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Macerich Company 10-K 2005

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    Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K

ý

 

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2004 or

o

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (no fee required)
    For the transition period from             to             
    Commission File Number 1-12504

 

 

The Macerich Company
(Exact name of registrant as specified in its charter)

 

 

Maryland
(State or other jurisdiction of Incorporation or organization)

 

 

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

 

 

95-4448705
(I.R.S. Employer Identification No.)

 

 

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

 

 

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

 

 

Title of each class
Common Stock, $0.01 Par Value
Preferred Share Purchase Rights

 

 

Name of each exchange on which registered
New York Stock Exchange
New York Stock Exchange

 

 

Securities registered pursuant to Section 12(g) of the Act: None

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such report(s)) and (2) has been subject to such filing requirements for the past 90 days.    Yes ý    No o.

 

 

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

 

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes ý    No o

 

 

As of June 30, 2004, the aggregate market value of the 35,577,947 shares of Common Stock held by non-affiliates of the registrant was $1.7 billion based upon the closing price ($47.87) on the New York Stock Exchange composite tape on such date. (For this computation, the registrant has excluded the market value of all shares of its Common Stock reported as beneficially owned by executive officers and directors of the registrant and certain other shareholders; such exclusion shall not be deemed to constitute an admission that any such person is an "affiliate" of the registrant.) As of February 28, 2005, there were 59,370,133 shares of Common Stock outstanding.

 

 

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual stockholders meeting to be held in 2005 are incorporated by reference into Part III.


THE MACERICH COMPANY

Annual Report on Form 10-K

For the Year Ended December 31, 2004

TABLE OF CONTENTS

Item No.

  Page No.


 

 

 


 

 


Part I

 

 

1.   Business   1-15

2.   Properties   16-28

3.   Legal Proceedings   28

4.   Submission of Matters to a Vote of Security Holders   28


Part II

 

 

5.   Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   29-30

6.   Selected Financial Data   31-34

7.   Management's Discussion and Analysis of Financial Condition and Results of Operations   35-60

7A.   Quantitative and Qualitative Disclosures About Market Risk   60-63

8.   Financial Statements and Supplementary Data   63

9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   63

9A.   Controls and Procedures   63-65

9B.   Other Information   65


Part III

 

 

10.   Directors and Executive Officers of the Registrant   66

11.   Executive Compensation   66

12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters   66-67

13.   Certain Relationships and Related Transactions   67

14.   Principal Accountant Fees and Services   68


Part IV

 

 

15.   Exhibits and Financial Statement Schedules   69-142


Signatures

 

143-144


Certifications

 

164-166



Part I.


Item 1. Business

General

The Macerich Company (the "Company") is involved in the acquisition, ownership, development, redevelopment, management and leasing of regional and community shopping centers located throughout the United States. The Company is the sole general partner of, and owns a majority of the ownership interests in, The Macerich Partnership, L.P., a Delaware limited partnership (the "Operating Partnership"). As of December 31, 2004, the Operating Partnership owned or had an ownership interest in 60 regional shopping centers, 18 community shopping centers and six development/redevelopment properties aggregating approximately 62.5 million square feet of gross leasable area ("GLA"). These 84 regional, community and development shopping centers are referred to hereinafter as the "Centers", unless the context otherwise requires. The Company is a self-administered and self-managed real estate investment trust ("REIT") and conducts all of its operations through the Operating Partnership and the Company's management companies, Macerich Property Management Company, LLC, a single-member Delaware limited liability company, Macerich Management Company, a California corporation, Westcor Partners, LLC, a single member Arizona limited liability company, Macerich Westcor Management, LLC, a single member Delaware limited liability company and Westcor Partners of Colorado, LLC, a Colorado limited liability company. The three Westcor management companies are collectively referred to as the "Westcor Management Companies."

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

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

Recent Developments

A.    Acquisitions

On January 30, 2004, the Company, in a 50/50 joint venture with a private investment company, acquired Inland Center, a 1 million square foot super-regional mall in San Bernardino, California. The total purchase price was $63.3 million and concurrently with the acquisition, the joint venture placed a $54.0 million fixed rate loan on the property. The balance of the Company's pro rata share of the purchase price was funded by cash and borrowings under the Company's line of credit.

On May 11, 2004, the Company acquired an ownership interest in NorthPark Center, a 1.3 million square foot regional mall in Dallas, Texas. The Company's initial investment in the property was $30.0 million which was funded by borrowings under the Company's line of credit. In addition, the Company assumed a pro rata share of debt of $86.6 million and has committed to fund an additional $45.0 million. As of December 31, 2004, the Company's total investment in the joint venture was $49.1 million.

The Macerich Company    1



On July 1, 2004, the Company acquired the Mall of Victor Valley in Victorville, California and on July 20, 2004, the Company acquired La Cumbre Plaza in Santa Barbara, California. The Mall of Victor Valley is a 508,000 square foot regional mall and La Cumbre Plaza is a 494,000 square foot regional mall. The combined total purchase price was $151.3 million. The purchase price for the Mall of Victor Valley included the assumption of an existing fixed rate loan of $54.0 million at 5.25% maturing in March, 2008. Concurrent with the closing of La Cumbre Plaza, a $30.0 million floating rate loan was placed on the property with an initial interest rate of 2.29%. The balance of the purchase price was paid in cash and borrowings from the Company's revolving line of credit.

On November 16, 2004, the Company acquired Fiesta Mall, a 1 million square foot super regional mall in Mesa, Arizona. The total purchase price was $135.2 million which was funded by borrowings under the Company's line of credit. On December 2, 2004, the Company placed a ten year $84.0 million fixed rate loan at 4.88% on the property.

On December 23, 2004, the Company announced that it had signed a definitive agreement to acquire Wilmorite Properties, Inc. and Wilmorite Holdings L.P. ("Wilmorite"). The total purchase price will be approximately $2.33 billion, including the assumption of approximately $878 million of existing debt at an average interest rate of 6.43% and the issuance of convertible preferred units and common units totaling an estimated $320 million. Approximately $210 million of the convertible preferred units can be redeemed, subject to certain conditions, for that portion of the Wilmorite portfolio generally located in the greater Rochester area. The balance of the consideration to Wilmorite's equity holders will be paid in cash. This transaction has been approved by each company's Board of Directors, subject to customary closing conditions. A majority-in-interest of the limited partners of Wilmorite Holdings L.P. and of the stockholders of its general partner, Wilmorite Properties, Inc., have also approved this acquisition. It is currently anticipated that this transaction will be completed in April, 2005. Wilmorite's existing portfolio includes interests in 11 regional malls and two open-air community centers, with 13.4 million square feet of space located in Connecticut, New York, New Jersey, Kentucky and Virginia. Approximately 5 million square feet of gross leaseable area is located at three premier regional malls: Tysons Corner Center in McLean, Virginia, Freehold Raceway Mall in Freehold, New Jersey and Danbury Fair Mall in Danbury, Connecticut.

On December 30, 2004, the Company purchased the unaffiliated owners' 50% tenants in common interest in Paradise Village Ground Leases, Village Center, Village Crossroads, Village Fair and Paradise Village Office Park II. All of these assets are located in Phoenix, Arizona. The total purchase price was $50 million which included the assumption of the unaffiliated owners' share of debt of $15.2 million. The balance of the purchase price was paid in cash and borrowings from the Company's line of credit. Accordingly, the Company now owns 100% of these assets.

On January 11, 2005, the Company became a 15% owner in a joint venture that acquired Metrocenter, a 1.4 million square foot super-regional mall in Phoenix, Arizona. The total purchase price was $160 million and concurrently with the acquisition, the joint venture placed a $112 million loan on the property. The Company's share of the purchase price, net of the debt, was $7.2 million which was funded by cash and borrowings under the Company's line of credit.

2     The Macerich Company



Effective January 21, 2005, the Company formed a 50/50 joint venture with a private investment company. The joint venture acquired a 49% interest in Kierland Commons, a 320,000 square foot mixed use center in Scottsdale, Arizona. The joint venture's purchase price for the interest in the center was $49.0 million. The Company assumed its share of the underlying property debt and funded the remainder of its share of the purchase price by cash and borrowings under the Company's line of credit.

B.    Financing Activity

On February 18, 2004, the Company placed a $79.9 million floating rate loan on the Center at Salisbury. The loan floats at LIBOR plus 1.375% and matures February 20, 2006.

On June 30, 2004, the Company placed a new $85.0 million loan maturing in 2009 on Northridge Mall. The loan floats at LIBOR plus 2.0% for six months and then converts to a fixed rate loan at 4.94%.

On July 19, 2004, the Company placed a new $75.0 million fixed rate loan on Redmond Town Center. The new fixed rate loan bears interest at 4.81%. The proceeds were used to pay off the old $58.4 million loan and a $10.6 million loan at Washington Square. Both loans which were paid off had interest rates of 6.5%.

On July 30, 2004, the Company amended and expanded its revolving line of credit from $425.0 million to $1.0 billion and extended the maturity to July 30, 2007, plus a one year extension. The interest rate was reduced to 1.5% over LIBOR based on the Company's current leverage level.

On October 7, 2004, the Company placed an additional loan for $35.0 million at Washington Square. The loan will mature February 1, 2009 and the interest rate floats at LIBOR plus 2.0%. The proceeds from this loan paid off existing loans at Cascade Mall and Northpoint Plaza totaling $24.0 million at fixed interest rates of 6.5%.

C.    Redevelopment and Development Activity

At Queens Center, the multi-phased $275 million redevelopment and expansion had its grand opening the weekend of November 19, 2004. The project increased the size of the center from 620,000 square feet to approximately 1 million square feet.

At Washington Square in suburban Portland, the Company is proceeding with an expansion project which consists of the addition of 80,000 square feet of shop space. The expansion is underway with substantial completion expected in the fourth quarter of 2005.

In Boulder, Colorado, the Company has received final approval from the City of Boulder's Planning Board for its proposal to transform Crossroads Mall into "Twenty Ninth Street"—an open-air retail, entertainment, restaurant and office district. Macerich has reached agreement with anchors, Century Theatres, Home Depot and Wild Oats Market. Wild Oats and Century will join existing anchor Foley's which is the remaining retailer from the original mall. Twenty Ninth Street is expected to represent approximately 816,000 square feet of GLA upon completion of the project.

The development of San Tan Village progresses. The 500 acre master planned Gilbert project will unfold during several phases of development which will be driven by market and retailers' needs. Upon full

The Macerich Company    3



completion, San Tan Village is expected to represent approximately 3 million square feet of retail space. Phase I, featuring a 29 acre full service power center, will open a Wal-Mart in January 2005, followed by a Sam's Club later in the year. Phase II represents an additional 308,000 square feet of gross leaseable area. Phase II is projected to open September 2005. The regional shopping center component of San Tan Village lies on 120 acres and will represent approximately 1.3 million square feet. Infrastructure improvements are underway. The entertainment district could open as early as 2006 followed by a projected Fall 2007 opening for the majority of the balance of the center.

At NorthPark Center in Dallas, Texas, the joint venture is proceeding with an expansion project which consists of the addition of Nordstrom, AMC Theatres and new specialty retail space which will increase the size of the center from 1.3 million square feet to more than 1.9 million square feet. The project is being built in phases and is being managed by the Company's joint venture partner.

D.    Dispositions

On December 16, 2004, the Company sold the Westbar property, a Phoenix area property that consisted of a collection of ground leases, a shopping center, and land for $47.5 million. The sale resulted in a gain on sale of asset of $6.8 million.

The Shopping Center Industry

General

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

Regional Shopping Centers

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

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

4     The Macerich Company



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

Business of the Company

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

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

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

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

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

On a selective basis, the Company also does property management and leasing for third parties. The Company currently manages four malls for third party owners on a fee basis. In addition, the Company manages eight community centers for a related party. (See—"Item 13—Certain Relationships and Related Transactions").

The Macerich Company    5



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

Development.    The Company is pursuing ground-up development projects on a selective basis. The Company believes it can supplement its strong acquisition, operations and redevelopment skills with its ground-up development expertise to further increase growth opportunities. (See "Recent Developments—Redevelopment and Development Activity").

The Centers

As of December 31, 2004, the Centers consist of 60 Regional Shopping Centers, 18 Community Shopping Centers and six development properties aggregating approximately 62.5 million square feet of GLA. The 60 Regional Shopping Centers in the Company's portfolio average approximately 942,388 square feet of GLA and range in size from 2.1 million square feet of GLA at Lakewood Mall to 323,438 square feet of GLA at Panorama Mall. The Company's 18 Community Shopping Centers have an average of 215,170 square feet of GLA. The Centers presently include 254 Anchors totaling approximately 34.2 million square feet of GLA and approximately 8,000 Mall and Freestanding Stores totaling approximately 28.3 million square feet of GLA.

Total consolidated revenues increased to $547.3 million in 2004 from $483.6 million in 2003 primarily due to the 2003 and 2004 acquisitions. Total revenues from joint ventures, at the Company's pro rata share, was $268.6 million in 2004 compared to $242.5 million in 2003. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." No Center generated more than 10% of total shopping center revenues during 2004 and 2003.

Cost of Occupancy

The Company's management believes that in order to maximize the Company's operating cash flow, the Centers' Mall Store tenants must be able to operate profitably. A major factor contributing to tenant

6     The Macerich Company


profitability is cost of occupancy. The following tables summarize occupancy costs for Mall Store tenants in the Centers as a percentage of total Mall Store sales for the last three years:

 
  For the years ended December 31,

Consolidated Centers:

  2002

  2003

  2004


Minimum rents   8.6%   8.7%   8.3%
Percentage rents   0.3%   0.3%   0.4%
Expense recoveries(1)   3.6%   3.8%   3.7%

Mall tenant occupancy costs   12.5%   12.8%   12.4%

 
  For the years ended December 31,

Joint Ventures' Centers:

  2002

  2003

  2004


Minimum rents   8.1%   8.1%   7.7%
Percentage rents   0.4%   0.4%   0.5%
Expense recoveries(1)   3.2%   3.2%   3.2%

Mall tenant occupancy costs   11.7%   11.7%   11.4%

(1)
Represents real estate tax and common area maintenance charges.

Competition

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

Major Tenants

The Centers derived approximately 93.8% of their total rents for the year ended December 31, 2004 from Mall and Freestanding Stores. One tenant accounted for approximately 3.6% of minimum rents of the Company, and no other single tenant accounted for more than 3.2% as of December 31, 2004.

The Macerich Company    7


The following tenants (including their subsidiaries) represent the 10 largest tenants in the Company's portfolio (including joint ventures) based upon minimum rents in place as of December 31, 2004:

Tenant

  Primary DBA's

  Number of Locations in the Portfolio

  % of Total Minimum Rents
as of
December 31, 2004


Limited Brands, Inc.   Victoria Secret/Bath and Body   172   3.6%
The Gap, Inc.   Gap, Old Navy, Banana Republic   91   3.2%
Cingular Wireless, LLC   Cingular Wireless   22   2.0%
Foot Locker, Inc.   Footlocker/Lady Footlocker   136   2.0%
Luxottica Group, Inc.   Lenscrafters/Sunglass Hut   166   1.6%
Sun Capital Partners, Inc.   Anchor Blue, Mervyn's, Musicland   97   1.6%
J.C. Penney Company, Inc.   J.C. Penney   41   1.3%
Zale Corporation   Zales   92   1.2%
Abercrombie & Fitch   Abercrombie & Fitch   30   0.9%
Federated Department Stores   Macy's/Federated   29   0.8%

(1)
Includes Cingular Wireless office headquarters located at Redmond Town Center.

Mall and Freestanding Stores

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

The Company uses tenant spaces of 10,000 square feet and under for comparing rental rate activity. Tenant space of 10,000 square feet and under in the portfolio at December 31, 2004 comprises 69.4% of all Mall and Freestanding Store space. The Company believes that to include space over 10,000 square feet would provide a less meaningful comparison.

When an existing lease expires, the Company is often able to enter into a new lease with a higher base rent component. The average base rent for new Mall and Freestanding Store leases at the consolidated Centers, 10,000 square feet and under, commencing during 2004 was $35.31 per square foot, or 22% higher than the average base rent for all Mall and Freestanding Stores at the consolidated Centers, 10,000 square feet and under, expiring during 2004 of $28.84 per square foot.

8     The Macerich Company


The following tables set forth for the Centers the average base rent per square foot of Mall and Freestanding GLA, for tenants 10,000 square feet and under, as of December 31 for each of the past three years on a prorata basis:

Consolidated Centers:

December 31,

  Average Base
Rent Per Square Foot(1)

  Average Base
Rent Per Sq. Ft. on Leases Commencing During the Year(2)

  Average Base
Rent Per Sq. Ft. on Leases Expiring During the Year(3)


2002   $30.90   $40.80   $27.64
2003   $31.71   $36.77   $29.93
2004   $32.60   $35.31   $28.84

Joint Ventures' Centers:

December 31,

  Average Base
Rent Per Square Foot(1)

  Average Base
Rent Per Sq. Ft. on Leases Commencing During the Year(2)

  Average Base
Rent Per Sq. Ft. on Leases Expiring During the Year(3)


2002   $30.34   $36.43   $25.90
2003   $31.29   $37.00   $27.83
2004   $33.39   $36.86   $29.32

(1)
Average base rent per square foot is based on Mall and Freestanding Store GLA for spaces 10,000 square feet and under occupied as of December 31 for each of the Centers owned by the Company in 2002, 2003 and 2004.

(2)
The average base rent on lease signings commencing during the year represents the actual rent to be paid on a per square foot basis during the first twelve months. Additionally, lease signings for the expansion area of Queens Center and La Encantada are excluded.

(3)
The average base rent per square foot on leases expiring during the year represents the final year minimum rent, on a cash basis, for all tenant leases 10,000 square feet and under expiring during the year.

Bankruptcy and/or Closure of Retail Stores

A decision by an Anchor or a significant tenant to cease operations at a Center could have an adverse effect on the Company's financial condition. The bankruptcy and/or closure of an Anchor, or its sale to a less desirable retailer, could adversely affect customer traffic in a Center and thereby reduce the income generated by that Center or otherwise adversely affect the Company's financial position. Furthermore, the closing of an Anchor could, under certain circumstances, allow certain other Anchors or other tenants to terminate their leases or cease operating their stores at the Center or otherwise adversely affect occupancy at the Center. In addition, mergers, acquisitions, consolidations or dispositions in the retail industry could result in the loss of

The Macerich Company    9


Anchors or tenants at one or more Centers. Certain Anchors or tenants recently have announced pending mergers or have been acquired by another entity. Although such transactions may result in the subsequent closure of some of their stores at the Centers, the Company does not believe that any such closures will have a material adverse impact on its operations. See "—Anchor Table."

Retail stores at the Centers other than Anchors may also seek the protection of the bankruptcy laws and/or close stores, which could result in the termination of such tenants' leases and thus cause a reduction in the cash flow generated by the Centers. Although no single retailer accounts for greater than 3.6% of total minimum rents, the bankruptcy and/or closure of stores could result in decreased occupancy levels, reduced rental income or otherwise adversely impact the Centers. Although certain tenants have filed for bankruptcy, the Company does not believe such filings and any subsequent closures of their stores will have a material adverse impact on its operations.

