UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2007

Commission File No. 1-12504

THE MACERICH COMPANY

(Exact name of registrant as specified in its charter)

MARYLAND

 

95-4448705

(State or other jurisdiction of incorporation
or organization)

 

(I.R.S. Employer Identification Number)

 

401 Wilshire Boulevard, Suite 700, Santa Monica, California 90401

(Address of principal executive office, including zip code)

(310) 394-6000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

YES  x           NO  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated filer x           Accelerated filer o       Non-accelerated filer o

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

YES  o           NO  x

Number of shares outstanding of the registrant’s common stock, as of May 3, 2007 Common Stock, par value $.01 per share: 71,677,344 shares

 




THE MACERICH COMPANY

FORM 10-Q

INDEX

Part I

Financial Information

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets of the Company as of March 31, 2007 and December 31, 2006

 

 

 

 

 

Consolidated Statements of Operations of the Company for the three months ended March 31, 2007 and 2006

 

 

 

 

 

Consolidated Statement of Common Stockholders’ Equity of the Company for the three  months ended March 31, 2007

 

 

 

 

 

Consolidated Statements of Cash Flows of the Company for the three months ended March 31, 2007 and 2006

 

 

 

 

 

Notes to Consolidated Financial Statements

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

 

 

Item 4.

Controls and Procedures

 

 

 

 

Part II

Other Information

 

 

 

 

Item 1.

Legal Proceedings

 

 

 

 

Item 1A.

Risk Factors

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

 

 

 

 

Item 5.

Other Information

 

 

 

 

Item 6.

Exhibits

 

 

 

 

Signature

 

 

2




THE MACERICH COMPANY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share amounts)

 

 

March 31,

 

December 31,

 

 

 

2007

 

2006

 

 

 

(Unaudited)

 

 

 

ASSETS:

 

 

 

 

 

Property, net

 

$

5,806,357

 

$

5,755,283

 

Cash and cash equivalents

 

47,945

 

269,435

 

Restricted cash

 

68,727

 

66,376

 

Marketable securities

 

29,783

 

30,019

 

Tenant receivables, net

 

110,022

 

117,855

 

Deferred charges and other assets, net

 

334,766

 

307,825

 

Loans to unconsolidated joint ventures

 

543

 

708

 

Due from affiliates

 

5,639

 

4,282

 

Investments in unconsolidated joint ventures

 

987,435

 

1,010,380

 

Total assets

 

$

7,391,217

 

$

7,562,163

 

 

 

 

 

 

 

LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS’ EQUITY:

 

 

 

 

 

Mortgage notes payable:

 

 

 

 

 

Related parties

 

$

150,432

 

$

151,311

 

Others

 

2,977,036

 

3,179,787

 

Total

 

3,127,468

 

3,331,098

 

Bank and other notes payable

 

1,870,711

 

1,662,781

 

Accounts payable and accrued expenses

 

72,995

 

86,127

 

Other accrued liabilities

 

241,183

 

212,249

 

Preferred stock dividends payable

 

6,199

 

6,199

 

Total liabilities

 

5,318,556

 

5,298,454

 

Minority interest

 

352,465

 

387,183

 

Commitments and contingencies

 

 

 

 

 

Class A participating convertible preferred units

 

213,786

 

213,786

 

Class A non-participating convertible preferred units

 

16,459

 

21,501

 

Series A cumulative convertible redeemable preferred stock, $.01 par value, 3,627,131 shares authorized, issued and outstanding at March 31, 2007 and December 31, 2006, respectively

 

98,934

 

98,934

 

Common stockholders’ equity:

 

 

 

 

 

Common stock, $.01 par value, 145,000,000 shares authorized, 71,449,716 and 71,567,908 shares issued and outstanding at March 31, 2007 and December 31, 2006, respectively

 

715

 

716

 

Additional paid-in capital

 

1,618,303

 

1,717,498

 

Accumulated deficit

 

(226,886

)

(178,249

)

Accumulated other comprehensive (loss) income

 

(1,115

)

2,340

 

Total common stockholders’ equity

 

1,391,017

 

1,542,305

 

Total liabilities, preferred stock and common stockholders’ equity

 

$

7,391,217

 

$

7,562,163

 

 

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

3




THE MACERICH COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share amounts)

(Unaudited)

 

 

For the Three Months

 

 

 

Ended March 31,

 

 

 

2007

 

2006

 

Revenues:

 

 

 

 

 

Minimum rents

 

$

123,985

 

$

122,089

 

Percentage rents

 

3,767

 

2,372

 

Tenant recoveries

 

67,654

 

62,341

 

Management Companies

 

8,754

 

7,257

 

Other

 

7,511

 

6,633

 

Total revenues

 

211,671

 

200,692

 

Expenses:

 

 

 

 

 

Shopping center and operating expenses

 

68,622

 

61,845

 

Management Companies’ operating expenses

 

17,755

 

14,714

 

REIT general and administrative expenses

 

5,373

 

3,698

 

Depreciation and amortization

 

57,087

 

59,409

 

 

 

148,837

 

139,666

 

Interest expense:

 

 

 

 

 

Related parties

 

2,651

 

2,698

 

Other

 

64,904

 

66,083

 

 

 

67,555

 

68,781

 

Total expenses

 

216,392

 

208,447

 

Minority interest in consolidated joint ventures

 

(1,491

)

(463

)

Equity in income of unconsolidated joint ventures

 

14,483

 

21,016

 

Income tax benefit

 

120

 

533

 

Gain (loss) on sale of assets

 

1,752

 

(502

)

Loss on early extinguishment of debt

 

(878

)

(1,782

)

Income from continuing operations

 

9,265

 

11,047

 

Discontinued operations:

 

 

 

 

 

Loss on sale of assets

 

(289

)

 

Income from discontinued operations

 

179

 

3,836

 

Total (loss) income from discontinued operations

 

(110

)

3,836

 

Income before minority interest and preferred dividends

 

9,155

 

14,883

 

Less: minority interest in Operating Partnership

 

467

 

1,460

 

Net income

 

8,688

 

13,423

 

Less: preferred dividends

 

6,122

 

5,970

 

Net income available to common stockholders

 

$

2,566

 

$

7,453

 

 

 

 

 

 

 

Earnings per common share - basic:

 

 

 

 

 

Income from continuing operations

 

$

0.04

 

