Edgar Filing: MACERICH CO

Large accelerated filer x

Accelerated filer o

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

Smaller reporting company o

Emerging growth company o

Document

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 June 30, 2017

Commission File No. 1-12504

THE MACERICH COMPANY

(Exact name of registrant as specified in its charter)



MARYLAND		95-4448705
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
401 Wilshire Boulevard, Suite 700, Santa Monica, California 90401 (Address of principal executive office, including zip code)
(310) 394-6000 (Registrant's telephone number, including area code)
N/A (Former name, former address and former fiscal year, if changed since last report)

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

YES x NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding twelve (12) months (or for such shorter period that the registrant was required to submit and post such files).

YES x NO o

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o

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

YES o NO x

Number of shares outstanding as of August 4, 2017 of the registrant's common stock, par value $0.01 per share: 141,414,438 shares

THE MACERICH COMPANY

FORM 10-Q

INDEX



Part I	Financial Information

Item 1.	Financial Statements (Unaudited)	3

	Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016	3

	Consolidated Statements of Operations for the three and six months ended June 30, 2017 and 2016	4

	Consolidated Statement of Equity for the six months ended June 30, 2017	5

	Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016	6

	Notes to Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40

Item 4.	Controls and Procedures	41

Part II	Other Information

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42

Item 3.	Defaults Upon Senior Securities	42

Item 4.	Mine Safety Disclosures	42

Item 5.	Other Information	42

Item 6.	Exhibits	43

Signature		44

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THE MACERICH COMPANY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except par value)

(Unaudited)



	June 30, 2017			December 31, 2016
ASSETS:
Property, net	$	7,198,283		$	7,357,310
Cash and cash equivalents	87,133			94,046
Restricted cash	50,304			49,951
Tenant and other receivables, net	116,089			136,998
Deferred charges and other assets, net	452,280			478,058
Due from affiliates	81,545			68,227
Investments in unconsolidated joint ventures	1,696,572			1,773,558
Total assets	$	9,682,206		$	9,958,148
LIABILITIES AND EQUITY:
Mortgage notes payable:
Related parties	$	174,037		$	176,442
Others	3,817,348			3,908,976
Total	3,991,385			4,085,418
Bank and other notes payable	996,129			880,482
Accounts payable and accrued expenses	56,596			61,316
Other accrued liabilities	322,643			366,165
Distributions in excess of investments in unconsolidated joint ventures	95,131			78,626
Co-venture obligation	59,647			58,973
Total liabilities	5,521,531			5,530,980
Commitments and contingencies
Equity:
Stockholders' equity:
Common stock, $0.01 par value, 250,000,000 shares authorized, 141,556,410 and 143,985,036 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively	1,416			1,440
Additional paid-in capital	4,521,945			4,593,229
Accumulated deficit	(663,805		)	(488,782		)
Total stockholders' equity	3,859,556			4,105,887
Noncontrolling interests	301,119			321,281
Total equity	4,160,675			4,427,168
Total liabilities and equity	$	9,682,206		$	9,958,148

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

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THE MACERICH COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share amounts)

(Unaudited)



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016
Revenues:
Minimum rents	$	152,893		$	152,448		$	298,448		$	303,496
Percentage rents	2,060			2,394			3,978			5,408
Tenant recoveries	68,948			75,948			141,360			156,121
Other	13,519			17,789			28,783			30,937
Management Companies	10,003			11,325			21,899			19,942
Total revenues	247,423			259,904			494,468			515,904
Expenses:
Shopping center and operating expenses	71,032			73,910			146,929			153,234
Management Companies' operating expenses	26,216			24,299			54,733			52,199
REIT general and administrative expenses	7,458			7,681			15,921			16,310
Depreciation and amortization	83,243			85,190			166,316			172,121
	187,949			191,080			383,899			393,864
Interest expense:
Related parties	2,181			2,256			4,392			4,528
Other	40,140			38,939			79,230			76,443
	42,321			41,195			83,622			80,971
Loss on extinguishment of debt	—			—			—			3,575
Total expenses	230,270			232,275			467,521			478,410
Equity in income of unconsolidated joint ventures	16,936			14,616			32,779			26,276
Co-venture expense	(4,123		)	(3,212		)	(8,000		)	(6,501		)
Income tax (expense) benefit	(437		)	(514		)	3,047			(1,831		)
(Loss) gain on sale or write down of assets, net	(477		)	10,915			49,088			445,371
Net income	29,052			49,434			103,861			500,809
Less net income attributable to noncontrolling interests	2,414			4,212			7,980			34,672
Net income attributable to the Company	$	26,638		$	45,222		$	95,881		$	466,137
Earnings per common share—net income attributable to common stockholders:
Basic	$	0.19		$	0.31		$	0.67		$	3.12
Diluted	$	0.19		$	0.31		$	0.67		$	3.12
Weighted average number of common shares outstanding:
Basic	141,695,000			146,644,000			142,640,000			149,314,000
Diluted	141,728,000			146,769,000			142,687,000			149,459,000

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

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THE MACERICH COMPANY

CONSOLIDATED STATEMENT OF EQUITY

(Dollars in thousands, except per share data)

(Unaudited)



	Stockholders' Equity
	Common Stock
	Shares		Par Value			Additional Paid-in Capital			Accumulated Deficit			Total Stockholders' Equity			Noncontrolling Interests			Total Equity
Balance at January 1, 2017	143,985,036		$	1,440		$	4,593,229		$	(488,782	)	$	4,105,887		$	321,281		$	4,427,168
Net income	—		—			—			95,881			95,881			7,980			103,861
Cumulative effect of adoption of ASU 2016-09	—		—			—			6,484			6,484			—			6,484
Amortization of share and unit-based plans	84,287		1			23,946			—			23,947			—			23,947
Employee stock purchases	20,443		—			986			—			986			—			986
Stock repurchases	(2,885,373	)	(29		)	(107,425		)	(74,286		)	(181,740		)	—			(181,740		)
Distributions declared ($1.42) per share	—		—			—			(203,102		)	(203,102		)	—			(203,102		)
Distributions to noncontrolling interests	—		—			—			—			—			(16,844		)	(16,844		)
Conversion of noncontrolling interests to common shares	352,017		4			11,792			—			11,796			(11,796		)	—
Redemption of noncontrolling interests	—		—			(61		)	—			(61		)	(24		)	(85		)
Adjustment of noncontrolling interests in Operating Partnership	—		—			(522		)	—			(522		)	522			—
Balance at June 30, 2017	141,556,410		$	1,416		$	4,521,945		$	(663,805	)	$	3,859,556		$	301,119		$	4,160,675

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

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THE MACERICH COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)



