10-Q 1 mac-9302013x10q.htm 10-Q MAC - 9.30.2013 - 10Q


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, 2013
Commission File No. 1-12504
THE MACERICH COMPANY
(Exact name of registrant as specified in its charter)
MARYLAND
 
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 of principal executive office, including 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)
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 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 during the preceding twelve (12) months (or for such shorter period that the registrant was required to submit and post such files).
YES x        NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
 
Non-accelerated filer o (Do not check if a smaller
reporting company)
 
Smaller reporting company  o 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES o       NO x
Number of shares outstanding as of November 4, 2013 of the registrant's common stock, par value $0.01 per share: 140,540,086 shares




THE MACERICH COMPANY
FORM 10-Q
INDEX
Part I
 
Financial Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part II
 
Other Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2



THE MACERICH COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Unaudited)
 
September 30,
2013
 
December 31,
2012
ASSETS:
 
 
 
Property, net
$
7,733,929

 
$
7,479,546

Cash and cash equivalents
62,108

 
65,793

Restricted cash
26,704

 
78,658

Marketable securities

 
23,667

Tenant and other receivables, net
94,719

 
103,744

Deferred charges and other assets, net
546,582

 
565,130

Loans to unconsolidated joint ventures
2,736

 
3,345

Due from affiliates
32,299

 
17,068

Investments in unconsolidated joint ventures
706,450

 
974,258

Total assets
$
9,205,527

 
$
9,311,209

LIABILITIES AND EQUITY:
 
 
 
Mortgage notes payable:
 
 
 
Related parties
$
270,715

 
$
274,609

Others
4,209,900

 
4,162,734

Total
4,480,615

 
4,437,343

Bank and other notes payable
282,937

 
824,027

Accounts payable and accrued expenses
85,394

 
70,251

Other accrued liabilities
360,408

 
318,174

Distributions in excess of investments in unconsolidated joint ventures
257,452

 
152,948

Co-venture obligation
83,951

 
92,215

Total liabilities
5,550,757

 
5,894,958

Commitments and contingencies

 

Equity:
 
 
 
Stockholders' equity:
 
 
 
Common stock, $0.01 par value, 250,000,000 shares authorized, 140,716,198 and 137,507,010 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively
1,407

 
1,375

Additional paid-in capital
3,901,676

 
3,715,895

Accumulated deficit
(606,464
)
 
(639,741
)
Total stockholders' equity
3,296,619

 
3,077,529

Noncontrolling interests
358,151

 
338,722

Total equity
3,654,770

 
3,416,251

Total liabilities and equity
$
9,205,527

 
$
9,311,209

   The accompanying notes are an integral part of these consolidated financial statements.

3


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,
 
2013
 
2012
 
2013
 
2012
Revenues:
 
 
 
 
 
 
 
Minimum rents
$
150,638

 
$
112,221

 
$
438,625

 
$
335,713

Percentage rents
4,137

 
4,838

 
10,953

 
10,806

Tenant recoveries
90,033

 
64,713

 
256,366

 
186,661

Management Companies
10,742

 
9,858

 
31,193

 
30,730

Other
11,006

 
12,462

 
35,770

 
28,988

Total revenues
266,556

 
204,092

 
772,907

 
592,898

Expenses:
 
 
 
 
 
 
 
Shopping center and operating expenses
86,184

 
63,246

 
248,933

 
185,332

Management Companies' operating expenses
23,036

 
20,706

 
69,003

 
66,953

REIT general and administrative expenses
5,955

 
5,063

 
18,672

 
15,235

Depreciation and amortization
91,346

 
68,737

 
272,696

 
207,177

 
206,521

 
157,752

 
609,304

 
474,697

Interest expense:
 
 
 
 
 
 
 
Related parties
3,745

 
3,815

 
11,289

 
11,588

Other
48,911

 
37,750

 
147,430

 
113,706

 
52,656

 
41,565

 
158,719

 
125,294

Loss (gain) on early extinguishment of debt, net
6

 

 
(1,938
)
 

Total expenses
259,183

 
199,317

 
766,085

 
599,991

Equity in income of unconsolidated joint ventures
35,161

 
19,315

 
145,477

 
68,624

Co-venture expense
(2,053
)
 
(2,066
)
 
(6,232
)
 
(4,462
)
Income tax benefit
543

 
934

 
2,263

 
2,159

Gain on remeasurement, sale or write down of assets, net
1,763

 
21,967

 
5,793

 
39,938

Income from continuing operations
42,787

 
44,925

 
154,123

 
99,166

Discontinued operations:
 
 
 
 
 
 
 
(Loss) gain on the disposition of assets, net
(1,281
)
 
(256
)
 
140,631

 
75,571

(Loss) income from discontinued operations
(681
)
 
2,606

 
3,416

 
5,357

Total (loss) income from discontinued operations
(1,962
)
 
2,350

 
144,047

 
80,928

Net income
40,825

 
47,275

 
298,170

 
180,094

Less net income attributable to noncontrolling interests
2,702

 
3,382

 
22,958

 
16,915

Net income attributable to the Company
$
38,123

 
$
43,893

 
$
275,212

 
$
163,179

Earnings per common share attributable to Company—basic:
 
