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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007

Commission File No. 1-12504

THE MACERICH COMPANY
(Exact name of registrant as specified in its charter)

MARYLAND
(State or other jurisdiction
of incorporation or organization)
  95-4448705
(I.R.S. Employer
Identification Number)

401 Wilshire Boulevard, Suite 700, Santa Monica, California 90401
(Address of principal executive office, including zip code)

Registrant's telephone number, including area code
(310) 394-6000

Securities registered pursuant to Section 12(b) of the Act

Title of each class

 

Name of each exchange on which registered
Common Stock, $0.01 Par Value
Preferred Share Purchase Rights
  New York Stock Exchange
New York Stock Exchange

         Indicate by check mark if the registrant is well-known seasoned issuer, as defined in Rule 405 of the Securities Act

         YES ý                NO o

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act

         YES o                NO ý

         Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report) and (2) has been subject to such filing requirements for the past 90 days.

         YES ý                NO o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment on to this Form 10-K. o

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý   Accelerated filer o

Non-accelerated filer o
(Do not check if a smaller reporting company)

 

Smaller reporting company o

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

         YES o                NO ý

         The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant was approximately $3.8 billion as of the last business day of the registrant's most recent completed second fiscal quarter based upon the price at which the common shares were last sold on that day.

         Number of shares outstanding of the registrant's common stock, as of February 13, 2008: 72,336,763 shares

DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the proxy statement for the annual stockholders meeting to be held in 2008 are incorporated by reference into Part III of this Form 10-K





THE MACERICH COMPANY
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2007
INDEX

 
   
  Page
Part I    

Item 1.

 

Business

 

1
Item 1A.   Risk Factors   14
Item 1B.   Unresolved Staff Comments   21
Item 2.   Properties   22
Item 3.   Legal Proceedings   31
Item 4.   Submission of Matters to a Vote of Security Holders   31

Part II

 

 

Item 5.

 

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

32
Item 6.   Selected Financial Data   34
Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations   38
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk   53
Item 8.   Financial Statements and Supplementary Data   54
Item 9.   Changes in and Disagreements With Accountants on Accounting and Financial Disclosure   54
Item 9A.   Controls and Procedures   54
Item 9A(T).   Controls and Procedures   57
Item 9B.   Other Information   57

Part III

 

 

Item 10.

 

Directors and Executive Officers and Corporate Governance

 

58
Item 11.   Executive Compensation   58
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   58
Item 13.   Certain Relationships and Related Transactions, and Director Independence   59
Item 14.   Principal Accountant Fees and Services   59

Part IV

 

 

Item 15.

 

Exhibits and Financial Statement Schedules

 

60

Signatures

 

138


PART I

IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS

        This Annual Report on Form 10-K of the Macerich Company (the "Company") contains or incorporates statements that constitute forward-looking statements within the meaning of the federal securities laws. Any statements that do not relate to historical or current facts or matters are forward-looking statements. You can identify some of the forward-looking statements by the use of forward-looking words, such as "may," "will," "could," "should," "expects," "anticipates," "intends," "projects," "predicts," "plans," "believes," "seeks," and "estimates" and variations of these words and similar expressions. Statements concerning current conditions may also be forward-looking if they imply a continuation of current conditions. Forward-looking statements appear in a number of places in this Form 10-K and include statements regarding, among other matters:

        Stockholders are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company or the industry to differ materially from the Company's future results, performance or achievements, or those of the industry, expressed or implied in such forward-looking statements. You are urged to carefully review the disclosures we make concerning risks and other factors that may affect our business and operating results, including those made in "Item 1A. Risk Factors" of this Annual Report on Form 10-K, as well as our other reports filed with the Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document. The Company does not intend, and undertakes no obligation, to update any forward-looking information to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events.

ITEM 1.    BUSINESS

General

        The Company is involved in the acquisition, ownership, development, redevelopment, management and leasing of regional and community shopping centers located throughout the United States. The Company is the sole general partner of, and owns a majority of the ownership interests in, The Macerich Partnership, L.P., a Delaware limited partnership (the "Operating Partnership"). As of December 31, 2007, the Operating Partnership owned or had an ownership interest in 74 regional shopping centers and 20 community shopping centers aggregating approximately 80.7 million square feet of gross leasable area ("GLA"). These 94 regional and community shopping centers are referred to hereinafter as the "Centers", unless the context otherwise requires. The Company is a self-administered and self-managed real estate investment trust ("REIT") and conducts all of its operations through the Operating Partnership and the Company's management companies, Macerich Property Management Company, LLC, a single member Delaware limited liability company, Macerich Management Company, a California corporation, Westcor Partners, L.L.C., a single member Arizona limited liability company,

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Macerich Westcor Management LLC, a single member Delaware limited liability company, Westcor Partners of Colorado, LLC, a Colorado limited liability company, MACW Mall Management, Inc., a New York corporation, and MACW Property Management, LLC, a single member New York limited liability company. All seven of the management companies are collectively referred to herein as the "Management Companies."

        The Company was organized as a Maryland corporation in September 1993 to continue and expand the shopping center operations of Mace Siegel, Arthur M. Coppola, Dana K. Anderson and Edward C. Coppola (the "principals") and certain of their business associates.

        All references to the Company in this Annual Report on Form 10-K include the Company, those entities owned or controlled by the Company and predecessors of the Company, unless the context indicates otherwise.

        Financial information regarding the Company for each of the last three fiscal years is contained in the Company's Consolidated Financial Statements included in Item 15. Exhibits and Financial Statement Schedules.

Recent Developments

        On March 16, 2007, the Company repurchased 807,000 common shares for $75.0 million concurrent with the offering of convertible senior notes (See "Financing Activity"). These shares were repurchased pursuant to the Company's stock repurchase program authorized by the Company's Board of Directors on March 9, 2007. This repurchase program ended on March 16, 2007 because the maximum shares allowed to be repurchased under the program was reached.

        On September 5, 2007, the Company purchased the remaining 50% outside ownership interest in Hilton Village, a 96,546 square foot specialty center in Scottsdale, Arizona. The total purchase price of $13.5 million was funded by cash, borrowings under the Company's line of credit and the assumption of the $8.6 million mortgage note payable on the property.

        On December 17, 2007, the Company purchased a portfolio of fee simple and/or ground leasehold interests in 39 freestanding Mervyn's department stores located in the Southwest United States for $400.2 million. The purchase price was funded by cash and borrowings under the Company's line of credit. Concurrent with the acquisition, the Company entered into 39 individual agreements to leaseback the properties to Mervyns from terms of 14 to 20 years. The Company has designated the 27 freestanding Mervyn's stores located at shopping centers not owned or managed by the Company as available for sale.

        On January 1, 2008, a subsidiary of the Company, at the election of the holders, redeemed approximately 3.4 million participating convertible preferred units ("PCPUs") (the common stock equivalent of approximately 2.9 million shares) in exchange for the distribution of the interests in the entity which held that portion of the Wilmorite portfolio that consisted of Eastview Mall, Greece Ridge Center, Marketplace Mall and Pittsford Plaza, collectively referred to as the "Rochester Properties." This exchange is referred to as the "Rochester Redemption."

        On January 10, 2008, the Company in a 50/50 joint venture, acquired The Shops at North Bridge, a 680,933 square foot urban shopping center in Chicago, Illinois, for a total purchase price of $515.0 million. The Company's share of the purchase price was funded by the assumption of a pro rata share of the $205.0 million fixed rate mortgage on the Center and by borrowings under the Company's line of credit.

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        On January 2, 2007, the Company paid off the $75.0 million loan on Paradise Valley Mall. The repayment was funded by the proceeds from the sale of Citadel Mall, Northwest Arkansas Mall and Crossroads Mall on December 29, 2006.

        On January 23, 2007, the Company exercised an earn-out provision under the loan agreement on Valley River Center and borrowed an additional $20.0 million at a fixed rate of 5.64%. The loan proceeds were used to pay down the Company's line of credit and for general corporate purposes.

        On March 16, 2007, the Company issued $950.0 million in convertible senior notes ("Senior Notes") that mature on March 15, 2012. The Senior Notes bear interest at 3.25%, payable semiannually, are senior unsecured debt of the Company and are guaranteed by the Operating Partnership. The Senior Notes had an initial conversion price of $111.48. The proceeds were used to payoff the $250 million term loan, and to pay down the Company's line of credit. (See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources").

        In connection with the issuance of the Senior Notes, the Company purchased two capped calls ("Capped Calls") from affiliates of the initial purchasers of the Senior Notes for approximately $59.9 million. The Capped Calls effectively increased the conversion price of the Senior Notes to approximately $130.06, which represented a 40% premium to the March 12, 2007 closing price of $92.90 per common share of the Company. The Capped Calls are expected to generally reduce the potential dilution upon exchange of the Senior Notes in the event the market value per share of the Company's common stock, as measured under the terms of the relevant settlement date, is greater than the strike price of the Capped Calls.

        On March 23, 2007, the Company used borrowings under the line of credit to pay off the $51.0 million interest only loan on Tucson La Encantada. On May 15, 2007, the Company placed a new $78.0 million loan on that property that bears interest at a fixed rate of 5.60% and matures on June 1, 2012. The loan proceeds were used to pay down the Company's line of credit and for general corporate purposes.

        On May 23, 2007, the Company borrowed an additional $72.5 million under the loan agreement on Deptford Mall at a fixed rate of 5.38%. The loan proceeds were used to pay down the Company's line of credit and for general corporate purposes.

        On July 2, 2007, the Company's joint venture in Scottsdale Fashion Square refinanced the loan on the property. The two existing loans on the property were replaced with a new $550.0 million loan bearing interest at a fixed rate of 5.66% and maturing July 8, 2013. The Company used its pro rata share of proceeds to pay down the Company's line of credit and for general corporate purposes.

        The first phase of SanTan Village Regional Center opened on October 26, 2007. The 1.2 million square foot open-air super-regional shopping center opened with over 90% of the retail space committed, with Dillard's and more than 85 specialty retailers joining Harkins Theatres, which opened March 2007. The balance of the project, which includes Dick's Sporting Goods, Best Buy, Barnes & Noble and up to 13 restaurants, is expected to open in phases throughout 2008.

        The first phase of The Promenade at Casa Grande, a 1 million square foot, 130 acre department store anchored hybrid center, located in Casa Grande, Arizona, opened on November 16, 2007. With ninety percent committed, the first phase of the project has approximately 550,000 square feet of mini-majors, including Dillard's, Target, J.C.Penney, Kohl's, Petsmart and Staples. The balance of the Center is expected to continue to open in phases throughout 2008.

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        The first phase of The Marketplace at Flagstaff Mall, a 435,000 square foot lifestyle expansion began opening in phases on October 19, 2007. Phase I delivered approximately 267,538 square feet of new retail space including Best Buy, Home Depot, Linens n Things, Marshalls, Old Navy, Petco and Shoe Pavilion. Phase II, which will consist of village shops, an entertainment plaza and pad space, is expected to be completed in 2009-2010.

        On November 8, 2007, Freehold Raceway Mall opened the first phase of a combined expansion and renovation project that will add 96,000 square feet of new retail and restaurant uses to this regional center in New Jersey. The expansion, which is 85% committed, added nine new-to-market additions including: Borders, The Cheesecake Factory, P.F. Chang's, Jared The Galleria of Jewelry, The Territory Ahead, Ann Taylor, Chico's, Coldwater Creek and White House/Black Market. The balance of the project is expected to open throughout 2008.

        Scottsdale Fashion Square, the 2 million square foot luxury flagship, is undergoing a $130 million redevelopment and expansion. Phase I of the redevelopment and expansion began September 2007 with demolition of the vacant anchor space acquired as a result of the Federated-May merger and an adjacent parking structure. A 60,000 square foot Barneys New York, the high-end retailer's first Arizona location, will anchor an additional 100,000 square feet of up to 30 new luxury shops, which is planned to open in Fall 2009 in an urban setting on Scottsdale Road. New first-to-market deals include Salvatore Ferragamo, Grand Luxe Café, CH Carolina Herrera, and Michael Kors. First-to-market retailers opening in the Spring 2008 will include Bottega Veneta, Jimmy Choo and Marciano.

        Construction continues on the combined redevelopment, expansion and interior renovation of The Oaks, an upscale 1.0 million square foot super-regional shopping center in California's affluent Thousand Oaks. The market's first Nordstrom department store is under construction. Construction of a first-to-market, 138,000 square foot Nordstrom department store, two-level open-air retail, dining and entertainment venue and new multi-level parking structure at The Oaks continues on schedule toward a phased completion beginning Fall 2008.

        In December 2007, the Company received full entitlements to proceed with plans for a redevelopment of Santa Monica Place. The regional center will be redeveloped as an open-air shopping and dining environment that will connect with the popular Third Street Promenade. The Santa Monica Place redevelopment has started and is moving forward with a projected Fall 2009 completion.

The Shopping Center Industry

        There are several types of retail shopping centers, which are differentiated primarily based on size and marketing strategy. Regional shopping centers generally contain in excess of 400,000 square feet of GLA and are typically anchored by two or more department or large retail stores ("Anchors") and are referred to as "Regional Shopping Centers" or "Malls." Regional Shopping Centers also typically contain numerous diversified retail stores ("Mall Stores"), most of which are national or regional retailers typically located along corridors connecting the Anchors. Community Shopping Centers, also referred to as "strip centers" or "urban villages" or "specialty centers", are retail shopping centers that are designed to attract local or neighborhood customers and are typically anchored by one or more supermarkets, discount department stores and/or drug stores. Community Shopping Centers typically contain 100,000 square feet to 400,000 square feet of GLA. In addition, freestanding retail stores are located along the perimeter of the shopping centers ("Freestanding Stores"). Anchors, Mall and Freestanding Stores and other tenants typically contribute funds for the maintenance of the common areas, property taxes, insurance, advertising and other expenditures related to the operation of the shopping center.

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        A Regional Shopping Center draws from its trade area by offering a variety of fashion merchandise, hard goods and services and entertainment, often in an enclosed, climate controlled environment with convenient parking. Regional Shopping Centers provide an array of retail shops and entertainment facilities and often serve as the town center and the preferred gathering place for community, charity, and promotional events.

        Regional Shopping Centers have generally provided owners with relatively stable growth in income despite the cyclical nature of the retail business. This stability is due both to the diversity of tenants and to the typical dominance of Regional Shopping Centers in their trade areas.

        Regional Shopping Centers have different strategies with regard to price, merchandise offered and tenant mix, and are generally tailored to meet the needs of their trade areas. Anchor tenants are located along common areas in a configuration designed to maximize consumer traffic for the benefit of the Mall Stores. Mall GLA, which generally refers to gross leasable area contiguous to the Anchors for tenants other than Anchors, is leased to a wide variety of smaller retailers. Mall Stores typically account for the majority of the revenues of a Regional Shopping Center.

Business of the Company

        The Company has a four-pronged business strategy which focuses on the acquisition, leasing and management, redevelopment and development of Regional Shopping Centers.

        Acquisitions.    The Company focuses on well-located, quality regional shopping centers that are, or it believes can be, dominant in their trade area and have strong revenue enhancement potential. The Company subsequently seeks to improve operating performance and returns from these properties through leasing, management and redevelopment. Since its initial public offering, the Company has acquired interests in shopping centers nationwide. The Company believes that it is geographically well positioned to cultivate and maintain ongoing relationships with potential sellers and financial institutions and to act quickly when acquisition opportunities arise. (See "Recent Developments--Acquisitions and Dispositions").

        Leasing and Management.    The Company believes that the shopping center business requires specialized skills across a broad array of disciplines for effective and profitable operations. For this reason, the Company has developed a fully integrated real estate organization with in-house acquisition, accounting, development, finance, leasing, legal, marketing, property management and redevelopment expertise. In addition, the Company emphasizes a philosophy of decentralized property management, leasing and marketing performed by on-site professionals. The Company believes that this strategy results in the optimal operation, tenant mix and drawing power of each Center as well as the ability to quickly respond to changing competitive conditions of the Center's trade area.

        The Company believes that on-site property managers can most effectively operate the Centers. Each Center's property manager is responsible for overseeing the operations, marketing, maintenance and security functions at the Center. Property managers focus special attention on controlling operating costs, a key element in the profitability of the Centers, and seek to develop strong relationships with and to be responsive to the needs of retailers.

        Similarly, the Company generally utilizes on-site and regionally located leasing managers to better understand the market and the community in which a Center is located. The Company continually assesses and fine tunes each Center's tenant mix, identifies and replaces underperforming tenants and seeks to optimize existing tenant sizes and configurations.

5


        On a selective basis, the Company provides property management and leasing services for third parties. The Company currently manages four malls for third party owners on a fee basis. In addition, the Company manages four community centers for a related party.

        Redevelopment.    One of the major components of the Company's growth strategy is its ability to redevelop acquired properties. For this reason, the Company has built a staff of redevelopment professionals who have primary responsibility for identifying redevelopment opportunities that will result in enhanced long-term financial returns and market position for the Centers. The redevelopment professionals oversee the design and construction of the projects in addition to obtaining required governmental approvals. (See "Recent Developments--Redevelopment and Development Activity").

        Development.    The Company pursues ground-up development projects on a selective basis. The Company has supplemented its strong acquisition, operations and redevelopment skills with its ground-up development expertise to further increase growth opportunities. (See "Recent Developments--Redevelopment and Development Activity").

        As of December 31, 2007, the Centers consist of 74 Regional Shopping Centers and 20 Community Shopping Centers aggregating approximately 80.7 million square feet of GLA. The 74 Regional Shopping Centers in the Company's portfolio average approximately 991,000 square feet of GLA and range in size from 2.2 million square feet of GLA at Tysons Corner Center to 323,455 square feet of GLA at Panorama Mall. The Company's 20 Community Shopping Centers have an average of approximately 249,000 square feet of GLA. After giving effect to the Rochester Redemption and the acquisition of The Shops at North Bridge (See Recent Developments), the Centers presently include 318 Anchors totaling approximately 41.6 million square feet of GLA and approximately 9,200 Mall and Freestanding Stores totaling approximately 35.1 million square feet of GLA.

        There are numerous owners and developers of real estate that compete with the Company in its trade areas. There are six other publicly traded mall companies and several large private mall companies, any of which under certain circumstances could compete against the Company for an acquisition, an Anchor or a tenant. In addition, private equity firms compete with the Company in terms of acquisitions. This results in competition for both acquisition of centers and for tenants or Anchors to occupy space. The existence of competing shopping centers could have a material adverse impact on the Company's ability to lease space and on the level of rent that can be achieved. There is also increasing competition from other retail formats and technologies, such as lifestyle centers, power centers, internet shopping and home shopping networks, factory outlet centers, discount shopping clubs and mail-order services that could adversely affect the Company's revenues.

        In making leasing decisions, the Company believes that retailers consider the following material factors relating to a center: quality, design and location, including consumer demographics; rental rates; type and quality of Anchors and retailers at the center; and management and operational experience and strategy of the center. The Company believes it is able to compete effectively for retail tenants in its local markets based on these criteria in light of the overall size, quality and diversity of its portfolio of Centers.

        The Centers derived approximately 95.1% of their total minimum rents for the year ended December 31, 2007 from Mall and Freestanding Stores. One tenant accounted for approximately 3.3%

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of minimum rents of the Company, and no other single tenant accounted for more than 2.7% of minimum rents as of December 31, 2007.

        The following tenants (including their subsidiaries) represent the 10 largest tenants in the Company's portfolio (including joint ventures) based upon minimum rents in place as of December 31, 2007:

Tenant

  Primary DBA's
  Number of Locations in the Portfolio
  % of Total Annual Minimum Rents as of December 31, 2007(1)
 
Mervyn's(2)   Mervyn's   45   3.3 %
The Gap, Inc.    Gap, Banana Republic, Old Navy   103   2.7 %
Limited Brands, Inc.    Victoria Secret, Bath and Body   146   2.3 %
Foot Locker, Inc.    Footlocker, Champs Sports, Lady Footlocker   161   2.0 %
AT&T Mobility, LLC(3)   AT&T Wireless, Cingular Wireless   33   1.5 %
Abercrombie & Fitch Co.    Abercrombie & Fitch   71   1.5 %
Luxottica Group S.P.A.    Lenscrafters, Sunglass Hut   150   1.2 %
Zale Corporation   Zales, Piercing Pagoda, Gordon's Jewelers   120   1.2 %
American Eagle Outfitters, Inc.    American Eagle Outfitters   57   1.0 %
Signet Group   Kay Jewelers, Weisfield Jewelers   76   1.0 %

(1)
The above table includes The Shops at North Bridge and excludes the Rochester Properties.

(2)
Fee simple and/or ground leasehold interests in thirty-nine Mervyn's stores were acquired on December 17, 2007.