	For the Six Months Ended June 30,
	2017			2016
Cash flows from operating activities:
Net income	$	103,861		$	500,809
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on early extinguishment of debt, net	—			3,575
Gain on sale or write down of assets, net	(49,088		)	(445,371		)
Depreciation and amortization	169,216			175,090
Amortization of net premium on mortgage notes payable	(1,860		)	(2,063		)
Amortization of share and unit-based plans	19,652			22,008
Straight-line rent adjustment	(4,544		)	(2,503		)
Amortization of above and below-market leases	(1,082		)	(4,178		)
Provision for doubtful accounts	3,358			2,291
Income tax (benefit) expense	(3,047		)	1,831
Equity in income of unconsolidated joint ventures	(32,779		)	(26,276		)
Distributions of income from unconsolidated joint ventures	—			4,483
Co-venture expense	8,000			6,501
Changes in assets and liabilities, net of acquisitions and dispositions:
Tenant and other receivables	5,401			4,061
Other assets	2,346			(15,930		)
Due from affiliates	(13,365		)	4,330
Accounts payable and accrued expenses	(2,002		)	(15,403		)
Other accrued liabilities	(13,840		)	6,454
Net cash provided by operating activities	190,227			219,709
Cash flows from investing activities:
Development, redevelopment, expansion and renovation of properties	(60,603		)	(107,565		)
Property improvements	(16,750		)	(14,267		)
Proceeds from repayment of notes receivable	619			3,161
Deferred leasing costs	(19,553		)	(14,698		)
Distributions from unconsolidated joint ventures	170,734			308,952
Contributions to unconsolidated joint ventures	(51,303		)	(382,910		)
Proceeds from sale of assets	167,631			695,724
Restricted cash	(353		)	(3,613		)
Net cash provided by investing activities	190,422			484,784

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THE MACERICH COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Dollars in thousands) (Unaudited)
	For the Six Months Ended June 30,
	2017			2016
Cash flows from financing activities:
Proceeds from mortgages, bank and other notes payable	300,000			2,596,138
Payments on mortgages, bank and other notes payable	(279,419		)	(1,929,969		)
Deferred financing costs	(32		)	(1,979		)
Proceeds from share and unit-based plans	986			834
Payment of debt extinguishment costs	—			(12,028		)
Stock repurchases	(181,740		)	(800,018		)
Redemption of noncontrolling interests	(85		)	(30		)
Dividends and distributions	(219,946		)	(561,611		)
Distributions to co-venture partner	(7,326		)	(9,202		)
Net cash used in financing activities	(387,562		)	(717,865		)
Net decrease in cash and cash equivalents	(6,913		)	(13,372		)
Cash and cash equivalents, beginning of period	94,046			86,510
Cash and cash equivalents, end of period	$	87,133		$	73,138
Supplemental cash flow information:
Cash payments for interest, net of amounts capitalized	$	82,864		$	72,224
Non-cash investing and financing transactions:
Accrued development costs included in accounts payable and accrued expenses and other accrued liabilities	$	31,500		$	24,177
Mortgage notes payable assumed in exchange for investments in unconsolidated joint ventures	$	—		$	997,695
Conversion of Operating Partnership Units to common stock	$	11,796		$	3,119

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

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THE MACERICH COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)


1.	Organization:

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

The Company commenced operations effective with the completion of its initial public offering on March 16, 1994. As of June 30, 2017, the Company was the sole general partner of and held a 93% ownership interest in The Macerich Partnership, L.P. (the "Operating Partnership"). The Company was organized to qualify as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code").

The property management, leasing and redevelopment of the Company's portfolio is provided by the Company's management companies, Macerich Property Management Company, LLC, a single member Delaware limited liability company, Macerich Management Company, a California corporation, Macerich Arizona Partners LLC, a single member Arizona limited liability company, Macerich Arizona Management LLC, a single member Delaware limited liability company, Macerich Partners of Colorado LLC, a single member Colorado limited liability company, MACW Mall Management, Inc., a New York corporation, and MACW Property Management, LLC, a single member New York limited liability company. All seven of the management companies are collectively referred to herein as the "Management Companies."

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


2.	Summary of Significant Accounting Policies:

Basis of Presentation:

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

The Company's sole significant asset is its investment in the Operating Partnership and as a result, substantially all of the Company's assets and liabilities represent the assets and liabilities of the Operating Partnership. In addition, the Operating Partnership has investments in a number of variable interest entities ("VIEs").

The Operating Partnership's VIEs included the following assets and liabilities:



	June 30, 2017		December 31, 2016
Assets:
Property, net	$	302,822	$	307,582
Other assets	68,781		68,863
Total assets	$	371,603	$	376,445
Liabilities:
Mortgage notes payable	$	131,153	$	133,245
Other liabilities	75,548		75,913
Total liabilities	$	206,701	$	209,158

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

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THE MACERICH COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

2. Summary of Significant Accounting Policies: (Continued)

The unaudited interim consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial statements for the interim periods have been made. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The accompanying consolidated balance sheet as of December 31, 2016 has been derived from the audited financial statements but does not include all disclosures required by GAAP.

Recent Accounting Pronouncements:

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2014-09, “Revenue From Contracts With Customers,” which outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU 2014-09 states that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” While ASU 2014-09 specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate or equipment. ASU 2014-09 is effective for the Company beginning January 1, 2018, with early adoption permitted beginning January 1, 2017. The Company has evaluated each of its revenue streams and related accounting policies under the standard. The standard will initially apply to the Company's recognition of minimum rents, percentage rents and other revenues. This standard will not apply to the Company's recognition of tenant recoveries until January 1, 2019, when it adopts ASU 2016-02, "Leases (Topic 842)", as discussed below. The Company expects to adopt this standard on a modified retrospective basis and does not expect that it will significantly impact its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, which sets out principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The standard requires that lessors expense, on an as-incurred basis, certain initial direct costs that are not incremental in negotiating a lease. Under existing standards, certain of these costs are capitalizable and therefore this new standard may result in certain of these costs being expensed as incurred after adoption.

Under ASU 2016-02, lessees apply a dual approach, classifying leases as either finance or operating leases. A lessee is required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months, regardless of their lease classification. The Company is a lessee on ground leases at certain properties, on certain office space leases and on certain other improvements and equipment. ASU 2016-02 will impact the accounting and disclosure requirements for these leases. ASU 2016-02 is effective for the Company under a modified retrospective approach beginning January 1, 2019. The Company is evaluating the impact of the adoption of this standard on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, "Compensation-Stock Compensation (Topic 718)," which amended the accounting for share-based payments, including the income tax consequences, classification of awards and classification on the statement of cash flows. The Company's adoption of this standard on January 1, 2017 under the modified retrospective method resulted in the recognition of excess tax benefits of $6,484 as a cumulative effect adjustment, which reduced its accumulated deficit and increased its deferred tax assets by the same amount.

In August 2016, the FASB issued ASU 2016-15, "Statement of Cash flows (Topic 230)," which amended the accounting for the statement of cash flows by providing guidance on how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The Company's adoption of this standard on January 1, 2017 resulted in the reclassification of $12,028 of debt extinguishment costs from operating activities to financing activities on its consolidated statement of cash flows for the six months ended June 30, 2016.

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THE MACERICH COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

2. Summary of Significant Accounting Policies: (Continued)

Recent Accounting Pronouncements: (Continued)

On November 17, 2016, the FASB issued ASU 2016-18, “Restricted Cash,” which requires that the statement of cash flows explain the change during a reporting period in the total of cash, cash equivalents, and amounts generally described as restricted cash and restricted cash equivalents. This standard states that transfers between cash, cash equivalents, and restricted cash are not part of the entity’s operating, investing, and financing activities. Therefore, restricted cash should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for the Company beginning January 1, 2018 with early adoption permitted. The Company does not believe that the adoption of ASU 2016-18 will have a significant impact on its consolidated statements of cash flows.