 
 
 
 
 
 
Income from continuing operations
$
0.28

 
$
0.31

 
$
1.00

 
$
0.66

Discontinued operations
(0.01
)
 
0.02

 
0.97

 
0.56

Net income attributable to common stockholders
$
0.27

 
$
0.33

 
$
1.97

 
$
1.22

Earnings per common share attributable to Company—diluted:
 
 
 
 
 
 
 
Income from continuing operations
$
0.28

 
$
0.31

 
$
1.00

 
$
0.66

Discontinued operations
(0.01
)
 
0.02

 
0.97

 
0.56

Net income attributable to common stockholders
$
0.27

 
$
0.33

 
$
1.97

 
$
1.22

Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
140,712,000

 
134,220,000

 
139,219,000

 
133,091,000

Diluted
140,773,000

 
134,330,000

 
139,320,000

 
133,187,000

   The accompanying notes are an integral part of these consolidated financial statements.

4


THE MACERICH COMPANY
CONSOLIDATED STATEMENT OF EQUITY
(Dollars in thousands, except per share data)
(Unaudited)
 
Stockholders' Equity
 
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Par
Value
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Total
Stockholders'
Equity
 
Noncontrolling
Interests
 
Total Equity
Balance at January 1, 2013
137,507,010

 
$
1,375

 
$
3,715,895

 
$
(639,741
)
 
$
3,077,529

 
$
338,722

 
$
3,416,251

Net income

 

 

 
275,212

 
275,212

 
22,958

 
298,170

Share and unit-based compensation plans
86,425

 

 
16,757

 

 
16,757

 

 
16,757

Employee stock purchases
8,941

 

 
459

 

 
459

 

 
459

Stock offerings, net
2,456,956

 
25

 
171,096

 

 
171,121

 

 
171,121

Distributions paid ($1.74) per share

 

 

 
(241,935
)
 
(241,935
)
 

 
(241,935
)
Distributions to noncontrolling interests

 

 

 

 

 
(19,207
)
 
(19,207
)
Contributions from noncontrolling interests

 

 

 

 

 
18,066

 
18,066

Other

 

 
(3,890
)
 

 
(3,890
)
 

 
(3,890
)
Conversion of noncontrolling interests to common shares
656,866

 
7

 
12,977

 

 
12,984

 
(12,984
)
 

Redemption of noncontrolling interests

 

 
(703
)
 

 
(703
)
 
(319
)
 
(1,022
)
Adjustment of noncontrolling interest in Operating Partnership

 

 
(10,915
)
 

 
(10,915
)
 
10,915

 

Balance at September 30, 2013
140,716,198

 
$
1,407

 
$
3,901,676

 
$
(606,464
)
 
$
3,296,619

 
$
358,151

 
$
3,654,770

   The accompanying notes are an integral part of these consolidated financial statements.

5


THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 
For the Nine Months Ended September 30,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net income
$
298,170

 
$
180,094

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Gain on early extinguishment of debt, net
(1,938
)
 

Gain on remeasurement, sale or write down of assets, net
(5,793
)
 
(39,938
)
Gain on the disposition of assets, net from discontinued operations
(140,631
)
 
(75,571
)
Depreciation and amortization
285,933

 
234,410

Amortization of net (premium) discount on mortgages, bank and other notes payable
(5,502
)
 
661

Amortization of share and unit-based plans
13,913

 
8,950

Provision for doubtful accounts
3,231

 
2,200

Income tax benefit
(2,263
)
 
(2,159
)
Equity in income of unconsolidated joint ventures
(145,477
)
 
(68,624
)
Distributions of income from unconsolidated joint ventures
8,538

 
14,682

Co-venture expense
6,232

 
4,462

Changes in assets and liabilities, net of acquisitions and dispositions:
 
 
 
Tenant and other receivables
(1,887
)
 
(1,336
)
Other assets
19,786

 
23,114

Due from affiliates
(1,901
)
 
(4,208
)
Accounts payable and accrued expenses
10,355

 
16,272

Other accrued liabilities
(11,910
)
 
(36,830
)
Net cash provided by operating activities
328,856

 
256,179

Cash flows from investing activities:
 
 
 
Acquisitions of property
(492,577
)
 
(70,925
)
Development, redevelopment, expansion and renovation of properties
(158,682
)
 
(84,283
)
Property improvements
(21,752
)
 
(24,846
)
Issuance of notes receivable
(13,330
)
 
(12,500
)
Proceeds from notes receivable
8,347

 

Proceeds from maturities of marketable securities
23,769

 
788

Deferred leasing costs
(21,774
)
 
(20,875
)
Distributions from unconsolidated joint ventures
665,374

 
217,393

Contributions to unconsolidated joint ventures
(135,477
)
 
(47,513
)
Collection of/loans to unconsolidated joint ventures, net
609

 
661

Proceeds from sale of assets
327,059

 
130,691

Restricted cash
52,892

 
2,886

Net cash provided by investing activities
234,458

 
91,477

 
 
