UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017March 31, 2020
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File No. 1-12504
THE MACERICH COMPANY
(Exact name of registrant as specified in its charter)
|
| | | | | | | | | | | | | | | | |
MARYLANDMaryland | | | | | 95-4448705 |
(State or other jurisdiction of
incorporation or organization)
| | | | | (I.R.S. Employer Identification Number) |
401 Wilshire Boulevard, | Suite 700, | Santa Monica, | California | | 90401 (Address
|
(Address of principal executive office, including zip code)office) | | | | | (Zip Code) |
| | (310) | | 394-6000 | |
| (Registrant's telephone number, including area code) | | | | | |
N/A (Former name, former address and former fiscal year, if changed since last report) | | | | | |
Securities registered pursuant to Section 12(b) of the Securities Act:
| | | | | | | | |
| Title of each class | Trading symbol | Name of each exchange on which registered |
| Common Stock, $0.01 Par Value | MAC | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or 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 ninety (90) days. Yes ☒ No ☐
YES x 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 of Regulation S-T (Section 232.405 of this chapter) during the preceding twelve (12) months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
YES x NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of large"large accelerated filer, accelerated filer, smallerfiler", "accelerated filer", "smaller reporting companycompany" and emerging"emerging growth companycompany" in Rule 12b-2 of the Exchange Act. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Large Accelerated Filer | x | | Accelerated Filer | ☐ | | Non-Accelerated Filer | ☐ | | Smaller Reporting Company | ☐ |
| | | | | | |
Large accelerated filer x
| | Accelerated filer o
Emerging Growth Company | | Non-accelerated filer o
(Do not check if a smaller
reporting company)
| | Smaller reporting company o
|
| | | | | | Emerging growth company o
☐ |
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 provided pursuant to Section 13(a) of the Exchange Act.o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
YES o NO x
Number of shares outstanding as of November 2, 2017May 8, 2020 of the registrant's common stock, par value $0.01 per share: 140,772,872141,534,987 shares
THE MACERICH COMPANY
FORM 10-Q
INDEX
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| Part I | | Financial Information | | |
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Part I | | Financial Information | | |
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| Part II | | Other Information | | |
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THE MACERICH COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value)
(Unaudited)
| | | | September 30,
2017 | | December 31,
2016 | | March 31,
2020 | | December 31,
2019 |
| ASSETS: | | | | ASSETS: | | | |
| Property, net | $ | 7,164,649 |
| | $ | 7,357,310 |
| Property, net | $ | 6,558,075 | | | $ | 6,643,513 | |
| | Cash and cash equivalents | 71,088 |
| | 94,046 |
| Cash and cash equivalents | 652,354 | | | 100,005 | |
| Restricted cash | 50,736 |
| | 49,951 |
| Restricted cash | 10,753 | | | 14,211 | |
| Tenant and other receivables, net | 111,153 |
| | 136,998 |
| Tenant and other receivables, net | 133,589 | | | 144,035 | |
| Right-of-use assets, net | | Right-of-use assets, net | 143,637 | | | 148,087 | |
| Deferred charges and other assets, net | 439,495 |
| | 478,058 |
| Deferred charges and other assets, net | 250,648 | | | 277,866 | |
| | Due from affiliates | 81,184 |
| | 68,227 |
| Due from affiliates | 9,766 | | | 6,157 | |
| Investments in unconsolidated joint ventures | 1,688,606 |
| | 1,773,558 |
| Investments in unconsolidated joint ventures | 1,540,826 | | | 1,519,697 | |
| Total assets | $ | 9,606,911 |
| | $ | 9,958,148 |
| Total assets | $ | 9,299,648 | | | $ | 8,853,571 | |
| LIABILITIES AND EQUITY: | | | | LIABILITIES AND EQUITY: | | | |
| Mortgage notes payable: | | | | |
| Related parties | $ | 172,810 |
| | $ | 176,442 |
| |
| Others | 3,910,864 |
| | 3,908,976 |
| |
| Total | 4,083,674 |
| | 4,085,418 |
| |
| Mortgage notes payable | | Mortgage notes payable | $ | 4,384,680 | | | $ | 4,392,599 | |
| Bank and other notes payable | 966,757 |
| | 880,482 |
| Bank and other notes payable | 1,478,006 | | | 817,377 | |
| Accounts payable and accrued expenses | 69,617 |
| | 61,316 |
| Accounts payable and accrued expenses | 66,991 | | | 51,027 | |
| Lease liabilities | | Lease liabilities | 115,899 | | | 114,201 | |
| Other accrued liabilities | 302,082 |
| | 366,165 |
| Other accrued liabilities | 197,040 | | | 265,595 | |
| Distributions in excess of investments in unconsolidated joint ventures | 88,569 |
| | 78,626 |
| Distributions in excess of investments in unconsolidated joint ventures | 107,156 | | | 107,902 | |
| Co-venture obligation | 59,118 |
| | 58,973 |
| |
| Financing arrangement obligation | | Financing arrangement obligation | 225,516 | | | 273,900 | |
| Total liabilities | 5,569,817 |
| | 5,530,980 |
| Total liabilities | 6,575,288 | | | 6,022,601 | |
| Commitments and contingencies |
| |
| Commitments and contingencies | | | |
| Equity: | | | | Equity: | | | |
| Stockholders' equity: | | | | Stockholders' equity: | | | |
| Common stock, $0.01 par value, 250,000,000 shares authorized, 140,918,189 and 143,985,036 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively | 1,409 |
| | 1,440 |
| |
| Common stock, $0.01 par value, 250,000,000 shares authorized, 141,572,289 and 141,407,650 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively | | Common stock, $0.01 par value, 250,000,000 shares authorized, 141,572,289 and 141,407,650 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively | 1,416 | | | 1,414 | |
| Additional paid-in capital | 4,503,670 |
| | 4,593,229 |
| Additional paid-in capital | 4,590,709 | | | 4,583,911 | |
| Accumulated deficit | (758,758 | ) | | (488,782 | ) | Accumulated deficit | (2,042,688) | | | (1,944,012) | |
| Accumulated other comprehensive loss | | Accumulated other comprehensive loss | (15,446) | | | (9,051) | |
| Total stockholders' equity | 3,746,321 |
| | 4,105,887 |
| Total stockholders' equity | 2,533,991 | | | 2,632,262 | |
| Noncontrolling interests | 290,773 |
| | 321,281 |
| Noncontrolling interests | 190,369 | | | 198,708 | |
| Total equity | 4,037,094 |
| | 4,427,168 |
| Total equity | 2,724,360 | | | 2,830,970 | |
| Total liabilities and equity | $ | 9,606,911 |
| | $ | 9,958,148 |
| Total liabilities and equity | $ | 9,299,648 | | | $ | 8,853,571 | |
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)
(Unaudited)
| | | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | | For the Three Months Ended March 31, | |
| | 2017 | | 2016 | | 2017 | | 2016 | | | | 2020 | | 2019 |
| Revenues: | | | | | | | | Revenues: | | | | | |
| Minimum rents | $ | 144,991 |
| | $ | 154,018 |
| | $ | 443,439 |
| | $ | 457,514 |
| |
| Percentage rents | 2,806 |
| | 3,871 |
| | 6,784 |
| | 9,279 |
| |
| Tenant recoveries | 72,897 |
| | 74,447 |
| | 214,257 |
| | 230,568 |
| |
| Leasing revenue | | Leasing revenue | | | $ | 210,721 | | | $ | 211,008 | |
| Other | 11,701 |
| | 12,048 |
| | 40,484 |
| | 42,985 |
| Other | | | 9,258 | | | 5,334 | |
| Management Companies | 10,056 |
| | 8,983 |
| | 31,955 |
| | 28,925 |
| Management Companies | | | 6,973 | | | 10,180 | |
| Total revenues | 242,451 |
| | 253,367 |
| | 736,919 |
| | 769,271 |
| Total revenues | | | 226,952 | | | 226,522 | |
| Expenses: | | | | | | | | Expenses: | | | | | |
| Shopping center and operating expenses | 75,598 |
| | 76,310 |
| | 222,527 |
| | 229,544 |
| Shopping center and operating expenses | | | 70,725 | | | 69,604 | |
| Leasing expenses | | Leasing expenses | | | 7,425 | | | 7,505 | |
| Management Companies' operating expenses | 22,046 |
| | 23,285 |
| | 76,779 |
| | 75,484 |
| Management Companies' operating expenses | | | 16,224 | | | 19,014 | |
| REIT general and administrative expenses | 5,287 |
| | 6,930 |
| | 21,208 |
| | 23,240 |
| REIT general and administrative expenses | | | 6,821 | | | 6,961 | |
| | Depreciation and amortization | 83,147 |
| | 86,976 |
| | 249,463 |
| | 259,097 |
| Depreciation and amortization | | | 82,213 | | | 81,468 | |
| | 186,078 |
| | 193,501 |
| | 569,977 |
| | 587,365 |
| | | | 183,408 | | | 184,552 | |
| Interest expense: | | | | | | | | |
| Interest (income) expense: | | Interest (income) expense: | | | | | |
| Related parties | 2,175 |
| | 2,224 |
| | 6,567 |
| | 6,752 |
| Related parties | | | (44,243) | | | (10,447) | |
| Other | 41,090 |
| | 37,759 |
| | 120,320 |
| | 114,202 |
| Other | | | 52,317 | | | 48,804 | |
| | 43,265 |
| | 39,983 |
| | 126,887 |
| | 120,954 |
| | | | 8,074 | | | 38,357 | |
| Gain on extinguishment of debt, net | — |
| | (5,284 | ) | | — |
| | (1,709 | ) | |
| Loss on extinguishment of debt, net | | Loss on extinguishment of debt, net | | | — | | | 351 | |
| Total expenses | 229,343 |
| | 228,200 |
| | 696,864 |
| | 706,610 |
| Total expenses | | | 191,482 | | | 223,260 | |
| Equity in income of unconsolidated joint ventures | 23,993 |
| | 11,261 |
| | 56,772 |
| | 37,537 |
| Equity in income of unconsolidated joint ventures | | | 9,698 | | | 12,243 | |
| Co-venture expense | (3,150 | ) | | (3,006 | ) | | (11,150 | ) | | (9,507 | ) | |
| Income tax (expense) benefit | (2,869 | ) | | (905 | ) | | 178 |
| | (2,736 | ) | |
| (Loss) gain on sale or write down of assets, net | (11,854 | ) | | (19,321 | ) | | 37,234 |
| | 426,050 |
| |
| Income tax benefit (expense) | | Income tax benefit (expense) | | | 266 | | | (346) | |
| Loss on sale or write down of assets, net | | Loss on sale or write down of assets, net | | | (36,703) | | | (6,316) | |
| | Net income | 19,228 |
| | 13,196 |
| | 123,089 |
| | 514,005 |
| Net income | | | 8,731 | | | 8,843 | |
| Less net income (loss) attributable to noncontrolling interests | 1,730 |
| | (534 | ) | | 9,710 |
| | 34,138 |
| |
| Less net income attributable to noncontrolling interests | | Less net income attributable to noncontrolling interests | | | 1,209 | | | 1,019 | |
| Net income attributable to the Company | $ | 17,498 |
| | $ | 13,730 |
| | $ | 113,379 |
| | $ | 479,867 |
| Net income attributable to the Company | | | $ | 7,522 | | | $ | 7,824 | |
| Earnings per common share—net income attributable to common stockholders: | | | | | | | | |
| Earnings per common share—attributable to common stockholders: | | Earnings per common share—attributable to common stockholders: | | | | | |
| Basic | $ | 0.12 |
| | $ | 0.09 |
| | $ | 0.79 |
| | $ | 3.25 |
| Basic | | | $ | 0.05 | | | $ | 0.05 | |
| Diluted | $ | 0.12 |
| | $ | 0.09 |
| | $ | 0.79 |
| | $ | 3.25 |
| Diluted | | | $ | 0.05 | | | $ | 0.05 | |
| Weighted average number of common shares outstanding: | | | | | | | | Weighted average number of common shares outstanding: | | | | | |
| Basic | 141,299,000 |
| | 143,923,000 |
| | 142,188,000 |
| | 147,504,000 |
| Basic | | | 141,437,000 | | | 141,262,000 | |
| Diluted | 141,310,000 |
| | 144,036,000 |
| | 142,223,000 |
| | 147,630,000 |
| Diluted | | | 141,437,000 | | | 141,262,000 | |
The accompanying notes are an integral part of these consolidated financial statements.
THE MACERICH COMPANY
CONSOLIDATED STATEMENTSTATEMENTS OF EQUITYCOMPREHENSIVE INCOME
(Dollars in thousands, except per share data)amounts)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Stockholders' Equity | | | | |
| | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Total Stockholders' Equity | | | | |
| | Shares | | Par Value | | | | | Noncontrolling Interests | | Total Equity |
| Balance at January 1, 2017 | 143,985,036 |
| | $ | 1,440 |
| | $ | 4,593,229 |
| | $ | (488,782 | ) | | $ | 4,105,887 |
| | $ | 321,281 |
| | $ | 4,427,168 |
|
| Net income | — |
| | — |
| | — |
| | 113,379 |
| | 113,379 |
| | 9,710 |
| | 123,089 |
|
| Cumulative effect of adoption of ASU 2016-09 | — |
| | — |
| | — |
| | 6,484 |
| | 6,484 |
| | — |
| | 6,484 |
|
| Amortization of share and unit-based plans | 87,632 |
| | 1 |
| | 30,436 |
| | — |
| | 30,437 |
| | — |
| | 30,437 |
|
| Employee stock purchases | 20,443 |
| | — |
| | 986 |
| | — |
| | 986 |
| | — |
| | 986 |
|
| Stock repurchases | (3,627,390 | ) | | (36 | ) | | (135,176 | ) | | (86,216 | ) | | (221,428 | ) | | — |
| | (221,428 | ) |
| Distributions declared ($2.13) per share | — |
| | — |
| | — |
| | (303,623 | ) | | (303,623 | ) | | — |
| | (303,623 | ) |
| Distributions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | (25,110 | ) | | (25,110 | ) |
| Conversion of noncontrolling interests to common shares | 452,468 |
| | 4 |
| | 15,191 |
| | — |
| | 15,195 |
| | (15,195 | ) | | — |
|
| Redemption of noncontrolling interests | — |
| | — |
| | (608 | ) | | — |
| | (608 | ) | | (301 | ) | | (909 | ) |
| Adjustment of noncontrolling interests in Operating Partnership | — |
| | — |
| | (388 | ) | | — |
| | (388 | ) | | 388 |
| | — |
|
| Balance at September 30, 2017 | 140,918,189 |
| | $ | 1,409 |
| | $ | 4,503,670 |
| | $ | (758,758 | ) | | $ | 3,746,321 |
| | $ | 290,773 |
| | $ | 4,037,094 |
|
| | | | | | | | | | | | | | | | | |
| | | | | | For the Three Months Ended March 31, | | |
| | | | | | 2020 | | 2019 |
| Net income | | | | | $ | 8,731 | | | $ | 8,843 | |
| Other comprehensive loss: | | | | | | | |
| Interest rate cap/swap agreements | | | | | (6,395) | | | (2,045) | |
| Comprehensive income | | | | | 2,336 | | | 6,798 | |
| Less net income attributable to noncontrolling interests | | | | | 1,209 | | | 1,019 | |
| Comprehensive income attributable to the Company | | | | | $ | 1,127 | | | $ | 5,779 | |
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)
(Unaudited)
Three Months Ended March 31, 2020 and 2019
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Stockholders' Equity | | | | | | | | | | | | | | |
| | Common Stock | | | | Additional
Paid-in
Capital | | Accumulated
Deficit | | Accumulated
Other
Comprehensive
Loss | | Total
Stockholders'
Equity | | | | |
| | Shares | | Par
Value | | | | | | | | | | Noncontrolling
Interests | | Total
Equity |
| Balance at January 1, 2020 | 141,407,650 | | | $ | 1,414 | | | $ | 4,583,911 | | | $ | (1,944,012) | | | $ | (9,051) | | | $ | 2,632,262 | | | $ | 198,708 | | | $ | 2,830,970 | |
| Net income | — | | | — | | | — | | | 7,522 | | | — | | | 7,522 | | | 1,209 | | | 8,731 | |
| | | | | | | | | | | | | | | |
| Interest rate cap/swap agreements | — | | | — | | | — | | | — | | | (6,395) | | | (6,395) | | | — | | | (6,395) | |
| Amortization of share and unit-based plans | 80,917 | | | 1 | | | 5,602 | | | — | | | — | | | 5,603 | | | — | | | 5,603 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Distributions paid ($0.75 per share) | — | | | — | | | — | | | (106,198) | | | — | | | (106,198) | | | — | | | (106,198) | |
| Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (8,474) | | | (8,474) | |
| Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | 125 | | | 125 | |
| | | | | | | | | | | | | | | |
| Conversion of noncontrolling interests to common shares | 83,722 | | | 1 | | | 5,796 | | | — | | | — | | | 5,797 | | | (5,797) | | | — | |
| Redemption of noncontrolling interests | — | | | — | | | (1) | | | — | | | — | | | (1) | | | (1) | | | (2) | |
| Adjustment of noncontrolling interests in Operating Partnership | — | | | — | | | (4,599) | | | — | | | — | | | (4,599) | | | 4,599 | | | — | |
| Balance at March 31, 2020 | 141,572,289 | | | $ | 1,416 | | | $ | 4,590,709 | | | $ | (2,042,688) | | | $ | (15,446) | | | $ | 2,533,991 | | | $ | 190,369 | | | $ | 2,724,360 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Stockholders' Equity | | | | | | | | | | | | | | |
| | Common Stock | | | | Additional
Paid-in
Capital | | Accumulated
Deficit | | Accumulated
Other
Comprehensive
Loss | | Total
Stockholders'
Equity | | | | |
| | Shares | | Par
Value | | | | | | | | | | Noncontrolling
Interests | | Total
Equity |
| Balance at January 1, 2019 | 141,221,712 | | | $ | 1,412 | | | $ | 4,567,643 | | | $ | (1,614,357) | | | $ | (4,466) | | | $ | 2,950,232 | | | $ | 238,200 | | | $ | 3,188,432 | |
| Net income | — | | | — | | | — | | | 7,824 | | | — | | | 7,824 | | | 1,019 | | | 8,843 | |
| Cumulative effect of adoption of ASC 842 | — | | | — | | | — | | | (2,203) | | | — | | | (2,203) | | | — | | | (2,203) | |
| Interest rate cap/swap agreements | — | | | — | | | — | | | — | | | (2,045) | | | (2,045) | | | — | | | (2,045) | |
| Amortization of share and unit-based plans | 90,074 | | | 1 | | | 6,664 | | | — | | | — | | | 6,665 | | | — | | | 6,665 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Distributions declared ($0.75 per share) | — | | | — | | | — | | | (106,053) | | | — | | | (106,053) | | | — | | | (106,053) | |
| Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (8,343) | | | (8,343) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Conversion of noncontrolling interests to common shares | 21,000 | | | — | | | 1,005 | | | — | | | — | | | 1,005 | | | (1,005) | | | — | |
| Redemption of noncontrolling interests | — | | | — | | | (15) | | | — | | | — | | | (15) | | | (12) | | | (27) | |
| Adjustment of noncontrolling interests in Operating Partnership | — | | | — | | | (697) | | | — | | | — | | | (697) | | | 697 | | | — | |
| Balance at March 31, 2019 | 141,332,786 | | | $ | 1,413 | | | $ | 4,574,600 | | | $ | (1,714,789) | | | $ | (6,511) | | | $ | 2,854,713 | | | $ | 230,556 | | | $ | 3,085,269 | |
The accompanying notes are an integral part of these consolidated financial statements.
THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
| | | | | | | | | | | |
| For the Three Months Ended March 31, | | |
| | 2020 | | 2019 |
| Cash flows from operating activities: | | | |
| Net income | $ | 8,731 | | | $ | 8,843 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Loss on extinguishment of debt, net | — | | | 351 | |
| Loss on sale or write down of assets, net | 36,703 | | | 6,316 | |
| Depreciation and amortization | 83,827 | | | 83,233 | |
| Amortization of premium on mortgage notes payable | (229) | | | (234) | |
| Amortization of share and unit-based plans | 4,224 | | | 5,519 | |
| Straight-line rent and amortization of above and below market leases | (243) | | | (2,650) | |
| Provision for doubtful accounts | 913 | | | 1,826 | |
| Income tax (benefit) expense | (266) | | | 346 | |
| Equity in income of unconsolidated joint ventures | (9,698) | | | (12,243) | |
| Distributions of income from unconsolidated joint ventures | — | | | 118 | |
| Change in fair value of financing arrangement obligation | (48,384) | | | (14,265) | |
| Changes in assets and liabilities, net of dispositions: | | | |
| Tenant and other receivables | 11,673 | | | 16,867 | |
| Other assets | 1,037 | | | 9,284 | |
| Due from affiliates | (4,766) | | | 5,148 | |
| Accounts payable and accrued expenses | 15,937 | | | 8,715 | |
| Other accrued liabilities | (49,759) | | | (18,334) | |
| Net cash provided by operating activities | 49,700 | | | 98,840 | |
| Cash flows from investing activities: | | | |
| | | |
| Development, redevelopment, expansion and renovation of properties | (26,406) | | | (28,256) | |
| Property improvements | (1,845) | | | (8,827) | |
| | | |
| Proceeds from repayment of notes receivable | — | | | 65,348 | |
| Deferred leasing costs | (981) | | | (8,848) | |
| Distributions from unconsolidated joint ventures | 21,693 | | | 41,439 | |
| Contributions to unconsolidated joint ventures | (33,870) | | | (63,093) | |
| | | |
| Proceeds from sale of assets | — | | | 1,015 | |
| Net cash used in investing activities | (41,409) | | | (1,222) | |
| | | |
|
| | | | | | | |
| | For the Nine Months Ended September 30, |
| | 2017 | | 2016 |
| Cash flows from operating activities: | | | |
| Net income | $ | 123,089 |
| | $ | 514,005 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Gain on early extinguishment of debt, net | — |
| | (1,709 | ) |
| Gain on sale or write down of assets, net | (37,234 | ) | | (426,050 | ) |
| Depreciation and amortization | 253,793 |
| | 263,514 |
|
| Amortization of net premium on mortgage notes payable | (2,799 | ) | | (3,082 | ) |
| Amortization of share and unit-based plans | 25,159 |
| | 27,643 |
|
| Straight-line rent adjustment | (7,502 | ) | | (3,449 | ) |
| Amortization of above and below-market leases | (408 | ) | | (9,115 | ) |
| Provision for doubtful accounts | 3,806 |
| | 2,460 |
|
| Income tax (benefit) expense | (178 | ) | | 2,736 |
|
| Equity in income of unconsolidated joint ventures | (56,772 | ) | | (37,537 | ) |
| Distributions of income from unconsolidated joint ventures | — |
| | 5,607 |
|
| Co-venture expense | 11,150 |
| | 9,507 |
|
| Changes in assets and liabilities, net of acquisitions and dispositions: | | | |
| Tenant and other receivables | 838 |
| | 2,370 |
|
| Other assets | 11,743 |
| | (6,100 | ) |
| Due from affiliates | (13,004 | ) | | 14,729 |
|
| Accounts payable and accrued expenses | 11,263 |
| | (6,459 | ) |
| Other accrued liabilities | (23,094 | ) | | (17,983 | ) |
| Net cash provided by operating activities | 299,850 |
| | 331,087 |
|
| Cash flows from investing activities: | | | |
| Development, redevelopment, expansion and renovation of properties | (90,758 | ) | | (153,131 | ) |
| Property improvements | (34,425 | ) | | (24,638 | ) |
| Proceeds from repayment of notes receivable | 628 |
| | 3,361 |
|
| Deferred leasing costs | (25,045 | ) | | (21,326 | ) |
| Distributions from unconsolidated joint ventures | 226,152 |
| | 411,405 |
|
| Contributions to unconsolidated joint ventures | (80,332 | ) | | (404,283 | ) |
| Proceeds from sale of assets | 168,471 |
| | 696,716 |
|
| Restricted cash | (785 | ) | | (13,978 | ) |
| Net cash provided by investing activities | 163,906 |
| | 494,126 |
|
| | | | |
| | THE MACERICH COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Dollars in thousands) (Unaudited) | THE MACERICH COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Dollars in thousands) (Unaudited) | THE MACERICH COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Dollars in thousands) (Unaudited) | |
| | For the Nine Months Ended September 30, | | For the Three Months Ended March 31, | |
| | 2017 | | 2016 | | 2020 | | 2019 |
| Cash flows from financing activities: | | | | |
| | Proceeds from mortgages, bank and other notes payable | 510,000 |
| | 2,716,138 |
| Proceeds from mortgages, bank and other notes payable | 660,000 | | | 425,000 | |
| Payments on mortgages, bank and other notes payable | (424,439 | ) | | (2,024,965 | ) | Payments on mortgages, bank and other notes payable | (8,676) | | | (397,358) | |
| | Deferred financing costs | (2,586 | ) | | (8,822 | ) | Deferred financing costs | — | | | (965) | |
| Proceeds from finance lease | | Proceeds from finance lease | 4,115 | | | — | |
| Payments on finance leases | | Payments on finance leases | (290) | | | (278) | |
| Payment of finance deposits | (8,600 | ) | | (7,200 | ) | Payment of finance deposits | — | | | (4,820) | |
| Proceeds from share and unit-based plans | 986 |
| | 834 |
| |
| Payment of debt extinguishment costs | — |
| | (12,028 | ) | |
| Stock repurchases | (221,428 | ) | | (800,018 | ) | |
| | Redemption of noncontrolling interests | (909 | ) | | (30 | ) | Redemption of noncontrolling interests | (2) | | | (27) | |
| Settlement of contingent consideration | — |
| | (10,012 | ) | |
| Contribution from noncontrolling interests | | Contribution from noncontrolling interests | 125 | | | — | |
| | Dividends and distributions | (328,733 | ) | | (667,785 | ) | Dividends and distributions | (114,672) | | | (114,396) | |
| Distributions to co-venture partner | (11,005 | ) | | (13,654 | ) | |
| Net cash used in financing activities | (486,714 | ) | | (827,542 | ) | |
| Net decrease in cash and cash equivalents | (22,958 | ) | | (2,329 | ) | |
| Cash and cash equivalents, beginning of period | 94,046 |
| | 86,510 |
| |
| Cash and cash equivalents, end of period | $ | 71,088 |
| | $ | 84,181 |
| |
| Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | 540,600 | | | (92,844) | |
| Net increase in cash, cash equivalents and restricted cash | | Net increase in cash, cash equivalents and restricted cash | 548,891 | | | 4,774 | |
| Cash, cash equivalents and restricted cash, beginning of period | | Cash, cash equivalents and restricted cash, beginning of period | 114,216 | | | 149,301 | |
| Cash, cash equivalents and restricted cash, end of period | | Cash, cash equivalents and restricted cash, end of period | $ | 663,107 | | | $ | 154,075 | |
| Supplemental cash flow information: | | | | Supplemental cash flow information: | | | |
| Cash payments for interest, net of amounts capitalized | $ | 124,686 |
| | $ | 113,187 |
| Cash payments for interest, net of amounts capitalized | $ | 52,989 | | | $ | 50,650 | |
| Non-cash investing and financing transactions: | | | | Non-cash investing and financing transactions: | | | |
| Accrued development costs included in accounts payable and accrued expenses and other accrued liabilities | $ | 30,706 |
| | $ | 29,777 |
| Accrued development costs included in accounts payable and accrued expenses and other accrued liabilities | $ | 28,250 | | | $ | 42,539 | |
| Mortgage notes payable assumed in exchange for investments in unconsolidated joint ventures | $ | — |
| | $ | 997,695 |
| |
| Mortgage note payable settled by deed-in-lieu of foreclosure | $ | — |
| | $ | 37,000 |
| |
| | Conversion of Operating Partnership Units to common stock | $ | 15,195 |
| | $ | 10,720 |
| Conversion of Operating Partnership Units to common stock | $ | 5,797 | | | $ | 1,005 | |
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 and square foot amounts)
(Unaudited)
| |
1. | Organization: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 September 30, 2017,March 31, 2020, 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 seven7 of the management companies are collectively referred to herein as the "Management Companies."
All references to the Company in this Quarterly Report on Form 10-Q include the Company, those entities owned or controlled by the Company and predecessors of the Company, unless the context indicates otherwise.
| |
2. | Summary of Significant Accounting Policies: |
2. Summary of Significant Accounting Policies:
Basis of Presentation:
The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements and have not been audited by an independent registered public accounting firm.
The Company's sole significant asset is its investment in the Operating Partnership and as a result, substantially all of the Company's assets and liabilities represent the assets and liabilities of the Operating Partnership. In addition, the Operating Partnership has investments in a number of consolidated variable interest entities ("VIEs").
The Operating Partnership's consolidated VIEs included the following assets and liabilities:
| | | | September 30,
2017 | | December 31,
2016 | | March 31,
2020 | | December 31,
2019 |
| Assets: | | | | Assets: | | | |
| Property, net | $ | 300,149 |
| | $ | 307,582 |
| Property, net | $ | 254,911 | | | $ | 254,071 | |
| Other assets | 70,881 |
| | 68,863 |
| Other assets | 26,347 | | | 30,049 | |
| Total assets | $ | 371,030 |
| | $ | 376,445 |
| Total assets | $ | 281,258 | | | $ | 284,120 | |
| Liabilities: | | | | Liabilities: | | | |
| Mortgage notes payable | $ | 130,403 |
| | $ | 133,245 |
| Mortgage notes payable | $ | 219,163 | | | $ | 219,140 | |
| Other liabilities | 77,272 |
| | 75,913 |
| Other liabilities | 26,364 | | | 32,101 | |
| Total liabilities | $ | 207,675 |
| | $ | 209,158 |
| Total liabilities | $ | 245,527 | | | $ | 251,241 | |
All intercompany accounts and transactions have been eliminated in the consolidated financial statements.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)
2. Summary of Significant Accounting Policies: (Continued)
The unaudited interim consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.2019. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial statements for the interim periods have been made. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The accompanying consolidated balance sheet as of December 31, 20162019 has been derived from the audited financial statements but does not include all disclosures required by GAAP. The following table presents a reconciliation of the beginning of period and end of period cash, cash equivalents and restricted cash reported on the Company's consolidated balance sheets to the totals shown on its consolidated statements of cash flows:
Recent Accounting Pronouncements: | | | | | | | | | | | |
| For the Three Months Ended March 31, | | |
| 2020 | | 2019 |
| Beginning of period | | | |
| Cash and cash equivalents | $ | 100,005 | | | $ | 102,711 | |
| Restricted cash | 14,211 | | | 46,590 | |
| Cash, cash equivalents and restricted cash | $ | 114,216 | | | $ | 149,301 | |
| End of period | | | |
| Cash and cash equivalents | $ | 652,354 | | | $ | 111,022 | |
| Restricted cash | 10,753 | | | 43,053 | |
| Cash, cash equivalents and restricted cash | $ | 663,107 | | | $ | 154,075 | |
COVID-19 Pandemic:
On March 11, 2020, the novel coronavirus ("COVID-19") outbreak was declared a pandemic by the World Health Organization. As a result, all of the markets that the Company operates in were subject to stay-at-home orders, and the majority of its properties were temporarily closed in part or completely. The Company has been proactively working with all its stakeholders, including its tenants, lenders and suppliers, to mitigate the impact of the economic shut down.
COVID-19 Lease Accounting:
In May 2014,April 2020, the Financial Accounting Standards Board (“FASB”) issued a Staff Question-and-Answer (“Q&A”) to clarify whether lease concessions related to the effects of COVID-19 require the application of the lease modification guidance under Accounting Standards UpdateCodification ("ASU"ASC") 2014-09, “Revenue From Contracts With Customers,” which outlines842 "Leases". Under ASC 842, the Company would have to determine, on a comprehensive model for entities to use in accounting for revenue arising from contractslease-by-lease basis, if a lease concession was the result of a new arrangement reached with customers. ASU 2014-09 states that “an entity recognizes revenue to depict the transfer of promised goodstenant or services to customers in an amount that reflectsenforceable right and obligation within 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 effectiveexisting lease. The Q&A allows for the bypass of a lease-by-lease analysis, and allows the Company beginning January 1, 2018, with early adoption permitted beginning January 1, 2017. The Company has evaluated eachto elect to either apply the lease modification accounting framework or not, to all of its revenue streamslease concessions with similar characteristics and related accounting policies under the standard. The standard will initially apply to the Company's recognition of management companies and other revenues. This standard will not apply to the Company's recognition of tenant recoveries until January 1, 2019, when it adopts ASU 2016-02, "Leases (Topic 842)", as discussed below. Upon adoption of the standard, the Company has determined that the pattern of revenue recognition for management companies and other revenues will not change. Additionally, the Company will account for its joint venture in Chandler Fashion Center and Freehold Raceway Mall (See Note 10—Co-Venture Arrangement) as a financing arrangement. As a result, the Company will replace the co-venture obligation on its consolidated balance sheet with a financing arrangement liability. The financing arrangement liability will be recorded at fair value upon adoption with any subsequent changes in fair value recognized as interest expense in its consolidated statements of operations.
In February 2016, the FASB issued ASU 2016-02, which sets out principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The standard requires that lessors expense, on an as-incurred basis, certain initial direct costs that are not incremental in negotiating a lease. Under existing standards, certain of these costs are capitalizable and therefore this new standard may result in certain of these costs being expensed as incurred after adoption. Additionally, under the standard, certain common area maintenance recoveries must be accounted for as a non-lease component. The Company will evaluate whether bifurcating common area maintenance will affect the timing or recognition of such revenues.
Under ASU 2016-02, lessees apply a dual approach, classifying leases as either finance or operating leases. A lessee is required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months, regardless of their lease classification. The Company is a lessee on ground leases at certain properties, on certain office space leases and on certain other improvements and equipment. ASU 2016-02 will impact the accounting and disclosure requirements for these leases. ASU 2016-02 is effective for the Company under a modified retrospective approach beginning January 1, 2019. The Company is evaluating the impact of the adoption of this standard on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, "Compensation-Stock Compensation (Topic 718)," which amended the accounting for share-based payments, including the income tax consequences, classification of awards and classification on the statement of cash flows.circumstances. The Company's adoption of this standardthe Q&A guidance did not have a material impact on January 1, 2017 under the modified retrospective method resulted inCompany’s consolidated financial statements for the recognition of excess tax benefits of $6,484 as a cumulative effect adjustment, which reduced its accumulated deficit and increased its deferred tax assets by the same amount.three months ended March 31, 2020.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)
2. Summary of Significant Accounting Policies: (Continued)
Recent Accounting Pronouncements: (Continued)
In August 2016,3. Earnings Per Share ("EPS"):
The following table reconciles the FASB issued ASU 2016-15, "Statementnumerator and denominator used in the computation of Cash flows (Topic 230)," whichEPS for the three months ended March 31, 2020 and 2019 (shares in thousands):
| | | | | | | | | | | | | | | | | |
| | | | | | For the Three Months Ended March 31, | | |
| | | | | | 2020 | | 2019 |
| Numerator | | | | | | | |
| Net income | | | | | $ | 8,731 | | | $ | 8,843 | |
| Less net income attributable to noncontrolling interests | | | | | (1,209) | | | (1,019) | |
| Net income attributable to the Company | | | | | 7,522 | | | 7,824 | |
| Allocation of earnings to participating securities | | | | | (322) | | | (281) | |
| Numerator for basic and diluted EPS—net income attributable to common stockholders | | | | | $ | 7,200 | | | $ | 7,543 | |
| Denominator | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Denominator for basic and diluted EPS—weighted average number of common shares outstanding(1) | | | | | 141,437 | | | 141,262 | |
| EPS—net income attributable to common stockholders | | | | | | | |
| Basic and diluted | | | | | $ | 0.05 | | | $ | 0.05 | |
| | | | | | | |
(1) Diluted EPS excludes 90,619 convertible preferred partnership units for the three months ended March 31, 2020 and 2019, as their impact was antidilutive. Diluted EPS also excludes 10,477,827 and 10,415,190 Operating Partnership units ("OP Units") for the three months ended March 31, 2020 and 2019, respectively, as their impact was antidilutive.
4. Investments in Unconsolidated Joint Ventures:
The Company has made the following recent financings of its unconsolidated joint ventures:
On July 25, 2019, the Company's joint venture in Fashion District Philadelphia amended the accountingexisting term loan on the joint venture to allow for additional borrowings up to $100,000 at LIBOR plus 2%. Concurrent with the statementamendment, the joint venture borrowed an additional $26,000. On August 16, 2019, the joint venture borrowed an additional $25,000. The Company used its share of cash flows by providing guidance on how certain cash receiptsthe additional proceeds to pay down its line of credit and cash payments are presented and classified in the statement of cash flows. The Company's adoption of this standard on January 1, 2017 resulted in the reclassification of $12,028 of debt extinguishment costs from operating activities to financing activities on its consolidated statement of cash flows for the nine months ended September 30, 2016.general corporate purposes.
On September 12, 2019, the Company’s joint venture in Tysons Tower placed a new $190,000 loan on the property that bears interest at an effective rate of 3.38% and matures on November 17, 2016, the FASB issued ASU 2016-18, “Restricted Cash,” which requires that the statement of cash flows explain the change during a reporting period in the total of cash, cash equivalents, and amounts generally described as restricted cash and restricted cash equivalents. This standard states that transfers between cash, cash equivalents, and restricted cash are not part11, 2029. The Company used its share of the entity’s operating, investing,proceeds to pay down its line of credit and financing activities. Therefore, restricted cash should be included with cash and cash equivalents when reconcilingfor general corporate purposes.
On December 18, 2019, the beginning-of-period and end-of-period total amounts shownCompany’s joint venture in One Westside placed a $414,600 construction loan on the statementredevelopment project. The loan bears interest at LIBOR plus 1.70%, which can be reduced to LIBOR plus 1.50% upon the completion of cash flows. ASU 2016-18certain conditions, and matures on December 18, 2024. This loan is effective forexpected to fund the Company beginning January 1, 2018 with early adoption permitted. The Company does not believe thatjoint venture's remaining cost to complete the adoption of ASU 2016-18 will have a significant impact on its consolidated statements of cash flows.project.
On January 5, 2017, the FASB issued ASU 2017-01, “Business Combinations,” which clarifies the definition of a business. The objective of the standard is to add further guidance that assists entities in evaluating whether a transaction will be accounted for as an acquisition of an asset or a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If so, the set of transferred assets and activities are not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs. ASU 2017-01 is effective for the Company beginning January 1, 2018 with early adoption permitted using a prospective transition method. The Company does not believe that the adoption of 2017-01 will have a significant impact on its consolidated financial statements.
In February 2017, the FASB issued ASU No. 2017-05, “Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets,” which clarifies the scope of asset derecognition and adds further guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with non-customers. The Company is required to adopt ASU 2017-05 beginning January 1, 2018 with early adoption permitted. The Company does not believe that the adoption of ASU No. 2017-05 will have a significant impact on its consolidated financial statements.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
| |
3. | Earnings per Share ("EPS"): |
The following table reconciles the numerator and denominator used in the computation of EPS for the three and nine months endedSeptember 30, 2017 and 2016 (shares in thousands):
|
| | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Numerator | | | | | | | |
| Net income | $ | 19,228 |
| | $ | 13,196 |
| | $ | 123,089 |
| | $ | 514,005 |
|
| Net income attributable to noncontrolling interests | (1,730 | ) | | 534 |
| | (9,710 | ) | | (34,138 | ) |
| Net income attributable to the Company | 17,498 |
| | 13,730 |
| | 113,379 |
| | 479,867 |
|
| Allocation of earnings to participating securities | (193 | ) | | (170 | ) | | (567 | ) | | (586 | ) |
| Numerator for basic and diluted EPS—net income attributable to common stockholders | $ | 17,305 |
| | $ | 13,560 |
| | $ | 112,812 |
| | $ | 479,281 |
|
| Denominator | | | | | | | |
| Denominator for basic EPS—weighted average number of common shares outstanding | 141,299 |
| | 143,923 |
| | 142,188 |
| | 147,504 |
|
| Effect of dilutive securities(1): | | | | | | | |
| Share and unit-based compensation plans | 11 |
| | 113 |
| | 35 |
| | 126 |
|
| Denominator for diluted EPS—weighted average number of common shares outstanding | 141,310 |
| | 144,036 |
| | 142,223 |
| | 147,630 |
|
| Earnings per common share—net income attributable to common stockholders: | | | | | | | |
| Basic | $ | 0.12 |
| | $ | 0.09 |
| | $ | 0.79 |
| | $ | 3.25 |
|
| Diluted | $ | 0.12 |
| | $ | 0.09 |
| | $ | 0.79 |
| | $ | 3.25 |
|
| |
(1) | Diluted EPS excludes 90,619 and 138,759 convertible preferred partnership units for the three months ended September 30, 2017 and 2016, respectively, and 90,619 and 138,759 convertible preferred partnership units for the nine months ended September 30, 2017 and 2016, respectively, as their impact was antidilutive.
|
Diluted EPS excludes 10,324,376 and 10,666,565 Operating Partnership units ("OP Units") for the three months ended September 30, 2017 and 2016, respectively, and 10,479,806 and 10,773,029 OP Units for the nine months endedSeptember 30, 2017 and 2016, respectively, as their impact was antidilutive.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
| |
4. | Investments in Unconsolidated Joint Ventures: |
The Company has made the following recent investments and dispositions in its unconsolidated joint ventures:
On January 6, 2016, the Company sold a 40% ownership interest in Arrowhead Towne Center, a 1,197,000 square foot regional shopping center in Glendale, Arizona, for $289,496, resulting in a gain on the sale of assets of $101,629. The sales price was funded by a cash payment of $129,496 and the assumption of a pro rata share of the mortgage note payable on the property of $160,000. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes, which included funding the Special Dividend (See Note 12—Stockholders' Equity). Upon completion of the sale of the ownership interest, the Company no longer has a controlling interest in the joint venture due to the substantive participation rights of the outside partner. Accordingly, the Company accounts for its investment in Arrowhead Towne Center under the equity method of accounting.
On January 14, 2016, the Company formed a joint venture, whereby the Company sold a 49% ownership interest in Deptford Mall, a 1,040,000 square foot regional shopping center in Deptford, New Jersey; FlatIron Crossing, a 1,432,000 square foot regional shopping center in Broomfield, Colorado; and Twenty Ninth Street, an 847,000 square foot regional shopping center in Boulder, Colorado (the "MAC Heitman Portfolio"), for $771,478, resulting in a gain on the sale of assets of $340,734. The sales price was funded by a cash payment of $478,608 and the assumption of a pro rata share of the mortgage notes payable on the properties of $292,870. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes. Upon completion of the sale of the ownership interest, the Company no longer has a controlling interest in the joint venture due to the substantive participation rights of the outside partner. Accordingly, the Company accounts for its investment in the MAC Heitman Portfolio under the equity method of accounting.
On March 1, 2016, the Company, through a 50/50 joint venture, acquired Country Club Plaza, a 1,001,000 square foot regional shopping center in Kansas City, Missouri, for a purchase price of $660,000. The Company funded its pro rata share of the purchase price of $330,000 from borrowings under its line of credit. On March 28, 2016, the joint venture placed a $320,000 loan on the property that bears interest at an effective rate of 3.88% and matures on April 1, 2026. The Company used its pro rata share of the proceeds to pay down its line of credit and for general corporate purposes.
On March 17, 2017, the Company's joint venture in Country Club Plaza sold an office building for $78,000, resulting in a gain on sale of assets of $4,580. The Company's pro rata share of the gain on the sale of assets of $2,290 was included in equity in income from joint ventures. The Company used its share of the proceeds to fund repurchases under the 2017 Stock Buyback Program (See Note 12—Stockholders' Equity).
On September 18, 2017, the Company's joint venture in Fashion District Philadelphia sold an office building for $61,500, resulting in a gain on sale of assets of $13,426. The Company's pro rata share of the gain on the sale of assets of $6,713 was included in equity in income from joint ventures. The Company used its share of the proceeds to fund repurchases under the 2017 Stock Buyback Program (See Note 12—Stockholders' Equity).
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
4. Investments in Unconsolidated Joint Ventures: (Continued)
Combined and condensed balance sheets and statements of operations are presented below for all unconsolidated joint ventures.
Combined and Condensed Balance Sheets of Unconsolidated Joint Ventures:
| | | | | | | | | | | |
| March 31,
2020 | | December 31,
2019 |
| Assets(1): | | | |
| Property, net | $ | 9,414,762 | | | $ | 9,424,591 | |
| Other assets | 752,159 | | | 772,116 | |
| Total assets | $ | 10,166,921 | | | $ | 10,196,707 | |
| Liabilities and partners' capital(1): | | | |
| Mortgage and other notes payable | $ | 6,125,614 | | | $ | 6,144,685 | |
| Other liabilities | 495,817 | | | 565,412 | |
| Company's capital | 1,916,313 | | | 1,904,145 | |
| Outside partners' capital | 1,629,177 | | | 1,582,465 | |
| Total liabilities and partners' capital | $ | 10,166,921 | | | $ | 10,196,707 | |
| Investments in unconsolidated joint ventures: | | | |
| Company's capital | $ | 1,916,313 | | | $ | 1,904,145 | |
| Basis adjustment(2) | (482,643) | | | (492,350) | |
| $ | 1,433,670 | | | $ | 1,411,795 | |
| | | |
| Assets—Investments in unconsolidated joint ventures | $ | 1,540,826 | | | $ | 1,519,697 | |
| Liabilities—Distributions in excess of investments in unconsolidated joint ventures | (107,156) | | | (107,902) | |
| $ | 1,433,670 | | | $ | 1,411,795 | |
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| Assets(1): | | | |
| Property, net | $ | 9,058,868 |
| | $ | 9,176,642 |
|
| Other assets | 655,905 |
| | 614,607 |
|
| Total assets | $ | 9,714,773 |
| | $ | 9,791,249 |
|
| Liabilities and partners' capital(1): | | | |
| Mortgage and other notes payable(2) | $ | 5,311,238 |
| | $ | 5,224,713 |
|
| Other liabilities | 438,235 |
| | 403,369 |
|
| Company's capital | 2,166,954 |
| | 2,279,819 |
|
| Outside partners' capital | 1,798,346 |
| | 1,883,348 |
|
| Total liabilities and partners' capital | $ | 9,714,773 |
| | $ | 9,791,249 |
|
| Investments in unconsolidated joint ventures: | | | |
| Company's capital | $ | 2,166,954 |
| | $ | 2,279,819 |
|
| Basis adjustment(3) | (566,917 | ) | | (584,887 | ) |
| | $ | 1,600,037 |
| | $ | 1,694,932 |
|
| | | | |
| Assets—Investments in unconsolidated joint ventures | $ | 1,688,606 |
| | $ | 1,773,558 |
|
| Liabilities—Distributions in excess of investments in unconsolidated joint ventures | (88,569 | ) | | (78,626 | ) |
| | $ | 1,600,037 |
| | $ | 1,694,932 |
|
| |
(1) | These amounts include the assets of $3,120,534 and $3,179,255 of Pacific Premier Retail LLC (the "PPR Portfolio") as of September 30, 2017 and December 31, 2016, respectively, and liabilities of $1,878,719 and $1,887,952 of the PPR Portfolio as of September 30, 2017 and December 31, 2016, respectively. |
| |
(2) | Included in mortgage and other notes payable are amounts due to an affiliate of Northwestern Mutual Life ("NML") of $484,716 and $265,863 as of September 30, 2017 and December 31, 2016, respectively. NML is considered a related party because it is a joint venture partner with the Company in Macerich Northwestern Associates—Broadway Plaza. Interest expense on these borrowings was $4,903 and $2,775 for the three months ended September 30, 2017 and 2016, respectively, and $12,992 and $14,133 for the nine months ended September 30, 2017 and 2016, respectively.
|
| |
(3) | The Company amortizes the difference between the cost of its investments in unconsolidated joint ventures and the book value of the underlying equity into income on a straight-line basis consistent with the lives of the underlying assets. The amortization of this difference was $4,227 and $4,988 for the three months ended September 30, 2017 and 2016, respectively, and $12,451 and $14,114 for the nine months endedSeptember 30, 2017 and 2016, respectively.
|
(1) These amounts include assets of $2,911,512 and $2,932,401 of Pacific Premier Retail LLC (the "PPR Portfolio") as of March 31, 2020 and December 31, 2019, respectively, and liabilities of $1,709,593 and $1,732,976 of the PPR Portfolio as of March 31, 2020 and December 31, 2019, respectively.
