |
| | 72,194 |
| | — |
| | 40,263 |
| | 17,966 |
| | 109,817 |
| | 2,393 |
| | 247 |
| | 130,423 |
| | 49,038 |
| | 81,385 |
|
| Green Acres Mall | 156,640 |
| | 321,034 |
| | — |
| | 161,617 |
| | 176,464 |
| | 442,960 |
| | 7,850 |
| | 12,017 |
| | 639,291 |
| | 57,449 |
| | 581,842 |
|
| Inland Center | 8,321 |
| | 83,550 |
| | — |
| | 22,217 |
| | 8,280 |
| | 100,189 |
| | 23 |
| | 5,596 |
| | 114,088 |
| | 7,298 |
| | 106,790 |
|
| Kings Plaza Shopping Center | 209,041 |
| | 485,548 |
| | 20,000 |
| | 83,783 |
| | 198,066 |
| | 451,167 |
| | 26,936 |
| | 122,203 |
| | 798,372 |
| | 57,537 |
| | 740,835 |
|
| La Cumbre Plaza | 18,122 |
| | 21,492 |
| | — |
| | 24,017 |
| | 17,280 |
| | 45,691 |
| | 361 |
| | 299 |
| | 63,631 |
| | 22,331 |
| | 41,300 |
|
| Macerich Management Co. | 1,150 |
| | 10,475 |
| | 26,562 |
| | 42,629 |
| | 3,878 |
| | 11,856 |
| | 64,612 |
| | 470 |
| | 80,816 |
| | 54,147 |
| | 26,669 |
|
| MACWH, LP | — |
| | 25,771 |
| | — |
| | 17,807 |
| | 11,557 |
| | 27,455 |
| | — |
| | 4,566 |
| | 43,578 |
| | 8,411 |
| | 35,167 |
|
| Northgate Mall | 8,400 |
| | 34,865 |
| | 841 |
| | 104,911 |
| | 13,414 |
| | 132,373 |
| | 3,095 |
| | 135 |
| | 149,017 |
| | 72,362 |
| | 76,655 |
|
| NorthPark Mall | 7,746 |
| | 74,661 |
| | — |
| | 9,852 |
| | 7,885 |
| | 83,894 |
| | 480 |
| | — |
| | 92,259 |
| | 14,256 |
| | 78,003 |
|
| Oaks, The | 32,300 |
| | 117,156 |
| | — |
| | 260,689 |
| | 56,387 |
| | 350,481 |
| | 3,031 |
| | 246 |
| | 410,145 |
| | 125,906 |
| | 284,239 |
|
| Pacific View | 8,697 |
| | 8,696 |
| | — |
| | 129,548 |
| | 7,854 |
| | 136,674 |
| | 2,332 |
| | 81 |
| | 146,941 |
| | 63,783 |
| | 83,158 |
|
| Paradise Valley Mall | 33,445 |
| | 128,485 |
| | — |
| | 35,982 |
| | 39,382 |
| | 155,283 |
| | 2,416 |
| | 831 |
| | 197,912 |
| | 69,249 |
| | 128,663 |
|
| Promenade at Casa Grande | 15,089 |
| | — |
| | — |
| | 61,137 |
| | 5,382 |
| | 70,779 |
| | 65 |
| | — |
| | 76,226 |
| | 38,130 |
| | 38,096 |
|
| Queens Center | 251,474 |
| | 1,039,922 |
| | — |
| | 17,307 |
| | 256,786 |
| | 1,049,545 |
| | 2,063 |
| | 309 |
| | 1,308,703 |
| | 58,875 |
| | 1,249,828 |
|
| Santa Monica Place | 26,400 |
| | 105,600 |
| | — |
| | 326,644 |
| | 48,374 |
| | 401,826 |
| | 7,903 |
| | 541 |
| | 458,644 |
| | 100,790 |
| | 357,854 |
|
| SanTan Adjacent Land | 29,414 |
| | — |
| | — |
| | 7,498 |
| | 30,506 |
| | — |
| | — |
| | 6,406 |
| | 36,912 |
| | — |
| | 36,912 |
|
| SanTan Village Regional Center | 7,827 |
| | — |
| | — |
| | 197,498 |
| | 6,344 |
| | 197,552 |
| | 1,402 |
| | 27 |
| | 205,325 |
| | 82,599 |
| | 122,726 |
|
| SouthPark Mall | 7,035 |
| | 38,215 |
| | — |
| | 24,628 |
| | 7,479 |
| | 61,668 |
| | 408 |
| | 323 |
| | 69,878 |
| | 9,371 |
| | 60,507 |
|
| Southridge Center | 6,764 |
| | — |
| | — |
| | 20,674 |
| | 6,422 |
| | 20,721 |
| | 130 |
| | 165 |
| | 27,438 |
| | 3,937 |
| | 23,501 |
|
| Stonewood Center | 4,948 |
| | 302,527 |
| | — |
| | 6,344 |
| | 4,935 |
| | 308,712 |
| | 64 |
| | 108 |
| | 313,819 |
| | 19,891 |
| | 293,928 |
|
| Superstition Springs Center | 10,928 |
| | 112,718 |
| | — |
| | 7,214 |
| | 10,928 |
| | 119,566 |
| | 366 |
| | — |
| | 130,860 |
| | 11,623 |
| | 119,237 |
|
| See accompanying report of independent registered public accounting firm. |