 
 

6


THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 
For the Nine Months Ended September 30,
 
2013
 
2012
Cash flows from financing activities:
 
 
 
Proceeds from mortgages, bank and other notes payable
2,239,853

 
1,580,885

Payments on mortgages, bank and other notes payable
(2,694,945
)
 
(1,813,271
)
Deferred financing costs
(11,053
)
 
(4,639
)
Net proceeds from stock offerings
171,121

 
175,869

Proceeds from share and unit-based plans
558

 
656

Exercise of stock warrants

 
(3,448
)
Redemption of noncontrolling interests
(1,022
)
 
(71
)
Contribution from noncontrolling interests
4,127

 
918

Dividends and distributions
(261,142
)
 
(240,635
)
Distributions to co-venture partner
(14,496
)
 
(34,615
)
Net cash used in financing activities
(566,999
)
 
(338,351
)
Net (decrease) increase in cash and cash equivalents
(3,685
)
 
9,305

Cash and cash equivalents, beginning of period
65,793

 
67,248

Cash and cash equivalents, end of period
$
62,108

 
$
76,553

Supplemental cash flow information:
 
 
 
Cash payments for interest, net of amounts capitalized
$
164,673

 
$
147,946

Non-cash transactions:
 
 
 
Accrued development costs included in accounts payable and accrued expenses and other accrued liabilities
$
23,666

 
$
30,591

Acquisition of properties by assumption of mortgage note payable and other accrued liabilities
$
109,858

 
$

Assumption of mortgage note payable and other liabilities from unconsolidated joint ventures
$
54,271

 
$

Mortgage notes payable settled by deed-in-lieu of foreclosure
$
84,000

 
$
185,000

Application of deposit to acquire property
$
30,000

 
$

Conversion of noncontrolling interests to common shares
$
12,984

 
$
11,978

The accompanying notes are an integral part of these consolidated financial statements.

7


THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
1.
Organization:
The Macerich Company (the "Company") is involved in the acquisition, ownership, development, redevelopment, management and leasing of regional and community/power shopping centers (the "Centers") located throughout the United States.
The Company commenced operations effective with the completion of its initial public offering on March 16, 1994. As of September 30, 2013, the Company was the sole general partner of, and held a 94% 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 Colorado limited liability company, MACW Mall Management, Inc., a New York corporation, and MACW Property Management, LLC, a single member New York limited liability company. All seven of the management companies are collectively referred to herein as the "Management Companies."
All references to the Company in this Quarterly Report on Form 10-Q include the Company, those entities owned or controlled by the Company and predecessors of the Company, unless the context indicates otherwise.
2.
Summary of Significant Accounting Policies:
Basis of Presentation:
The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements and have not been audited by independent public accountants.
The accompanying consolidated financial statements include the accounts of the Company and the Operating Partnership. Investments in entities in which the Company has a controlling financial interest or entities that meet the definition of a variable interest entity in which the Company has, as a result of ownership, contractual or other financial interests, both the power to direct activities that most significantly impact the economic performance of the variable interest entity and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the variable interest entity are consolidated; otherwise they are accounted for under the equity method of accounting and are reflected as investments in unconsolidated joint ventures.
All intercompany accounts and transactions have been eliminated in the consolidated financial statements.
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, 2012. 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, 2012 has been derived from the audited financial statements, but does not include all disclosures required by GAAP.

8

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 earnings per share for the three and nine months ended September 30, 2013 and 2012 (shares in thousands):
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Numerator
 
 
 
 
 
 
 
Income from continuing operations
$
42,787

 
$
44,925

 
$
154,123

 
$
99,166

(Loss) income from discontinued operations
(1,962
)
 
2,350

 
144,047

 
80,928

Net income attributable to noncontrolling interests
(2,702
)
 
(3,382
)
 
(22,958
)
 
(16,915
)
Net income attributable to the Company
38,123

 
43,893

 
275,212

 
163,179

Allocation of earnings to participating securities
(80
)
 
(63
)
 
(257
)
 
(443
)
Numerator for basic and diluted earnings per share—net income attributable to common stockholders
$
38,043

 
$
43,830

 
$
274,955

 
$
162,736

Denominator
 
 
 
 
 
 
 
Denominator for basic earnings per share—weighted average number of common shares outstanding
140,712

 
134,220

 
139,219

 
133,091

Effect of dilutive securities:(1)
 
 
 
 
 
 
 
   Stock warrants

 
64

 

 
78

Share and unit-based compensation plans
61

 
46

 
101

 
18

Denominator for diluted earnings per share—weighted average number of common shares outstanding
140,773

 
134,330

 
139,320

 
133,187

Earnings per common share—basic:
 
 
 
 
 
 
 
Income from continuing operations
$
0.28

 
$
0.31

 
$
1.00

 
$
0.66

Discontinued operations
(0.01
)
 
0.02

 
0.97

 
0.56

Net income attributable to common stockholders
$
0.27

 
$
0.33

 
$
1.97

 
$
1.22

Earnings per common share—diluted:
 
 
 