$

0.06

 

Discontinued operations

 

 

0.05

 

Net income

 

$

0.04

 

$

0.11

 

Earnings per common share - diluted:

 

 

 

 

 

Income from continuing operations

 

$

0.04

 

$

0.06

 

Discontinued operations

 

 

0.05

 

Net income

 

$

0.04

 

$

0.11

 

Weighted average number of common shares outstanding:

 

 

 

 

 

Basic

 

71,669,000

 

68,738,000

 

Diluted

 

85,034,000

 

82,518,000

 

 

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

4




THE MACERICH COMPANY

CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS’ EQUITY

(Dollars in thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Accumulated

 

Total

 

 

 

Common Stock

 

Additional

 

 

 

Other

 

Common

 

 

 

 

 

Par

 

Paid-in

 

Accumulated

 

Comprehensive

 

Stockholders’

 

 

 

Shares

 

Value

 

Capital

 

Deficit

 

Income (loss)

 

Equity

 

Balance January 1, 2007

 

71,567,908

 

$

716

 

$

1,717,498

 

$

(178,249

)

$

2,340

 

$

1,542,305

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

8,688

 

 

8,688

 

Reclassification of deferred losses

 

 

 

 

 

238

 

238

 

Interest rate swap/cap agreements

 

 

 

 

 

(3,693

)

(3,693

)

Total comprehensive income

 

 

 

 

8,688

 

(3,455

)

5,233

 

Amortization of share and unit-based plans

 

212,085

 

2

 

4,824

 

 

 

4,826

 

Exercise of stock options

 

9,500

 

 

274

 

 

 

274

 

Employee stock purchases

 

4,099

 

 

259

 

 

 

259

 

Distributions paid ($0.71) per share

 

 

 

 

(51,203

)

 

(51,203

)

Preferred dividends

 

 

 

 

(6,122

)

 

(6,122

)

Conversion of Operating Partnership units and Class A non-participating convertible preferred units

 

463,124

 

5

 

16,910

 

 

 

16,915

 

Repurchase of common shares

 

(807,000

)

(8

)

(74,962

)

 

 

(74,970

)

Capped Calls on convertible senior notes

 

 

 

(59,850

)

 

 

(59,850

)

Change in accounting principle due to adoption of FIN 48

 

 

 

(1,574

)

 

 

(1,574

)

Adjustment to reflect minority interest on a pro rata basis for period end ownership percentage of Operating Partnership units

 

 

 

14,924

 

 

 

14,924

 

Balance March 31, 2007

 

71,449,716

 

$

715

 

$

1,618,303

 

$

(226,886

)

$

(1,115

)

$

1,391,017

 

 

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

5




THE MACERICH COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

 

For the Three Months

 

 

 

Ended March 31,

 

 

 

2007

 

2006

 

Cash flows from operating activities:

 

 

 

 

 

Net income available to common stockholders

 

$

2,566

 

$

7,453

 

Preferred dividends

 

6,122

 

5,970

 

Net income

 

8,688

 

13,423

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Loss on early extinguishment of debt

 

878

 

1,782

 

(Gain) loss on sale of assets

 

(1,752

)

502

 

Loss on sale of discontinued operations

 

289

 

 

Depreciation and amortization

 

57,085

 

63,537

 

Amortization of net premium on mortgage and bank and other notes payable

 

(2,771

)

(3,333

)

Amortization of share and unit-based plans

 

3,393

 

2,479

 

Minority interest in Operating Partnership

 

467

 

1,460

 

Minority interest in consolidated joint ventures

 

1,491

 

463

 

Equity in income of unconsolidated joint ventures

 

(14,483

)

(21,016

)

Distributions of income from unconsolidated joint ventures

 

285

 

772

 

Changes in assets and liabilities, net of acquisitions:

 

 

 

 

 

Tenant receivables, net

 

7,833

 

8,337

 

Other assets

 

(14,011

)

3,639

 

Accounts payable and accrued expenses

 

(11,211

)

(10,203

)

Due from affiliates

 

(1,357

)

(196

)

Other accrued liabilities

 

21,470

 

(10,055

)

Net cash provided by operating activities

 

56,294

 

51,591

 

Cash flows from investing activities:

 

 

 

 

 

Acquisitions of property, development, redevelopment and property improvements

 

(105,618

)

(262,672

)

Issuance of note receivable

 

 

(10,000

)

Maturities of marketable securities

 

322

 

 

Deferred leasing costs

 

(8,873

)

(6,533

)

Distributions from unconsolidated joint ventures

 

42,789

 

24,199

 

Contributions to unconsolidated joint ventures

 

(9,309

)

(2,871

)

Repayments of loans to unconsolidated joint ventures

 

165

 

228

 

Proceeds from sale of assets

 

5,768

 

155

 

Restricted cash

 

(2,351

)

(3,856

)

Net cash used in investing activities

 

(77,107

)

(261,350

)

Cash flows from financing activities:

 

 

 

 

 

Proceeds from mortgages and bank and other notes payable

 

1,172,263

 

312,845

 

Payments on mortgages and bank and other notes payable

 

(1,174,540

)

(871,844

)

Deferred financing costs

 

(504

)

(900

)

Purchase of Capped Calls

 

(59,850

)

 

Repurchase of common stock

 

(74,970

)

 

Proceeds from share-based plans

 

533

 

26

 

Net proceeds from stock offering

 

 

746,809

 

Dividends and distributions

 

(57,487

)

(59,512

)

Dividends to preferred stockholders / preferred unit holders

 

(6,122

)

(5,970

)

Net cash (used in) provided by financing activities

 

(200,677

)

121,454

 

Net decrease in cash

 

(221,490

)

(88,305

)

Cash and cash equivalents, beginning of period

 

269,435

 

155,113

 

Cash and cash equivalents, end of period

 

$

47,945

 

$

66,808

 

Supplemental cash flow information:

 

 

 

 

 

Cash payments for interest, net of amounts capitalized

 

$

81,163

 

$

79,215

 

Non-cash transactions:

 

 

 

 

 

Increase in other accrued liabilities and additional paid-in capital recorded upon adoption of FIN 48

 

$

1,574

 

$

 

Reclassification from other accrued liabilities to additional paid-in capital upon adoption of SFAS No. 123(R)

 

$

 

$

6,000

 

Accrued development costs included in accounts payable and accrued expenses and other accrued liabilities

 

$

23,987

 

$

6,112

 

 

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

6




THE MACERICH COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

1.             Organization:

The Macerich Company (the “Company”) is involved in the acquisition, ownership, development, redevelopment, management and leasing of regional and community shopping centers (the “Centers”) located throughout the United States.