THE MACERICH COMPANY
Schedule III—Real Estate and Accumulated Depreciation (Continued)
December 31, 2016
(Dollars in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Initial Cost to Company | | | | Gross Amount at Which Carried at Close of Period | | | | |
| Shopping Centers/Entities | Land | | Building and Improvements | | Equipment and Furnishings | | Cost Capitalized Subsequent to Acquisition | | Land | | Building and Improvements | | Equipment and Furnishings | | Construction in Progress | | Total | | Accumulated Depreciation | | Total Cost Net of Accumulated Depreciation |
| Superstition Springs Power Center | 1,618 |
| | 4,420 |
| | — |
| | 290 |
| | 1,618 |
| | 4,627 |
| | 83 |
| | — |
| | 6,328 |
| | 1,739 |
| | 4,589 |
|
| Tangerine (Marana), The Shops at | 36,158 |
| | — |
| | — |
| | (8,852 | ) | | 16,922 |
| | — |
| | — |
| | 10,384 |
| | 27,306 |
| | — |
| | 27,306 |
|
| The Macerich Partnership, L.P. | — |
| | 2,534 |
| | — |
| | 26,237 |
| | — |
| | 5 |
| | 10,823 |
| | 17,943 |
| | 28,771 |
| | 2,126 |
| | 26,645 |
|
| Towne Mall | 6,652 |
| | 31,184 |
| | — |
| | 4,587 |
| | 6,877 |
| | 35,011 |
| | 506 |
| | 29 |
| | 42,423 |
| | 13,960 |
| | 28,463 |
|
| Tucson La Encantada | 12,800 |
| | 19,699 |
| | — |
| | 55,372 |
| | 12,800 |
| | 74,492 |
| | 558 |
| | 21 |
| | 87,871 |
| | 40,241 |
| | 47,630 |
|
| Valley Mall | 16,045 |
| | 26,098 |
| | — |
| | 12,048 |
| | 15,616 |
| | 37,359 |
| | 364 |
| | 852 |
| | 54,191 |
| | 6,203 |
| | 47,988 |
|
| Valley River Center | 24,854 |
| | 147,715 |
| | — |
| | 22,820 |
| | 24,854 |
| | 168,547 |
| | 1,969 |
| | 19 |
| | 195,389 |
| | 54,723 |
| | 140,666 |
|
| Victor Valley, Mall of | 15,700 |
| | 75,230 |
| | — |
| | 52,659 |
| | 20,080 |
| | 121,458 |
| | 2,051 |
| | — |
| | 143,589 |
| | 44,179 |
| | 99,410 |
|
| Vintage Faire Mall | 14,902 |
| | 60,532 |
| | — |
| | 57,668 |
| | 17,647 |
| | 113,955 |
| | 1,435 |
| | 65 |
| | 133,102 |
| | 66,308 |
| | 66,794 |
|
| Westside Pavilion | 34,100 |
| | 136,819 |
| | — |
| | 72,966 |
| | 34,100 |
| | 201,441 |
| | 5,827 |
| | 2,517 |
| | 243,885 |
| | 100,870 |
| | 143,015 |
|
| Wilton Mall | 19,743 |
| | 67,855 |
| | — |
| | 26,198 |
| | 19,810 |
| | 92,834 |
| | 1,152 |
| | — |
| | 113,796 |
| | 32,064 |
| | 81,732 |
|
| 500 North Michigan Avenue | 12,851 |
| | 55,358 |
| | — |
| | 9,313 |
| | 10,991 |
| | 51,370 |
| | 205 |
| | 14,956 |
| | 77,522 |
| | 9,699 |
| | 67,823 |
|
| Other freestanding stores | 5,926 |
| | 43,180 |
| | — |
| | 10,153 |
| | 5,926 |
| | 52,972 |
| | 361 |
| | — |
| | 59,259 |
| | 19,177 |
| | 40,082 |
|
| Other land and development properties | 33,795 |
| | — |
| | — |
| | 34,211 |
| | 31,582 |
| | 4,241 |
| | — |
| | 32,183 |
| | 68,006 |
| | 1,757 |
| | 66,249 |
|
| | $ | 1,496,273 |
| | $ | 4,965,128 |
| | $ | 47,415 |
| | $ | 2,700,395 |
| | $ | 1,607,590 |
| | $ | 7,134,619 |
| | $ | 177,036 |
| | $ | 289,966 |
| | $ | 9,209,211 |
| | $ | 1,851,901 |
| | $ | 7,357,310 |
|
See accompanying report ofour independent registered public accounting firm.
THE MACERICH COMPANY
Schedule III—Real Estatethis responsibility, the Audit Committee has established a policy topre-approve all audit and Accumulated Depreciation (Continued)
December 31, 2016
(Dollars in thousands)