(3)
Includes AT&T Mobility office headquarters located at Redmond Town Center.

        Mall and Freestanding Store leases generally provide for tenants to pay rent comprised of a base (or "minimum") rent and a percentage rent based on sales. In some cases, tenants pay only minimum rent, and in some cases, tenants pay only percentage rents. Historically, most leases for Mall and Freestanding Stores contain provisions that allow the Centers to recover their costs for maintenance of the common areas, property taxes, insurance, advertising and other expenditures related to the operations of the Center. Since January 2005, the Company generally began entering into leases which require tenants to pay a stated amount for such operating expenses, generally excluding property taxes, regardless of the expenses the Company actually incurs at any Center.

        Tenant space of 10,000 square feet and under in the portfolio at December 31, 2007 comprises 69.1% of all Mall and Freestanding Store space. The Company uses tenant spaces of 10,000 square feet and under for comparing rental rate activity. The Company believes that to include space over 10,000 square feet would provide a less meaningful comparison.

        When an existing lease expires, the Company is often able to enter into a new lease with a higher base rent component. The average base rent for new Mall and Freestanding Store leases at the consolidated Centers, 10,000 square feet and under, commencing during 2007 was $43.23 per square foot, or 26.4% higher than the average base rent for all Mall and Freestanding Stores at the consolidated Centers, 10,000 square feet and under, expiring during 2007 of $34.21 per square foot.

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        The following table sets forth for the Centers, the average base rent per square foot of Mall and Freestanding GLA, for tenants 10,000 square feet and under, as of December 31 for each of the past three years:

For the Year Ended
December 31,

  Average Base Rent Per Square Foot(1)
  Avg. Base Rent Per Sq. Ft. on Leases Commencing During the Year(2)
  Avg. Base Rent Per Sq. Ft. on Leases Expiring During the Year(3)
Consolidated Centers:            
2007   $ 38.49   $ 43.23   $ 34.21
2006   $ 37.55   $ 38.40   $ 31.92
2005   $ 34.23   $ 35.60   $ 30.71

Joint Venture Centers:

 

 

 

 

 

 
2007   $ 38.72   $ 47.12   $ 34.87
2006   $ 37.94   $ 41.43   $ 36.19
2005   $ 36.35   $ 39.08   $ 30.18

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        The Company's management believes that in order to maximize the Company's operating cash flow, the Centers' Mall Store tenants must be able to operate profitably. A major factor contributing to tenant profitability is cost of occupancy. The following table summarizes occupancy costs for Mall Store tenants in the Centers as a percentage of total Mall Store sales for the last three years:

 
  For Years ended December 31,
 
 
  2007
  2006
  2005
 
Consolidated Centers:              
Minimum Rents   8.0 % 8.1 % 8.3 %
Percentage Rents   0.4 % 0.4 % 0.5 %
Expense Recoveries(1)   3.8 % 3.7 % 3.6 %
   
 
 
 
    12.2 % 12.2 % 12.4 %
   
 
 
 

Joint Venture Centers:

 

 

 

 

 

 

 
Minimum Rents   7.3 % 7.2 % 7.4 %
Percentage Rents   0.5 % 0.6 % 0.5 %
Expense Recoveries(1)   3.2 % 3.1 % 3.0 %
   
 
 
 
    11.0 % 10.9 % 10.9 %
   
 
 
 

        The following tables show scheduled lease expirations (for Centers owned as of December 31, 2007) of Mall and Freestanding Stores (10,000 square feet and under) for the next ten years, assuming that none of the tenants exercise renewal options:

Consolidated Centers:

Year Ending December 31,

  Number of Leases Expiring
  Approximate
GLA of Leases
Expiring(1)

  % of Total Leased GLA Represented by Expiring Leases(1)
  Ending Base Rent per Square Foot of Expiring Leases(1)
2008   486   992,151   12.87 % $ 35.14
2009   332   630,841   8.18 % $ 38.93
2010   419   808,960   10.49 % $ 41.24
2011   404   1,020,218   13.23 % $ 37.76
2012   291   773,163   10.03 % $ 37.20
2013   210   499,179   6.47 % $ 41.65
2014   241   562,547   7.30 % $ 49.88
2015   253   686,474   8.90 % $ 46.69
2016   258   685,204   8.89 % $ 40.56
2017   219   664,921   8.62 % $ 38.92

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Joint Venture Centers (at pro rata share):

Year Ending December 31,

  Number of Leases Expiring
  Approximate
GLA of Leases
Expiring(1)

  % of Total Leased GLA Represented by Expiring Leases(1)
  Ending Base Rent per Square Foot of Expiring Leases(1)
2008   493   497,910   12.42 % $ 37.61
2009   393   428,120   10.68 % $ 37.97
2010   416   425,003   10.60 % $ 41.88
2011   369   434,833   10.85 % $ 38.88
2012   301   322,453   8.05 % $ 41.55
2013   225   262,946   6.56 % $ 43.02
2014   221   266,419   6.65 % $ 42.88
2015   232   291,919   7.28 % $ 43.73
2016   288   356,072   8.88 % $ 47.29
2017   236   352,911   8.81 % $ 42.64

        Anchors have traditionally been a major factor in the public's identification with Regional Shopping Centers. Anchors are generally department stores whose merchandise appeals to a broad range of shoppers. Although the Centers receive a smaller percentage of their operating income from Anchors than from Mall and Freestanding Stores, strong Anchors play an important part in maintaining customer traffic and making the Centers desirable locations for Mall and Freestanding Store tenants.

        Anchors either own their stores, the land under them and in some cases adjacent parking areas, or enter into long-term leases with an owner at rates that are lower than the rents charged to tenants of Mall and Freestanding Stores. Each Anchor, which owns its own store, and certain Anchors which lease their stores, enter into reciprocal easement agreements with the owner of the Center covering among other things, operational matters, initial construction and future expansion.

        Anchors accounted for approximately 4.9% of the Company's total minimum rent for the year ended December 31, 2007.

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        The following table identifies each Anchor, each parent company that owns multiple Anchors and the number of square feet owned or leased by each such Anchor or parent company in the Company's portfolio at December 31, 2007, giving effect to the Rochester Redemption and the acquisition of The Shops at North Bridge:

Name(1)

  Number of
Anchor Stores(1)

  GLA Owned
by Anchor(1)

  GLA Leased
by Anchor(1)

  Total GLA
Occupied by Anchor(1)

Macy's Inc.                 
  Macy's(2)   54   6,046,168   2,920,001   8,966,169
  Bloomingdale's   1   --   255,888   255,888
   
 
 
 
    Total   55   6,046,168   3,175,889   9,222,057
Sears Holdings Corporation                
  Sears   48   4,462,305   2,079,671   6,541,976
  Great Indoors, The   1   --   131,051   131,051
  K-Mart   1   --   86,479   86,479
   
 
 
 
    Total   50   4,462,305   2,297,201   6,759,506
J.C. Penney   45   2,351,211   3,664,424   6,015,635
Dillard's   26   3,574,852   918,235   4,493,087
Mervyn's(3)   45   233,282   3,365,571   3,598,853
Nordstrom(4)   13   699,127   1,526,369   2,225,496
Target(5)   13   1,125,041   564,279   1,689,320
The Bon-Ton Stores, Inc.                
  Younkers   6   --   609,177   609,177
  Bon-Ton, The   1   --   71,222   71,222
  Herberger's   4   188,000   214,573   402,573
   
 
 
 
    Total   11   188,000   894,972   1,082,972
Gottschalks   7   332,638   553,242   885,880
Boscov's   3   --   476,067   476,067
Wal-Mart   3   371,527   100,709   472,236
Neiman Marcus   3   120,000   321,450   441,450
Lord & Taylor   3   120,635   199,372   320,007
Home Depot   3   120,530   274,402   394,932
Kohl's   3   165,279   114,359   279,638
Burlington Coat Factory   3   186,570   74,585   261,155
Dick's Sporting Goods(6)   3   --   257,241   257,241
Von Maur   3   186,686   59,563   246,249
Belk, Inc.                
  Belk   3   --   200,925   200,925
La Curacao   1   164,656   --   164,656
Barneys New York(7)   2   --   141,398   141,398
Lowe's   1   135,197   --   135,197
Best Buy   2   129,441   --   129,441
Saks Fifth Avenue   1   --   92,000   92,000
L.L. Bean   1   --   75,778   75,778
Sports Authority   1   --   52,250   52,250
Bealls   1   --   40,000   40,000
Richman Gordman 1/2 Price   1   --   60,000   60,000
Vacant(8)   12   --   1,426,844   1,426,844
   
 
 
 
Total   318   20,713,145   20,927,125   41,640,270
   
 
 
 

(1)
As a result of the Rochester Redemption on January 1, 2008, anchor tenants for the Rochester Properties are excluded from the above table. The Nordstrom anchor at The Shops at North Bridge acquired in January 2008 is included in the above table.

(2)
Macy's is scheduled to close their 300,196 square foot store at Valley View Center in March 2008.

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(3)
This includes 39 Mervyn's stores acquired on December 17, 2007. Mervyn's is scheduled to open a 150,000 square foot store at Inland Center in Fall 2008.

(4)
Nordstrom is scheduled to open a 138,000 square foot store at The Oaks in 2009.

(5)
Target is scheduled to open a 180,000 square foot store at Pacific View in Spring 2008.

(6)
Dick's Sporting Goods is scheduled to open a 70,000 square foot store at Arrowhead Towne Center in Fall 2008 and a 90,000 square foot store at Washington Square in Spring 2008.

(7)
Barneys New York is scheduled to open a 60,000 square foot store at Scottsdale Fashion Square in 2009.

(8)
The Company is contemplating various replacement tenant and/or redevelopment opportunities for these vacant sites.

Environmental Matters

        Each of the Centers has been subjected to a Phase I audit (which involves review of publicly available information and general property inspections, but does not involve soil sampling or ground water analysis) completed by an environmental consultant.

        Based on these audits, and on other information, the Company is aware of the following environmental issues that may reasonably result in costs associated with future investigation or remediation, or in environmental liability:


Insurance

        Each of the Centers has comprehensive liability, fire, extended coverage and rental loss insurance with insured limits customarily carried for similar properties. The Company does not insure certain types of losses (such as losses from wars), because they are either uninsurable or not economically insurable. In addition, while the Company or the relevant joint venture, as applicable, carries specific earthquake insurance on the Centers located in earthquake-prone zones, the policies are subject to a deductible equal to 5% of the total insured value of each Center, a $100,000 per occurrence minimum and a combined annual aggregate loss limit of $106.6 million on these Centers. While the Company or the relevant joint venture also carries terrorism insurance on the Centers, the policies are subject to a

12



$10,000 deductible and a combined annual aggregate loss of $800 million. Each Center has environmental insurance covering eligible third-party losses, remediation and non-owned disposal sites, subject to a $100,000 deductible and a $10 million three-year aggregate limit. Some environmental losses are not covered by this insurance because they are uninsurable or not economically insurable. Furthermore, the Company carries title insurance on substantially all of the Centers for less than their full value.

Qualification as a Real Estate Investment Trust

        The Company elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"), commencing with its first taxable year ended December 31, 1994, and intends to conduct its operations so as to continue to qualify as a REIT under the Code. As a REIT, the Company generally will not be subject to federal and state income taxes on its net taxable income that it currently distributes to stockholders. Qualification and taxation as a REIT depends on the Company's ability to meet certain dividend distribution tests, share ownership requirements and various qualification tests prescribed in the Code.

Employees

        As of December 31, 2007, the Company and the Management Companies employed 3,014 persons, including executive officers (11), personnel in the areas of acquisitions and business development (26), property management/marketing (489), leasing (200), redevelopment/development (81), financial services (281) and legal affairs (65). In addition, in an effort to minimize operating costs, the Company generally maintains its own security and guest services staff (1,842) and in some cases maintenance staff (19). Unions represent six of these employees. The Company primarily engages a third party to handle maintenance at the Centers. The Company believes that relations with its employees are good.

Available Information; Website Disclosure; Corporate Governance Documents

        The Company's corporate website address is www.macerich.com. The Company makes available free-of-charge through this website its reports on Forms 10-K, 10-Q and 8-K and all amendments thereto, as soon as reasonably practicable after the reports have been filed with, or furnished to, the Securities and Exchange Commission. These reports are available under the heading "Investing--SEC Filings", through a free hyperlink to a third-party service.

        The following documents relating to Corporate Governance are available on the Company's website at www.macerich.com under "Investing--Corporate Governance":

        You may also request copies of any of these documents by writing to:

Certifications

        The Company submitted a Section 303A.12 (a) CEO Certification to the New York Stock Exchange last year. In addition, the Company filed with the Securities and Exchange Commission the CEO/CFO certification required under Section 302 of the Sarbanes-Oxley Act and it is included as Exhibit 31 hereto.

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ITEM 1A.    RISK FACTORS

We invest primarily in shopping centers, which are subject to a number of significant risks that are beyond our control.

        Real property investments are subject to varying degrees of risk that may affect the ability of our Centers to generate sufficient revenues to meet operating and other expenses, including debt service, lease payments, capital expenditures and tenant improvements, and to make distributions to us and our stockholders. Centers wholly owned by us are referred to as "Wholly Owned Centers" and Centers that are partly but not wholly owned by us are referred to as "Joint Venture Centers." A number of factors may decrease the income generated by the Centers, including:

        Income from shopping center properties and shopping center values are also affected by applicable laws and regulations, including tax, environmental, safety and zoning laws, and by interest rate levels and the availability and cost of financing. In addition, the number of prospective buyers interested in purchasing shopping centers is limited. Therefore, if we want to sell one or more of our Centers, we may not be able to dispose of it in the desired time period and may receive less consideration than we originally invested in the Center. Furthermore, real estate investments are relative illiquid. This characteristic tends to limit our ability to vary our portfolio promptly in response to changes in economic or other conditions.

Some of our Centers are geographically concentrated and, as a result, are sensitive to local economic and real estate conditions.

        A significant percentage of our Centers are located in California and Arizona and eight Centers in the aggregate are located in New York, New Jersey and Connecticut. To the extent that weak economic or real estate conditions, including as a result of the factors described in the preceding risk factor, or other factors affect California, Arizona, New York, New Jersey or Connecticut (or their respective regions) more severely than other areas of the country, our financial performance could be negatively impacted.

We are in a competitive business.

        There are numerous owners and developers of real estate that compete with us in our trade areas. There are six other publicly traded mall companies and several large private mall companies, any of which under certain circumstances could compete against us for an acquisition, an Anchor or a tenant. In addition, private equity firms compete with us in terms of acquisitions. This results in competition for both acquisition of centers and for tenants or Anchors to occupy space. The existence of competing shopping centers could have a material adverse impact on our ability to lease space and on the level of rents that can be achieved. There is also increasing competition from other retail formats and technologies, such as lifestyle centers, power centers, internet shopping and home shopping networks,

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factory outlet centers, discount shopping clubs and mail-order services that could adversely affect our revenues.

Our Centers depend on tenants to generate rental revenues.

        Our revenues and funds available for distribution will be reduced if:

        A decision by an Anchor, or other significant tenant to cease operations at a Center could also have an adverse effect on our financial condition. The closing of an Anchor or other significant tenant may allow other Anchors and/or other tenants to terminate their leases, seek rent relief and/or cease operating their stores at the Center or otherwise adversely affect occupancy at the Center. In addition, Anchors and/or tenants at one or more Centers might terminate their leases as a result of mergers, acquisitions, consolidations, dispositions or bankruptcies in the retail industry. The bankruptcy and/or closure of retail stores, or sale of an Anchor or store to a less desirable retailer, may reduce occupancy levels, customer traffic and rental income, or otherwise adversely affect our financial performance. Furthermore, if the store sales of retailers operating in the Centers decline sufficiently, tenants might be unable to pay their minimum rents or expense recovery charges. In the event of a default by a lessee, the affected Center may experience delays and costs in enforcing its rights as lessor.

Our acquisition and real estate development strategies may not be successful.

        Our historical growth in revenues, net income and funds from operations has been closely tied to the acquisition and redevelopment of shopping centers. Many factors, including the availability and cost of capital, our total amount of debt outstanding, interest rates and the availability of attractive acquisition targets, among others, will affect our ability to acquire and redevelop additional properties in the future. We may not be successful in pursuing acquisition opportunities, and newly acquired properties may not perform as well as expected. Expenses arising from our efforts to complete acquisitions, redevelop properties or increase our market penetration may have a material adverse effect on our business, financial condition and results of operations. We face competition for acquisitions primarily from other REITs, as well as from private real estate companies and financial buyers. Some of our competitors have greater financial and other resources. Increased competition for shopping center acquisitions may impact adversely our ability to acquire additional properties on favorable terms. We cannot guarantee that we will be able to implement our growth strategy successfully or manage our expanded operations effectively and profitably.

        We may not be able to achieve the anticipated financial and operating results from newly acquired assets. Some of the factors that could affect anticipated results are:


        Our business strategy also includes the selective development and construction of retail properties. Any development, redevelopment and construction activities that we may undertake will be subject to the risks of real estate development, including lack of financing, construction delays, environmental

15


requirements, budget overruns, sunk costs and lease-up. Furthermore, occupancy rates and rents at a newly completed property may not be sufficient to make the property profitable. Real estate development activities are also subject to risks relating to the inability to obtain, or delays in obtaining, all necessary zoning, land-use, building, and occupancy and other required governmental permits and authorizations. If any of the above events occur, our ability to pay dividends to our stockholders and service our indebtedness could be adversely affected.

We have substantial debt that could affect our future operations.

        Our total outstanding loan indebtedness at December 31, 2007 was $7.6 billion (including $1.8 billion of our pro rata share of joint venture debt). As a result of this substantial indebtedness, we are required to use a material portion of our cash flow to service principal and interest on our debt, which limits the cash flow available for other business opportunities. In addition, we are subject to the risks normally associated with debt financing, including the risk that our cash flow from operations will be insufficient to meet required debt service and that rising interest rates could adversely affect our debt service costs. A majority of our Centers are mortgaged to secure payment of indebtedness, and if income from the Center is insufficient to pay that indebtedness, the Center could be foreclosed upon by the mortgagee resulting in a loss of income and a decline in our total asset value.

We depend on external financings for our growth and ongoing debt service requirements.

        We depend primarily on external financings, principally debt financings, to fund the growth of our business and to ensure that we can meet ongoing maturities of our outstanding debt. Our access to financing depends on the willingness of banks to lend to us and conditions in the capital markets in general. We cannot assure you that we will be able to obtain the financing we need for future growth or to meet our debt service as obligations mature, or that the financing available to us will be on acceptable terms.

Inflation may adversely affect our financial condition and results of operations.

        If inflation increases in the future, we may experience any or all of the following:

Certain individuals have substantial influence over the management of both us and the Operating Partnership, which may create conflicts of interest.

        Under the limited partnership agreement of the Operating Partnership, we, as the sole general partner, are responsible for the management of the Operating Partnership's business and affairs. Each of the principals serves as an executive officer and is a member of our board of directors. Accordingly, these principals have substantial influence over our management and the management of the Operating Partnership.

The tax consequences of the sale of some of the Centers may create conflicts of interest.

        The principals will experience negative tax consequences if some of the Centers are sold. As a result, the principals may not favor a sale of these Centers even though such a sale may benefit our other stockholders.

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The guarantees of indebtedness by and certain holdings of the principals may create conflicts of interest.

        The principals have guaranteed mortgage loans encumbering one of the Centers. As of December 31, 2007, the principals have guaranteed an aggregate principal amount of approximately $21.8 million. The existence of guarantees of these loans by the principals could result in the principals having interests that are inconsistent with the interests of our stockholders.

        The principals may have different interests than our stockholders because they are significant holders of the Operating Partnership.

If we were to fail to qualify as a REIT, we will have reduced funds available for distributions to our stockholders.

        We believe that we currently qualify as a REIT. No assurance can be given that we will remain qualified as a REIT. Qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which there are only limited judicial or administrative interpretations. The complexity of these provisions and of the applicable income tax regulations is greater in the case of a REIT structure like ours that holds assets in partnership form. The determination of various factual matters and circumstances not entirely within our control, including determinations by our partners in the Joint Venture Centers, may affect our continued qualification as a REIT. In addition, legislation, new regulations, administrative interpretations or court decisions could significantly change the tax laws with respect to our qualification as a REIT or the U.S. federal income tax consequences of that qualification.

        If in any taxable year we were to fail to qualify as a REIT, we will suffer the following negative results:

        In addition, if we were to lose our REIT status, we will be prohibited from qualifying as a REIT for the four taxable years following the year during which the qualification was lost, absent relief under statutory provisions. As a result, net income and the funds available for distributions to our stockholders would be reduced for at least five years and the fair market value of our shares could be materially adversely affected. Furthermore, the Internal Revenue Service could challenge our REIT status for past periods, which if successful could result in us owing a material amount of tax for prior periods. It is possible that future economic, market, legal, tax or other considerations might cause our board of directors to revoke our REIT election.