The Company commenced operations effective with the completion of its initial public offering on March 16, 1994. As
of March 31, 2007, the Company is the sole general partner of and holds an 85% ownership interest in The Macerich Partnership, L.P. (the “Operating Partnership”). The interests in the Operating Partnership are known as OP Units. OP Units not held by the Company are redeemable, subject to certain restrictions, on a one-for-one basis for the Company’s common stock or cash at the Company’s option.

The Company is organized to qualify as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended. The 15% limited partnership interest of the Operating Partnership not owned by the Company is reflected in these financial statements as minority interest in the Operating Partnership.

The property management, leasing and redevelopment of the Company’s portfolio is provided by the Company’s management companies, Macerich Property Management Company, LLC, (“MPMC, LLC”) a single member Delaware limited liability company, Macerich Management Company (“MMC”), a California corporation, Westcor Partners, L.L.C., a single member Arizona limited liability company, 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.  The two MACW management companies are collectively referred to herein as the “Wilmorite Management Companies.”  The three Westcor management companies are collectively referred to herein as the “Westcor Management Companies.”  All seven of the management companies are collectively referred to herein as the “Management Companies.”

2.             Basis of Presentation:

The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  They do not include all of the information and footnotes required by GAAP for complete financial statements and have not been audited by independent public accountants.

The accompanying consolidated financial statements include the accounts of the Company and the Operating Partnership. Investments in entities that are controlled by the Company or meet the definition of a variable interest entity in which an enterprise absorbs the majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity are consolidated; otherwise they are accounted for under the equity method and are reflected as “Investments in unconsolidated joint ventures”.

7




The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements for the interim periods have been made.  The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.  The accompanying consolidated balance sheet as of December 31, 2006 has been derived from the audited financial statements, but does not include all disclosures required by GAAP.

All intercompany accounts and transactions have been eliminated in the consolidated financial statements.

Recent Accounting Pronouncements:

In February 2006, the Financial Accounting Standards Board (“FASB”) issued Statement on Financial Accounting Standards  (“SFAS”) No. 155, “Accounting for Certain Hybrid Financial Instruments – An Amendment of FASB Statements No. 133 and 140.” This statement amended SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS No. 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. This statement also established a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation. The adoption of this statement on January 1, 2007, did not have a material effect on the Company’s results of operations or financial condition.

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”). This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition of previously recognized income tax benefits, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company adopted this statement on January 1, 2007.  See Note 18 – Income Taxes, for the impact of the adoption of FIN 48 on the results of operations and financial condition.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.”  SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The Company is required to adopt SFAS No. 157 for fiscal year 2008 and does not expect its adoption to have a material effect on the Company’s results of operations or financial condition.

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) No. 108.  SAB No. 108 establishes a framework for quantifying materiality of financial statement misstatements.  The adoption of SAB No. 108 on January 1, 2007, did not have a material impact on the Company’s consolidated results of operations or financial condition.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115.”  SFAS No. 159 allows for the measurement of many financial instruments and certain other items at fair value.  The Company is required to adopt SFAS No. 159 for fiscal year 2008.  The Company is currently evaluating the impact of adoption of this statement on its results of operations and financial condition.

8




Fair Value of Financial Instruments

The Company calculates the fair value of financial instruments and includes this additional information in the notes to consolidated financial statements when the fair value is different than the carrying value of those financial instruments. When the fair value reasonably approximates the carrying value, no additional disclosure is made. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

3.              Earnings per Share:

The computation of basic earnings per share (“EPS”) is based on net income and the weighted average number of common shares outstanding for the three months ended March 31, 2007 and 2006.  The computation of diluted earnings per share includes the effect of dilutive securities using the “if-converted” method and the dilutive effect of employee stock options calculated using the treasury stock method.  The OP Units and MACWHLP common units not held by the Company have been included in the diluted EPS since they may be redeemable on a one-for-one basis for common stock, at the Company’s option.  The following table computes the basic and diluted earnings per share calculation (dollars and shares in thousands):

 

For the Three Months Ended March 31,

 

 

 

2007

 

2006

 

 

 

Net
Income

 

Shares

 

Per
Share

 

Net
Income

 

Shares

 

Per
Share

 

Net income

 

$

8,688

 

 

 

 

 

$

13,423

 

 

 

 

 

Less: Preferred dividends (1)

 

6,122

 

 

 

 

 

5,970

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to common stockholders

 

2,566

 

71,669

 

$

0.04

 

7,453

 

68,738

 

$

0.11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of partnership units

 

467

 

13,053

 

 

 

1,460

 

13,485

 

 

 

Employee stock options

 

 

312

 

 

 

 

295

 

 

 

Net income available to common stockholders

 

$

3,033

 

85,034

 

$

0.04

 

$

8,913

 

82,518

 

$

0.11

 

 


(1) Preferred dividends include convertible preferred unit dividends of $3,547 and $3,503 for the three months
ended March 31, 2007 and 2006, respectively.

The minority interest in the Operating Partnership as reflected in the Company’s consolidated statements of operations has been allocated for EPS calculations as follows:

 

For the Three Months Ended

 

 

 

March 31,

 

 

 

2007

 

2006

 

Income from continuing operations

 

$

485

 

$

831

 

Discontinued operations:

 

 

 

 

 

Loss on sale of assets

 

(44

)

 

Income from discontinued operations

 

26

 

629

 

Total

 

$

467

 

$

1,460

 

 

9




4.              Investments in Unconsolidated Joint Ventures:

The following are the Company’s investments in unconsolidated joint ventures.  The Operating Partnership’s interest in each joint venture property as of March 31, 2007 was as follows:

 

Partnership’s

 

Joint Venture

 

Ownership % (1)

 

Biltmore Shopping Center Partners LLC

 

50.0

%

Camelback Colonnade SPE LLC

 

75.0

%

Chandler Festival SPE, LLC

 

50.0

%

Chandler Gateway SPE LLC

 

50.0

%

Chandler Village Center, LLC

 

50.0

%

Coolidge Holding LLC

 

37.5

%

Corte Madera Village, LLC

 

50.1

%

Desert Sky Mall—Tenants in Common

 

50.0

%

East Mesa Land, L.L.C.