Depreciationpermissiblenon-audit services provided by our independent registered public accounting firm. The Audit Committee approves a list of services and related fees expected to be rendered during any fiscal-year period within each of four categories of service:Audit Services include audit work performed on the financial statements, including audit of the Company's investment in buildingseffectiveness of internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, as well as work that generally only our independent registered public accounting firm can reasonably be expected to provide, including work associated with registration statements under the Securities Act, periodic reports and improvements reflectedother SEC documents, statutory or other financial audit work for subsidiaries and consultations surrounding the proper application of financial accounting and/or reporting standards.
Audit-Related Services include assurance and related services that are reasonably related to performance of an audit or traditionally performed by our independent registered public accounting firm, including due diligence or agreed-upon procedures related to mergers, acquisitions, dispositions or refinancings, special procedures required to meet certain financial, accounting or regulatory requirements and accounting, regulatory or disclosure consultations.
Tax Services include tax return preparation, tax planning and related tax services, tax advice, tax compliance, tax reporting,year-end estimated taxable income and distribution projections and tax due diligence for REIT compliance and other tax issues.
Other Services include those permissiblenon-audit services that do not fall within the above categories and are routine and recurring services that would not impair the independence of our accountants.
The Audit Committeepre-approves our independent registered public accounting firm’s services within each category. In 2017, the Audit Committeepre-approved the retention of KPMG LLP to perform various audit and audit-related services for our Company as described above. For each proposed service, our independent registered public accounting firm is generally required to provide documentation at the time of approval to permit the Audit Committee to make a determination whether the provision of such services would impair our independent registered public accounting firm’s independence. The fees are budgeted and the
54
Audit Committee requires our independent registered public accounting firm and management to report actual fees versus the budget periodically throughout the year by category of service. During the year, circumstances may arise when it may become necessary to engage our independent registered public accounting firm for additional services not contemplated in the consolidated statementsoriginalpre-approval categories. In those instances, the Audit Committee requires specificpre-approval before engaging our independent registered public accounting firm. The Audit Committee may delegatepre-approval authority to one or more of operations are calculated overits members. The member to whom such authority is delegated must report anypre-approval decisions to the estimated useful livesAudit Committee at its next scheduled meeting.