Lease Expirations

The following tables show scheduled lease expirations (for Centers owned as of December 31, 2004 of Mall and Freestanding Stores 10,000 square feet and under for the next ten years, assuming that none of the tenants exercise renewal options:

Consolidated Centers:
Year Ending
December 31,

  Number of
Leases
Expiring

  Approximate
GLA of
Expiring Leases(1)

  Leased GLA
Represented by
Expiring Leases(2)

  Base Rent per
Square Foot of
Expiring Leases(1)


2005   453   942,773   13.37%   $30.71
2006   365   821,544   11.65%   $29.94
2007   341   747,748   10.60%   $30.96
2008   311   623,795   8.84%   $35.56
2009   291   618,037   8.76%   $34.02
2010   332   725,209   10.28%   $38.50
2011   345   904,248   12.82%   $37.65
2012   229   636,254   9.02%   $32.98
2013   133   313,127   4.44%   $36.35
2014   164   397,469   5.64%   $36.90

10     The Macerich Company


Joint Ventures' (at Company's
pro rata share) Centers:
Year Ending
December 31,

  Number of
Leases
Expiring

  Approximate
GLA of
Expiring Leases(1)

  Leased GLA
Represented by
Expiring Leases(2)

  Base Rent per
Square Foot of
Expiring Leases(1)


2005   380   420,730   12.47%   $30.18
2006   352   410,583   12.17%   $31.08
2007   337   382,164   11.33%   $32.06
2008   342   384,538   11.40%   $33.26
2009   312   376,570   11.16%   $33.42
2010   257   269,614   7.99%   $38.04
2011   245   309,119   9.16%   $39.39
2012   189   216,744   6.42%   $39.66
2013   179   209,502   6.21%   $40.17
2014   173   230,097   6.82%   $36.60

(1)
Currently, 52% of leases have provisions for future consumer price index increases which are not reflected in ending lease rent.

(2)
For leases 10,000 square feet and under. Leases for the expansion area of Queens Center and La Encantada are excluded.

Anchors

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

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

Anchors accounted for approximately 6.2% of the Company's total rent for the year ended December 31, 2004.

The Macerich Company    11



The following table identifies each Anchor, each parent company that owns multiple Anchors and the number of square feet owned or leased by each such Anchor or parent company in the Company's portfolio at December 31, 2004:

Name

  Number of
Anchor Stores

  GLA
Owned by
Anchor

  GLA
Leased by
Anchor

  Total GLA
Occupied
By Anchor


Sears(1)   42   3,559,952   1,979,768   5,539,720
J.C. Penney   41   1,736,595   3,705,296   5,441,891
May Department Stores Co.(2)                
  Robinsons-May   16   2,011,033   919,491   2,930,524
  Foley's   6   1,155,316     1,155,316
  Hecht's   2   140,000   143,426   283,426
  Marshall Field's   2   115,193   100,790   215,983
  Meier & Frank   2   242,505   200,000   442,505
  Famous-Barr   1   180,000     180,000
  Lord and Taylor(3)   1     120,000   120,000

    Total   30   3,844,047   1,483,707   5,327,754
Dillard's   28   3,287,485   1,117,745   4,405,230
Federated Department Stores(2)                
  Macy's   28   2,932,190   1,363,651   4,295,841
Sun Capital Partners, Inc.(4)                
  Mervyn's   19   888,611   627,412   1,516,023
Target(5)   12   774,370   651,675   1,426,045
Nordstrom   8   535,773   728,369   1,264,142
Saks, Inc.                
  Younkers   6     609,177   609,177
  Herberger's   5   269,969   202,778   472,747
  Saks Fifth Avenue   1     92,000   92,000

    Total   12   269,969   903,955   1,173,924
Gottschalks   8   332,638   608,772   941,410
Wal-Mart(6)   2   372,000     372,000
Neiman Marcus   2     321,450   321,450
Boscov's   2     314,717   314,717
Steve & Barry's University Sportswear   2   148,750   157,000   305,750
Burlington Coat Factory   3   186,570   100,709   287,279
Von Maur   3   186,686   59,563   246,249
Home Depot (Expo Design Center)   2     234,404   234,404
Belk   2     149,685   149,685
Lowe's   1   135,197     135,197
Best Buy   2   129,441     129,441
Kohl's   1     114,359   114,359
Dick's Sporting Goods   1     97,241   97,241
Gordmans   1     60,000   60,000
Peebles   1     42,090   42,090
Beall's   1     40,000   40,000

    Total   254   19,320,274   14,861,568   34,181,842

(1)
On November 17, 2004, Kmart Holding Corporation and Sears, Roebuck and Co. signed a merger agreement that will combine Sears and Kmart into a new retail company named Sears Holding Corporation. The merger is expected to close at the end of March 2005. See "—Bankruptcy and/or Closure of Retail Stores."

(2)
Federated Department Stores, Inc. and The May Department Stores Company announced on February 28, 2005 that they have agreed to merge with Federated becoming the surviving company. The merger is expected to close in the third quarter of 2005. See "—Bankruptcy and/or Closure of Retail Stores."

(3)
Lord and Taylor closed their FlatIron Crossing store in January 2005.

12     The Macerich Company


(4)
Mervyn's was acquired by an investor group, including Sun Capital Partners, Inc. on September 2, 2004.

(5)
Target is scheduled to open at Valley Mall in Summer 2005.

(6)
Wal-Mart opened at San Tan Village in January 2005.

Environmental Matters

Under various federal, state and local laws, ordinances and regulations, a current or prior owner or operator of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances on, under or in such property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. The costs of investigation, removal or remediation of such substances may be substantial, and the presence of such substances, or the failure to properly remediate such substances, may adversely affect the owner's or operator's ability to sell or rent such property or to borrow using such property as collateral. Persons or entities who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of a release of such substances at a disposal or treatment facility, whether or not such facility is owned or operated by such person or entity. Certain environmental laws impose liability for release of asbestos-containing materials ("ACMs") into the air and third parties may seek recovery from owners or operators of real properties for personal injury associated with exposure to ACMs. In connection with the ownership (direct or indirect), operation, management, development and redevelopment of real properties, the Company may be considered an owner or operator of such properties or as having arranged for the disposal or treatment of hazardous or toxic substances and therefore potentially liable for removal or remediation costs, as well as certain other related costs, including governmental fines and injuries to persons and property.

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

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

    Asbestos. The Company has conducted ACM surveys at various locations within the Centers. The surveys indicate that ACMs are present or suspected in certain areas, primarily vinyl floor tiles, mastics, roofing materials, drywall tape and joint compounds. The identified ACMs are generally non-friable, in good condition, and possess low probabilities for disturbance. At certain Centers where ACMs are present or suspected, however, some ACMs have been or may be classified as "friable," and ultimately may require removal under certain conditions. The Company has developed and implemented an operations and maintenance ("O&M") plan to manage ACMs in place.

    Underground Storage Tanks. Underground storage tanks ("USTs") are or were present at certain of the Centers, often in connection with tenant operations at gasoline stations or automotive tire, battery and accessory service centers located at such Centers. USTs also may be or have been present at properties neighboring certain Centers. Some of these tanks have either leaked or are suspected to have leaked. Where leakage has occurred, investigation, remediation, and monitoring costs may be incurred by the

The Macerich Company    13


      Company if responsible current or former tenants, or other responsible parties, are unavailable to pay such costs.

    Chlorinated Hydrocarbons. The presence of chlorinated hydrocarbons such as perchloroethylene ("PCE") and its degradation byproducts have been detected at certain of the Centers, often in connection with tenant dry cleaning operations. Where PCE has been detected, the Company may incur investigation, remediation and monitoring costs if responsible current or former tenants, or other responsible parties, are unavailable to pay such costs.

PCE has been detected in soil and groundwater in the vicinity of a dry cleaning establishment at North Valley Plaza, formerly owned by a joint venture of which the Company was a 50% member. The property was sold on December 18, 1997. The California Department of Toxic Substances Control ("DTSC") advised the Company in 1995 that very low levels of Dichloroethylene ("1,2 DCE"), a degradation byproduct of PCE, had been detected in a municipal water well located 1/4 mile west of the dry cleaners, and that the dry cleaning facility may have contributed to the introduction of 1,2 DCE into the water well. According to the DTSC, the maximum contaminant level ("MCL") for 1,2 DCE which is permitted in drinking water is 6 parts per billion ("ppb"). The 1,2 DCE was detected in the water well at a concentration of 1.2 ppb, which is below the MCL. The Company has retained an environmental consultant and has initiated extensive testing of the site. The joint venture agreed (between itself and the buyer) that it would be responsible for continuing to pursue the investigation and remediation of impacted soil and groundwater resulting from releases of PCE from the former dry cleaner. A total of $97,603 and $77,803 have already been incurred by the joint venture for remediation, professional and legal fees for the years ending December 31, 2004 and 2003, respectively. The Company has been sharing costs with former owners of the property. An additional $83,715 remains reserved at December 31, 2004.

The Company acquired Fresno Fashion Fair in December 1996. Asbestos was detected in structural fireproofing throughout much of the Center. Testing data conducted by professional environmental consulting firms indicates that the fireproofing is largely inaccessible to building occupants and is well adhered to the structural members. Additionally, airborne concentrations of asbestos were well within OSHA's permissible exposure limit of .1 fcc. The accounting at acquisition included a reserve of $3.3 million to cover future removal of this asbestos, as necessary. The Center was recently renovated and a substantial amount of the asbestos was removed. The Company incurred $121,565 and $1,622,269 in remediation costs for the years ending December 31, 2004 and 2003, respectively. An additional $618,518 remains reserved at December 31, 2004.

Insurance

The Centers have comprehensive liability, fire, flood, terrorism, extended coverage and rental loss insurance. The Company or the joint venture owner, as applicable, also currently carries earthquake insurance covering the Centers located in California. Such policies are subject to a deductible equal to 5% of the total insured value of each Center, a $100,000 per occurrence minimum and a combined annual aggregate loss limit of $200 million on the Centers located in California. While the Company or the relevant joint venture also carries terrorism insurance on the Centers, the policies are subject to a $10,000 deductible and a combined annual aggregate loss limit of $400 million for both certified and non-certified acts of terrorism. Management believes that such insurance policies have specifications and insured limits customarily carried for similar

14     The Macerich Company


properties. See—"Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Uninsured Losses."

Qualification as a Real Estate Investment Trust

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

Employees

As of December 31, 2004, the Company and the management companies employ 2,148 persons, including eight executive officers, personnel in the areas of acquisitions and business development (5), property management (872), leasing (102), redevelopment/development (54), financial services (155) and legal affairs (36). In addition, in an effort to minimize operating costs, the Company generally maintains its own security staff (895) and in some cases a maintenance staff (21). The Company primarily engages a third party to handle maintenance at the Centers. Unions represent 29 of these employees. The Company believes that relations with its employees are good.

Available Information; Website Disclosure; Corporate Governance Documents

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

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

      Guidelines on Corporate Governance
      Code of Business Conduct and Ethics
      Code of Ethics for CEO and Senior Financial Officers
      Audit Committee Charter
      Compensation Committee Charter
      Executive Committee Charter
      Nominating and Corporate Governance Committee Charter

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

      Attention: Corporate Secretary
      The Macerich Company
      401 North Wilshire Blvd., Suite 700
      Santa Monica, CA 90401

The Macerich Company    15



Item 2. Properties

Company's Ownership

  Name of Center/ Location(1)

  Year of Original Construction/ Acquisition

  Year of Most Recent Expansion/ Renovation

  Total GLA(2)

  Mall and Freestanding GLA

  Percentage of Mall and Freestanding GLA Leased

  Anchors

  Sales Per Square Foot(3)



WHOLLY OWNED:
100%   Capitola Mall(4) Capitola, California   1977/1995   1988   586,588   196,871   94.3%   Gottschalks, Macy's, Mervyn's, Sears   $329
100%   Chandler Fashion Center
Chandler, Arizona
  2001/2002     1,322,359   637,199   98.0%   Dillard's, Robinsons-May, Nordstrom, Sears   458
100%   Chesterfield Towne Center
Richmond, Virginia
  1975/1994   2000   1,033,878   423,489   93.0%   Dillard's (two)(5), Hecht's, Sears, J.C. Penney   316
100%   Citadel, The Colorado Springs, Colorado   1972/1997   1995   995,352   400,012   87.3%   Dillard's, Foley's, J.C. Penney, Mervyn's   316
100%   Crossroads Mall Oklahoma City, Oklahoma   1974/1994   1991   1,267,582   551,325   83.1%   Dillard's, Foley's, J.C. Penney, Steve & Barry's University Sportswear(6)   246
100%   Fiesta Mall
Mesa, Arizona
  1979/2004   1999   1,035,806   312,250   90.1%   Dillard's, Macy's, Robinsons-May, Sears   356
100%   Flagstaff Mall Flagstaff, Arizona   1979/2002   1986   353,951   149,939   100.0%   Dillard's, J.C. Penney, Sears   306
100%   FlatIron Crossing Broomfield, Colorado   2000/2002     1,541,339   777,598   98.4%   Dillard's, Foley's, Nordstrom, Lord & Taylor(7), Dick's Sporting Goods   396
100%   Fresno Fashion Fair Fresno, California   1970/1996   2003   874,058   313,177   100.0%   Gottschalks, J.C. Penney, Macy's (two)   489
100%   Greeley Mall Greeley, Colorado   1973/1986   2003   555,186   285,282   94.5%   Dillard's (two), J.C. Penney, Sears   255
100%   Green Tree Mall Clarksville, Indiana   1968/1975   2004 ongoing   811,266   307,270   84.0%   Dillard's(8), J.C. Penney, Sears, Target   372
100%   Holiday Village Mall(4)
Great Falls, Montana
  1959/1979   1992   496,372   273,647   69.0%   Herberger's, J.C. Penney, Sears   234
100%   La Cumbre Plaza(4) Santa Barbara, California   1967/2004   2003   494,535   177,535   94.8%   Robinsons-May, Sears   382
100%   Northgate Mall
San Rafael, California
  1964/1986   1987   741,219   270,888   90.1%   Macy's, Mervyn's, Sears   355
100%   Northridge Mall Salinas, California   1972/2003   2002   863,832   326,852   95.5%   J.C. Penney, Macy's, Mervyn's, Sears   372
100%   Northwest Arkansas Mall
Fayetteville, Arkansas
  1972/1998   1997   822,126   308,456   93.1%   Dillard's (two), J.C. Penney, Sears   344
100%   Pacific View Ventura, California   1965/1996   2000   1,045,013   411,199   98.6%   J.C. Penney, Macy's, Robinsons-May, Sears   385
100%   Panorama Mall Panorama, California   1955/1979   1980   323,438   158,438   100.0%   Wal-Mart   334
100%   Paradise Valley Mall Phoenix, Arizona   1979/2002   1998   1,220,236   414,808   96.3%   Dillard's, J.C. Penney, Macy's, Robinsons-May, Sears   347
                                 

16     The Macerich Company


100%   Prescott Gateway Prescott, Arizona   2002/2002   2004   585,434   341,246   81.6%   Dillard's, Sears, J.C. Penney   $231
100%   Queens Center(4) Queens, New York   1973/1995   2004   963,041   408,274   95.6%   J.C. Penney, Macy's   799
100%   Rimrock Mall Billings, Montana   1978/1996   1999   595,643   295,768   91.7%   Dillard's (two), Herberger's, J.C. Penney   329
100%   Salisbury, Centre at Salisbury, Maryland   1990/1995   1990   773,922   276,506   93.7%   Boscov's, J.C. Penney, Hecht's, Sears   366
100%   Somersville Towne Center
Antioch, California
  1966/1986   2004   501,505   173,283   93.3%   Sears, Gottschalks, Mervyn's, Macy's(9)   351
100%   South Plains Mall Lubbock, Texas   1972/1998   1995   1,143,706   401,919   90.2%   Beall's, Dillard's (two), J.C. Penney, Meryvn's, Sears   332
100%   South Towne Center Sandy, Utah   1987/1997   1997   1,268,705   492,193   91.2%   Dillard's, J.C. Penney, Mervyn's, Target, Meier & Frank   355
100%   The Oaks
Thousand Oaks, California
  1978/2002   1993   1,067,422   341,347   93.6%   J.C. Penney, Macy's (two), Robinsons-May (two)   507
100%   Valley View Center Dallas, Texas   1973/1997   2004   1,647,422   589,525   90.7%   Dillard's, Foley's, J.C. Penney, Sears   288
100%   Victor Valley,
Mall of
Victorville, California
  1986/2004   2001   508,295   234,446   97.5%   Gottschalks, J.C. Penney, Mervyn's, Sears   403
100%   Vintage Faire Mall Modesto, California   1977/1996   2001   1,083,313   383,394   97.4%   Gottschalks, J.C. Penney, Macy's (two), Sears   461
100%   Westside Pavilion Los Angeles, California   1985/1998   2000   666,978   308,850   95.3%   Nordstrom, Robinsons-May   430

    Total/Average Wholly Owned   27,189,522   10,942,986   92.6%       $368


JOINT VENTURES (VARIOUS PARTNERS):
33%   Arrowhead Towne Center
Glendale, Arizona
  1993/2002   2004   1,129,540   391,126   96.6%   Dillard's, Robinsons-May, J.C. Penney, Sears, Mervyn's   $465
50%   Biltmore Fashion Park
Phoenix, Arizona
  1963/2003   1993   608,976   303,976   95.9%   Macy's, Saks Fifth Avenue   576
50%   Broadway Plaza(4) Walnut Creek, California   1951/1985   1994   698,108   252,611   98.9%   Macy's (two), Nordstrom   711
50.1%   Corte Madera, Village at
Corte Madera, California
  1985/1998   1994   433,443   215,443   98.0%   Macy's, Nordstrom   613
50%   Desert Sky Mall Phoenix, Arizona   1981/2002   1993   896,789   302,200   83.2%   Sears, Dillard's, Burlington Coat Factory, Mervyn's, Steve & Barry's University Sportswear(6)   278
50%   Inland Center(4) San Bernardino, California   1966/2004   2004   1,032,822   249,148   81.6%   Macy's, Robinsons-May, Sears, Gottschalks   486
50%   NorthPark Center(4)
Dallas, Texas
  1965/2004   2004 ongoing   1,264,219   493,297   86.7%   Dillard's, Foley's, Neiman Marcus   665
                                 

The Macerich Company    17


50%   Scottsdale Fashion Square(10) Scottsdale, Arizona   1961/2002   2003   2,052,148   850,729   90.6%   Dillard's, Robinsons-May, Macy's, Nordstrom, Neiman Marcus   $589
33%   Superstition Springs Center(4)
Mesa, Arizona
  1990/2002   2002   1,268,246   421,707   92.5%   Burlington Coat Factory, Dillard's, Robinsons-May, J.C. Penney, Sears, Mervyn's, Best Buy   387
19%   West Acres
Fargo, North Dakota
  1972/1986   2001   950,206   397,651   99.2%   Marshall Field's, Herberger's, J.C. Penney, Sears   403

    Total/Average Joint Ventures (Various Partners)   10,334,497   3,877,888   92.0%       $519


PACIFIC PREMIER RETAIL TRUST PROPERTIES:
51%   Cascade Mall Burlington, Washington   1989/1999   1998   588,069   263,833   91.8%   Macy's (two), J.C. Penney, Sears, Target   $348
51%   Kitsap Mall(4) Silverdale, Washington   1985/1999   1997   845,606   335,623   95.2%   Macy's, J.C. Penney, Gottschalks, Mervyn's, Sears   411
51%   Lakewood Mall Lakewood, California   1953/1975   2001   2,093,006   985,022   97.1%   Home Depot, Target, J.C. Penney, Macy's, Mervyn's, Robinsons-May   393
51%   Los Cerritos Center Cerritos, California   1971/1999   1998   1,288,245   486,964   97.4%   Macy's, Mervyn's, Nordstrom, Robinsons-May, Sears   473
51%   Redmond Town Center(4)(10) Redmond, Washington   1997/1999   2004   1,286,010   1,176,010   97.3%   Macy's   357
51%   Stonewood Mall(4) Downey, California   1953/1997   1991   930,086   359,339   97.3%   J.C. Penney, Mervyn's, Robinsons-May, Sears   409
51%   Washington Square Portland, Oregon   1974/1999   2004 ongoing   1,380,358   446,022   98.8%   J.C. Penney, Meier & Frank, Mervyn's, Nordstrom, Sears   605