On January 5, 2017, the FASB issued ASU 2017-01, “Business Combinations,” which clarifies the definition of a business. The objective of the standard is to add further guidance that assists entities in evaluating whether a transaction will be accounted for as an acquisition of an asset or a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If so, the set of transferred assets and activities are not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs. ASU 2017-01 is effective for the Company beginning January 1, 2018 with early adoption permitted using a prospective transition method. The Company does not believe that the adoption of 2017-01 will have a significant impact on its consolidated financial statements.

In February 2017, the FASB issued ASU No. 2017-05, “Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets,” which clarifies the scope of asset derecognition and adds further guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with non-customers. The Company is required to adopt ASU 2017-05 beginning January 1, 2018 with early adoption permitted. The Company does not believe that the adoption of ASU No. 2017-05 will have a significant impact on its consolidated financial statements.

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THE MACERICH COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)


3.	Earnings per Share ("EPS"):

The following table reconciles the numerator and denominator used in the computation of EPS for the three and six months ended June 30, 2017 and 2016 (shares in thousands):



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016
Numerator
Net income	$	29,052		$	49,434		$	103,861		$	500,809
Net income attributable to noncontrolling interests	(2,414		)	(4,212		)	(7,980		)	(34,672		)
Net income attributable to the Company	26,638			45,222			95,881			466,137
Allocation of earnings to participating securities	(188		)	(170		)	(375		)	(557		)
Numerator for basic and diluted EPS—net income attributable to common stockholders	$	26,450		$	45,052		$	95,506		$	465,580
Denominator
Denominator for basic EPS—weighted average number of common shares outstanding	141,695			146,644			142,640			149,314
Effect of dilutive securities(1):
Share and unit-based compensation plans	33			125			47			145
Denominator for diluted EPS—weighted average number of common shares outstanding	141,728			146,769			142,687			149,459
Earnings per common share—net income attributable to common stockholders:
Basic	$	0.19		$	0.31		$	0.67		$	3.12
Diluted	$	0.19		$	0.31		$	0.67		$	3.12


(1)	Diluted EPS excludes 90,619 and 138,759 convertible preferred partnership units for the three months ended June 30, 2017 and 2016, respectively, and 90,619 and 138,759 convertible preferred partnership units for the six months ended June 30, 2017 and 2016, respectively, as their impact was antidilutive.

Diluted EPS excludes 10,526,547 and 10,833,354 Operating Partnership units ("OP Units") for the three months ended June 30, 2017 and 2016, respectively, and 10,558,809 and 10,826,849 OP Units for the six months ended June 30, 2017 and 2016, respectively, as their impact was antidilutive.

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THE MACERICH COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)


4.	Investments in Unconsolidated Joint Ventures:

The Company has made the following recent investments and dispositions in its unconsolidated joint ventures:

On January 6, 2016, the Company sold a 40% ownership interest in Arrowhead Towne Center, a 1,197,000 square foot regional shopping center in Glendale, Arizona, for $289,496, resulting in a gain on the sale of assets of $101,629. The sales price was funded by a cash payment of $129,496 and the assumption of a pro rata share of the mortgage note payable on the property of $160,000. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes, which included funding the Special Dividend (See Note 12—Stockholders' Equity). Upon completion of the sale of the ownership interest, the Company no longer has a controlling interest in the joint venture due to the substantive participation rights of the outside partner. Accordingly, the Company accounts for its investment in Arrowhead Towne Center under the equity method of accounting.

On January 14, 2016, the Company formed a joint venture, whereby the Company sold a 49% ownership interest in Deptford Mall, a 1,039,000 square foot regional shopping center in Deptford, New Jersey; FlatIron Crossing, a 1,432,000 square foot regional shopping center in Broomfield, Colorado; and Twenty Ninth Street, an 847,000 square foot regional shopping center in Boulder, Colorado (the "MAC Heitman Portfolio"), for $771,478, resulting in a gain on the sale of assets of $340,734. The sales price was funded by a cash payment of $478,608 and the assumption of a pro rata share of the mortgage notes payable on the properties of $292,870. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes. Upon completion of the sale of the ownership interest, the Company no longer has a controlling interest in the joint venture due to the substantive participation rights of the outside partner. Accordingly, the Company accounts for its investment in the MAC Heitman Portfolio under the equity method of accounting.

On March 1, 2016, the Company, through a 50/50 joint venture, acquired Country Club Plaza, a 1,006,000 square foot regional shopping center in Kansas City, Missouri, for a purchase price of $660,000. The Company funded its pro rata share of the purchase price of $330,000 from borrowings under its line of credit. On March 28, 2016, the joint venture placed a $320,000 loan on the property that bears interest at an effective rate of 3.88% and matures on April 1, 2026. The Company used its pro rata share of the proceeds to pay down its line of credit and for general corporate purposes.

On March 17, 2017, the Company's joint venture in Country Club Plaza sold an office building for $78,000, resulting in a gain on sale of assets of $4,580. The Company's pro rata share of the gain on sale of assets of $2,290 was included in equity in income from joint ventures. The Company used its share of the proceeds to fund repurchases under the 2017 Stock Buyback Program (See Note 12—Stockholders' Equity).

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THE MACERICH COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

4. Investments in Unconsolidated Joint Ventures: (Continued)

Combined and condensed balance sheets and statements of operations are presented below for all unconsolidated joint ventures.

Combined and Condensed Balance Sheets of Unconsolidated Joint Ventures:



	June 30, 2017			December 31, 2016
Assets(1):
Property, net	$	9,092,493		$	9,176,642
Other assets	647,492			614,607
Total assets	$	9,739,985		$	9,791,249
Liabilities and partners' capital(1):
Mortgage and other notes payable(2)	$	5,324,700		$	5,224,713
Other liabilities	435,822			403,369
Company's capital	2,174,786			2,279,819
Outside partners' capital	1,804,677			1,883,348
Total liabilities and partners' capital	$	9,739,985		$	9,791,249
Investments in unconsolidated joint ventures:
Company's capital	$	2,174,786		$	2,279,819
Basis adjustment(3)	(573,345		)	(584,887		)
	$	1,601,441		$	1,694,932

Assets—Investments in unconsolidated joint ventures	$	1,696,572		$	1,773,558
Liabilities—Distributions in excess of investments in unconsolidated joint ventures	(95,131		)	(78,626		)
	$	1,601,441		$	1,694,932


(1)	These amounts include the assets of $3,126,583 and $3,179,255 of Pacific Premier Retail LLC (the "PPR Portfolio") as of June 30, 2017 and December 31, 2016, respectively, and liabilities of $1,881,513 and $1,887,952 of the PPR Portfolio as of June 30, 2017 and December 31, 2016, respectively.

(2)

Included in mortgage and other notes payable are amounts due to an affiliate of Northwestern Mutual Life ("NML") of $487,077 and $265,863 as of June 30, 2017 and December 31, 2016, respectively. NML is considered a related party because it is a joint venture partner with the Company in Macerich Northwestern Associates—Broadway Plaza. Interest expense on these borrowings was $4,929 and $4,992 for the three months ended June 30, 2017 and 2016, respectively, and $8,089 and $11,358 for the six months ended June 30, 2017 and 2016, respectively.

(3)

The Company amortizes the difference between the cost of its investments in unconsolidated joint ventures and the book value of the underlying equity into income on a straight-line basis consistent with the lives of the underlying assets. The amortization of this difference was $4,197 and $4,669 for the three months ended June 30, 2017 and 2016, respectively, and $8,224 and $9,126 for the six months ended June 30, 2017 and 2016, respectively.