 

50.0

%

East Mesa Mall, L.L.C.—Superstition Springs Center

 

33.3

%

Jaren Associates #4

 

12.5

%

Kierland Tower Lofts, LLC

 

15.0

%

Macerich Northwestern Associates

 

50.0

%

MetroRising AMS Holding LLC

 

15.0

%

New River Associates—Arrowhead Towne Center

 

33.3

%

NorthPark Land Partners, LP

 

50.0

%

NorthPark Partners, LP

 

50.0

%

Pacific Premier Retail Trust

 

51.0

%

PHXAZ/Kierland Commons, L.L.C.

 

24.5

%

Propcor Associates

 

25.0

%

Propcor II Associates, LLC—Boulevard Shops

 

50.0

%

SanTan Village Phase 2 LLC

 

34.9

%

Scottsdale Fashion Square Partnership

 

50.0

%

SDG Macerich Properties, L.P.

 

50.0

%

The Market at Estrella Falls LLC

 

35.1

%

Tysons Corner Holdings LLC

 

50.0

%

Tysons Corner LLC

 

50.0

%

Tysons Corner Property Holdings II LLC

 

50.0

%

Tysons Corner Property Holdings LLC

 

50.0

%

Tysons Corner Property LLC

 

50.0

%

W.M. Inland, L.L.C.

 

50.0

%

West Acres Development, LLP

 

19.0

%

Westcor/Gilbert, L.L.C.

 

50.0

%

Westcor/Goodyear, L.L.C.

 

50.0

%

Westcor/Queen Creek Commercial LLC

 

37.6

%

Westcor/Queen Creek LLC

 

37.6

%

Westcor/Queen Creek Medical LLC

 

37.6

%

Westcor/Queen Creek Residential LLC

 

37.6

%

Westcor/Surprise Auto Park LLC

 

33.3

%

Westcor/Surprise LLC

 

33.3

%

Westlinc Associates—Hilton Village

 

50.0

%

Westpen Associates

 

50.0

%

WM Ridgmar, L.P.

 

50.0

%

 


(1)   The Operating Partnership’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.

10




The Company accounts for its investments in joint ventures using the equity method of accounting unless the Company has a controlling interest in the joint venture or is the primary beneficiary in a variable interest entity. Although the Company has a greater than 50% interest in Pacific Premier Retail Trust, Camelback Colonnade SPE LLC and Corte Madera Village, LLC, the Company shares management control with the partners in these joint ventures and accounts for these joint ventures using the equity method of accounting.

Combined and Condensed Balance Sheets of Unconsolidated Joint Ventures:

 

March 31,

 

December 31,

 

 

 

2007

 

2006

 

Assets (1):

 

 

 

 

 

Properties, net

 

$

4,228,955

 

$

4,251,765

 

Other assets

 

444,893

 

429,028

 

Total assets

 

$

4,673,848

 

$

4,680,793

 

 

 

 

 

 

 

Liabilities and partners’ capital (1):

 

 

 

 

 

Mortgage notes payable(2)

 

$

3,543,193

 

$

3,515,154

 

Other liabilities

 

156,415

 

140,889

 

The Company’s capital(3)

 

538,642

 

559,172

 

Outside partners’ capital

 

435,598

 

465,578

 

Total liabilities and partners’ capital

 

$

4,673,848

 

$

4,680,793

 

 


(1)   These amounts include the assets and liabilities of the following significant joint ventures:

 

 

 

Pacific

 

 

 

 

 

SDG

 

Premier

 

Tysons

 

 

 

Macerich

 

Retail

 

Corner

 

 

 

Properties, L.P.

 

Trust

 

LLC

 

 

 

 

 

 

 

 

 

As of March 31, 2007:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$

902,312

 

$

1,023,991

 

$

644,762

 

Total Liabilities

 

$

823,419

 

$

848,770

 

$

370,888

 

 

 

 

 

 

 

 

 

As of December 31, 2006:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$

924,720

 

$

1,027,132

 

$

644,545

 

Total Liabilities

 

$

823,327

 

$

848,070

 

$

371,360

 

 

(2)   Certain joint ventures have debt that could become recourse debt to the Company should the joint venture be unable to discharge the obligations of the related debt. As of March 31, 2007 and December 31, 2006, the total amount of debt that could become recourse to the Company was $8,600 and $8,570, respectively.

(3)   The Company’s investment in unconsolidated joint ventures was $448,793 and $451,208 more than the underlying equity as reflected in the joint ventures’ financial statements as of March 31, 2007 and December 31, 2006, respectively. This represents the difference between the cost of the investment and the book value of the underlying equity of the joint venture. The Company is amortizing this difference into income on a straight-line basis, consistent with the depreciable lives on property. The amortization of this difference was $3,407 and $3,583 for the three months ended March 31, 2007 and 2006, respectively.

11




Combined and Condensed Statements of Operations of Unconsolidated Joint Ventures:

 

SDG

 

Pacific

 

Tysons

 

Other

 

 

 

 

 

Macerich

 

Premier

 

Corner

 

Joint

 

 

 

 

 

Properties, L.P.

 

Retail Trust

 

LLC

 

Ventures

 

Total

 

Three Months Ended March 31, 2007

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Minimum rents

 

$

23,149

 

$

30,885

 

$

15,946

 

$

59,825

 

$

129,805

 

Percentage rents

 

1,213

 

1,585

 

(43

)

1,967

 

4,722

 

Tenant recoveries

 

11,961

 

12,020

 

8,252

 

29,514

 

61,747

 

Other

 

941

 

957

 

430

 

3,584

 

5,912

 

Total revenues

 

37,264

 

45,447

 

24,585

 

94,890

 

202,186

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

Shopping center and operating expenses

 

14,799

 

12,432

 

6,250

 

32,854

 

66,335

 

Interest expense

 

11,470

 

12,288

 

4,197

 

25,640

 

53,595

 

Depreciation and amortization

 

7,263

 

7,583

 

5,264

 

26,068

 

46,178

 

Total operating expenses

 

33,532

 

32,303

 

15,711

 

84,562

 

166,108

 

Loss on sale of assets

 

(4,764

)

 

 

 