        Even if we remain qualified as a REIT, we might face other tax liabilities that reduce our cash flow. Further, we might be subject to federal, state and local taxes on our income and property. Any of these taxes would decrease cash available for distributions to stockholders.

Complying with REIT requirements might cause us to forego otherwise attractive opportunities.

        In order to qualify as a REIT for U.S. federal income tax purposes, we must satisfy tests concerning, among other things, our sources of income, the nature of our assets, the amounts we distribute to our stockholders and the ownership of our stock. We may also be required to make distributions to our stockholders at disadvantageous times or when we do not have funds readily available for distribution. Thus, compliance with REIT requirements may cause us to forego opportunities we would otherwise pursue.

17


        In addition, the REIT provisions of the Internal Revenue Code impose a 100% tax on income from "prohibited transactions." Prohibited transactions generally include sales of assets that constitute inventory or other property held for sale in the ordinary course of business, other than foreclosure property. This 100% tax could impact our desire to sell assets and other investments at otherwise opportune times if we believe such sales could be considered a prohibited transaction.

Complying with REIT requirements may force us to borrow to make distributions to our stockholders.

        As a REIT, we generally must distribute 90% of our annual taxable income (subject to certain adjustments) to our stockholders. From time to time, we might generate taxable income greater than our net income for financial reporting purposes, or our taxable income might be greater than our cash flow available for distributions to our stockholders. If we do not have other funds available in these situations, we might be unable to distribute 90% of our taxable income as required by the REIT rules. In that case, we would need to borrow funds, sell a portion of our investments (potentially at disadvantageous prices) or find another alternative source of funds. These alternatives could increase our costs or reduce our equity and reduce amounts for investments.

Outside partners in Joint Venture Centers result in additional risks to our stockholders.

        We own partial interests in property partnerships that own 42 Joint Venture Centers as well as fee title to a site that is ground leased to a property partnership that owns a Joint Venture Center and several development sites. We may acquire partial interests in additional properties through joint venture arrangements. Investments in Centers that are not Wholly Owned Centers involve risks different from those of investments in Wholly Owned Centers.

        We may have fiduciary responsibilities to our partners that could affect decisions concerning the Joint Venture Centers. Third parties may share control of major decisions relating to the Joint Venture Centers, including decisions with respect to sales, refinancings and the timing and amount of additional capital contributions, as well as decisions that could have an adverse impact on our status. For example, we may lose our management rights relating to the Joint Venture Centers if:


        In addition, some of our outside partners control the day-to-day operations of eight Joint Venture Centers (NorthPark Center, West Acres Center, Eastland Mall, Granite Run Mall, Lake Square Mall, NorthPark Mall, South Park Mall and Valley Mall). We, therefore, do not control cash distributions from these Centers, and the lack of cash distributions from these Centers could jeopardize our ability to maintain our qualification as a REIT. Furthermore, certain Joint Venture Centers have debt that could become recourse debt to us if the Joint Venture Center is unable to discharge such debt obligation.

Our holding company structure makes us dependent on distributions from the Operating Partnership.

        Because we conduct our operations through the Operating Partnership, our ability to service our debt obligations and pay dividends to our stockholders is strictly dependent upon the earnings and cash flows of the Operating Partnership and the ability of the Operating Partnership to make distributions to us. Under the Delaware Revised Uniform Limited Partnership Act, the Operating Partnership is prohibited from making any distribution to us to the extent that at the time of the distribution, after giving effect to the distribution, all liabilities of the Operating Partnership (other than some

18



non-recourse liabilities and some liabilities to the partners) exceed the fair value of the assets of the Operating Partnership. An inability to make cash distributions from the Operating Partnership could jeopardize our ability to maintain qualification as a REIT.

Possible environmental liabilities could adversely affect us.

        Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in that real property. These laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of hazardous or toxic substances. The costs of investigation, removal or remediation of hazardous or toxic substances may be substantial. In addition, the presence of hazardous or toxic substances, or the failure to remedy environmental hazards properly, may adversely affect the owner's or operator's ability to sell or rent affected real property or to borrow money using affected real property as collateral.

        Persons or entities that arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of hazardous or toxic substances at the disposal or treatment facility, whether or not that facility is owned or operated by the person or entity arranging for the disposal or treatment of hazardous or toxic substances. Laws exist that impose liability for release of ACMs into the air, and third parties may seek recovery from owners or operators of real property for personal injury associated with exposure to ACMs. In connection with our ownership, operation, management, development and redevelopment of the Centers, or any other centers or properties we acquire in the future, we may be potentially liable under these laws and may incur costs in responding to these liabilities.

Uninsured losses could adversely affect our financial condition.

        Each of our Centers has comprehensive liability, fire, extended coverage and rental loss insurance with insured limits customarily carried for similar properties. We do not insure certain types of losses (such as losses from wars), because they are either uninsurable or not economically insurable. In addition, while we or the relevant joint venture, as applicable, carry earthquake insurance on the Centers located in California, the policies are subject to a deductible equal to 5% of the total insured value of each Center, a $100,000 per occurrence minimum and a combined annual aggregate loss limit of $106.6 million on these Centers. While we or the relevant joint venture also carries terrorism insurance on the Centers, the policies are subject to a $10,000 deductible and a combined annual aggregate loss limit of $800 million. Each Center has environmental insurance covering eligible third-party losses, remediation and non-owned disposal sites, subject to a $100,000 deductible and a $10 million three-year aggregate limit. Some environmental losses are not covered by this insurance because they are uninsurable or not economically insurable. Furthermore, we carry title insurance on many of the Centers for less than their full value. If an uninsured loss or a loss in excess of insured limits occurs, the entity that owns the affected Center could lose its capital invested in the Center, as well as the anticipated future revenue from the Center, while remaining obligated for any mortgage indebtedness or other financial obligations related to the Center. An uninsured loss or loss in excess of insured limits may negatively impact our financial condition.

        As the general partner of the Operating Partnership and certain of the property partnerships, we are generally liable for any of its unsatisfied obligations other than non-recourse obligations.

An ownership limit and certain anti-takeover defenses could inhibit a change of control or reduce the value of our common stock.

        The Ownership Limit.    In order for us to maintain our qualification as a REIT, not more than 50% in value of our outstanding stock (after taking into account options to acquire stock) may be owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include

19


some entities that would not ordinarily be considered "individuals") during the last half of a taxable year. Our Charter restricts ownership of more than 5% (the "Ownership Limit") of the lesser of the number or value of our outstanding shares of stock by any single stockholder or a group of stockholders (with limited exceptions for some holders of limited partnership interests in the Operating Partnership, and their respective families and affiliated entities, including all four principals). In addition to enhancing preservation of our status as a REIT, the Ownership Limit may:

        Our board of directors, in its sole discretion, may waive or modify (subject to limitations) the Ownership Limit with respect to one or more of our stockholders, if it is satisfied that ownership in excess of this limit will not jeopardize our status as a REIT.

        Stockholder Rights Plan and Selected Provisions of our Charter and Bylaws.    Agreements to which we are a party, as well as some of the provisions of our Charter and bylaws, may have the effect of delaying, deferring or preventing a third party from making an acquisition proposal for us and may inhibit a change in control that some, or a majority, of our stockholders might believe to be in their best interest or that could give our stockholders the opportunity to realize a premium over the then-prevailing market prices for our shares. These agreements and provisions include the following:


        Selected Provisions of Maryland Law.    The Maryland General Corporation Law prohibits business combinations between a Maryland corporation and an interested stockholder (which includes any person who beneficially holds 10% or more of the voting power of the corporation's shares) or its affiliates for five years following the most recent date on which the interested stockholder became an interested stockholder and, after the five-year period, requires the recommendation of the board of directors and two super-majority stockholder votes to approve a business combination unless the stockholders receive a minimum price determined by the statute. As permitted by Maryland law, our Charter exempts from

20


these provisions any business combination between us and the principals and their respective affiliates and related persons. Maryland law also allows the board of directors to exempt particular business combinations before the interested stockholder becomes an interested stockholder. Furthermore, a person is not an interested stockholder if the transaction by which he or she would otherwise have become an interested stockholder is approved in advance by the board of directors.

        The Maryland General Corporation Law also provides that the acquirer of certain levels of voting power in electing directors of a Maryland corporation (one-tenth or more but less than one-third, one-third or more but less than a majority and a majority or more) is not entitled to vote the shares in excess of the applicable threshold, unless voting rights for the shares are approved by holders of two thirds of the disinterested shares or unless the acquisition of the shares has been specifically or generally approved or exempted from the statute by a provision in our Charter or bylaws adopted before the acquisition of the shares. Our Charter exempts from these provisions voting rights of shares owned or acquired by the principals and their respective affiliates and related persons. Our bylaws also contain a provision exempting from this statute any acquisition by any person of shares of our common stock. There can be no assurance that this bylaw will not be amended or eliminated in the future. The Maryland General Corporation Law and our Charter also contain supermajority voting requirements with respect to our ability to amend our Charter, dissolve, merge, or sell all or substantially all of our assets.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

        Not Applicable

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ITEM 2.    PROPERTIES

        The following table sets forth certain information regarding the Centers and other locations that are wholly-owned or partly owned by the Company:

Company's
Ownership(1)

  Name of Center/
Location(2)

  Year of
Original
Construction/
Acquisition

  Year of Most
Recent
Expansion/
Renovation

  Total
GLA(3)

  Mall and
Freestanding GLA

  Percentage
of Mall and
Freestanding
GLA Leased

  Anchors
  Sales Per
Square
Foot(4)

 
WHOLLY OWNED:  
100 % Capitola Mall(5)
Capitola, California
  1977/1995   1988   586,653   196,936   92.7 % Gottschalks, Macy's, Mervyn's, Sears   $ 351  
100 % Chandler Fashion Center
Chandler, Arizona
  2001/2002   --   1,325,450   640,290   97.6 % Dillard's, Macy's, Nordstrom, Sears     653  
100 % Chesterfield Towne Center(6)
Richmond, Virginia
  1975/1994   2000   1,035,593   426,858   80.0 % Dillard's, Macy's, Sears, J.C. Penney     349  
100 % Danbury Fair Mall(6)
Danbury, Connecticut
  1986/2005   1991   1,295,086   498,878   97.1 % J.C. Penney, Lord & Taylor, Macy's, Sears     589  
100 % Deptford Mall
Deptford, New Jersey
  1975/2006   1990   1,033,224   336,782   97.3 % Boscov's, J.C. Penney, Macy's, Sears     521  
100 % Fiesta Mall(7)
Mesa, Arizona
  1979/2004   2007   827,873   309,682   93.0 % Dillard's, Macy's, Sears     375  
100 % Flagstaff Mall
Flagstaff, Arizona
  1979/2002   2007   343,599   139,587   92.6 % Dillard's, J.C. Penney, Sears     382  
100 % FlatIron Crossing(6)
Broomfield, Colorado
  2000/2002   --   1,505,617   741,876   91.6 % Dillard's, Macy's, Nordstrom, Dick's Sporting Goods     472  
100 % Freehold Raceway Mall
Freehold, New Jersey
  1990/2005   2007   1,654,364   862,740   96.5 % J.C. Penney, Lord & Taylor, Macy's, Nordstrom, Sears     520  
100 % Fresno Fashion Fair
Fresno, California
  1970/1996   2006   955,807   394,926   99.2 % Gottschalks, J.C. Penney, Macy's (two)     545  
100 % Great Northern Mall(6)
Clay, New York
  1988/2005   --   893,970   563,982   94.7 % Macy's, Sears     268  
100 % Green Tree Mall
Clarksville, Indiana
  1968/1975   2005   797,126   291,541   77.7 % Dillard's, J.C. Penney, Sears, Burlington Coat Factory     411  
100 % La Cumbre Plaza(5)
Santa Barbara, California
  1967/2004   1989   495,736   178,736   88.3 % Macy's, Sears     446  
100 % Northgate Mall(5)
San Rafael, California
  1964/1986   1987   732,543   262,212   92.6 % Macy's, Mervyn's, Sears     397  
100 % Northridge Mall
Salinas, California
  1972/2003   1994   892,859   355,879   98.5 % J.C. Penney, Macy's, Mervyn's, Sears     350  
100 % Pacific View
Ventura, California
  1965/1996   2001   1,059,916   411,102   73.7 % J.C. Penney, Macy's, Sears, Target(8)     433  
100 % Panorama Mall
Panorama, California
  1955/1979   2005   323,455   158,455   92.9 % Wal-Mart     358  
100 % Paradise Valley Mall(6)
Phoenix, Arizona
  1979/2002   1990   1,222,507   417,079   92.1 % Dillard's, J.C. Penney, Macy's, Sears     368  
100 % Prescott Gateway
Prescott, Arizona
  2002/2002   2004   589,025   344,837   89.8 % Dillard's, Sears, J.C. Penney     276  
100 % Queens Center(5)
Queens, New York
  1973/1995   2004   961,559   406,792   97.7 % J.C. Penney, Macy's     845  
100 % Rimrock Mall
Billings, Montana
  1978/1996   1999   605,759   294,089   87.6 % Dillard's (two), Herberger's, J.C. Penney     380  
100 % Rotterdam Square
Schenectady, New York
  1980/2005   1990   582,939   273,164   89.8 % Macy's, K-Mart, Sears     260  
100 % Salisbury, Centre at
Salisbury, Maryland
  1990/1995   2005   852,205   354,789   94.8 % Boscov's, J.C. Penney, Macy's, Sears     371  
100 % Somersville Towne Center
Antioch, California
  1966/1986   2004   502,709   174,487   92.5 % Sears, Gottschalks, Mervyn's, Macy's     405  
100 % South Plains Mall(5)
Lubbock, Texas
  1972/1998   1995   1,142,545   400,758   88.5 % Bealls, Dillard's (two), J.C. Penney, Mervyn's, Sears     370  
100 % South Towne Center
Sandy, Utah
  1987/1997   1997   1,268,136   491,624   95.6 % Dillard's, J.C. Penney, Mervyn's, Target, Macy's     433  
100 % Towne Mall
Elizabethtown, Kentucky
  1985/2005   1989   353,232   182,360   91.2 % J.C. Penney, Belk, Sears     298  
100 % Twenty Ninth Street(5)
Boulder, Colorado
  1963/1979   2007   827,497   535,843   91.6 % Macy's, Home Depot     428  
100 % Valley River Center
Eugene, Oregon
  1969/2006   2007   910,841   334,777   89.6 % Sports Authority, Gottschalks, Macy's, J.C. Penney     463  

22


100 % Valley View Center
Dallas, Texas
  1973/1996   2004   1,635,449   577,552   95.9 % Dillard's, Macy's(9), J.C. Penney, Sears   $ 273  
100 % Victor Valley, Mall of
Victorville, California
  1986/2004   2001   543,295   269,446   94.7 % Gottschalks, J.C. Penney, Mervyn's, Sears     480  
100 % Vintage Faire Mall
Modesto, California
  1977/1996   2001   1,084,422   384,503   97.2 % Gottschalks, J.C. Penney, Macy's (two), Sears     562  
100 % Westside Pavilion
Los Angeles, California
  1985/1998   2007   739,746   381,618   95.8 % Nordstrom, Macy's     481  
100 % Wilton Mall at Saratoga(6)
Saratoga Springs, New York
  1990/2005   1998   745,267   457,201   96.0 % The Bon-Ton, J.C. Penney, Sears     325  
               
 
               
    Total/Average Wholly Owned   30,326,004   13,051,381   92.7 %     $ 453  
               
 
               

JOINT VENTURES (VARIOUS PARTNERS):

 
33.3 % Arrowhead Towne Center
Glendale, Arizona
  1993/2002   2004   1,204,862   396,448   98.5 % Dick's Sporting Goods(10), Dillard's, Macy's, J.C. Penney, Sears, Mervyn's   $ 611  
50 % Biltmore Fashion Park
Phoenix, Arizona
  1963/2003   2006   608,934   303,934   78.4 % Macy's, Saks Fifth Avenue     821  
50 % Broadway Plaza(5)
Walnut Creek, California
  1951/1985   1994   697,981   252,484   97.8 % Macy's (two), Nordstrom     768  
50.1 % Corte Madera, Village at
Corte Madera, California
  1985/1998   2005   439,573   221,573   90.4 % Macy's, Nordstrom     875  
50 % Desert Sky Mall
Phoenix, Arizona
  1981/2002   2007   893,457   282,962   93.6 % Sears, Dillard's, Burlington Coat Factory, Mervyn's, La Curacao     323  
50 % Inland Center(5)
San Bernardino, California
  1966/2004   2004   987,872   204,198   95.0 % Macy's, Sears, Gottschalks, Mervyn's(11)     463  
15 % Metrocenter Mall(5)
Phoenix, Arizona
  1973/2005   2006   1,122,959   595,710   90.2 % Dillard's, Macy's, Sears     345  
50 % NorthPark Center(5)
Dallas, Texas
  1965/2004   2005   1,963,326   911,006   96.8 % Dillard's, Macy's, Neiman Marcus, Nordstrom, Barneys New York     694  
50 % Ridgmar
Fort Worth, Texas
  1976/2005   2000   1,277,280   403,307   82.0 % Dillard's, Macy's, J.C. Penney, Neiman Marcus, Sears     323  
50 % Scottsdale Fashion Square(12)
Scottsdale, Arizona
  1961/2002   2007   1,840,182   857,902   94.1 % Barneys New York(13) Dillard's, Macy's Nordstrom, Neiman Marcus     736  
33.3 % Superstition Springs Center(5)
Mesa, Arizona
  1990/2002   2002   1,285,839   439,300   98.7 % Burlington Coat Factory, Dillard's, Macy's, J.C. Penney, Sears, Mervyn's, Best Buy     425  
50 % Tysons Corner Center(5)
McLean, Virginia
  1990/2005   2005   2,198,039   1,309,797   98.8 % Bloomingdale's, Macy's, L.L. Bean, Lord & Taylor, Nordstrom     721  
19 % West Acres
Fargo, North Dakota
  1972/1986   2001   970,707   418,152   99.2 % Macy's, Herberger's, J.C. Penney, Sears     475  
               
 
               
    Total/Average Joint Ventures (Various Partners)   15,491,011   6,596,773   94.5 %       596  
               
 
               

PACIFIC PREMIER RETAIL TRUST PROPERTIES:

 
51 % Cascade Mall
Burlington, Washington
  1989/1999   1998   587,174   262,938   90.7 % Macy's (two), J.C. Penney, Sears, Target     355  
51 % Kitsap Mall(5)
Silverdale, Washington
  1985/1999   1997   846,940   386,957   95.0 % Macy's, J.C. Penney, Kohl's, Sears     407  
51 % Lakewood Mall(5)(6)
Lakewood, California
  1953/1975   2001   2,088,228   980,244   96.0 % Home Depot, Target, J.C. Penney, Macy's, Mervyn's     441  
51 % Los Cerritos Center(6)
Cerritos, California
  1971/1999   1998   1,290,420   489,139   95.0 % Macy's, Mervyn's, Nordstrom, Sears     553  
51 % Redmond Town Center(5)(12)
Redmond, Washington
  1997/1999   2000   1,283,683   1,173,683   97.6 % Macy's     382  
51 % Stonewood Mall(5)
Downey, California
  1953/1997   1991   930,655   359,908   97.8 % J.C. Penney, Mervyn's, Macy's, Sears     449  

23


51 % Washington Square
Portland, Oregon
  1974/1999   2005   1,455,317   520,290   88.1 % J.C. Penney, Macy's, Dick's Sporting Goods(10), Nordstrom, Sears   $ 709  
               
 
               
    Total/Average Pacific Premier Retail Trust Properties   8,482,417   4,173,159   95.1 %     $ 485  
               
 
               

SDG MACERICH PROPERTIES, L.P. PROPERTIES:

 
50 % Eastland Mall(5)
Evansville, Indiana
  1978/1998   1996   1,040,025   550,881   94.9 % Dillard's, J.C. Penney, Macy's   $ 371  
50 % Empire Mall(5)
Sioux Falls, South Dakota
  1975/1998   2000   1,363,110   617,588   96.1 % Macy's, J.C. Penney, Richman-Gordmans 1/2 Price, Kohl's, Sears, Target, Younkers     390  
50 % Granite Run Mall
Media, Pennsylvania
  1974/1998   1993   1,036,166   535,357   90.1 % Boscov's, J.C. Penney, Sears     287  
50 % Lake Square Mall
Leesburg, Florida
  1980/1998   1995   553,019   256,982   79.1 % Belk, J.C. Penney, Sears, Target     276  
50 % Lindale Mall
Cedar Rapids, Iowa
  1963/1998   1997   688,394   382,831   90.3 % Sears, Von Maur, Younkers     318  
50 % Mesa Mall
Grand Junction, Colorado
  1980/1998   2003   836,721   395,513   94.0 % Herberger's, J.C. Penney, Mervyn's, Sears, Target     433  
50 % NorthPark Mall
Davenport, Iowa
  1973/1998   2001   1,073,035   422,579   86.7 % J.C. Penney, Dillard's, Sears, Von Maur, Younkers     271  
50 % Rushmore Mall
Rapid City, South Dakota
  1978/1998   1992   832,582   427,922   94.2 % Herberger's, J.C. Penney, Sears, Target     361  
50 % Southern Hills Mall
Sioux City, Iowa
  1980/1998   2003   798,856   485,279   91.0 % Sears, Younkers, J.C. Penney     309  
50 % SouthPark Mall
Moline, Illinois
  1974/1998   1990   1,024,004   445,948   83.8 % J.C. Penney, Sears, Younkers, Von Maur, Dillard's     222  
50 % SouthRidge Mall
Des Moines, Iowa
  1975/1998   1998   869,390   480,638   83.1 % Sears, Younkers, J.C. Penney, Target     182  
50 % Valley Mall(6)
Harrisonburg, Virginia
  1978/1998   1992   505,792   190,714   87.2 % Belk, J.C. Penney, Target     270  
               
 
               
    Total/Average SDG Macerich Properties, L.P. Properties   10,621,094   5,192,232   89.9 %     $ 317  
               
 
               
    Total/Average Joint Ventures   34,594,522   15,962,164   93.2 %     $ 483  
               
 
               
    Total/Average before Community Centers   64,920,526   29,013,545   93.0 %     $ 469  
               
 
               

COMMUNITY / SPECIALTY CENTERS:

 
100 % Borgata, The
Scottsdale, Arizona
  1981/2002   2006   93,628   93,628   83.2 % --   $ 501  
50 % Boulevard Shops
Chandler, Arizona
  2001/2002   2004   180,823   180,823   100.0 % --     421  
75 % Camelback Colonnade
Phoenix, Arizona
  1961/2002   1994   624,101   544,101   99.7 % Mervyn's     330  
100 % Carmel Plaza
Carmel, California
  1974/1998   2006   111,150   111,150   81.5 % --     551  
50 % Chandler Festival
Chandler, Arizona
  2001/2002   --   503,735   368,538   98.6 % Lowe's     287  
50 % Chandler Gateway
Chandler, Arizona
  2001/2002   --   255,289   124,238   100.0 % The Great Indoors     396  
50 % Chandler Village Center
Chandler, Arizona
  2004/2002   2006   273,418   130,285   100.0 % Target     212  
100 % Flagstaff Mall, The Marketplace at
Flagstaff, Arizona
  2007/--   2007   267,538   147,008   100.0 % Home Depot     N/A  
100 % Hilton Village(5)(12)
Scottsdale, Arizona
  1982/2002   --   96,546   96,546   97.1 % --     500  
24.5 % Kierland Commons
Scottsdale, Arizona
  1999/2005   2003   435,022   435,022   100.0 % --     755  
100 % Paradise Village Office Park II
Phoenix, Arizona
  1982/2002   --   46,834   46,834   97.2 % --     N/A  
34.9 % SanTan Village Power Center
Gilbert, Arizona
  2004/2004   2007   491,037   284,510   100.0 % Wal-Mart     268  

24


100 % Tucson La Encantada
Tucson, Arizona
  2002/2002   2005   250,624   250,624   89.5 % --   $ 672  
100 % Village Center
Phoenix, Arizona
  1985/2002   --   170,801   59,055   100.0 % Target     325  
100 % Village Crossroads
Phoenix, Arizona
  1993/2002   --   185,186   84,477   91.6 % Wal-Mart     286  
100 % Village Fair
Phoenix, Arizona
  1989/2002   --   271,417   207,817   97.1 % Best Buy     235  
100 % Village Plaza
Phoenix, Arizona
  1978/2002   --   79,754   79,754   96.8 % --     314  
100 % Village Square I
Phoenix, Arizona
  1978/2002   --   21,606   21,606   100.0 % --     185  
100 % Village Square II(5)
Phoenix, Arizona
  1978/2002   --   146,193   70,393   96.4 % Mervyn's     210  
               
 
               
    Total/Average Community / Specialty Centers   4,504,702   3,336,409   97.2 %       464  
               
 
               
    Total before major development and redevelopment properties and other assets   69,425,228   32,349,954   93.4 %       468  
               
 
               

MAJOR DEVELOPMENT AND REDEVELOPMENT PROPERTIES:

 
51.3 % Promenade at Casa Grande(14)
Casa Grande, Arizona
  2007/--   2007 ongoing   827,726   389,976     (15) Dillard's, J.C. Penney, Kohl's, Target     N/A  
84.7 % SanTan Village Regional Center(16)
Gilbert, Arizona
  2007/--   2007 ongoing   788,510   588,510     (15) Dillard's     N/A  
100 % Santa Monica Place(6)(17)
Santa Monica, California
  1980/1999   1990   556,933   273,683     (15) Macy's,     N/A  
100 % Shoppingtown Mall(6)
Dewitt, New York
  1954/2005   2000   1,002,084   519,384     (15) J.C. Penney, Macy's, Sears     N/A  
100 % The Oaks(6)
Thousand Oaks, California
  1978/2002   1993   1,047,095   344,020     (15) J.C. Penney, Macy's (two), Nordstrom(18)     N/A  
               
 
               
    Total Major Development and Redevelopment Properties       4,222,348   2,115,573                
               
 
               

OTHER ASSETS:

 
100 % Mervyn's(19)   Various/2007       2,198,221   --   --   --     N/A  
100 % Paradise Village Investment Co. ground leases   Various/2002       165,968   165,968   80.9 % --     N/A  
30 % Wilshire Building   1978/2007       40,000   40,000   100.0 % --     N/A  
               
 
               
    Total Other Assets       2,404,189   205,968             N/A  
               
 
               
    Total before Rochester Properties       76,051,765   34,671,495                
               
 
               

ROCHESTER PROPERTIES(20):

 
100 % Eastview Mall
Victor, New York
  1971/2005   2003   1,686,690   789,608   N/A   The Bon-Ton, Home Depot, J.C. Penney, Macy's, Lord & Taylor, Sears, Target     N/A  
100 % Greece Ridge Center
Greece, New York
  1967/2005   1993   1,474,093   847,009   N/A   Burlington Coat Factory, The Bon-Ton, J.C. Penney, Macy's, Sears     N/A  
37.5 % Marketplace Mall, The(5)
Henrietta, New York
  1982/2005   1993   1,019,092   504,500   N/A   The Bon-Ton, J.C. Penney, Macy's, Sears     N/A  
63.6 % Pittsford Plaza
Pittsford, New York
  1965/2005   1982   476,167   389,717   N/A       N/A  
               
 
               
    Total Rochester Properties       4,656,042   2,530,834                
               
 
               
    Grand Total at December 31, 2007       80,707,807   37,202,329                
               
 
               

25


    January 2008 Acquisition                            
50 % North Bridge, The Shops at(5)(12)(21)
Chicago, Illinois
  1998/2008   --   680,933   420,933   98.5 % Nordstrom   $ 843  
               
 
               
    Post Rochester Redemption and Acquisition of The Shops at North Bridge       76,732,698   35,092,428   93.5 %     $ 471 (22)
               
 
               

(1)
The Company's ownership interest in this table reflects its legal ownership interest but may not reflect its economic interest since each joint venture has various agreements regarding cash flow, profits and losses, allocations, capital requirements and other matters.

(2)
With respect to 73 Centers, the underlying land controlled by the Company is owned in fee entirely by the Company, or, in the case of jointly-owned Centers, by the joint venture property partnership or limited liability company. With respect to the remaining Centers, the underlying land controlled by the Company is owned by third parties and leased to the Company, the property partnership or the limited liability company pursuant to long-term ground leases. Under the terms of a typical ground lease, the Company, the property partnership or the limited liability company pays rent for the use of the land and is generally responsible for all costs and expenses associated with the building and improvements. In some cases, the Company, the property partnership or the limited liability company has an option or right of first refusal to purchase the land. The termination dates of the ground leases range from 2013 to 2132.

(3)
Includes GLA attributable to Anchors (whether owned or non-owned) and Mall and Freestanding Stores as of December 31, 2007.

(4)
Sales are based on reports by retailers leasing Mall and Freestanding Stores for the twelve months ended November 30, 2007 for tenants which have occupied such stores for a minimum of 12 months. Sales per square foot are based on tenants 10,000 square feet and under, excluding theaters.

(5)
Portions of the land on which the Center is situated are subject to one or more ground leases.

(6)
These properties have a vacant Anchor location. The Company is contemplating various replacement tenant and/or redevelopment opportunities for these vacant sites.

(7)
The former Macy's at Fiesta Mall was demolished in November 2007. The mall will begin construction on a new Dick's Sporting Goods and a new Best Buy both to open in Spring 2009.

(8)
Target is scheduled to open a 180,000 square foot store at Pacific View in Spring 2008.

(9)
Macy's is scheduled to close their 300,196 square foot store at Valley View Center in March 2008.

(10)
Dick's Sporting Goods is scheduled to open a 70,000 square foot store at Arrowhead Towne Center in Fall 2008 and a 90,000 square foot store at Washington Square in Spring 2008.

(11)
Mervyn's is scheduled to open a 150,000 square foot store at Inland Center in Fall 2008.

(12)
The office portion of this mixed-use development does not have retail sales.

(13)
Barneys New York is scheduled to open a 60,000 square foot store at Scottsdale Fashion Square in 2009.

(14)
The Promenade at Casa Grande opened in November 2007. The Center will continue to go through further development throughout 2008.

(15)
Tenant spaces have been intentionally held off the market and remain vacant because of major development or redevelopment plans. As a result, the Company believes the percentage of mall and freestanding GLA leased and the sales per square foot at these major redevelopment properties is not meaningful data.

(16)
SanTan Village Regional Center opened in October 2007. The Center will continue to go through further development throughout 2008.

(17)
Santa Monica Place closed for redevelopment in January 2008. The Macy's will remain open during the redevelopment.

(18)
Nordstrom is scheduled to open a 138,000 square foot store at The Oaks in 2009.

(19)
The Company acquired 39 Mervyn's stores on December 17, 2007. 27 of these Mervyn's stores are located at Centers not owned or managed by the Company. With respect to 20 of these 27 stores, the underlying land controlled by the Company is owned in fee entirely by the Company. With respect to the remaining seven stores, the underlying land controlled by the Company is owned by third parties and leased to the Company pursuant to long-term ground leases. Under the terms of a typical ground lease, the Company pays rent for the use of the land and is generally responsible for all costs and expenses associated with the building and improvements. In some cases, the Company has an option or right to first refusal to purchase the land. The termination dates of the ground leases range from 2036 to 2057.

(20)
On January 1, 2008, these properties were exchanged as part of the Rochester Redemption.

(21)
The Shops at North Bridge was acquired on January 10, 2008.

(22)
Sales per square foot was $472 after giving effect to the Rochester Redemption, but including The Shops at North Bridge and excluding the Community/Specialty Centers.

26


Mortgage Debt

        The following table sets forth certain information regarding the mortgages encumbering the Centers, including those Centers in which the Company has less than a 100% interest. The information set forth below is as of December 31, 2007 (dollars in thousands):

Property Pledged as Collateral
  Fixed or Floating
  Annual Interest Rate
  Carrying Amount(1)
  Annual Debt Service
  Maturity Date
  Balance Due on Maturity
  Earliest Date
Notes Can Be
Defeased or Be
Prepaid

Consolidated Centers:                                  
Capitola Mall(2)   Fixed   7.13 % $ 39,310   $ 4,558   5/15/11   $ 32,724   Any Time
Carmel Plaza   Fixed   8.18 %   26,253     2,421   5/1/09     25,642   Any Time
Chandler Fashion Center   Fixed   5.52 %   169,789     12,514   11/1/12     152,097   Any Time
Chesterfield Towne Center(3)   Fixed   9.07 %   55,702     6,580   1/1/24     1,087   Any Time
Danbury Fair Mall   Fixed   4.64 %   176,457     14,698   2/1/11     155,173   Any Time
Deptford Mall(4)   Fixed   5.41 %   172,500     9,382   1/15/13     172,500   8/1/09
Eastview Commons(5)   Fixed   5.46 %   8,814     792   9/30/10     7,942   Any Time
Eastview Mall(5)   Fixed   5.10 %   101,007     7,107   1/18/14     87,927   Any Time
Fiesta Mall   Fixed   4.98 %   84,000     4,152   1/1/15     84,000   Any Time
Flagstaff Mall   Fixed   5.03 %   37,000     1,863   11/1/15     37,000   Any Time
FlatIron Crossing   Fixed   5.26 %   187,736     13,223   12/1/13     164,187   Any Time
Freehold Raceway Mall   Fixed   4.68 %   177,686     14,208   7/7/11     155,678   Any Time
Fresno Fashion Fair   Fixed   6.52 %   63,590     5,244   8/10/08     62,974   Any Time
Great Northern Mall   Fixed   5.19 %   40,285     2,685   12/1/13     35,566   Any Time
Greece Ridge Center(5)(6)   Floating   5.97 %   72,000     4,298   11/6/08     72,000   Any Time
Hilton Village(7)   Fixed   5.27 %   8,530     448   2/1/12     8,600   5/8/09
La Cumbre Plaza(8)   Floating   6.48 %   30,000     1,944   8/9/08     30,000   Any Time
Marketplace Mall(5)   Fixed   5.30 %   39,345     3,204   12/10/17     24,353   Any Time
Northridge Mall   Fixed   4.94 %   81,121     5,438   7/1/09     70,991   Any Time
Pacific View   Fixed   7.23 %   88,857     7,780   8/31/11     83,045   Any Time
Panorama Mall(9)   Floating   6.00 %   50,000     2,999   2/28/10     50,000   Any Time
Paradise Valley Mall   Fixed   5.89 %   21,231     2,193   5/1/09     19,863   Any Time
Pittsford Plaza(5)   Fixed   5.02 %   24,596     1,914   1/1/13     20,673   Any Time
Pittsford Plaza(5)(10)   Fixed   6.52 %   9,148     596   1/1/13     9,148   Any Time
Prescott Gateway   Fixed   5.86 %   60,000     3,468   12/1/11     60,000   12/21/08
Promenade at Casa Grande(11)   Floating   6.35 %   79,964     5,078   8/16/09     79,964   Any Time
Queens Center   Fixed   7.10 %   90,519     7,595   3/1/09     88,651   Any Time
Queens Center(12)   Fixed   7.00 %   217,077     18,013   3/31/13     204,203   2/19/08
Rimrock Mall   Fixed   7.56 %   42,828     3,841   10/1/11     40,025   Any Time
Salisbury, Center at   Fixed   5.83 %   115,000     6,659   5/1/16     115,000   6/29/08
Santa Monica Place   Fixed   7.79 %   79,014     7,272   11/1/10     75,544   Any Time
Shoppingtown Mall   Fixed   5.01 %   44,645     3,828   5/11/11     38,968   Any Time
South Plains Mall   Fixed   8.29 %   58,732     5,448   3/1/09     57,557   Any Time
South Towne Center   Fixed   6.66 %   64,000     4,289   10/10/08     64,000   Any Time
Towne Mall   Fixed   4.99 %   14,838     1,206   11/1/12     12,316   Any Time
Tucson La Encantada(2)(13)   Fixed   5.84 %   78,000     4,555   6/1/12     78,000   Any Time
Twenty Ninth Street(14)   Floating   5.93 %   110,558     6,556   6/5/09     110,558   Any Time
Valley River Center(15)   Fixed   5.60 %   120,000     6,720   2/1/16     120,000   2/1/09
Valley View Center   Fixed   5.81 %   125,000     7,247   1/1/11     125,000   3/14/08
Victor Valley, Mall of   Fixed   4.60 %   51,211     3,645   3/1/08     50,850   Any Time
Village Fair North   Fixed   5.89 %   10,880     983   7/15/08     10,710   Any Time
Vintage Faire Mall   Fixed   7.91 %   64,386     6,099   9/1/10     61,372   Any Time
Westside Pavilion   Fixed   6.74 %   92,037     7,538   7/1/08     91,133   Any Time
Wilton Mall   Fixed   4.79 %   44,624     4,183   11/1/09     40,838   Any Time
           
                   
            $ 3,328,270                    
           
                   

27


Joint Venture Centers
(at Company's Pro Rata Share):
                         
Arrowhead Towne Center (33.3%)   Fixed   6.38 % $ 26,567   $ 2,240   10/1/11   $ 24,256   Any Time
Biltmore Fashion Park (50%)   Fixed   4.70 %   38,201     2,433   7/10/09     34,972   Any Time
Boulevard Shops (50%)(16)   Floating   5.93 %   10,700     635   12/17/10     10,700   Any Time
Broadway Plaza (50%)(2)   Fixed   6.68 %   29,963     3,089   8/1/08     29,315   Any Time
Camelback Colonnade (75%)(17)   Floating   5.79 %   31,125     1,802   10/9/08     31,125   Any Time
Cascade (51%)   Fixed   5.27 %   20,110     1,362   7/1/10     19,221   Any Time
Chandler Festival (50%)   Fixed   4.37 %   14,865     958   10/1/08     14,583   Any Time
Chandler Gateway (50%)   Fixed   5.19 %   9,389     658   10/1/08     9,223   Any Time
Chandler Village Center (50%)(18)   Floating   6.14 %   8,643     531   1/15/11     8,643   Any Time
Corte Madera, The Village at (50.1%)   Fixed   7.75 %   32,653     3,095   11/1/09     31,534   Any Time
Desert Sky Mall (50%)(19)   Floating   6.13 %   25,750     1,578   3/6/08     25,750   10/26/08
Eastland Mall (50%)   Fixed   5.80 %   84,000     4,836   6/1/16     84,000   6/22/08
Empire Mall (50%)   Fixed   5.81 %   88,150     5,104   6/1/16     88,150   11/29/08
Granite Run (50%)   Fixed   5.84 %   59,906     4,311   6/1/16     51,504   6/7/08
Inland Center (50%)   Fixed   4.69 %   27,000     1,270   2/11/09     27,000   Any Time
Kierland Greenway (24.5%)   Fixed   6.01 %   15,846     1,144   1/1/13     13,679   Any Time
Kierland Main Street (24.5%)   Fixed   4.99 %   3,808     251   1/2/13     3,502   Any Time
Kierland Tower Lofts (15%)(20)   Floating   6.63 %   6,659     441   12/14/08     6,659   Any Time
Kitsap Mall/Place (51%)   Fixed   8.14 %   29,209     2,755   6/1/10     28,143   Any Time
Lakewood Mall (51%)   Fixed   5.43 %   127,500     6,995   6/1/15     127,500   Any Time
Los Cerritos Center (51%)(21)   Floating   5.92 %   66,300     3,926   7/1/11     66,300   Any Time
Mesa Mall (50%)   Fixed   5.82 %   43,625     2,526   6/1/16     43,625   8/29/08
Metrocenter Mall (15%)(22)   Fixed   5.34 %   16,800     806   2/9/09     16,800   Any Time
Metrocenter Mall (15%)(23)   Floating   8.54 %   3,240     277   2/9/09     3,240   Any Time
NorthPark Center (50%)(24)   Fixed   5.95 %   93,504     7,133   5/10/12     82,181   Any Time
NorthPark Center (50%)(24)   Fixed   8.33 %   41,656     3,996   5/10/12     38,919   Any Time
NorthPark Land (50%)   Fixed   8.33 %   40,236     3,858   5/10/12     33,633   Any Time
NorthPark Land (50%)(25)   Floating   8.25 %   3,500     289   8/30/08     3,500   Any Time
Redmond Office (51%)(2)   Fixed   6.77 %   33,690     4,443   7/10/09     30,285   Any Time
Redmond Retail (51%)   Fixed   4.81 %   36,789     2,025   8/1/09     27,164   Any Time
Ridgmar (50%)   Fixed   6.11 %   28,700     1,800   4/11/10     28,700   Any Time
Rushmore (50%)   Fixed   5.82 %   47,000     2,721   6/1/16     47,000   8/2/08
SanTan Village Power Center (34.9%)   Fixed   5.33 %   15,705     837   2/1/12     15,705   Any Time
Scottsdale Fashion Square (50%)(26)   Fixed   5.66 %   275,000     15,563   7/8/13     275,000   10/30/09
Southern Hills (50%)   Fixed   5.82 %   50,750     2,938   6/1/16     50,750   8/2/08
Stonewood Mall (51%)   Fixed   7.44 %   37,735     3,298   12/11/10     36,244   Any Time
Superstition Springs Center (33.3%)(27)   Floating   5.37 %   22,498     1,208   9/9/08     22,498   3/9/08
Tysons Corner Center (50%)   Fixed   4.78 %   168,955     11,232   2/17/14     147,595   Any Time
Valley Mall (50%)   Fixed   5.85 %   23,302     1,678   6/1/16     20,046   6/22/08
Washington Square (51%)   Fixed   6.72 %   49,932     5,051   2/1/09     48,021   Any Time
Washington Square (51%)(28)   Floating   7.23 %   16,547     1,196   2/1/09     16,547   Any Time
West Acres (19%)   Fixed   6.41 %   13,039     850   10/1/16     5,684   Any Time
Wilshire Blvd. (30%)(29)   Fixed   6.35 %   1,864     118   1/1/33     42   1/1/08
           
                   
            $ 1,820,411                    
           
                   

(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 the principal value of debt assumed in various acquisitions. The debt premiums (discounts) are being amortized into interest expense over the term of the related debt, in a manner which approximates the effective interest method. The annual interest

28


Property Pledged as Collateral

   
 
Danbury Fair Mall   $ 13,405  
Eastview Commons     573  
Eastview Mall     1,736  
Freehold Raceway Mall     12,373  
Great Northern Mall     (164 )
Hilton Village     (70 )
Marketplace Mall     1,650  
Paradise Valley Mall     392  
Pittsford Plaza     857  
Shoppingtown Mall     3,731  
Towne Mall     464  
Victor Valley, Mall of     54  
Village Fair North     49  
Wilton Mall     2,729  
   
 
    $ 37,779  
   
 
Property Pledged as Collateral

   
 
Arrowhead Towne Center   $ 413  
Biltmore Fashion Park     1,559  
Kierland Greenway     732  
Tysons Corner Center     3,468  
Wilshire Blvd.      (131 )
   
 
    $ 6,041  
   
 
(2)
Northwestern Mutual Life ("NML") is the lender of this loan. The funds advanced by NML are considered a related party as they are a joint venture partner with the Company in Broadway Plaza.