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THE MACERICH COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

4. Investments in Unconsolidated Joint Ventures: (Continued)

Combined and Condensed Statements of Operations of Unconsolidated Joint Ventures:



	PPR Portfolio			Other Joint Ventures			Total
Three Months Ended June 30, 2017
Revenues:
Minimum rents	$	32,045		$	126,765		$	158,810
Percentage rents	221			2,126			2,347
Tenant recoveries	11,373			46,119			57,492
Other	1,402			13,017			14,419
Total revenues	45,041			188,027			233,068
Expenses:
Shopping center and operating expenses	9,711			58,886			68,597
Interest expense	16,675			32,976			49,651
Depreciation and amortization	24,802			62,090			86,892
Total operating expenses	51,188			153,952			205,140
Loss on sale of assets	—			(2		)	(2		)
Net (loss) income	$	(6,147	)	$	34,073		$	27,926
Company's equity in net (loss) income	$	(1,034	)	$	17,970		$	16,936
Three Months Ended June 30, 2016
Revenues:
Minimum rents	$	31,474		$	119,664		$	151,138
Percentage rents	343			2,624			2,967
Tenant recoveries	11,919			46,652			58,571
Other	689			12,752			13,441
Total revenues	44,425			181,692			226,117
Expenses:
Shopping center and operating expenses	9,314			58,930			68,244
Interest expense	16,055			31,266			47,321
Depreciation and amortization	26,796			60,764			87,560
Total operating expenses	52,165			150,960			203,125
Gain on sale of assets	—			5			5
Net (loss) income	$	(7,740	)	$	30,737		$	22,997
Company's equity in net (loss) income	$	(1,730	)	$	16,346		$	14,616

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THE MACERICH COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

4. Investments in Unconsolidated Joint Ventures: (Continued)



	PPR Portfolio			Other Joint Ventures		Total
Six Months Ended June 30, 2017
Revenues:
Minimum rents	$	65,581		$	250,268	$	315,849
Percentage rents	951			3,864		4,815
Tenant recoveries	22,812			94,034		116,846
Other	2,428			24,528		26,956
Total revenues	91,772			372,694		464,466
Expenses:
Shopping center and operating expenses	19,471			121,081		140,552
Interest expense	33,401			65,255		98,656
Depreciation and amortization	51,078			124,969		176,047
Total operating expenses	103,950			311,305		415,255
(Loss) gain on sale or write down of assets, net	(35		)	4,579		4,544
Net (loss) income	$	(12,213	)	$	65,968	$	53,755
Company's equity in net (loss) income	$	(1,996	)	$	34,775	$	32,779
Six Months Ended June 30, 2016
Revenues:
Minimum rents	$	62,057		$	226,037	$	288,094
Percentage rents	1,102			4,377		5,479
Tenant recoveries	23,895			90,095		113,990
Other	3,527			23,104		26,631
Total revenues	90,581			343,613		434,194
Expenses:
Shopping center and operating expenses	19,100			112,228		131,328
Interest expense	31,269			59,004		90,273
Depreciation and amortization	54,880			117,297		172,177
Total operating expenses	105,249			288,529		393,778
Net (loss) income	$	(14,668	)	$	55,084	$	40,416
Company's equity in net (loss) income	$	(2,974	)	$	29,250	$	26,276

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

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THE MACERICH COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)


5.	Property, net:

Property, net consists of the following:



	June 30, 2017			December 31, 2016
Land	$	1,582,191		$	1,607,590
Buildings and improvements	6,408,362			6,511,741
Tenant improvements	610,084			622,878
Equipment and furnishings	180,735			177,036
Construction in progress	321,142			289,966
	9,102,514			9,209,211
Less accumulated depreciation	(1,904,231		)	(1,851,901		)
	$	7,198,283		$	7,357,310

Depreciation expense was $69,364 and $68,175 for the three months ended June 30, 2017 and 2016, respectively, and $138,320 and $138,078 for the six months ended June 30, 2017 and 2016, respectively.

The (loss) gain on sale or write down of assets, net was $(477) and $10,915 for the three months ended June 30, 2017 and 2016, respectively, and $49,088 and $445,371 for the six months ended June 30, 2017 and 2016, respectively.

The (loss) gain on sale or write down of assets, net for the six months ended June 30, 2017 includes a gain of $59,698 on the sale of Cascade Mall and Northgate Mall (See Note 14—Dispositions) offset in part by a loss of $10,138 on the write down of an investment in non-real estate assets.

The (loss) gain on sale or write down of assets, net for the three and six months ended June 30, 2016 includes a gain of $24,894 on the sale of Capitola Mall (See Note 14—Dispositions), a loss of $3,066 on the sale of a former Mervyn's store (See Note 14—Dispositions) and an impairment loss of $7,188 due to the reduction of the estimated holding period of The Marketplace at Flagstaff.

The (loss) gain on sale or write down of assets, net for the six months ended June 30, 2016 also includes a gain of $101,629 on the sale of a 40% ownership interest in Arrowhead Towne Center (See Note 4—Investments in Unconsolidated Joint Ventures), $340,734 on the sale of a 49% ownership interest in the MAC Heitman Portfolio (See Note 4—Investments in Unconsolidated Joint Ventures) and a loss of $14,750 on an adjustment to contingent consideration (See Note 13—Acquisitions).


6.	Tenant and Other Receivables, net:

Included in tenant and other receivables, net is an allowance for doubtful accounts of $2,996 and $1,991 at June 30, 2017 and December 31, 2016, respectively. Also included in tenant and other receivables, net are accrued percentage rents of $966 and $9,509 at June 30, 2017 and December 31, 2016, respectively, and a deferred rent receivable due to straight-line rent adjustments of $59,226 and $56,761 at June 30, 2017 and December 31, 2016, respectively.

On March 17, 2014, in connection with the sale of Lake Square Mall, the Company issued a note receivable for $6,500 that bears interest at an effective rate of 6.5%, matures on March 17, 2018 and is collateralized by a trust deed on Lake Square Mall. At June 30, 2017 and December 31, 2016, the note had a balance of $6,253 and $6,284, respectively.

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THE MACERICH COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)


7.	Deferred Charges and Other Assets, net:

Deferred charges and other assets, net consist of the following:



	June 30, 2017			December 31, 2016
Leasing	$	225,933		$	239,983
Intangible assets:
In-place lease values	114,999			140,437
Leasing commissions and legal costs	28,242			32,384
Above-market leases	172,473			181,851
Deferred tax assets	47,833			38,301
Deferred compensation plan assets	47,205			42,711
Other assets	60,222			72,206
	696,907			747,873
Less accumulated amortization(1)	(244,627		)	(269,815		)
	$	452,280		$	478,058

(1)

Accumulated amortization includes $74,239 and $88,785 relating to in-place lease values, leasing commissions and legal costs at June 30, 2017 and December 31, 2016, respectively. Amortization expense of in-place lease values, leasing commissions and legal costs was $5,545 and $8,203 for the three months ended June 30, 2017 and 2016, respectively, and $11,549 and $17,050 for the six months ended June 30, 2017 and 2016, respectively.