55
Part IV
| Item 15. | Exhibits, Financial Statement Schedules |
| (a) | The following documents are filed as part of this report: |
The exhibits listed on the Exhibit Index of the asset as follows:
Original Filing and the exhibits listed below are filed with, or incorporated by reference in, this report.56
The changes in total real estate assets for the three years ended December 31, 2016 are as follows:
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Balances, beginning of year | $ | 10,689,656 |
| | $ | 12,777,882 |
| | $ | 9,181,338 |
|
| Additions | 254,604 |
| | 392,575 |
| | 4,042,409 |
|
| Dispositions and retirements | (1,735,049 | ) | | (2,480,801 | ) | | (445,865 | ) |
| Balances, end of year | $ | 9,209,211 |
| | $ | 10,689,656 |
| | $ | 12,777,882 |
|
The aggregate gross cost of the property included in the table above for federal income tax purposes was $6,079,675 (unaudited) at December 31, 2016.
The changes in accumulated depreciation for the three years ended December 31, 2016 are as follows:
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Balances, beginning of year | $ | 1,892,744 |
| | $ | 1,709,992 |
| | $ | 1,559,572 |
|
| Additions | 277,270 |
| | 354,977 |
| | 289,178 |
|
| Dispositions and retirements | (318,113 | ) | | (172,225 | ) | | (138,758 | ) |
| Balances, end of year | $ | 1,851,901 |
| | $ | 1,892,744 |
| | $ | 1,709,992 |
|
See accompanying report of independent registered public accounting firm.
SIGNATURES
57
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this reportAmendment to be signed on its behalf by the undersigned, thereunto duly authorized, on
February 24, 2017.
April 30, 2018. |
| | | |
| THE MACERICH COMPANY |
| | | /s/ ARTHUR M. COPPOLA |
| By | |
| | | Arthur M. Coppola |
| | | Chairman and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
| | | | |
SignatureBy | | Capacity | | Date |
/s/ ARTHUR M. COPPOLA | | Chairman and Chief Executive Officer and Director | | February 24, 2017 |
Arthur M. Coppola | | (Principal Executive Officer) | |
/s/ EDWARD C. COPPOLA | | President and Director
| | February 24, 2017 |
Edward C. Coppola | | |
/s/ JOHN H. ALSCHULER | | Director
| | February 24, 2017 |
John H. Alschuler | | |
/s/ STEVEN R. HASH | | Director
| | February 24, 2017 |
Steven R. Hash | | |
/s/ FREDERICK S. HUBBELL | | Director
| | February 24, 2017 |
Frederick S. Hubbell | | |
/s/ DIANA M. LAING | | Director
| | February 24, 2017 |
Diana M. Laing | | |
/s/ MASON G. ROSS | | Director | | February 24, 2017 |
Mason G. Ross | | |
/s/ STEVEN L. SOBOROFF | | Director | | February 24, 2017 |
Steven L. Soboroff | | |
/s/ ANDREA M. STEPHEN | | Director | | February 24, 2017 |
Andrea M. Stephen | | |
/s/ JOHN M. SULLIVAN | | Director | | February 24, 2017 |
John M. Sullivan | | |
/s/ THOMAS E. O'HERNO’HERN |
| | Thomas E. O’Hern |
| | Senior Executive Vice President, TreasurerChief Financial Officer and Chief Financial and Accounting Officer (Principal Financial and Accounting Officer) | | February 24, 2017 |
Thomas E. O'Hern | | Treasurer |
EXHIBIT INDEX
|
| | | |
Exhibit Number | | Description |
2.1 |
| | Master Agreement, dated November 14, 2014, by and among Pacific Premier Retail LLC, MACPT LLC, Macerich PPR GP LLC, Queens JV LP, Macerich Queens JV LP, Queens JV GP LLC, 1700480 Ontario Inc. and the Company (incorporated by reference as an exhibit to the Company’s Current Report on Form 8-K, event date November 14, 2014). |
| | |
3.1 |
| | Articles of Amendment and Restatement of the Company (incorporated by reference as an exhibit to the Company's Registration Statement on Form S-11, as amended (No. 33-68964)). |
| | |
3.1.1 |
| | Articles Supplementary of the Company (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K, event date May 30, 1995). |
| | |
3.1.2 |
| | Articles Supplementary of the Company (with respect to the first paragraph) (incorporated by reference as an exhibit to the Company's 1998 Form 10-K). |
| | |
3.1.3 |