(4,764

)

Net income

 

$

(1,032

)

$

13,144

 

$

8,874

 

$

10,328

 

$

31,314

 

Company’s equity in net income

 

$

(516

)

$

6,693

 

$

3,353

 

$

4,953

 

$

14,483

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2006

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Minimum rents

 

$

24,024

 

$

31,377

 

$

14,327

 

$

50,058

 

$

119,786

 

Percentage rents

 

1,109

 

1,637

 

275

 

2,375

 

5,396

 

Tenant recoveries

 

11,620

 

11,509

 

7,284

 

27,134

 

57,547

 

Other

 

797

 

862

 

456

 

5,333

 

7,448

 

Total revenues

 

37,550

 

45,385

 

22,342

 

84,900

 

190,177

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

Shopping center and operating expenses

 

14,616

 

12,071

 

6,460

 

29,009

 

62,156

 

Interest expense

 

9,170

 

12,824

 

4,375

 

16,458

 

42,827

 

Depreciation and amortization

 

7,367

 

7,157

 

5,364

 

16,434

 

36,322

 

Total operating expenses

 

31,153

 

32,052

 

16,199

 

61,901

 

141,305

 

Net income

 

$

6,397

 

$

13,333

 

$

6,143

 

$

22,999

 

$

48,872

 

Company’s equity in net income

 

$

3,198

 

$

6,713

 

$

2,507

 

$

8,598

 

$

21,016

 

 

Significant accounting policies used by the unconsolidated joint ventures are similar to those used by the Company. Included in mortgage notes payable are amounts due to affiliates of Northwestern Mutual Life (“NML”) of $130,633 and $132,170 as of March 31, 2007 and December 31, 2006, respectively. NML is considered a related party because it is a joint venture partner with the Company in Macerich Northwestern Associates. Interest expense incurred on these borrowings amounted to $2,179 and $2,276 for the three months ended March 31, 2007 and 2006, respectively.

12




5.          Derivative Instruments and Hedging Activities

The Company recognizes and measures all derivatives in the consolidated financial statements at fair value. The Company uses derivative financial instruments in the normal course of business to manage or reduce its exposure to adverse fluctuations in interest rates. The Company designs its hedges to be effective in reducing the risk exposure that they are designated to hedge. Any instrument that meets the cash flow hedging criteria in SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” is formally designated as a cash flow hedge at the inception of the derivative contract. On an ongoing quarterly basis, the Company adjusts its balance sheet to reflect the current fair value of its derivatives.  To the extent they are effective, changes in fair value of derivatives are recorded in comprehensive income (loss).  Ineffective portions, if any, are included in net income.  No ineffectiveness was recorded in net income during the three months ended March 31, 2007 or 2006.  If any derivative instrument used for risk management does not meet the hedging criteria, it is marked-to-market each period in the consolidated statements of operations. As of March 31, 2007, one of the Company’s derivative instruments was not designated as a cash flow hedge.  Changes in the market value of this derivative instrument will be recorded in the consolidated statements of operations.

As of March 31, 2007 and December 31, 2006, the Company had $1,014 and $1,252, respectively, reflected in other comprehensive (loss) income related to treasury rate locks settled in prior years. The Company reclassified $238 and $332 for the three months ended March 31, 2007 and 2006, respectively, related to treasury rate lock transactions settled in prior years from accumulated other comprehensive (loss) income to earnings. It is anticipated that an additional $729 will be reclassified during the remainder of the current year.

Interest rate swap and cap agreements are purchased by the Company from third parties to manage the risk of interest rate changes on some of the Company’s floating rate debt. Payments received as a result of these agreements are recorded as a reduction of interest expense. The fair value of the instrument is included in deferred charges and other assets if the fair value is an asset or in other accrued liabilities if the fair value is a deficit. The Company recorded other comprehensive (loss) income of ($3,693) and $6,584 related to the marking-to-market of interest rate swap/cap agreements for the three months ended March 31, 2007 and 2006, respectively. The amount expected to be reclassified to interest expense in the next 12 months will be immaterial.

6.              Property:

Property consists of the following:

 

March 31,

 

December 31,

 

 

 

2007

 

2006

 

Land

 

$

1,155,915

 

$

1,147,464

 

Building improvements

 

4,747,943

 

4,743,960

 

Tenant improvements

 

242,503

 

231,210

 

Equipment and furnishings

 

83,501

 

82,456

 

Construction in progress

 

359,924

 

294,115

 

 

 

6,589,786

 

6,499,205

 

Less accumulated depreciation

 

(783,429

)

(743,922

)

 

 

$

5,806,357

 

$

5,755,283

 

 

Depreciation expense for the three months ended March 31, 2007 and 2006 was $42,567 and $42,822, respectively.

The Company recognized a gain (loss) on the sale of equipment and furnishings and tenant improvements of $33 and ($623) during the three months ended March 31, 2007 and 2006, respectively.  In addition, the Company recognized a gain on the sale of land of $1,719 and $121 during the three months ended March 31, 2007 and 2006, respectively.

13




7.              Marketable Securities:

Marketable securities consist of the following:

 

March 31,

 

December 31,

 

 

 

2007

 

2006

 

Government debt securities, at par value

 

$

31,544

 

31,866

 

Less discount

 

(1,761

)

(1,847

)

 

 

29,783

 

30,019

 

Unrealized gain

 

711

 

514

 

Fair value

 

$

30,494

 

30,533

 

 

Future contractual maturities of marketable securities at March 31, 2007 are as follows:

 

1 year or less

 

$

1,192

 

1 to 5 years

 

3,843

 

5 to 10 year

 

26,509

 

 

 

$

31,544

 

 

The proceeds from maturities and interest receipts from the marketable securities are restricted to the service of the $28,127 note on which the Company remains obligated following the sale of Greeley Mall on July 27, 2006 (See Note 10 – Bank and Other Notes Payable).

8.              Deferred Charges And Other Assets:

Deferred charges and other assets are summarized as follows:

 

March 31,

 

December 31,

 

 

 

2007

 

2006

 

Leasing

 

$

92,098

 

$

115,657

 

Financing

 

45,855

 

40,906

 

Intangible assets resulting from SFAS No. 141 allocations:

 

 

 

 

 

In-place lease values

 

209,716

 

207,023

 

Leasing commissions and legal costs

 

36,707

 

36,177

 

 

 

384,376

 

399,763

 

Less accumulated amortization (1)

 

(140,220

)

(171,073

)

 

 

244,156

 

228,690

 

Other assets

 

90,610

 

79,135

 

 

 

$

334,766

 

$

307,825

 

 


(1)       Accumulated amortization includes $86,043 and $86,172 relating to intangibles resulting from SFAS No. 141 allocations at March 31, 2007 and December 31, 2006, respectively.