(3)
In addition to monthly principal and interest payments, contingent interest, as defined in the loan agreement, may be due to the extent that 35% of the amount by which the property's gross receipts exceeds a base amount. Contingent interest expense recognized by the Company was $571 for the year ended December 31, 2007.

(4)
On May 23, 2007, the Company borrowed an additional $72,500 under the loan agreement at a fixed rate of 5.38%. The total interest rate at December 31, 2007 was 5.41%.

(5)
On January 1, 2008, these loans were transferred in connection with the Rochester Redemption. (See Note 25--Subsequent Events in the Company's Consolidated Financial Statements included herein).

(6)
The floating rate loan bears interest at LIBOR plus 0.65%. The Company has stepped interest rate cap agreements over the term of the loan that effectively prevent LIBOR from exceeding 7.95%. In November 2007, the loan was extended until November 6, 2008. At December 31, 2007, the total interest rate was 5.97%.

(7)
On September 5, 2007, the Company purchased the remaining 50% outside ownership interests in the property. The property has a loan that bears interest at a fixed rate of 5.27% and matures on February 1, 2012.

(8)
The floating rate loan bears interest at LIBOR plus 0.88%. In July 2007, the Company extended the maturity to August 9, 2008, and has an option to extend the maturity for an additional year. The Company has an

29


(9)
The floating rate loan bears interest at LIBOR plus 0.85% and matures in February 2010. There is an interest rate cap agreement on this loan which effectively prevents LIBOR from exceeding 6.65%. At December 31, 2007, the total interest rate was 6.00%.

(10)
On July 3, 2007, the Company placed a construction loan on the property that provides for borrowings of up to $15,000, bears interest at a fixed rate of 6.52% and matures on January 1, 2013.

(11)
The construction loan allows for total borrowings of up to $110,000, and bears interest at LIBOR plus a spread of 1.20% to 1.40% depending on certain conditions. The loan matures in August 2009, with two one-year extension options. At December 31, 2007, the total interest rate was 6.35%.

(12)
NML is the lender for 50% of the loan. The funds advanced by NML are considered related party debt as they are a joint venture partner with the Company in Broadway Plaza.

(13)
On March 23, 2007, the Company paid off the $51,000 interest only loan on the property. On May 15, 2007, the Company placed a new $78,000 loan on the property that bears interest at a fixed rate of 5.84% and matures on June 1, 2012.

(14)
The construction loan allows for total borrowings of up to $115,000, and bears interest at LIBOR plus a spread of .80%. The loan matures in June 2009, with a one-year extension option. At December 31, 2007, the total interest rate was 5.93%.

(15)
On January 23, 2007, the Company exercised an earn-out provision under the loan agreement and borrowed an additional $20,000 at a fixed rate of 5.64%. The total interest rate at December 31, 2007 was 5.60%.

(16)
Effective December 17, 2007, the existing loan agreement was amended to reduce the interest rate from LIBOR plus 1.25% to LIBOR plus .90% and to extend the maturity date to December 17, 2010. At December 31, 2007, the total interest rate was 5.93%.

(17)
This loan bears interest at LIBOR plus 0.69%, matures on October 9, 2008, and has two one-year extension options. The loan is covered by an interest rate cap agreement over the term which effectively prevents LIBOR from exceeding 8.54%. At December 31, 2007, the total interest rate was 5.79%.

(18)
Effective December 19, 2007, the existing loan agreement was amended to reduce the interest rate from LIBOR plus 1.65% to LIBOR plus 1.00% and to extend the maturity to January 15, 2011. At December 31, 2007, the total interest rate was 6.14%.

(19)
This loan bears interest at LIBOR plus 1.10%, matures in March 2008, and has three one-year extension options. The loan is covered by an interest rate cap agreement over the term which effectively prevents LIBOR from exceeding 7.65%. At December 31, 2007, the total interest rate was 6.13%.

(20)
This represents a construction loan not to exceed $49,472 and bears interest at LIBOR plus 1.75%. At December 31, 2007, the total interest rate was 6.63%.

(21)
This loan bears interest at LIBOR plus 0.55% and matures on July 1, 2011. The loan provides for additional borrowings of up to $70,000 until May 20, 2010 at a rate of LIBOR plus 0.90%. At December 31, 2007, the total interest rate was 5.92%.

(22)
This loan bears interest at LIBOR plus 0.94% and was set to mature on February 9, 2008 and had two one-year extension options. On February 9, 2008, the joint venture exercised one of the options and extended the loan to February 9, 2009. The joint venture entered into an interest rate swap agreement for $112.0 million to convert this loan from floating rate debt to fixed rate debt of 3.86%, which effectively limits the interest rate on this loan to 4.80% through February 15, 2008. In connection with the loan extension, the joint venture entered into an interest rate swap agreement for $133.6 million to convert both loans at this property from floating rate debt to fixed rate debt of 4.57%, which effectively limits the weighted average interest rates on these loans to 5.92% from February 15, 2008 through February 15, 2009.

(23)
This loan provides for total funding of up to $37,380, subject to certain conditions, and bears interest at LIBOR plus 3.45% and was set to mature February 9, 2008. On February 9, 2008, the joint venture extended the loan to February 9, 2009. The joint venture has two interest rate cap agreements throughout the term,

30


(24)
Contingent interest, as defined in the loan agreement, is due upon the occurrence of certain capital events and is equal to 15% of proceeds less the base amount.

(25)
This represents an interest-only line of credit that bears interest at the lender's prime rate and matures August 30, 2008. At December 31, 2007, the total interest rate was 8.25%.

(26)
On July 2, 2007, the joint venture replaced two existing loans on the property with a new $550.0 million loan, that bears interest at a fixed rate of 5.66% and matures July 8, 2013, of which the Company's pro rata share is $275.0 million.

(27)
This loan bears interest at LIBOR plus 0.37%. In addition, the joint venture has an interest rate cap agreement that effectively prevents LIBOR from exceeding 8.63% throughout the loan term. At December 31, 2007, the total interest rate was 5.37%.

(28)
This loan bears interest at LIBOR plus 2.00%. At December 31, 2007, the total interest rate was 7.23%.

(29)
On October 25, 2007, the Company acquired a 30% tenants-in-common interest in the Wilshire property. As part of the acquisition, the Company assumed a 30% pro rata interest in the loan on the property, which bears interest at a fixed rate of interest of 6.35% and matures on January 1, 2033.

ITEM 3.    LEGAL PROCEEDINGS

        None of the Company, the Operating Partnership, the Management Companies or their respective affiliates are currently involved in any material litigation nor, to the Company's knowledge, is any material litigation currently threatened against such entities or the Centers, other than routine litigation arising in the ordinary course of business, most of which is expected to be covered by liability insurance. For information about certain environmental matters, see "Business--Environmental Matters."

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        None

31



PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

        The common stock of the Company is listed and traded on the New York Stock Exchange under the symbol "MAC". The common stock began trading on March 10, 1994 at a price of $19 per share. In 2007, the Company's shares traded at a high of $103.59 and a low of $69.44.

        As of February 8, 2008, there were approximately 961 stockholders of record. The following table shows high and low closing prices per share of common stock during each quarter in 2007 and 2006 and dividends/distributions per share of common stock declared and paid by quarter:

 
  Market Quotation Per Share
   
 
  Dividends/
Distributions
Declared/Paid

Quarter Ended
  High
  Low
March 31, 2007   $ 103.32   $ 85.76   $ 0.71
June 30, 2007     97.69     81.17     0.71
September 30, 2007     87.58     73.14     0.71
December 31, 2007     92.66     70.63     0.80

March 31, 2006

 

$

75.13

 

$

68.89

 

$

0.68
June 30, 2006     74.05     67.90     0.68
September 30, 2006     77.11     70.02     0.68
December 31, 2006     87.00     76.16     0.71

        At December 31, 2007, the Company had outstanding 3,067,131 shares of its Series A cumulative convertible redeemable preferred stock ("Series A Preferred Stock"). There is no established public trading market for the Series A Preferred Stock. The Series A Preferred Stock was issued on February 25, 1998. Preferred stock dividends are accrued quarterly and paid in arrears. The Series A Preferred Stock can be converted on a one for one basis into common stock and pays a quarterly dividend equal to the greater of $0.46 per share, or the dividend then payable on a share of common stock. No dividends will be declared or paid on any class of common or other junior stock to the extent that dividends on Series A Preferred Stock have not been declared and/or paid. The following table shows the dividends per share of Series A Preferred Stock declared and paid by quarter in 2007 and 2006:

 
  Series A Preferred
Stock Dividend

Quarter Ended
  Declared
  Paid
March 31, 2007   $ 0.71   $ 0.71
June 30, 2007     0.71     0.71
September 30, 2007     0.80     0.71
December 31, 2007     0.80     0.80

March 31, 2006

 

$

0.68

 

$

0.68
June 30, 2006     0.68     0.68
September 30, 2006     0.71     0.68
December 31, 2006     0.71     0.71

        The Company's existing financing agreements limit, and any other financing agreements that the Company enters into in the future will likely limit, the Company's ability to pay cash dividends. Specifically, the Company may pay cash dividends and make other distributions based on a formula derived from Funds from Operations (See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Funds From Operations") and only if no event of default under the financing agreements has occurred, unless, under certain circumstances, payment of the distribution is necessary to enable the Company to qualify as a REIT under the Code.

32


Stock Performance Graph

        The following graph provides a comparison, from December 31, 2002 through December 31, 2007, of the yearly percentage change in the cumulative total stockholder return (assuming reinvestment of dividends) of the Company, the Standard & Poor's ("S&P") 500 Index, the S&P Midcap 400 Index and the NAREIT All Equity REIT Index (the "NAREIT Index"), an industry index of publicly-traded REITs (including the Company). The Company is providing the S&P Midcap 400 Index since it is a company within such index.

        The graph assumes that the value of the investment in each of the Company's common stock and the indices was $100 at the beginning of the period. The graph further assumes the reinvestment of dividends.

        Upon written request directed to the Secretary of the Company, the Company will provide any stockholder with a list of the REITs included in the NAREIT Index. The historical information set forth below is not necessarily indicative of future performance. Data for the NAREIT Index, the S&P 500 Index and the S&P Midcap 400 Index were provided to the Company by Research Data Group, Inc.

GRAPHIC

Copyright © 2008, Standard & Poor's, a division of The McGraw-Hill Companies, Inc. All rights reserved. www.researchdatagroup.com/S&P.htm

 
  12/31/02
  12/31/03
  12/31/04
  12/31/05
  12/31/06
  12/31/07
The Macerich Company   $ 100.00   $ 154.38   $ 229.09   $ 255.36   $ 341.95   $ 290.34
S&P 500 Index     100.00     128.68     142.69     149.70     173.34     182.87
S&P Midcap 400 Index     100.00     135.62     157.97     177.81     196.16     211.81
NAREIT Equity Index     100.00     137.13     180.44     202.38     273.34     230.45

33


ITEM 6.    SELECTED FINANCIAL DATA

        The following sets forth selected financial data for the Company on a historical basis. The following data should be read in conjunction with the financial statements (and the notes thereto) of the Company and "Management's Discussion and Analysis of Financial Condition and Results of Operations" each included elsewhere in this Form 10-K. All amounts are in thousands except per share data.

 
  Years Ended December 31,
 
 
  2007
  2006
  2005
  2004
  2003
 
OPERATING DATA:                                
Revenues:                                
    Minimum rents(1)   $ 521,122   $ 489,078   $ 423,759   $ 294,846   $ 256,974  
    Percentage rents     26,816     24,667     24,152     15,655     10,646  
    Tenant recoveries     273,913     254,526     214,832     145,055     139,380  
    Management Companies(2)     39,752     31,456     26,128     21,549     14,630  
    Other     34,765     29,929     22,953     18,070     16,487  
   
 
 
 
 
 
    Total revenues     896,368     829,656     711,824     495,175     438,117  
Shopping center and operating expenses     284,687     262,127     223,905     146,465     136,881  
Management Companies' operating expenses(2)     73,761     56,673     52,840     44,080     32,031  
REIT general and administrative expenses     16,600     13,532     12,106     11,077     8,482  
Depreciation and amortization     236,241     224,273     193,145     128,413     95,888  
Interest expense     263,726     274,667     237,097     134,549     121,105  
   
 
 
 
 
 
    Total expenses     875,015     831,272     719,093     464,584     394,387  
Minority interest in consolidated joint ventures     (3,730 )   (3,667 )   (700 )   (184 )   (112 )
Equity in income of unconsolidated joint ventures and management companies(2)     81,458     86,053     76,303     54,881     59,348  
Income tax benefit (provision)(3)     470     (33 )   2,031     5,466     444  
Gain on sale of assets     12,146     38     1,253     473     11,960  
Loss on early extinguishment of debt     (877 )   (1,835 )   (1,666 )   (1,642 )   (44 )
   
 
 
 
 
 
    Income from continuing operations     110,820     78,940     69,952     89,585     115,326  
Discontinued operations:(4)                                
  (Loss) gain on sale of assets     (2,409 )   204,863     277     7,568     22,491  
  Income from discontinued operations     804     11,376     13,907     14,350     19,124  
   
 
 
 
 
 
    Total (loss) income from discontinued operations     (1,605 )   216,239     14,184     21,918     41,615  
   
 
 
 
 
 
Income before minority interest and preferred dividends     109,215     295,179     84,136     111,503     156,941  
Minority interest in Operating Partnership(5)     (12,675 )   (42,821 )   (12,450 )   (19,870 )   (28,907 )
   
 
 
 
 
 
Net income     96,540     252,358     71,686     91,633     128,034  
Less preferred dividends     24,879     24,336     19,098     9,140     14,816  
   
 
 
 
 
 
Net income available to common stockholders   $ 71,661   $ 228,022   $ 52,588   $ 82,493   $ 113,218  
   
 
 
 
 
 
Earnings per share ("EPS")--basic:                                
  Income from continuing operations   $ 1.02   $ 0.65   $ 0.70   $ 1.11   $ 1.49  
  Discontinued operations     (0.02 )   2.57     0.19     0.30     0.62  
   
 
 
 
 
 
    Net income per share--basic   $ 1.00   $ 3.22   $ 0.89   $ 1.41   $ 2.11  
   
 
 
 
 
 
EPS--diluted:(6)(7)                                
  Income from continuing operations   $ 1.02   $ 0.73   $ 0.69   $ 1.10   $ 1.54  
  Discontinued operations     (0.02 )   2.46     0.19     0.30     0.55  
   
 
 
 
 
 
    Net income per share--diluted   $ 1.00   $ 3.19   $ 0.88   $ 1.40   $ 2.09  
   
 
 
 
 
 

34


 
 
  As of December 31,
 
 
  2007
  2006
  2005
  2004
  2003
 
BALANCE SHEET DATA                                
Investment in real estate (before accumulated depreciation)   $ 7,221,851   $ 6,499,205   $ 6,160,595   $ 4,149,776   $ 3,662,359  
Total assets   $ 8,121,134   $ 7,562,163   $ 7,178,944   $ 4,637,096   $ 4,145,593  
Total mortgage and notes payable   $ 5,762,958   $ 4,993,879   $ 5,424,730   $ 3,230,120   $ 2,682,598  
Minority interest(5)   $ 338,700   $ 387,183   $ 284,809   $ 221,315   $ 237,615  
Class A participating convertible preferred units(8)   $ 213,786   $ 213,786   $ 213,786   $ --   $ --  
Class A non-participating convertible preferred units   $ 16,459   $ 21,501   $ 21,501   $ --   $ --  
Series A Preferred Stock(9)   $ 83,495   $ 98,934   $ 98,934   $ 98,934   $ 98,934  
Common stockholders' equity   $ 1,312,634   $ 1,542,305   $ 827,108   $ 913,533   $ 953,485  

OTHER DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Funds from operations ("FFO")--diluted(10)   $ 407,927   $ 383,122   $ 336,831   $ 299,172   $ 269,132  
Cash flows provided by (used in):                                
  Operating activities   $ 326,070   $ 211,850   $ 235,296   $ 213,197   $ 215,752  
  Investing activities   $ (865,283 ) $ (126,736 ) $ (131,948 ) $ (489,822 ) $ (341,341 )
  Financing activities   $ 355,051   $ 29,208   $ (20,349 ) $ 308,383   $ 115,703  
Number of centers at year end     94     91     97     84     78  
Weighted average number of shares outstanding--EPS basic     71,768     70,826     59,279     58,537     53,669  
Weighted average number of shares outstanding--EPS diluted(6)(7)     84,760     88,058     73,573     73,099     75,198  
Cash distribution declared per common share   $ 2.93   $ 2.75   $ 2.63   $ 2.48   $ 2.32  

(1)
Included in minimum rents is amortization of above and below market leases of $11.7 million, $13.1 million, $11.6 million, $9.2 million and $6.1 million for the years ended December 31, 2007, 2006, 2005, 2004, and 2003, respectively.

(2)
Unconsolidated joint ventures include all Centers and entities in which the Company does not have a controlling ownership interest and Macerich Management Company through June 30, 2003. The Company accounts for the unconsolidated joint ventures using the equity method of accounting. Effective July 1, 2003, the Company consolidated Macerich Management Company, in accordance with Financial Accounting Standards Board Interpretation No. 46R.

(3)
The Company's Taxable REIT Subsidiaries ("TRSs") are subject to corporate level income taxes (See Note 19 of the Company's Consolidated Financial Statements).

(4)
Discontinued operations include the following:

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  Years Ended December 31,
 
  2007
  2006
  2005
  2004
  2003
 
  (Dollars in millions)
Revenues:                              
  Bristol Center   $ --   $ --   $ --   $ --   $ 2.5
  Westbar     --     --     --     4.8     5.7
  Arizona LifeStyle Galleries     --     --     --     0.3     --
  Scottsdale/101     0.1     4.7     9.8     6.9     --
  Park Lane Mall     --     1.5     3.1     3.0     3.1
  Holiday Village     0.2     2.9     5.2     4.8     5.3
  Greeley Mall     --     4.3     7.0     6.2     5.9
  Great Falls Marketplace     --     1.8     2.7     2.6     2.5
  Citadel Mall     --     15.7     15.3     15.4     16.1
  Northwest Arkansas Mall     --     12.9     12.6     12.7     12.5
  Crossroads Mall     --     11.5     10.9     11.2     12.2
  Mervyn's Stores     1.2     --     --     --     --
   
 
 
 
 
  Total   $ 1.5   $ 55.3   $ 66.6   $ 67.9   $ 65.8
   
 
 
 
 
Income from operations:                              
  Bristol Center   $ --   $ --   $ --   $ --   $ 1.4
  Westbar     --     --     --     1.8     1.7
  Arizona LifeStyle Galleries     --     --     --     (1.0 )   --
  Scottsdale/101     --     0.3     (0.2 )   (0.3 )   --
  Park Lane Mall     --     --     0.8     0.9     1.0
  Holiday Village     0.2     1.2     2.8     1.9     2.4
  Greeley Mall     (0.1 )   0.6     0.9     0.5     1.2
  Great Falls Marketplace     --     1.1     1.7     1.6     1.5
  Citadel Mall     (0.1 )   2.5     1.8     2.0     3.0
  Northwest Arkansas Mall     --     3.4     2.9     3.1     3.2
  Crossroads Mall     --     2.3     3.2     3.9     3.7
  Mervyn's Stores     0.8     --     --     --     --
   
 
 
 
 
  Total   $ 0.8   $ 11.4   $ 13.9   $ 14.4   $ 19.1
   
 
 
 
 

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(5)
"Minority Interest" reflects the ownership interest in the Operating Partnership not owned by the Company.