 
 
 
 
Income from continuing operations
$
0.28

 
$
0.31

 
$
1.00

 
$
0.66

Discontinued operations
(0.01
)
 
0.02

 
0.97

 
0.56

Net income attributable to common stockholders
$
0.27

 
$
0.33

 
$
1.97

 
$
1.22

 
 
 
(1)
The convertible senior notes ("Senior Notes") are excluded from diluted EPS for the nine months ended September 30, 2012 as their impact was antidilutive. The Senior Notes were paid off in full on March 15, 2012 (See Note 10Bank and Other Notes Payable).
Diluted EPS excludes 184,304 convertible preferred units for the three months ended September 30, 2013 and 2012, and 184,304 and 197,183 convertible preferred units for the nine months ended September 30, 2013 and 2012, respectively, as their impact was antidilutive.
Diluted EPS excludes 9,621,313 and 10,769,552 Operating Partnership units ("OP Units") for the three months ended September 30, 2013 and 2012, respectively, and 9,920,197 and 11,069,129 OP Units for the nine months ended September 30, 2013 and 2012, respectively, as their impact was antidilutive.

9

THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)

4.
Investments in Unconsolidated Joint Ventures:
During 2013 and 2012, the Company made the following investments and dispositions relating to its unconsolidated joint ventures:
On March 30, 2012, the Company sold its 50% ownership interest in Chandler Village Center, a 273,000 square foot community center in Chandler, Arizona, for a total sales price of $14,795, resulting in a gain on sale of assets of $8,185 that was included in gain on remeasurement, sale or write down of assets, net during the nine months ended September 30, 2012. The sales price was funded by a cash payment of $6,045 and the assumption of the Company's share of the mortgage note payable on the property of $8,750. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes.
On March 30, 2012, the Company sold its 50% ownership interest in Chandler Festival, a 500,000 square foot community center in Chandler, Arizona, for a total sales price of $30,975, resulting in a gain on sale of assets of $12,347 that was included in gain on remeasurement, sale or write down of assets, net during the nine months ended September 30, 2012. The sales price was funded by a cash payment of $16,183 and the assumption of the Company's share of the mortgage note payable on the property of $14,792. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes.
On March 30, 2012, the Company's joint venture in SanTan Village Power Center, a 491,000 square foot community center in Gilbert, Arizona, sold the property for $54,780, resulting in a gain on sale of assets to the joint venture of $23,294. The cash proceeds from the sale were used to pay off the $45,000 mortgage loan on the property and the remaining $9,780 was distributed to the partners. The Company's share of the gain recognized was $11,502, which was included in equity in income of unconsolidated joint ventures during the nine months ended September 30, 2012, offset in part by $3,565, which was included in net income attributable to noncontrolling interests during the nine months ended September 30, 2012. The Company used its share of the proceeds to pay down its line of credit and for general corporate purposes.
On May 31, 2012, the Company sold its 50% ownership interest in Chandler Gateway, a 260,000 square foot community center in Chandler, Arizona, for a total sales price of $14,315, resulting in a gain on sale of assets of $3,365 that was included in gain on remeasurement, sale or write down of assets, net during the nine months ended September 30, 2012. The sales price was funded by a cash payment of $4,921 and the assumption of the Company's share of the mortgage note payable on the property of $9,394. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes.
On August 10, 2012, the Company was bought out of its ownership interest in NorthPark Center, a 1,946,000 square foot regional shopping center in Dallas, Texas, for $118,810, resulting in a gain of $24,590 that was included in gain on remeasurement, sale or write down of assets during the three and nine months ended September 30, 2012. The Company used the cash proceeds to pay down its line of credit.
On October 3, 2012, the Company acquired the remaining 75% ownership interest in FlatIron Crossing, a 1,435,000 square foot regional shopping center in Broomfield, Colorado, that it did not own for $310,397. The purchase price was funded by a cash payment of $195,900 and the assumption of the third party's share of the mortgage note payable on the property of $114,497. Prior to the acquisition, the Company had accounted for its investment in FlatIron Crossing under the equity method. Since the date of acquisition, the Company has included FlatIron Crossing in its consolidated financial statements (See Note 14Acquisitions).
On October 26, 2012, the Company acquired the remaining 33.3% ownership interest in Arrowhead Towne Center, a 1,196,000 square foot regional shopping center in Glendale, Arizona, that it did not own for $144,400. The purchase price was funded by a cash payment of $69,025 and the assumption of the third party's pro rata share of the mortgage note payable on the property of $75,375. Prior to the acquisition, the Company had accounted for its investment in Arrowhead Towne Center under the equity method. Since the date of acquisition, the Company has included Arrowhead Towne Center in its consolidated financial statements (See Note 14Acquisitions).