The allocated values of above market leases included in “Other assets” and the below market leases included in “Other accrued liabilities”, related to SFAS No. 141, consist of the following:

 

March 31,

 

December 31,

 

 

 

2007

 

2006

 

Above Market Leases

 

 

 

 

 

Original allocated value

 

$

65,752

 

$

64,718

 

Less accumulated amortization

 

(31,920

)

(36,058

)

 

 

$

33,832

 

$

28,660

 

Below Market Leases

 

 

 

 

 

Original allocated value

 

$

156,667

 

$

150,300

 

Less accumulated amortization

 

(78,306

)

(77,261

)

 

 

$

78,361

 

$

73,039

 

 

14




9.     Mortgage Notes Payable:

Mortgage notes payable consist of the following:

 

Carrying Amount of Mortgage Notes (a)

 

 

 

Monthly

 

 

 

 

 

March 31, 2007

 

December 31, 2006

 

Interest

 

Payment

 

Maturity

 

Property Pledged as Collateral

 

Other

 

Related Party

 

Other

 

Related Party

 

Rate

 

Term (b)

 

Date

 

Borgata

 

$

14,746

 

$

 

$

14,885

 

$

 

5.39

%

$

115

 

2007

 

Capitola Mall

 

 

40,578

 

 

40,999

 

7.13

%

380

 

2011

 

Carmel Plaza

 

26,565

 

 

26,674

 

 

8.18

%

202

 

2009

 

Casa Grande (c)

 

6,429

 

 

7,304

 

 

6.72

%

43

 

2009

 

Chandler Fashion Center

 

172,141

 

 

172,904

 

 

5.48

%

1,043

 

2012

 

Chesterfield Towne Center (d)

 

56,804

 

 

57,155

 

 

9.07

%

548

 

2024

 

Danbury Fair Mall

 

181,259

 

 

182,877

 

 

4.64

%

1,225

 

2011

 

Deptford Mall (e)

 

100,000

 

 

100,000

 

 

5.44

%

453

 

2013

 

Eastview Commons

 

9,039

 

 

9,117

 

 

5.46

%

66

 

2010

 

Eastview Mall

 

102,395

 

 

102,873

 

 

5.10

%

592

 

2014

 

Fiesta Mall

 

84,000

 

 

84,000

 

 

4.88

%

346

 

2015

 

Flagstaff Mall

 

37,000

 

 

37,000

 

 

4.97

%

155

 

2015

 

FlatIron Crossing

 

190,234

 

 

191,046

 

 

5.23

%

1,102

 

2013

 

Freehold Raceway Mall

 

182,025

 

 

183,505

 

 

4.68

%

1,184

 

2011

 

Fresno Fashion Fair

 

64,335

 

 

64,595

 

 

6.52

%

437

 

2008

 

Great Northern Mall

 

40,778

 

 

40,947

 

 

5.19

%

224

 

2013

 

Greece Ridge Center (f)

 

72,000

 

 

72,000

 

 

5.97

%

358

 

2007

 

La Cumbre Plaza (g)

 

30,000

 

 

30,000

 

 

6.20

%

155

 

2007

 

La Encantada (h)

 

 

 

51,000

 

 

7.08

%

 

 

Marketplace Mall

 

40,196

 

 

40,473

 

 

5.30

%

267

 

2017

 

Northridge Mall (i)

 

82,172

 

 

82,514

 

 

4.84

%

453

 

2009

 

Oaks, The (j)

 

 

 

92,000

 

 

5.37

%

 

 

Pacific View

 

89,897

 

 

90,231

 

 

7.16

%

648

 

2011

 

Panorama Mall (k)

 

50,000

 

 

50,000

 

 

6.16

%

257

 

2010

 

Paradise Valley Mall (l)

 

 

 

74,990

 

 

5.89

%

 

 

Paradise Valley Mall

 

21,928

 

 

22,154

 

 

5.89

%

183

 

2009

 

Pittsford Plaza

 

25,112

 

 

25,278

 

 

5.02

%

160

 

2013

 

Prescott Gateway

 

60,000

 

 

60,000

 

 

5.78

%

289

 

2011

 

Queens Center

 

91,648

 

 

92,039

 

 

6.88

%

633

 

2009

 

Queens Center

 

109,855

 

109,854

 

110,313

 

110,312

 

7.00

%

1,501

 

2013

 

Rimrock Mall

 

43,301

 

 

43,452

 

 

7.45

%

320

 

2011

 

Salisbury, Center at

 

115,000

 

 

115,000

 

 

5.79

%

555

 

2016

 

Santa Monica Place

 

79,795

 

 

80,073

 

 

7.70

%

606

 

2010

 

Shoppingtown Mall

 

45,819

 

 

46,217

 

 

5.01

%

319

 

2011

 

South Plains Mall

 

59,435

 

 

59,681

 

 

8.22

%

454

 

2009

 

South Towne Center

 

64,000

 

 

64,000

 

 

6.61

%

357

 

2008

 

Towne Mall

 

15,177

 

 

15,291

 

 

4.99

%

101

 

2012

 

Twenty Ninth Street (m)

 

101,343

 

 

94,080

 

 

6.61

%

558

 

2007

 

Valley River Center (n)

 

120,000

 

 

100,000

 

 

5.59

%

559

 

2016

 

Valley View Center

 

125,000

 

 

125,000

 

 

5.72

%

596

 

2011

 

Victor Valley, Mall of

 

52,120

 

 

52,429

 

 

4.60

%

304

 

2008

 

Village Fair North

 

11,129

 

 

11,210

 

 

5.89

%

82

 

2008

 

Vintage Faire Mall

 

65,126

 

 

65,363

 

 

7.89

%

508

 

2010

 

Westside Pavilion

 

93,132

 

 

93,513

 

 

6.67

%

628

 

2008

 

Wilton Mall

 

46,101

 

 

46,604

 

 

4.79

%

349

 

2009

 

 

 

$

2,977,036

 

$

150,432

 

$

3,179,787

 

$

151,311

 

 

 

 

 

 

 

 

15




 


(a)       The mortgage notes payable balances include the unamortized debt premiums (discount).  Debt premiums (discount) represent the excess (deficiency) of the fair value of debt over (under) the principal value of debt assumed in various acquisitions and are amortized into interest expense over the remaining term of the related debt in a manner that approximates the effective interest method. The interest rate represents the effective interest rate, including the debt premium (discount).