| | Articles Supplementary of the Company (Series D Preferred Stock) (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K, event date July 26, 2002). |
| | |
3.1.4 |
| | Articles Supplementary of the Company (incorporated by reference as an exhibit to the Company's Registration Statement on Form S-3, as amended (No. 333-88718)). |
| | |
3.1.5 |
| | Articles of Amendment of the Company (declassification of Board) (incorporated by reference as an exhibit to the Company's 2008 Form 10-K). |
| | |
3.1.6 |
| | Articles Supplementary of the Company (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K, event date February 5, 2009). |
| | |
3.1.7 |
| | Articles of Amendment of the Company (increased authorized shares) (incorporated by reference as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2009). |
| | |
3.1.8 |
| | Articles of Amendment of the Company (to eliminate the supermajority vote requirement to amend the charter and to clarify a reference in Article NINTH) (incorporated by reference as an exhibit to the Company’s Current Report on Form 8-K, event date May 30, 2014). |
| | |
3.1.9 |
| | Articles Supplementary (election to be subject to Section 3-803 of the Maryland General Corporation Law) (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K, event date March 17, 2015). |
| | |
3.1.10 |
| | Articles Supplementary (designation of Series E Preferred Stock) (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K, event date March 18, 2015). |
| | |
3.1.11 |
| | Articles Supplementary (reclassification of Series E Preferred Stock to preferred stock) (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K, event date May 7, 2015). |
| | |
3.1.12 |
| | Articles Supplementary (repeal of election to be subject to Section 3-803 of the Maryland General Corporation Law (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K, event date May 28, 2015). |
| | |
3.2 |
| | Amended and Restated Bylaws of the Company (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K, event date April 21, 2016). |
| | |
|
| | | |
Exhibit Number | | Description |
4.1 |
| | Form of Common Stock Certificate (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K, as amended, event date November 10, 1998). |
| | |
4.2 |
| | Form of Preferred Stock Certificate (Series D Preferred Stock) (incorporated by reference as an exhibit to the Company's Registration Statement on Form S-3 (No. 333-107063)). |
| | |
10.1 |
| | Amended and Restated Limited Partnership Agreement for the Operating Partnership dated as of March 16, 1994 (incorporated by reference as an exhibit to the Company's 1996 Form 10-K). |
| | |
10.1.1 |
| | Amendment to Amended and Restated Limited Partnership Agreement for the Operating Partnership dated June 27, 1997 (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K, event date June 20, 1997). |
| | |
10.1.2 |
| | Amendment to Amended and Restated Limited Partnership Agreement for the Operating Partnership dated November 16, 1997 (incorporated by reference as an exhibit to the Company's 1997 Form 10-K). |
| | |
10.1.3 |
| | Fourth Amendment to Amended and Restated Limited Partnership Agreement for the Operating Partnership dated February 25, 1998 (incorporated by reference as an exhibit to the Company's 1997 Form 10-K). |
| | |
10.1.4 |
| | Fifth Amendment to Amended and Restated Limited Partnership Agreement for the Operating Partnership dated February 26, 1998 (incorporated by reference as an exhibit to the Company's 1997 Form 10-K). |
| | |
10.1.5 |
| | Sixth Amendment to Amended and Restated Limited Partnership Agreement for the Operating Partnership dated June 17, 1998 (incorporated by reference as an exhibit to the Company's 1998 Form 10-K). |
| | |
10.1.6 |
| | Seventh Amendment to Amended and Restated Limited Partnership Agreement for the Operating Partnership dated December 23, 1998 (incorporated by reference as an exhibit to the Company's 1998 Form 10-K). |
| | |
10.1.7 |