(2) The Company amortizes the difference between the cost of its investments in unconsolidated joint ventures and the book value of the underlying equity into income on a straight-line basis consistent with the lives of the underlying assets. The amortization of this difference was $3,999 and $4,539 for the three months ended March 31, 2020 and 2019, respectively.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)
4. Investments in Unconsolidated Joint Ventures: (Continued)
Combined and Condensed Statements of Operations of Unconsolidated Joint Ventures:
| | | | | | | | | | | | | | | | | |
| PPR Portfolio | | Other
Joint
Ventures | | Total |
| Three Months Ended March 31, 2020 | | | | | |
| Revenues: | | | | | |
| Leasing revenue | $ | 58,378 | | | $ | 172,245 | | | $ | 230,623 | |
| Other | 51 | | | 6,888 | | | 6,939 | |
| Total revenues | 58,429 | | | 179,133 | | | 237,562 | |
| Expenses: | | | | | |
| Shopping center and operating expenses | 9,642 | | | 61,509 | | | 71,151 | |
| Leasing expenses | 473 | | | 1,295 | | | 1,768 | |
| Interest expense | 16,094 | | | 38,141 | | | 54,235 | |
| Depreciation and amortization | 28,618 | | | 68,360 | | | 96,978 | |
| Total operating expenses | 54,827 | | | 169,305 | | | 224,132 | |
| | | | | |
| | | | | |
| Net income | $ | 3,602 | | | $ | 9,828 | | | $ | 13,430 | |
| Company's equity in net income | $ | 4,721 | | | $ | 4,977 | | | $ | 9,698 | |
| Three Months Ended March 31, 2019 | | | | | |
| Revenues: | | | | | |
| Leasing revenue | $ | 46,020 | | | $ | 173,524 | | | $ | 219,544 | |
| Other | 182 | | | 12,064 | | | 12,246 | |
| Total revenues | 46,202 | | | 185,588 | | | 231,790 | |
| Expenses: | | | | | |
| Shopping center and operating expenses | 9,672 | | | 59,650 | | | 69,322 | |
| Leasing expenses | 467 | | | 1,707 | | | 2,174 | |
| Interest expense | 16,951 | | | 36,911 | | | 53,862 | |
| Depreciation and amortization | 25,514 | | | 64,467 | | | 89,981 | |
| Total operating expenses | 52,604 | | | 162,735 | | | 215,339 | |
| Loss on sale or write down of assets, net | (6) | | | (135) | | | (141) | |
| | | | | |
| Net (loss) income | $ | (6,408) | | | $ | 22,718 | | | $ | 16,310 | |
| Company's equity in net (loss) income | $ | (1,199) | | | $ | 13,442 | | | $ | 12,243 | |
|
| | | | | | | | | | | | |
| | PPR Portfolio | | | Other
Joint
Ventures | | Total |
| Three Months Ended September 30, 2017 | | | | | | |
| Revenues: | | | | | | |
| Minimum rents | $ | 35,052 |
| | | $ | 123,663 |
| | $ | 158,715 |
|
| Percentage rents | 903 |
| | | 3,953 |
| | 4,856 |
|
| Tenant recoveries | 12,015 |
| | | 47,841 |
| | 59,856 |
|
| Other | 1,713 |
| | | 12,329 |
| | 14,042 |
|
| Total revenues | 49,683 |
| | | 187,786 |
| | 237,469 |
|
| Expenses: | | | | | | |
| Shopping center and operating expenses | 10,591 |
| | | 60,394 |
| | 70,985 |
|
| Interest expense | 16,890 |
| | | 33,214 |
| | 50,104 |
|
| Depreciation and amortization | 25,449 |
| | | 62,958 |
| | 88,407 |
|
| Total operating expenses | 52,930 |
| | | 156,566 |
| | 209,496 |
|
| Gain on sale or write down of assets, net | — |
| | | 13,426 |
| | 13,426 |
|
| Net (loss) income | $ | (3,247 | ) | | | $ | 44,646 |
| | $ | 41,399 |
|
| Company's equity in net income | $ | 620 |
| | | $ | 23,373 |
| | $ | 23,993 |
|
| Three Months Ended September 30, 2016 | | | | | | |
| Revenues: | | | | | | |
| Minimum rents | $ | 33,332 |
| | | $ | 121,109 |
| | $ | 154,441 |
|
| Percentage rents | 1,117 |
| | | 4,228 |
| | 5,345 |
|
| Tenant recoveries | 11,933 |
| | | 48,540 |
| | 60,473 |
|
| Other | 987 |
| | | 11,697 |
| | 12,684 |
|
| Total revenues | 47,369 |
| | | 185,574 |
| | 232,943 |
|
| Expenses: | | | | | | |
| Shopping center and operating expenses | 9,897 |
| | | 61,335 |
| | 71,232 |
|
| Interest expense | 16,688 |
| | | 32,126 |
| | 48,814 |
|
| Depreciation and amortization | 27,091 |
| | | 70,030 |
| | 97,121 |
|
| Total operating expenses | 53,676 |
| | | 163,491 |
| | 217,167 |
|
| Loss on sale or write down of assets, net | — |
| | | (343 | ) | | (343 | ) |
| Net (loss) income | $ | (6,307 | ) | | | $ | 21,740 |
| | $ | 15,433 |
|
| Company's equity in net (loss) income | $ | (871 | ) | | | $ | 12,132 |
| | $ | 11,261 |
|
| | | | | | | |
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
4. Investments in Unconsolidated Joint Ventures: (Continued)
|
| | | | | | | | | | | | |
| | PPR Portfolio | | | Other Joint Ventures | | Total |
| Nine Months Ended September 30, 2017 | | | | | | |
| Revenues: | | | | | | |
| Minimum rents | $ | 100,633 |
| | | $ | 373,931 |
| | $ | 474,564 |
|
| Percentage rents | 1,854 |
| | | 7,817 |
| | 9,671 |
|
| Tenant recoveries | 34,827 |
| | | 141,875 |
| | 176,702 |
|
| Other | 4,141 |
| | | 36,857 |
| | 40,998 |
|
| Total revenues | 141,455 |
| | | 560,480 |
| | 701,935 |
|
| Expenses: | | | | | | |
| Shopping center and operating expenses | 30,062 |
| | | 181,475 |
| | 211,537 |
|
| Interest expense | 50,291 |
| | | 98,469 |
| | 148,760 |
|
| Depreciation and amortization | 76,527 |
| | | 187,927 |
| | 264,454 |
|
| Total operating expenses | 156,880 |
| | | 467,871 |
| | 624,751 |
|
| (Loss) gain on sale or write down of assets, net | (35 | ) | | | 18,005 |
| | 17,970 |
|
| Net (loss) income | $ | (15,460 | ) | | | $ | 110,614 |
| | $ | 95,154 |
|
| Company's equity in net (loss) income | $ | (1,376 | ) | | | $ | 58,148 |
| | $ | 56,772 |
|
| Nine Months Ended September 30, 2016 | | | | | | |
| Revenues: | | | | | | |
| Minimum rents | $ | 95,389 |
| | | $ | 347,146 |
| | $ | 442,535 |
|
| Percentage rents | 2,219 |
| | | 8,605 |
| | 10,824 |
|
| Tenant recoveries | 35,828 |
| | | 138,635 |
| | 174,463 |
|
| Other | 4,514 |
| | | 34,801 |
| | 39,315 |
|
| Total revenues | 137,950 |
| | | 529,187 |
| | 667,137 |
|
| Expenses: | | | | | | |
| Shopping center and operating expenses | 28,997 |
| | | 173,563 |
| | 202,560 |
|
| Interest expense | 47,957 |
| | | 91,130 |
| | 139,087 |
|
| Depreciation and amortization | 81,971 |
| | | 187,327 |
| | 269,298 |
|
| Total operating expenses | 158,925 |
| | | 452,020 |
| | 610,945 |
|
| Loss on sale or write down of assets, net | — |
| | | (343 | ) | | (343 | ) |
| Net (loss) income | $ | (20,975 | ) | | | $ | 76,824 |
| | $ | 55,849 |
|
| Company's equity in net (loss) income | $ | (3,845 | ) | | | $ | 41,382 |
| | $ | 37,537 |
|
Significant accounting policies used by the unconsolidated joint ventures are similar to those used by the Company.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)
5. Derivative Instruments and Hedging Activities:
The Company uses an interest rate cap and four interest rate swap agreements to manage the interest rate risk of its floating rate debt. The Company recorded other comprehensive loss related to the marking-to-market of derivative instruments of $6,395 and $2,045 for the three months ended March 31, 2020 and 2019, respectively.
The following derivatives were outstanding at March 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Fair Value | | |
| Property | | Notional Amount | | Product | | LIBOR Rate | | Maturity | | March 31,
2020 | | December 31,
2019 |
| Santa Monica Place | | $ | 300,000 | | | Cap | | 4.00 | % | | 12/9/2020 | | $ | — | | | $ | — | |
| The Macerich Partnership, L.P. | | $ | 400,000 | | | Swaps | | 2.85 | % | | 9/30/2021 | | $ | (15,446) | | | $ | (9,051) | |
The above derivative instruments were designated as hedging instruments with an aggregate fair value (Level 2 measurement) and were included in other accrued liabilities. The fair value of the Company's interest rate derivatives was determined using discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty's nonperformance risk in the fair value measurements.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparties. The Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its interest rate swap. As a result, the Company determined that its interest rate cap and swap valuations in their entirety are classified in Level 2 of the fair value hierarchy.
6. Property, net:
Property, net consists of the following:
| | | | | | | | | | | |
| March 31,
2020 | | December 31,
2019 |
| Land | $ | 1,510,948 | | | $ | 1,520,678 | |
| Buildings and improvements | 6,423,348 | | | 6,389,458 | |
| Tenant improvements | 720,414 | | | 726,533 | |
| Equipment and furnishings(1) | 227,117 | | | 230,215 | |
| Construction in progress | 92,042 | | | 126,165 | |
| 8,973,869 | | | 8,993,049 | |
| Less accumulated depreciation(1) | (2,415,794) | | | (2,349,536) | |
| $ | 6,558,075 | | | $ | 6,643,513 | |
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| Land | $ | 1,578,877 |
| | $ | 1,607,590 |
|
| Buildings and improvements | 6,412,728 |
| | 6,511,741 |
|
| Tenant improvements | 613,854 |
| | 622,878 |
|
| Equipment and furnishings | 184,379 |
| | 177,036 |
|
| Construction in progress | 342,539 |
| | 289,966 |
|
| | 9,132,377 |
| | 9,209,211 |
|
| Less accumulated depreciation | (1,967,728 | ) | | (1,851,901 | ) |
| | $ | 7,164,649 |
| | $ | 7,357,310 |
|
Depreciation expense was $69,343$72,687 and $68,792$70,717 for the three months ended September 30, 2017March 31, 2020 and 2016, respectively,2019, respectively.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and $207,663 and $206,870 for the nine months endedSeptember 30, 2017 and 2016, respectively.square foot amounts)
(Unaudited)
6. Property, net: (Continued)
The (loss) gain on sale or write down of assets, net was $(11,854) and $(19,321) for the three months ended September 30, 2017 and 2016, respectively, and $37,234 and $426,050 for the nine months ended September 30, 2017 and 2016, respectively.
The (loss) gainloss on sale or write down of assets, net for the ninethree months ended September 30, 2017 includes a gainMarch 31, 2020 and 2019 consist of $59,698 on the sale of Cascade Mall and Northgate Mall (See Note 14—Dispositions) offset in part by a loss of $10,138 on the write down of an investment in non-real estate assets.following:
The (loss) gain on sale or write down of assets, net for the nine months ended September 30, 2016 includes a gain of $101,629 on the sale of a 40% ownership interest in Arrowhead Towne Center (See Note 4—Investments in Unconsolidated Joint Ventures), a gain of $340,734 on the sale of a 49% ownership interest in the MAC Heitman Portfolio (See Note 4—Investments in Unconsolidated Joint Ventures), a gain of $24,894 on the sale of Capitola Mall (See Note 14—Dispositions), a loss of $3,066 on the sale of a former Mervyn's store (See Note 14—Dispositions) and a loss of $12,180 on an adjustment to contingent consideration (See Note 13—Acquisitions). | | | | | | | | | | | | | | | | | | | | |
| | | | | | For the Three Months Ended March 31, | | |
| | | | | | 2020 | | 2019 |
| | | | | | | | |
| Write-down of assets(1) | | | | | | $ | (36,703) | | | $ | (6,850) | |
| Land sales | | | | | | — | | | 534 | |
| | | | | | $ | (36,703) | | | $ | (6,316) | |
The (loss) gain on sale or write down of assets, net also includes
(1) Includes impairment losses of $12,036$30,063 on Southridge Center forWilton Mall and $6,640 on Paradise Valley Mall during the three and nine months ended September 30, 2017, $23,335 on Promenade at Casa Grande for the three and nine months ended September 30, 2016 and $7,188 on The Marketplace at Flagstaff for the nine months ended September 30, 2016.March 31, 2020. The impairment losses arewere due to the reduction of the estimated holding periodperiods of the properties. The remaining amount for the three months ended March 31, 2019 represents the write off of development costs.
The following table summarizes certain of the Company's assets that were measured on a nonrecurring basis as a result of the impairment chargeslosses recorded for the three and nine months ended September 30, 2017 and 2016March 31, 2020, as described above:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Fair Value Measurement | | Quoted Prices in Active Markets for Identical Assets | | Significant Other Unobservable Inputs | | Significant Unobservable Inputs |
| | | | (Level 1) | | (Level 2) | | (Level 3) |
| March 31, 2020 | | $ | 140,000 | | | $ | — | | | $ | 140,000 | | | $ | — | |
| | | | | | | | |
| | | | | | | | |
The fair values relating to the impairments were based on sales contracts and are classified within Level 2 of the fair value hierarchy.
7. Tenant and Other Receivables, net:
|
| | | | | | | | | | | | | | | | |
| | | Total Fair Value Measurement | | Quoted Prices in Active Markets for Identical Assets | | Significant Other Unobservable Inputs | | Significant Unobservable Inputs |
| | | (Level 1) | | (Level 2) | | (Level 3) |
| 2017 | | $ | 11,500 |
| | $ | — |
| | $ | 11,500 |
| | $ | — |
|
| 2016 | | $ | 66,000 |
| | $ | — |
| | $ | — |
| | $ | 66,000 |
|
8. Leases:
Lessor Leases:
The Company leases its Centers under agreements that are classified as operating leases. These leases generally include minimum rents, percentage rents and recoveries of real estate taxes, insurance and other shopping center operating expenses. Minimum rental revenues are recognized on a straight-line basis over the terms of the related leases. Percentage rents are recognized and accrued when 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.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)
5. Property, net:8. Leases: (Continued)
The fair value relating to impairment assessments were based upon a discounted cash flow model that includes all cash inflows and outflows over a specific holding period, or the negotiated sales price, if applicable. Projected cash flows are comprised of contractual rental revenues and forecasted rental revenues and expenses based upon market conditions and expectations for growth. Terminal capitalization rates and discount rates utilized in these models are based on a reasonable range of current market rates for each property analyzed. Based upon these inputs, the Company determined that its valuations of properties using a discounted cash flow model are classified within Level 3 of the fair value hierarchy.
The following table sets forth quantitative information aboutsummarizes the unobservable inputscomponents of leasing revenue for the three months ended March 31, 2020 and 2019:
| | | | | | | | | | | | | | | | | |
| | | | | For the Three Months Ended March 31, | | |
| | | | | 2020 | | 2019 |
| Leasing revenue—fixed payments | | | | | $ | 159,557 | | | $ | 164,061 | |
| Leasing revenue—variable payments | | | | | 51,164 | | | 46,947 | |
| | | | | $ | 210,721 | | | $ | 211,008 | |
The following table summarizes the future rental payments to the Company:
| | | | | | | | |
| Twelve months ending March 31, | | |
| 2021 | | $ | 472,786 | |
| 2022 | | 395,136 | |
| 2023 | | 338,346 | |
| 2024 | | 287,879 | |
| 2025 | | 226,663 | |
| Thereafter | | 635,939 | |
| | $ | 2,356,749 | |
Lessee Leases:
The Company has certain properties that are subject to non-cancelable operating leases. The leases expire at various times through 2098, subject in some cases to options to extend the terms of the Company’s Level 3 real estate recordedlease. Certain leases provide for contingent rent payments based on a percentage of base rental income, as of September 30, 2016:
|
| | | | |
Terminal capitalization rate | | | 7.0% - 8.0% | |
Discount rate | | | 8.0% - 9.5% | |
Market rents per square foot | | | $5.75 - $20.00 | |
| |
6. | Tenant and Other Receivables, net: |
Includeddefined in tenant and other receivables, net is an allowance for doubtful accounts of $2,559 and $1,991 at September 30, 2017 and December 31, 2016, respectively. Also included in tenant and other receivables, net are accrued percentage rents of $1,866 and $9,509 at September 30, 2017 and December 31, 2016, respectively, and a deferred rent receivable due to straight-line rent adjustments of $62,182 and $56,761 at September 30, 2017 and December 31, 2016, respectively.
On March 17, 2014, in connection with the sale of Lake Square Mall,lease. In addition, the Company issued a note receivable for $6,500has 5 finance leases that bore interestexpire at an effective rate of 6.5%, which was collateralized by a trust deed on Lake Square Mall and that was to mature on March 17, 2018. At September 30, 2017 and December 31, 2016,various times through 2024.
The following table summarizes the note had a balance of $6,245 and $6,284, respectively. On October 20, 2017, the note was repaid in full. The Company used the proceeds from the repayment for general corporate purposes.lease costs:
| | | | | | | | | | | |
| For the Three Months Ended March 31, | | |
| 2020 | | 2019 |
| Operating lease costs | $ | 3,938 | | | $ | 4,347 | |
| Finance lease costs: | | | |
| Amortization of ROU assets | 475 | | | 919 | |
| Interest on lease liabilities | 142 | | | 154 | |
| $ | 4,555 | | | $ | 5,420 | |
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)
8. Leases: (Continued)
| |
7. | Deferred Charges and Other Assets, net: |
The following table summarizes the future rental payments required under the leases:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2020 | | | | December 31, 2019 | | |
| Year ending December 31, | | Operating
Leases | | Finance Leases | | Operating Leases | | Finance Leases |
| 2020 | | $ | 13,037 | | | $ | 2,043 | | | $ | 17,149 | | | $ | 2,106 | |
| 2021 | | 17,004 | | | 10,784 | | | 17,004 | | | 10,441 | |
| 2022 | | 16,867 | | | 2,762 | | | 16,867 | | | 2,418 | |
| 2023 | | 11,055 | | | 344 | | | 11,055 | | | — | |
| 2024 | | 9,068 | | | 3,085 | | | 9,068 | | | — | |
| Thereafter | | 131,347 | | | — | | | 131,347 | | | — | |
| Total undiscounted rental payments | | 198,378 | | | 19,018 | | | 202,490 | | | 14,965 | |
| Less imputed interest | | (100,100) | | | (1,397) | | | (102,085) | | | (1,169) | |
| Total lease liabilities | | $ | 98,278 | | | $ | 17,621 | | | $ | 100,405 | | | $ | 13,796 | |
| Weighted average remaining term | | 31.0 years | | 1.3 years | | 31.0 years | | 1.6 years |
| Weighted average incremental borrowing rate | | 7.7 | % | | 3.2 | % | | 7.7 | % | | 4.2 | % |
9. Deferred Charges and Other Assets, net:
Deferred charges and other assets, net consist of the following:
| | | | | | | | | | | |
| March 31,
2020 | | December 31,
2019 |
| Leasing | $ | 179,355 | | | $ | 202,540 | |
| Intangible assets: | | | |
| In-place lease values | 66,561 | | | 78,171 | |
| Leasing commissions and legal costs | 18,080 | | | 20,518 | |
| Above-market leases | 56,377 | | | 59,916 | |
| Deferred tax assets | 30,789 | | | 30,757 | |
| Deferred compensation plan assets | 44,458 | | | 55,349 | |
| Other assets | 55,018 | | | 60,475 | |
| 450,638 | | | 507,726 | |
| Less accumulated amortization(1) | (199,990) | | | (229,860) | |
| $ | 250,648 | | | $ | 277,866 | |
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| Leasing | $ | 232,443 |
| | $ | 239,983 |
|
| Intangible assets: | | | |
| In-place lease values | 112,994 |
| | 140,437 |
|
| Leasing commissions and legal costs | 27,621 |
| | 32,384 |
|
| Above-market leases | 171,156 |
| | 181,851 |
|
| Deferred tax assets | 44,964 |
| | 38,301 |
|
| Deferred compensation plan assets | 49,430 |
| | 42,711 |
|
| Other assets | 59,358 |
| | 72,206 |
|
| | 697,966 |
| | 747,873 |
|
| Less accumulated amortization(1) | (258,471 | ) | | (269,815 | ) |
| | $ | 439,495 |
| | $ | 478,058 |
|
| |
(1) | Accumulated amortization includes $75,818 and $88,785(1) Accumulated amortization includes $56,075 and $66,322 relating to in-place lease values, leasing commissions and legal costs at September 30, 2017 and December 31, 2016, respectively. Amortization expense of in-place lease values, leasing commissions and legal costs was $4,206 and $8,983 for the three months ended September 30, 2017 and 2016, respectively, and $15,755 and $26,033 for the nine months ended September 30, 2017 and 2016, respectively. |
The allocated values, leasing commissions and legal costs at March 31, 2020 and December 31, 2019, respectively. Amortization expense of above-market leasesin-place lease values, leasing commissions and below-market leases consist oflegal costs was $3,719 and $3,205 for the following:three months ended March 31, 2020 and 2019, respectively.