Debt premiums (discounts) consist of the following:

 

March 31,

 

December 31,

 

Property Pledged as Collateral

 

2007

 

2006

 

Borgata

 

$

172

 

$

245

 

Danbury Fair Mall

 

16,591

 

17,634

 

Eastview Commons

 

725

 

776

 

Eastview Mall

 

1,947

 

2,018

 

Freehold Raceway Mall

 

14,947

 

15,806

 

Great Northern Mall

 

(184

)

(191

)

Marketplace Mall

 

1,772

 

1,813

 

Paradise Valley Mall

 

 

2

 

Paradise Valley Mall

 

612

 

685

 

Pittsford Plaza

 

983

 

1,025

 

Shoppingtown Mall

 

4,546

 

4,813

 

Towne Mall

 

535

 

558

 

Victor Valley, Mall of

 

296

 

377

 

Village Fair North

 

122

 

146

 

Wilton Mall

 

3,829

 

4,195

 

 

 

$

46,893

 

$

49,902

 

 

(b)   This represents the monthly payment of principal and interest.

(c)    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 March 31, 2007 and December 31, 2006, the total interest rate was 6.72% and 6.75%, respectively.

(d)   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 $78 and $70 for the three months ended March 31, 2007 and 2006, respectively.

(e)    The loan provides for additional borrowings of up to $72,500 during the period ending December 7, 2007, subject to certain conditions.

(f)       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%. At March 31, 2007 and December 31, 2006, the total interest rate was 5.97% and 6.0%, respectively.

(g)   The floating rate loan bears interest at LIBOR plus 0.88% and matures on August 9, 2007 with two one-year extensions. The Company has an interest rate cap agreement over the loan term which effectively prevents LIBOR from exceeding 7.12%. At March 31, 2007 and December 31, 2006, the total interest rate was 6.20% and 6.23%, respectively.

(h)   The loan was paid off in full on March 23, 2007.

(i)      The loan bore interest at LIBOR plus 2.0% for six months and then converted at January 1, 2005 to a fixed rate loan at 4.94%. The effective interest rate over the entire term is 4.84%.

(j)       The loan was paid off in full on February 2, 2007.

(k)   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 March 31, 2007 and December 31, 2006, the total interest rate was 6.16% and 6.23%, respectively.

(l)      The loan was paid off in full on January 2, 2007.

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(m)     The construction loan allows for total borrowings of up to $115,000, and bears interest at LIBOR plus a spread of 1.1% to 1.25% depending on certain conditions.  The loan matures in June 2007, with two one-year extension options. At March 31, 2007 and December 31, 2006, the total interest rate was 6.61% and 6.67%, respectively.

(n)   Concurrent with the acquisition of this property, the Company placed a $100,000 loan that bears interest at 5.58% and matures on February 16, 2016.  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 March 31, 2007 and December 31, 2006, was 5.59% and 5.58%, respectively.

Most of the mortgage loan agreements contain a prepayment penalty provision for the early extinguishment of the debt.

Total interest expense capitalized during the three months ended March 31, 2007 and 2006 was $5,357 and $3,037, respectively.

Related party mortgage notes payable are amounts due to affiliates of NML.  See Note 11 – Related-Party Transactions, for interest expense associated with loans from NML.

The fair value of mortgage notes payable is estimated to be approximately $3,636,254 and $3,854,913, at March 31, 2007 and December 31, 2006, respectively, based on current interest rates for comparable loans.

10.       Bank and Other Notes Payable:

Bank and other notes payable consist of the following:

Convertible Senior Notes

On March 16, 2007, the Company issued $950,000 in convertible senior notes (“Senior Notes”) that are to 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.  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 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 represents 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 in 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.  The carrying value of the Senior Notes at March 31, 2007, includes an unamortized discount of $9,417 incurred at issuance and is amortized into interest expense over the term of the notes in a manner that approximates the effective interest method.  As of March 31, 2007, the effective interest rate was 3.48%.

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 increased the conversion price of the Senior Notes to approximately $130.06, which represents 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. If, however, the market value per share of the Company’s common stock exceeds $130.06 per common share then the dilution mitigation under the Capped Calls will be capped, which means there would be dilution from exchange of the Senior Notes to the extent that the market value per share of our common stock exceeds $130.06. The cost of the Capped Calls was approximately $59,850 and was recorded as a charge to “Additional paid-in capital”.

Line of Credit

The Company has a $1,500,000 revolving line of credit that matures on April 25, 2010 with a one-year extension option.  The interest rate fluctuates from LIBOR plus 1.0% to LIBOR plus 1.35% depending on the Company’s overall leverage. The Company has an interest rate swap agreement that effectively fixed the interest rate on $400,000 of the outstanding balance of the line of credit at 6.23% until April 25, 2011. As of March 31, 2007 and December 31, 2006, borrowings outstanding were $452,000 and $934,500 at an average interest rate, net of the $400,000 swapped portion, of 6.47% and 6.60%, respectively.

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Term Notes

On May 13, 2003, the Company issued $250,000 in unsecured notes that were to mature in May 2007 with a one-year extension option and bore interest at LIBOR plus 2.50%.  These notes were repaid in full on March 16, 2007, from the proceeds of the Senior Notes offering. At December 31, 2006, all of the notes were outstanding at an interest rate of 6.94%.

On April 25, 2005, the Company obtained a five-year, $450,000 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 term loan at 6.30% from December 1, 2005 to April 25, 2010.  As of March 31, 2007 and December 31, 2006, the entire term loan was outstanding with an interest rate of 6.30%.

On July 27, 2006, concurrent with the sale of Greeley Mall (See Note 14 – Discontinued Operations), the Company provided marketable securities to replace Greeley Mall as collateral for the mortgage note payable on the property (See Note 7 – Marketable Securities).   As a result of this transaction, the debt has been reclassified to bank and other notes payable.  This note bears interest at 6.18% and matures in September 2013.  As of March 31, 2007 and December 31, 2006, the note had a balance outstanding of $28,127 and $28,281, respectively.