(6)
Assumes that all OP Units and Westcor partnership units are converted to common stock on a one-for-one basis. The Westcor partnership units were converted into OP Units on July 27, 2004, which were subsequently redeemed for common stock on October 4, 2005. It also assumes the conversion of MACWH, LP common and preferred units to the extent that they are dilutive to the EPS computation (See Note 12—Acquisitions in the Company's Notes to the Consolidated Financial Statements).

(7)
Includes the dilutive effect of share and unit-based compensation plans and convertible senior notes calculated using the treasury stock method and the dilutive effect of all other dilutive securities calculated using the "if converted" method.

(8)
The Company issued PCPUs on April 25, 2005 as part of the consideration paid for the Wilmorite portfolio. On January 1, 2008, the PCPUs were redeemed for the Rochester Properties (See Note 25--Subsequent Events in the Company's Notes to the Consolidated Financial Statements).

(9)
On October 18, 2007, the holder of the Series A Preferred Stock converted 560,000 shares to common shares.

(10)
The Company uses FFO in addition to net income to report its operating and financial results and considers FFO and FFO--diluted as supplemental measures for the real estate industry and a supplement to Generally Accepted Accounting Principles ("GAAP") measures. The National Association of Real Estate Investment Trusts ("NAREIT") defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from extraordinary items and sales of depreciated operating properties, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. FFO and FFO on a fully diluted basis are useful to investors in comparing operating and financial results between periods. This is especially true since FFO excludes real estate depreciation and amortization as the Company believes real estate values fluctuate based on market conditions rather than depreciating in value ratably on a straight-line basis over time. FFO on a fully diluted basis is one of the measures investors find most useful in measuring the dilutive impact of outstanding convertible securities. FFO does not represent cash flow from operations as defined by GAAP, should not be considered as an alternative to net income as defined by GAAP and is not indicative of cash available to fund all cash flow needs. FFO as presented may not be comparable to similarly titled measures reported by other real estate investment trusts. For the reconciliation of FFO and FFO—diluted to net income, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Funds from Operations."

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's Overview and Summary

        The Company is involved in the acquisition, ownership, development, redevelopment, management and leasing of regional and community shopping centers located throughout the United States. The Company is the sole general partner of, and owns a majority of the ownership interests in, the Operating Partnership. As of December 31, 2007, the Operating Partnership owned or had an ownership interest in 74 regional shopping centers and 20 community shopping centers aggregating approximately 80.7 million square feet of GLA. These 94 regional and community shopping centers are referred to hereinafter as the "Centers", unless the context otherwise requires. The Company is a self-administered and self-managed REIT and conducts all of its operations through the Operating Partnership and the Company's Management Companies.

        The following discussion is based primarily on the consolidated financial statements of the Company for the years ended December 31, 2007, 2006 and 2005. It compares the results of operations and cash flows for the year ended December 31, 2007 to the results of operations and cash flows for the year ended December 31, 2006. Also included is a comparison of the results of operations and cash flows for the year ended December 31, 2006 to the results of operations and cash flows for the year ended December 31, 2005. This information should be read in conjunction with the accompanying consolidated financial statements and notes thereto.

        The financial statements reflect the following acquisitions, dispositions and changes in ownership subsequent to the occurrence of each transaction.

        On January 5, 2005, the Company sold Arizona Lifestyle Galleries for $4.3 million. The sale resulted in a gain on sale on asset of $0.3 million.

        On January 11, 2005, the Company became a 15% owner in a joint venture that acquired Metrocenter Mall, a 1.1 million square foot super-regional mall in Phoenix, Arizona. The total purchase price was $160 million and concurrently with the acquisition, the joint venture placed a $112 million loan on the property. The Company's share of the purchase price, net of the debt, was $7.2 million which was funded by cash and borrowings under the Company's line of credit.

        On January 21, 2005, the Company formed a 50/50 joint venture with a private investment company. The joint venture acquired a 49% interest in Kierland Commons, a 435,022 square foot mixed-use center in Phoenix, Arizona. The joint venture's purchase price for the interest in the Center was $49.0 million. The Company assumed its share of the underlying property debt and funded the remainder of its share of the purchase price by cash and borrowings under the Company's line of credit.

        On April 8, 2005, the Company acquired Ridgmar Mall, a 1.3 million square foot super-regional mall in Fort Worth, Texas. The acquisition was completed in a 50/50 joint venture with an affiliate of Walton Street Capital, LLC. The purchase price was $71.1 million. Concurrent with the closing, a $57.4 million loan bearing interest at a fixed rate of 6.0725% was placed on the property. The balance of the purchase price was funded by borrowings under the Company's line of credit.

        On April 25, 2005, the Company and the Operating Partnership acquired Wilmorite Properties, Inc., a Delaware corporation ("Wilmorite"), and Wilmorite Holdings, L.P., a Delaware limited partnership ("Wilmorite Holdings"). Wilmorite's portfolio included interests in 11 regional malls and two open-air community shopping centers with 13.4 million square feet of space located in Connecticut, New York, New Jersey, Kentucky and Virginia. The total purchase price was

38



approximately $2.3 billion, plus adjustments for working capital, including the assumption of approximately $877.2 million of existing debt with an average interest rate of 6.43% and the issuance of $212.7 million of PCPUs, $21.5 million of non-participating convertible preferred units and $5.8 million of common units in Wilmorite Holdings. The balance of the consideration to the equity holders of Wilmorite and Wilmorite Holdings was paid in cash, which was provided primarily by a five-year, $450 million term loan bearing interest at LIBOR plus 1.50% and a $650 million acquisition loan with a term of up to two years and bearing interest initially at LIBOR plus 1.60%. An affiliate of the Operating Partnership is the general partner and, together with other affiliates, owned as of December 31, 2007 approximately 83% of Wilmorite Holdings, with the remaining 17% held by those limited partners of Wilmorite Holdings who elected to receive convertible preferred units or common units in Wilmorite Holdings rather than cash. On January 1, 2008, the PCPUs were redeemed for the Rochester Properties.

        The Wilmorite portfolio, exclusive of Tysons Corner Center and Tysons Corner Office (collectively referred herein as "Tysons Center"), are referred to herein as the "2005 Acquisition Centers."

        On February 1, 2006, the Company acquired Valley River Center, an 910,841 square foot super-regional mall in Eugene, Oregon. The total purchase price was $187.5 million and concurrent with the acquisition, the Company placed a $100.0 million ten-year loan on the property. The balance of the purchase price was funded by cash and borrowings under the Company's line of credit.

        On June 9, 2006, the Company sold Scottsdale/101, a 564,000 square foot center in Phoenix, Arizona. The sale price was $117.6 million from which $56.0 million was used to payoff the mortgage on the property. The Company's share of the realized gain was $25.8 million.

        On July 13, 2006, the Company sold Park Lane Mall, a 370,000 square foot center in Reno, Nevada, for $20 million resulting in a gain of $5.9 million.

        On July 26, 2006, the Company purchased 11 department stores located in 10 of its Centers from Federated Department Stores, Inc. for approximately $100.0 million. The purchase price consisted of a $93.0 million cash payment at closing and a $7.0 million cash payment in 2007, in connection with development work by Federated at the Company's development properties. The Company's share of the purchase price was $81.0 million and was funded in part from the proceeds of sales of Park Lane Mall, Greeley Mall, Holiday Village and Great Falls Marketplace, and from borrowings under the Company's line of credit. The balance of the purchase price was paid by the Company's joint venture partners.

        On July 27, 2006, the Company sold Holiday Village, a 498,000 square foot center in Great Falls, Montana, and Greeley Mall, a 564,000 square foot center in Greeley, Colorado, in a combined sale for $86.8 million, resulting in a gain of $28.7 million.

        On August 11, 2006, the Company sold Great Falls Marketplace, a 215,000 square foot community center in Great Falls, Montana, for $27.5 million resulting in a gain of $11.8 million.

        On December 1, 2006, the Company acquired Deptford Mall, a two-level 1.0 million square foot super-regional mall in Deptford, New Jersey. The total purchase price of $240.1 million was funded by cash and borrowings under the Company's line of credit. On December 7, 2006, the Company placed a $100.0 million six-year loan bearing interest at a fixed rate of 5.44% on the property.

        On December 29, 2006, the Company sold Citadel Mall, a 1,095,000 square foot center in Colorado Springs, Colorado, Crossroads Mall, a 1,268,000 square foot center in Oklahoma City, Oklahoma, and Northwest Arkansas Mall, a 820,000 square foot center in Fayetteville, Arkansas, in a combined sale for $373.8 million, resulting in a gain of $132.7 million. The net proceeds were used to pay down the Company's line of credit and pay off the Company's $75.0 million loan on Paradise Valley Mall.

39


        Valley River Center and Deptford Mall are referred to herein as the "2006 Acquisition Centers."

        On September 5, 2007, the Company purchased the remaining 50% outside ownership interest in Hilton Village, a 96,546 square foot specialty center in Scottsdale, Arizona. The total purchase price of $13.5 million was funded by cash, borrowings under the Company's line of credit and the assumption of a mortgage note payable. The Center was previously accounted for under the equity method as an investment in unconsolidated joint ventures.

        On December 17, 2007, the Company purchased a portfolio of ground leasehold interest and/or fee interests in 39 freestanding Mervyn's stores located in the Southwest United States. The purchase price of $400.2 million was funded by cash and borrowings under the Company's line of credit. At acquisition, management designated the 27 freestanding stores located at shopping centers not owned or managed by the Company as available for sale.

        Hilton Village and the 12 Mervyn's freestanding stores that have not been designated as available for sale are referred herein as the "2007 Acquisition Properties."

        The first phase of SanTan Village Regional Center opened on October 26, 2007. The 1.2 million square foot open-air super-regional shopping center opened with over 90% of the retail space committed, with Dillard's and more than 85 specialty retailers joining Harkins Theatres, which opened March 2007. The balance of the project, which includes Dick's Sporting Goods, Best Buy, Barnes & Noble and up to 13 restaurants, is expected to open in phases throughout 2008.

        The first phase of The Promenade at Casa Grande, a 1 million square foot, 130 acre department store anchored hybrid center, located in Casa Grande, Arizona, opened on November 16, 2007. With ninety percent committed, the first phase of the project has approximately 550,000 square feet of mini-majors, including Dillard's, Target, J.C.Penney, Kohl's, Petsmart and Staples. The balance of the Center is expected to continue to open in phases throughout 2008.

        The first phase of The Marketplace at Flagstaff Mall, a 435,000 square foot lifestyle expansion began opening in phases on October 19, 2007. Phase I delivered approximately 267,538 square feet of new retail space including Best Buy, Home Depot, Linens n Things, Marshalls, Old Navy, Petco and Shoe Pavilion. Phase II, which will consist of village shops, an entertainment plaza and pad space, is expected to be completed in 2009-2010.

        On November 8, 2007, Freehold Raceway Mall opened the first phase of a combined expansion and renovation project that will add 96,000 square feet of new retail and restaurant uses to this regional center in New Jersey. The expansion, which is 85% committed, added nine new-to-market additions including: Borders, The Cheesecake Factory, P.F. Chang's, Jared The Galleria of Jewelry, The Territory Ahead, Ann Taylor, Chico's, Coldwater Creek and White House/Black Market. The balance of the project is expected to open throughout 2008.

        Scottsdale Fashion Square, the 2 million square foot luxury flagship, is undergoing a $130 million redevelopment and expansion. Phase I of the redevelopment and expansion began September 2007 with demolition of the vacant anchor space acquired as a result of the Federated-May merger and an adjacent parking structure. A 60,000 square foot Barneys New York, the high-end retailer's first Arizona location, will anchor an additional 100,000 square feet of up to 30 new luxury shops, which is planned to open in Fall 2009 in an urban setting on Scottsdale Road. New first-to-market deals include Salvatore Ferragamo, Grand Luxe Café, CH Carolina Herrera, and Michael Kors. First-to-market retailers opening in the Spring 2008 will include Bottega Veneta, Jimmy Choo and Marciano.

        Construction continues on the combined redevelopment, expansion and interior renovation of The Oaks, an upscale 1.0 million square foot super-regional shopping center in California's affluent

40



Thousand Oaks. The market's first Nordstrom department store is under construction. Construction of a first-to-market, 138,000 square foot Nordstrom Department Store, two-level open-air retail, dining and entertainment venue and new multi-level parking structure at The Oaks continues on schedule toward a phased completion beginning Fall 2008.

        In December 2007, the Company received full entitlements to proceed with plans for a redevelopment of Santa Monica Place. The regional center will be redeveloped as an open-air shopping and dining environment that will connect with the popular Third Street Promenade. The Santa Monica Place redevelopment has started and is moving forward with a projected Fall 2009 completion.

        In the last three years, inflation has not had a significant impact on the Company because of a relatively low inflation rate. Most of the leases at the Centers have rent adjustments periodically through the lease term. These rent increases are either in fixed increments or based on using an annual multiple of increases in the Consumer Price Index ("CPI"). In addition, about 6%-13% of the leases expire each year, which enables the Company to replace existing leases with new leases at higher base rents if the rents of the existing leases are below the then existing market rate. Additionally, historically the majority of the leases required the tenants to pay their pro rata share of operating expenses. In January 2005, the Company began entering into leases that require tenants to pay a stated amount for operating expenses, generally excluding property taxes, regardless of the expenses actually incurred at any Center. This change shifts the burden of cost control to the Company.

        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, and estimates for environmental matters. The Company's significant accounting policies are described in more detail in Note 2 to the Consolidated Financial Statements. However, the following policies are deemed to be critical.

        Minimum rental revenues are recognized on a straight-line basis over the term of the related lease. The difference between the amount of rent due in a year and the amount recorded as rental income is referred to as the "straight line rent adjustment." Currently, 53% of the mall and freestanding leases contain provisions for CPI rent increases periodically throughout the term of the lease. The Company believes that using an annual multiple of CPI increases, rather than fixed contractual rent increases, results in revenue recognition that more closely matches the cash revenue from each lease and will

41


provide more consistent rent growth throughout the term of the leases. Percentage rents are recognized when the tenants' specified sales targets have been met. Estimated recoveries from certain tenants for their pro rata share of real estate taxes, insurance and other shopping center operating expenses are recognized as revenues in the period the applicable expenses are incurred. Other tenants pay a fixed rate and these tenant recoveries' revenues are recognized on a straight-line basis over the term of the related leases.

        The Company capitalizes costs incurred in redevelopment and development of properties in accordance with SFAS No. 34 "Capitalization of Interest Cost" and SFAS No. 67 "Accounting for Costs and the Initial Rental Operations of Real Estate Properties." The costs of land and buildings under development include specifically identifiable costs. The capitalized costs include pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes, salaries and related costs and other costs incurred during the period of development. Capitalized costs are allocated to the specific components of a project that are benefited. The Company considers a construction project as completed and held available for occupancy and ceases capitalization of costs when the areas under development have been substantially completed.

        Maintenance and repairs expenses are charged to operations as incurred. Costs for major replacements and betterments, which includes HVAC equipment, roofs, parking lots, etc., are capitalized and depreciated over their estimated useful lives. Gains and losses are recognized upon disposal or retirement of the related assets and are reflected in earnings.

        Property is recorded at cost and is depreciated using a straight-line method over the estimated useful lives of the assets as follows:

Buildings and improvements   5-40 years
Tenant improvements   5-7 years
Equipment and furnishings   5-7 years

        The Company accounts for all acquisitions in accordance with Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations." The Company first determines the value of the land and buildings utilizing an "as if vacant" methodology. The Company then assigns a fair value to any debt assumed at acquisition. The balance of the purchase price is allocated to tenant improvements and identifiable intangible assets or liabilities. Tenant improvements represent the tangible assets associated with the existing leases valued on a fair market value basis at the acquisition date prorated over the remaining lease terms. The tenant improvements are classified as an asset under real estate investments and are depreciated over the remaining lease terms. Identifiable intangible assets and liabilities relate to the value of in-place operating leases which come in three forms: (i) leasing commissions and legal costs, which represent the value associated with "cost avoidance" of acquiring in-place leases, such as lease commissions paid under terms generally experienced in the Company's markets; (ii) value of in-place leases, which represents the estimated loss of revenue and of costs incurred for the period required to lease the "assumed vacant" property to the occupancy level when purchased; and (iii) above or below market value of in-place leases, which represents the difference between the contractual rents and market rents at the time of the acquisition, discounted for tenant credit risks. Leasing commissions and legal costs are recorded in deferred charges and other assets and are amortized over the remaining lease terms. The value of in-place leases are recorded in deferred charges and other assets and amortized over the remaining lease terms plus an estimate of renewal of the acquired leases. Above or below market leases are classified in deferred charges and other assets or

42


in other accrued liabilities, depending on whether the contractual terms are above or below market, and the asset or liability is amortized to minimum rents over the remaining terms of the leases.

        When the Company acquires a real estate property, the Company allocates the purchase price to the components of these acquisitions using relative fair values computed using its estimates and assumptions. These estimates and assumptions impact the amount of costs allocated between various components as well as the amount of costs assigned to individual properties in multiple property acquisitions. These allocations also impact depreciation expense and gains or loses recorded on future sales of properties.

        The Company assesses whether there has been impairment in the value of its long-lived assets by considering factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other economic factors. Such factors include the tenant's ability to perform their duties and pay rent under the terms of the leases. The Company may recognize impairment losses if the cash flows are not sufficient to cover its investment. Such a loss would be determined as the difference between the carrying value and the fair value of a center.

        Costs relating to obtaining tenant leases are deferred and amortized over the initial term of the agreement using the straight-line method. Costs relating to financing of shopping center properties are deferred and amortized over the life of the related loan using the straight-line method, which approximates the effective interest method. In-place lease values are amortized over the remaining lease term plus an estimate of renewal. Leasing commissions and legal costs are amortized on a straight-line basis over the individual remaining lease years. The ranges of the terms of the agreements are as follows:

Deferred lease costs   1-15 years
Deferred financing costs   1-15 years
In-place lease values   Remaining lease term plus an estimate for renewal
Leasing commissions and legal costs   5-10 years

Results of Operations

        Many of the variations in the results of operations, discussed below, occurred due to the transactions described above including the 2007 Acquisition Properties, the 2006 Acquisition Centers, the 2005 Acquisition Centers and the Redevelopment Centers. For the comparison of the year ended December 31, 2007 to the year ended December 31, 2006, the "Same Centers" include all consolidated Centers, excluding the 2007 Acquisition Centers, the 2006 Acquisition Centers and the Redevelopment Centers. For the comparison of the year ended December 31, 2006 to the year ended December 31, 2005, the Same Centers include all consolidated Centers, excluding the 2006 Acquisition Centers, the 2005 Acquisition Centers and the Redevelopment Centers.

        For the comparison of the year ended December 31, 2007 to the year ended December 31, 2006, "Redevelopment Centers" include The Oaks, Twenty Ninth Street, Santa Monica Place, Westside Pavilion, The Marketplace at Flagstaff Mall, SanTan Village Regional Center and Promenade at Casa Grande. For the comparison of the year ended December 31, 2006 to the year ended December 31, 2005, "Redevelopment Centers" include Twenty Ninth Street, Santa Monica Place and Westside Pavilion.

43


        For comparison of the year ended December 31, 2006 to the year ended December 31, 2005, Kierland Commons, Metrocenter Mall, Ridgmar Mall and Tysons Center are referred to herein as the "Joint Venture Acquisition Centers." Unconsolidated joint ventures are reflected using the equity method of accounting. The Company's pro rata share of the results from these Centers is reflected in the Consolidated Statements of Operations as equity in income from unconsolidated joint ventures.

