annual report 1998 The Macerich Company [creating windows of opportunity] financial highlights Macerich had a record-setting year in terms of acquisitions, occupancy, new lease signings and growth in total Funds from Operations (FFO). Our internal growth, which helped fuel our 1998 results, will benefit from our recent acquisitions, as we access the intrinsic value of these assets. For additional financial and other information about Macerich, we have included in this Annual Report our Form 10-K for the year ended December 31, 1998 for your review. Pro Forma as Reported 1998 1997 1996 1995 for 1994 (All amounts in thousands, except per share and property data) Operating Data: Total revenues $ 283,861 $ 221,214 $ 155,059 $ 102,469 $ 88,157 Shopping center expenses $ 89,991 $ 70,901 $ 50,792 $ 31,580 $ 28,373 REIT general and administrative expenses $ 4,373 $ 2,759 $ 2,378 $ 2,011 $ 1,954 Earnings before interest, income taxes, depreciation, amortization, minority interest, equity in income (loss) of unconsolidated entities, extraordinary items, gain (loss) on sale of assets and preferred dividends (EBITDA) $ 189,497 $ 147,554 $ 101,889 $ 68,878 $ 57,592 Net income $ 44,075 $ 22,046 $ 18,911 $ 11,303 $ 10,450 Net income per share - diluted $ 1.06 $ 0.85 $ 0.89 $ 0.73 $ 0.72 Other Data: Funds from operations - diluted (1) $ 120,518 $ 83,427 $ 62,428 $ 44,938 $ 39,343 Cash distributions declared per common share $ 1.865 $ 1.78 $ 1.70 $ 1.66 N/A FFO per share - diluted (1) $ 2.426 $ 2.172 $ 1.874 $ 1.669 $ 1.534 Portfolio occupancy at year end 93.2% 91.8% 91.6% 92.0% 92.9% Average tenant sales per square foot - mall & freestanding stores $ 319 $ 317 $ 290 $ 284 $ 262 Balance Sheet Data: Investment in real estate (before accumulated depreciation) $ 2,213,125 $1,607,429 $1,273,085 $ 833,998 $ 554,788 Total assets $2,322,056 $1,505,002 $ 1,187,753 $ 763,398 $ 485,903 Total mortgage, notes and debentures payable $ 1,507,118 $1,122,959 $ 789,239 $ 485,193 $ 313,632 Minority interest (2) $ 165,524 $ 100,463 $ 112,242 $ 95,740 $ 72,376 Stockholders' equity $ 577,413 $ 216,295 $ 237,749 $ 158,345 $ 86,939 (1) “FFO” represents net income (loss) (computed in accordance with generally accepted accounting principles (GAAP)), excluding gains (or losses) from debt restructuring and sales or write-down of assets, plus depreciation and amortization (excluding depreciation on personal property and amortization of loan and financial instrument costs), and after adjustments for unconsolidated entities. Adjustments for unconsolidated entities are calculated on the same basis. FFO does not represent cash flow from operations as defined by GAAP and is not necessarily indicative of cash available to fund all cash flow needs. (2) “Minority Interest” reflects the ownership interest in The Macerich Partnership, L.P. not owned by the REIT (Macerich). Forward-Looking Statements. This Annual Report contains or incorporates statements that constitute forward-looking statements. Those statements appear in a number of places in this Annual Report and include statements regarding, among other matters, the Company’s growth and acquisition opportunities, the Company’s acquisition strate- gy, regulatory matters pertaining to compliance with governmental regulations and other factors affecting the Company’s financial condition or results of operations. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and “should” and variations of these words and similar expression, are used in many cases to identify these forward-looking statements. 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 industry results to vary materially from the Company’s future results, performance or achievements, or those of the industry, expressed or implied in such forward-looking statements. Such factors include, among others, general indus- try, economic and business conditions, which will, among other things, affect demand for retail space or retail goods, availability and creditworthiness of current and prospec- tive tenants, lease rents, availability and cost of financing and operating expenses; adverse changes in the real estate markets including, among other things, competition with other companies, retail formats and technology, risks of real estate development and acquisition; governmental actions and initiatives; environmental and safety requirements; and Year 2000 compliance issues of the Company and third parties and related service interruptions or payment delays. The Company will not update any forward-looking information to reflect actual results or changes in the factors affecting the forward-looking information. dear fellow stockholders and partners As we reflect on 1998, we find ourselves recalling the opening of our 1995 stockholders’ letter. “Retail sales are flat, Chapter 11 filings by retail chains are the talk of the industry. The regional mall business is maturing and a tiering is developing as the strong get stronger and the weak get weaker. Questions are raised by ‘experts’ about the future of specialty retailing and the mall business as we know it today. Retailers of all product types are searching for their identities. These times are changing and challenging - to say the least.” $1.53 $1.67 $1.87 $2.43 $2.17 We then went on to list the reasons we were so optimistic about our future in this uncertain industry. 