| | Eighth Amendment to Amended and Restated Limited Partnership Agreement for the Operating Partnership dated November 9, 2000 (incorporated by reference as an exhibit to the Company's 2000 Form 10-K). |
| | |
10.1.8 |
| | Ninth Amendment to Amended and Restated Limited Partnership Agreement for the Operating Partnership dated July 26, 2002 (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K event date July 26, 2002). |
| | |
10.1.9 |
| | Tenth Amendment to Amended and Restated Limited Partnership Agreement for the Operating Partnership dated October 26, 2006 (incorporated by reference as an exhibit to the Company's 2006 Form 10-K). |
| | |
10.1.10 |
| | Eleventh Amendment to Amended and Restated Limited Partnership Agreement for the Operating Partnership dated as of March 16, 2007 (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K, event date March 16, 2007). |
| | |
10.1.11 |
| | Twelfth Amendment to the Amended and Restated Limited Partnership Agreement of the Operating Partnership dated as of April 30, 2009 (incorporated by reference as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2009). |
| | |
10.1.12 |
| | Thirteenth Amendment to the Amended and Restated Limited Partnership Agreement of the Operating Partnership dated as of October 29, 2009 (incorporated by reference as an exhibit to the Company's 2009 Form 10-K). |
| | |
10.1.13 |
| | Form of Fourteenth Amendment to Amended and Restated Limited Partnership Agreement for the Operating Partnership (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K, event date April 25, 2005). |
|
| | | |
Exhibit Number | | Description |
10.2 |
| * | Amended and Restated Deferred Compensation Plan for Executives (2003) (incorporated by reference as an exhibit to the Company's 2003 Form 10-K). |
| | |
10.2.1 |
| * | Amendment Number 1 to Amended and Restated Deferred Compensation Plan for Executives (October 30, 2008) (incorporated by reference as an exhibit to the Company's 2008 Form 10-K). |
| | |
10.2.2 |
| * | Amendment Number 2 to Amended and Restated Deferred Compensation Plan for Executives (May 1, 2011) (incorporated by reference as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2011). |
| | |
10.2.3 |
| * | Amendment Number 3 to Amended and Restated Deferred Compensation Plan for Executives (September 27, 2012) (incorporated by reference as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2012). |
| | |
10.3 |
| * | Amended and Restated Deferred Compensation Plan for Senior Executives (2003) (incorporated by reference as an exhibit to the Company's 2003 Form 10-K). |
| | |
10.3.1 |
| * | Amendment Number 1 to Amended and Restated Deferred Compensation Plan for Senior Executives (October 30, 2008) (incorporated by reference as an exhibit to the Company's 2008 Form 10-K). |
| | |
10.3.2 |
| * | Amendment Number 2 to Amended and Restated Deferred Compensation Plan for Senior Executives (May 1, 2011) (incorporated by reference as an exhibit to the Company's Quarterly Report on Form 10‑Q for the quarter ended June 30, 2011). |
| | |
10.3.3 |
| * | Amendment Number 3 to Amended and Restated Deferred Compensation Plan for Senior Executives (September 27, 2012) (incorporated by reference as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2012). |
| | |
10.4 |
| * | Eligible Directors' Deferred Compensation/Phantom Stock Plan (as amended and restated as of January 1, 2013) (incorporated by reference as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2013). |
| | |
10.5 |
| * | Amended and Restated 2013 Deferred Compensation Plan for Executives effective (January 1, 2016). |
| | |
10.6 |
| | Deferred Compensation Plan Rabbi Trust between the Company and Wilmington Trust, National Association, effective as of October 1, 2012 (incorporated by reference as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2012). |
| | |
10.7 |