    Total/Average Pacific Premier Retail Trust Properties   8,411,380   4,052,813   96.9%       $437


SDG MACERICH PROPERTIES, L.P. PROPERTIES:
50%   Eastland Mall(4) Evansville, Indiana   1978/1998   1996   1,030,739   541,595   95.9%   Famous-Barr, J.C. Penney, Macy's   $372
50%   Empire Mall(4) Sioux Falls, South Dakota   1975/1998   2000   1,338,774   593,252   95.0%   Marshall Field's, J.C. Penney, Gordmans, Kohl's, Sears, Target, Younkers   382
50%   Granite Run Mall Media, Pennsylvania   1974/1998   1993   1,047,058   546,249   94.0%   Boscov's, J.C. Penney, Sears   288
50%   Lake Square Mall Leesburg, Florida   1980/1998   1995   560,814   264,777   85.2%   Belk, J.C. Penney, Sears, Target   286
50%   Lindale Mall
Cedar Rapids, Iowa
  1963/1998   1997   688,015   382,452   90.4%   Sears, Von Maur, Younkers   306
                                 

18     The Macerich Company


50%   Mesa Mall
Grand Junction, Colorado
  1980/1998   2003   836,620   410,803   90.9%   Herberger's, J.C. Penney, Mervyn's, Sears, Target   $330
50%   NorthPark Mall Davenport, Iowa   1973/1998   2001   1,076,751   425,218   85.5%   J.C. Penney, Dillard's, Sears, Von Maur, Younkers   252
50%   Rushmore Mall Rapid City, South Dakota   1978/1998   1992   837,766   433,106   93.4%   Herberger's, J.C. Penney, Sears, Target   347
50%   Southern Hills Mall Sioux City, Iowa   1980/1998   2003   795,974   482,397   86.9%   Sears, Younkers, J.C. Penney(11)   321
50%   SouthPark Mall Moline, Illinois   1974/1998   1990   1,025,935   447,879   85.5%   J.C. Penney, Sears, Younkers, Von Maur, Dillard's(12)   214
50%   SouthRidge Mall Des Moines, Iowa   1975/1998   1998   882,012   493,260   77.7%   Sears, Younkers, J.C. Penney, Target   198
50%   Valley Mall Harrisonburg, Virginia   1978/1998   1992   487,429   179,631   89.6%   Belk, J.C. Penney, Peebles, Target (13)   278

    Total/Average SDG Macerich Properties, L.P. Properties   10,607,887   5,200,619   89.5%       $302

    Total/Average Joint Ventures   29,353,764   13,131,320   92.5%       $414

    Total/Average before Community/Specialty Centers   56,543,286   24,074,306   92.6%       $391


COMMUNITY/SPECIALTY CENTERS:
100%   Borgata
Scottsdale, Arizona
  1981/2002     88,739   88,739   79.5%     $389
75%   Camelback Colonnade Phoenix, Arizona   1961/2002   1994   620,987   540,987   82.7%   Mervyn's   287
100%   Carmel Plaza Carmel, California   1974/1998   1993   115,616   115,616   92.1%     418
50%   Chandler Blvd. Shops
Chandler, Arizona
  2001/2002   2004   173,838   173,838   97.6%     378
50%   Chandler Festival Chandler, Arizona   2001/2002     503,735   368,538   98.3%   Lowe's   278
50%   Chandler Gateway Chandler, Arizona   2001/2002     256,889   125,838   94.8%   The Great Indoors   388
50%   Chandler Village Center
Chandler, Arizona
  2004/2002   2004 ongoing   238,255   95,122   100.0%   Target   N/A
100%   Great Falls Marketplace
Great Falls, Montana
  1997/1997     215,024   215,024   98.1%     160
50%   Hilton Village(4)(10) Scottsdale, Arizona   1982/2002     96,640   96,640   87.0%     463
100%   Paradise Village Office Park II(10)(14) Phoenix, Arizona   1982/2002     47,463   47,463   80.4%     N/A
50%   Promenade
Sun City, Arizona
  1983/2002     70,179   70,179   70.2%     236
46%   Scottsdale 101(4) Phoenix, Arizona   2002/2002   2004 ongoing   568,538   467,163   96.0%   Expo Design Center   205
100%   Village Center(14) Phoenix, Arizona   1985/2002     170,801   59,055   90.4%   Target   290
                                 

The Macerich Company    19


100%   Village Crossroads(14) Phoenix, Arizona   1993/2002     187,336   86,627   75.8%   Burlington Coat Factory   $363
100%   Village Fair(14) Phoenix, Arizona   1989/2002     271,417   207,817   94.6%   Best Buy   213
100%   Village Plaza Phoenix, Arizona   1978/2002     79,810   79,810   97.2%     266
100%   Village Square I Phoenix, Arizona   1978/2002     21,606   21,606   93.7%     180
100%   Village Square II Phoenix, Arizona   1978/2002     146,193   70,393   100.0%   Mervyn's   184

    Total/Average Community/Specialty Centers   3,873,066   2,930,455   91.6%       $313

    Total before major development and redevelopment properties and other assets   60,416,352   27,004,761   92.5%       $387


MAJOR DEVELOPMENT AND REDEVELOPMENT PROPERTIES:
100%   La Encantada Tucson, Arizona   2002/2002   2004 ongoing   254,967   254,967   (15)     N/A
100%   Park Lane Mall(4) Reno, Nevada   1967/1978   1998   369,922   240,202   (15)   Gottschalks   N/A
37.5%   San Tan Village(16) Gilbert, Arizona   2004/2004   2004 ongoing   421,669   214,669   (15)   Wal-Mart   N/A
100%   Santa Monica Place Santa Monica, California   1980/1999   1990   560,685   277,435   (15)   Macy's, Robinsons-May   N/A
100%   Twenty-Ninth Street(4)
Boulder, Colorado
  1963/1979   2004 ongoing   175,601   25,320   (15)   Foley's   N/A
100%   Westside Pavilion Adjacent Los Angeles, California   1985/1998   2004 ongoing   90,982   90,982   (15)                   N/A

    Total Major Development and Redevelopment Properties       1,873,826   1,103,575            


OTHER ASSETS:
100%   Paradise Village ground leases(14) Phoenix, Arizona   — /2002       169,490   169,490   100%     N/A

    Total Other Assets       169,490   169,490           100%

    Grand Total at December 31, 2004       62,459,668   28,277,826            
(1)
With respect to 67 Centers, the underlying land controlled by the Company is owned in fee entirely by the Company, or, in the case of jointly-owned Centers, by the joint venture property partnership or limited liability company. With respect to the remaining Centers, the underlying land controlled by the Company is owned by third parties and leased to the Company, the property partnership or the limited liability company pursuant to long-term ground leases. Under the terms of a typical ground lease, the Company, the property partnership or the limited liability company pays rent for the use of the land and is generally responsible for all costs and expenses associated with the building and improvements. In some cases, the Company, the property partnership or the limited liability company has an option or right of first refusal to purchase the land. The termination dates of the ground leases range from 2013 to 2132.

(2)
Includes GLA attributable to Anchors (whether owned or non-owned) and Mall and Freestanding Stores as of December 31, 2004.

(3)
Sales are based on reports by retailers leasing Mall and Freestanding Stores for the twelve months ending December 31, 2004 for tenants which have occupied such stores for a minimum of 12 months. Sales per square foot are based on tenants 10,000 square feet and under, excluding theaters.

(4)
Portions of the land on which the Center is situated are subject to one or more ground leases.

(5)
Dillard's consolidated their two anchors stores into one in February 2005.

(6)
Steve & Barry's University Sportswear opened at Desert Sky in August 2004 and at Crossroads Oklahoma in November 2004.

20     The Macerich Company


(7)
Lord & Taylor closed their 120,000 square foot store in January 2005.

(8)
Dillard's is scheduled to complete a 58,000 square foot expansion in March 2005.

(9)
Federated Department Stores opened a new 107,000 square foot Macy's store in July 2004.

(10)
The office portion of this mixed-use development does not have retail sales.

(11)
J.C. Penney opened a new 100,000 square foot store in August 2004.

(12)
Dillard's opened a new 128,000 square foot store in October 2004.

(13)
Target is scheduled to open a new 116,000 square foot store in Summer 2005.

(14)
On December 31, 2004, the Company purchased its joint venture partner's 50% interest in these Centers.

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

(16)
Wal-Mart opened in January 2005.

The Macerich Company    21


Mortgage Debt

The following table sets forth certain information regarding the mortgages encumbering the Centers, including those Centers in which the Company has less than a 100% interest. The information set forth below is as of December 31, 2004.

Property Pledged as Collateral

  Fixed or Floating

  Annual Interest Rate

  12-31-04 Balance (000's) (A)

  Annual Debt Service (000's)

  Maturity Date

  Balance Due on Maturity (000's)

  Earliest Date on which all Notes Can Be Defeased or Be Prepaid


Consolidated Centers:
Borgata   Fixed   5.39%   $15,941   $1,380   10/11/2007   $14,352   Any Time
Capitola Mall   Fixed   7.13%   44,038   4,558   5/15/2011   32,724   Any Time
Carmel Plaza   Fixed   8.18%   27,426   2,421   5/1/2009   25,642   Any Time
Chandler Fashion Center   Fixed   5.48%   178,646   12,516   11/1/2012   152,097   11/1/2005
Chesterfield Towne Center(1)   Fixed   9.07%   59,696   6,580   1/1/2024   1,087   1/1/2006
Citadel   Fixed   7.20%   65,911   6,648   1/1/2008   59,962   Any Time
Fiesta Mall(2)   Fixed   4.88%   84,000   4,231   1/1/2015   84,000   12/2/2007
Flagstaff Mall   Fixed   5.39%   13,668   1,452   1/1/2006   12,894   Any Time
FlatIron Crossing   Fixed   5.23%   197,170   13,224   12/1/2013   164,187   11/1/2005
Fresno Fashion Fair   Fixed   6.52%   66,415   5,244   8/10/2008   62,890   Any Time
Greeley Mall   Fixed   6.18%   29,382   2,359   9/1/2013   23,446   8/31/2006
La Cumbre Plaza(3)   Floating   3.28%   30,000   984   8/9/2007   30,000   Any Time
La Encantada(4)   Floating   4.03%   42,648   1,719   12/1/2005   42,648   Any Time
Northridge Mall(5)   Fixed   4.84%   85,000   5,438   7/1/2009   78,769   Any Time
Northwest Arkansas Mall   Fixed   7.33%   55,937   5,209   1/10/2009   49,304   Any Time
Pacific View   Fixed   7.16%   92,703   7,779   8/31/2011   83,046   Any Time
Panorama Mall(6)   Floating   3.15%   32,250   1,016   12/31/2005   32,250   Any Time
Paradise Valley Mall   Fixed   5.89%   23,870   2,196   5/1/2009   19,863   Any Time
Paradise Valley Mall   Fixed   5.39%   78,797   6,072   1/1/2007   74,889   Any Time
Paradise Village Ground Leases   Fixed   5.39%   7,463   670   3/1/2006   7,134   Any Time
Prescott Gateway(7)   Floating   3.63%   35,280   1,281   7/31/2007   35,280   1/31/2005
Queens Center   Fixed   6.88%   94,792   7,595   3/1/2009   88,651   Any Time
Queens Center(8)   Floating   4.78%   195,487   9,344   3/1/2013   195,487   2/19/2008
Rimrock Mall   Fixed   7.45%   44,571   3,841   10/1/2011   40,025   Any Time
Salisbury, Center at(9)   Floating   2.75%   79,875   2,196   2/20/2006   79,875   Any Time
Santa Monica Place   Fixed   7.70%   81,958   7,272   11/1/2010   75,439   Any Time
Scottsdale 101/Associates(10)   Floating   4.14%   38,056   1,575   5/1/2006   38,056   Any Time
South Plains Mall   Fixed   8.22%   61,377   5,448   3/1/2009   57,557   Any Time
South Towne Center   Fixed   6.61%   64,000   4,289   10/10/2008   64,000   Any Time
The Oaks(11)   Floating   2.64%   108,000   2,851   7/1/2005   108,000   Any Time
Valley View Mall   Fixed   7.89%   51,000   4,080   10/10/2006   51,000   Any Time
Victor Valley, Mall of   Fixed   4.60%   54,729   3,645   3/1/2008   50,084   Any Time
Village Center   Fixed   5.39%   7,248   748   4/1/2006   6,782   Any Time
Village Crossroads   Fixed   4.81%   4,695   447   9/1/2005   4,538   Any Time
Village Fair North   Fixed   5.89%   11,823   983   7/15/2008   10,710   Any Time
Village Plaza   Fixed   5.39%   5,316   564   11/1/2006   4,757   Any Time
Village Square I & II   Fixed   5.39%   4,659   492   2/1/2006   4,394   Any Time
Vintage Faire Mall   Fixed   7.89%   67,101   6,099   9/1/2010   61,372   Any Time
Westside Pavilion   Fixed   6.67%   96,192   7,538   7/1/2008   91,133   Any Time

Total—Consolidated Centers   $2,337,120                

                             

22     The Macerich Company


Joint Venture Centers (at Company's pro rata share):
Arrowhead Towne Center(33.33%)   Fixed   6.38%   $28,076   $2,240   10/1/2011   $24,256   Any Time
Biltmore Fashion Park (50%)   Fixed   4.68%   42,842   2,433   7/10/2009   34,972   Any Time
Boulevard Shops(50%)(12)   Floating   4.28%   5,361   164   1/1/2006   5,361   Any Time
Broadway Plaza (50%)   Fixed   6.68%   32,913   3,089   8/1/2008   29,315   Any Time
Camelback Colonnade(75%)   Fixed   4.81%   24,207   2,529   1/1/2006   22,719   Any Time
Chandler Festival(50%)   Fixed   4.37%   15,704   960   10/1/2008   14,583   11/14/2005
Chandler Gateway(50%)   Fixed   5.19%   9,843   660   10/1/2008   9,223   2/1/2006
Chandler Village Center (50%)   Floating   4.14%   6,723   278   12/19/2006   6,723   Any Time
Corte Madera, Village at (50.1%)   Fixed   7.75%   34,176   3,101   11/1/2009   31,533   Any Time
Desert Sky Mall(50%)   Fixed   5.42%   13,437   1,020   1/1/2006   13,412   Any Time
East Mesa Land(50%)(13)   Floating   2.28%   2,093   120   11/14/2005   2,093   Any Time
East Mesa Land(50%)(13)   Fixed   5.39%   626   36   11/15/2006   611   Any Time
Hilton Village(50%)   Fixed   5.39%   4,370   414   1/1/2007   3,987   Any Time
Inland Center(50%)   Fixed   4.64%   27,000   1,253   2/11/2009   27,000   4/1/2006
Northpark Center(50%)(14)   Fixed   8.33%   86,630   655   5/10/2012   76,387   Any Time
Pacific Premier Retail Trust (51%):                            
  Kitsap Mall/Kitsap Place   Fixed   8.06%   30,273   2,755   6/1/2010   28,143   Any Time
  Lakewood Mall(15)   Fixed   7.20%   64,770   4,661   8/10/2005   64,770   Any Time
  Lakewood Mall(16)   Floating   3.93%   8,746   344   7/25/2005   8,746   Any Time
  Los Cerritos Center   Fixed   7.13%   56,651   5,054   7/1/2006   54,955   Any Time
  Redmond Town Center-Retail(17)   Fixed   4.81%   38,250   1,842   8/1/2009   38,250   2/1/2007
  Redmond Town Center-Office   Fixed   6.77%   39,545   3,575   7/10/2009   26,223   Any Time
  Stonewood Mall   Fixed   7.41%   38,975   3,298   12/11/2010   36,192   Any Time
  Washington Square   Fixed   6.70%   54,555   5,051   2/1/2009   48,021   Any Time
  Washington Square(18)   Floating   4.17%   17,816   744   2/1/2009   16,012   10/1/2006
Promenade(50%)   Fixed   5.39%   2,410   234   9/1/2006   2,226   Any Time
SanTan Village Phase 2 (37.5%)(19)   Floating   5.25%   104   5   11/2/2007   104   Any Time
Scottsdale Fashion Square-Series I(50%)   Fixed   5.39%   81,396   4,458   8/31/2007   78,000   Any Time
Scottsdale Fashion Square-Series II(50%)   Fixed   5.39%   35,560   1,965   8/31/2007   33,253   Any Time
SDG Macerich Properties L.P. (50%)(20)   Fixed   6.54%   180,882   13,440   5/15/2006   178,550   Any Time
SDG Macerich Properties L.P. (50%)(20)   Floating   2.81%   93,250   1,771   5/15/2006   93,250   Any Time
SDG Macerich Properties L.P. (50%)(20)   Floating   2.77%   40,700   729   5/15/2006   40,700   Any Time
Superstition Springs(33.33%)(21)   Floating   2.28%   16,045   902   11/14/2005   15,949   Any Time
Superstition Springs(33.33%)(21)   Fixed   5.39%   4,801   270   11/1/2006   4,682   Any Time
West Acres Center(19%)   Fixed   6.52%   6,774   681   1/1/2009   5,684   Any Time
West Acres Center(19%)   Fixed   9.17%   1,764   212   1/1/2009   1,517   Any Time

Total—Joint Venture Centers   $1,147,268                

(A)
The mortgage notes payable balances include the unamortized debt premiums. These debt premiums represent the excess of the fair value of debt over the principal value of debt assumed in various acquisitions subsequent to March, 1994 (with interest rates ranging from 3.81% to 7.68%). The debt premiums are being amortized into interest expense over the term of the related debt, in a manner which approximates the effective interest method.

The Macerich Company    23


The debt premiums as of December 31, 2004 consist of the following (000's):

 
  2004


Borgata   $ 831
Flagstaff Mall     308
Paradise Valley Mall     1,271
Paradise Valley Mall     1,576
Paradise Village Ground Leases     152
Victor Valley, Mall of     1,022
Village Center     174
Village Crossroads     88
Village Fair North     340
Village Plaza     284
Village Square I and II     101

Total Consolidated Centers   $ 6,147


 
  2004


Arrowhead Towne Center   $ 746
Biltmore Fashion Park     4,600
Camelback Colonnade     633
Hilton Village     238
Promenade     118
Scottsdale Fashion Square — Series 1     3,396
Scottsdale Fashion Square — Series 2     2,307
SDG Macerich Properties, L.P.     2,332

Total Joint Venture Centers (at Company's pro rata share)   $ 14,370

Notes:

(1)
This annual debt service represents the payment of principal and interest. In addition, contingent interest, as defined in the loan agreement, may be due to the extent that 35% of the amount by which the property's gross receipts (as defined in the loan agreement) exceeds a base amount specified therein. Contingent interest expense recognized by the Company was $658,492 for the twelve months ended December 31, 2004.

(2)
On December 2, 2004, the Company placed this ten year fixed rate loan at 4.88%.