The allocated values of above-market leases and below-market leases consist of the following:



	June 30, 2017			December 31, 2016
Above-Market Leases
Original allocated value	$	172,473		$	181,851
Less accumulated amortization	(57,813		)	(57,505		)
	$	114,660		$	124,346
Below-Market Leases(1)
Original allocated value	$	129,893		$	144,713
Less accumulated amortization	(55,052		)	(58,400		)
	$	74,841		$	86,313


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

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THE MACERICH COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)


8.	Mortgage Notes Payable:

Mortgage notes payable at June 30, 2017 and December 31, 2016 consist of the following:



	Carrying Amount of Mortgage Notes(1)
	June 30, 2017				December 31, 2016
Property Pledged as Collateral	Related Party		Other		Related Party		Other		Effective Interest Rate(2)		Monthly Debt Service(3)		Maturity Date(4)
Chandler Fashion Center(5)	$	—	$	199,868	$	—	$	199,833	3.77	%	$	625	2019
Danbury Fair Mall	106,287		106,286		107,929		107,928		5.53	%	1,538		2020
Fashion Outlets of Chicago(6)	—		199,137		—		198,966		2.44	%	380		2020
Fashion Outlets of Niagara Falls USA	—		114,272		—		115,762		4.89	%	727		2020
Freehold Raceway Mall(5)	—		218,479		—		220,643		4.20	%	1,132		2018
Fresno Fashion Fair	—		323,159		—		323,062		3.67	%	971		2026
Green Acres Mall	—		294,598		—		297,798		3.61	%	1,447		2021
Kings Plaza Shopping Center	—		452,121		—		456,958		3.67	%	2,229		2019
Northgate Mall(7)	—		—		—		63,434		—		—		—
Oaks, The	—		199,007		—		201,235		4.14	%	1,064		2022
Pacific View	—		125,868		—		127,311		4.08	%	668		2022
Queens Center	—		600,000		—		600,000		3.49	%	1,744		2025
Santa Monica Place	—		216,858		—		219,564		2.99	%	1,004		2018
SanTan Village Regional Center	—		126,220		—		127,724		3.14	%	589		2019
Stonewood Center	—		96,528		—		99,520		1.80	%	640		2017
Towne Mall	—		21,367		—		21,570		4.48	%	117		2022
Tucson La Encantada	67,750		—		68,513		—		4.23	%	368		2022
Victor Valley, Mall of	—		114,588		—		114,559		4.00	%	380		2024
Vintage Faire Mall	—		266,534		—		269,228		3.55	%	1,256		2026
Westside Pavilion	—		142,458		—		143,881		4.49	%	783		2022
	$	174,037	$	3,817,348	$	176,442	$	3,908,976

(1)

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



Property Pledged as Collateral	June 30, 2017		December 31, 2016
Fashion Outlets of Niagara Falls USA	$	3,094	$	3,558
Stonewood Center	955		2,349
	$	4,049	$	5,907

The mortgage notes payable balances also include unamortized deferred finance costs that are amortized into interest expense over the remaining term of the related debt in a manner that approximates the effective interest method. Unamortized deferred finance costs were $11,059 and $12,716 at June 30, 2017 and December 31, 2016, respectively.


(2)	The interest rate disclosed represents the effective interest rate, including the debt premiums (discounts) and deferred finance costs.


(3)	The monthly debt service represents the payment of principal and interest.


(4)	The maturity date assumes that all extension options are fully exercised and that the Company does not opt to refinance the debt prior to these dates. These extension options are at the Company's discretion, subject to certain conditions, which the Company believes will be met.

Table of Contents

THE MACERICH COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

8. Mortgage Notes Payable: (Continued)


(5)	A 49.9% interest in the loan has been assumed by a third party in connection with a co-venture arrangement (See Note 10—Co-Venture Arrangement).


(6)	The loan bears interest at LIBOR plus 1.50% and matures on March 31, 2020. At June 30, 2017 and December 31, 2016, the total interest rate was 2.44% and 2.43%, respectively.


(7)	On January 18, 2017, the loan was paid off in connection with the sale of the underlying property (See Note 14—Dispositions).

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

The Company's mortgage notes payable are secured by the properties on which they are placed and are non-recourse to the Company.

The Company expects that all loan maturities during the next twelve months will be refinanced, restructured, extended and/or paid-off from the Company's line of credit or with cash on hand.

Total interest expense capitalized was $3,343 and $2,562 for the three months ended June 30, 2017 and 2016, respectively, and $5,977 and $4,865 for the six months ended June 30, 2017 and 2016, respectively.

Related party mortgage notes payable are amounts due to an affiliate of NML. See Note 16—Related Party Transactions for interest expense associated with loans from NML.

The estimated fair value (Level 2 measurement) of mortgage notes payable at June 30, 2017 and December 31, 2016 was $4,019,860 and $4,126,819, respectively, based on current interest rates for comparable loans. Fair value was determined using a present value model and an interest rate that included a credit value adjustment based on the estimated value of the property that serves as collateral for the underlying debt.


9.	Bank and Other Notes Payable:

Bank and other notes payable consist of the following:

Line of Credit:

The Company has a $1,500,000 revolving line of credit that bears interest at LIBOR plus a spread of 1.30% to 1.90%, depending on the Company's overall leverage level, and matures on July 6, 2020 with a one-year extension option. The line of credit can be expanded, depending on certain conditions, up to a total facility of $2,000,000.

Based on the Company's leverage level as of June 30, 2017, the borrowing rate on the facility was LIBOR plus 1.45%. As of June 30, 2017 and December 31, 2016, borrowings under the line of credit, were $1,000,000 and $885,000, respectively, less unamortized deferred finance costs of $8,804 and $10,039, respectively, at a total interest rate of 2.68% and 2.40%, respectively. The estimated fair value (Level 2 measurement) of the line of credit at June 30, 2017 and December 31, 2016 was $979,140 and $865,921, respectively, based on a present value model using a credit interest rate spread offered to the Company for comparable debt.

Prasada Note:

On March 29, 2013, the Company issued a $13,330 note payable that bears interest at 5.25% and matures on May 30, 2021. The note payable is collateralized by a portion of a development reimbursement agreement with the City of Surprise, Arizona. At June 30, 2017 and December 31, 2016, the note had a balance of $4,933 and $5,521, respectively. The estimated fair value (Level 2 measurement) of the note at June 30, 2017 and December 31, 2016 was $5,086 and $5,786, respectively, based on current interest rates for comparable notes. Fair value was determined using a present value model and an interest rate that included a credit value adjustment based on the estimated value of the collateral for the underlying debt.

As of June 30, 2017 and December 31, 2016, the Company was in compliance with all applicable financial loan covenants.

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THE MACERICH COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)


10.	Co-Venture Arrangement:

On September 30, 2009, the Company formed a joint venture, whereby a third party acquired a 49.9% interest in Freehold Raceway Mall, a 1,671,000 square foot regional shopping center in Freehold, New Jersey, and Chandler Fashion Center, a 1,318,000 square foot regional shopping center in Chandler, Arizona.

As a result of the Company having certain rights under the agreement to repurchase the assets after the seventh year of the venture formation, the transaction did not qualify for sale treatment. The Company, however, is not obligated to repurchase the assets. The transaction has been accounted for as a profit-sharing arrangement, and accordingly the assets, liabilities and operations of the properties remain on the books of the Company and a co-venture obligation was established for the amount of $168,154, representing the net cash proceeds received from the third party. The co-venture obligation is increased for the allocation of income to the co-venture partner and decreased for distributions to the co-venture partner. The co-venture obligation was $59,647 and $58,973 at June 30, 2017 and December 31, 2016, respectively.