| | Registration Rights Agreement, dated as of March 16, 1994, among the Company and Mace Siegel, Dana K. Anderson, Arthur M. Coppola and Edward C. Coppola (incorporated by reference as an exhibit to the Company's 1996 Form 10-K). |
| | |
10.8 |
| | Registration Rights Agreement, dated as of March 16, 1994, between the Company and The Northwestern Mutual Life Insurance Company (incorporated by reference as an exhibit to the Company’s 1996 Form 10-K). |
| | |
10.9 |
| | Registration Rights Agreement dated as of December 18, 2003 by the Operating Partnership, the Company and Taubman Realty Group Limited Partnership (Registration rights assigned by Taubman to three assignees) (incorporated by reference as an exhibit to the Company's 2003 Form 10-K). |
| | |
10.1 |
| | Incidental Registration Rights Agreement dated March 16, 1994 (incorporated by reference as an exhibit to the Company's 1996 Form 10-K). |
| | |
|
| | | |
Exhibit Number | | Description |
10.11 |
| | Incidental Registration Rights Agreement dated as of July 21, 1994 (incorporated by reference as an exhibit to the Company's 1997 Form 10-K). |
| | |
10.12 |
| | Incidental Registration Rights Agreement dated as of August 15, 1995 (incorporated by reference as an exhibit to the Company's 1997 Form 10-K). |
| | |
10.13 |
| | Incidental Registration Rights Agreement dated as of December 21, 1995 (incorporated by reference as an exhibit to the Company's 1997 Form 10-K). |
| | |
10.14 |
| | List of Omitted Incidental/Demand Registration Rights Agreements (incorporated by reference as an exhibit to the Company's 1997 Form 10-K). |
| | |
10.15 |
| | Redemption, Registration Rights and Lock-Up Agreement dated as of July 24, 1998 between the Company and Harry S. Newman, Jr. and LeRoy H. Brettin (incorporated by reference as an exhibit to the Company's 1998 Form 10-K). |
| | |
10.16 |
| | Form of Indemnification Agreement between the Company and its executive officers and directors (incorporated by reference as an exhibit to the Company's 2008 Form 10-K). |
| | |
10.17 |
| | Form of Registration Rights Agreement with Series D Preferred Unit Holders (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K, event date July 26, 2002). |
| | |
10.17.1 |
| | List of Omitted Registration Rights Agreements (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K, event date July 26, 2002). |
| | |
10.18 |
| | Registration Rights Agreement between the Company and 1700480 Ontario Inc. dated as of November 14, 2014 (incorporated by reference as an exhibit to the Company’s Current Report on Form 8-K, event date November 14, 2014). |
| | |
10.19 |
| | Second Amended and Restated Credit Agreement, dated as of July 6, 2016, by and among the Company, The Macerich Partnership, L.P., Deutsche Bank AG New York Branch, as administrative agent; Deutsche Bank Securities Inc., JPMorgan Chase Bank, N.A., Wells Fargo Securities, LLC, Goldman Sachs Bank USA and U.S.Bank National Association, as joint lead arrangers and joint bookrunning managers; JPMorgan Chase Bank, N.A., Wells Fargo Bank, National Association, Goldman Sachs Bank USA and U.S.Bank National Association, N.A. as co-syndication agents, PNC Bank, National Association, as documentation agent, and various lenders party thereto (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K, event date July 6, 2016). |
| | |
10.20 |
| | Guaranty, dated as of July 6, 2016, by the Company in favor of Deutsche Bank AG New York Branch, as administrative agent (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K, event date July 6, 2016). |
| | |
10.21 |
| | Tax Matters Agreement (Wilmorite) (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K, event date April 25, 2005). |
| | |
10.22 |
| * | 2003 Equity Incentive Plan, as amended and restated as of May 26, 2016 (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K, event date May 26, 2016). |
| | |
10.22.1 |
| * | Amended and Restated Cash Bonus/Restricted Stock/Stock Unit and LTIP Unit Award Program under the 2003 Equity Incentive Plan (incorporated by reference as an exhibit to the Company's 2010 Form 10-K). |