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| Above-Market Leases | | | |
| Original allocated value | $ | 171,156 |
| | $ | 181,851 |
|
| Less accumulated amortization | (61,000 | ) | | (57,505 | ) |
| | $ | 110,156 |
| | $ | 124,346 |
|
| Below-Market Leases(1) | | | |
| Original allocated value | $ | 128,750 |
| | $ | 144,713 |
|
| Less accumulated amortization | (57,314 | ) | | (58,400 | ) |
| | $ | 71,436 |
| | $ | 86,313 |
|
| |
(1) | Below-market leases are included in other accrued liabilities. |
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)
9. Deferred Charges and Other Assets, net: (Continued)
The allocated values of above-market leases and below-market leases consist of the following:
| | | | | | | | | | | |
| March 31,
2020 | | December 31,
2019 |
| Above-Market Leases | | | |
| Original allocated value | $ | 56,377 | | | $ | 59,916 | |
| Less accumulated amortization | (34,025) | | | (35,737) | |
| $ | 22,352 | | | $ | 24,179 | |
| Below-Market Leases(1) | | | |
| Original allocated value | $ | 80,757 | | | $ | 90,790 | |
| Less accumulated amortization | (45,947) | | | (53,727) | |
| $ | 34,810 | | | $ | 37,063 | |
| | | | | | | | |
8. | Mortgage Notes Payable: | |
(1) Below-market leases are included in other accrued liabilities.
10. Mortgage Notes Payable:
Mortgage notes payable at September 30, 2017March 31, 2020 and December 31, 20162019 consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying Amount of Mortgage Notes(1) | | | | | | | | |
| Property Pledged as Collateral | | March 31, 2020 | | December 31, 2019 | | Effective Interest
Rate(2) | | Monthly
Debt
Service(3) | | Maturity
Date(4) |
| Chandler Fashion Center(5) | | $ | 255,221 | | | $ | 255,174 | | | 4.18 | % | | $ | 875 | | | 2024 |
| Danbury Fair Mall | | 192,792 | | | 194,718 | | | 5.53 | % | | 1,538 | | | 2020 |
| Fashion Outlets of Chicago | | 299,132 | | | 299,112 | | | 4.61 | % | | 1,145 | | | 2031 |
| Fashion Outlets of Niagara Falls USA(6) | | 105,559 | | | 106,398 | | | 4.89 | % | | 727 | | | 2020 |
| Freehold Raceway Mall(5) | | 398,420 | | | 398,379 | | | 3.94 | % | | 1,300 | | | 2029 |
| Fresno Fashion Fair | | 323,708 | | | 323,659 | | | 3.67 | % | | 971 | | | 2026 |
| Green Acres Commons(7) | | 129,157 | | | 128,926 | | | 4.29 | % | | 404 | | | 2021 |
| Green Acres Mall | | 275,965 | | | 277,747 | | | 3.61 | % | | 1,447 | | | 2021 |
| Kings Plaza Shopping Center | | 535,219 | | | 535,097 | | | 3.71 | % | | 1,629 | | | 2030 |
| Oaks, The | | 185,886 | | | 187,142 | | | 4.14 | % | | 1,064 | | | 2022 |
| Pacific View | | 117,391 | | | 118,202 | | | 4.08 | % | | 668 | | | 2022 |
| Queens Center | | 600,000 | | | 600,000 | | | 3.49 | % | | 1,744 | | | 2025 |
| Santa Monica Place(8) | | 298,005 | | | 297,817 | | | 2.30 | % | | 772 | | | 2022 |
| SanTan Village Regional Center | | 219,163 | | | 219,140 | | | 4.34 | % | | 788 | | | 2029 |
| Towne Mall | | 20,168 | | | 20,284 | | | 4.48 | % | | 117 | | | 2022 |
| Tucson La Encantada | | 63,251 | | | 63,682 | | | 4.23 | % | | 368 | | | 2022 |
| Victor Valley, Mall of | | 114,748 | | | 114,733 | | | 4.00 | % | | 380 | | | 2024 |
| Vintage Faire Mall | | 250,895 | | | 252,389 | | | 3.55 | % | | 1,256 | | | 2026 |
| | $ | 4,384,680 | | | $ | 4,392,599 | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Carrying Amount of Mortgage Notes(1) | | | | | | |
| | | September 30, 2017 | | December 31, 2016 | | | | | | |
| Property Pledged as Collateral | | Related Party | | Other | | Related Party | | Other | | Effective Interest Rate(2) | | Monthly Debt Service(3) | | Maturity Date(4) |
| Chandler Fashion Center(5) | | $ | — |
| | $ | 199,885 |
| | $ | — |
| | $ | 199,833 |
| | 3.77 | % | | $ | 625 |
| | 2019 |
|
| Danbury Fair Mall | | 105,448 |
| | 105,448 |
| | 107,929 |
| | 107,928 |
| | 5.53 | % | | 1,538 |
| | 2020 |
|
| Fashion Outlets of Chicago(6) | | — |
| | 199,218 |
| | — |
| | 198,966 |
| | 2.90 | % | | 457 |
| | 2020 |
|
| Fashion Outlets of Niagara Falls USA | | — |
| | 113,534 |
| | — |
| | 115,762 |
| | 4.89 | % | | 727 |
| | 2020 |
|
| Freehold Raceway Mall(5)(7) | | — |
| | 217,379 |
| | — |
| | 220,643 |
| | 4.20 | % | | 1,132 |
| | 2018 |
|
| Fresno Fashion Fair | | — |
| | 323,208 |
| | — |
| | 323,062 |
| | 3.67 | % | | 971 |
| | 2026 |
|
| Green Acres Commons(8) | | — |
| | 107,446 |
| | — |
| | — |
| | 3.96 | % | | 312 |
| | 2021 |
|
| Green Acres Mall | | — |
| | 293,004 |
| | — |
| | 297,798 |
| | 3.61 | % | | 1,447 |
| | 2021 |
|
| Kings Plaza Shopping Center | | — |
| | 449,709 |
| | — |
| | 456,958 |
| | 3.67 | % | | 2,229 |
| | 2019 |
|
| Northgate Mall(9) | | — |
| | — |
| | — |
| | 63,434 |
| | — |
| | — |
| | — |
|
| Oaks, The | | — |
| | 197,875 |
| | — |
| | 201,235 |
| | 4.14 | % | | 1,064 |
| | 2022 |
|
| Pacific View | | — |
| | 125,136 |
| | — |
| | 127,311 |
| | 4.08 | % | | 668 |
| | 2022 |
|
| Queens Center | | — |
| | 600,000 |
| | — |
| | 600,000 |
| | 3.49 | % | | 1,744 |
| | 2025 |
|
| Santa Monica Place(10) | | — |
| | 215,508 |
| | — |
| | 219,564 |
| | 2.99 | % | | 1,004 |
| | 2018 |
|
| SanTan Village Regional Center | | — |
| | 125,470 |
| | — |
| | 127,724 |
| | 3.14 | % | | 589 |
| | 2019 |
|
| Stonewood Center(11) | | — |
| | 94,994 |
| | — |
| | 99,520 |
| | 1.80 | % | | 640 |
| | 2017 |
|
| Towne Mall | | — |
| | 21,266 |
| | — |
| | 21,570 |
| | 4.48 | % | | 117 |
| | 2022 |
|
| Tucson La Encantada | | 67,362 |
| | — |
| | 68,513 |
| | — |
| | 4.23 | % | | 368 |
| | 2022 |
|
| Victor Valley, Mall of | | — |
| | 114,602 |
| | — |
| | 114,559 |
| | 4.00 | % | | 380 |
| | 2024 |
|
| Vintage Faire Mall | | — |
| | 265,195 |
| | — |
| | 269,228 |
| | 3.55 | % | | 1,256 |
| | 2026 |
|
| Westside Pavilion | | — |
| | 141,987 |
| | — |
| | 143,881 |
| | 4.49 | % | | 783 |
| | 2022 |
|
| | | $ | 172,810 |
| | $ | 3,910,864 |
| | $ | 176,442 |
| | $ | 3,908,976 |
| | |
| | |
| | |
|
| |
(1) | (1)The mortgage notes payable balances include the unamortized debt premiums (discounts). Debt premiums (discounts) represent the excess (deficiency) of the fair value of debt over (under) the principal value of debt assumed in various acquisitions and are amortized into interest expense over the remaining term of the related debt in a manner that approximates the effective interest method. Debt premiums (discounts) consist of the following: |
|
| | | | | | | |
| Property Pledged as Collateral | September 30,
2017 | | December 31,
2016 |
| Fashion Outlets of Niagara Falls USA | $ | 2,862 |
| | $ | 3,558 |
|
| Stonewood Center | 246 |
| | 2,349 |
|
| | $ | 3,108 |
| | $ | 5,907 |
|
The mortgage notes payable balances also include unamortized deferred finance costs that are amortized into interest expense over the remaining term of the related debt in a manner that approximates the effective interest method. Unamortized deferred finance costs were $12,810$15,053 and $12,716$16,042 at September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively.
| |
(2) | The interest rate disclosed represents the effective interest rate, including the debt premiums (discounts) and deferred finance costs. |
| |
(3) | The monthly debt service represents the payment of principal and interest. |
| |
(4) | The maturity date assumes that all extension options are fully exercised and that the Company does not opt to refinance the debt prior to these dates. These extension options are at the Company's discretion, subject to certain conditions, which the Company believes will be met. |
(2)The interest rate disclosed represents the effective interest rate, including the impact of debt premium and deferred finance costs.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)
8.10. Mortgage Notes Payable: (Continued)
(3)The monthly debt service represents the payment of principal and interest.
| |
(5) | A 49.9% interest in the loan has been assumed by a third party in connection with a co-venture arrangement (See Note 10—Co-Venture Arrangement).(4)The maturity date assumes that all extension options are fully exercised and that the Company does not opt to refinance the debt prior to these dates. These extension options are at the Company's discretion, subject to certain conditions, which the Company believes will be met. (5)A 49.9% interest in the loan has been assumed by a third party in connection with the Company's joint venture in Chandler Freehold (See Note 12—Financing Arrangement). (6)The loan includes unamortized debt premium of $541 and $773 at March 31, 2020 and December 31, 2019, respectively. The debt premium represents the excess of the fair value of the loan over the principal value of the loan assumed at acquisition and is amortized into interest expense over the remaining term of the loan in a manner that approximates the effective interest method. (7)The loan bears interest at LIBOR plus 2.15%. At March 31, 2020 and December 31, 2019, the total interest rate was 4.29% and 4.40%, respectively. (8)The loan bears interest at LIBOR plus 1.35%. The loan is covered by an interest rate cap agreement that effectively prevents LIBOR from exceeding 4% during the period ending December 9, 2020 (See Note 5—Derivative Instruments and Hedging Activities). At March 31, 2020 and December 31, 2019, the total interest rate was 2.30% and 3.34%, respectively. |
| |
(6) | The loan bears interest at LIBOR plus 1.50% and matures on March 31, 2020. At September 30, 2017 and December 31, 2016, the total interest rate was 2.90% and 2.43%, respectively. |
| |
(7) | On October 19, 2017, the joint venture replaced the existing loan on the property with a new $400,000 loan that bears interest at 3.90% and matures on November 1, 2029 (See Note 19—Subsequent Events). |
| |
(8) | On September 29, 2017, the Company placed a new $110,000 loan on the property that bears interest at LIBOR plus 2.15% and matures on March 29, 2021. The loan can be expanded, depending on certain conditions, up to $130,000. At September 30, 2017, the total interest rate was 3.96%.
|
| |
(9) | On January 18, 2017, the loan was paid off in connection with the sale of the underlying property (See Note 14—Dispositions). |
| |
(10) | On October 13, 2017, the Company entered into a loan commitment with a lender to replace the existing loan on the property with a new $300,000 five-year floating rate loan. The new loan is expected to close in the fourth quarter of 2017. The Company expects to use the excess proceeds to pay down its line of credit (See Note 19—Subsequent Events). |
| |
(11) | On November 1, 2017, the Company paid off the loan on the property (See Note 19—Subsequent Events). |
Most of the mortgage loan agreements contain a prepayment penalty provision for the early extinguishment of the debt.
The Company's mortgage notes payable are secured by the properties on which they are placed and are non-recourse to the Company.
The Company expects that all loan maturities during the next twelve months will be refinanced, restructured, extended and/or paid-offpaid off from the Company's line of credit or with cash on hand.
Total interest expense capitalized was $3,428$1,295 and $2,707$2,710 for the three months ended September 30, 2017March 31, 2020 and 2016, respectively, and $9,405 and $7,572 for the nine months ended September 30, 2017 and 2016,2019, respectively.
Related party mortgage notes payable are amounts due to an affiliate of NML. See Note 16—Related Party Transactions for interest expense associated with loans from NML.
The estimated fair value (Level 2 measurement) of mortgage notes payable at September 30, 2017March 31, 2020 and December 31, 20162019 was $4,112,364$4,445,146 and $4,126,819,$4,427,790, respectively, based on current interest rates for comparable loans. Fair value was determined using a present value model and an interest rate that included a credit value adjustment based on the estimated value of the property that serves as collateral for the underlying debt.
| |
9. | Bank and Other Notes Payable: |
11. Bank and Other Notes Payable:
Bank and other notes payable consist of the following:
Line of Credit:
The Company has a $1,500,000$1,500,000 revolving line of credit that bears interest at LIBOR plus a spread of 1.30% to 1.90%, depending on the Company's overall leverage level, and matureswas to mature on July 6, 2020. On April 8, 2020, with a one-year extension option.the Company exercised its option to extend the maturity of the facility to July 6, 2021. The line of credit can be expanded, depending on certain conditions, up to a total facility of $2,000,000.
Based on the Company's leverage level as of September 30, 2017,March 31, 2020, the borrowing rate on the facility was LIBOR plus 1.45%1.55%. The Company has 4 interest rate swap agreements that effectively convert a total of $400,000 of the outstanding balance from floating rate debt of LIBOR plus 1.55% to fixed rate debt of 4.30% until September 30, 2021 (See Note 5—Derivative Instruments and Hedging Activities). As of September 30, 2017March 31, 2020 and December 31, 2016,2019, borrowings under the line of credit were $970,000$1,480,000 and $885,000,$820,000, respectively, less unamortized deferred finance costs of $8,176$1,994 and $10,039,$2,623, respectively, at a total interest rate of 3.01%3.11% and 2.40%3.92%, respectively. As of March 31, 2020 and December 31, 2019, the Company's availability under the line of credit for additional borrowings was $19,719 and $679,719, respectively, The estimated fair value (Level 2 measurement) of the line of credit at September 30, 2017March 31, 2020 and December 31, 20162019 was $960,233$1,503,246 and $865,921,$826,280, 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 and square foot amounts)
(Unaudited)
9.11. Bank and Other Notes Payable: (Continued)
Prasada Note:
On March 29, 2013, the Company issued a $13,330$13,330 note payable that bearsbore interest at 5.25% and matureswas to mature on May 30, 2021. The note payable iswas collateralized by a portion of a development reimbursement agreement with the City of Surprise, Arizona. At September 30, 2017On October 7, 2019, the loan was paid off.
As of March 31, 2020 and December 31, 2016, the note had a balance of $4,933 and $5,521, respectively. The estimated fair value (Level 2 measurement) of the note at September 30, 2017 and December 31, 2016 was $5,067 and $5,786, respectively, based on current interest rates for comparable notes. Fair value was determined using a present value model and an interest rate that included a credit value adjustment based on the estimated value of the collateral for the underlying debt.
As of September 30, 2017 and December 31, 2016,2019, the Company was in compliance with all applicable financial loan covenants.
| |
10. | Co-Venture Arrangement: |
12. Financing Arrangement:
On September 30, 2009,, the Company formed a joint venture whereby a third party acquired a 49.9% interest in Freehold Raceway Mall, a 1,671,000 square foot regional shopping center in Freehold, New Jersey, and Chandler Fashion Center, a 1,318,000 square foot regional shopping center in Chandler, Arizona.
Arizona, and Freehold Raceway Mall, a 1,673,000 square foot regional shopping center in Freehold, New Jersey (collectively referred to herein as "Chandler Freehold"). As a result of the Company having certain rights under the agreement to repurchase the assets after the seventh year of the venture formation of Chandler Freehold, the transaction did not qualify for sale treatment. The Company, however, is not obligated to repurchase the assets. The transaction has been accountedCompany accounts for its investment in Chandler Freehold as a profit-sharing arrangement, and accordingly the assets, liabilities and operationsfinancing arrangement. The fair value (Level 3 measurement) of the properties remain on the booksfinancing arrangement obligation at March 31, 2020 and December 31, 2019 was based upon a terminal capitalization rate of 5.3% and 5.0%, respectively, a discount rate of 6.8% and 6.0%, respectively, and market rents per square foot of $35 to $115. The fair value of the Companyfinancing arrangement obligation is sensitive to these significant unobservable inputs and a co-venture obligation was established for the amount of $168,154, representing the net cash proceeds received from the third party. The co-venture obligation is increased for the allocation of incomechange in these inputs may result in a significantly higher or lower fair value measurement. Distributions to the co-venture partner, excluding distributions of excess loan proceeds, and decreased for distributionschanges in fair value of the financing arrangement obligation are recognized as interest (income) expense in the Company's consolidated statements of operations.
During the three months ended March 31, 2020 and 2019, the Company incurred interest income in connection with the financing arrangement as follows:
| | | | | | | | | | | | | | | | | |
| | | | | | For the Three Months Ended March 31, | | |
| | | | | | 2020 | | 2019 |
| Distributions of the partner's share of net income | | | | | $ | 1,464 | | | $ | 1,897 | |
| Distributions in excess of the partner's share of net income | | | | | 2,677 | | | 1,921 | |
| Adjustment to fair value of financing arrangement obligation | | | | | (48,384) | | | (14,265) | |
| | | | | $ | (44,243) | | | $ | (10,447) | |
On June 27, 2019, the Company replaced the existing mortgage note payable on Chandler Fashion Center with a new $256,000 loan. In connection with the refinancing transaction, the Company distributed $27,945 of the excess loan proceeds to its joint venture partner, which was recorded as a reduction to the co-venture partner. The co-venture obligation was $59,118 and $58,973 at September 30, 2017 and December 31, 2016, respectively.financing arrangement obligation.
11.13. Noncontrolling Interests:
The Company allocates net income of the Operating Partnership based on the weighted average ownership interest during the period. The net income of the Operating Partnership that is not attributable to the Company is reflected in the consolidated statements of operations as noncontrolling interests. The Company adjusts the noncontrolling interests in the Operating Partnership at the end of each period to reflect its ownership interest in the Company. The Company had a 93% ownership interest in the Operating Partnership as of September 30, 2017March 31, 2020 and December 31, 2016.2019. The remaining 7% limited partnership interest as of September 30, 2017March 31, 2020 and December 31, 20162019 was owned by certain of the Company's executive officers and directors, certain of their affiliates and other third party investors in the form of OP Units. The OP Units may be redeemed for shares of stock or cash, at the Company's option. The redemption value for each OP Unit as of any balance sheet date is the amount equal to the average of the closing price per share of the Company's common stock, par value $0.01$0.01 per share, as reported on the New York Stock Exchange for the 10 trading days ending on the respective balance sheet date. Accordingly, as of September 30, 2017March 31, 2020
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
13. Noncontrolling Interests: (Continued)
and December 31, 2016,2019, the aggregate redemption value of the then-outstanding OP Units not owned by the Company was $555,597$71,267 and $733,141,$277,524, respectively.
The Company issued common and preferred units of MACWH, LP in April 2005 in connection with the acquisition of the Wilmorite portfolio. The common and preferred units of MACWH, LP are redeemable at the election of the holder. The Company may redeem them for cash or shares of the Company's stock at the Company's option and they are classified as permanent equity.
Included in permanent equity are outside ownership interests in various consolidated joint ventures. The joint ventures do not have rights that require the Company to redeem the ownership interests in either cash or stock.
14. Stockholders' Equity: Stock Dividend
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except$0.50 per share amounts)
(Unaudited)
2015 Stock Buyback Program:
On September 30, 2015, the Company's Boardfor common stockholders and OP Unit holders of Directors authorized the repurchaserecord on April 22, 2020. All dividends/distributions will be paid in a combination of up to $1,200,000 of the Company's outstanding commoncash and shares over the period ending September 30, 2017, as market conditions warranted.
On November 12, 2015, the Company entered into an accelerated share repurchase program ("ASR") to repurchase $400,000 of the Company's common stock. In accordance with the ASR, the Company made a prepayment of $400,000 and received an initial share delivery of 4,140,788 shares. On January 19, 2016, the ASR was completed and the Company received delivery of an additional 970,609 shares. The average price of the 5,111,397 shares repurchased under the ASR was $78.26 per share. The ASR was funded from proceeds in connection with the financing and sale of a 40% ownership interest in the PPR Portfolio.
On February 17, 2016, the Company entered into an ASR to repurchase an additional $400,000 of the Company's common stock. In accordance with the ASR, the Company made a prepayment of $400,000 and received an initial share delivery of 4,222,193 shares. On April 19, 2016, the ASR was completed and the Company received delivery of an additional 861,235 shares. The average price of the 5,083,428 shares repurchased under the ASR was $78.69 per share. The ASR was funded from borrowings under the Company's line of credit, which had been paid down from the proceeds from the financings and sale of ownership interests in Arrowhead Towne Center and the MAC Heitman Portfolio (See Note 4—Investments in Unconsolidated Joint Ventures).
On May 9, 2016, the Company entered into an ASR to repurchase the remaining $400,000 of the Company's common stock authorized for repurchase. In accordance with the ASR, the Company made a prepayment of $400,000 and received an initial share delivery of 3,964,812 shares. On July 11, 2016, the ASR was completed and the Company received delivery of an additional 1,104,162 shares.OP Units, as applicable, on June 3, 2020. The average pricecash component of the 5,068,974 shares repurchased under the ASR was $78.91dividend will not exceed 20% in aggregate, or $0.10 per share. The ASR was fundedCompany plans to use the cash savings from borrowings under the Company'sstock dividend to pay down its line of credit which had been paid down from the proceeds from the financings and sale of ownership interests in Arrowhead Towne Center and the MAC Heitman Portfolio (See Note 4—Investments in Unconsolidated Joint Ventures).for general corporate purposes.
2017 Stock Buyback Program:Program
On February 12, 2017, the Company's Board of Directors authorized the repurchase of up to $500,000 of its outstanding common shares as market conditions and the Company’s liquidity warrant. Repurchases may be made through open market purchases, privately negotiated transactions, structured or derivative transactions, including ASR transactions, or other methods of acquiring shares, and pursuant to Rule 10b5-1 of the Securities Act of 1934, from time to time as permitted by securities laws and other legal requirements. The program is referred to herein as the "Stock Buyback Program".
During the period from February 12, 2017 to September 30, 2017, the Company repurchased a total of 3,627,390 of its common shares for $221,428, representing an average price of $61.01 per share. The Company funded theThere were no repurchases from the net proceeds of the sale of Cascade Mall and Northgate Mall (See Note 14—Dispositions), its share of the proceeds from the sale of office buildings at Fashion District Philadelphia and Country Club Plaza (See Note 4—Investments in Unconsolidated Joint Ventures) and from borrowings under its line of credit.