10

THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
4. Investments in Unconsolidated Joint Ventures: (Continued)

On May 29, 2013, the Company's joint venture in Pacific Premier Retail LP sold Redmond Town Center Office, a 582,000 square foot office building in Redmond, Washington, for $185,000, resulting in a gain on the sale of assets of $89,155 to the joint venture. The Company's share of the gain was $44,424, which was included in equity in income of unconsolidated joint ventures during the nine months ended September 30, 2013. The Company used its share of the proceeds to pay down its line of credit and for general corporate purposes.
On June 12, 2013, the Company's joint venture in Pacific Premier Retail LP sold Kitsap Mall, a 846,000 square foot regional shopping center in Silverdale, Washington, for $127,000, resulting in a gain on the sale of assets of $55,155 to the joint venture. The Company's share of the gain was $28,129, which was included in equity in income of unconsolidated joint ventures during the nine months ended September 30, 2013. The Company used its share of the proceeds to pay down its line of credit and for general corporate purposes.
On August 1, 2013, the Company's joint venture in Pacific Premier Retail LP sold Redmond Town Center, a 695,000 square foot community center in Redmond, Washington, for $127,000, resulting in a gain on the sale of assets of $38,471 to the joint venture. The Company's share of the gain was $18,263, which was included in equity in income of unconsolidated joint ventures during the three and nine months ended September 30, 2013. The Company used its share of the proceeds to pay down its line of credit and for general corporate purposes.
On September 17, 2013, the Company’s joint venture in Camelback Colonnade, a 619,000 square foot community center in Phoenix, Arizona, was restructured. As a result of the restructuring, the Company’s ownership interest in Camelback Colonnade decreased from 73.2% to 67.5%. Prior to the restructuring, the Company had accounted for its investment in Camelback Colonnade under the equity method of accounting due to substantive participation rights held by the outside partners. Upon completion of the restructuring, these substantive participation rights were terminated and the Company obtained voting control of the joint venture. This transaction is referred to herein as the "Camelback Colonnade Restructuring". Since the date of the restructuring, the Company has included Camelback Colonnade in its consolidated financial statements (See Note 14Acquisitions).
Combined condensed balance sheets and statements of operations are presented below for all unconsolidated joint ventures.















11

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 Condensed Balance Sheets of Unconsolidated Joint Ventures:
 
September 30,
2013
 
December 31,
2012
Assets(1):
 
 
 
Properties, net
$
3,454,127

 
$
3,653,631

Other assets
316,985

 
411,862

Total assets
$
3,771,112

 
$
4,065,493

Liabilities and partners' capital(1):
 
 
 
Mortgage notes payable(2)
$
3,648,498

 
$
3,240,723

Other liabilities
196,927

 
148,711

Company's (deficit) capital
(72,153
)
 
304,477

Outside partners' (deficit) capital
(2,160
)
 
371,582

Total liabilities and partners' capital
$
3,771,112

 
$
4,065,493

Investments in unconsolidated joint ventures:
 
 
 
Company's (deficit) capital
$
(72,153
)
 
$
304,477

Basis adjustment(3)
521,151

 
516,833

 
$
448,998

 
$
821,310

 
 
 
 
Assets—Investments in unconsolidated joint ventures
$
706,450

 
$
974,258

Liabilities—Distributions in excess of investments in unconsolidated joint ventures
(257,452
)
 
(152,948
)
 
$
448,998

 
$
821,310

 
 
 

12

THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
4. Investments in Unconsolidated Joint Ventures: (Continued)

(1)
These amounts include the assets and liabilities of the following joint ventures as of September 30, 2013 and December 31, 2012:
 
Pacific
Premier
Retail LP
 
Tysons
Corner LLC
As of September 30, 2013:
 
 
 
Total Assets
$
776,186

 
$
467,632

Total Liabilities
$
818,222

 
$
337,804

As of December 31, 2012:
 
 
 
Total Assets
$
1,039,742

 
$
409,622

Total Liabilities
$
942,370

 
$
329,145

(2)
Certain mortgage notes payable could become recourse debt to the Company should the joint venture be unable to discharge the obligations of the related debt. As of September 30, 2013 and December 31, 2012, a total of $47,040 and $51,171, respectively, could become recourse debt to the Company. As of September 30, 2013 and December 31, 2012, the Company had indemnity agreements from joint venture partners for $21,270 of the guaranteed amount.
Included in mortgage notes payable are amounts due to affiliates of Northwestern Mutual Life ("NML") of $715,332 and $436,857 as of September 30, 2013 and December 31, 2012, respectively. NML is considered a related party because it is a joint venture partner with the Company in Macerich Northwestern Associates—Broadway Plaza. Interest expense incurred on these borrowings amounted to $7,920 and $10,980 for the three months ended September 30, 2013 and 2012, respectively, and $21,717 and $32,974 for the nine months ended September 30, 2013 and 2012, respectively.
(3)
The Company amortizes the difference between the cost of its investments in unconsolidated joint ventures and the book value of the underlying equity into income on a straight-line basis consistent with the lives of the underlying assets. The amortization of this difference was $3,860 and $3,136 for the three months ended September 30, 2013 and 2012, respectively, and $9,753 and $6,211 for the nine months ended September 30, 2013 and 2012, respectively.