Comparison of Years Ended December 31, 2007 and 2006

        Minimum and percentage rents (collectively referred to as "rental revenue") increased by $34.2 million, or 6.7%, from 2006 to 2007. The increase in rental revenue is attributed to an increase of $17.9 million from the 2006 Acquisition Centers, $13.8 million from the Redevelopment Centers, $2.0 million from the Same Centers and $0.5 million from the 2007 Acquisition Properties.

        The amortization of above and below market leases, which is recorded in rental revenue, decreased to $11.7 million in 2007 from $13.1 million in 2006. The decrease in amortization is primarily due to leases terminated in 2006. The amortization of straight-lined rents, included in rental revenue, was $10.2 million in 2007 compared to $7.8 million in 2006. Lease termination income, which is included in rental revenue, decreased to $9.9 million in 2007 from $18.0 million in 2006.

        Tenant recoveries increased $19.4 million, or 7.7%, from 2006 to 2007. The increase in tenant recoveries is attributed to an increase of $11.0 million from the 2006 Acquisition Centers, $4.3 million from the Redevelopment Centers, $4.0 million from the Same Centers and $0.1 million from the 2007 Acquisition Properties.

        Management Companies' revenues increased by $8.3 million from 2006 to 2007, primarily due to increased management fees received from the joint venture Centers, additional third party management contracts and increased development fees from joint ventures.

        Shopping center and operating expenses increased $22.6 million, or 8.6%, from 2006 to 2007. Approximately $9.6 million of the increase in shopping center and operating expenses is from the 2006 Acquisition Centers, $6.8 million is from the Redevelopment Centers, $6.0 million is from the Same Centers and $0.2 million is from the 2007 Acquisition Properties.

        Management Companies' operating expenses increased to $73.8 million in 2007 from $56.7 million in 2006, in part as a result of the additional costs of managing the joint venture Centers and third party managed properties, higher compensation expense due to increased staffing and higher professional fees.

        REIT general and administrative expenses increased by $3.1 million in 2007 from 2006, primarily due to increased share and unit-based compensation expense in 2007.

        Depreciation and amortization increased $12.0 million in 2007 from 2006. The increase in depreciation and amortization is primarily attributed to an increase of $10.5 million at the Redevelopment Centers, $10.4 million at the 2006 Acquisition Centers and $0.2 million at the 2007 Acquisition Properties. This increase is offset in part by a decrease of $5.5 million at the Same Centers.

44


        Interest expense decreased $10.9 million in 2007 from 2006. The decrease in interest expense was primarily attributed to a decrease of $17.2 million from term loans, $16.1 million from the line of credit, $8.4 million from the Same Centers and $2.7 million from the Redevelopment Centers. The decrease in interest expense was offset in part by an increase of $27.3 million from the $950.0 million convertible senior notes issued on March 16, 2007 and $6.6 million from the 2006 Acquisition Centers. The decrease in interest on term loans was due to the repayment of the $250 million loan in 2007 and the repayment of the $619 million term loan in 2006. The decrease in interest on the line of credit was due to: (i) a decrease in average outstanding borrowings during 2007, in part, because of the issuance of the senior notes, (ii) a decrease in interest rates because of the $400 million swap and (iii) lower LIBOR rates and spreads. The decrease in interest from the Same Centers is due to: (i) the repayment of the $75.0 million loan on Paradise Valley Mall in January 2007, (ii) an increase in capitalized interest and (iii) a decrease in LIBOR rates on floating rate mortgages payable. The above interest expense items are net of capitalized interest, which increased to $32.0 million in 2007 from $14.9 million in 2006 due to an increase in redevelopment activity in 2007.

        The equity in income of unconsolidated joint ventures decreased $4.6 million in 2007 from 2006. The decrease in equity in income of unconsolidated joint ventures is due in part to a $2.0 million loss on sale of assets at the SDG Macerich Properties, L.P. joint venture and additional interest expense and depreciation at other joint ventures due to the completion of development projects.

        The Company recorded a gain on sale of assets of $12.1 million in 2007 relating to land sales of $8.8 million and $3.3 million relating to sale of equipment and furnishings.

        The Company recorded a $0.9 million loss from the early extinguishment of the $250 million term loan in 2007. In 2006, the Company recorded a loss from the early extinguishment of debt of $1.8 million related to the pay off of the $619 million term loan.

        The decrease of $217.8 million in income from discontinued operations is primarily related to the recognition of gain on the sales of Scottsdale/101, Park Lane Mall, Holiday Village, Greeley Mall, Great Falls Marketplace, Citadel Mall, Crossroads Mall and Northwest Arkansas Mall in 2006 (See "Management's Overview and Summary--Acquisitions and Dispositions"). As result of these sales, the Company classified the results of operations for these properties to discontinued operations for all periods presented.

        The minority interest in the Operating Partnership represents the 15.0% weighted average interest of the Operating Partnership not owned by the Company during 2007 compared to the 15.8% not owned by the Company during 2006. The change in ownership interest is primarily due to the common stock offering by the Company in 2006, the conversion of partnership units and preferred shares into common shares in 2007 which is offset in part by the repurchase of 807,000 shares in 2007 (See Note 21--Stock Repurchase Program of the Company's Consolidated Financial Statements).

45


        Primarily as a result of the factors mentioned above, funds from operations ("FFO")--diluted increased 6.5% to $407.9 million in 2007 from $383.1 million in 2006. For the reconciliation of FFO and FFO--diluted to net income available to common stockholders, see "Funds from Operations."

        Cash flow from operations increased to $326.1 million in 2007 from $211.9 million in 2006. The increase was primarily due to changes in assets and liabilities in 2007 compared to 2006 and due to the results at the Centers as discussed above.

        Cash used in investing activities increased to $865.3 million in 2007 from $126.7 million in 2006. The increase in cash used in investing activities was primarily due to a $580.3 million decrease in cash proceeds from the sales of assets and a $220.9 million increase in capital expenditures.

        Cash flow provided by financing activities increased to $355.1 million in 2007 from $29.2 million in 2006. The increase in cash provided by financing activities was primarily attributed to the issuance of $950 million convertible senior notes issuance in 2007, offset in part by a decrease of $746.8 million in proceeds from the common stock offering in 2006 (See "Liquidity and Capital Resources") and the purchase of the Capped Calls in connection with the issuance of the convertible senior notes in 2007.

Comparison of Years Ended December 31, 2006 and 2005

        Rental revenue increased by $65.8 million or 14.7% from 2005 to 2006. Approximately $43.5 million of the increase in rental revenue related to the 2005 Acquisition Centers, $11.9 million was related to the 2006 Acquisition Centers and $9.9 million was related to the Same Centers due in part to an increase in lease termination income of $7.2 million compared to 2005 at the Same Centers. The increases are offset in part by a decrease in rental revenue of $0.5 million at the Redevelopment Centers.

        The amount of straight-lined rents, included in rental revenue, was $7.8 million in 2006 compared to $6.7 million in 2005. This increase is primarily due to the 2006 Acquisition Centers.

        The amortization of above and below market leases, which is recorded in rental revenue, increased to $13.1 million in 2006 from $11.6 million in 2005. The increase in amortization is primarily due to the 2005 Acquisition Centers and 2006 Acquisition Centers.

        Tenant recoveries increased $39.7 million or 18.5% from 2005 to 2006. Approximately $23.0 million of the increase in tenant recoveries related to the 2005 Acquisition Centers, $5.1 million related to the 2006 Acquisition Centers and $12.4 million related to the Same Centers due to an increase in recoverable shopping center expenses. The increase in tenant recoveries was offset in part by a decrease of $0.9 million at the Redevelopment Centers.

        Management Companies' revenues increased by $5.3 million from 2005 to 2006, primarily due to increased management fees received from the Joint Venture Acquisition Centers, third party management contracts and increased development fees from joint ventures.

46


        Shopping center and operating expenses increased $38.2 million or 17.1% from 2005 to 2006. Approximately $25.6 million of the increase in shopping center and operating expenses related to the 2005 Acquisition Centers, $5.0 million related to the 2006 Acquisition Centers and $8.0 million related to the Same Centers offset in part by a $0.5 million decrease at the Redevelopment Centers.

        Management Companies' operating expenses increased to $56.7 million in 2006 from $52.8 million in 2005, primarily as a result of the additional costs of managing the Joint Venture Acquisition Centers and third party managed properties.

        REIT general and administrative expenses increased by $1.4 million in 2006 from 2005, primarily due to increased share-based compensation expense in 2006.

        Depreciation and amortization increased $31.1 million in 2006 from 2005. The increase is primarily attributed to the 2005 Acquisition Centers of $17.8 million, the 2006 Acquisition Centers of $6.2 million and the Same Centers of $7.4 million.

        Interest expense increased $37.6 million in 2006 from 2005. Approximately $13.8 million of the increase relates to the term loan associated with the 2005 Acquisition Centers, $12.4 million relates to assumed debt from the 2005 Acquisition Centers, $5.3 million relates to the 2006 Acquisition Centers, $13.3 million relates to increased borrowings and higher interest rates under the Company's line of credit, $6.7 million relates to higher interest rates on the $250 million term loan and approximately $8.9 million relates to increased interest expense due to refinancings and higher rates on floating rate debt regarding the Same Centers. These increases were offset in part by an approximately $1.3 million decrease in interest expense at the Redevelopment Centers and $21.6 million relating to the pay off of the acquisition loan associated with the 2005 Acquisition Centers. Additionally, capitalized interest was $14.9 million in 2006, up from $10.0 million in 2005.

        The equity in income of unconsolidated joint ventures increased $9.7 million in 2006 from 2005. Approximately $6.5 million of the increase relates to increased income from the Joint Venture Acquisition Centers, increased net income of $3.3 million from the Pacific Premier Retail Trust joint venture due to increased rental revenue and $4.6 million from other joint ventures due to increased rental revenues. This is partly offset by a $4.7 million increase in interest expense from the SDG Macerich Properties, L.P. joint venture.

        The Company recorded a loss from the early extinguishment of debt of $1.8 million in 2006 related to the pay off of the $619 million acquisition loan on January 19, 2006. In 2005, the Company recorded a loss on early extinguishment of debt of $1.7 relating to the refinancing of the mortgage note payable on Valley View Mall.

47


        The increase of $202.1 million in discontinued operations relates to the gain on sales of Scottsdale/101, Park Lane Mall, Holiday Village, Greeley Mall, Great Falls Marketplace, Citadel Mall, Crossroads Mall and Northwest Arkansas Mall in 2006 (See "Management's Overview and Summary--Acquisitions and Dispositions"). As result of the sales, the Company reclassified the results of operations for these properties for 2006 and 2005.

        The minority interest in the Operating Partnership represents the 15.8% weighted average interest of the Operating Partnership not owned by the Company during 2006 compared to the 19.0% not owned by the Company during 2005. The change is primarily due to the stock offering by the Company in January 2006.

        Primarily as a result of the factors mentioned above, FFO--Diluted increased 13.7% to $383.1 million in 2006 from $336.8 million in 2005. For the reconciliation of FFO and FFO--diluted to net income available to common stockholders, see "Funds from Operations."

        Cash flow from operations decreased to $211.9 million in 2006 from $235.3 million in 2005. The decrease is primarily due to changes in assets and liabilities in 2006 compared to 2005 and due to the results at the Centers as discussed above.

        Cash used in investing activities decreased to $126.7 million in 2006 from $131.9 million in 2005. The decrease is primarily attributed to the cash used to acquire the 2006 Acquisition Centers and increases in development and redevelopment costs at the Centers. This is offset by $610.6 million in proceeds from the sale of assets in 2006 (See "Management's Overview and Summary--Acquisitions and Dispositions").

        Cash flow provided by financing activities was $29.2 million in 2006 compared to cash used in financing activities of $20.3 million in 2005. The increase is primarily attributed to the net proceeds of $746.8 million from the stock offering in January 2006 offset in part by a reduction of debt in 2006 compared to 2005.

48


Liquidity and Capital Resources

        The Company intends to meet its short term liquidity requirements through cash generated from operations, working capital reserves, property secured borrowings, unsecured corporate borrowings and borrowings under the revolving line of credit. The Company anticipates that revenues will continue to provide necessary funds for its operating expenses and debt service requirements, and to pay dividends to stockholders in accordance with REIT requirements. The Company anticipates that cash generated from operations, together with cash on hand, will be adequate to fund capital expenditures which will not be reimbursed by tenants, other than non-recurring capital expenditures.

        The following tables summarize capital expenditures incurred at the Centers for the years ended December 31:

 
  2007
  2006
  2005
 
  (Dollars in thousands)

Consolidated Centers:                  
Acquisitions of property and equipment   $ 387,899   $ 580,542   $ 1,767,237
Development, redevelopment and expansion of Centers     545,926     184,315     77,254
Renovations of Centers     31,065     51,406     51,092
Tenant allowances     27,959     26,976     21,765
Deferred leasing charges     21,611     21,610     21,836
   
 
 
    $ 1,014,460   $ 864,849   $ 1,939,184
   
 
 
Joint Venture Centers (at Company's pro rata share):                  
Acquisitions of property and equipment   $ 24,828   $ 28,732   $ 736,451
Development, redevelopment and expansion of Centers     33,492     48,785     79,400
Renovations of Centers     10,495     8,119     32,243
Tenant allowances     15,066     13,795     8,922
Deferred leasing charges     4,181     4,269     5,113
   
 
 
    $ 88,062   $ 103,700   $ 862,129
   
 
 

        Management expects similar levels to be incurred in future years for tenant allowances and deferred leasing charges and to incur between $400 million to $600 million in 2008 for development, redevelopment, expansion and renovations. In January 2008, in a 50/50 joint venture, the Company acquired The Shops at North Bridge, a 680,933 square foot urban shopping center in Chicago, Illinois, for a total purchase price of $515.0 million. The Company's pro rata share of the purchase price was funded by the assumption of a pro rata share of the $205.0 million fixed rate mortgage on the Center and by borrowings under the Company's line of credit.

        Capital for major expenditures, developments and/or redevelopments has been, and is expected to continue to be, obtained from equity or debt financings which include borrowings under the Company's line of credit and construction loans. However, many factors impact the Company's ability to access capital, such as its overall debt level, interest rates, interest coverage ratios and prevailing market conditions.

        The Company's total outstanding loan indebtedness at December 31, 2007 was $7.6 billion (including $1.8 billion of its pro rata share of joint venture debt). This equated to a debt to Total Market Capitalization (defined as total debt of the Company, including its pro rata share of joint venture debt, plus aggregate market value of outstanding shares of common stock, assuming full conversion of OP Units, MACWH, LP units and preferred stock into common stock) ratio of approximately 53.7% at December 31, 2007. The majority of the Company's debt consists of fixed-rate conventional mortgages payable collateralized by individual properties.

        The Company filed a shelf registration statement, effective June 6, 2002, to sell securities. The shelf registration is for a total of $1.0 billion of common stock, common stock warrants or common

49



stock rights. The Company sold a total of 15.2 million shares of common stock under this shelf registration on November 27, 2002. The aggregate offering price of this transaction was approximately $440.2 million, leaving approximately $559.8 million available under the shelf registration statement. In addition, the Company filed another shelf registration statement, effective October 27, 2003, to sell up to $300 million of preferred stock. On January 12, 2006, the Company filed a shelf registration statement registering an unspecified amount of common stock that it may offer in the future.

        On March 16, 2007, the Company issued $950 million in convertible senior notes ("Senior Notes") that mature on March 15, 2012. The Senior Notes bear interest at 3.25%, payable semiannually, are senior to unsecured debt of the Company and are guaranteed by the Operating Partnership. Prior to December 14, 2011, upon the occurrence of certain specified events, the Senior Notes will be convertible at the option of holder into cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the election of the Company, at an initial conversion rate of 8.9702 shares per $1,000 principal amount. On and after December 15, 2011, the Senior Notes will be convertible at any time prior to the second business day preceding the maturity date at the option of the holder at the initial conversion rate. The initial conversion price of approximately $111.48 per share represented a 20% premium over the closing price of the Company's common stock on March 12, 2007. The initial conversion rate is subject to adjustment under certain circumstances. Holders of the Senior Notes do not have the right to require the Company to repurchase the Senior Notes prior to maturity except in connection with the occurrence of certain fundamental change transactions.

        In connection with the issuance of the Senior Notes, the Company purchased two capped calls ("Capped Calls") from affiliates of the initial purchasers of the Senior Notes. The Capped Calls effectively increase the conversion price of the Senior Notes to approximately $130.06, which represented a 40% premium to the March 12, 2007 closing price of $92.90 per common share of the Company.

        The Company has a $1.5 billion revolving line of credit that matures on April 25, 2010 with a one-year extension option. The interest rate fluctuates between LIBOR plus 0.75% to LIBOR plus 1.10% depending on the Company's overall leverage. In September 2006, the Company entered into an interest rate swap agreement that effectively fixed the interest rate on $400.0 million of the outstanding balance of the line of credit at 6.23% until April 25, 2011. On March 16, 2007, the Company repaid $541.5 million of borrowings outstanding from the proceeds of the Senior Notes (See Note 10--Bank and Other Notes Payable of the Company's Consolidated Financial Statements). As of December 31, 2007 and 2006, borrowings outstanding were $1,015.0 million and $934.5 million, respectively, at an average interest rate, net of the $400.0 million swapped portion, of 6.19% and 6.60%, respectively.

        On May 13, 2003, the Company issued $250.0 million in unsecured notes maturing in May 2007 with a one-year extension option bearing interest at LIBOR plus 2.50%. On April 25, 2005, the Company modified these unsecured notes and reduced the interest rate to LIBOR plus 1.50%. On March 16, 2007, the Company repaid the notes from the proceeds of the Senior Notes (See Note 10--Bank and Other Notes Payable of the Company's Consolidated Financial Statements).

        On April 25, 2005, the Company obtained a five year, $450.0 million term loan bearing interest at LIBOR plus 1.50%. In November 2005, the Company entered into an interest rate swap agreement that effectively fixed the interest rate of the $450.0 million term loan at 6.30% from December 1, 2005 to April 15, 2010. At December 31, 2007 and 2006, the entire loan was outstanding with an interest rate of 6.30%.

        At December 31, 2007, the Company was in compliance with all applicable loan covenants.

        At December 31, 2007, the Company had cash and cash equivalents available of $85.3 million.

50


        The Company has an ownership interest in a number of joint ventures as detailed in Note 4 to the Company's Consolidated Financial Statements included herein. The Company accounts for those investments that it does not have a controlling interest or is not the primary beneficiary using the equity method of accounting and those investments are reflected on the Consolidated Balance Sheets of the Company as "Investments in Unconsolidated Joint Ventures." A pro rata share of the mortgage debt on these properties is shown in "Item 2. Properties--Mortgage Debt."

        In addition, certain joint ventures also have debt that could become recourse debt to the Company or its subsidiaries, in excess of the Company's pro rata share, should the joint ventures be unable to discharge the obligations of the related debt.

        The following reflects the maximum amount of debt principal that could recourse to the Company at December 31, 2007 (in thousands):

Property

  Recourse
Debt

  Maturity
Date

Boulevard Shops   $ 4,280   12/17/2010
Chandler Village Center     4,375   1/15/2011
   
   
    $ 8,655    
   
   

        Additionally, as of December 31, 2007, the Company is contingently liable for $6.4 million in letters of credit guaranteeing performance by the Company of certain obligations relating to the Centers. The Company does not believe that these letters of credit will result in a liability to the Company.

        The following is a schedule of long-term contractual obligations (as of December 31, 2007) for the consolidated Centers over the periods in which they are expected to be paid (in thousands):

 
  Payment Due by Period
Contractual Obligations

  Total
  Less than
1 year

  1 - 3
years

  3 - 5
years

  More than
five years

Long-term debt obligations (includes expected interest payments)   $ 6,087,693   $ 455,713   $ 2,390,249   $ 2,014,591   $ 1,227,140
Operating lease obligations(1)     670,038     14,771     29,624     29,250     596,393
Purchase obligations(1)     103,419     103,419     --     --     --
Other long-term liabilities     393,102     393,102     --     --     --
   
 
 
 
 
    $ 7,254,252   $ 967,005   $ 2,419,873   $ 2,043,841   $ 1,823,533
   
 
 
 
 

(1)
See Note 15—Commitments and Contingencies of the Company's Consolidated Financial Statements.

Funds From Operations

        The Company uses FFO in addition to net income to report its operating and financial results and considers FFO and FFO--diluted as supplemental measures for the real estate industry and a supplement to GAAP measures. The National Association of Real Estate Investment Trusts ("NAREIT") defines FFO as net income (loss) computed in accordance with GAAP, excluding gains (or losses) from extraordinary items and sales of depreciated operating properties, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. FFO

51



and FFO on a fully diluted basis are useful to investors in comparing operating and financial results between periods. This is especially true since FFO excludes real estate depreciation and amortization as the Company believes real estate values fluctuate based on market conditions rather than depreciating in value ratably on a straight-line basis over time. FFO on a fully diluted basis is one of the measures investors find most useful in measuring the dilutive impact of outstanding convertible securities. FFO does not represent cash flow from operations as defined by GAAP, should not be considered as an alternative to net income as defined by GAAP and is not indicative of cash available to fund all cash flow needs. FFO, as presented, may not be comparable to similarly titled measures reported by other real estate investment trusts. The reconciliation of FFO and FFO--diluted to net income available to common stockholders is provided below.