Special Dividends:
On October 30, 2015, the Company declared two special dividends/distributions ("Special Dividend"), each of $2.00 per share of common stock and per OP Unit. The first Special Dividend was paid on December 8, 2015 to common stockholders and OP Unit holders of record on November 12, 2015. The second Special Dividend was paid on January 6, 2016 to common stockholders and OP Unit holders of record on November 12, 2015. The Special Dividends were funded from proceeds in connection with the financing and sale of ownership interests in the PPR Portfolio and Arrowhead Towne Center (See Note 4—Investments in Unconsolidated Joint Ventures).
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
12. Stockholders' Equity: (Continued)
At-The-Market Stock Offering Program ("ATM Program"):
On August 20, 2014, the Company entered into an equity distribution agreement with a number of sales agents (the "ATM Program") to issue and sell, from time to time, shares of common stock, par value $0.01 per share, having an aggregate offering price of up to $500,000 (the “ATM Shares”). Sales of the ATM Shares could have been made in privately negotiated transactions and/or any other method permitted by law, including sales deemed to be an “at the market” offering, which included sales made directly on the New York Stock Exchange or sales made to or through a market maker other than on an exchange. The Company agreed to pay each sales agent a commission that was not to exceed, but could have been lower than, 2% of the gross proceeds of the ATM Shares sold through such sales agent under the distribution agreement. The ATM program expired by its term in August 2017. No shares were sold under the program.
Fashion Outlets of Chicago:
On October 31, 2014, the Company purchased the outside ownership interest in its consolidated joint venture in Fashion Outlets of Chicago for $69,987. The purchase price was funded by a cash payment of $55,867 and the settlement of the balance on notes receivables of $14,120. The purchase agreement included contingent consideration based on the financial performance of Fashion Outlets of Chicago at an agreed upon date in 2016. On August 19, 2016, the Company paid $23,800 in full settlement of the contingent consideration obligation.
The following are recent dispositions of properties:
On April 13, 2016, the Company sold Capitola Mall, a 586,000 square foot regional shopping center in Capitola, California, for $93,000, resulting in a gain on the sale of assets of $24,894. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On May 31, 2016, the Company sold a former Mervyn's store in Yuma, Arizona, for $3,200, resulting in a loss on the sale of assets of $3,066. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On July 15, 2016, the Company conveyed Flagstaff Mall, a 347,000 square foot regional shopping center in Flagstaff, Arizona, to the mortgage lender by a deed-in-lieu of foreclosure and was discharged from the mortgage note payable. The loan was non-recourse to the Company. As a result, the Company recognized a gain on the extinguishment of debt of $5,284.
On January 18, 2017, the Company sold Cascade Mall, a 589,000 square foot regional shopping center in Burlington, Washington; and Northgate Mall, a 750,000 square foot regional shopping center in San Rafael, California, in a combined transaction for $170,000, resulting in a gain on the sale of assets of $59,698. The proceeds were used to pay off the mortgage note payable on Northgate Mall and to repurchase shares of the Company's common stock under the 2017 Stock Buyback Program (See Note 12—Stockholders' Equity).
| |
15. | Commitments and Contingencies: |
The Company has certain properties that are subject to non-cancelable operating ground leases. The leases expire at various times through 2098, subject in some cases to options to extend the terms of the lease. Certain leases provide for contingent rent payments based on a percentage of base rental income, as defined in the lease. Ground lease rent expense was $2,589 and $2,395 for during the three months ended September 30, 2017 and 2016, respectively, and $7,757 and $7,312 forMarch 31, 2020 or 2019. At March 31, 2020, there was $278,707 available under the nine months endedSeptember 30, 2017 and 2016, respectively. No contingent rent was incurred during the three and nine months endedSeptember 30, 2017 or 2016.Stock Buyback Program.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
15. Commitments and Contingencies: (Continued)
As of September 30, 2017,March 31, 2020, the Company was contingently liable for $60,927$40,814 in letters of credit guaranteeing performance by the Company of certain obligations relating to the Centers. The Company does not believe that these letters of credit will result in a liability to the Company.
The Company has entered into a number of construction agreements related to its redevelopment and development activities. Obligations under these agreements are contingent upon the completion of the services within the guidelines specified in the agreements. At September 30, 2017,March 31, 2020, the Company had $62,609$7,290 in outstanding obligations, which it believes will be settled in the next twelve months.
| |
16. | Related Party Transactions: |
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)
16. Related Party Transactions:
Certain unconsolidated joint ventures have engaged the Management Companies to manage the operations of the Centers. Under these arrangements, the Management Companies are reimbursed for compensation paid to on-site employees, leasing agents and project managers at the Centers, as well as insurance costs and other administrative expenses.
The following are fees charged to unconsolidated joint ventures:
| | | | | | | | | | | | | | | | | |
| | | | | | For the Three Months Ended March 31, | | |
| | | | | | 2020 | | 2019 |
| Management fees | | | | | $ | 4,486 | | | $ | 4,481 | |
| Development and leasing fees | | | | | 2,084 | | | 3,496 | |
| | | | | $ | 6,570 | | | $ | 7,977 | |
|
| | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Management fees | $ | 4,749 |
| | $ | 4,271 |
| | $ | 13,914 |
| | $ | 13,240 |
|
| Development and leasing fees | 3,385 |
| | 2,952 |
| | 11,376 |
| | 10,149 |
|
| | $ | 8,134 |
| | $ | 7,223 |
| | $ | 25,290 |
| | $ | 23,389 |
|
Certain mortgage notes on the properties are held by NML (See Note 8—Mortgage Notes Payable). Interest expense in connection with these notes was $2,175income from related party transactions includes $44,243 and $2,224$10,447 for the three months ended September 30, 2017March 31, 2020 and 2016,2019, respectively, and $6,567 and $6,752 forin connection with the nine months ended September 30, 2017 and 2016, respectively. Included in accounts payable and accrued expenses is interest payable on these notes of $721 and $736 at September 30, 2017 and December 31, 2016, respectively.Financing Arrangement (See Note 12—Financing Arrangement).
Due from (to) affiliates includes $9,766 and $6,157 of unreimbursed and/or prepaid costs and fees from unconsolidated joint ventures due to (from) the Management Companies. AsCompanies as of September 30, 2017March 31, 2020 and December 31, 2016, the amounts due from (to) the unconsolidated joint ventures was $4,905 and $(6,809),2019, respectively.
In addition, due from affiliates at September 30, 2017 and December 31, 2016 included a note receivable from RED/303 LLC ("RED") that bearsbore interest at 5.25% and matureswas to mature on May 30, 2021. Interest income earned on this note was $66$0 and $81$48 for the three months ended September 30, 2017March 31, 2020 and 2016, respectively, and $204 and $294 for2019, respectively. On October 7, 2019, the nine months ended September 30, 2017 and 2016, respectively. The balance on this note receivable was $4,998 and $5,593 at September 30, 2017 and December 31, 2016, respectively.collected in full. RED is considered a related party because it is a partner in a joint venture development project. The note iswas collateralized by RED's membership interest in the development project.
Also included in due from affiliates iswas a note receivable from Lennar Corporation that bearsbore interest at LIBOR plus 2% and matureswas to mature upon the completion of certain milestones in connection with the development of Fashion Outlets of San Francisco. As a result of those milestones not being completed, the Company elected to terminate the development agreement and the note was collected in full on February 13, 2019. Interest income earned on this note was $621$0 and $583$1,112 for the three months ended September 30, 2017March 31, 2020 and 2016, respectively, and $1,839 and $1,629 for the nine months ended September 30, 2017 and 2016, respectively. The balance on this note was $71,281 and $69,443 at September 30, 2017 and December 31, 2016,2019, respectively. Lennar Corporation iswas considered a related party because it iswas a joint venture partner in Fashion Outlets of San Francisco.the project.
2417. Share and Unit-Based Plans:
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
| |
17. | Share and Unit-Based Plans: |
Under the Long-Term Incentive Plan ("LTIP"), each award recipient is issued a form of units ("LTIP Units") in the Operating Partnership. Upon the occurrence of specified events and subject to the satisfaction of applicable vesting conditions, LTIP Units (after conversion into OP Units) are ultimately redeemable for common stock of the Company, or cash at the Company's option, on a one-unit1-unit for one-share1-share basis. LTIP Units receive cash dividends based on the dividend amount paid on the common stock of the Company. The LTIP may include both market-indexed awards and service-based awards.
The market-indexed LTIP Units vest over the service period of the award based on the percentile ranking of the Company in terms of total return to the stockholders (the "Total Return") per share of common stock share relative to the Total Return of a group of peer REITs, as measured at the end of the measurement period.
On January 1, 2017,
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)
17. Share and Unit-Based Plans: (Continued)
During the three months ended March 31, 2020, the Company granted 66,079the following LTIP Units with a grant date fair value of $70.84 per LTIP Unit that will vest in equal annual installments over a service period ending December 31, 2019. Concurrently, the Company granted 297,849 market-indexed LTIP Units ("2017 LTIP Units") at a grant date fair value of $47.15 per LTIP Unit that vest over a service period ending December 31, 2019. Units:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Grant Date | | Units | | Type | | Fair Value per LTIP Unit | | Vest Date |
| 1/1/2020 | | 154,158 | | | Service-based | | $ | 26.92 | | | 12/31/2022 |
| 1/1/2020 | | 321,940 | | | Market-indexed | | $ | 27.80 | | | 12/31/2022 |
| 3/1/2020 | | 39,176 | | | Service-based | | $ | 20.42 | | | 2/28/2023 |
| 3/1/2020 | | 37,592 | | | Market-indexed | | $ | 21.28 | | | 2/28/2023 |
| | 552,866 | | | | | | | |
The fair value of the 2017market-indexed LTIP Units (Level 3) granted on January 1, 2020 was estimated on the date of grant using a Monte Carlo Simulation model that assumed a risk free interest rate of 1.49%1.62% and an expected volatility of 20.75%26.08%.
On March 3, 2017, the Company granted 134,742 LTIP Units at a fair value of $66.57 per LTIP Unit that were fully vested on the grant date.
On May 30, 2017, the Company granted 25,000 non-qualified stock options with a grant date fair value of $10.02 that will vest on May 30, 2019. The Company measured the value of each option awarded using the Black-Scholes Option Pricing Model based upon the following assumptions: volatility of 30.19%, dividend yield of 4.93%, risk free rate of 2.08%, current value of $57.55 and an expected term of 8 years.
On June 1, 2017, the Company granted 1,522 LTIP Units with a grant date fair value of $58.31 per LTIP Unit that will vest in equal annual installments over a service period ending May 29, 2020. Concurrently, the Company granted 6,714 market-indexed LTIP Units at a grant date fair value of $39.66 per LTIP Unit that vest over a service period ending May 29, 2020. The fair value of the market-indexed LTIP Units (Level 3) granted on March 1, 2020 was estimated on the date of grant using a Monte Carlo Simulation model that assumed a risk free interest rate of 1.45%0.85% and an expected volatility of 21.40%28.34%.
The following summarizes the compensation cost under the share and unit-based plans:
|
| | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| LTIP Units | $ | 5,269 |
| | $ | 5,204 |
| | $ | 24,892 |
| | $ | 27,752 |
|
| Stock awards | — |
| | — |
| | — |
| | 20 |
|
| Stock units | 1,002 |
| | 965 |
| | 4,947 |
| | 5,339 |
|
| Stock options | 34 |
| | 4 |
| | 53 |
| | 12 |
|
| Phantom stock units | 185 |
| | 212 |
| | 545 |
| | 1,010 |
|
| | $ | 6,490 |
| | $ | 6,385 |
| | $ | 30,437 |
| | $ | 34,133 |
|
The Company capitalized share and unit-based compensation costs of $983 and $750 for the three months ended September 30, 2017 and 2016, respectively, and $5,278 and $6,490 for the nine months ended September 30, 2017 and 2016, respectively. Unrecognized compensation costs of share and unit-based plans at September 30, 2017 consisted of $5,554 from LTIP Units, $4,338 from stock units, $208 from stock options and $466 from phantom stock units.
The following table summarizes the activity of the non-vested LTIP Units, phantom stock units and stock units:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | LTIP Units | | | | | | | | Phantom Stock Units | | | | Stock Units | | |
| | Units | | Value(1) | | | | | | Units | | Value(1) | | Units | | Value(1) |
| Balance at January 1, 2020 | 616,219 | | | $ | 39.04 | | | | | | | 7,216 | | | $ | 43.29 | | | 199,987 | | | $ | 43.59 | |
| Granted | 552,866 | | | 26.59 | | | | | | | 12,637 | | | 25.02 | | | 120,913 | | | 19.45 | |
| Vested | (3,408) | | | 66.02 | | | | | | | (6,881) | | | 27.12 | | | (63,849) | | | 52.39 | |
| Forfeited | — | | | — | | | | | | | — | | | — | | | — | | | — | |
| Balance at March 31, 2020 | 1,165,677 | | | $ | 33.06 | | | | | | | 12,972 | | | $ | 34.06 | | | 257,051 | | | $ | 30.05 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| (1) Value represents the weighted average grant date fair value. | | | | | | | | | | | | | | | |
The following table summarizes the activity of the stock options outstanding:
| | | | | | | | | | | | | | | | | |
| | | | | | Stock Options | | |
| | | | | | Units | | Value(1) |
| Balance at January 1, 2020 | | | | | 35,565 | | | $ | 57.32 | |
| Granted | | | | | — | | | — | |
| Exercised | | | | | — | | | — | |
| Balance at March 31, 2020 | | | | | 35,565 | | | $ | 57.32 | |
| | | | | | | |
| | | | | | | |
| (1) Value represents the weighted average exercise price. | | | | | | | |
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)
17. Share and Unit-Based Plans: (Continued)
|
| | | | | | | | | | | | | | | | | | | | |
| | LTIP Units | | Phantom Stock Units | | Stock Units |
| | Units | | Value(1) | | Units | | Value(1) | | Units | | Value(1) |
| Balance at January 1, 2017 | 322,572 |
| | $ | 58.18 |
| | 5,845 |
| | $ | 81.47 |
| | 148,428 |
| | $ | 78.53 |
|
| Granted | 506,906 |
| | 55.33 |
| | 8,439 |
| | 68.34 |
| | 86,426 |
| | 66.47 |
|
| Vested | (134,742 | ) | | 66.57 |
| | (8,166 | ) | | 71.85 |
| | (80,804 | ) | | 75.67 |
|
| Forfeited | — |
| | — |
| | — |
| | — |
| | (2,695 | ) | | 69.57 |
|
| Balance at September 30, 2017 | 694,736 |
| | $ | 54.48 |
| | 6,118 |
| | $ | 76.20 |
| | 151,355 |
| | $ | 73.32 |
|
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| (1) Value represents the weighted average grant date fair value. |
The following table summarizes the activitycompensation cost under the share and unit-based plans:
| | | | | | | | | | | | | | | | | |
| | | | | | For the Three Months Ended March 31, | | |
| | | | | | 2020 | | 2019 |
| LTIP Units | | | | | $ | 3,214 | | | $ | 3,714 | |
| | | | | | | |
| Stock units | | | | | 2,202 | | | 2,660 | |
| Stock options | | | | | — | | | 51 | |
| | | | | | | |
| Phantom stock units | | | | | 187 | | | 240 | |
| | | | | $ | 5,603 | | | $ | 6,665 | |
The Company capitalized share and unit-based compensation costs of $1,379 and $1,146 for the three months ended March 31, 2020 and 2019, respectively. Unrecognized compensation costs of share and unit-based plans at March 31, 2020 consisted of $13,133 from LTIP Units, $3,113 from stock appreciations rights ("SARs")units and $442 from phantom stock options outstanding:units.
|
| | | | | | | | | | | | | |
| | SARs | | Stock Options |
| | Units | | Value(1) | | Units | | Value(1) |
| Balance at January 1, 2017 | 284,146 |
| | $ | 53.85 |
| | 10,565 |
| | $ | 56.77 |
|
| Granted | — |
| | — |
| | 25,000 |
| | 57.55 |
|
| Exercised | — |
| | — |
| | — |
| | — |
|
| Balance at September 30, 2017 | 284,146 |
| | $ | 53.85 |
| | 35,565 |
| | $ | 57.32 |
|
| | | | | | | | |
| | | | | | | | |
| (1) Value represents the weighted average exercise price. |
18. Income Taxes:
The Company has made taxable REIT subsidiary elections for all of its corporate subsidiaries other than its qualified REIT subsidiaries. The elections, effective for the year beginning January 1, 2001 and future years, were made pursuant to Section 856(l) of the Code. The Company's taxable REIT subsidiaries ("TRSs") are subject to corporate level income taxes which are provided for in the Company's consolidated financial statements. The Company's primary TRSs include Macerich Management Company and Macerich Arizona Partners LLC.
The income tax provision of the TRSs are as follows:
| | | | | | | | | | | | | | | | | |
| | | | | | For the Three Months Ended March 31, | | |
| | | | | | 2020 | | 2019 |
| Current | | | | | $ | 234 | | | $ | — | |
| Deferred | | | | | 32 | | | (346) | |
| Total income tax benefit (expense) | | | | | $ | 266 | | | $ | (346) | |
|
| | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Current | $ | — |
| | $ | (68 | ) | | $ | — |
| | $ | (154 | ) |
| Deferred | (2,869 | ) | | (837 | ) | | 178 |
| | (2,582 | ) |
| Income tax (expense) benefit | $ | (2,869 | ) | | $ | (905 | ) | | $ | 178 |
| | $ | (2,736 | ) |
The net operating loss ("NOL") carryforwards generated through the 2017 tax year are currently scheduled to expire through 2035,2037, beginning in 2024.2025. Net deferred tax assets of $44,964$30,789 and $38,301$30,757 were included in deferred charges and other assets, net at September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively.
The tax years 20132016 through 20162018 remain open to examination by the taxing jurisdictions to which the Company is subject. The Company does not expect that the total amount of unrecognized tax benefit will materially change within the next twelve months.
19. Subsequent Events:
On April 8, 2020, the Company exercised its option to extend the maturity of its $1,500,000 revolving line of credit to July 6, 2021.
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
On October 13, 2017, the Company entered into a loan commitment with a lender to replace the existing loan on Santa Monica Place (See Note 8—Mortgage Notes Payable) with a new $300,000 five-year floating rate loan. The new loan is expected to close in the fourth quarter of 2017. The Company expects to use the excess proceeds to pay down its line of credit.
On October 19, 2017, the Company's joint venture in Chandler Fashion Center and Freehold Raceway Mall (See Note 10—Co-Venture Arrangement) replaced the existing loan on Freehold Raceway Mall with a new $400,000 loan that bears interest at 3.90% and matures on November 1, 2029. The Company used its share of the net proceeds to pay down its line of credit and for general corporate purposes.
On October 24, 2017, the Company announced a dividend/distribution of $0.74 per share for common stockholders and OP Unit holders of record on November 10, 2017. All dividends/distributions will be paid 100% in cash on December 1, 2017.
On November 1, 2017, the Company paid off in full the mortgage loan payable on Stonewood Center (See Note 8—Mortgage Notes Payable). The Company funded the repayment of the mortgage loan payable from borrowings under its line of credit.
On November 2, 2017, the Company entered into a loan commitment with a lender to place an $88,000 ten-year floating rate loan on Inland Center. The financing is expected to close in the fourth quarter of 2017. The Company expects to use the loan proceeds to pay down its line of credit.
| |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
IMPORTANT INFORMATION RELATED TO FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q of The Macerich Company (the "Company") contains or incorporates statements that constitute forward-looking statements within the meaning of the federal securities laws. Any statements that do not relate to historical or current facts or matters are forward-looking statements. You can identify some of the forward-looking statements by the use of forward-looking words, such as "may," "will," "could," "should," "expects," "anticipates," "intends," "projects," "predicts," "plans," "believes," "seeks," "estimates," "scheduled" and variations of these words and similar expressions. Statements concerning current conditions may also be forward-looking if they imply a continuation of current conditions. Forward-looking statements appear in a number of places in this Form 10-Q and include statements regarding, among other matters:
•expectations regarding the Company's growth;
•the Company's beliefs regarding its acquisition, redevelopment, development, leasing and operational activities and opportunities, including the performance and financial stability of its retailers;
•the Company's acquisition, disposition and other strategies;
•regulatory matters pertaining 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 changes in the real estate markets including, among other things, competition from other companies, retail formats and technology, risks of real estate development and redevelopment, acquisitions and dispositions; the adverse impact of the novel coronavirus ("COVID-19") on the U.S., regional and global economies and the financial condition and results of operations of the Company and its tenants; the liquidity 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 all of the above factors. You are urged to carefully review the disclosures we make concerning these risks and other factors that may affect our business and operating results, underincluding those made in "Item 1A. Risk Factors" of this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2016,2019, as well as our other reports filed with the Securities and Exchange Commission (the "SEC"), which disclosures are incorporated herein by reference. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document. The Company does not intend, and undertakes no obligation, to update any forward-looking information to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, unless required by law to do so.
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 Macerich Partnership, L.P. (the "Operating Partnership"). As of September 30, 2017,March 31, 2020, the Operating Partnership owned or had an ownership interest in 4847 regional shopping centers and sevenfive community/power shopping centers aggregating approximately 5451 million square feet of gross leasable area. These 5552 regional and community/power shopping centers are referred to hereinafter as the "Centers," unless the context otherwise requires. The property management, leasing and redevelopment of the Company's portfolio is provided by the Company's seven management companies (collectively referred to herein as the "Management Companies"). The Company is a self-administered and self-managed real estate investment trust ("REIT") and conducts all of its operations through the Operating Partnership and the Management Companies.
The following discussion is based primarily on the consolidated financial statements of the Company for the three and nine months endedSeptember 30, 2017 and 2016. It compares the results of operations for the three months ended September 30, 2017 to the results of operations for the three months ended September 30, 2016.March 31, 2020 and 2019. It also compares the results of operations and cash flows for the ninethree months ended September 30, 2017March 31, 2020 to the results of operations and cash flows for the
nine three months ended September 30, 2016. March 31, 2019.
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.Financing Activities:
On January 6, 2016,10, 2019, the Company soldreplaced the existing loan on Fashion Outlets of Chicago with a 40% ownershipnew $300.0 million loan that bears interest in Arrowhead Towne Center, a 1,197,000 square foot regional shopping center in Glendale, Arizona, for $289.5 million, resulting in a gainat an effective rate of 4.61% and matures 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.February 1, 2031. The Company used the cashnet proceeds from the sale to pay down its line of credit and for general corporate purposes, which included funding the Special Dividend (See "Other Events and Transactions"). Upon completion of the sale of the ownership interest, the Company no longer has a controlling interest in the joint venture due to the substantive participation rights of the outside partner. Accordingly, the Company accounts for its investment in Arrowhead Towne Center under the equity method of accounting.