(3)
Concurrent with the acquisition of this property, the Company placed a $30.0 million floating rate loan bearing interest at LIBOR plus 0.88% with an initial interest rate of 2.29%. The loan matures August 9, 2007 with two one-year extensions through August 9, 2009. At December 31, 2004, the total interest rate was 3.28%. This variable rent debt is covered by an interest rate cap agreement over the loan term which effectively prevents the interest rate from exceeding 7.12%.

24     The Macerich Company


(4)
This represents a construction loan which shall not exceed $51.0 million bearing interest at LIBOR plus 2.0%. At December 31, 2004, the total interest rate was 4.03%.

(5)
On June 30, 2004, the Company placed a new $85.0 million loan maturing in 2009. The loan floats at LIBOR plus 2.0% for six months and then converts to a fixed rate loan at 4.94%. At December 31, 2004, the effective interest rate over the loan term is 4.84%.

(6)
The loan bears interest at LIBOR plus 1.65%.

(7)
This represented a construction loan which was not to exceed $46.3 million and bore interest at LIBOR plus 2.25%. Effective February 18, 2004, the loan commitment was reduced to $44.3 million. On July 31, 2004, this construction loan matured and was replaced with a three-year loan, plus two one-year extension options at LIBOR plus 1.65%. At December 31, 2004, the total interest rate was 3.63%.

(8)
This represents a $225.0 million construction loan bearing interest at LIBOR plus 2.50%. The loan converts to a permanent fixed rate loan at 7%, subject to certain conditions including completion and stabilization of the expansion and redevelopment project. As of December 31, 2004, the total interest rate was 4.78%. NML is the lender for 50% of the construction loan. The funds advanced by NML are considered related party debt as they are a joint venture partner with the Company in Macerich Northwestern Associates.

(9)
This floating rate loan was issued on February 18, 2004. The loan bears interest at LIBOR plus 1.375% and matures February 20, 2006 with a one-year extension option. At December 31, 2004, the total interest rate was 2.75%.

(10)
The property has a construction note payable which shall not exceed $54.0 million, bearing an interest rate at LIBOR plus 2.00%. At December 31, 2004, the total interest rate was 4.14%.

(11)
Concurrent with the acquisition of the mall, the Company placed a $108.0 million loan bearing interest at LIBOR plus 1.15% and maturing July 1, 2004 with three consecutive one year options. $92.0 million of the loan is at LIBOR plus 0.7% and $16.0 million is at LIBOR plus 3.75%. In July 2004, the Company extended the loan maturity to July 2005. This variable rate debt is covered by an interest rate cap agreement over the loan term which effectively prevents the interest rate from exceeding 7.10%. At December 31, 2004 and December 31, 2003, the total weighted average interest rate was 2.64% and 2.32%, respectively.

(12)
The property has a construction note payable which shall not exceed $13.3 million at December 31, 2003 bearing interest at LIBOR plus 2.0%. At December 31, 2004, the total interest rate was 4.28%. Effective January 2004, the loan commitment was reduced to $11.4 million.

(13)
This note was assumed at acquisition. The loan consists of 3 traunches, with a range of maturities from 36 months (with two 18-month extension options) to 60 months. The variable rate debt ranges from LIBOR plus 60 basis points to LIBOR plus 250 basis points, and fixed rate debt ranges from

The Macerich Company    25


    5.01% to 6.18%. This loan is part of a larger loan group, and is cross-collateralized and cross-defaulted with the other properties in that group, which are unaffiliated with the Company. An interest rate swap was entered into to convert $1.5 million of floating rate debt with a weighted average interest rate of 3.97% to a fixed rate of 5.39%. The interest rate swap has been designated as a hedge in accordance with SFAS 133. Additionally, interest rate caps were entered into on a portion of the debt and reverse interest rate caps were simultaneously sold to offset the effect of the interest rate cap agreements. These interest rate caps do not qualify for hedge accounting in accordance with SFAS 133.

(14)
The annual debt service represents the payment of principal and interest. In addition, contingent interest, as defined in the loan agreement, is due upon the occurrence of certain capital events and is equal to 15% of proceeds less the base amount.

(15)
In connection with the acquisition of this property, the joint venture assumed $127.0 million of collateralized fixed rate notes (the "Notes"). The Notes bear interest at an average fixed rate of 7.20% and mature in August 2005. The Notes require the joint venture to deposit all cash flow from the property operations with a trustee to meet its obligations under the Notes. Cash in excess of the required amount, as defined, is released. Included in restricted cash is $750,000 of restricted cash deposited with the trustee at December 31, 2004 and December 31, 2003.

(16)
On July 28, 2000, the joint venture placed a $16.1 million floating rate note on the property bearing interest at LIBOR plus 2.25% and maturing July 2003. On August 24, 2003, the joint venture negotiated a two-year loan extension with the lender and the loan was increased to $17.1 million. At December 31, 2004 and 2003, the total interest rate was 3.93% and 2.93%, respectively.

(17)
On July 19, 2004, the joint venture placed a new $75.0 million fixed rate loan on this property. The new fixed year loan bears interest at 4.81%. The proceeds were used to payoff the old $58.4 million loan which bore interest at 6.5%.

(18)
On October 7, 2004, the joint venture placed an additional loan on this property. The loan matures February 1, 2009 and the interest rate floats at LIBOR plus 2.0%. At December 31, 2004, the total interest rate was 4.17%.

(19)
The property has a construction note payable which shall not exceed $26.8 million bearing interest at LIBOR plus 2.25%. At December 31, 2004, the total interest rate was 5.25%.

(20)
In connection with the acquisition of these Centers, the joint venture assumed $485.0 million of mortgage notes payable which are collateralized by the properties. At acquisition, the $300.0 million fixed rate portion of this debt reflected a fair value of $322.7 million, which included an unamortized premium of $22.7 million. This premium is being amortized as interest expense over the life of the loan using the effective interest method. At December 31, 2004, the unamortized balance of the debt premium was $4.7 million. This debt is due in May 2006 and requires monthly payments of $1.9 million based on the fixed rate debt in place as of December 31, 2004. $184.5 million of this debt was refinanced in May 2003 with a new loan of $186.5 million that requires monthly interest

26     The Macerich Company


    payments at a variable weighted average rate (based on LIBOR) of 2.81% December 31, 2004. This variable rate debt is covered by interest rate cap agreements, which effectively prevents the interest rate from exceeding 10.63%.

On
April 12, 2000, the joint venture issued $138.5 million of additional mortgage notes, which are collateralized by the properties and are due in May 2006. $57.1 million of this debt requires fixed monthly interest payments of $387,000 at a weighted average rate of 8.13% while the floating rate notes of $81.4 million require monthly interest payments at a variable weighted average rate (based on LIBOR) of 2.77% at December 31, 2004. This variable rate debt is covered by an interest rate cap agreement which effectively prevents the interest rate from exceeding 11.83%.

(21)
This note was assumed at acquisition. The loan consists of 3 tranches, with a range of maturities from 36 months (with two 18-month extension options) to 60 months. The variable rate debt ranges from LIBOR plus 60 basis points to LIBOR plus 250 basis points, and fixed rate debt ranges from 5.01% to 6.18%. This loan is part of a larger loan group, and is cross-collateralized and cross-defaulted with the other properties in that group, which are unaffiliated with the Company. An interest rate swap was entered into to convert $11.4 million of floating rate debt with a weighted average interest rate of 3.97% to a fixed rate of 5.39%. The interest rate swap has been designated as a hedge in accordance with SFAS 133. Additionally, interest rate caps were entered into on a portion of the debt and reverse interest rate caps were simultaneously sold to offset the effect of the interest rate cap agreements. These interest rate caps do not qualify for hedge accounting in accordance with SFAS 133.

The Company had a $425.0 million revolving line of credit. This revolving line of credit had a three-year term through July 26, 2005 with a one-year extension option. The interest rate fluctuated from LIBOR plus 1.75% to LIBOR plus 3.00% depending on the Company's overall leverage level. As of December 31, 2003, $319.0 million of borrowings were outstanding under this credit facility at an average interest rate of 3.69%. On July 30, 2004, the Company amended and expanded the revolving line of credit to $1.0 billion and extended the maturity to July 30, 2007 plus a one-year extension. The interest rate has been reduced to 1.50% over LIBOR based on the Company's current leverage level. The interest rate fluctuates from LIBOR plus 1.15% to LIBOR plus 1.70% depending on the Company's overall leverage level. As of December 31, 2004, $643.0 million of borrowings were outstanding at an average interest rate of 3.81%.

On July 26, 2002, the Company placed a $250.0 million term loan with a maturity of up to three years with two one-year extension options and an interest rate ranging from LIBOR plus 2.75% to LIBOR plus 3.00% depending on the Company's overall leverage level. At December 31, 2003, $196.8 million of the term loan was outstanding at an interest rate of 3.95%. On July 30, 2004, the entire term loan was paid off in full from the Company's amended and expanded line of credit.

On May 13, 2003, the Company issued $250.0 million in unsecured notes maturing in May 2007 with a one-year extension option bearing interest at LIBOR plus 2.50%. The proceeds were used to pay down and create more availability under the Company's line of credit. At December 31, 2004, $250.0 million was

The Macerich Company    27



outstanding at an interest rate of 4.45%. In October 2003, the Company entered into an interest rate swap agreement which effectively fixed the interest rate at 4.45% from November 2003 to October 13, 2005.

Additionally, as of December 31, 2004, the Company has contingent obligations of $6.9 million in letters of credit guaranteeing performance by the Company of certain obligations relating to the Centers. The Company does not believe that these letters of credit will result in a liability to the Company.


Item 3. Legal Proceedings.

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


Item 4. Submission of Matters to a Vote of Security Holders.

None.

28     The Macerich Company



Part II


Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The common stock of the Company is listed and traded on the New York Stock Exchange under the symbol "MAC". The common stock began trading on March 10, 1994 at a price of $19 per share. In 2004, the Company's shares traded at a high of $64.66 and a low of $38.90.

As of February 22, 2005, there were approximately 726 stockholders of record. The following table shows high and low closing prices per share of common stock during each quarter in 2003 and 2004 and dividends/distributions per share of common stock declared and paid by quarter:

 
  Market Quotation Per Share

   
 
  Dividends/
Distributions
Declared and Paid

Quarters Ended

  High

  Low


March 31, 2003   $33.17   $28.82   $0.57
June 30, 2003   36.47   32.15   0.57
September 30, 2003   38.44   35.62   0.57
December 31, 2003   44.50   38.30   0.61

March 31, 2004   $53.90   $43.60   $0.61
June 30, 2004   54.30   39.75   0.61
September 30, 2004   55.79   46.60   0.61
December 31, 2004   64.66   54.10   0.65

The Company issued 3,627,131 shares of its Series A cumulative convertible redeemable preferred stock ("Series A Preferred Stock"), and 5,487,471 shares of its Series B cumulative convertible redeemable preferred stock ("Series B Preferred Stock"). There is no established public trading market for either the Series A Preferred Stock or the Series B Preferred Stock. The Series A Preferred Stock and Series B Preferred Stock were issued on February 25, 1998 and June 16, 1998, respectively. On September 9, 2003, all of the shares of Series B Preferred Stock were converted to common stock. Preferred stock dividends are accrued quarterly and paid in arrears. The Series A Preferred Stock can be converted on a one for one basis into common stock and will pay a quarterly dividend equal to the greater of $0.46 per share, or the dividend then payable on a share of common stock. No dividends will be declared or paid on any class of common or other junior stock to the extent that dividends on Series A Preferred Stock have not been declared and/or paid. The

The Macerich Company    29



following table shows the dividends per share of preferred stock declared and paid for each quarter in 2004 and 2003:

 
  Series A Preferred Stock Dividends

  Series B Preferred Stock Dividends

Quarters Ended

  Declared

  Paid

  Declared

  Paid


March 31, 2003   $0.57   $0.57   $0.57   $0.57
June 30, 2003   $0.57   $0.57   $0.57   $0.57
September 30, 2003   $0.61   $0.57   N/A   N/A
December 31, 2003   $0.61   $0.61   N/A   N/A

Quarters Ended                

March 31, 2004   $0.61   $0.61   N/A   N/A
June 30, 2004   $0.61   $0.61   N/A   N/A
September 30, 2004   $0.65   $0.61   N/A   N/A
December 31, 2004   $0.65   $0.65   N/A   N/A

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

ISSUER PURCHASES OF EQUITY SECURITIES

Period

  Total Number of Shares (or Units) Purchased

  Average Price Paid per Share (or Unit)

  Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs

  Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs


October 1, 2004—October 31, 2004   0   N/A   N/A   N/A
November 1, 2004—November 30, 2004   1,643   $60.58   (1)   (1)
December 1, 2004—December 31, 2004   0   N/A   N/A   N/A

Total   1,643   $60.58   (1)   (1)

(1)
1,643 shares of the Company's Common Stock were delivered by an executive officer to pay the purchase price for the shares acquired upon exercise of his Company employee stock option. This tender of shares feature is permitted under the Company's equity incentive plans. The plans allow each participant to use the tender of shares feature upon exercise of any outstanding stock option granted under the plans provided such participant has held such stock for six months.

30     The Macerich Company



Item 6. Selected Financial Data.

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

The Selected Financial Data is presented on a consolidated basis. The limited partnership interests in the Operating Partnership (not owned by the REIT) are reflected as minority interest. Centers and entities in which the Company does not have a controlling ownership interest, even though in some cases the Company has the ability to exercise significant influence over operating and financial policies (Biltmore Fashion Park, Broadway Plaza, the Village at Corte Madera, Inland Center, NorthPark Center, Pacific Premier Retail Trust, SDG Macerich Properties, L.P., West Acres Shopping Center and certain Centers and entities in the Westcor portfolio) are accounted for using the equity method of accounting and are referred to as the "Joint Venture Centers."

Effective March 29, 2001, the Macerich Property Management Company merged with and into Macerich Property Management Company, LLC, a wholly-owned subsidiary of the Operating Partnership ("MPMC, LLC") and the Company began consolidating the accounts of MPMC, LLC. Effective July 1, 2003, the Company began consolidating the accounts of Macerich Management Company, in accordance with Financial Accounting Standards Board Interpretation Number ("FIN") 46 (See Note 2 of the Company's Consolidated Financial Statements). Effective July 26, 2002, the acquisition date of the Westcor portfolio, the Company began consolidating the Westcor Management Companies. Prior to March 29, 2001 and July 1, 2003, the Company accounted for Macerich Property Management Company and Macerich Management Company under the equity method of accounting, respectively. Accordingly, the net income that was allocable to the Company from Macerich Property Management Company prior to March 29, 2001 and Macerich Management Company prior to July 1, 2003 is included in the consolidated statements of operations as "Equity in income (loss) of unconsolidated joint ventures and management companies." Once each of these management companies was consolidated, including Westcor Management Companies, their respective revenues and expenses were included in the consolidated statements of operations as "Revenues—Management Companies" and "Management Companies' operating expenses", respectively.

The Macerich Company    31


(All amounts in thousands, except share and per share amounts)

 
  The Company

 
  2004

  2003

  2002

  2001

  2000



OPERATING DATA:

 

 

 

 

 

 

 

 

 

 
  Revenues:                    
    Minimum rents(1)   $329,689   $286,298   $219,537   $189,838   $183,866
    Percentage rents   17,654   12,427   10,735   11,976   11,984
    Tenant recoveries   159,005   152,696   115,993   104,019   98,889
    Management Companies(2)   21,751   14,630   4,826   312  
    Other   19,169   17,526   11,819   11,263   7,979

      Total revenues   547,268   483,577   362,910   317,408   302,718

Shopping center and operating expenses

 

164,983

 

151,325

 

113,808

 

97,094

 

96,575
Management Companies' operating expenses(2)   38,298   31,587   13,181   8,515  
REIT general and administrative expenses   11,077   8,482   7,435   6,780   5,509
Depreciation and amortization(1)   142,096   104,920   74,504   62,595   58,290
Interest expense   146,327   130,707   120,288   107,560   106,416

Income from continuing operations before minority interest, unconsolidated entities, gain (loss) on sale or write-down of assets and cumulative effect of change in accounting principle   44,487   56,556   33,694   34,864   35,928
Minority interest(3)   (19,870)   (28,907)   (20,189)   (19,001)   (12,168)
Equity in income of unconsolidated joint ventures and management companies(2)   54,881   59,348   43,049   32,930   30,322
Gain (loss) on sale or write down of assets   927   12,420   (3,820)   24,491   (2,773)
Loss on early extinguishment of debt   (1,642)   (170)   (3,605)   (2,034)   (304)
Cumulative effect of change in accounting principle(4)           (954)
Discontinued operations:(5)                    
  Gain on sale of assets   7,114   22,031   26,073    
  Income from discontinued operations   5,736   6,756   6,180   6,473   6,878

Net income   91,633   128,034   81,382   77,723   56,929
Less preferred dividends   9,140   14,816   20,417   19,688   18,958

Net income available to common stockholders   $82,493   $113,218   $60,965   $58,035   $37,971

Earnings per share ("EPS")—basic:(6)                    
  Income from continuing operations before cumulative effect of change in accounting principle   $1.23   $1.68   $0.98   $1.58   $0.98
  Cumulative effect of change in accounting principle           (0.02)
  Discontinued operations   0.18   0.43   0.65   0.14   0.15

Net income per share—basic   $1.41   $2.11   $1.63   $1.72   $1.11

EPS—diluted:(6)(8)(9)                    
  Income from continuing operations before cumulative effect of change in accounting principle   $1.22   $1.71   $0.98   $1.58   $0.98
  Cumulative effect of change in accounting principle           (0.02)
  Discontinued operations   0.18   0.38   0.64   0.14   0.15

Net income per share—diluted   $1.40   $2.09   $1.62   $1.72   $1.11

32     The Macerich Company


(All amounts in thousands)

 
  The Company
December 31,

 
  2004

  2003

  2002

  2001

  2000



BALANCE SHEET DATA

 

 

 

 

 

 

 

 

 

 
Investment in real estate (before accumulated depreciation)   $4,149,776   $3,662,359   $3,251,674   $2,227,833   $2,228,468
Total assets   $4,637,096   $4,145,593   $3,662,080   $2,294,502   $2,337,242
Total mortgage, notes and debentures payable   $3,230,120   $2,682,598   $2,291,908   $1,523,660   $1,550,935
Minority interest(3)   $221,315   $237,615   $221,497   $113,986   $120,500
Series A and Series B Preferred Stock(7)   $98,934   $98,934   $247,336   $247,336   $247,336
Common stockholders' equity   $913,533   $953,485   $797,798   $348,954   $362,272


OTHER DATA:

 

 

 

 

 

 

 

 

 

 
Funds from operations ("FFO")-diluted(7)   $299,172   $269,132   $194,643   $173,372   $166,281
Cash flows provided by (used in):                    
  Operating activities   $194,379   $202,783   $163,176   $140,506   $121,220
  Investing activities   ($479,252)   ($328,372)   ($875,032)   ($57,319)   $2,083
  Financing activities   $316,631   $115,703   $739,122   ($92,990)   ($127,485)
Number of centers at year end   84   78   79   50   51
Weighted average number of shares outstanding—EPS basic   58,537   53,669   37,348   33,809   34,095
Weighted average number of shares outstanding—EPS diluted(8)(9)   73,099   75,198   50,066   44,963   45,050
Cash distribution declared per common share   $2.48   $2.32   $2.22   $2.14   $2.06
(1)
During 2001, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 141, Business Combinations ("SFAS 141"). (See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Statement on Critical Accounting Policies"). The amortization of below market leases, which is recorded in minimum rents, was $9.2 million, $6.1 million and $1.1 million for the twelve months ending December 31, 2004, 2003 and 2002, respectively.