As of March 31, 2007 and December 31, 2006, the Company was in compliance with all applicable loan convenants.

11.       Related-Party Transactions:

Certain unconsolidated joint ventures have engaged the Management Companies to manage the operations of the Centers.  Under these arrangements, the Management Companies are reimbursed for compensation paid to on-site employees, leasing agents and project managers at the Centers, as well as insurance costs and other administrative expenses.

The following fees were charged to unconsolidated joint ventures:

 

For the Three Months Ended

 

 

 

March 31,

 

 

 

2007

 

2006

 

Management Fees

 

 

 

 

 

MMC

 

$

2,562

 

$

3,011

 

Westcor Management Companies

 

1,603

 

1,664

 

Wilmorite Management Companies

 

428

 

343

 

 

 

$

4,593

 

$

5,018

 

 

 

 

 

 

 

Development and Leasing Fees

 

 

 

 

 

MMC

 

$

105

 

$

258

 

Westcor Management Companies

 

1,676

 

756

 

Wilmorite Management Companies

 

28

 

47

 

 

 

$

1,809

 

$

1,061

 

 

As of March 31, 2007 and December 31, 2006, the Company had loans to unconsolidated joint ventures of $543 and $708, respectively.  Interest income associated with these notes was $12 and $24 for the three months ended March 31, 2007 and 2006, respectively. These loans represent initial funds advanced to development stage projects prior to construction loan funding. Correspondingly, loan payables in the same amount have been accrued as an obligation by the various joint ventures.

Due from affiliates of $5,639 and $4,282 at March 31, 2007 and December 31, 2006, respectively, represents unreimbursed costs and fees due from unconsolidated joint ventures under management agreements.

Certain Company officers and affiliates have guaranteed mortgages of $21,750 at one of the Company’s joint venture properties.

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12.       Stock Repurchase Program:

On March 16, 2007, the Company repurchased 807,000 shares for $74,970 concurrent with the Senior Notes offering (See Note 10 – Bank and Other Notes Payable).    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 is now ended, as the maximum shares allowed to be repurchased under the program has been reached.

13.       Acquisitions:

The following were acquisitions recently completed by the Company:

Valley River:

On February 1, 2006, the Company acquired Valley River Center, an 835,694 square foot super-regional mall in Eugene, Oregon. The total purchase price was $187,500 and concurrent with the acquisition, the Company placed a $100,000 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. The results of Valley River Center’s operations have been included in the Company’s consolidated financial statements since the acquisition date.

Federated:

On July 26, 2006, the Company purchased 11 department stores located in 10 of its Centers from Federated Department Stores, Inc. for approximately $100,000.  The purchase price consisted of a $93,000 cash payment at closing and a $7,000 cash payment on March 29, 2007 paid in connection with a development work commitment by Federated.  The Company’s share of the purchase price of $81,043 was funded from the proceeds of sales of properties 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 where four of the eleven stores are located.  The purchase price allocation included in the Company’s balance sheet as of March 31, 2007 and December 31, 2006 was based on information available at that time.

Deptford:

On December 1, 2006, the Company acquired Deptford Mall, a 1,039,840 square foot super-regional mall in Deptford, New Jersey.  The total purchase price was $240,055.  The purchase price was funded by cash and borrowings under the Company’s line of credit. Subsequently, the Company placed a $100,000 six-year loan on the property.  The proceeds from the loan were used to pay down the Company’s line of credit. The results of Deptford Mall’s operations have been included in the Company’s consolidated financial statements since the acquisition date.  The purchase price allocation included in the Company’s balance sheet as of December 31, 2006 was based on information available at that time.  Subsequent adjustment to the allocation was made during the three months ended March 31, 2007 based upon the receipt of a third-party valuation report.

14.       Discontinued Operations:

The following were dispositions recently completed by the Company:

On June 9, 2006, the Company sold Scottsdale/101 for $117,600 resulting in a gain on sale of asset of $62,633.  The Company’s share of the gain was $25,802 in 2006.   The Company’s pro rata share of the proceeds were used to pay down the Company’s line of credit.

On July 13, 2006, the Company sold Park Lane Mall for $20,000 resulting in a gain on sale of asset of $5,853 in 2006.

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On July 27, 2006, the Company sold Holiday Village and Greeley Mall in a combined sale for $86,800, resulting in a gain on sale of asset of $28,711 in 2006.  Concurrent with the sale, the Company defeased the mortgage note payable on Greeley Mall.  As a result of the defeasance, the lender’s secured interest in the property was replaced with a secured interest in marketable securities (See Note 7 – Marketable Securities).  This transaction did not meet the criteria for extinguishment of debt under SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities.”

On August 11, 2006, the Company sold Great Falls Marketplace for $27,500 resulting in a gain on sale of asset of $11,826 in 2006.

The proceeds from the sale of Park Lane, Holiday Village, Greeley Mall and Great Falls Marketplace were used in part to fund the Company’s pro rata share of the purchase price of the Federated stores acquisition (See Note 13 — Acquisitions) and pay down the Company’s line of credit.

On December 29, 2006, the Company sold Citadel Mall, Northwest Arkansas Mall and Crossroads Mall in a combined sale for $373,800, resulting in a gain of $132,671 in 2006.  The proceeds were used to pay down the Company’s line of credit and pay off the mortgage note payable on Paradise Valley Mall (See Note 9 — Mortgage Notes Payable).

The Company has classified the results of operations for the three months ended March 31, 2007 and 2006 for all of the above dispositions as discontinued operations.

Loss on sale of assets from discontinued operations of $289 for the three months ended March 31, 2007, consists of additional costs related to the properties sold in 2006.

Revenues and (loss) income were as follows:

 

Three Months Ended

 

 

 

March 31,

 

 

 

2007

 

2006

 

Revenues:

 

 

 

 

 

Scottsdale/101

 

$

15

 

$

2,596

 

Park Lane Mall

 

12

 

725

 

Holiday Village

 

65

 

1,240

 

Greeley Mall

 

(2

)

1,872

 

Great Falls Marketplace

 

 

663

 

Citadel Mall

 

85

 

4,175

 

Northwest Arkansas Mall