On January 14, 2016, the Company formed a joint venture, whereby the Company sold a 49% ownership interest in Deptford Mall, a 1,040,000 square foot regional shopping center in Deptford, New Jersey; FlatIron Crossing, a 1,432,000 square foot regional shopping center in Broomfield, Colorado; and Twenty Ninth Street, an 847,000 square foot regional shopping center in Boulder, Colorado (the "MAC Heitman Portfolio"), for $771.5 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 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 1,001,000 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,February 22, 2019, the Company sold a former Mervyn's storeCompany’s joint venture in Yuma, Arizona, for $3.2 million, resulting in a lossThe Shops at Atlas Park entered into an agreement to increase the total borrowing capacity of the existing loan on the sale of assets of $3.1property from $57.8 million to $80.0 million, and to extend the maturity date to October 28, 2021, including extension options. Concurrent with the loan modification, the joint venture borrowed an additional $18.4 million. The Company used its $9.2 million share of the additional proceeds from the sale to pay down its line of credit and for general corporate purposes.
On January 18, 2017,June 3, 2019, 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, resulting in a gain on the sale of assets of $59.7 million. The proceeds were used to payoff the mortgage note payable on Northgate Mall and to repurchase shares of the Company's common stock under the 2017 Stock Buyback Program (See "Other Transactions and Events").
On March 17, 2017, the Company'sCompany’s joint venture in Country Club Plaza sold an office building for $78.0 million, resulting in a gain on sale of assets of $4.6 million. The Company's pro rata share of the gain on sale of assets of $2.3 million was included in equity in income from joint ventures. The Company used its share of the proceeds to fund repurchases under the 2017 Stock Buyback Program (See "Other Transactions and Events").
On September 18, 2017, the Company's joint venture in Fashion District Philadelphia sold an office building for $61.5 million, resulting in a gain on sale of assets of $13.4 million. The Company's pro rata share of the gain on sale of assets of $6.7 million was included in equity in income from joint ventures. The Company used its share of the proceeds to fund repurchases under the 2017 Stock Buyback Program (See "Other Transactions and Events").
Financing Activities:
On January 6, 2016, the CompanySanTan Village Regional Center replaced the existing loan on Arrowhead Towne Centerthe property with a new $400.0$220.0 million loan that bears interest at an effective rate of 4.05%4.34% and matures on FebruaryJuly 1, 2028, which resulted in a loss2029. The Company used its share of $3.6 million on the early extinguishmentadditional proceeds to pay down its line 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 "Acquisitionscredit and Dispositions").for general corporate purposes.
On January 14, 2016,June 27, 2019, the Company placed a $150.0 millionreplaced the existing loan on Twenty Ninth StreetChandler Fashion Center with a new $256.0 million loan that bears interest at an effective rate of 4.10%4.18% and matures on February 6, 2026. Concurrently, a 49% interest inJuly 5, 2024. The Company used its share of the loan was assumed by a third party in connection with the saleadditional proceeds to pay down its line of a 49% ownership interest in the MAC Heitman Portfolio (See "Acquisitionscredit and Dispositions").for general corporate purposes.
On March 28, 2016,July 25, 2019, the Company's joint venture in Country Club PlazaFashion District Philadelphia amended the existing term loan on the joint venture to allow for additional borrowings up to $100.0 million at LIBOR plus 2.00%. Concurrent with the amendment, the joint venture borrowed an additional $26.0 million. On August 16, 2019, the joint venture borrowed an additional $25.0 million. The Company used its share of the additional proceeds to pay down its line of credit and for general corporate purposes.
On September 12, 2019, the Company’s joint venture in Tysons Tower placed a $320.0new $190.0 million loan on the property that bears interest at an effective rate of 3.88%3.38% and matures on April 1, 2026.November 11, 2029. The Company used its share of the proceeds to pay down its line of credit and for general corporate purposes.
On May 27, 2016,October 17, 2019, the Company'sCompany’s joint venture in West Acres placed a construction loan on the property that allows for borrowing of up to $6.5 million, bears interest at an effective rate of 3.72% and matures on October 10, 2029. The Shops at North Bridgejoint venture intends to use the proceeds from the loan to fund the expansion of the property.
On December 3, 2019, the Company replaced the existing loan on the propertyKings Plaza Shopping Center with a new $375.0$540.0 million loan that bears interest at an effective rate of 3.71% and matures on JuneJanuary 1, 2028.2030. The Company used its share of the excessadditional proceeds to pay down its line of credit and for general corporate purposes.
On July 6, 2016,December 18, 2019, the Company modifiedCompany’s joint venture in One Westside placed a $414.6 million construction loan on the redevelopment project (See "Redevelopment and amended its line of credit.Development Activities"). The amended $1.5 billion line of creditloan bears interest at LIBOR plus a spread1.70%, which can be reduced to LIBOR plus 1.50% upon the completion of 1.30% to 1.90%, depending on the Company's overall leverage level,certain conditions, 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%.December 18, 2024. 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 March 16, 2017, the Company's joint venture in Kierland Commons replaced the existing loan on the property with a new $225.0 million loan that bears interest at an effective rate of 3.98% and matures on April 1, 2027. The Company used its share of the excess proceeds to pay down its line of credit and for general corporate purposes.
On September 29, 2017, the Company placed a new $110.0 million loan on Green Acres Commons that bears interest at LIBOR plus 2.15% and matures on March 29, 2021. The loan can be expanded, depending on certain conditions, up to $130.0 million. At September 30, 2017, the total interest rate was 3.96%. The Company used the proceeds to pay down its line of credit and for general corporate purposes.
On October 13, 2017, the Company entered into a loan commitment with a lender to replace the existing loan on Santa Monica Place with a new $300.0 million five-year floating rate loan. The new loan is expected to close in the fourth quarter of 2017. The Company expects to use the excess proceeds to pay down its line of credit.
On October 19, 2017, the Company's joint venture in Chandler Fashion Center and Freehold Raceway Mall replaced the existing loan on the Freehold Raceway Mall with a new $400.0 million loan that bears interest at 3.90% and matures on November 1, 2029. The Company used its share of the net proceeds to pay down its line of credit and for general corporate purposes.
On November 1, 2017, the Company paid off in full the $95.0 million mortgage loan payable on Stonewood Center. The Company funded the repayment of the mortgage loan payable from borrowings under its line of credit.
On November 2, 2017, the Company entered into a loan commitment with a lender to place an $88.0 million ten-year floating rate loan on Inland Center. The financing is expected to close in the fourth quarter of 2017. The Company expectsintends to use the loan proceeds to pay down its linefund the completion of credit.
the project.
Redevelopment and Development Activities:
The Company's joint venture with Hudson Pacific Properties is proceeding with the developmentredeveloping One Westside into 584,000 square feet of Fashion District Philadelphia, a redevelopmentcreative office space and 96,000 square feet of an 850,000 square foot shopping center in Philadelphia, Pennsylvania.dining and entertainment space. The projectentire creative office space has been leased to Google and is expected to be completed in 2018.2022. The total cost of the project is estimated to be between $305.0$500.0 million and $365.0$550.0 million, with $152.5$125.0 million to $182.5$137.5 million estimated to be the Company's pro rata share. The Company has funded $111.7$54.8 million of the total $223.4$219.0 million incurred by the joint venture as of September 30, 2017.March 31, 2020. The joint venture expects to fund the remaining costs of the development with its new $414.6 million construction loan (See "Financing Activities").
The Company has a 50/50 joint venture with Simon Property Group to develop Los Angeles Premium Outlets, a premium outlet center in Carson, California that is currentlyplanned to open with approximately 400,000 square feet, followed by an additional 165,000 square feet in the process of redeveloping the 250,000 square foot former Sears store at Kings Plaza Shopping Center.second phase. The Company expects to completehas funded $36.1 million of the project in 2018. Astotal $72.1 million incurred by the joint venture as of September 30, 2017,March 31, 2020.
In connection with the closures and lease rejections of several Sears stores owned or partially owned by the Company, has incurred $40.4the Company anticipates spending between $130.0 million into $160.0 million at the Company’s pro rata share to redevelop the Sears stores. The anticipated openings of such redevelopments are expected to occur over several years. The estimated range of redevelopment costs and anticipatescould increase if the total costCompany or its joint venture decides to expand the scope of the project to be between $95.0redevelopments. The Company has funded $29.0 million and $100.0 million.at its pro rata share as of March 31, 2020.
Other Transactions and Events:
On September 30, 2015,March 11, 2020, the Company's BoardCOVID-19 outbreak was declared a pandemic by the World Health Organization. As a result, all of Directors authorized the repurchasemarkets that the Company operates in were subject to stay-at-home orders, and the majority of upits properties were temporarily closed in part or completely. The Company has been proactively working with all its stakeholders, including its tenants, lenders and suppliers, to $1.2 billionmitigate the impact of the economic shut down. While the ultimate scope and scale of this outbreak is unknown at this time, the Company’s financial condition and the results of its operations have been negatively impacted, as the majority of the Company's outstanding common shares over the period ending September 30, 2017, as market conditions warrant. 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 milliontenants have delayed April and received an initial share delivery of 4,140,788 shares. On January 19, 2016, the ASR was completed and the Company received delivery of an additional 970,609 shares. The average price of the 5,111,397 shares repurchased under the ASR was $78.26 per share. The ASR was funded from proceeds in connection with the financing and sale of a 40% ownership interest in Pacific Premier Retail LLC (the "PPR Portfolio").
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 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 paid down from the proceeds from the Joint Venture Transactions (See "Acquisitions and Dispositions" and "Financing Activity"). The total number of shares repurchased under the $1.2 billion 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.rent payments. As a result, on March 27, 2020, the Company recognizedwithdrew its previously published 2020 earnings guidance, and it has not provided updated earnings guidance. See "Outlook" in Results of Operations for a gainfurther discussion of $5.3 millionthe forward-looking impact of COVID-19 and the Company's strategic plan to mitigate the anticipated negative impact on its financial condition and results of operations.
In April 2020, the Company hosted a webinar for retailers along with its tax advisors and a major commercial bank with which it has a long-term relationship to explain the Coronavirus Aid, Relief and Economic Security Act federal stimulus package and how retailers can access those funds and take advantage of various tax incentives. Nearly 400 retailers either attended live or have viewed the recorded webinar, which is available on the extinguishment of debt.
On February 12, 2017, the Company's Board of Directors 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 10b5-1 of the Securities Act of 1934, from time to time as permitted by securities laws and other legal requirements. During the period from February 12, 2017 to September 30, 2017, the Company repurchased a total of 3,627,390 of its common shareswebsite for $221.4 million, representing an average price of $61.01 per share. The Company funded the repurchases from the net proceeds of the sale of Cascade Mall and Northgate Mall (See "Acquisitions and Dispositions"), its share of the proceeds from the sale of office buildings at Fashion District Philadelphia and Country Club Plaza (See "Acquisitions and Dispositions") and from borrowings under its line of credit.
continued replay use.
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%5% to 13%15% 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, 50% of the mall store and freestanding store 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.costs and capitalizes costs associated with asset acquisitions.
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 or a contracted sales price, 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 notesNotes to consolidated financial statementsthe 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 incurredThe Company records its Financing Arrangement (See Note 12—Financing Arrangement in connection with the Company's provision of leasing arrangementsNotes to the Consolidated Financial Statements) obligation at fair value on a recurring basis with changes in fair value being recorded as interest expense in the Centers, the related cash flows are classified as investing activities within the Company'sCompany’s consolidated statements of operations. The fair value is determined based on a discounted cash flows. Costs relating to financingflow model, with the significant unobservable inputs including the multiple of shopping center properties are deferrednet operating income, discount rate, and amortized over the lifemarket rents. The fair value of the related loan using the straight-line method, which approximates the effective interest method. The rangesFinancing Arrangement obligation is sensitive to these significant unobservable inputs and a change in these inputs may result in a significantly higher or lower fair value measurement.
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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 in Management's Overview and Summary above, including 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 or from 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 three and nine months ended September 30, 2017March 31, 2020 to the three and nine months ended September 30, 2016,March 31, 2019, the Redevelopment Properties are the expansion portion of Green Acres Mall, Paradise Valley Mall and Westside Pavilion.
certain ground up developments. For the comparison of the ninethree months ended September 30, 2017March 31, 2020 to the nine months ended September 30, 2016, the Joint Venture Centers are Arrowhead Towne Center and the MAC Heitman Portfolio. The change in revenues and expenses at the Joint Venture Centers is primarily due to the conversion of Arrowhead Towne Center and the MAC Heitman Portfolio from
consolidated Centers to unconsolidated joint ventures. There are no Joint Venture Centers for the three months ended September 30, 2017 and 2016.
For comparison of the three and nine months ended September 30, 2017 to the three and nine months ended September 30, 2016, theMarch 31, 2019, there are no Disposition Properties are Cascade Mall, Northgate Mall, Flagstaff Mall and Capitola Mall.Properties.
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 twelve months or longer and 10,000 square feet and under), occupancy rates (excluding large retail stores or "Anchors") 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 trailing twelve months 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 increased from $626$746 for the twelve months ended September 30, 2016March 31, 2019 to $659$801 for the twelve months ended September 30, 2017. Occupancy rate decreased from 95.3% at September 30, 2016 to 94.3% at September 30, 2017. Releasing spreads increased 15.0% forFebruary 29, 2020. Given the twelve months ended September 30, 2017. These calculations exclude Centers under development or redevelopment and property dispositionswidespread closure of the majority of the Company's tenants during March 2020 as a result of COVID-19 (See "Acquisitions and Dispositions" and "Other Transactions and Events" in Management's Overview and Summary).
, tenant sales reporting is reflected as of February 29, 2020. Occupancy rate decreased from 94.7% at March 31, 2019 to 93.1% at March 31, 2020. Releasing spreads remained positive as the Company was able to lease available space at higher average rents than the expiring rental rates, resulting in a releasing spread of $7.54$3.60 per square foot ($57.7158.88 on new and renewal leases executed compared to $50.17$55.28 on leases expiring), representing a 15.0%6.5% increase for the trailing twelve months ended September 30, 2017.March 31, 2020. The Company expects that releasing spreads will continuecontinues to be positive for the remainder of 2017 as it renewsrenew or reletsreplace leases that are scheduled to expire.expire in 2020. However, the Company cannot be certain of the impact COVID-19 will have on its ability to sign, renew or replace 2020 lease expirations. These leases that are scheduled to expire in the next twelve months represent 0.9 million square feet of the Centers, accounting for 11.3%14.0% of the gross leasable area ("GLA") of mall stores and freestanding stores, for spaces 10,000 square feet and under, as of September 30, 2017March 31, 2020. These calculations exclude Centers under development or redevelopment and property dispositions (See "Redevelopment and Development Activities" in Management's Overview and Summary). The Company has entered into leases for approximately 60% of the expiring square footage in 2020, and has another 25% of its 2020 lease expirations in lease documentation. Also, the Company has approximately 125 leases totaling approximately 860,000 square feet for new stores. After speaking with each prospective tenant of such new stores, only four tenants have currently indicated they no longer planned to open their new store, which equates to only 8,000 square feet of the total 860,000 square foot pipeline of new leases.
During the trailing twelve months ended September 30, 2017,March 31, 2020, the Company signed 218321 new leases and 412553 renewal leases comprising approximately 1.13.4 million square feet of GLA, of which 0.82.3 million square feet is related to the consolidated Centers. The annual initial average base rent for new and renewal leases was $57.71$58.88 per square foot for the trailing twelve months ended September 30, 2017March 31, 2020 with an average tenant allowance of $18.47$24.35 per square foot.
As a result of COVID-19 (See "Other Transactions and Events" in Management's Overview and Summary) and subsequent government mandates, all but a few of the Company’s Centers had shuttered, except for the continued operation of essential retail and services, and approximately 74% of the gross leasable area, which was previously occupied prior to the COVID-19 closures, had closed. During the period following the stay-at-home mandates, the Company has continued to employ the appropriate levels of maintenance, cleaning and security protocols to ensure the maximum safety of its tenants, vendors, employees and properties. The Company is now actively planning for the re-opening of its Centers in all facets. Within the past two weeks, the Company has re-opened 13 Centers located in Texas, Colorado, Missouri, Iowa, Indiana and Arizona. By the end of May, the Company anticipates being able to open as permitted approximately 35 Centers. While still uncertain
given the myriad of state and local ordinances, at this time, it is reasonable to assume that the vast majority of the Company’s Centers will be open in June. The Company is prepared and ready for re-opening, when permitted to do so.
The Company continues to refine its re-opening plans and guidelines as the COVID-19 outbreak evolves, gathering input and best practices from both international and domestic resources, as well as focusing on the jurisdictional differences in each community and state within which it operates. Those plans are focused on extensive retailer outreach, partnership and support, government compliance, consumer confidence building, promoting mall cleanliness and safety, and developing extensive communication and messaging plans through both digital and on premise mediums catered to all of the Company's local constituents where it does business. The Company anticipates significant near-term changes in operations at its properties as a result of numerous factors, including, among others, the potential for tenants to choose to not re-open, reduced consumer traffic and retail sales, extensive focus on cleanliness and hygiene protocols, requirements for social distancing both within its properties and within its tenant spaces, each of which may impact certain Centers more than others and require extensive coordination with retailers to accommodate new operation strategies, such as curbside pickup.
The Company collected approximately 26% of rents billed for April 2020. As of May 8, 2020, the Company collected approximately 18% of rents billed for May 2020. In addition, a significant portion of the Company’s tenants have requested rental assistance, whether in the form of deferral or rent reduction. There is too much uncertainty to assess the impact of these tenant requests. The majority of the Company’s leases require continued payment of rent by the Company’s tenants during the period of government mandated closures caused by COVID-19. Many of the Company’s leases contain co-tenancy clauses, which provide for reduced rent and/or termination rights if Anchors close and/or occupancy falls below threshold levels. The Company does not expect the temporary closures of department stores or small shop leases during the COVID-19 stay-at-home mandates to trigger co-tenancy clauses within its leases. However, it is possible that certain department stores or small shop closures may become permanent following the re-opening of the Company's properties, and that co-tenancy clauses within leases may be triggered as a result. It is too early to determine the impact of any such clauses, if triggered, given that the Company's properties have not yet re-opened.
During 2020, there have been eleven bankruptcy filings involving the Company’s tenants, totaling 85 leases and involving approximately 524,000 square feet and $19.9 million of annual leasing revenue at the Company’s share. The Company anticipates that there may likely be further bankruptcy filings by tenants at our properties, which could be accelerated as a result of general conditions caused by COVID-19.
While the Company has submitted recovery claims under its insurance coverage due to business interruption from COVID-19, the Company may not be able to collect on these claims given the facts and circumstances regarding the COVID-19 pandemic event.
The Company expects a negative impact to its leasing revenue due to COVID-19, but the impact is not currently estimable.
During this period of disrupted rent collections due to COVID-19, the Company has taken numerous measures to preserve its liquidity, including among others:
•The Company has drawn the majority of the remaining capacity on its $1.5 billion revolving line of credit. As of March 31, 2020, the Company had $735 million of cash, including its pro rata share from its unconsolidated joint ventures. The Company will incur additional interest expense during the period that it continues to carry higher than normal cash balances on its consolidated balance sheet. The period of continued cash retention is uncertain at this time.
•The Company recently announced a reduction to its upcoming quarterly dividend and the use of a stock dividend for at least 80% of that dividend, which if implemented on an annual basis, would allow it to retain approximately $400 million of cash (See Note 14—Stockholders' Equity in the Company's Notes to the Consolidated Financial Statements).
•The Company anticipates spending $60 million in the last three quarters of 2020 on redevelopment, which represents a 60% reduction in previously estimated 2020 redevelopment expenditures for that period of time. This excludes the redevelopment of One Westside, which is fully funded by a non-recourse construction facility.
•The Company has reduced planned capital expenditures at its properties by 65% down to approximately $15 million at the Company’s share in 2020.
•The Company has reduced its controllable shopping center expenses by approximately 45% during the period that its properties are substantially closed, except for essential retail and services.
•The Company continues to work with its mortgage lenders to defer debt service payments during the pandemic, while its facing significantly reduced rent collections from its tenants.
Comparison of Three Months Ended September 30, 2017March 31, 2020 and 20162019
Revenues:
Minimum and percentage rents (collectively referred to as "rental revenue")Leasing revenue decreased by $10.1$0.3 million, or 6.4%0.1%, from 20162019 to 2017.2020. The decrease in rentalleasing revenue is attributed to a decreasedecreases of $7.0$0.2 million from the Redevelopment Properties and $3.7 million from the Disposition Properties offset in part by an increase of $0.6$0.1 million from the Same Centers. RentalLeasing revenue includes the amortization of above and below-market leases, the amortization of straight-line rents, and lease termination income.income and the provision for bad debts. The amortization of above and below-market leases decreased from $4.9$0.6 million in 20162019 to $(0.7)$0.4 million in 2017. The amortization of straight-line2020. Straight-line rents decreased from $2.4 million in 2019 to $2.2 million in 2020. Lease termination income increased from $0.6 million in 2019 to $1.2 million in 2020. Provision for bad debts decreased from $1.8 million in 2019 to $0.9 million in 2016 to $2.9 million in 2017. Lease termination income decreased from $7.7 million in 2016 to $3.1 million in 2017.
Tenant recoveries decreased $1.6 million, or 2.1%, from 2016 to 2017. This decrease in tenant recoveries is attributed to a decrease of $1.8 million from the Disposition Properties and $0.4 million from the Same Centers offset in part by an increase of $0.6 million from the Redevelopment Properties.2020.
Management Companies' revenue increaseddecreased from $9.0$10.2 million in 20162019 to $10.1$7.0 million in 2017. The increase in Management Companies' revenue is primarily2020 due to an increasea decrease in development fees from joint ventures.and interest income due to the collection of a loan receivable in 2019.
Shopping Center and Operating Expenses:
Shopping center and operating expenses decreased $0.7increased $1.1 million, or 0.9%1.6%, from 20162019 to 2017.2020. The decreaseincrease in shopping center and operating expenses is attributed to a decreaseincreases of $2.6 million from the Disposition Properties offset in part by an increase of $1.5$0.9 million from the Same Centers and $0.4$0.2 million from the Redevelopment Properties.
Leasing Expenses:
Leasing expenses decreased from $7.5 million in 2019 to $7.4 million in 2020.
Management Companies' Operating Expenses:
Management Companies' operating expenses decreased $1.2$2.8 million from 20162019 to 2017 as2020 due to a result of the conversion of Arrowhead Towne Center and the MAC Heitman Portfolio from consolidated centers to unconsolidated joint venturesdecrease in 2016 (See "Acquisitions and Dispositions" in Management's Overview and Summary).compensation expense.
REIT General and Administrative Expenses:
REIT general and administrative expenses decreased by $1.6$0.1 million from 20162019 to 2017.2020.
Depreciation and Amortization:
Depreciation and amortization decreased $3.8increased $0.7 million from 20162019 to 2017.2020. The decreaseincrease in depreciation and amortization is attributed to a decreaseincreases of $2.8$0.6 million from the Same Centers and $2.3 million from the Disposition Properties offset in part by an increase of $1.3$0.1 million from the Redevelopment Properties.
Interest (Income) Expense:
Interest expense increased $3.3decreased $30.3 million from 20162019 to 2017.2020. The increasedecrease in interest expense iswas attributed to an increasea decrease of $2.2$33.8 million from the Financing Arrangement (See Note 12—Financing Arrangementin interest expensethe Company's Notes to the Consolidated Financial Statements), offset in part by increases of $2.1 million from the Same Centers, $1.2 million from the Redevelopment Properties and $0.2 million from borrowings under the Company's line of credit and $1.9 million from the Same Centers offset in part by a decrease of $0.6 million from the Disposition Properties and $0.2 million from the Redevelopment Properties.
The above interest expense items are net of capitalized interest, which increased from $2.7 million in 2016 to $3.4 million in 2017.