(2)
Unconsolidated joint ventures include all Centers and entities in which the Company does not have a controlling ownership interest and for Macerich Management Company through June 30, 2003 and for Macerich Property Management Company through March 28, 2001. Effective March 29, 2001, the Macerich Property Management Company merged with and into MPMC, LLC. The Company accounts for the joint ventures using the equity method of accounting. Effective March 29, 2001, the Company began consolidating the accounts for MPMC, LLC. Effective July 1, 2003, the Company began consolidating the accounts of Macerich Management Company, in accordance with FIN 46. (See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—New Pronouncements Issued"). Effective July 26, 2002, the Company consolidated the accounts of the Westcor Management Companies.

(3)
"Minority Interest" reflects the ownership interest in the Operating Partnership or other unconsolidated entities not owned by the REIT.

(4)
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB 101"), which became effective for periods beginning after December 15, 1999. SAB 101 modified the timing of revenue recognition for percentage rent received from tenants. This change will defer recognition of a significant amount of percentage rent for the first three calendar quarters into the fourth quarter. The Company applied this change in accounting principle as of January 1, 2000. The cumulative effect of this change in accounting principle at the adoption date of January 1, 2000, including the pro rata share of joint ventures of $0.8 million, was approximately $1.8 million.

(5)
In October 2001, the Financial Accounting Standards Board ("FASB") issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supersedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"). SFAS 144 establishes a single accounting model, based on the framework established in SFAS 121, for long-lived assets to be disposed of by sale. The Company adopted SFAS 144 on January 1, 2002.

The Company sold Boulder Plaza on March 19, 2002 and in accordance with SFAS 144 the results of Boulder Plaza for the periods from January 1, 2002 to March 19, 2002 and for the years ended December 31, 2001 and 2000 have been reclassified into discontinued operations. Total revenues associated with Boulder Plaza were approximately $0.5 million for the period January 1, 2002 to March 19, 2002 and $2.1 million and $2.7 million for the years ended December 31, 2001 and 2000, respectively.

Additionally, the Company sold its 67% interest in Paradise Village Gateway on January 2, 2003 (acquired in July 2002), and the loss on sale of $0.2 million has been reclassified to discontinued operations in 2003. Total revenues associated with

The Macerich Company    33


    Paradise Village Gateway for the period ending December 31, 2002 were $2.4 million. The Company sold Bristol Center on August 4, 2003, and the results for the period January 1, 2003 to August 4, 2003 and for the years ended December 31, 2002, 2001 and 2000 have been reclassified to discontinued operations. The sale of Bristol Center resulted in a gain on sale of asset of $22.2 million in 2003. Total revenues associated with Bristol Center were approximately $2.5 million for the period January 1, 2003 to August 4, 2003 and $4.0 million, $3.3 million and $3.2 million for the years ended December 31, 2002, 2001 and 2000, respectively.

    The Company sold Westbar on December 16, 2004, and the results for the period January 1, 2004 to December 16, 2004 and for the year ended December 31, 2003 and for the period July 26, 2002 to December 31, 2002 have been reclassified to discontinued operations. The sale of Westbar resulted in a gain on sale of asset of $6.8 million. Total revenues associated with Westbar was approximately $4.8 million for the period January 1, 2004 to December 17, 2004 and $5.7 million for the year ended December 31, 2003 and $2.1 million for the period July 26, 2002 to December 31, 2002.

    Additionally, the results of Crossroads Mall in Oklahoma for the twelve months ending December 31, 2004, 2003, 2002, 2001 and 2000 have been reclassified to discontinued operations. The Company has identified this asset for disposition. Total revenues associated with Crossroads Mall was approximately $11.2 million, $12.2 million, $11.8 million, $12.0 million and $11.5 million for the years ended December 31, 2004, 2003, 2002, 2001 and 2000, respectively.

(6)
Earnings per share are based on SFAS No. 128 for all years presented.

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

In compliance with the Securities and Exchange Commission's Regulation G and Amended Item 10 of Regulation S-K relating to non-GAAP financial measures, the Company has revised its FFO definition as of January 1, 2003 and for all periods presented, to include gain or loss on sales of peripheral land, impairment of assets, losses on debt-related transactions and the effect of SFAS No. 141 to amortize the below market leases which are recorded in minimum rents. The Company's revised definition is in accordance with the definition provided by NAREIT.

The inclusion of gains (losses) on sales of peripheral land included in FFO for the years ended December 31, 2004, 2003, 2002, 2001 and 2000 were $4.4 million (including $3.5 million from joint ventures at pro rata),$1.4 million (including $0.4 million from joint ventures at pro rata), $2.5 million (including $2.4 million from joint ventures at pro rata), $0.3 million (including $0.1 million from joint ventures at pro rata and ($0.7) million (including ($0.7) million from joint ventures at pro rata, respectively.

FFO for the years ended December 31, 2002, 2001 and 2000 have been restated to reflect the Company's share of impairment of assets and losses on debt-related transactions, the latter of which was previously reported as extraordinary items under GAAP. The Company's write-off of impairment of assets for 2002 was $13.3 million (including $10.2 million from joint ventures at pro rata). There were no write-offs of impairment of assets for the years ended December 31, 2001 or 2000. The Company's losses on debt-related transactions for the years ended December 31, 2002, 2001 and 2000 were $3.6 million, $2.0 million and $0.5 million (including $0.2 million from joint ventures at pro rata), respectively.

The computation of FFO-diluted includes the effect of outstanding common stock options and restricted stock using the treasury method. The Company had $125.1 million of convertible subordinated debentures (the "Debentures") which matured December 15, 2002. The Debentures were dilutive for the twelve month periods ending December 31, 2002, 2001 and 2000 and were included in the FFO calculation. The Debentures were paid off in full on December 13, 2002. On February 25, 1998, the Company sold $100 million of its Series A Preferred Stock. On June 16, 1998, the Company sold $150 million of its Series B Preferred Stock. The preferred stock can be converted on a one-for-one basis for common stock. The preferred stock was dilutive to FFO in 2004, 2003, 2002, 2001 and 2000 and the preferred stock were dilutive to net income in 2003. All of the Series B Preferred Stock were converted to common stock on September 9, 2003.

(8)
Assumes that all OP Units and Westcor partnership units are converted to common stock on a one-for-one basis. The Westcor partnership units were converted into OP Units on July 27, 2004.

(9)
Assumes issuance of common stock for in-the-money options and restricted stock calculated using the Treasury method in accordance with SFAS No. 128 for all years presented.

34     The Macerich Company



Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

General Background and Performance Measurement

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

In compliance with the Securities and Exchange Commission's Registration G and Amended Item 10 of Registration S-K relating to non-GAAP financial measures, the Company has revised its FFO definition as of January 1, 2003 and for all periods presented, to include gain or loss or sales of peripheral land, impairment of assets, losses on debt-related transactions and the effect of SFAS No. 141 to amortize the market leases which are recorded in minimum rents. The Company's revised definition is in accordance with the definition provided by NAREIT.

Percentage rents generally increase or decrease with changes in tenant sales. As leases roll over, however, a portion of historical percentage rent is often converted to minimum rent. It is therefore common for percentage rents to decrease as minimum rents increase. Accordingly, in discussing financial performance, the Company combines minimum and percentage rents in order to better measure revenue growth.

The following discussion is based primarily on the consolidated financial statements of the Company for the years ended December 31, 2004, 2003 and 2002. The following discussion compares the activity for the year ended December 31, 2004 to results of operations for the year ended December 31, 2003. Also included is a comparison of the activities for the year ended December 31, 2003 to the results for the year ended December 31, 2002. This information should be read in conjunction with the accompanying consolidated financial statements and notes thereto.

Forward-Looking Statements

This Annual Report on Form 10-K contains or incorporates statements that constitute forward-looking statements. Those statements appear in a number of places in this Form 10-K and include statements regarding, among other matters, the Company's growth, acquisition, redevelopment and development

The Macerich Company    35


opportunities, the Company's acquisition and other strategies, 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," "projects," "predicts," "plans," "believes," "seeks," "estimates," and "should" and variations of these words and similar expressions, 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 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 the matters described herein and the following factors among others: general industry, 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 and terms, availability and cost of financing, interest rate fluctuations and operating expenses; adverse changes in the real estate markets including, among other things, competition from other companies, retail formats and technologies, risks of real estate redevelopment, development, acquisitions and dispositions; governmental actions and initiatives (including legislative and regulatory changes); environmental and safety requirements; and terrorist activities that could adversely affect all of the above factors. The Company will not update any forward-looking information to reflect actual results or changes in the factors affecting the forward-looking information.

Statement on Critical Accounting Policies

The Securities and Exchange Commission ("SEC") defines "critical accounting policies" as those that require application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Some of these estimates and assumptions include judgements on revenue recognition, estimates for common area maintenance and real estate tax accruals, provisions for uncollectable accounts, impairment of long-lived assets, the allocation of purchase price between tangible and intangible assets, and estimates for environmental matters. The Company's significant accounting policies are described in more detail in Note 2 to the Consolidated Financial Statements. However, the following policies could be deemed to be critical within the SEC definition.

Revenue Recognition:

Minimum rental revenues are recognized on a straight-line basis over the terms of the related lease. The difference between the amount of rent due in a year and the amount recorded as rental income is referred to as the "straight lining of rent adjustment." Currently, 52% of the mall and freestanding leases contain provisions for Consumer Price Index ("CPI") rent increases periodically throughout the term of the lease. The Company believes that using an annual multiple of CPI increases, rather than fixed contractual rent increases, results in revenue recognition that more closely matches the cash revenue from each lease and will provide

36     The Macerich Company


more consistent rent growth throughout the term of the leases. Percentage rents are recognized in accordance with Staff Accounting Bulletin 101. Percentage rents are accrued when the tenants' specified sales targets have been met. Estimated recoveries from tenants for real estate taxes, insurance and other shopping center operating expenses are recognized as revenues in the period the applicable expenses are incurred.

Property:

Costs related to the development, redevelopment, construction and improvement of properties are capitalized. Interest incurred or imputed on development, redevelopment and construction projects is capitalized until construction is substantially complete.

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

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


Buildings and improvements   5-40 years
Tenant improvements   initial term of related lease
Equipment and furnishings   5-7 years

The Company accounts for all acquisitions entered into subsequent to June 30, 2001 in accordance with Statement of Financial Accounting Standards ("SFAS") No. 141, Business Combinations ("SFAS 141"). The Company will first determine the value of the land and buildings utilizing an "as if vacant" methodology. The Company will then assign a fair value to any debt assumed at acquisition. The balance of the purchase price will be allocated to tenant improvements and identifiable intangible assets or liabilities. Tenant improvements represent the tangible assets associated with the existing leases valued on a fair market value basis at acquisition date prorated over the remaining lease terms. The tenant improvements are classified as an asset under real estate investments and are depreciated over the remaining lease terms. Identifiable intangible assets and liabilities relate to the value of in-place operating leases which come in three forms: (i) origination value, which represents the value associated with "cost avoidance" of acquiring in-place leases, such as lease commissions paid under terms generally experienced in our markets; (ii) value of in-place leases, which represents the estimated loss of revenue and of costs incurred for the period required to lease the "assumed vacant" property to the occupancy level when purchased; and (iii) above or below market value of in-place leases, which represents the difference between the contractual rents and market rents at the time of the acquisition, discounted for tenant credit risks. Origination value is recorded as an other asset and is amortized over the remaining lease terms. Value of in-place leases is recorded as another asset and amortized over the remaining lease term plus an estimate of renewal of the acquired leases. Above or below market leases are classified as an other asset or liability, depending on whether the contractual terms are above or below market, and the asset or liability is amortized to rental revenue over the remaining terms of the leases.

When the Company acquires real estate properties, the Company allocates the components of these acquisitions using relative fair values computed using its estimates and assumptions. These estimates and assumptions impact the amount of costs allocated between various components as well as the amount of costs

The Macerich Company    37



assigned to individual properties in multiple property acquisitions. These allocations also impact depreciation expense and gains or loses recorded on future sales of properties.

Generally, the Company engages a valuation firm to assist with the allocation.

The Company adopted SFAS 144 on January 1, 2002 which addresses financial accounting and reporting for the impairment or disposal of long-lived assets.

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

Deferred Charges:

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


Deferred lease costs   1-15 years
Deferred financing costs   1-15 years
In-place lease values   Remaining lease term plus an estimate for renewal (weighted average 17 years)
Leasing commissions and legal costs   5-10 years

Off-Balance Sheet Arrangements:

The Company has an ownership interest in a number of joint ventures as detailed in Note 3 to the Company's Consolidated Financial Statements included herein. The Company accounts for those investments using the equity method of accounting and those investments are reflected on the Consolidated Balance Sheets of the Company as "Investments in Unconsolidated Joint Ventures." A pro rata share of the mortgage debt on these properties is shown in Item 2. Properties—Mortgage Debt. In addition, the following joint ventures also have debt that could become recourse debt to the Company or its subsidiaries, in excess of its pro rata share, should the partnership be unable to discharge the obligations of the related debt:

Asset/Property

  Maximum amount of debt principal that could be recourse to the Company (Dollars in thousands)

  Maturity Date


Boulevard Shops   $10,722   1/1/2006
Chandler Village Center   13,446   12/19/2006

Total   $24,168    

38     The Macerich Company


The above amounts decreased by $13.2 million from December 31, 2003.

Additionally, as of December 31, 2004, the Company has certain obligations of $6.9 million in letters of credit guaranteeing performance by the Company of certain obligations relating to the Centers. The Company does not believe that these letters of credit will result in a liability to the Company.

Long-term contractual obligations:

The following is a schedule of long-term contractual obligations (as of December 31, 2004) for the consolidated Centers over the periods in which they are expected to be paid:

 
  Payment Due by Period

Contractual Obligations
(Dollars in thousands)

  Total

  Less than 1 year

  1-3
years

  3-5
years

  More than five years


Long-term debt obligations
(includes expected interest payments)
  $ 3,400,636   $ 193,405   $ 1,313,162   $ 753,838   $ 1,140,231
Operating lease obligations     479,901     3,395     6,943     11,393     458,170
Purchase obligations     5,138     5,138            
Other long-term liabilities     173,194     173,194            

  Total   $ 4,058,869   $ 375,132   $ 1,320,105   $ 765,231   $ 1,598,401

The Macerich Company    39


The following table reflects the Company's acquisitions in 2002, 2003 and 2004.

Property/Entity

  Date Acquired      

  Location


2002 Acquisitions:        
The Oaks   June 10, 2002   Thousand Oaks, California
Westcor Realty Limited Partnership   July 26, 2002   Nine regional and super-regional malls in Phoenix and Colorado and 18 urban villages or community centers. The aggregate gross leasable area was approximately 14.1 million square feet. Additionally, the portfolio included two retail properties under development, as well as rights to over 1,000 acres of undeveloped land.

2003 Acquisitions:        
FlatIron Crossing   January 31, 2003   Broomfield, Colorado
Northridge Mall   September 15, 2003   Salinas, California
Biltmore Fashion Park   December 18, 2003   Phoenix, Arizona

2004 Acquisitions:        
Inland Center   January 30, 2004   San Bernardino, California
Northpark Center   May 11, 2004   Dallas, Texas
Mall of Victor Valley   July 1, 2004   Victor Valley, California
La Cumbre Plaza   July 20, 2004   Santa Barbara, California
Fiesta Mall   November 16, 2004   Mesa, Arizona
Paradise Village Ground Leases, Village Center, Village Crossroads, Village Fair and Paradise Village Office Park   December 30, 2004   Phoenix, Arizona

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

    On March 19, 2002, the Company sold Boulder Plaza, a 159,238 square foot community center in Boulder, Colorado for $24.7 million. The proceeds from the sale were used for general corporate purposes.

    On June 10, 2002, the Company acquired The Oaks, a 1.1 million square foot super-regional mall in Thousand Oaks, California. The total purchase price was $152.5 million and was funded with $108.0 million of debt, bearing interest at LIBOR plus 1.15%, placed concurrently with the acquisition. The balance of the purchase price was funded by cash and borrowings under the Company's line of credit. The Oaks is referred to herein as the "2002 Acquisition Center."

    On July 26, 2002, the Operating Partnership acquired Westcor Realty Limited Partnership and its affiliated companies ("Westcor"). The total purchase price was approximately $1.475 billion including the assumption of $733 million in existing debt and the issuance of approximately $72 million of convertible

40     The Macerich Company



    preferred partnership units of the Operating Partnership at a price of $36.55 per unit. Additionally, $18.9 million of partnership units of Westcor Realty Limited Partnership were issued to limited partners of Westcor which, subject to certain conditions, can be converted on a one for one basis into partnership units of the Operating Partnership. The balance of the purchase price was paid in cash which was provided primarily from a $380.0 million interim credit facility, which was subsequently paid in full in 2002 and a $250.0 million term loan, which was subsequently paid in full in 2004.

    On November 8, 2002, the Company purchased its joint venture partner's interest in Panorama City Associates, which owns Panorama Mall in Panorama, California. The purchase price was approximately $23.7 million.

    On December 24, 2002, the former Montgomery Ward site at Pacific View Mall in Ventura, California was sold for approximately $15.4 million. The proceeds from the sale were used to repay a portion of the term loan.

    On January 2, 2003, the Company sold its 67% interest in Paradise Village Gateway, a 296,153 square foot Phoenix area urban village, for approximately $29.4 million. The proceeds from the sale were used to repay a portion of the term loan. The sale resulted in a loss on sale of asset of $0.2 million.

    On January 31, 2003, the Company purchased its joint venture partner's 50% interest in FlatIron Crossing. The purchase price consisted of approximately $68.3 million in cash plus the assumption of the joint venture partner's share of debt of $90.0 million.

    On May 15, 2003, the Company sold 49.9% of its partnership interest in the Village at Corte Madera for a total purchase price of approximately $65.9 million, which included the assumption of a proportionate amount of the partnership debt in the amount of approximately $34.7 million. The Company retained a 50.1% partnership interest and has continued leasing and managing the asset. The sale resulted in a gain on sale of asset of $8.8 million.

    On June 6, 2003, the Shops at Gainey Village, a 138,000 square foot Phoenix area specialty center, was sold for $55.7 million. The Company, which owned 50% of this property, received total proceeds of $15.8 million and recorded a gain on sale of asset of $2.8 million.

    On August 4, 2003, the Company sold Bristol Center, a 161,000 square foot community center in Santa Ana, California. The sales price was approximately $30.0 million and the Company recorded a gain on sale of asset of $22.2 million which is reflected in discontinued operations.

    On September 15, 2003, the Company acquired Northridge Mall, an 863,832 square foot super-regional mall in Salinas, California. The total purchase price was $128.5 million and was funded by sale proceeds from Bristol Center and borrowings under the Company's line of credit. Northridge Mall is referred herein as the "2003 Acquisition Center."

    On December 18, 2003, the Company acquired Biltmore Fashion Park, a 608,976 square foot regional mall in Phoenix, Arizona. The total purchase price was $158.5 million, which included the assumption of $77.4 million of debt. The Company also issued 705,636 partnership units of the Operating Partnership at a price of $42.80 per unit. The balance of the Company's 50% share of the purchase price of

The Macerich Company    41



    $10.5 million was funded by cash and borrowings under the Company's line of credit. The mall is owned in a 50/50 joint venture with an institutional partner.