        The following reconciles net income available to common stockholders to FFO and FFO--diluted (dollars in thousands):

 
  2007
  2006
  2005
  2004
  2003
 
Net income--available to common stockholders   $ 71,661   $ 228,022   $ 52,588   $ 82,493   $ 113,218  
Adjustments to reconcile net income to FFO--basic:                                
  Minority interest in the Operating Partnership     12,675     42,821     12,450     19,870     28,907  
  Gain on sale of consolidated assets     (9,771 )   (241,732 )   (1,530 )   (8,041 )   (34,451 )
  Add: Gain on undepreciated assets--consolidated assets     8,047     8,827     1,068     939     1,054  
  Add: Minority interest share of gain on sale of consolidated joint ventures     760     36,831     239     --     --  
  Gain on sale of assets from unconsolidated entities (pro rata)     (400 )   (725 )   (1,954 )   (3,353 )   (155 )
  Add: Gain on sale of undepreciated assets--from unconsolidated entities (pro rata)     2,793     725     2,092     3,464     387  
  Depreciation and amortization on consolidated centers     231,541     231,247     203,065     144,828     109,569  
  Depreciation and amortization on joint ventures and from management companies (pro rata)     88,807     82,745     73,247     61,060     45,133  
  Less: depreciation on personal property and amortization of loan costs and interest rate caps     (8,244 )   (15,722 )   (14,724 )   (11,228 )   (9,346 )
   
 
 
 
 
 
FFO--basic     397,869     373,039     326,541     290,032     254,316  
Additional adjustments to arrive at FFO--diluted:                                
  Impact of convertible preferred stock     10,058     10,083     9,648     9,140     14,816  
  Impact of non-participating convertible preferred units     --     --     642     --     --  
   
 
 
 
 
 
FFO--diluted   $ 407,927   $ 383,122   $ 336,831   $ 299,172   $ 269,132  
   
 
 
 
 
 
Weighted average number of FFO shares outstanding for:                                
FFO--basic(1)     84,467     84,138     73,250     72,715     67,332  
Adjustments for the impact of dilutive securities in computing FFO--diluted:                                
  Convertible preferred stock     3,512     3,627     3,627     3,627     7,386  
  Non-participating convertible preferred units     --     --     197     --     --  
  Stock options     293     293     323     385     480  
   
 
 
 
 
 
FFO--diluted(2)     88,272     88,058     77,397     76,727     75,198  
   
 
 
 
 
 

(1)
Calculated based upon basic net income as adjusted to reach basic FFO. As of December 31, 2007, 2006, 2005, 2004 and 2003, 12.5 million, 13.2 million, 13.5 million, 14.2 million and 14.2 million of aggregate OP Units and Westcor partnership units were outstanding, respectively. The Westcor partnership units were converted to OP Units on July 27, 2004 which were subsequently redeemed for common stock on October 4, 2005.

(2)
The computation of FFO--diluted shares outstanding includes the effect of share and unit-based compensation plans and convertible senior notes using the treasury stock method. It also assumes the conversion of MACWH, LP common and preferred units to the extent that they are dilutive to the FFO computation (See Note 12--"Acquisitions of the Company's Notes to the Consolidated Financial Statements"). On February 25, 1998, the Company sold $100 million of its Series A Preferred Stock. On June 16, 1998, the Company sold $150 million of its Series B Preferred Stock. On September 9, 2003, 5.5 million shares of Series B Preferred Stock were converted into common shares. On October 18, 2007, 0.6 million shares of Series A Preferred Stock were converted into common shares. The preferred stock can be converted on a one-for-one basis for common stock. The then outstanding preferred shares are assumed converted for purposes of 2007, 2006, 2005, 2004 and 2003 FFO--diluted as they are dilutive to that calculation.

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ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        The Company's primary market risk exposure is interest rate risk. The Company has managed and will continue to manage interest rate risk by (1) maintaining a ratio of fixed rate, long-term debt to total debt such that floating rate exposure is kept at an acceptable level, (2) reducing interest rate exposure on certain long-term floating rate debt through the use of interest rate caps and/or swaps with appropriately matching maturities, (3) using treasury rate locks where appropriate to fix rates on anticipated debt transactions, and (4) taking advantage of favorable market conditions for long-term debt and/or equity.

        The following table sets forth information as of December 31, 2007 concerning the Company's long term debt obligations, including principal cash flows by scheduled maturity, weighted average interest rates and estimated fair value ("FV") (dollars in thousands):

 
  For the years ending December 31,
   
   
   
 
  2008
  2009
  2010
  2011
  2012
  Thereafter
  Total
  FV
CONSOLIDATED CENTERS:                                                
Long term debt:                                                
  Fixed rate(1)   $ 327,747   $ 355,615   $ 1,036,927   $ 718,914   $ 1,206,230   $ 1,160,003   $ 4,805,436   $ 4,821,439
  Average interest rate     6.02%     6.24%     6.49%     5.58%     4.09%     5.79%     5.57%      
  Floating rate     102,000     190,522     665,000     --     --     --     957,522     957,522
  Average interest rate     6.12%     6.11%     6.18%                       6.15%      
   
 
 
 
 
 
 
 
Total debt--Consolidated Centers   $ 429,747   $ 546,137   $ 1,701,927   $ 718,914   $ 1,206,230   $ 1,160,003   $ 5,762,958   $ 5,778,961
   
 
 
 
 
 
 
 

JOINT VENTURE CENTERS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Long term debt (at Company's pro rata share):                                                
  Fixed rate   $ 70,356   $ 237,996   $ 122,203   $ 33,504   $ 169,206   $ 992,184   $ 1,625,449   $ 1,681,623
  Average interest rate     5.73%     5.89%     6.79%     6.11%     6.99%     5.56%     5.89%      
  Floating rate     83,331     25,988     19,343     66,300     --     --     194,962     194,962
  Average interest rate     5.89%     7.24%     6.03%     5.92%                 6.09%      
   
 
 
 
 
 
 
 
Total debt--Joint Venture Centers   $ 153,687   $ 263,984   $ 141,546   $ 99,804   $ 169,206   $ 992,184   $ 1,820,411   $ 1,876,585
   
 
 
 
 
 
 
 

(1)
Fixed rate debt includes the $450 million floating rate term note and $400 million of the line of credit balance. These amounts have effective fixed rates over the remaining terms due to swap agreements as discussed below.

        The consolidated Centers' total fixed rate debt at December 31, 2007 and 2006 was $4.8 billion and $3.8 billion, respectively. The average interest rate on fixed rate debt at December 31, 2007 and 2006 was 5.57% and 5.99%, respectively. The consolidated Centers' total floating rate debt at December 31, 2007 and 2006 was $1.0 billion and $1.2 billion, respectively. The average interest rate on floating rate debt at December 31, 2007 and 2006 was 6.15% and 6.59%, respectively.

        The Company's pro rata share of the Joint Venture Centers' fixed rate debt at December 31, 2007 and 2006 was $1.6 billion and $1.5 billion, respectively. The average interest rate on fixed rate debt at December 31, 2007 and 2006 was 5.89% and 5.84%, respectively. The Company's pro rata share of the Joint Venture Centers' floating rate debt at December 31, 2007 and 2006 was $195.0 million and $198.4 million, respectively. The average interest rate on the floating rate debt at December 31, 2007 and 2006 was 6.09% and 6.33%, respectively.

        The Company uses derivative financial instruments in the normal course of business to manage or hedge interest rate risk and records all derivatives on the balance sheet at fair value in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" (See "Note 5--Derivative Instruments and Hedging Activities" of the Company's Consolidated Financial Statements).

53


        The following are outstanding derivatives at December 31, 2007 (amounts in thousands):

Property/Entity
  Notional Amount
  Product
  Rate
  Maturity
  Company's Ownership
  Fair Value(1)
 
Camelback Colonnade   $ 41,500   Cap   8.54%   11/15/2008   75%   $ --  
Desert Sky Mall     51,500   Cap   7.65%   3/15/2008   50%     --  
Greece Ridge Center     72,000   Cap   7.95%   12/15/2008   100%     --  
La Cumbre Plaza     30,000   Cap   7.12%   8/9/2008   100%     --  
Metrocenter Mall     37,380   Cap   7.25%   2/15/2009   15%     --  
Metrocenter Mall     11,500   Cap   5.25%   2/15/2009   15%     --  
Panorama Mall     50,000   Cap   6.65%   3/1/2008   100%     --  
Superstition Springs Center     67,500   Cap   8.63%   9/9/2008   33.33%     --  
Metrocenter Mall     112,000   Swap   3.86%   2/15/2009   15%     20  
Metrocenter Mall     133,597   Swap   4.57%   2/15/2009   15%     (154 )
The Operating Partnership     450,000   Swap   4.80%   4/25/2010   100%     (11,377 )
The Operating Partnership     400,000   Swap   5.33%   4/25/2011   100%     (16,147 )

(1)
Fair value at the Company's ownership percentage.

        Interest rate cap agreements ("Cap") offer protection against floating rates on the notional amount from exceeding the rates noted in the above schedule, and interest rate swap agreements ("Swap") effectively replace a floating rate on the notional amount with a fixed rate as noted above.

        In addition, the Company has assessed the market risk for its floating rate debt and believes that a 1% increase in interest rates would decrease future earnings and cash flows by approximately $11.5 million per year based on $1.1 billion outstanding of floating rate debt at December 31, 2007.

        The fair value of the Company's long term debt is estimated based on discounted cash flows at interest rates that management believes reflect the risks associated with long term debt of similar risk and duration.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        Refer to the Index to Financial Statements and Financial Statement Schedules for the required information appearing in Item 15.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        None

ITEM 9A.    CONTROLS AND PROCEDURES

        Management, including our Chief Executive Officer and Chief Financial Officer, does not expect that its disclosure controls and procedures or its internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

        However, based on their evaluation as of December 31, 2007, the Company's Chief Executive Officer and Chief Financial Officer, have concluded that the Company's disclosure controls and

54



procedures (as defined in Rules 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 principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

        The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). The Company's management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2007. In making this assessment, the Company's management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control--Integrated Framework. The Company's management concluded that, as of December 31, 2007, its internal control over financial reporting was effective based on these criteria.

Changes in Internal Control over Financial Reporting

        There were no changes in the Company's internal control over financial reporting during the quarter ended December 31, 2007 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

55



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
The Macerich Company
Santa Monica, California

        We have audited the internal control over financial reporting of The Macerich Company and subsidiaries (the "Company") as December 31, 2007, based on criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

        A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

        We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2007, of the Company and our report dated

56



February 27, 2008, expressed an unqualified opinion on those financial statements and financial statement schedules.

Deloitte & Touche LLP
Los Angeles, California

February 27, 2008

ITEM 9A(T).    CONTROLS AND PROCEDURES

        Not Applicable

ITEM 9B.    OTHER INFORMATION

        None

57



PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

        There is hereby incorporated by reference the information which appears under the captions "Information Regarding Nominees and Directors," "Executive Officers," "Section 16(a) Beneficial Ownership Reporting Compliance," "Audit Committee Matters" and "Codes of Ethics" in the Company's definitive proxy statement for its 2008 Annual Meeting of Stockholders that is responsive to the information required by this Item.

        During 2007, there were no material changes to the procedures described in the Company's proxy statement relating to the 2007 Annual Meeting of Stockholders by which stockholders may recommend nominees to the Company.

ITEM 11.    EXECUTIVE COMPENSATION

        There is hereby incorporated by reference the information which appears under the caption "Election of Directors" in the Company's definitive proxy statement for its 2008 Annual Meeting of Stockholders that is responsive to the information required by this Item. Notwithstanding the foregoing, the Compensation Committee Report set forth therein shall not be incorporated by reference herein, in any of the Company's prior or future filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent the Company specifically incorporates such report by reference therein and shall not be otherwise deemed filed under either of such Acts.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

        There is hereby incorporated by reference the information which appears under the captions "Principal Stockholders," "Information Regarding Nominees and Directors" and "Executive Officers" in the Company's definitive proxy statement for its 2008 Annual Meeting of Stockholders that is responsive to the information required by this Item.

        The Company currently maintains two equity compensation plans for the granting of equity awards to directors, officers and employees: the 2003 Equity Incentive Plan ("2003 Plan") and the Eligible Directors' Deferred Compensation/Phantom Stock Plan ("Director Phantom Stock Plan"). Certain of the Company's outstanding stock awards were granted under other equity compensation plans which are no longer available for stock awards: the 1994 Eligible Directors' Stock Option Plan (the "Director Plan"), the Amended and Restated 1994 Incentive Plan (the "1994 Plan") and the 2000 Incentive Plan (the "2000 Plan").

58


        The following table sets forth, for the Company's equity compensation plans, the number of shares of Common Stock subject to outstanding options, warrants and rights, the weighted-average exercise price of outstanding options, and the number of shares remaining available for future award grants as of December 31, 2007.

Plan Category
  Number of shares of
Common Stock to be
issued upon exercise of
outstanding options, warrants and rights
(a)

  Weighted average
exercise price of
outstanding options,
warrants and rights(1)
(b)

  Number of shares of
Common stock remaining
available for future
issuance under equity
compensation plans
(excluding shares
reflected in column(a))
(c)

 
Equity Compensation Plans approved by stockholders   879,664 (2) $ 35.54   5,664,249 (3)
Equity Compensation Plans not approved by stockholders   15,000 (4) $ 30.75   --  
   
 
 
 
  Total   894,664   $ 35.46   5,664,249  
   
 
 
 

(1)
Weighted average exercise price of outstanding options does not include stock units or limited operating partnership units.

(2)
Represents 484,322 shares subject to outstanding options under the 1994 Plan and 2003 Plan, 272,967 shares which may be issued upon redemption of LTIP Units or operating partnership units under the 2003 Plan, and 114,875 shares underlying stock units, payable on a one-for-one basis, credited to stock unit accounts under the Director Phantom Stock Plan, and 7,500 shares subject to outstanding options under the Director Plan.

(3)
Of these shares, 4,827,349 were available for options, stock appreciation rights, restricted stock, stock units, stock bonuses, performance based awards, dividend equivalent rights and operating partnership units or other convertible or exchangeable units under the 2003 Plan, 117,263 were available for the issuance of stock units under the Director Phantom Stock Plan and 719,637 were available for issuance under the Employee Stock Purchase Plan.

(4)
Represents 15,000 shares subject to outstanding options under the 2000 Plan. The 2000 Plan did not require approval of, and has not been approved by, the Company's stockholders. No additional awards will be made under the 2000 Plan. The 2000 Plan generally provided for the grant of options, stock appreciation rights, restricted stock awards, stock units, stock bonuses and dividend equivalent rights to employees, directors and consultants of the Company or its subsidiaries. The only awards that were granted under the 2000 Plan were stock options and restricted stock. The stock options granted generally expire not more than 10 years after the date of grant and vest in three equal annual installments, commencing on the first anniversary of the grant date. The restricted stock grants generally vest in equal installments over three years.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

        There is hereby incorporated by reference the information which appears under the captions "Certain Transactions" and "The Board of Directors and its Committees" in the Company's definitive proxy statement for its 2008 Annual Meeting of Stockholders that is responsive to the information required by this Item.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

        There is hereby incorporated by reference the information which appears under the captions "Principal Accountant Fees and Services" and "Audit Committee Pre-Approval Policy" in the Company's definitive proxy statement for its 2008 Annual Meeting of Stockholders that is responsive to the information required by this Item.

59



PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 
   
   
  Page
(a) and (c)   1.   Financial Statements of the Company    

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

61

 

 

 

 

Consolidated balance sheets of the Company as of December 31, 2007 and 2006

 

62

 

 

 

 

Consolidated statements of operations of the Company for the years ended December 31, 2007, 2006 and 2005

 

63

 

 

 

 

Consolidated statements of common stockholders' equity of the Company for the years ended December 31, 2007, 2006 and 2005

 

64

 

 

 

 

Consolidated statements of cash flows of the Company for the years ended December 31, 2007, 2006 and 2005

 

65

 

 

 

 

Notes to consolidated financial statements

 

67

 

 

2.

 

Financial Statements of Pacific Premier Retail Trust

 

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

105

 

 

 

 

Consolidated balance sheets of Pacific Premier Retail Trust as of December 31, 2007 and 2006

 

106

 

 

 

 

Consolidated statements of operations of Pacific Premier Retail Trust for the years ended December 31, 2007, 2006 and 2005

 

107

 

 

 

 

Consolidated statements of stockholders' equity of Pacific Premier Retail Trust for the years ended December 31, 2007, 2006 and 2005

 

108

 

 

 

 

Consolidated statements of cash flows of Pacific Premier Retail Trust for the years ended December 31, 2007, 2006 and 2005

 

109

 

 

 

 

Notes to consolidated financial statements

 

110

 

 

3.

 

Financial Statements of SDG Macerich Properties, L.P.

 

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

119

 

 

 

 

Balance sheets of SDG Macerich Properties, L.P. as of December 31, 2007 and 2006

 

120

 

 

 

 

Statements of operations of SDG Macerich Properties, L.P. for the years ended December 31, 2007, 2006 and 2005

 

121

 

 

 

 

Statements of cash flows of SDG Macerich Properties, L.P. for the years ended December 31, 2007, 2006 and 2005

 

122

 

 

 

 

Statements of partners' equity of SDG Macerich Properties, L.P. for the years ended December 31, 2007, 2006 and 2005

 

123

 

 

 

 

Notes to financial statements

 

124

 

 

4.

 

Financial Statement Schedules

 

 

 

 

 

 

Schedule III--Real estate and accumulated depreciation of the Company

 

130

 

 

 

 

Schedule III--Real estate and accumulated depreciation of Pacific Premier Retail Trust

 

134

 

 

 

 

Schedule III--Real estate and accumulated depreciation of SDG Macerich Properties, L.P

 

136

(b)

 

1.

 

Exhibits

 

 

 

 

 

 

The Exhibit Index attached hereto is incorporated by reference under this item

 

139

60



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
The Macerich Company
Santa Monica, California

        We have audited the accompanying consolidated balance sheets of The Macerich Company and subsidiaries (the "Company") as of December 31, 2007 and 2006, and the related consolidated statements of operations, common stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2007. Our audits also included the financial statement schedules listed in the Index at Item 15(a)(4). These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits. We did not audit the consolidated financial statements or the consolidated financial statement schedules of SDG Macerich Properties, L.P. (the "Partnership"), the Company's investment in which is reflected in the accompanying consolidated financial statements using the equity method of accounting. The Company's equity of $38,947,000 and $50,696,000 in the Partnership's net assets at December 31, 2007 and 2006, respectively, and $7,324,000, $11,197,000 and $15,537,000 in the Partnership's net income for the three years ended December 31, 2007 are included in the accompanying consolidated financial statements. These statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the Partnership, is based solely on the report of the other auditors.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, based on our report and the reports of other auditors, such consolidated financial statements present fairly, in all material respects, the financial position of The Macerich Company and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, based on our audits and the report of the other auditors, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

        We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2007, based on the criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2008 expressed an unqualified opinion on the Company's internal control over financial reporting.

Deloitte & Touche LLP
Los Angeles, California

February 27, 2008

61



THE MACERICH COMPANY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share amounts)

<
 
  December 31,
 
 
  2007
  2006
 
ASSETS:              
Property, net   $ 6,321,491   $ 5,755,283  
Cash and cash equivalents     85,273     269,435  
Restricted cash     68,384     66,376  
Marketable securities     29,043     30,019  
Tenant receivables, net     137,498     117,855  
Deferred charges and other assets, net     386,802     307,825  
Loans to unconsolidated joint ventures     604     708  
Due from affiliates     5,729     4,282  
Investments in unconsolidated joint ventures     835,662     1,010,380  
Assets held for sale     250,648     --  
   
 
 
    Total assets   $ 8,121,134   $ 7,562,163  
   
 
 

LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY:

 

 

 

 

 

 

 
Mortgage notes payable:              
  Related parties   $ 225,848   $ 151,311  
  Others     3,102,422     3,179,787  
   
 
 
    Total     3,328,270     3,331,098  
Bank and other notes payable     2,434,688     1,662,781  
Accounts payable and accrued expenses     97,086     86,127  
Other accrued liabilities     289,660     212,249  
Preferred dividends payable     6,356