13

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 Condensed Statements of Operations of Unconsolidated Joint Ventures:

 
Pacific
Premier
Retail LP
 
Tysons
Corner
LLC
 
Other
Joint
Ventures
 
Total
Three Months Ended September 30, 2013
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Minimum rents
$
27,426

 
$
15,344

 
$
59,940

 
$
102,710

Percentage rents
572

 
(12
)
 
2,938

 
3,498

Tenant recoveries
12,115

 
11,304

 
28,361

 
51,780

Other
1,086

 
510

 
8,143

 
9,739

Total revenues
41,199

 
27,146

 
99,382

 
167,727

Expenses:
 
 
 
 
 
 
 
Shopping center and operating expenses
12,231

 
9,818

 
35,926

 
57,975

Interest expense
10,251

 
3,801

 
21,062

 
35,114

Depreciation and amortization
9,067

 
4,568

 
22,688

 
36,323

Total operating expenses
31,549

 
18,187

 
79,676

 
129,412

Gain (loss) on remeasurement, sale or write down of assets, net
38,432

 

 
(328
)
 
38,104

Gain on early extinguishment of debt

 
14

 

 
14

Net income
$
48,082

 
$
8,973

 
$
19,378

 
$
76,433

Company's equity in net income
$
21,567

 
$
2,919

 
$
10,675

 
$
35,161

Three Months Ended September 30, 2012
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Minimum rents
$
32,718

 
$
15,847

 
$
75,809

 
$
124,374

Percentage rents
837

 
233

 
4,214

 
5,284

Tenant recoveries
14,091

 
11,340

 
37,663

 
63,094

Other
1,138

 
618

 
9,415

 
11,171

Total revenues
48,784

 
28,038

 
127,101

 
203,923

Expenses:
 
 
 
 
 
 
 
Shopping center and operating expenses
15,075

 
8,760

 
46,153

 
69,988

Interest expense
12,904

 
2,838

 
32,338

 
48,080

Depreciation and amortization
10,905

 
5,094

 
28,784

 
44,783

Total operating expenses
38,884

 
16,692

 
107,275

 
162,851

Loss on remeasurement, sale or write down of assets, net

 

 
(28
)
 
(28
)
Net income
$
9,900

 
$
11,346

 
$
19,798

 
$
41,044

Company's equity in net income
$
5,035

 
$
4,372

 
$
9,908

 
$
19,315



14

THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
4. Investments in Unconsolidated Joint Ventures: (Continued)

 
Pacific
Premier
Retail LP
 
Tysons
Corner
LLC
 
Other
Joint
Ventures
 
Total
Nine Months Ended September 30, 2013
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Minimum rents
$
91,779

 
$
46,526

 
$
180,870

 
$
319,175

Percentage rents
2,155

 
734

 
7,176

 
10,065

Tenant recoveries
40,555

 
34,025

 
82,261

 
156,841

Other
3,980

 
2,080

 
26,923

 
32,983

Total revenues
138,469

 
83,365

 
297,230

 
519,064

Expenses:
 
 
 
 
 
 
 
Shopping center and operating expenses
40,948

 
26,819

 
106,887

 
174,654

Interest expense
33,118

 
7,825

 
66,108

 
107,051

Depreciation and amortization
30,697

 
13,499

 
67,808

 
112,004

Total operating expenses
104,763

 
48,143

 
240,803

 
393,709

Gain on remeasurement, sale or write down of assets, net
182,781

 

 
373

 
183,154

Gain on early extinguishment of debt

 
14

 

 
14

Net income
$
216,487

 
$
35,236

 
$
56,800

 
$
308,523

Company's equity in net income
$
105,684

 
$
12,957

 
$
26,836

 
$
145,477

Nine Months Ended September 30, 2012
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Minimum rents
$
98,812

 
$
47,149

 
$
251,599

 
$
397,560

Percentage rents
2,571

 
866

 
10,531

 
13,968

Tenant recoveries
41,967

 
32,969

 
121,825

 
196,761

Other
3,665

 
1,964

 
27,775

 
33,404

Total revenues
147,015

 
82,948

 
411,730

 
641,693

Expenses:
 
 
 
 
 
 
 
Shopping center and operating expenses
43,385

 
25,834

 
155,014

 
224,233

Interest expense
39,405

 
8,902

 
108,784

 
157,091

Depreciation and amortization
31,926

 
15,279

 
91,214

 
138,419

Total operating expenses
114,716

 
50,015

 
355,012

 
519,743

(Loss) gain on remeasurement, sale or write down of assets, net
(10
)
 

 
22,948

 
22,938

Net income
$
32,289

 
$
32,933

 
$
79,666

 
$
144,888

Company's equity in net income
$
16,422

 
$
12,721

 
$
39,481

 
$
68,624

Significant accounting policies used by the unconsolidated joint ventures are similar to those used by the Company.