11. Noncontrolling Interests:

The Company allocates net income of the Operating Partnership based on the weighted average ownership interest during the period. The net income of the Operating Partnership that is not attributable to the Company is reflected in the consolidated statements of operations as noncontrolling interests. The Company adjusts the noncontrolling interests in the Operating Partnership at the end of each period to reflect its ownership interest in the Company. The Company had a 93% ownership interest in the Operating Partnership as of June 30, 2017 and December 31, 2016. The remaining 7% limited partnership interest as of June 30, 2017 and December 31, 2016 was owned by certain of the Company's executive officers and directors, certain of their affiliates and other third party investors in the form of OP Units. The OP Units may be redeemed for shares of stock or cash, at the Company's option. The redemption value for each OP Unit as of any balance sheet date is the amount equal to the average of the closing price per share of the Company's common stock, par value $0.01 per share, as reported on the New York Stock Exchange for the 10 trading days ending on the respective balance sheet date. Accordingly, as of June 30, 2017 and December 31, 2016, the aggregate redemption value of the then-outstanding OP Units not owned by the Company was $601,404 and $733,141, respectively.

The Company issued common and preferred units of MACWH, LP in April 2005 in connection with the acquisition of the Wilmorite portfolio. The common and preferred units of MACWH, LP are redeemable at the election of the holder. The Company may redeem them for cash or shares of the Company's stock at the Company's option and they are classified as permanent equity.

Included in permanent equity are outside ownership interests in various consolidated joint ventures. The joint ventures do not have rights that require the Company to redeem the ownership interests in either cash or stock.


12.	Stockholders' Equity:

2015 Stock Buyback Program:

On September 30, 2015, the Company's Board of Directors authorized the repurchase of up to $1,200,000 of the Company's outstanding common shares over the period ending September 30, 2017, as market conditions warranted.

On November 12, 2015, the Company entered into an accelerated share repurchase program ("ASR") to repurchase $400,000 of the Company's common stock. In accordance with the ASR, the Company made a prepayment of $400,000 and received an initial share delivery of 4,140,788 shares. On January 19, 2016, the ASR was completed and the Company received delivery of an additional 970,609 shares. The average price of the 5,111,397 shares repurchased under the ASR was $78.26 per share. The ASR was funded from proceeds in connection with the financing and sale of a 40% ownership interest in the PPR Portfolio.

Table of Contents

THE MACERICH COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

12. Stockholders' Equity: (Continued)

On February 17, 2016, the Company entered into an ASR to repurchase an additional $400,000 of the Company's common stock. In accordance with the ASR, the Company made a prepayment of $400,000 and received an initial share delivery of 4,222,193 shares. On April 19, 2016, the ASR was completed and the Company received delivery of an additional 861,235 shares. The average price of the 5,083,428 shares repurchased under the ASR was $78.69 per share. The ASR was funded from borrowings under the Company's line of credit, which had been paid down from the proceeds from the financings and sale of ownership interests in Arrowhead Towne Center and the MAC Heitman Portfolio (See Note 4—Investments in Unconsolidated Joint Ventures).

On May 9, 2016, the Company entered into an ASR to repurchase the remaining $400,000 of the Company's common stock authorized for repurchase. In accordance with the ASR, the Company made a prepayment of $400,000 and received an initial share delivery of 3,964,812 shares. On July 11, 2016, the ASR was completed and the Company received delivery of an additional 1,104,162 shares. The average price of the 5,068,974 shares repurchased under the ASR was $78.91 per share. The ASR was funded from borrowings under the Company's line of credit, which had been paid down from the proceeds from the financings and sale of ownership interests in Arrowhead Towne Center and the MAC Heitman Portfolio (See Note 4—Investments in Unconsolidated Joint Ventures).

2017 Stock Buyback Program:

On February 12, 2017, the Company's Board of Directors authorized the repurchase of up to $500,000 of its outstanding common shares as market conditions and the Company’s liquidity warrant. Repurchases may be made through open market purchases, privately negotiated transactions, structured or derivative transactions, including ASR transactions, or other methods of acquiring shares and pursuant to Rule 10b5-1 of the Securities Act of 1934, from time to time as permitted by securities laws and other legal requirements.

During the period from February 12, 2017 to June 30, 2017, the Company repurchased a total of 2,885,373 of its common shares for $181,740, representing an average price of $62.96 per share. The Company funded the repurchases from the net proceeds of the sale of Cascade Mall and Northgate Mall (See Note 14—Dispositions), its share of the proceeds from the sale of an office building at Country Club Plaza (See Note 4—Investments in Unconsolidated Joint Ventures) and from borrowings under its line of credit.

Special Dividends:

On October 30, 2015, the Company declared two special dividends/distributions ("Special Dividend"), each of $2.00 per share of common stock and per OP Unit. The first Special Dividend was paid on December 8, 2015 to common stockholders and OP Unit holders of record on November 12, 2015. The second Special Dividend was paid on January 6, 2016 to common stockholders and OP Unit holders of record on November 12, 2015. The Special Dividends were funded from proceeds in connection with the financing and sale of ownership interests in the PPR Portfolio and Arrowhead Towne Center (See Note 4—Investments in Unconsolidated Joint Ventures).

At-The-Market Stock Offering Program ("ATM Program"):

On August 20, 2014, the Company entered into an equity distribution agreement with a number of sales agents (the "ATM Program") to issue and sell, from time to time, shares of common stock, par value $0.01 per share, having an aggregate offering price of up to $500,000 (the “ATM Shares”). Sales of the ATM Shares can be made in privately negotiated transactions and/or any other method permitted by law, including sales deemed to be an “at the market” offering, which includes sales made directly on the New York Stock Exchange or sales made to or through a market maker other than on an exchange. The Company agreed to pay each sales agent a commission that was not to exceed, but could have been lower than, 2% of the gross proceeds of the ATM Shares sold through such sales agent under the distribution agreement.

As of June 30, 2017, $500,000 of the ATM Shares were available to be sold under the ATM Program. Actual future sales of the ATM Shares under the ATM Program will depend upon a variety of factors including but not limited to market conditions, the trading price of the Company's common stock and the Company's capital needs. The ATM program will expire by its terms in August 2017.

Table of Contents

THE MACERICH COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)


13.	Acquisitions:

Fashion Outlets of Chicago:

On October 31, 2014, the Company purchased the outside ownership interest in its consolidated joint venture in Fashion Outlets of Chicago for $69,987. The purchase price was funded by a cash payment of $55,867 and the settlement of the balance on notes receivables of $14,120. The purchase agreement included contingent consideration based on the financial performance of Fashion Outlets of Chicago at an agreed upon date in 2016. On August 19, 2016, the Company paid $23,800 in full settlement of the contingent consideration obligation.


14.	Dispositions:

The following are recent dispositions of properties:

On April 13, 2016, the Company sold Capitola Mall, a 586,000 square foot regional shopping center in Capitola, California, for $93,000, resulting in a gain on the sale of assets of $24,894. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.

On May 31, 2016, the Company sold a former Mervyn's store in Yuma, Arizona, for $3,200, resulting in a loss on the sale of assets of $3,066. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.