Gain on Extinguishment of Debt, net:
credit. The decrease in gain on extinguishment of debt, net of $5.3 millioninterest expense from the Financing Arrangement is primarily due to the settlementchange in fair value of the underlying properties and the mortgage notenotes payable on Flagstaff Mall by a deed-in-lieu of foreclosure in 2016 (See “Other Transactions and Events” in Management’s Overview and Summary) with no comparable gain in 2017.the underlying properties.
Equity in Income of Unconsolidated Joint Ventures:
Equity in income of unconsolidated joint ventures increased $12.7decreased $2.5 million from 20162019 to 2017. The increase in equity in income from unconsolidated joint ventures is primarily attributed to the Company's share of the gain on the sale of an office building at Fashion District Philadelphia in 2017 (See "Acquisitions and Dispositions" in Management's Overview and Summary).2020.
(Loss) GainLoss on Sale or Write Down of Assets, net:
The lossLoss on sale or write down of assets, net decreased $7.5increased $30.4 million from 20162019 to 2017.2020. The decreaseincrease in loss on sale or write down of assets, net is primarily due to anthe $36.7 million of impairment loss of $23.3 million on the Promenade at Casa Grandelosses in 20162020, offset in part by an impairment lossthe $6.9 million in the write down of $12.0 million on Southridge Centerdevelopment costs in 2017 and a $2.6 million reduction of a contingent consideration obligation in 2016.2019. The impairment losses on Promenade at Casa Grande and Southridge Center were due to the reduction in the estimated holding periods of the properties.Wilton Mall and Paradise Valley Mall.
Net Income:
Net income increased $6.0decreased $0.1 million from 20162019 to 2017 primarily due to the $7.5 million decrease in loss on sale or write down2020.
Funds From Operations ("FFO"):
Primarily as a result of the factors mentioned above, FFO attributable to common stockholders and unit holders—diluted, decreased 9.5%excluding financing expense in connection with Chandler Freehold increased 0.6% from $160.3$121.9 million in 20162019 to $145.0$122.7 million in 2017.2020. For a reconciliation of FFO attributable to common stockholders and unit holders and FFO attributable to common stockholders and unit holders—diluted to net income attributable to the Company, the most directly comparable GAAP financial measure, see "Funds From Operations ("FFO")" below.
Comparison of Nine Months Ended September 30, 2017to FFO attributable to common stockholders and 2016
Revenues:
Rental revenue decreased by $16.6 million, or 3.5%, from 2016 to 2017. The decreaseunit holders, excluding financing expense in rental revenue is attributed to a decrease of $14.3 million from the Disposition Properties, $9.8 million from the Redevelopment Propertiesconnection with Chandler Freehold and $3.3 million from the Joint Venture Centers offset in part by an increase of $10.8 million from the Same Centers. The amortization of above and below-market leases decreased from $9.1 million in 2016 to $0.4 million in 2017. The amortization of straight-line rents increased from $3.4 million in 2016 to $7.5 million in 2017. Lease termination income decreased from $15.5 million in 2016 to $13.5 million in 2017. The increase in rental revenue at the Same Centers is primarily due to an increase in lease termination income and an increase in leasing spreads.
Tenant recoveries decreased $16.3 million, or 7.1%, from 2016 to 2017. The decrease in tenant recoveries is attributed to a decrease of $7.2 million from the Same Centers, $6.7 million from the Disposition Properties, $1.6 million from the Joint Venture Centers and $0.8 million from the Redevelopment Properties. The decrease in tenant recoveries at the Same Centers is primarily due to a decrease in property tax expense and utility costs.
Management Companies' revenue increased from $28.9 million in 2016 to $32.0 million in 2017. The increase in Management Companies' revenue is due to an increase in development and leasing fees from joint ventures.
Shopping Center and Operating Expenses:
Shopping center and operating expenses decreased $7.0 million, or 3.1%, from 2016 to 2017. The decrease in shopping center and operating expenses is attributed to a decrease of $8.9 million from the Disposition Properties and $0.8 million from the Joint Venture Centers offset in part by an increase of $1.8 million from the Redevelopment Properties and $0.9 million from the Same Centers.
Management Companies' Operating Expenses:
Management Companies' operating expenses increased $1.3 million from 2016 to 2017.
REIT General and Administrative Expenses:
REIT general and administrative expenses decreased by $2.0 million from 2016 to 2017.
Depreciation and Amortization:
Depreciation and amortization decreased$9.6 million from 2016 to 2017. The decrease in depreciation and amortization is attributed to a decrease of $8.4 million from the Disposition Properties, $4.1 million from the Same Centers and $1.5 million from the Joint Venture Centers offset in part by an increase of $4.4 million from the Redevelopment Properties.
Interest Expense:
Interest expense increased$5.9 million from 2016 to 2017. The increase in interest expense was attributed to an increase of $5.8 million in interest expense from borrowings under the Company's line of credit and $4.4 million from the Same Centers offset in part by a decrease of $3.2 million from the Disposition Properties, $0.9 million from the Joint Venture Centers and $0.2 million from the Redevelopment Properties. The increase in interest expense at the Same Centers is primarily due to the new loan on Fresno Fashion Fair in 2016 (See "Financing Activities" in Management's Overview and Summary).
The above interest expense items are net of capitalized interest, which increased from $7.6 million in 2016 to $9.4 million in 2017.
Gain on Extinguishment of Debt, net:
Gain on extinguishment of debt, net decreased $1.7 million from 2016 to 2017. The decrease in gain on extinguishment of debt is due to the gain of $5.3 million on the settlement of the mortgage note payable on Flagstaff Mall by a deed-in-lieu of foreclosure in 2016 (See “Other Transactions and Events” in Management’s Overview and Summary) offset in part by a loss of $3.6 million on the early extinguishment of debt on Arrowhead Towne Center in 2016 (See “Financing Activities” in Management’s Overview and Summary).
Equity in Income of Unconsolidated Joint Ventures:
Equity in income of unconsolidated joint ventures increased $19.2 million from 2016 to 2017. The increase is primarily due to the conversion of Arrowhead Towne Center and the MAC Heitman Portfolio from consolidated Centers to unconsolidated joint ventures in 2016 (See "Acquisitions and Dispositions" in Management's Overview and Summary) and the
Company's share of the gain on the sales of office buildings at Fashion District Philadelphia and Country Club Plaza in 2017 (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 decreased $388.8 million from 2016 to 2017. The decrease is primarily due to the gain on the sale of a 49% interest in the MAC Heitman Portfolio of $340.7 million in 2016, the gain on the sale of a 40% interest in Arrowhead Towne Center of $101.6 million in 2016, the gain of $24.9 million on the sale of Capitola Mall in 2016 and an impairment loss of $12.0 million on Southridge Center in 2017 offset in part by the gain of $59.7 million on the sale of Cascade Mall and Northgate Mall in 2017 (See "Acquisitions and Dispositions" in Management's Overview and Summary) and an impairment loss of $23.3 million on the Promenade at Casa Grande in 2016. The impairment losses on Southridge Center and Promenade at Casa Grande were due to the reduction in the estimated holding periods of the properties.
Net Income:
Net income decreased $390.9 million from 2016 to 2017. The decrease is primarily attributed to the decrease in the gain on sale or write down of assets, net of $388.8 million as discussed above.
Funds From Operations ("FFO"):
Primarily as a result of the factors mentioned above, FFO attributable to common stockholders and unit holders—diluted, decreased7.4% from $461.7 millionexcluding financing expense in 2016 to $427.3 million in 2017. For a reconciliation of FFO attributable to common stockholders and unit holders and FFO attributable to common stockholders and unit holders—diluted to net income attributable to the Company, the most directly comparable GAAP financial measure,connection with Chandler Freehold, see "Funds From Operations ("FFO")" below.
Operating Activities:
Cash provided by operating activities decreased $49.1 million from $331.1 million in 20162019 to $299.9 million in 2017.2020. The decrease is primarily due to the $31.4 million decrease in other accrued liabilities and to the other changes in assets and liabilities and the results, as discussed above.
Investing Activities:
Cash provided by investing activities decreased $330.2 million from 2016 to 2017. The decrease in cash provided by investing activitiesother accrued liabilities is primarily attributed to a decrease in prepaid rent as a result of COVID-19 (See "Other Transactions and Events" in Management's Overview and Summary).
Investing Activities:
Cash used in investing activities increased $40.2 million from 2019 to 2020. The increase in cash used in investing activities is primarily attributed to decreases in proceeds from the salenotes receivable of assets of $528.2$65.3 million and a decrease in distributions from unconsolidated joint ventures of $185.3$19.7 million offset in part by a decrease in contributions to unconsolidated joint ventures of $324.0 million and a decrease in development, redevelopment and renovation costs of $62.4$29.2 million.
The decrease in cash proceeds from the sale of assetsnotes receivable is attributed to the sales of ownership interests in Arrowhead Towne Center and the MAC Heitman Portfolio in 2016 and the sale of Capitola Mall in 2016 offset in part by the sale of Cascade Mall and Northgate Mall in 2017 (See "Acquisitions and Dispositions" in Management's Overview and Summary). The decrease in contributions to unconsolidated joint ventures is primarily due to the acquisitioncollection of the 50% ownership interestnote receivable from the Lennar Corporation in Country Club Plaza2019 (See Note 16—Related Party Transactions in 2016 (See "Acquisitions and Dispositions" in Management's Overview and Summary)the Company's Notes to the Consolidated Financial Statements).
Financing Activities:
Cash used inprovided by financing activities decreased $340.8increased $633.4 million from 20162019 to 2017.2020. The decreaseincrease in cash used inprovided by financing activities is primarily due to a decrease in payments on mortgages, bank and other notes payable of $1.6 billion, a decrease in the repurchases of the Company's common stock of $578.6$388.7 million (See "Other Transactions and Events" in Management's Overview and Summary) and a decrease in cash dividends and distributions of $339.1 million offset in part by a decreasean increase in proceeds from mortgages, bank and other notes payable of $2.2 billion.$235.0 million. The decrease in payments on mortgages, bank and other notes payable and the increase in proceeds from mortgages, bank and other notes payable are attributed to the Company's plan to increase liquidity in connection with COVID-19 (See "Other Transactions and Events" in Management's Overview and Summary).
Liquidity and Capital Resources
The Company anticipates meetinghas historically met its liquidity needs for its operating expenses, debt service and dividend requirements for the next twelve months through cash generated from operations, distributions from unconsolidated joint ventures, working capital reserves and/or borrowings under its unsecured line of credit. As a result of the uncertain environment resulting from the COVID-19 pandemic (See "Other Transactions and Events" in Management's Overview and Summary), the Company has taken a number of measures to enhance liquidity. These actions ensure that funds are available to meet the Company's obligations for a sustained period of time as the extent and duration of the pandemic's impact becomes clearer. These measures include (i) reduction of the Company's controllable operating expenses, (ii) reduction of planned capital and development expenditures, (iii) reduction of the cash component of its second quarter dividend, (iv) negotiated deferrals of debt service payments, and (v) deferral of real estate taxes to the extent such relief is available. In addition, the Company recently borrowed $550 million on its line of credit. As of March 31, 2020, the Company has approximately $735 million of cash, including the unconsolidated joint ventures at the Company's pro rata share.
The following tables summarize capital expenditures incurred at the Centers (at the Company's pro rata share):
| | | | | | | | | | | |
| | For the Three Months Ended March 31, | | |
| (Dollars in thousands) | 2020 | | 2019 |
| Consolidated Centers: | | | |
| Acquisitions of property, building improvement and equipment | $ | 2,381 | | | $ | 9,932 | |
| Development, redevelopment, expansions and renovations of Centers | 16,112 | | | 14,414 | |
| Tenant allowances | 1,081 | | | 3,510 | |
| Deferred leasing charges | 910 | | | 1,388 | |
| $ | 20,484 | | | $ | 29,244 | |
| Joint Venture Centers: | | | |
| Acquisitions of property, building improvement and equipment | $ | 1,844 | | | $ | 1,225 | |
| Development, redevelopment, expansions and renovations of Centers | 29,628 | | | 47,888 | |
| Tenant allowances | 355 | | | 1,709 | |
| Deferred leasing charges | 725 | | | 911 | |
| $ | 32,552 | | | $ | 51,733 | |
|
| | | | | | | |
| | For the Nine Months Ended September 30, |
| (Dollars in thousands) | 2017 | | 2016 |
| Consolidated Centers: | | | |
| Acquisitions of property and equipment | $ | 19,712 |
| | $ | 24,638 |
|
| Development, redevelopment, expansion and renovation of Centers | 86,287 |
| | 113,812 |
|
| Tenant allowances | 9,081 |
| | 13,752 |
|
| Deferred leasing charges | 19,243 |
| | 18,745 |
|
| | $ | 134,323 |
| | $ | 170,947 |
|
| Joint Venture Centers: | | | |
| Acquisitions of property and equipment | $ | 6,549 |
| | $ | 341,053 |
|
| Development, redevelopment, expansion and renovation of Centers | 92,514 |
| | 73,797 |
|
| Tenant allowances | 4,650 |
| | 7,740 |
|
| Deferred leasing charges | 4,666 |
| | 5,619 |
|
| | $ | 108,379 |
| | $ | 428,209 |
|
The Company expects amounts to be incurred during the next twelve months for tenant allowances and deferred leasing charges to be comparable orsubstantially 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.2019. The Company expects to incur between $200.0 million and $300.0approximately $60.0 million during the next twelve monthsremaining period of 2020 for development, redevelopment, expansion and renovations. This amount excludes the Company's share of the remaining development cost of One Westside, which is fully funded by a non-recourse construction facility. Capital for these major expenditures, developments and/or redevelopments has been, and is expected to continue to be, obtained from a combination of cash on hand, debt or equity financings, which are expected to include borrowings under the Company's line of credit, from property financings and construction loans.loans, each to the extent available.
The Company has also generated liquidity in the past, and may continue to do so in the future, through equity offerings and issuances, property refinancings, joint venture transactions and the sale of non-core assets. For example, the Company's recently completed sale of Cascade Mall and Northgate Mall (See "Acquisitions and Dispositions" in Management's Overview and Summary), sales of office buildings at Fashion District Philadelphia and Country Club Plaza in 2017 (See "Acquisitions and Dispositions" in Management's Overview and Summary) and the Joint Venture Transactions (See "Acquisitions and Dispositions" in Management's Overview and Summary), which included new debt or refinancings of existing debt on the properties (See "Financing Activities" 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 and the 2017 Stock Buyback Program (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
On March 16, 2020, the Company expects any additional repurchasesannounced a reduction in its second quarter dividend and that the dividend would be payable with an aggregate combination of 20% cash and 80% shares of the Company's common stock. This will allow the Company to comply with the REIT taxable income distribution requirements, while retaining capital. The decision to use a stock underdividend will be reviewed by the 2017 Stock Buyback Program to be funded by future salesBoard on a quarterly basis. The combination of non-core assets, borrowings under its linethe dividend reduction and the stock dividend will result in the Company retaining incremental cash in excess of credit and/or refinancing transactions.$98 million on a quarterly basis, and approximately $400 million if implemented annually.
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, theThe 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.conditions as a result of COVID-19. 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 increaseIncreases in the Company's proportion of floating rate debt, which wouldwill cause it to be subject to interest rate fluctuations in the future.
The Company had 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 could have been made in privately negotiated transactions and/or any other method permitted by law, including sales deemed to be an “at the market” offering, which included sales made directly on the New York Stock Exchange or sales made to or through a market maker other than on an exchange. The ATM program expired by its term in August 2017. The Company did not sell any shares under the ATM Program.
The Company's total outstanding loan indebtedness, which includes mortgages and other notes payable, at September 30, 2017March 31, 2020 was $7.7$8.7 billion (consisting of $5.1$5.9 billion of consolidated debt, less $229.6$359.2 million of noncontrolling interests, plus $2.8$3.2 billion of its pro rata share of unconsolidated joint venture debt). 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 ourthe Company's 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 bears interest at LIBOR plus a spread of 1.30% to 1.90%, depending on the Company's overall leverage level, and matureswas to mature on July 6, 2020. On April 8, 2020, with a one-year extension option.the Company exercised its option to extend the maturity of the facility to July 6, 2021. 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 September 30, 2017,March 31, 2020, the borrowing rate on the facility was LIBOR plus 1.45%1.55%. AtThe Company has four interest rate swap agreements that effectively convert a total of $400.0 million of the outstanding balance from floating rate debt of LIBOR plus 1.55% to fixed rate debt of 4.30% until September 30, 2017,2021. At March 31, 2020, total borrowings under the line of credit were $1.0$1.5 billion less unamortized deferred finance costs of $8.2$2.0 million with a total interest rate of 3.01%3.11%. The Company's availability under the line of credit was $19.7 million at March 31, 2020.
Cash dividends and distributions for the ninethree months ended September 30, 2017March 31, 2020 were $328.7$114.7 million. A total of $299.9$49.7 million was funded by operations. The remaining $28.9$65.0 million was funded from distributions from unconsolidated joint ventures, which were included in the cash flows from investing activities section of the Company's Consolidated Statement of Cash Flows.on hand.
At September 30, 2017,March 31, 2020, the Company was in compliance with all applicable loan covenants under its agreements.
At September 30, 2017,March 31, 2020, the Company had cash and cash equivalents of $71.1$652.4 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.
As of March 31, 2020, one of the Company's joint ventures has $149.6 million of debt that could become recourse to the Company, should the joint venture be unable to discharge the obligation of the related debt.
Additionally, as of September 30, 2017,March 31, 2020, the Company was contingently liable for $60.9$40.8 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 September 30, 2017March 31, 2020 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) | $ | 6,888,513 | | | $ | 908,497 | | | $ | 2,409,626 | | | $ | 583,191 | | | $ | 2,987,199 | |
| Lease liabilities(2) | 217,396 | | | 15,080 | | | 47,417 | | | 23,552 | | | 131,347 | |
| Purchase obligations(3) | 7,290 | | | 7,290 | | | — | | | — | | | — | |
| Other long-term liabilities | 187,916 | | | 115,924 | | | 28,199 | | | 13,744 | | | 30,049 | |
| $ | 7,301,115 | | | $ | 1,046,791 | | | $ | 2,485,242 | | | $ | 620,487 | | | $ | 3,148,595 | |
(1)Interest payments on floating rate debt were based on rates in effect at March 31, 2020.
(2)See Note 8—Leases in the Company's Notes to the Consolidated Financial Statements.
(3)See Note 15—Commitments and Contingencies in the Company's Notes to the Consolidated Financial Statements.
|
| | | | | | | | | | | | | | | | | | | |
| | 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)(2) | $ | 5,750,286 |
| | $ | 720,004 |
| | $ | 1,273,406 |
| | $ | 2,197,113 |
| | $ | 1,559,763 |
|
| Operating lease obligations(3) | 259,527 |
| | 11,560 |
| | 19,253 |
| | 18,363 |
| | 210,351 |
|
| Purchase obligations(3) | 62,609 |
| | 62,609 |
| | — |
| | — |
| | — |
|
| Other long-term liabilities | 300,263 |
| | 196,300 |
| | 8,301 |
| | 13,918 |
| | 81,744 |
|
| | $ | 6,372,685 |
| | $ | 990,473 |
| | $ | 1,300,960 |
| | $ | 2,229,394 |
| | $ | 1,851,858 |
|
| |
(1) | Interest payments on floating rate debt were based on rates in effect at September 30, 2017. |
| |
(2) | Long-term debt obligations to be repaid in less than one year include an aggregate of $527.7 million of mortgage loan balances on Stonewood Center, Freehold Raceway Mall and Santa Monica Place that have been subsequently paid off, refinanced or covered by a lender commitment to refinance during the fourth quarter of 2017 (See “Financing Activities” in Management’s Overview and Summary). |
| |
(3) | See Note 15—Commitments and Contingencies in the Company's Notes to 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-dilutedFFO —diluted as supplemental measures for the real estate industry and a supplement to GAAP measures. The National Association of Real Estate Investment Trusts ("NAREIT"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.
Beginning during the first quarter of 2018, the Company revised its definition of FFO so that FFO excluded the impact of the financing expense in connection with Chandler Freehold. Beginning in the third quarter of 2019, the Company now presents a separate non-GAAP measure - FFO excluding financing expense in connection with Chandler Freehold. The Company has revised the FFO presentation for the three months ended March 31, 2019 to conform to the current presentation.
The Company accounts for its joint venture in Chandler Freehold as a financing arrangement. In connection with this treatment, the Company recognizes financing expense on (i) the changes in fair value of the financing arrangement obligation, (ii) any payments to the joint venture partner equal to their pro rata share of net income and (iii) any payments to the joint venture partner less than or in excess of their pro rata share of net income. The Company excludes from its definition of FFO the noted expenses related to the changes in fair value and for the payments to the joint venture partner less than or in excess of their pro rata share of net income.
The Company also presents FFO excluding financing expense in connection with Chandler Freehold and loss on extinguishment of debt, net.
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 meaningful measure of its operating results in comparison to the operating results of other REITs. In addition, the Company believes that FFO excluding financing expense in connection with Chandler Freehold and non-routine costs associated with extinguishment of debt provide useful supplemental information regarding the Company’s performance as they show 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 further 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 REITs.real estate investment trusts.
Funds From Operations ("FFO") (Continued)
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 net income to FFO and FFO-diluted.FFO—diluted. Management believes that to further understand the Company's performance, FFO should be compared with the Company's reported net income and considered in addition to cash flows in accordance with GAAP, as presented in the Company's consolidated financial statements.
Funds From Operations ("FFO") (Continued)
The following reconciles net income attributable to the Company to FFO and FFO-dilutedFFO—diluted attributable to common stockholders and unit holders-basic and diluted, excluding financing expense in connection with Chandler Freehold and loss on extinguishment of debt, net, for the three and nine months endedSeptember 30, 2017 March 31, 2020 and 20162019 (dollars and shares in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | For the Three Months Ended March 31, | | |
| | | | | | | 2020 | | 2019 |
| Net income attributable to the Company | | | | | | $ | 7,522 | | | $ | 7,824 | |
| Adjustments to reconcile net income attributable to the Company to FFO attributable to common stockholders and unit holders—basic and diluted: | | | | | | | | |
| Noncontrolling interests in the Operating Partnership | | | | | | 557 | | | 577 | |
| Loss on sale or write down of assets, net—consolidated assets | | | | | | 36,703 | | | 6,316 | |
| | | | | | | | |
| | | | | | | | |
| Add: gain on sale of undepreciated assets—consolidated assets | | | | | | — | | | 534 | |
| | | | | | | | |
| | | | | | | | |
| Loss on sale or write down of assets—unconsolidated joint ventures, net(1) | | | | | | — | | | 71 | |
| | | | | | | | |
| Depreciation and amortization—consolidated assets | | | | | | 82,213 | | | 81,468 | |
| Less: noncontrolling interests in depreciation and amortization—consolidated assets | | | | | | (3,789) | | | (3,645) | |
| Depreciation and amortization—unconsolidated joint ventures(1) | | | | | | 49,509 | | | 44,998 | |
| Less: depreciation on personal property | | | | | | (4,326) | | | (3,865) | |
| FFO attributable to common stockholders and unit holders—basic and diluted | | | | | | 168,389 | | | 134,278 | |
| Financing expense in connection with Chandler Freehold | | | | | | (45,707) | | | (12,344) | |
| | | | | | | | |
| FFO attributable to common stockholders and unit holders, excluding financing expense in connection with Chandler Freehold—basic and diluted | | | | | | 122,682 | | | 121,934 | |
| Loss on extinguishment of debt, net—consolidated assets | | | | | | — | | | 351 | |
| | | | | | | | |
| | | | | | | | |
| FFO attributable to common stockholders and unit holders, excluding financing expense in connection with Chandler Freehold and loss on extinguishment of debt, net—basic and diluted | | | | | | $ | 122,682 | | | $ | 122,285 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Weighted average number of FFO shares outstanding for FFO attributable to common stockholders and unit holders—basic and diluted(2) | | | | | | 151,915 | | | 151,677 | |
(1) Unconsolidated joint ventures are presented at the Company's pro rata share.