| | |
10.22.2 |
| * | Form of Restricted Stock Award Agreement under 2003 Equity Incentive Plan (incorporated by reference as an exhibit to the Company's 2008 Form 10-K). |
| | |
|
| | | |
Exhibit Number | | Description |
10.22.3 |
| * | Form of Stock Unit Award Agreement under 2003 Equity Incentive Plan (incorporated by reference as an exhibit to the Company's 2014 Form 10-K). |
| | |
10.22.4 |
| * | Form of Employee Stock Option Agreement under 2003 Equity Incentive Plan (incorporated by reference as an exhibit to the Company's 2008 Form 10-K). |
| | |
10.22.5 |
| * | Form of Non-Qualified Stock Option Grant under 2003 Equity Incentive Plan (incorporated by reference as an exhibit to the Company's 2008 Form 10-K). |
| | |
10.22.6 |
| * | Form of Restricted Stock Award Agreement for Non-Management Directors (incorporated by reference as an exhibit to the Company's 2008 Form 10-K). |
| | |
10.22.7 |
| * | Form of Stock Unit Award Agreement under 2003 Equity Incentive Plan for Non-Employee Directors (incorporated by reference as an exhibit to the Company's 2015 Form 10-K). |
| | |
10.22.8 |
| * | Form of Stock Appreciation Right under 2003 Equity Incentive Plan (incorporated by reference as an exhibit to the Company's 2008 Form 10-K). |
| | |
10.22.9 |
| * | Form of LTIP Unit Award Agreement under 2003 Equity Incentive Plan (service-based) (incorporated by reference as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016). |
| | |
10.22.10 |
| * | Form of LTIP Unit Award Agreement under 2003 Equity Incentive Plan (performance-based) (incorporated by reference as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016). |
| | |
10.22.11 |
| * | Form of LTIP Unit Award Agreement under 2003 Equity Incentive Plan (fully-vested) (incorporated by reference as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014). |
| | |
10.23 |
| * | Amendment and Restatement of the Employee Stock Purchase Plan (as amended and restated as of June 1, 2013) (incorporated by reference as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2013). |
| | |
10.24.1 |
| * | First Amendment to Amended and Restated Employee Stock Purchase Plan (October 23, 2014) (incorporated by reference as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014). |
| | |
10.25 |
| * | Management Continuity Agreement between the Company and Thomas J. Leanse, effective January 1, 2013 (incorporated by reference as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2012). |
| | |
10.26 |
| | 2005 Amended and Restated Agreement of Limited Partnership of MACWH, LP dated as of April 25, 2005 (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K, event date April 25, 2005). |
| | |
10.27 |
| | Registration Rights Agreement dated as of April 25, 2005 among the Company and the persons names on Exhibit A thereto (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K, event date April 25, 2005). |
| | |
21.1 |
| | List of Subsidiaries |
| | |
23.1 |
| | Consent of Independent Registered Public Accounting Firm (KPMG LLP) |
| | |
31.1 |
| | Section 302 Certification of Arthur Coppola, Chief Executive Officer |
|
| | | |
Exhibit Number | | Description |
31.2 |
| | Section 302 Certification of Thomas O'Hern, Chief Financial Officer |
| | |
32.1 |
| ** | Section 906 Certifications of Arthur Coppola and Thomas O'Hern |
| | |
101.INS |
| | XBRL Instance Document |
| | |
101.SCH |
| | XBRL Taxonomy Extension Schema Document |
| | |
101.CAL |
| | XBRL Taxonomy Extension Calculation Linkbase Document |
| | |
101.LAB |
| | XBRL Taxonomy Extension Label Linkbase Document |
| | |
101.PRE |
| | XBRL Taxonomy Extension Presentation Linkbase Document |
| | |
101.DEF |
| | XBRL Taxonomy Extension Definition Linkbase Document |
* Represents a management contract, or compensatory plan, contract or arrangement required to be filed pursuant to Regulation S-K.
** Furnished herewith.
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