15

THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)

5.
Property:
Property consists of the following:
 
September 30,
2013
 
December 31,
2012
Land
$
1,751,611

 
$
1,572,621

Buildings and improvements
6,642,696

 
6,417,674

Tenant improvements
554,528

 
496,203

Equipment and furnishings
153,146

 
149,959

Construction in progress
239,106

 
376,249

 
9,341,087

 
9,012,706

Less accumulated depreciation
(1,607,158
)
 
(1,533,160
)
 
$
7,733,929

 
$
7,479,546

Depreciation expense was $71,136 and $55,086 for the three months ended September 30, 2013 and 2012, respectively, and $207,877 and $164,369 for the nine months ended September 30, 2013 and 2012, respectively.
The gain on remeasurement, sale or write down of assets, net includes the write off of development costs of $126 and $2,623 during the three months ended September 30, 2013 and 2012, respectively, and $1,497 and $8,549 during the nine months ended September 30, 2013 and 2012, respectively.
The gain on remeasurement, sale or write down of assets, net for the three and nine months ended September 30, 2013 includes a remeasurement gain of $36,341 on the Camelback Colonnade Restructuring (See Note 14Acquisitions) offset in part by an impairment loss of $34,452 due to the reduction in the estimated holding period of the long-lived assets of Great Northern Mall and two former Mervyn's stores.
In addition, the gain on remeasurement, sale or write down of assets, net includes the gain on the sale of assets of $5,401 during the nine months ended September 30, 2013.
6.
Marketable Securities:
Marketable securities consist of the following:
 
September 30,
2013
 
December 31,
2012
Government debt securities, at par value
$

 
$
23,769

Less discount

 
(102
)
 

 
23,667

Unrealized gain

 
685

Fair value (Level 1 measurement)
$

 
$
24,352

The proceeds from maturities and interest receipts from the marketable securities were restricted to the service of the Greeley Note (See Note 10Bank and Other Notes Payable). On September 1, 2013, the Greeley note was paid off in full.

16

THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)

7.
Tenant and Other Receivables, net:
Included in tenant and other receivables, net, is an allowance for doubtful accounts of $2,672 and $2,374 at September 30, 2013 and December 31, 2012, respectively. Also included in tenant and other receivables, net, are accrued percentage rents of $2,180 and $9,168 at September 30, 2013 and December 31, 2012, respectively, and deferred rent receivable due to straight-line rent adjustments of $53,523 and $49,129 at September 30, 2013 and December 31, 2012, respectively.
Tenant and other receivables, net includes a note receivable from J&R Holdings XV, LLC ("Pederson") that bears interest at an effective rate of 16.3% and matures on December 31, 2013. Pederson is considered a related party because it has an ownership interest in Promenade at Casa Grande. The note is secured by Pederson's interest in Promenade at Casa Grande. Interest income on the note was $156 and $130 for the three months ended September 30, 2013 and 2012, respectively, and $464 and $388 for the nine months ended September 30, 2013 and 2012, respectively. The balance on the note, including accrued interest, at September 30, 2013 and December 31, 2012 was $4,427 and $3,963, respectively.
Tenant and other receivables, net also included a note receivable that was secured by a deed of trust, bore interest at 5.5% and was to mature on March 31, 2031. This loan was collected in full on August 23, 2013. The balance on the loan at December 31, 2012 was $8,502.


17

THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)

8.
Deferred Charges and Other Assets, net:
Deferred charges and other assets, net, consist of the following:
 
September 30,
2013
 
December 31,
2012
Leasing
$
226,891

 
$
234,498

Financing
52,038

 
42,868

Intangible assets:
 
 
 
In-place lease values
199,274

 
175,735

Leasing commissions and legal costs
50,020

 
46,419

Above-market leases
116,717

 
118,033

Deferred tax assets
32,020

 
33,414

Deferred compensation plan assets
29,126

 
24,670

Acquisition deposit

 
30,000

Other assets
68,180

 
72,811

 
774,266

 
778,448

Less accumulated amortization(1)
(227,684
)
 
(213,318
)
 
$
546,582

 
$
565,130


 
 
 
(1)
Accumulated amortization includes $80,747 and $62,792 relating to in-place lease values, leasing commissions and legal costs at September 30, 2013 and December 31, 2012, respectively. Amortization expense of in-place lease values, leasing commissions and legal costs was $12,228 and $6,323 for the three months ended September 30, 2013 and 2012, respectively, and $40,611 and $22,529 for the nine months ended September 30, 2013 and 2012, respectively.
The allocated values of above-market leases and below-market leases consist of the following:
 
September 30,
2013
 
December 31,
2012
Above-Market Leases
 
 
 
Original allocated value
$
116,717

 
$
118,033

Less accumulated amortization
(43,047
)
 
(46,361
)
 
$
73,670

 
$
71,672

Below-Market Leases(1)
 
 
 
Original allocated value
$
186,600

 
$
164,489

Less accumulated amortization
(74,056
)
 
(77,131
)
 
$
112,544

 
$
87,358


 
 
 
(1)
Below-market leases are included in other accrued liabilities.