    On January 30, 2004, the Company, in a 50/50 joint venture with a private investment company, acquired Inland Center, a 1 million square foot super-regional mall in San Bernardino, California. The total purchase price was $63.3 million and concurrently with the acquisition, the joint venture placed a $54.0 million fixed rate loan on the property. The Company's share of the remainder of the purchase price was funded by cash and borrowings under the Company's line of credit.

    On May 11, 2004, the Company acquired an ownership interest in NorthPark Center, a 1.3 million square foot regional mall in Dallas, Texas. The Company's initial investment in the property was $30.0 million which was funded by borrowings under the Company's line of credit. In addition, the Company assumed a pro rata share of debt of $86.6 million and has committed to fund an additional $45.0 million. As of December 31, 2004, the Company's total investment in the joint venture was $49.1 million.

    On July 1, 2004, the Company acquired the Mall of Victor Valley in Victorville, California and on July 20, 2004, the Company acquired La Cumbre Plaza in Santa Barbara, California. The Mall of Victor Valley is a 508,000 square foot regional mall and La Cumbre Plaza is a 494,000 square foot regional mall. The combined total purchase price was $151.3 million. The purchase price for the Mall of Victor Valley included the assumption of an existing fixed rate loan of $54.0 million at 5.25% maturing in March, 2008. Concurrent with the closing of La Cumbre Plaza, a $30.0 million floating rate loan was placed on the property with an initial interest rate of 2.29%. The balance of the purchase price was paid in cash and borrowings from the Company's revolving line of credit.

    On November 16, 2004, the Company acquired Fiesta Mall, a 1 million square foot super regional mall in Mesa, Arizona. The total purchase price was $135.2 million which was funded by borrowings under the Company's line of credit. On December 2, 2004, the Company placed a ten year $84.0 million fixed rate loan at 4.88% on the property.

    On December 16, 2004, the Company sold the Westbar property, a Phoenix area property that consisted of a collection of ground leases, a shopping center, and land for $47.5 million. The sale resulted in a gain on sale of asset of $6.8 million.

    On December 30, 2004, the Company purchased the unaffiliated owners' 50% tenants in common interest in Paradise Village Ground Leases, Village Center, Village Crossroads, Village Fair and Paradise Village Office Park II. All of these assets are located in Phoenix, Arizona. The total purchase price was $50.0 million which included the assumption of the unaffiliated owners' share of debt of $15.2 million. The balance of the purchase price was paid in cash and borrowings from the Company's line of credit. Accordingly, the Company now owns 100% of these assets.

    The Mall of Victor Valley, La Cumbre Plaza and Fiesta Mall are referred to herein as the "2004 Acquisition Centers."

    Biltmore Fashion Park, Inland Center and NorthPark Center are joint ventures and these properties are reflected using the equity method of accounting. The Company's share of these results of these

42     The Macerich Company



    acquisitions are reflected in the consolidated results of operations of the Company in the income statement line item entitled "Equity in income of unconsolidated joint ventures and the management company."

    Many of the variations in the results of operations, discussed below, occurred due to the transactions described above including the acquisition of the Westcor portfolio, the 2002 Acquisition Center, the 2003 Acquisition Center and the 2004 Acquisition Centers. Biltmore Fashion Park, Inland Center and NorthPark Center are referred to herein as the "Joint Venture Acquisition Centers." 29th Street, Parklane Mall, Santa Monica Place and Queens Center are currently under redevelopment and are referred to herein as the "Redevelopment Centers." La Encantada and Scottsdale 101 are currently under development and are referred herein as the "Development Properties." All other Centers, excluding the Redevelopment Centers, the Development Properties, the Village at Corte Madera, FlatIron Crossing, the 2002 Acquisition Center, the Westcor portfolio, the 2003 Acquisition Center, the 2004 Acquisition Centers and the Joint Venture Acquisition Centers, are referred to herein as the "Same Centers," unless the context otherwise requires.

Revenues include rents attributable to the accounting practice of straight-lining of rents which requires rent to be recognized each year in an amount equal to the average rent over the term of the lease, including fixed rent increases over that period. The amount of straight-lined rents, included in consolidated revenues, recognized in 2004 was $1.0 million compared to $2.9 million in 2003 and $1.2 million in 2002. Additionally, the Company recognized through equity in income of unconsolidated joint ventures, $1.0 million as its pro rata share of straight-lined rents from joint ventures in 2004 compared to $1.9 million in 2003 and $2.3 million in 2002. These variances resulted from the Company structuring the majority of its new leases using an annual multiple of CPI increases, which generally do not require straight-lining treatment. Currently, 52% of the mall and freestanding leases contain provisions for CPI rent increases periodically throughout the term of the lease. The Company believes that using an annual multiple of CPI increases, rather than fixed contractual rent increases, results in revenue recognition that more closely matches the cash revenue from each lease and will provide more consistent rent growth throughout the term of the leases.

The Company's historical growth in revenues, net income and Funds From Operations have been closely tied to the acquisition and redevelopment of shopping centers. Many factors, including the availability and cost of capital, the Company's total amount of debt outstanding, interest rates and the availability of attractive acquisition targets, among others, will affect the Company's ability to acquire and redevelop additional properties in the future. The Company may not be successful in pursuing acquisition opportunities and newly acquired properties may not perform as well as expected in terms of achieving the anticipated financial and operating results. Acquiring a portfolio of properties increases the risk associated with new acquisitions. Increased competition for acquisitions may impact adversely the Company's ability to acquire additional properties on favorable terms. Expenses arising from the Company's efforts to complete acquisitions, redevelop properties or increase its market penetration may have an adverse effect on its business, financial condition and results of operations. In addition, the following describes some of the other significant factors that may impact the Company's future results of operations.

General Factors Affecting the Centers; Competition:    Real property investments are subject to varying degrees of risk that may affect the ability of the Centers to generate sufficient revenues to meet operating and other expenses, including debt service, lease payments, capital expenditures and tenant improvements, and to make

The Macerich Company    43



distributions to the Company and the Company's stockholders. Income from shopping center properties may be adversely affected by a number of factors, including: the national economic climate; the regional and local economy (which may be adversely impacted by plant closings, industry slowdowns, union activities, adverse weather conditions, natural disasters, terrorist activities, and other factors); local real estate conditions (such as an oversupply of, or a reduction in demand for, retail space or retail goods and the availability and creditworthiness of current and prospective tenants); perceptions by retailers or shoppers of the safety, convenience and attractiveness of the shopping center; and increased costs of maintenance, insurance and operations (including real estate taxes). A significant percentage of the Centers are located in California, the Westcor centers are concentrated in Arizona and upon completion of the Wilmorite acquisition, 12 centers will be located in New York, New Jersey or Connecticut. To the extent that economic or other factors affect California, Arizona, New York, New Jersey or Connecticut (or their respective regions generally) more severely than other areas of the country, the negative impact on the Company's economic performance could be significant. There are numerous shopping facilities that compete with the Centers in attracting tenants to lease space, and an increasing number of new retail formats and technologies other than retail shopping centers that compete with the Centers for retail sales (see "Business—Competition"). Increased competition could adversely affect the Company's revenues. Income from shopping center properties and shopping center values are also affected by such factors as applicable laws and regulations, including tax, environmental, safety and zoning laws (see "Business—Environmental Matters"), interest rate levels and the availability and cost of financing.

Dependence on Anchors/Tenants:    The Company's revenues and funds available for distribution would be adversely affected if a significant number of the Company's tenants were unable (due to poor operating results, bankruptcy, terrorist activities or other reasons) to meet their obligations, if the Company were unable to lease a significant amount of space in the Centers on economically favorable terms, or if for any reason, the Company were unable to collect a significant amount of rental payments. A decision by an Anchor or a significant tenant to cease operations at a Center could also have an adverse effect on the Company. In addition, mergers, acquisitions, consolidations, dispositions or bankruptcies in the retail industry could result in the loss of Anchors or tenants at one or more Centers. The bankruptcy and/or closure of retail stores, or sale of a store or stores to a less desirable retailer, may reduce occupany levels and rental income, or otherwise adversely affect the Company's financial performance. (See "Business—Bankruptcy and/or Closure of Retail Stores.") Furthermore, if the store sales of retailers operating in the Centers were to decline sufficiently, tenants might be unable to pay their minimum rents or expense recovery charges. In the event of a default by a tenant, the Center may also experience delays and costs in enforcing its rights as landlord.

Real Estate Development Risks:    The Company's business strategy includes the selective development and construction of retail properties. Any development, redevelopment and construction activities that the Company undertakes will be subject to the risks of real estate development, including lack of financing, construction delays, environmental requirements, budget overruns, sunk costs and lease-up. Furthermore, occupancy rates and rents at a newly completed property may not be sufficient to make the property profitable. Real estate development activities are also subject to risks relating to the inability to obtain, or delays in obtaining, all necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations. If any of the above events occur, the ability to pay distributions and service the Company's indebtedness could be adversely affected.

44     The Macerich Company


Joint Venture Centers:    The Company indirectly owns partial interests in 38 Joint Venture Centers as well as fee title to a site that is ground leased to the entity that owns a Joint Venture Center and several development sites. The Company may also acquire partial interests in additional properties through joint venture arrangements. Investments in Joint Venture Centers involve risks different from those of investments in wholly-owned Centers. The Company may have fiduciary responsibilities to its partners that could affect decisions concerning the Joint Venture Centers. In certain cases, third parties share with the Company or have (with respect to one Joint Venture Center) control of major decisions relating to the Joint Venture Centers, including decisions with respect to sales, financings and the timing and amount of additional capital contributions, as well as decisions that could have an adverse impact on the Company's REIT status. In addition, some of the Company's outside partners control the day-to-day operations of eight Joint Venture Centers. The Company therefore does not control cash distributions from these Centers and the lack of cash distributions from these Centers could jeopardize the Company's ability to maintain its qualification as a REIT.

Uninsured Losses:    Each of the Centers has comprehensive liability, fire, extended coverage and rental loss insurance with insured limits customarily carried for similar properties. The Company does not insure certain types of losses (such as losses from wars), because they are either uninsurable or not economically insurable. In addition, while the Company or the relevant joint venture, as applicable, carries earthquake insurance on the Centers located in California, the policies are subject to a deductible equal to 5% of the total insured value of each Center, a $100,000 per occurrence minimum and a combined annual aggregate loss limit of $200 million on these Centers. While the Company or the relevant joint venture also carries terrorism insurance on the Centers, the policies are subject to a $10,000 deductible and a combined annual aggregate loss of $400 million for both certified and non-certified acts of terrorism. Furthermore, the Company carries title insurance on substantially all of the Centers for less than their full value. If an uninsured loss or a loss in excess of insured limits occurs, the Operating Partnership or the entity, as the case may be, that owns the affected Center could lose its capital invested in the Center, as well as the anticipated future revenue from the Center, while remaining obligated for any mortgage indebtedness or other financial obligations related to the Center. There is also no assurance that the Company will be able to maintain its current insurance coverage. An uninsured loss or loss in excess of insured limits may negatively impact the Company's financial condition.

REIT Qualification:    Qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which there are only limited judicial or administrative interpretations. The complexity of these provisions and of the applicable income tax regulations is greater in the case of a REIT such as the Company that holds its assets in partnership form. The determination of various factual matters and circumstances not entirely within the Company's control, including by the Company's partners in the Joint Venture Centers, may affect its ability to qualify as a REIT. In addition, legislation, new regulations, administrative interpretations or court decisions could significantly change the tax laws with respect to the Company's qualification as a REIT or the federal income tax consequences of that qualification.

The Macerich Company    45



If in any taxable year the Company fails to qualify as a REIT, the Company will suffer the following negative results:

    the Company will not be allowed a deduction for distributions to stockholders in computing its taxable income; and

    the Company will be subject to federal income tax on its taxable income at regular corporate rates.

In addition, the Company will be disqualified from treatment as a REIT for the four taxable years following the year during which the qualification was lost, unless the Company was entitled to relief under statutory provisions. As a result, net income and the funds available for distribution to the Company's stockholders will be reduced for five years. Furthermore, the Internal Revenue Service could challenge the Company's REIT status for post periods, which if successful, could result in the Company owing a material amount of tax for prior periods. It is also possible that future economic, market, legal, tax or other considerations might cause the Board of Directors to revoke the Company's REIT election.

Potential Conflicts of Interest.    Each of Mace Siegel, Arthur Coppola, Dana Anderson and Edward Coppola (the "principals") serve as executive officers of the Company and are members of its board of directors. Accordingly, these principals have substantial influence over its management and the management of the Operating Partnership. Certain interests of the principals may cause a potential conflict of interest with the Company and its stockholders. The principals will experience negative tax consequences if some of the Centers are sold. As a result, the principals may not favor a sale of these Centers even though such a sale may benefit other Company stockholders. The principals also have guaranteed mortgage loans encumbering one of the Centers in an aggregate principal amount of approximately $21.75 million. The existence of these loans by the principals could result in the principals having interests that are inconsistent with the interests of the Company and its stockholders. Finally, the principals may have different interests than the Company's stockholders in certain corporate transactions because they are significant OP Unit holders in the Operating Partnership.

Assets and Liabilities

Total assets increased to $4.6 billion at December 31, 2004 compared to $4.1 billion at December 31, 2003 and $3.7 billion at December 31, 2002. During that same period, total liabilities were $3.4 billion in 2004, $2.9 billion in 2003, and $2.4 billion in 2002. These changes were primarily a result of the 2004, 2003 and 2002 acquisitions and various debt and equity transactions.

Recent Developments

A. Acquisitions

On January 30, 2004, the Company, in a 50/50 joint venture with a private investment company, acquired Inland Center, a 1 million square foot super-regional mall in San Bernardino, California. The total purchase price was $63.3 million and concurrently with the acquisition, the joint venture placed a $54.0 million fixed rate loan on the property. The balance of the Company's pro rata share of the purchase price was funded by cash and borrowings under the Company's line of credit.

46     The Macerich Company


On May 11, 2004, the Company acquired an ownership interest in NorthPark Center, a 1.3 million square foot regional mall in Dallas, Texas. The Company's initial investment in the property was $30.0 million which was funded by borrowings under the Company's line of credit. In addition, the Company assumed a pro rata share of debt of $86.6 million and has committed to fund an additional $45.0 million. As of December 31, 2004, the Company's total investment in the joint venture was $49.1 million.

On July 1, 2004, the Company acquired the Mall of Victor Valley in Victorville, California and on July 20, 2004, the Company acquired La Cumbre Plaza in Santa Barbara, California. The Mall of Victor Valley is a 508,000 square foot regional mall and La Cumbre Plaza is a 494,000 square foot regional mall. The combined total purchase price was $151.3 million. The purchase price for the Mall of Victor Valley included the assumption of an existing fixed rate loan of $54.0 million at 5.25% maturing in March, 2008. Concurrent with the closing of La Cumbre Plaza, a $30.0 million floating rate loan was placed on the property with an initial interest rate of 2.29%. The balance of the purchase price was paid in cash and borrowings from the Company's revolving line of credit.

On November 16, 2004, the Company acquired Fiesta Mall, a 1 million square foot super regional mall in Mesa, Arizona. The total purchase price was $135.2 million which was funded by borrowings under the Company's line of credit. On December 2, 2004, the Company placed a ten year $84.0 million fixed rate loan at 4.88% on the property.

On December 23, 2004, the Company announced that it had signed a definitive agreement to acquire Wilmorite Properties, Inc. and Wilmorite Holdings L.P. ("Wilmorite"). The total purchase price will be approximately $2.33 billion, including the assumption of approximately $878 million of existing debt at an average interest rate of 6.43% and the issuance of convertible preferred units and common units totaling an estimated $320 million. Approximately $210 million of the convertible preferred units can be redeemed, subject to certain conditions, for that portion of the Wilmorite portfolio generally located in the greater Rochester area. The balance of the consideration to Wilmorite's equity holders will be paid in cash. This transaction has been approved by each company's Board of Directors, subject to customary closing conditions. A majority-in-interest of the limited partners of Wilmorite Holdings L.P. and of the stockholders of its general partner, Wilmorite Properties, Inc., have also approved this acquisition. It is currently anticipated that this transaction will be completed in April, 2005. Wilmorite's existing portfolio includes interests in 11 regional malls and two open-air community centers, with 13.4 million square feet of space located in Connecticut, New York, New Jersey, Kentucky and Virginia. Approximately 5 million square feet of gross leaseable area is located at three premier regional malls: Tysons Corner Center in McLean, Virginia, Freehold Raceway Mall in Freehold, New Jersey and Danbury Fair Mall in Danbury, Connecticut.

On December 30, 2004, the Company purchased the unaffiliated owners' 50% tenants in common interest in Paradise Village Ground Leases, Village Center, Village Crossroads, Village Fair and Paradise Village Office Park II. All of these assets are located in Phoenix, Arizona. The total purchase price was $50.0 million which included the assumption of the unaffiliated owners' share of debt of $15.2 million. The balance of the purchase price was paid in cash and borrowings from the Company's line of credit. Accordingly, the Company now owns 100% of these assets.

The Macerich Company    47



On January 11, 2005, the Company became a 15% owner in a joint venture that acquired Metrocenter, a 1.4 million square foot super-regional mall in Phoenix, Arizona. The total purchase price was $160 million and concurrently with the acquisition, the joint venture placed a $112 million loan on the property. The Company's share of the purchase price, net of the debt, was $7.2 million which was funded by cash and borrowings under the Company's line of credit.

Effective January 21, 2005, the Company formed a 50/50 joint venture with a private investment company. The joint venture acquired a 49% interest in Kierland Commons, a 320,000 square foot mixed use center in Scottsdale, Arizona. The joint venture's purchase price for the interest in the center was $49.0 million. The Company assumed its share of the underlying property debt and funded the remainder of its share of the purchase price by cash and borrowings under the Company's line of credit.

B. Financing Activity

On February 18, 2004, the Company placed a $79.9 million floating rate loan on the Center at Salisbury. The loan floats at LIBOR plus 1.375% and matures February 20, 2006.

On June 30, 2004, the Company placed a new $85.0 million loan maturing in 2009 on Northridge Mall. The loan floats at LIBOR plus 2.0% for six months and then converts to a fixed rate loan at 4.94%.

On July 19, 2004, the Company placed a new $75.0 million fixed rate loan on Redmond Town Center. The new fixed rate loan bears interest at 4.81%. The proceeds were used to pay off the old $58.4 million loan and a $10.6 million loan at Washington Square. Both loans which were paid off had interest rates of 6.5%.

On July 30, 2004, the Company amended and expanded its revolving line of credit from $425.0 million to $1.0 billion and extended the maturity to July 30, 2007, plus a one year extension. The interest rate was reduced to 1.5% over LIBOR based on the Company's current leverage level.

On October 7, 2004, the Company placed an additional loan for $35.0 million at Washington Square. The loan will mature February 1, 2009 and the interest rate floats at LIBOR plus 2.0%. The proceeds from this loan paid off existing loans at Cascade Mall and Northpoint Plaza totaling $24.0 million at fixed interest rates of 6.5%.

C. Redevelopment and Development Activity

At Queens Center, the multi-phased $275 million redevelopment and expansion had its grand opening the weekend of November 19, 2004. The project increased the size of the center from 620,000 square feet to approximately 1 million square feet.

At Washington Square in suburban Portland, the Company is proceeding with an expansion project which consists of the addition of 80,000 square feet of shop space. The expansion is underway with substantial completion expected in the fourth quarter of 2005.