On July 15, 2016, the Company conveyed Flagstaff Mall, a 347,000 square foot regional shopping center in Flagstaff, Arizona, to the mortgage lender by a deed-in-lieu of foreclosure and was discharged from the mortgage note payable. The loan was non-recourse to the Company. As a result, the Company recognized a gain on the extinguishment of debt of $5,284.

On January 18, 2017, the Company sold Cascade Mall, a 589,000 square foot regional shopping center in Burlington, Washington; and Northgate Mall, a 750,000 square foot regional shopping center in San Rafael, California, in a combined transaction for $170,000, resulting in a gain on the sale of assets of $59,698. The proceeds were used to pay off the mortgage note payable on Northgate Mall and to repurchase shares of the Company's common stock under the 2017 Stock Buyback Program (See Note 12—Stockholders' Equity).


15.	Commitments and Contingencies:

The Company has certain properties that are subject to non-cancelable operating ground leases. The leases expire at various times through 2098, subject in some cases to options to extend the terms of the lease. Certain leases provide for contingent rent payments based on a percentage of base rental income, as defined in the lease. Ground lease rent expense was $2,592 and $2,406 for the three months ended June 30, 2017 and 2016, respectively, and $5,168 and $4,917 for the six months ended June 30, 2017 and 2016, respectively. No contingent rent was incurred during the three and six months ended June 30, 2017 or 2016.

As of June 30, 2017, the Company was contingently liable for $61,002 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 Company has entered into a number of construction agreements related to its redevelopment and development activities. Obligations under these agreements are contingent upon the completion of the services within the guidelines specified in the agreements. At June 30, 2017, the Company had $73,843 in outstanding obligations which it believes will be settled in the next twelve months.

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THE MACERICH COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)


16.	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 are fees charged to unconsolidated joint ventures:



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2017		2016		2017		2016
Management fees	$	4,685	$	5,016	$	9,165	$	8,969
Development and leasing fees	2,721		4,236		7,991		7,197
	$	7,406	$	9,252	$	17,156	$	16,166

Certain mortgage notes on the properties are held by NML (See Note 8—Mortgage Notes Payable). Interest expense in connection with these notes was $2,181 and $2,256 for the three months ended June 30, 2017 and 2016, respectively, and $4,392 and $4,528 for the six months ended June 30, 2017 and 2016, respectively. Included in accounts payable and accrued expenses is interest payable on these notes of $726 and $736 at June 30, 2017 and December 31, 2016, respectively.

Due from (to) affiliates includes unreimbursed and/or prepaid costs and fees from unconsolidated joint ventures due to (from) the Management Companies. As of June 30, 2017 and December 31, 2016, the amounts due from (to) the unconsolidated joint ventures was $5,952 and $(6,809), respectively.

In addition, due from affiliates at June 30, 2017 and December 31, 2016 included a note receivable from RED/303 LLC ("RED") that bears interest at 5.25% and matures on May 30, 2021. Interest income earned on this note was $68 and $97 for the three months ended June 30, 2017 and 2016, respectively, and $138 and $214 for the six months ended June 30, 2017 and 2016, respectively. The balance on this note was $4,933 and $5,593 at June 30, 2017 and December 31, 2016, respectively. RED is considered a related party because it is a partner in a joint venture development project. The note is collateralized by RED's membership interest in the development project.

Also included in due from affiliates is a note receivable from Lennar Corporation that bears interest at LIBOR plus 2% and matures upon the completion of certain milestones in connection with the development of Fashion Outlets of San Francisco. Interest income earned on this note was $607 and $525 for the three months ended June 30, 2017 and 2016, respectively, and $1,218 and $1,046 for the six months ended June 30, 2017 and 2016, respectively. The balance on this note was $70,660 and $69,443 at June 30, 2017 and December 31, 2016, respectively. Lennar Corporation is considered a related party because it is a joint venture partner in Fashion Outlets of San Francisco.


17.	Share and Unit-Based Plans:

Under the Long-Term Incentive Plan ("LTIP"), each award recipient is issued a form of units ("LTIP Units") in the Operating Partnership. Upon the occurrence of specified events and subject to the satisfaction of applicable vesting conditions, LTIP Units (after conversion into OP Units) are ultimately redeemable for common stock of the Company, or cash at the Company's option, on a one-unit for one-share basis. LTIP Units receive cash dividends based on the dividend amount paid on the common stock of the Company. The LTIP may include both market-indexed awards and service-based awards.

The market-indexed LTIP Units vest over the service period of the award based on the percentile ranking of the Company in terms of total return to the stockholders (the "Total Return") per common stock share relative to the Total Return of a group of peer REITs, as measured at the end of the measurement period.

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THE MACERICH COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

17. Share and Unit-Based Plans: (Continued)

On January 1, 2017, the Company granted 66,079 LTIP Units with a grant date fair value of $70.84 per LTIP Unit that will vest in equal annual installments over a service period ending December 31, 2019. Concurrently, the Company granted 297,849 market-indexed LTIP Units ("2017 LTIP Units") at a grant date fair value of $47.15 per LTIP Unit that vest over a service period ending December 31, 2019. The fair value of the 2017 LTIP Units was estimated on the date of grant using a Monte Carlo Simulation model that assumed a risk free interest rate of 1.49% and an expected volatility of 20.75%.

On March 3, 2017, the Company granted 134,742 LTIP Units at a fair value of $66.57 per LTIP Unit that were fully vested on the grant date.

On May 30, 2017, the Company granted 25,000 non-qualified stock options with a grant date fair value of $10.02 that will vest on May 30, 2019. The Company measured the value of each option awarded using the Black-Scholes Option Pricing Model based upon the following assumptions: volatility of 30.19%, dividend yield of 4.93%, risk free rate of 2.08%, current value of $57.55 and an expected term of 8 years.

On June 1, 2017, the Company granted 1,522 LTIP Units with a grant date fair value of $58.31 per LTIP Unit that will vest in equal annual installments over a service period ending May 29, 2020. Concurrently, the Company granted 6,714 market-indexed LTIP Units at a grant date fair value of $39.66 per LTIP Unit that vest over a service period ending May 29, 2020. The fair value of the market-indexed LTIP Units was estimated on the date of grant using a Monte Carlo Simulation model that assumed a risk free interest rate of 1.45% and an expected volatility of 21.40%.

The following summarizes the compensation cost under the share and unit-based plans:



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2017		2016		2017		2016
LTIP Units	$	5,242	$	5,149	$	19,623	$	22,548
Stock awards	—		—		—		20
Stock units	1,333		1,002		3,945		4,374
Stock options	15		4		19		8
Phantom stock units	183		194		360		798
	$	6,773	$	6,349	$	23,947	$	27,748

The Company capitalized share and unit-based compensation costs of $926 and $781 for the three months ended June 30, 2017 and 2016, respectively, and $4,295 and $5,740 for the six months ended June 30, 2017 and 2016, respectively. Unrecognized compensation costs of share and unit-based plans at June 30, 2017 consisted of $10,823 from LTIP Units, $5,545 from stock units, $242 from stock options and $560 from phantom stock units.

The following table summarizes the activity of the non-vested LTIP Units, phantom stock units and stock units:



	LTIP Units				Phantom Stock Units				Stock Units
	Units		Value(1)		Units		Value(1)		Units		Value(1)
Balance at January 1, 2017	322,572		$	58.18	5,845		$	81.47	148,428		$	78.53
Granted	506,906		55.33		6,772		71.73		85,979		66.53
Vested	(134,742	)	66.57		(5,268	)	76.29		(78,573	)	75.79
Balance at June 30, 2017	694,736		$	54.48	7,349		$	76.20	155,834		$	73.28

(1) Value represents the weighted average grant date fair value.