18

THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)

9.
Mortgage Notes Payable:
Mortgage notes payable at September 30, 2013 and December 31, 2012 consist of the following:
 
 
Carrying Amount of Mortgage Notes(1)
 
 
 
 
 
 
 
 
September 30, 2013
 
December 31, 2012
 
 
 
 
 
 
Property Pledged as Collateral
 
Related Party
 
Other
 
Related Party
 
Other
 
Effective Interest
Rate(2)
 
Monthly
Debt
Service(3)
 
Maturity
Date(4)
Arrowhead Towne Center
 
$

 
$
237,832

 
$

 
$
243,176

 
2.76
%
 
$
1,131

 
2018

Camelback Colonnade(5)
 

 
49,416

 

 

 
2.16
%
 
178

 
2015

Chandler Fashion Center(6)
 

 
200,000

 

 
200,000

 
3.77
%
 
625

 
2019

Chesterfield Towne Center
 

 
110,000

 

 
110,000

 
4.80
%
 
573

 
2022

Danbury Fair Mall
 
117,810

 
117,809

 
119,823

 
119,823

 
5.53
%
 
1,538

 
2020

Deptford Mall
 

 
202,556

 

 
205,000

 
3.76
%
 
947

 
2023

Deptford Mall
 

 
14,616

 

 
14,800

 
6.46
%
 
101

 
2016

Eastland Mall
 

 
168,000

 

 
168,000

 
5.79
%
 
811

 
2016

Fashion Outlets of Chicago(7)
 

 
81,472

 

 
9,165

 
2.98
%
 
182

 
2017

Fashion Outlets of Niagara Falls USA
 

 
124,682

 

 
126,584

 
4.89
%
 
727

 
2020

Fiesta Mall(8)
 

 

 

 
84,000

 

 

 

Flagstaff Mall
 

 
37,000

 

 
37,000

 
5.03
%
 
151

 
2015

FlatIron Crossing(9)
 

 

 

 
173,561

 

 

 

Freehold Raceway Mall(6)
 

 
232,900

 

 
232,900

 
4.20
%
 
805

 
2018

Fresno Fashion Fair
 
79,701

 
79,701

 
80,601

 
80,602

 
6.76
%
 
1,104

 
2015

Great Northern Mall
 

 
35,719

 

 
36,395

 
5.19
%
 
234

 
2013

Green Acres Mall(10)
 

 
321,407

 

 

 
3.61
%
 
1,447

 
2021

Kings Plaza Shopping Center(11)
 

 
492,954

 

 
354,000

 
3.67
%
 
2,229

 
2019

Northgate Mall(12)
 

 
64,000

 

 
64,000

 
3.06
%
 
130

 
2017

Oaks, The
 

 
215,224

 

 
218,119

 
4.14
%
 
1,064

 
2022

Pacific View
 

 
136,478

 

 
138,367

 
4.08
%
 
668

 
2022

Paradise Valley Mall(13)
 

 

 

 
81,000

 

 

 

Promenade at Casa Grande(14)
 

 
64,226

 

 
73,700

 
5.21
%
 
245

 
2013

Salisbury, Centre at
 

 
115,000

 

 
115,000

 
5.83
%
 
555

 
2016

Santa Monica Place
 

 
236,701

 

 
240,000

 
2.99
%
 
1,004

 
2018

SanTan Village Regional Center(15)
 

 
137,321

 

 
138,087

 
3.14
%
 
589

 
2019

South Plains Mall
 

 
100,221

 

 
101,340

 
6.58
%
 
648

 
2015

South Towne Center(16)
 

 

 

 
85,247

 

 

 

Towne Mall
 

 
23,092

 

 
23,369

 
4.48
%
 
117

 
2022

Tucson La Encantada
 
73,204

 

 
74,185

 

 
4.23
%
 
368

 
2022

Twenty Ninth Street(17)
 

 
107,000

 

 
107,000

 
3.02
%
 
251

 
2016

Valley Mall
 

 
42,345

 

 
42,891

 
5.85
%
 
280

 
2016

Valley River Center
 

 
120,000

 

 
120,000

 
5.59
%
 
558

 
2016

Victor Valley, Mall of(18)
 

 
90,000

 

 
90,000

 
2.74
%
 
183

 
2014

Vintage Faire Mall(16)
 

 
99,431

 

 
135,000

 
5.81
%
 
586

 
2015

Westside Pavilion
 

 
152,797

 

 
154,608

 
4.49
%
 
783

 
2022

Wilton Mall(19)
 

 

 

 
40,000

 

 

 

 
 
$
270,715

 
$
4,209,900

 
$
274,609

 
$
4,162,734

 
 

 
 

 
 



19

THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
9. Mortgage Notes Payable: (Continued)

(1)
The mortgage notes payable balances include the unamortized debt premiums (discounts). Debt premiums (discounts) represent the excess (deficiency) of the fair value of debt over (under) the principal value of debt assumed in various acquisitions and are amortized to 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,
2013
 
December 31,
2012
Arrowhead Towne Center
$
15,411

 
$
17,716

Camelback Colonnade
2,416

 

Deptford Mall
(15
)
 
(19
)
Fashion Outlets of Niagara Falls USA
6,574

 
7,270

FlatIron Crossing

 
5,232

Great Northern Mall
(5
)
 
(28
)
Valley Mall
(241
)
 
(307
)
 
$
24,140

 
$
29,864

(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.