In Boulder, Colorado, the Company has received final approval from the City of Boulder's Planning Board for its proposal to transform Crossroads Mall into "Twenty Ninth Street"—an open-air retail, entertainment, restaurant and office district. Macerich has reached agreement with anchors, Century

48     The Macerich Company



Theatres, Home Depot and Wild Oats Market. Wild Oats and Century will join existing anchor Foley's which is the remaining retailer from the original mall. Twenty Ninth Street is expected to represent approximately 816,000 square feet of GLA upon completion of the project.

The development of San Tan Village progresses. The 500 acre master planned Gilbert project will unfold during several phases of development which will be driven by market and retailers' needs. Upon full completion, San Tan Village is expected to represent approximately 3 million square feet of retail space. Phase I, featuring a 29 acre full service power center, will open a Wal-Mart in 2005 followed by a Sam's Club later in the year. Phase II represents an additional 308,000 square feet of gross leaseable area. Phase II is projected to open September 2005. The regional shopping center component of San Tan Village lies on 120 acres and will represent approximately 1.3 million square feet. Infrastructure improvements are underway. The entertainment district could open as early as 2006 followed by a projected fall 2007 opening for the majority of the balance of the center.

At NorthPark Center in Dallas, Texas, the joint venture is proceeding with an expansion project which consists of the addition of Nordstrom, AMC Theatres and new specialty retail space which will increase the size of the center from 1.3 million square feet to more than 1.9 million square feet. The project is being built in phases and is being managed by the Company's joint venture partner.

D. Dispositions

On December 16, 2004, the Company sold the Westbar property, a Phoenix area property that consisted of a collection of ground leases, a shopping center, and land for $47.5 million. The sale resulted in a gain on sale of asset of $6.8 million.

Comparison of Years Ended December 31, 2004 and 2003

Revenues

Minimum and percentage rents increased by 16.3% to $347.3 million in 2004 from $298.7 million in 2003. Approximately $11.7 million of the increase relates to the Same Centers, $0.8 million of the increase relates to the Company acquiring 50% of its joint venture partner's interest in FlatIron Crossing, $7.4 million relates to the 2003 Acquisition Center, $10.1 million relates to the 2004 Acquisition Centers and $22.0 million relates to the Redevelopment and Development Centers, primarily Queens Center, La Encantada and Scottsdale 101 where phases of the developments have been completed. Additionally, these increases in minimum and percentage rents are offset by decreasing revenues of $3.4 million related to the Company's sale of a 49.9% interest in the Village at Corte Madera.

During 2001, the Company adopted SFAS 141. (See "Statement on Critical Accounting Policies"). The amortization of below market leases, which is recorded in minimum rents, increased to $9.2 million in 2004 from $6.1 million in 2003. The increase is primarily due to the 2003 Acquisition Center, 2004 Acquisition Centers and the Company acquiring 50% of its joint venture partner's interest in FlatIron Crossing.

Tenant recoveries increased to $159.0 million in 2004 from $152.7 in 2003. Approximately $0.1 million relates to the Company acquiring 50% of its joint venture partner's interest in FlatIron Crossing,

The Macerich Company    49



$3.4 million relates to the Redevelopment and Development Centers, primarily Queens Center, La Encantada and Scottsdale 101, $4.4 million relates to the 2003 Acquisition Center and $3.7 million relates to the 2004 Acquisition Centers. This is offset by a $3.8 million decrease due to a change in estimated recovery rates at the Same Centers and a $1.1 million decrease relating to the Company's sale of a 49.9% partnership interest in the Village at Corte Madera.

Management Companies

Revenues increased by 49.3% to $21.8 million in 2004 compared to $14.6 million in 2003 primarily due to consolidating Macerich Management Company effective July 1, 2003 in accordance with FIN 46. Prior to July 1, 2003, the Macerich Management Company was accounted for using the equity method of accounting.

Expenses

Shopping center and operating expenses increased to $165.0 million in 2004 compared to $151.3 million in 2003. The increase is a result of $4.6 million related to the 2003 Acquisition Center, $4.2 million due to the 2004 Acquisition Centers, $7.3 million related to the Redevelopment and Development Centers, primarily Queens Center, La Encantada and Scottsdale 101, $0.1 million related to the Company acquiring 50% of its joint venture partner's interest in FlatIron Crossing and $5.3 million relating to the Same Centers due to increases in recoverable and non-recoverable expenses. This is offset by a decrease of non-recoverable expenses due to a write-off of a $6.4 million compensation liability and a $1.4 million decrease related to the Company's sale of a 49.9% partnership interest in the Village at Corte Madera.

Management Companies' Operating Expenses

Expenses increased by 21.2% to $38.3 million in 2004 from $31.6 million in 2003 primarily due to consolidating Macerich Management Company effective July 1, 2003 in accordance with FIN 46. Prior to July 1, 2003, the Macerich Management Company was accounted for using the equity method of accounting.

REIT General and Administrative Expenses

REIT general and administrative expenses increased to $11.1 million in 2004 from $8.5 million in 2003, primarily due to increases in professional services and stock-based compensation expense.

Depreciation and Amortization

Depreciation and amortization increased to $142.1 million in 2004 from $104.9 million in 2003. Approximately $3.3 million of the increase relates to the 2003 Acquisition Center, $7.8 million relates to the 2004 Acquisition Centers, $2.0 million relates to consolidating Macerich Management Company effective July 1, 2003, $3.8 million relates to additional capital expenditures at the Same Centers and $8.5 million relates to Queens Center, La Encantada and Scottsdale 101. As a result of SFAS 141, an additional $12.9 million of depreciation and amortization was recorded for the twelve months ending December 31, 2004 compared to the same period in 2003 due to the reclassification of the purchase price of 2002, 2003 and 2004 acquisitions between buildings and into the value of in-place leases, tenant improvements and lease commissions all of which have shorter depreciable lives than buildings. This is offset by a $1.1 million decrease relating to the sale of 49.9% of the partnership interest in the Village at Corte Madera.

50     The Macerich Company


Interest Expense

Interest expense increased to $146.3 million in 2004 from $130.7 million in 2003. Approximately $4.5 million of the increase relates to the refinancing of FlatIron Crossing on November 4, 2003, $4.8 million relates to the $250 million of unsecured notes issued on May 13, 2003, $5.3 million relates to increased borrowings on the Company's line of credit, $2.0 million relates to the 2003 Acquisition Center, $2.0 million relates to the 2004 Acquisition Centers and $8.7 million relates primarily to Queens Center, La Encantada and Scottsdale 101. These increases are offset by $2.0 million, which relates to the Company's sale of a 49.9% partnership interest in the Village at Corte Madera, $4.1 million relates to the payoff of the $196.5 million term loan on July 30, 2004, $2.5 million relates to the payoff of the 29th Street loan on February 3, 2004 and $5.9 million relates to other financing activity at the Same Centers. Capitalized interest was $8.9 million in 2004, down from $12.1 million in 2003.

Minority Interest

The minority interest represents the 19.5% weighted average interest of the Operating Partnership not owned by the Company during 2004. This compares to 20.74% not owned by the Company during 2003.

Equity in Income from Unconsolidated Joint Ventures and Macerich Management Company

The income from unconsolidated joint ventures and the Macerich Management Company was $54.9 million for 2004, compared to income of $59.3 million in 2003. This decrease is primarily due to increased depreciation relating to SFAS 141 on the Joint Venture Acquisition Centers and consolidating Macerich Management Company effective July 1, 2003 in accordance with FIN 46. Prior to July 1, 2003, the Macerich Management Company was accounted for using the equity method of accounting.

Loss on Early Extinguishment of Debt

In 2004, the Company recorded a loss from early extinguishment of debt of $1.6 million related to the payoff of a loan at one of the Redevelopment Centers and the payoff of the $196.8 million term loan.

Gain on Sale of Assets

In 2004, a gain of $0.9 million was recorded relating to land sales compared to $1.0 million of land sales in 2003. A gain of $12.4 million in 2003 represents primarily the Company's sale of 49.9% of its partnership interest in the Village at Corte Madera on May 15, 2003 and the sale of the Shops at Gainey Village.

Discontinued Operations

In 2004, the $7.1 million gain on sale relates primarily to the sale of the Westbar property. The gain on sale of $22.0 million in 2003 relates primarily to the sale of Bristol Center on August 4, 2003.

Net Income Available to Common Stockholders

Primarily as a result of the sale of Bristol Center in 2003, the purchase of the 2003 Acquisition Center and the 2004 Acquisition Centers, the sale of 49.9% of the partnership interest in the Village at Corte Madera, the Company acquiring 50% of its joint venture partner's interest in FlatIron Crossing, the change in depreciation expense due to SFAS 141, the redevelopment of Queens Center, the developments of La Encantada and Scottsdale 101 and the foregoing results, net income available to common stockholders decreased to $82.5 million in 2004 from $113.2 million in 2003.

The Macerich Company    51


Operating Activities

Cash flow from operations was $194.4 million in 2004 compared to $202.8 million in 2003. The decrease is primarily due to the foregoing results at the Centers as mentioned above.

Investing Activities

Cash used in investing activities was $479.3 million in 2004 compared to cash used in investing activities of $328.4 million in 2003. The change resulted primarily from the proceeds of $107.2 million received in 2003 from the sale of Paradise Village Gateway, the Shops at Gainey Village, Bristol Center and the 49.9% interest in the Village at Corte Madera which is offset by increased contributions to joint ventures and acquisitions of joint ventures, $291.5 million relating to the 2004 Acquisition Centers and by the Company's purchase of its joint venture partner's 50% interest in FlatIron Crossing on January 31, 2003.

Financing Activities

Cash flow provided by financing activities was $316.6 million in 2004 compared to cash flow provided by financing activities of $115.7 million in 2003. The 2004 increase compared to 2003 resulted primarily from $94.1 million of additional funding relating to Queens construction loan, the $85.0 million Northridge loan, the new $84.0 million loan at Fiesta Mall and increased borrowings under the Company's line of credit, which is offset by the Company acquiring 50% of its joint venture partner's interest in FlatIron Crossing in January 2003, the $32.3 million funding of the Panorama loan in the first quarter of 2003 and increased dividends being paid in 2004 compared to 2003.

Funds From Operations

Primarily as a result of the factors mentioned above, Funds from Operations—Diluted increased 11.1% to $299.2 million in 2004 from $269.1 million in 2003. For the reconciliation of FFO and FFO-diluted to net income available to common stockholders, see "Funds from Operations."

Comparison of Years Ended December 31, 2003 and 2002

Revenues

Minimum and percentage rents increased by 29.7% to $298.7 million in 2003 from $230.3 million in 2002. Approximately $60.1 million of the increase relates to the Westcor portfolio, $6.7 million of the increase relates to the 2002 Acquisition Center, $4.2 million relates to the Company acquiring 50% of its joint venture partner's interest in Panorama and $2.9 million relates to the 2003 Acquisition Center. Additionally, the Redevelopment Centers offset the increase in minimum and percentage rents by decreasing revenues by $1.0 million in 2003 compared to 2002 and a $5.3 million offset related to the Company's sale of 49.9% of its partnership interest in the Village at Corte Madera.

During 2001, the Company adopted SFAS 141. (See "Statement on Critical Accounting Policies"). The amortization of below market leases, which is recorded in minimum rents, increased to $6.1 million in 2003 from $1.1 million in 2002. The increase is primarily due to a full year's amortization in 2003 from the acquisitions during 2002 compared to a partial year in 2002.

Tenant recoveries increased to $152.7 million in 2003 from $116.0 in 2002. Approximately $31.8 million relates to the Westcor portfolio, $3.9 million relates to the 2002 Acquisition Center, $4.7 million relates to

52     The Macerich Company



the Same Centers, $1.9 million relates to Panorama Mall and $1.3 million relates to the 2003 Acquisition Center. This is offset by a $1.0 million decrease relating to the Redevelopment Centers and a $2.3 million decrease relating to the sale of 49.9% partnership interest in the Village at Corte Madera.

Management Companies

Revenues increased to $14.6 million in 2003 compared to $4.8 million in 2002. This is primarily a result of Macerich Management Company being accounted for under the equity method of accounting for all of 2002. Effective July 1, 2003, in accordance with FIN 46, the Company began consolidating Macerich Management Company. Additionally, the Westcor Management Companies were consolidated for an entire year in 2003 compared to a partial year of 2002, beginning July 27, 2002, effective with the Westcor portfolio acquisition.

Expenses

Shopping center and operating expenses increased to $151.3 million in 2003 compared to $113.8 million in 2002. The increase is a result of $30.3 million related to the Westcor Portfolio, the 2002 Acquisition Center accounted for $3.1 million of the increase in expenses, $1.6 million relates to Panorama Mall, $1.4 million relates to increased property taxes, recoverable expenses and bad debt expense at the Redevelopment Centers and $3.1 million represents increased property taxes, insurance and other recoverable and non-recoverable expenses at the Same Centers. This is offset by a $2.0 million decrease relating to the sale of 49.9% partnership interest in the Village at Corte Madera.

Management Companies' Operating Expenses

Expenses in 2003 are $31.6 million compared to $13.2 million in 2002. This is primarily a result of Macerich Management Company being accounted for under the equity method of accounting for all of 2002. Effective July 1, 2003, in accordance with FIN 46, the Company began consolidating Macerich Management Company. Additionally, the Westcor Management Companies were consolidated for an entire year in 2003 compared to a partial year of 2002, beginning July 26, 2002, effective with the Westcor portfolio acquisition.

REIT General and Administrative Expenses

REIT general and administrative expenses increased to $8.5 million in 2003 from $7.4 million in 2002, primarily due to increases in professional services and stock-based compensation expense.

Depreciation and Amortization

Depreciation and amortization increased to $104.9 million in 2003 from $74.5 million in 2002. Approximately $1.6 million relates to additional capital costs at the Same Centers, $2.0 million relates to the 2002 Acquisition Center, $0.9 million relating to the 2003 Acquisition Center, $1.3 million relating to consolidating Macerich Management Company effective July 1, 2003, $0.4 million relates to Panorama Mall and $16.8 million relates to the Westcor portfolio. As a result of SFAS 141, an additional $9.5 million of depreciation and amortization was recorded based on a reclassification of the purchase price of the 2002 and 2003 Acquisition Centers and the Westcor portfolio between buildings and into the value of in-place leases, tenant improvements and lease commissions all of which have shorter depreciable lives than buildings. This is offset by a $1.9 million decrease relating to the sale of 49.9% of the partnership interest in the Village at Corte Madera.

The Macerich Company    53


Interest Expense

Interest expense increased to $130.7 million in 2003 from $120.3 million in 2002. Approximately $16.8 million of the increase is related to the debt from the Westcor portfolio, $0.5 million from the 2002 Acquisition Center, $1.0 million relates to the new $32.3 million loan placed on Panorama Mall in January 2003 and $6.5 million is related to the $250.0 million of unsecured notes issued on May 13, 2003. In addition, the interest expense relating to the debentures paid off in December 2002 reduced interest expense by $8.6 million in 2003 compared to 2002 and the sale of 49.9% of the Company's partnership interest in the Village at Corte Madera resulted in a decrease of $3.4 million compared to 2002. Capitalized interest was $12.1 million in 2003, up from $7.8 million in 2002 primarily due to the redevelopment and expansion of Queens Center.

Minority Interest

The minority interest represents the 20.3% weighted average interest of the Operating Partnership not owned by the Company during 2003. This compares to 24.7% not owned by the Company during 2002.

Equity in Income from Unconsolidated Joint Ventures and Macerich Management Companies

The income from unconsolidated joint ventures and the Macerich Management Companies was $59.3 million for 2003, compared to income of $43.0 million in 2002. $5.6 million was attributed to the acquisition of certain joint ventures in the Westcor portfolio and $0.5 million relating to the sale of a 49.9% partnership interest in the Village at Corte Madera. Additionally in 2002, a loss of $11.3 million was included in unconsolidated joint ventures relating to the Company's investment in MerchantWired, LLC which included a $10.2 million write down of assets.

Gain (Loss) on Sale of Assets

A gain of $12.4 million in 2003 represents $8.5 million from the Company's sale of 49.9% of its partnership interest in the Village at Corte Madera on May 15, 2003, $2.8 million relates to the Company's sale of Gainey Village on June 6, 2003 and $1.0 million relates to gains on sales of peripheral land. This is compared to a loss of $3.8 million in 2002 representing primarily the write down of assets from the Company's various technology investments.

Loss on Early Extinguishment of Debt

In 2003, the Company recorded a loss from early extinguishment of debt of $0.2 million compared to $3.6 million in 2002.

Discontinued Operations

A gain of $22.0 million in 2003 relates to the gain on sale of Bristol Mall on August 4, 2003 of $22.2 million and $0.2 million relates to a loss on the Company's sale of its 67% interest in Paradise Village Gateway on January 2, 2003. This is compared to a gain of $26.1 million in 2002 as a result of the Company selling Boulder Plaza on March 19, 2002 and recognizing a gain on sale of $13.9 million and the Company recognizing a gain of $12.2 million as a result of the Company selling the former Montgomery Ward site at Pacific View Mall.

54     The Macerich Company


Net Income Available to Common Stockholders

Primarily as a result of the purchase of the 2002 and 2003 Acquisition Centers, the Westcor portfolio, the Bristol, the Village at Corte Madera and Gainey Village sales, the issuance of $420.3 million of equity in November 2002 which was used to pay off debt, and the foregoing results, net income available to common stockholders increased to $113.2 million in 2003 from $61.0 million in 2002. In 2002, the sales of Boulder Plaza and the former Montgomery Ward site at Pacific View Mall resulting in a total gain of $26.1 million and significantly increased net income available to common stockholders for the year ending December 31, 2002.

Operating Activities

Cash flow from operations was $202.8 million in 2003 compared to $163.2 million in 2002. The increase is primarily due to the Westcor portfolio, the 2002 and 2003 Acquisition Centers and increased net operating income at the Centers as mentioned above.

Investing Activities

Cash used in investing activities was $328.4 million in 2003 compared to cash used in investing activities of $875.0 million in 2002. The change resulted primarily from the acquisitions of the Westcor portfolio and 2002 and 2003 Acquisition Centers, the Company's purchase of its joint venture partner's 50% interest in FlatIron Crossing, the Company's sale of 49.9% of its partnership interest in the Village at Corte Madera, an increase in equity of income of unconsolidated joint ventures due to the Westcor portfolio, the loss of $10.2 million in 2002 from the Company's investment in Merchant Wired, LLC and a $126.6 million increase in development, redevelopment and expansion of Centers primarily due to the Queens Center expansion. This is offset by $107.2 million of proceeds received from the sale of Paradise Village Gateway, the Shops at Gainey Village, Bristol Center and the 49.9% interest in the Village at Corte Madera and increased distributions from joint ventures primarily as a result of the Westcor portfolio.

Financing Activities

Cash flow provided by financing activities was $115.7 million in 2003 compared to cash flow provided by financing activities of $739.1 million in 2002. The change resulted primarily from the acquisitions of the Westcor portfolio in 2002 and the 2002 and 2003 Acquisition Centers, the construction loan at Queens Center of $101.3 million, the new loan of $32.2 million at Panorama Mall and the $250.0 million of unsecured notes issued on May 13, 2003. This is offset by $471.9 million of net proceeds from equity offerings in 2002 and a $108.0 million loan placed on the 2002 Acquisition Center.

Funds From Operations

Primarily as a result of the acquisitions of the Westcor portfolio, the purchase of the 2002 and 2003 Acquisition Centers and the other factors mentioned above, Funds from Operations—Diluted increased 38.3% to $269.1 million in 2003 from $194.6 million in 2002. For the reconciliation of FFO and FFO-diluted to net income available to common stockholders, see "Funds from Operations."