(2) Calculated based upon basic net income as adjusted to reach basic FFO. Includes 10.4 million OP Units for the three months ended March 31, 2020 and 2019, respectively.
The computation of FFO—diluted shares outstanding includes the effect of share and unit-based compensation plans 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.
|
| | | | | | | | | | | | | | | | |
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| Net income attributable to the Company | | $ | 17,498 |
| | $ | 13,730 |
| | $ | 113,379 |
| | $ | 479,867 |
|
| Adjustments to reconcile net income attributable to the Company to FFO attributable to common stockholders and unit holders—basic and diluted: | | | | | | | | |
| Noncontrolling interests in the Operating Partnership | | 1,256 |
| | 1,272 |
| | 8,351 |
| | 35,067 |
|
| Loss (gain) on sale or write down of assets, net—consolidated assets | | 11,854 |
| | 19,321 |
| | (37,234 | ) | | (426,050 | ) |
| Add: noncontrolling interests share of (loss) gain on sale or write down of assets—consolidated assets | | — |
| | (2,206 | ) | | — |
| | (2,206 | ) |
| Add: gain on sale of undepreciated assets—consolidated assets | | 727 |
| | 295 |
| | 727 |
| | 2,932 |
|
| Less: loss on write-down of non-real estate assets—consolidated assets | | — |
| | — |
| | (10,138 | ) | | — |
|
| (Gain) loss on sale or write down of assets— unconsolidated joint ventures, net(1) | | (6,712 | ) | | 171 |
| | (8,981 | ) | | 173 |
|
| Add: gain (loss) on sale of undepreciated assets—unconsolidated joint ventures(1) | | — |
| | — |
| | 660 |
| | (2 | ) |
| Depreciation and amortization—consolidated assets | | 83,147 |
| | 86,976 |
| | 249,463 |
| | 259,097 |
|
| Less: noncontrolling interests in depreciation and amortization—consolidated assets | | (3,717 | ) | | (3,759 | ) | | (11,325 | ) | | (11,184 | ) |
| Depreciation and amortization—unconsolidated joint ventures(1) | | 44,493 |
| | 47,803 |
| | 132,708 |
| | 133,319 |
|
| Less: depreciation on personal property | | (3,499 | ) | | (3,309 | ) | | (10,326 | ) | | (9,342 | ) |
| FFO attributable to common stockholders and unit holders—basic and diluted | | 145,047 |
| | 160,294 |
| | 427,284 |
| | 461,671 |
|
| Gain on extinguishment of debt, net—consolidated assets | | — |
| | (5,284 | ) | | — |
| | (1,709 | ) |
| FFO attributable to common stockholders and unit holders excluding extinguishment of debt, net—diluted | | $ | 145,047 |
| | $ | 155,010 |
| | $ | 427,284 |
| | $ | 459,962 |
|
| Weighted average number of FFO shares outstanding for: | | | | | | | | |
| FFO attributable to common stockholders and unit holders—basic (2) | | 151,624 |
| | 154,589 |
| | 152,668 |
| | 158,277 |
|
| Adjustments for impact of dilutive securities in computing FFO-diluted: | | | | | | | | |
| Share and unit based compensation plans | | 11 |
| | 113 |
| | 35 |
| | 126 |
|
| FFO attributable to common stockholders and unit holders—diluted (3) | | 151,635 |
| | 154,702 |
| | 152,703 |
| | 158,403 |
|
| |
(1) | Unconsolidated joint ventures are presented at the Company's pro rata share. |
| |
(2) | Calculated based upon basic net income as adjusted to reach basic FFO. Includes 10.3 million and 10.7 million OP Units for the three months ended September 30, 2017 and 2016, respectively, and 10.5 million and 10.8 million OP Units for the nine months ended September 30, 2017 and 2016, respectively. |
| |
(3) | The computation of FFO—diluted shares outstanding includes the effect of share and unit-based compensation plans 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 3. | Quantitative and Qualitative Disclosures About Market Risk |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's primary market risk exposure is interest rate risk. The Company has managed and will continue to manage interest rate risk by (1) maintaining a 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 September 30, 2017March 31, 2020 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 twelve months ending March 31, | | | | | | | | | | | | | | |
| | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | | Total | | Fair Value |
| CONSOLIDATED CENTERS: | | | | | | | | | | | | | | | |
| Long-term debt: | | | | | | | | | | | | | | | |
| Fixed rate | $ | 591,413 | | | $ | 477,471 | | | $ | 311,881 | | | $ | 6,933 | | | $ | 378,205 | | | $ | 2,603,289 | | | $ | 4,369,192 | | | $ | 4,425,896 | |
| Average interest rate | 4.56 | % | | 4.27 | % | | 4.07 | % | | 3.49 | % | | 4.05 | % | | 3.79 | % | | 3.99 | % | | |
| Floating rate | 130,000 | | | 1,080,000 | | | 300,000 | | | — | | | — | | | — | | | 1,510,000 | | | 1,522,496 | |
| Average interest rate | 3.73 | % | | 2.52 | % | | 2.05 | % | | — | % | | — | % | | — | % | | 2.53 | % | | |
| Total debt—Consolidated Centers | $ | 721,413 | | | $ | 1,557,471 | | | $ | 611,881 | | | $ | 6,933 | | | $ | 378,205 | | | $ | 2,603,289 | | | $ | 5,879,192 | | | $ | 5,948,392 | |
| UNCONSOLIDATED JOINT VENTURE CENTERS: | | | | | | | | | | | | | | | |
| Long-term debt (at Company's pro rata share): | | | | | | | | | | | | | | | |
| Fixed rate | $ | 149,723 | | | $ | 43,002 | | | $ | 366,514 | | | $ | 688,786 | | | $ | 33,845 | | | $ | 1,747,977 | | | $ | 3,029,847 | | | $ | 3,066,899 | |
| Average interest rate | 3.81 | % | | 3.70 | % | | 3.67 | % | | 3.74 | % | | 3.84 | % | | 3.88 | % | | 3.81 | % | | |
| Floating rate | — | | | 36,183 | | | 150,500 | | | 9,400 | | | — | | | — | | | 196,083 | | | 202,799 | |
| Average interest rate | — | % | | 3.58 | % | | 3.58 | % | | 3.50 | % | | — | % | | — | % | | 3.58 | % | | |
| Total debt—Unconsolidated Joint Venture Centers | $ | 149,723 | | | $ | 79,185 | | | $ | 517,014 | | | $ | 698,186 | | | $ | 33,845 | | | $ | 1,747,977 | | | $ | 3,225,930 | | | $ | 3,269,698 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Expected Maturity Date | | | | |
| | For the twelve months ended September 30, | | | | | | |
| | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | Total | | Fair Value |
| CONSOLIDATED CENTERS: | | | | | | | | | | | | | | | |
| Long-term debt: | | | | | | | | | | | | | | | |
| Fixed rate | $ | 577,792 |
| | $ | 371,340 |
| | $ | 468,317 |
| | $ | 588,495 |
| | $ | 361,801 |
| | $ | 1,420,564 |
| | $ | 3,788,309 |
| | $ | 3,804,410 |
|
| Average interest rate | 3.76 | % | | 3.58 | % | | 3.51 | % | | 4.56 | % | | 4.09 | % | | 3.65 | % | | 3.83 | % | | |
|
| Floating rate | — |
| | — |
| | 200,000 |
| | 1,080,000 |
| | — |
| | — |
| | 1,280,000 |
| | 1,273,254 |
|
| Average interest rate | — | % | | — | % | | 2.74 | % | | 2.92 | % | | — | % | | — | % | | 2.89 | % | | |
|
| Total debt—Consolidated Centers | $ | 577,792 |
| | $ | 371,340 |
| | $ | 668,317 |
| | $ | 1,668,495 |
| | $ | 361,801 |
| | $ | 1,420,564 |
| | $ | 5,068,309 |
| | $ | 5,077,664 |
|
| UNCONSOLIDATED JOINT VENTURE CENTERS: | | | | | | | | | | | | | | | |
| Long-term debt (at Company's pro rata share): | | | | | | | | | | | | | | | |
| Fixed rate | $ | 28,281 |
| | $ | 30,534 |
| | $ | 38,296 |
| | $ | 148,993 |
| | $ | 48,729 |
| | $ | 2,458,883 |
| | $ | 2,753,716 |
| | $ | 2,768,885 |
|
| Average interest rate | 3.67 | % | | 3.68 | % | | 3.69 | % | | 3.80 | % | | 3.72 | % | | 3.79 | % | | 3.79 | % | | |
|
| Floating rate | 337 |
| | 9,305 |
| | 10,126 |
| | 41,993 |
| | 15,000 |
| | 30,000 |
| | 106,761 |
| | 102,711 |
|
| Average interest rate | 2.97 | % | | 2.99 | % | | 2.94 | % | | 2.96 | % | | 2.44 | % | | 2.44 | % | | 2.74 | % | | |
|
| Total debt—Unconsolidated Joint Venture Centers | $ | 28,618 |
| | $ | 39,839 |
| | $ | 48,422 |
| | $ | 190,986 |
| | $ | 63,729 |
| | $ | 2,488,883 |
| | $ | 2,860,477 |
| | $ | 2,871,596 |
|
The consolidated Centers' total fixed rate debt at September 30, 2017March 31, 2020 and December 31, 20162019 was $3.8 billion.$4.4 billion. The average interest rate on suchthe fixed rate debt at September 30, 2017March 31, 2020 and December 31, 20162019 was 3.83% and 3.80%, respectively.3.99%. The consolidated Centers' total floating rate debt at September 30, 2017March 31, 2020 and December 31, 20162019 was $1.3$1.5 billion and $1.1 billion,$850.0 million, respectively. The average interest rate on suchthe floating rate debt at September 30, 2017March 31, 2020 and December 31, 20162019 was 2.89%2.53% and 2.47%3.36%, respectively.
The Company's pro rata share of the unconsolidated joint venture Centers' fixed rate debt at September 30, 2017March 31, 2020 and December 31, 20162019 was $2.8 billion and $2.7 billion, respectively.$3.0 billion. The average interest rate on suchthe fixed rate debt at September 30, 2017March 31, 2020 and December 31, 20162019 was 3.79%, and 3.80% respectively.3.81%. The Company's pro rata share of the unconsolidated joint venture Centers' floating rate debt at September 30, 2017March 31, 2020 and December 31, 20162019 was $106.8 million and $169.9 million, respectively.$196.1 million. The average interest rate on suchthe floating rate debt at September 30, 2017March 31, 2020 and December 31, 20162019 was 2.74%3.58% and 2.44%3.69%, respectively.
The Company uses derivative financial instruments in the normal course of business to manage or hedge interest rate risk and records all derivatives on the balance sheet at fair value. 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 March 31, 2020, the Company has one interest rate cap agreement and four interest rate swap agreements in place (See Note 5—Derivative Instruments and Hedging Activities in the Company's Notes to the Consolidated Financial Statements).
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 $13.9$17.1 million per year based on $1.4$1.7 billion of floating rate debt outstanding at September 30, 2017.March 31, 2020.
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—10—Mortgage Notes Payable and Note 9—11—Bank and Other Notes Payable in the Company's Notes to the Consolidated Financial Statements).
In the event that LIBOR is discontinued, the interest rate for the variable rate debt of the Company and its joint ventures and the swap rate for the Company’s interest rate swaps following such event will be based on an alternative variable rate as specified in the applicable documentation governing such debt or swaps or as otherwise agreed upon. Such an event would not affect the Company’s ability to borrow or maintain already outstanding borrowings or swaps, but the alternative variable rate could be higher and more volatile than LIBOR prior to its discontinuance. The Company understands that LIBOR is expected to remain available through the end of 2021, but may be discontinued or otherwise become unavailable thereafter.
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Item 4. | Controls and Procedures |
Item 4. Controls and Procedures
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, 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 Quarterly Report on Form 10-Q. Based on their evaluation as of September 30, 2017,March 31, 2020, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is (a) recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms and (b) accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
In addition, there has been no change in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
None of the Company, the Operating Partnership, the Management Companies or their respective affiliates are currently involved in any material legal proceedings, although from time-to-time they are involved in various legal proceedings that arise in the ordinary course of business.
Item 1A. Risk Factors
There have been no material changes toThe following risk factor supplements the risk factors relating to the Company set forthdescribed under the caption "Item“Item 1A. Risk Factors"Factors” in the Company'sour Annual Report on Form 10-K for the year ended December 31, 2016.2019, and should be read in conjunction with the other risk factors presented in the Annual Report on Form 10-K.
The outbreak of the novel coronavirus ("COVID-19") has caused, and could continue to cause, severe disruptions in the U.S., regional and global economies and has impacted, and could continue to materially and adversely impact, our financial condition and results of operations and the financial condition and results of operations of our tenants.
In March 2020, the World Health Organization declared COVID-19 a global pandemic. COVID-19 has caused, and could continue to cause, significant disruptions to the United States and global economy and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak is continually evolving and, as additional cases of the virus are identified, many countries, including the United States, have reacted by instituting quarantines, restrictions on travel and/or mandatory closures of businesses. Certain states and cities, including where the Centers are located, have also reacted by instituting quarantines, restrictions on travel, “stay-at-home” rules, restrictions on types of business that may continue to operate, and/or restrictions on the types of construction projects that may continue.
The extent to which COVID-19 impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of such pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. The rapid development and fluidity of this situation precludes any prediction as to the full adverse
impact of COVID-19. Nevertheless, COVID-19 has, and may continue to, adversely affect our business, financial condition and results of operations, and it may also have the effect of heightening many of the risks described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2019, including:
•a complete or partial closure of, or other operational issues at, one or more of our Centers resulting from government or tenant action, which has adversely affected, and is expected to continue to adversely effect, our operations and those of our tenants;
•reduced economic activity impacting the businesses, financial condition and liquidity of our tenants, which could cause one or more of our tenants, including one or more of our Anchors, or one or more of our joint venture partners, to be unable to meet their obligations to us in full, or at all, to otherwise seek modifications of such obligations or to declare bankruptcy;
•decreased levels of consumer spending and consumer confidence during the pandemic, as well as a decrease in individuals’ willingness to frequent our Centers once re-opened as a result of the public health risks and social impacts of such outbreak, which could affect the ability of the Centers to generate sufficient revenues to meet operating and other expenses in the short-term and accelerate a shift to online retail shopping, which, if sustained could result in prolonged decreases in revenue at the Centers even after the immediate impact of the pandemic is resolved;
•inability to renew leases, lease vacant space or re-let space as leases expire on favorable terms, or at all; which could cause interruptions or delays in the receipt of rental payments;
•a potential closure of one or more Anchors at one or more of our properties, which could trigger co-tenancy lease clauses within one or more of our leases at such properties and lead to a decline in revenue and occupancy;
•state, local or industry-initiated efforts, such as a rent freeze for tenants or a suspension of a landlord’s ability to enforce evictions, which may affect our ability to collect rent or enforce remedies for the failure to pay rent;
•severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions, which could make it difficult for us to access debt and equity capital on attractive terms, or at all, and impact our ability to fund business activities and repay debt on a timely basis;
•disruptions in the supply of materials or products or the inability of contractors to perform on a timely basis or at all, which could increase the costs of construction of new or existing projects and cause delays in completing ongoing or future construction, development or re-development projects;
•a potential negative impact on our financial results could adversely impact our compliance with the financial covenants within our credit facility and other debt agreements or cause a failure to meet certain of these financial covenants, which could cause an event of default, which, if not cured or waived, could accelerate some or all of such indebtedness and could have a material adverse effect on us;
•the potential that we may further reduce our dividend and/or continue to pay dividends at least partially in our stock instead of in cash, in which case stockholders may be required to pay U.S. federal income taxes in excess of the cash dividends they receive;
•a potential decline in asset values at one or more of our properties encumbered by mortgage debt, which could inhibit our ability to successfully refinance one or more such properties, result in a default under the applicable mortgage debt agreement and potentially cause the acceleration of such indebtedness;
•a general decline in business activity and demand for real estate transactions, which could adversely affect our ability or desire to make strategic acquisitions or dispositions;
•the potential negative impact on the health of our personnel, particularly if a significant number of our executive management team or key employees are impacted, which could result in a deterioration in our ability to ensure business continuity during a disruption;
•uncertainty as to what conditions must be satisfied before government authorities lift “stay-at-home” orders and public health officials begin the process of gradually allowing non-essential businesses to resume operations and whether government authorities will impose (or suggest) requirements on landlords, such as us, to protect the health and safety
of tenants and customers to our properties, which could result in increased operating costs and demands on our property management teams to ensure compliance with any such requirements; and
•the limited access to our facilities, management, tenants, support staff and professional advisors, which could hamper our ability to comply with regulatory obligations and prevent us from conducting our business as efficiently and effectively as we otherwise would.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
NoneOn March 2, 2020 and March 23, 2020, the Company, as general partner of the Operating Partnership, issued 2,000 and 81,722 shares of common stock of the Company, respectively, upon the redemption of 83,722 common partnership units of the Operating Partnership. These shares of common stock were issued in private placements to two limited partners of the Operating Partnership, each an accredited investor, pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.
Issuer Purchases of Equity Securities
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| Period | | Total Number of Shares Purchased | | | Average Price Paid per Share (1) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs | |
| July 1, 2017 to July 31, 2017 | | — |
| | | $ | — |
| | — |
| | | $ | 318,343,926 |
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| August 1, 2017 to August 31, 2017 | | 592,552 |
| (2) | | 53.36 |
| | 592,552 |
| (2 | ) | | $ | 286,725,059 |
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| September 1, 2017 to September 30, 2017 | | 149,465 |
| (3) | | 53.65 |
| | 149,465 |
| (3 | ) | | $ | 278,707,048 |
| |
| | | 742,017 |
| | | $ | 53.42 |
| | 742,017 |
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(1)Period | The average price paid | Total Number of Shares Purchased | | | Average Price Paid per share is calculated on a trade date basis.Share |
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1) | |
(2)January 1, 2020 to January 31, 2020 | On February 12, 2017, the Company's Board of Directors authorized the repurchase of up to $500.0 million of the Company's outstanding common shares from time to time as market conditions warrant. During the period from August 1, 2017 to August 31, 2017, the Company repurchased a total of 592,552 of its common shares in a series of transactions for approximately $31.6 million, representing an average price of $53.36 per share. The Company funded the repurchases from borrowing under its line of credit. |
| — | | | | $ | — | | | — | | | | $ | 278,707,048 | | |
(3)February 1, 2020 to February 29, 2020 | During the period from September
| — | | | | — | | | — | | | | $ | 278,707,048 | | |
March 1, 20172020 to September 30, 2017, the Company repurchased a total of 149,465 of its common shares in a series of transactions for approximately $8.0 million, representing an average price of $53.65 per share. The Company funded the repurchases from its share of the proceeds from the sale of an office building at Fashion District Philadelphia (See "Acquisitions and Dispositions" in Management's Overview and Summary) and from borrowing under its line of credit.March 31, 2020 | | — | | | | — | | | — | | | | $ | 278,707,048 | | |
| Total | | — | | | | $ | — | | | — | | | | | |
(1)On February 12, 2017, the Company's Board of Directors authorized the repurchase of up to $500.0 million of the Company's outstanding common shares from time to time as market conditions warrant. Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Mine Safety Disclosures
Not Applicable
Item 5. Other Information
On November 2, 2017, in connection with a reviewNot Applicable
The Plan entitles the Chief Executive Officer, President and each Senior Executive Vice President of the Company to certain benefits in the event of certain terminations of employment with the Company within 24 months following a Change in Control, unless such eligible employee is a party to an individual agreement with the Company that provides for greater payments and benefits. The discussion below describes the terms of the Plan and is qualified in its entirety by reference to the copy of the agreement, which is being filed with this Quarterly Report on Form 10-Q as Exhibit 10.1 and is incorporated herein by reference.
Pursuant to the Plan, if an eligible employee is terminated by the Company without Cause or if an eligible employee terminates his or her employment for Good Reason, in either case within 24 months following a Change in Control, such eligible employee will be entitled to receive lump sum cash payments equal to (i) annual salary and other benefits earned and accrued prior to the termination of employment, (ii) three times the sum of (A) the eligible employee’s annual base salary in effect immediately prior to termination (or prior to the Change in Control, if higher) plus (B) the average of the annual incentive bonus awarded to the eligible employee in respect of the immediately preceding three years (excluding equity incentive awards granted as part of the Company’s long-term equity incentive award program), (iii) a pro-rata cash bonus for the year in which the eligible employee’s employment was terminated based on his or her target annual cash bonus and (iv) 36 months of COBRA continuation premiums otherwise payable by the eligible employee as of the date of termination. The eligible employee will also be entitled to (i) vested rights under any equity, compensation or benefit plan, policy, practice or program with the Company, including any acceleration of vesting of equity awards as set forth in applicable equity award agreements and (ii) outplacement services for 12 months. Receipt of these payments and benefits (other than the annual salary and other benefits earned and accrued prior to the termination of employment) is subject to execution by the eligible employee of a general release of claims with the Company.
If any payments and benefits to be paid or provided to an eligible employee, whether pursuant to the terms of the Plan or otherwise, would be subject to “golden parachute” excise taxes under the Internal Revenue Code, the payments and benefits will be reduced to the extent necessary to avoid such excise taxes, but only if such a reduction of pay or benefits would result in a greater after-tax benefit to the eligible employee.
The Compensation Committee may amend, suspend or terminate the Plan at any time prior to a Change in Control without the consent of any eligible employee; provided that any amendment, suspension or termination that reduces or otherwise adversely impairs an eligible employee’s benefits under the Plan (i) will not be effective until 12 months after notice of such change is provided to the eligible employees and (ii) will not be effective if a Change in Control occurs during the 12-month notice period.
The terms Cause, Good Reason and Change in Control are specifically defined in the Plan.
Item 6. Exhibits
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Exhibit
Number
| | Description |
| | Master Agreement, dated November 14, 2014, by and among Pacific Premier Retail LP, 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)) (Filed in paper - hyperlink is not required pursuant to Rule 105 of Regulation S-T). |
| 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) (Filed in paper - hyperlink is not required pursuant to Rule 105 of Regulation S-T). |
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101.INS101.SCH | | XBRL Instance Document |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
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Exhibit
Number | | Description |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*). |
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*Represents a management contract, or compensatory plan, contract or arrangement required to be filed pursuant to Regulation S-K.S-K
** Furnished herewith.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | THE MACERICH COMPANY | |
| | | By: | /s/ THOMAS E. O'HERNSCOTT W. KINGSMORE |
| | | | Thomas E. O'HernScott W. Kingsmore |
| | | | Senior Executive Vice President, Treasurer and Chief Financial Officer |
| Date: | November 3, 2017May 11, 2020 | | | (Principal Financial Officer) |