1994 1995 1996 1997 1998 In fact, our optimism was justified. Our 1995 results were good, and subse- ffo per share quently we have posted three very strong years of growth. At the time of our diluted, annual 1995 stockholders’ letter, there was considerable concern about our industry. There has been consistent However, looking at the issues addressed in that letter, we now find ourselves FFO per share growth with in an industry with the following strong fundamentals: an annual compounded growth rate of 12.3%. • Compared to the flat retail sales picture of March 1996, retail sales in our portfolio grew by 5% in 1998, over 1997 on a comparable store basis, with similar results for the sector. • Chapter 11 filings by retail chains have slowed dramatically in the regional mall industry. This has promoted strong occupancy gains both in our portfo- lio and in regional mall portfolios owned by other public real estate compa- nies. In fact, the few retailers that have filed for bankruptcy protection have created revenue and tenant enhancing opportunities because they generally have occupied excellent locations within our malls at rents we believe are lower than what we could achieve in today’s leasing environment. • The mall business definitely is maturing and the strong are getting stronger, with significant consolidation. Macerich and most of the public mall companies have increased the size of their portfolios substantially over the past three years. $0.9 $1.2 $1.8 $2.2 $3.2 Virtually all of the concerns present in the spring of 1996 have been addressed 1994 1995 1996 1997 1998 by us – each in a positive way. Leasing is extremely vibrant. Our comparable total market center sales increases are excellent, with sales productivity per square foot ris- capitalization at ing from $284 per square foot at the end of 1995 to a level of over $330 per year end square foot at the end of 1998. (In billions) The Company has success- Considering our past performance, it is with a high degree of optimism fully accessed the private and that we address the current concerns expressed by investors in the REIT public capital markets to industry and the shopping center industry specifically. These concerns fund its rapid growth. include the following: 1 Liquidity Crisis - Although the liquidity crisis limited the availability of capi- tal, it was beneficial to our business in a variety of ways. As construction loans became more difficult to obtain, the likelihood of substantial construction coming into play in the mall business diminished. In addition, the mall sector is unique in terms of its attractiveness to long-term lenders. The debt market remains favorable, with life insurance companies and the CMBS markets pur- suing loans secured by regional malls. We have closed several competitive loans $86.0 $102.5 $155.1 $221.2 $283.9 (i.e., 6.70% to 6.75% interest for 10-year fixed rate loans) in the last three months. Also, the illiquidity in the overall market is creating alluring acquisi- 1994 1995 1996 1997 1998 tion opportunities with fewer competitors. total revenues (In millions) External Growth - From an external growth viewpoint, we have completed an excellent year of acquisitions — in excess of $1 billion of real estate at estimat- The 35% compounded annual growth rate in ed returns approximating 8.5% on an unleveraged basis. In addition, we cur- total revenues reflects the rently have a substantial number of redevelopment projects available within Company’s fourfold growth our portfolio to profitably deploy our capital at what we believe will be very since its 1994 IPO. favorable returns. Internal Growth - In our experience, the most significant growth in an asset occurs in the second to fifth year of ownership. Our internal growth helped fuel our growth in FFO in 1998 and we believe strong internal growth will continue to be generated in 1999. New Construction - The mall business is simply not conducive to new com- petition resulting from new building. The department stores help secure the dominant position most of our malls enjoy in their trade areas, thereby mini- mizing the threat of new malls. In addition, the liquidity crunch of late 1998 inhibited the development of new malls, further limiting any adverse impact on the very positive leasing environment, high occupancy levels, and strong $251 $262 $284 $290 $317 $337* sales per square foot we currently enjoy.