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THE MACERICH COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

17. Share and Unit-Based Plans: (Continued)

The following table summarizes the activity of the stock appreciations rights ("SARs") and stock options outstanding:



	SARs			Stock Options
	Units	Value(1)		Units	Value(1)
Balance at January 1, 2017	284,146	$	53.85	10,565	$	56.77
Granted	—	—		25,000	57.55
Exercised	—	—		—	—
Balance at June 30, 2017	284,146	$	53.85	35,565	$	57.32

(1) Value represents the weighted average exercise price.

18. Income Taxes:

The Company has made taxable REIT subsidiary elections for all of its corporate subsidiaries other than its qualified REIT subsidiaries. The elections, effective for the year beginning January 1, 2001 and future years, were made pursuant to Section 856(l) of the Code. The Company's taxable REIT subsidiaries ("TRSs") are subject to corporate level income taxes which are provided for in the Company's consolidated financial statements. The Company's primary TRSs include Macerich Management Company and Macerich Arizona Partners LLC.

The income tax provision of the TRSs are as follows:



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017		2016
Current	$	—		$	—		$	—	$	—
Deferred	(437		)	(514		)	3,047		(1,831		)
Income tax (expense) benefit	$	(437	)	$	(514	)	$	3,047	$	(1,831	)

The net operating loss carryforwards are currently scheduled to expire through 2035, beginning in 2024. Net deferred tax assets of $47,833 and $38,301 were included in deferred charges and other assets, net at June 30, 2017 and December 31, 2016, respectively.

The tax years 2012 through 2016 remain open to examination by the taxing jurisdictions to which the Company is subject. The Company does not expect that the total amount of unrecognized tax benefit will materially change within the next twelve months.


19.	Subsequent Events:

On August 4, 2017, the Company announced a dividend/distribution of $0.71 per share for common stockholders and OP Unit holders of record on August 18, 2017. All dividends/distributions will be paid 100% in cash on September 7, 2017.

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Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations

IMPORTANT INFORMATION RELATED TO FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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," "estimates," "scheduled" 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-Q and include statements regarding, among other matters:


•	expectations regarding the Company's growth;


•	the Company's beliefs regarding its acquisition, redevelopment, development, leasing and operational activities and opportunities, including the performance of its retailers;


•	the Company's acquisition, disposition and other strategies;


•	regulatory matters pertaining to compliance with governmental regulations;


•	the Company's capital expenditure plans and expectations for obtaining capital for expenditures;


•	the Company's expectations regarding income tax benefits;


•	the Company's expectations regarding its financial condition or results of operations; and


•	the Company's expectations for refinancing its indebtedness, entering into and servicing debt obligations and entering into joint venture arrangements.

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. Such factors include, among others, general industry, as well as national, regional and local economic and business conditions, which will, among other things, affect demand for retail space or retail goods, availability and creditworthiness of current and prospective tenants, anchor or tenant bankruptcies, closures, mergers or consolidations, lease rates, terms and payments, interest rate fluctuations, availability, terms and cost of financing and operating expenses; adverse changes in the real estate markets including, among other things, competition from other companies, retail formats and technology, risks of real estate development and redevelopment, acquisitions and dispositions; the liquidity of real estate investments, governmental actions and initiatives (including legislative and regulatory changes); environmental and safety requirements; and terrorist activities or other acts of violence which could adversely affect all of the above factors. You are urged to carefully review the disclosures we make concerning these risks and other factors that may affect our business and operating results, under "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2016, as well as our other reports filed with the Securities and Exchange Commission (the "SEC"), which disclosures are incorporated herein by reference. 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, unless required by law to do so.

Management's Overview and Summary

The Company is involved in the acquisition, ownership, development, redevelopment, management and leasing of regional and community/power 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. (the "Operating Partnership"). As of June 30, 2017, the Operating Partnership owned or had an ownership interest in 48 regional shopping centers and seven community/power shopping centers aggregating approximately 54 million square feet of gross leasable area. These 55 regional and community/power 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 Management Companies.

The following discussion is based primarily on the consolidated financial statements of the Company for the three and six months ended June 30, 2017 and 2016. It compares the results of operations for the three months ended June 30, 2017 to the results of operations for the three months ended June 30, 2016. It also compares the results of operations and cash flows for the six months ended June 30, 2017 to the results of operations and cash flows for the six months ended June 30, 2016. This information should be read in conjunction with the accompanying consolidated financial statements and notes thereto.

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Acquisitions and Dispositions:

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

On January 6, 2016, the Company sold a 40% ownership interest in Arrowhead Towne Center, a 1,197,000 square foot regional shopping center in Glendale, Arizona, for $289.5 million, resulting in a gain on the sale of assets of $101.6 million. The sales price was funded by a cash payment of $129.5 million and the assumption of a pro rata share of the mortgage note payable on the property of $160.0 million. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes, which included funding the Special Dividend (See "Other Events and Transactions"). Upon completion of the sale of the ownership interest, the Company no longer has a controlling interest in the joint venture due to the substantive participation rights of the outside partner. Accordingly, the Company accounts for its investment in Arrowhead Towne Center under the equity method of accounting.

On January 14, 2016, the Company formed a joint venture, whereby the Company sold a 49% ownership interest in Deptford Mall, a 1,039,000 square foot regional shopping center in Deptford, New Jersey; FlatIron Crossing, a 1,432,000 square foot regional shopping center in Broomfield, Colorado; and Twenty Ninth Street, an 847,000 square foot regional shopping center in Boulder, Colorado (the "MAC Heitman Portfolio"), for $771.5 million, resulting in a gain on the sale of assets of $340.7 million. The sales price was funded by a cash payment of $478.6 million and the assumption of a pro rata share of the mortgage notes payable on the properties of $292.9 million. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes. Upon completion of the sale of the ownership interest, the Company no longer has a controlling interest in the joint venture due to the substantive participation rights of the outside partner. Accordingly, the Company accounts for its investment in the MAC Heitman Portfolio under the equity method of accounting.

The sale of ownership interests in the Arrowhead Towne Center and the MAC Heitman Portfolio are collectively referred to herein as the Joint Venture Transactions.

On March 1, 2016, the Company through a 50/50 joint venture, acquired Country Club Plaza, a 1,006,000 square foot regional shopping center in Kansas City, Missouri, for a purchase price of $660.0 million. The Company funded its pro rata share of $330.0 million with borrowings under its line of credit.

On April 13, 2016, the Company sold Capitola Mall, a 586,000 square foot regional shopping center in Capitola, California, for $93.0 million, resulting in a gain on the sale of assets of $24.9 million. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.

On May 31, 2016, the Company sold a former Mervyn's store in Yuma, Arizona, for $3.2 million, resulting in a loss on the sale of assets of $3.1 million. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.

On January 18, 2017, the Company sold Cascade Mall, a 589,000 square foot regional shopping center in Burlington, Washington; and Northgate Mall, a 750,000 square foot regional shopping center in San Rafael, California, in a combined transaction for $170.0 million, resulting in a gain on the sale of assets of $59.7 million. The proceeds were used to payoff the mortgage note payable on