Macerich 2010
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Macerich 2010 annual report and form 10-k Macerich 2010 Annual Report and Form 10- and Form 2010 Annual Report Macerich k 401 Wilshire Boulevard, Suite 700 Santa Monica, California 90401-1452 310.394.6000 www.macerich.com Untitled-6 1 4/4/11 6:22 PM 34716 PDF Proof.indd 2 4/4/11 5:55 PM Macerich 2010 Annual Report Financial Highlights (all amounts in thousands, except share data and per square foot amounts) 2010 2009 2008 2007 2006 operating data Total revenues $ 758,559 $ 805,654 $ 880,871 $ 800,842 $ 737,311 Shopping center and operating expenses $ 245,878 $ 258,174 $ 281,613 $ 253,258 $ 230,463 Management companies’ operating expenses $ 90,414 $ 79,305 $ 77,072 $ 73,761 $ 56,673 REIT general and administrative expenses $ 20,703 $ 25,933 $ 16,520 $ 16,600 $ 13,532 Net income available to common stockholders $ 25,190 $ 120,742 $ 161,925 $ 64,131 $ 217,404 Net income per share available to common $ 0.19 $ 1.45 $ 2.17 $ 0.88 $ 3.03 stockholders-diluted other data Funds from operations (“FFO”)-diluted1 $ 351,308 $ 344,108 $ 461,515 $ 396,556 $ 383,122 Distributions declared per common share $ 2.10 $ 2.60 $ 3.20 $ 2.93 $ 2.75 Regional mall portfolio occupancy at year-end 93.1% 91.3% 92.3% 93.1% 93.4% Regional mall portfolio sales per square foot $ 433 $ 407 $ 441 $ 467 $ 452 balance sheet data Investment in real estate before $ 6,908,507 $ 6,697,259 $ 7,355,703 $ 7,078,802 $ 6,356,156 accumulated depreciation Total assets $ 7,645,010 $ 7,252,471 $ 8,090,435 $ 7,937,097 $ 7,373,676 Total mortgage and notes payable $ 3,892,070 $ 4,531,634 $ 5,940,418 $ 5,703,180 $ 4,993,879 Redeemable noncontrolling interests2 $ 11,366 $ 20,591 $ 23,327 $ 322,619 $ 322,710 Equity plus preferred equity $ 3,187,996 $ 2,128,466 $ 1,641,884 $ 1,518,196 $ 1,752,512 Common shares outstanding 130,452,032 96,667,689 76,883,634 72,311,763 71,567,908 1 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. The Company also adjusts FFO for the noncontrolling interest due to redemption value on the Rochester Properties. FFO and FFO on a diluted basis are useful to investors in comparing operating and financial results between periods. This is especially true since FFO excludes real estate depreciation and amortization as the Company believes real estate values fluctuate based on market conditions rather than depreciating in value ratably on a straight-line basis over time. In addition, consistent with the key objective of FFO as a measure of operating performance, the adjustment of FFO for the noncontrolling interest in redemption value provides a more meaningful measure of the Company’s operating performance between periods without reference to the non-cash charge related to the adjustment in noncontrolling interest due to redemption value. The Company believes that such a presentation also provides investors with a more meaningful measure of its operating results in comparison to the operating results of other REITs. Further, FFO on a 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. The Company also cautions that FFO as presented may not be comparable to similarly titled measures reported by other real estate investment trusts. Management compensates for the limitations of FFO by providing investors with financial statements prepared according to GAAP, along with this detailed discussion of FFO and a reconciliation of FFO and FFO-diluted to net income available to common stockholders. Management believes that to further understand the Company’s performance, FFO should be compared with the Company’s reported net income and considered in addition to cash flows in accordance with GAAP, as presented in the Company’s Consolidated Financial Statements. For disclosure of net income, the most directly comparable GAAP financial measure, for the periods presented and a reconciliation of FFO and FFO—diluted to net income, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Funds from Operations” in our Form 10-K included herein. 2 Redeemable noncontrolling interests include other redeemable equity interests not included within equity. 1 34716 Merrill TXT.indd 1 3/30/11 12:47 PM 34716 Merrill TXT.indd 2 3/30/11 12:47 PM Macerich 2010 Annual Report march 31, 2011 Dear Fellow Stockholders: I would like to welcome you as you review our annual been called many things from “gutsy” to “lucky” to stockholders’ report. In this letter, I will be sharing with “smart,” but we believed it simply reflected our deep you my views about various elements of our business understanding of our stockholders, our business and the today and going forward. underlying value of our assets. Balance Sheet We are pleased to report to you that as a result of the successful execution of our deleveraging plan, we now have a balance As we passed the two year anniversary of March 30, 2009, sheet with significant cash on hand, a fully available $1.5 I could not help but reflect upon that dark time when our billion line of credit and a very manageable property debt share price dropped to $5.45 and our total equity market maturity schedule over the next few years. While we are capitalization fell to about $500 million. In stark contrast, gratified to have our strongest balance sheet since we went as I write this letter, our current total equity market capital- public in 1994, we will never forget the dark period that hit ization approaches $7 billion and our stock price has the global financial community in late 2008 and 2009 and significantly rebounded. In March of 2009, we outlined with we will continue to be fiscally conservative. our Board a unique and aggressive deleveraging and re- equitization plan for our company. Our October 2009 equity offering of $400 million combined with our $1.2 billion equity Operations offering in April of 2010 represented the culmination of this We believe the fundamentals of our business are as healthy two-year multi-faceted plan. Our deleveraging plan also as they have been in recent memory. This is in part due to a included property-specific joint ventures, selected non-core shift in the business model of our retailers that arose out of asset dispositions, advantageous property refinancings, a the difficult period of 2009. Pre-2009, our retailers were reduction in our dividend, as well as payment of our dividend focused on comparative sales growth as their main bench- in stock. This focused, strategic plan was in sharp contrast to mark. Today, our retailers are focused primarily on their those followed by many other companies across corporate operating margins at any sales level. As a result, comparative America. We concluded two years ago that issuing “survival sales are less relevant today than they have ever been. equity” during the bottom of the stock market crash would Virtually across the board, our retailers have healthy balance unfairly dilute our stockholders on a permanent basis. Instead, sheets, low debt ratios, record profitability, and an appetite to we elected to march to a different drummer. Our strategy has grow their store base. 3 34716 Merrill TXT.indd 3 3/30/11 12:47 PM 34716 Merrill TXT.indd 4 3/30/11 12:47 PM Macerich 2010 Annual Report Notwithstanding this new retailer focus on operating margins, And as for the outlet model, we foresee Macerich entering it is interesting to note that sales during 2010 began to the outlet business in a very selective way in markets where rebound in our portfolio, increasing approximately 4.5%, we already have a presence, likely focusing on premium with our Arizona region leading our company with 6.2% outlets. For example, the Phoenix/Scottsdale area is probably sales growth. By the end of 2011, we anticipate that our the largest market in the United States not currently served retailers will return to the basic sales levels that they by a premium outlet center and it could well be the market enjoyed before the recent global recession. Since we own where we first enter the premium outlet business. In addition, some of the top regional malls in the United States and we have many real estate locations that we previously there are a limited number of expected new centers to be identified for potential traditional regional mall develop- developed, we feel that we are well-positioned to leverage ments and we may redefine some of these locations as our portfolio and to achieve fair rents with our tenants that premium outlet locations. will result in solid gains for us in net operating income, occupancy and leasing spreads over the next two to four years.