Liquidity and Capital Resources

The Company intends to meet its short term liquidity requirements through cash generated from operations, working capital reserves, property secured borrowings, unsecured corporate borrowing and borrowing under the new revolving line of credit. The Company anticipates that revenues will continue to

The Macerich Company    55


provide necessary funds for its operating expenses and debt service requirements, and to pay dividends to stockholders in accordance with REIT requirements. The Company anticipates that cash generated from operations, together with cash on hand, will be adequate to fund capital expenditures which will not be reimbursed by tenants, other than non-recurring capital expenditures. The following tables summarize capital expenditures incurred at the Centers for the twelve months ending December 31:

(Dollars in Millions)

Consolidated Centers:

  2004

  2003

  2002


Acquisitions of property and equipment   $301.1   $359.2   $934.1
Development, redevelopment and expansion of Centers   139.3   166.3   58.1
Renovations of Centers   21.2   21.7   3.4
Tenant allowances   10.9   7.3   12.4
Deferred leasing charges   16.8   15.2   14.4

  Total   $489.3   $569.7   $1,022.4

(Dollars in Millions)

Joint Ventures' (at Company's pro rata share) Centers:

  2004

  2003

  2002


Acquisitions of property and equipment(1)   $41.1   $(19.2)   $727.1
Development, redevelopment and expansion of Centers   6.6   17.6   7.1
Renovations of Centers   10.1   2.8   3.5
Tenant allowances   10.5   4.7   3.6
Deferred leasing charges   3.7   3.3   2.1

  Total   $72.0   $9.2   $743.4

(1)
Includes the Company's purchase of its joint venture partner's 50% interest in FlatIron Crossing on January 31, 2003.

Management expects similar levels to be incurred in future years for tenant allowances and deferred leasing charges and to incur between $150 million to $200 million in 2005 for development, redevelopment, expansion and renovations. Capital for major expenditures or major developments and redevelopments has been, and is expected to continue to be, obtained from equity or debt financings which include borrowings under the Company's line of credit and construction loans. However, many factors impact the Company's ability to access capital, such as its overall debt level, interest rates, interest coverage ratios and prevailing market conditions.

On December 23, 2004, the Company announced the $2.33 billion acquisition of Wilmorite which is expected to close in April 2005. The purchase price includes the assumption of approximately $878 million of existing debt. It is anticipated that a total of $320 million of convertible preferred units and common units will be issued. The Company has obtained a commitment to fund $950 million of the purchase price through a term loan and an acquisition loan. The balance of the purchase price will be funded from the Company's line of credit. Additionally, the Company may generate liquidity or reduce its capital requirement by bringing in a joint venture partner.

56     The Macerich Company



On February 28, 2002, the Company issued 1,968,957 common shares with total net proceeds of $52.3 million. The proceeds from the sale of the common shares were used principally to finance a portion of the Queens Center expansion and redevelopment project and for general corporate purposes. The Queens Center expansion and redevelopment, which had its grand opening in November 2004, cost approximately $275 million. The Company has a $225.0 million construction loan which converts to a permanent loan at completion and stabilization, which is collateralized by the Queens Center property. Stabilization is expected to occur in 2005.

The Company believes that it will have access to the capital necessary to expand its business in accordance with its strategies for growth and maximizing Funds from Operations. The Company presently intends to obtain additional capital necessary for these purposes through a combination of debt or equity financings, joint ventures and the sale of non-core assets. The Company believes joint venture arrangements have in the past and may in the future provide an attractive alternative to other forms of financing, whether for acquisitions or other business opportunities.

The Company's total outstanding loan indebtedness at December 31, 2004 was $4.4 billion (including its pro rata share of joint venture debt). This equated to a debt to Total Market Capitalization (defined as total debt of the Company, including its pro rata share of joint venture debt, plus aggregate market value of outstanding shares of common stock, assuming full conversion of OP Units and preferred stock into common stock) ratio of approximately 47.7% at December 31, 2004. The majority of the Company's debt consists of fixed-rate conventional mortgages payable collateralized by individual properties.

The Company filed a shelf registration statement, effective June 6, 2002, to sell securities. The shelf registration was for a total of $1.0 billion of common stock, common stock warrant or common stock rights. The Company sold a total of 15.2 million shares of common stock under this shelf registration on November 27, 2002. The aggregate offering price of this transaction was approximately $440.2 million, leaving approximately $559.8 million available under the shelf registration statement. In addition, the Company filed another shelf registration statement, effective October 27, 2003, to sell up to $300 million of preferred stock.

The Company had a $425.0 million revolving line of credit. This revolving line of credit had a three-year term through July 26, 2005 with a one-year extension option. The interest rate fluctuated from LIBOR plus 1.75% to LIBOR plus 3.00% depending on the Company's overall leverage level. As of December 31, 2003, $319.0 million of borrowings were outstanding under this credit facility at an average interest rate of 3.69%. On July 30, 2004, the Company amended and expanded the revolving line of credit to $1.0 billion and extended the maturity to July 30, 2007 plus a one-year extension. The interest rate has been reduced to 1.50% over LIBOR based on the Company's current leverage level. The interest rate fluctuates from LIBOR plus 1.15% to LIBOR plus 1.70% depending on the Company's overall leverage level. As of December 31, 2004, $643.0 million of borrowings were outstanding at an average interest rate of 3.81%.

On May 13, 2003, the Company issued $250.0 million in unsecured notes maturing in May 2007 with a one-year extension option bearing interest at LIBOR plus 2.50%. The proceeds were used to pay down and create more availability under the Company's line of credit. At December 31, 2004 and December 31,

The Macerich Company    57



2003, the entire $250.0 million of notes were outstanding at an interest rate of 4.45%. In October 2003, the Company entered into an interest rate swap agreement which effectively fixed the interest rate at 4.45% from November 2003 to October 13, 2005.

The Company had $125.1 million of convertible subordinated debentures (the "Debentures") which matured December 15, 2002. On December 13, 2002, the Debentures were repaid in full, using the Company's revolving credit facility.

At December 31, 2004, the Company had cash and cash equivalents available of $72.1 million.

Funds From Operations

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

In compliance with the Securities and Exchange Commission's Regulation G and Amended Item 10 of Regulation S-K relating to non-GAAP financial measures, the Company has revised its FFO definition as of January 1, 2003 and for all prior periods presented, to include gain or loss on sales of peripheral land, impairment of assets, losses on debt-related transactions and the effect of SFAS No. 141 to amortize the below market leases which are recorded in minimum rents. The Company's revised definition is in accordance with the definition provided by NAREIT.

The inclusion of gains (losses) on sales of peripheral land included in FFO for the years ended December 31, 2004, 2003, 2002, 2001 and 2000 were $4.4 million (including 3.5 million from joint ventures at pro rata), $1.4 million (including $0.4 million from joint ventures at pro rata), $2.5 million (including $2.4 million from joint ventures at pro rata), $0.3 million (including $0.1 million from joint ventures at pro rata), ($0.7) million (including ($0.7) million from joint ventures at pro rata), respectively.

FFO and FFO-diluted, for the years ended December 31, 2002, 2001and 2000 have been restated to reflect the Company's share of impairment of assets and losses on debt-related transactions, the latter of

58     The Macerich Company



which was previously reported as extraordinary items under GAAP. The Company's write-off of impairment of assets for 2002 was $13.3 million (including $10.2 million from joint ventures at pro rata). There were no write-offs of impairment of assets for the years ended December 31, 2001 or 2000. The Company's losses on debt-related transactions for the years ended December 31, 2002, 2001 and 2000 were $3.6 million, $2.0 million and $0.5 million (including $0.2 million from joint ventures at pro rata), respectively.

The following reconciles net income available to common stockholders to FFO and FFO-diluted:

(amounts in thousands)

 
  2004
  2003
  2002
  2001
  2000
 
  Shares

  Amount

  Shares

  Amount

  Shares

  Amount

  Shares

  Amount

  Shares

  Amount


Net income—available to common stockholders       $82,493       $113,218       $60,965       $58,035       $37,971
Adjustments to reconcile net income to FFO—basic:                                        
  Minority interest       19,870       28,907       20,189       19,001       12,168
  (Gain) loss on sale or write-down of wholly-owned assets       (8,041)       (34,451)       (22,253)       (24,491)       2,773
  Add: Gain on land sales—consolidated assets       939       1,054       128       215      
  Less: Impairment writedown of consolidated assets                   (3,029)            
  (Gain) loss on sale or write-down of assets from unconsolidated entities (pro rata)       (3,353)       (155)       8,021       (191)       (235)
  Add: Gain (loss) on land sales—pro rata unconsolidated entities       3,464       387       2,403       123       (659)
  Less: Impairment writedown of pro rata unconsolidated entities                   (10,237)            
  Depreciation and amortization on wholly-owned centers       144,828       109,569       78,837       65,983       61,647
  Depreciation and amortization on joint ventures and from the management companies (pro rata)       61,060       45,133       37,355       28,077       24,472
  Cumulative effect of change in accounting principle—wholly-owned centers                               963
  Cumulative effect of change in accounting principle—pro rata unconsolidated entities                         128       787
  Less: depreciation on personal property and amortization of loan costs and interest rate caps       (11,228)       (9,346)       (7,463)       (4,969)       (5,106)

FFO—basic(1)   72,715   290,032   67,332   254,316   49,611   164,916   44,963   141,911   45,050   134,781
Additional adjustments to arrive at FFO—diluted:                                        
  Impact of convertible preferred stock   3,628   9,140   7,386   14,816   9,115   20,417   9,115   19,688   9,115   18,958
  Impact of stock options using the treasury method   384     480     456     (n/a antidilutive)   (n/a antidilutive)
  Impact of restricted stock using the treasury method   (n/a antidilutive)   (n/a antidilutive)   (n/a antidilutive)   (n/a antidilutive)   (n/a antidilutive)
  Impact of convertible debentures           3,833   9,310   4,824   11,773   5,154   12,542

  FFO—diluted(2)   76,727   $299,172   75,198   $269,132   63,015   $194,643   58,902   $173,372   59,319   $166,281

(1)
Calculated based upon basic net income as adjusted to reach basic FFO. As of December 31, 2004, 2003, 2002, 2001 and 2000, 14.2 million, 14.2 million, 13.7 million, 11.2 million and 11.2 million of OP Units and Westcor partnership units were outstanding, respectively.

(2)
The computation of FFO—diluted shares outstanding includes the effect of outstanding common stock options and restricted stock using the treasury method. The convertible debentures were dilutive for the years ended December 31, 2002, 2001 and 2000 and were included in the FFO calculation. The convertible debentures were paid off in full on December 13, 2002. On February 25, 1998, the Company sold $100 million of its Series A Preferred Stock. On June 16, 1998, the Company sold $150 million of its Series B Preferred Stock. On September 9, 2003, 5.5 million shares of Series B Preferred Stock were converted into common shares. The preferred stock can be converted on a one-for-one basis for common stock. The preferred shares are assumed converted for purposes of 2004, 2003, 2002, 2001 and 2000 FFO-diluted as they are dilutive to that calculation.

Straight-lining of Rents

Included in minimum rents were rents attributable to the accounting practice of straight-lining of rents. The amount of straight-lining of rents that impacted consolidated minimum rents was $1.0 million for 2004, $2.9 million for 2003, $1.2 million for 2002, $(0.1) million for 2001 and $0.9 million for 2000. Additionally, the Company recognized through equity in income of unconsolidated joint ventures, its pro rata share of straight-lined rents of $1.0 million, $1.9 million, $2.3 million, $1.4 million and $2.2 million for 2004, 2003, 2002, 2001 and 2000, respectively. The increase in straight-lining of rents in 2003 and 2002 compared to 2001 is related to the acquisition of The Oaks and the Westcor portfolio in 2002. These are offset by decreases due to the Company structuring its new leases using rent increases tied to the change in CPI rather than using contractually fixed rent increases.

The Macerich Company    59


Inflation

In the last three years, inflation has not had a significant impact on the Company because of a relatively low inflation rate. Most of the leases at the Centers have rent adjustments periodically through the lease term. These rent increases are either in fixed increments or based on using an annual multiple of increases in the CPI. In addition, about 5%-13% of the leases expire each year, which enables the Company to replace existing leases with new leases at higher base rents if the rents of the existing leases are below the then existing market rate. Additionally, historically the majority of the leases require the tenants to pay their pro rata share of operating expenses. Recently, the Company began entering into leases that require tenants to pay a stated amount for operating expenses, generally excluding property taxes, regardless of the expenses actually incurred at any center. This change shifts the burden of cost control to the Company.

Seasonality

The shopping center industry is seasonal in nature, particularly in the fourth quarter during the holiday season when retailer occupancy and retail sales are typically at their highest levels. In addition, shopping malls achieve a substantial portion of their specialty (temporary retailer) rents during the holiday season and the majority of percentage rent is recognized in the fourth quarter. As a result of the above and the implementation of Staff Accounting Bulletin 101, earnings are generally higher in the fourth quarter of each year.


Item 7A. Quantitative and Qualitative Disclosures about Market Risk

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

60     The Macerich Company


The following table sets forth information as of December 31, 2004 concerning the Company's long term debt obligations, including principal cash flows by scheduled maturity, weighted average interest rates and estimated fair value ("FV"):

(dollars in thousands)

   
 
  For the Years Ended December 31,

   
   
   
 
  2005

  2006

  2007

  2008

  2009

  Thereafter

  Total

  FV


CONSOLIDATED CENTERS:                            
Long term debt:                            
  Fixed rate   $32,858   $115,493   $117,124   $364,241   $250,684   $895,124   $1,775,524   $1,917,552
  Average interest rate   6.42%   6.40%   6.46%   6.48%   6.38%   6.10%   6.42%  
  Variable rate   182,898   117,931   958,280       195,487   1,454,596   1,454,596
  Average interest rate   3.05%   3.20%   3.95%       4.78%   3.89%  

Total debt—Consolidated Centers   $215,756   $233,424   $1,075,404   $364,241   $250,684   $1,090,611   $3,230,120   $3,372,148

JOINT VENTURE CENTERS:                            
(at Company's pro rata share:)                            
  Fixed rate   $80,912   $290,848   $127,226   $63,976   $221,304   $172,131   $956,397   $997,373
  Average interest rate   6.41%   6.40%   6.65%   6.77%   7.79%   7.85%   6.46%  
  Variable rate   18,302   155,412   545   458   16,154     190,871   190,871
  Average interest rate   2.82%   2.91%   3.67%   4.17%   4.17%     3.02%  

Total debt—Joint Ventures   $99,214   $446,260   $127,771   $64,434   $237,458   $172,131   $1,147,268   $1,188,244

The consolidated Centers' total fixed rate debt increased from $1.6 billion at December 31, 2003 to $1.8 billion at December 31, 2004. The average interest rate at December 31, 2003 and 2004 was 6.65% and 6.42%, respectively.

The consolidated Centers' total variable rate debt increased from $1.1 billion at December 31, 2003 to $1.5 billion at December 31, 2004. The average interest rate at December 31, 2003 and 2004 was 3.55% and 3.89%, respectively.

The Company's pro rata share of the Joint Venture Centers' fixed rate debt at December 31, 2003 and 2004 was $861.9 million and $956.4 million, respectively. The average interest rate increased from 6.40% in 2003 to 6.46% in 2004. The Company's pro rata share of the Joint Venture Centers' variable rate debt at December 31, 2003 and 2004 was $184.2 million and $190.9 million, respectively. The average interest rate increased from 1.88% in 2003 to 3.02% in 2004.

See "Item 2. Properties—Mortgage Debt" for additional information on new financing arrangements during 2004.

The Company uses derivative financial instruments in the normal course of business to manage or hedge interest rate risk and records all derivatives on the balance sheet at fair value. The Company requires that hedging derivative instruments are effective in reducing the risk exposure that they are designated to hedge. For derivative instruments associated with the hedge of an anticipated transaction, hedge effectiveness criteria also require that it be probable that the underlying transaction occurs. Any instrument that meets these hedging criteria, and other criteria required by SFAS 133, is formally designated as a hedge at the inception of the derivative contract. When the terms of an underlying transaction are modified resulting in some ineffectiveness, the portion of the change in the derivative fair value related to ineffectiveness from period to period will be included in net income. If any derivative instrument used for

The Macerich Company    61



risk management does not meet the hedging criteria then it is marked-to-market each period, however, generally the Company intends for all derivative transactions to meet all the hedge criteria and qualify as hedges. The Company does not plan to enter into derivative transactions for speculative purposes.

On an ongoing quarterly basis, the Company adjusts its balance sheet to reflect the current fair value of its derivatives. Changes in the fair value of derivatives are recorded each period in income or comprehensive income, depending on whether the derivative is designated and effective as part of a hedged transaction. For derivatives that do not meet the cash flow hedging criteria, the Company reflects those on the balance sheet quarterly at fair value with the difference being reflected in income. To the extent that the change in value of a derivative does not perfectly offset the change in value of the instrument being hedged, the ineffective portion of the hedge is immediately recognized in income. Over time, the unrealized gains and losses held in accumulated other comprehensive income will be reclassified to income. This reclassification occurs when the hedged items are also recognized in income. The Company has a policy of only entering into contracts with major financial institutions based upon their credit ratings and other factors.

To determine the fair value of derivative instruments, the Company uses standard market conventions and techniques such as discounted cash flow analysis, option pricing models, and termination cost at each balance sheet date. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.

The $250.0 million variable rate debt maturing in 2007 has an interest rate swap agreement which effectively fixed the interest rate at 4.45% from November 2003 to October 13, 2005. The fair value of this swap agreement at December 31, 2004 was $1.9 million compared to $0.2 million at December 31, 2003.

The Company has an interest rate cap with a notional amount of $30.0 million on their loan at La Cumbre Plaza. This interest rate cap prevents the LIBOR interest rate from exceeding 7.12%. The fair value of this cap agreement at December 31, 2004 was zero.

The Company has an interest rate cap with a notional amount of $92.0 million on their $108.0 million loan on The Oaks. This interest rate cap prevents the LIBOR interest rate from exceeding 7.10%. The fair value of this cap agreement at December 31, 2004 and 2003 was zero.

The Company's East Mesa Land and Superstition Springs joint venture have an interest rate swap which converts $12.8 million of variable rate debt with a weighted average interest rate of 3.97% to a fixed rate of 5.39%. This swap has been designated as a hedge in accordance with SFAS No. 133. Additionally, interest rate caps were simultaneously sold to offset the effect of the interest rate cap agreements. These interest rate caps do not qualify for hedge accounting in accordance with SFAS 133.

In addition, the Company has assessed the market risk for its variable rate debt and believes that a 1% increase in interest rates would decrease future earnings and cash flows by approximately $13.9 million per year based on $1.4 billion outstanding of variable rate debt at December 31, 2004 which excludes the $250.0 million of debt which has been swapped to a fixed rate.

62     The Macerich Company



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


Item 8. Financial Statements and Supplementary Data

Refer to the Index to Financial Statements and Financial Statement Schedules for the required information.


Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.


Item 9A. Controls and Procedures

Based on their evaluation as of December 31, 2004, the Company's Chief Executive Officer and Chief Financial Officer, have concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.

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

Management's Report on Internal Control over Financial Reporting

The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). The Company's management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2004. In making this assessment, the Company's management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control—Integrated Framework. The Company's management has concluded that, as of December 31, 2004, its internal control over financial reporting is effective based on these criteria. The Company's independent registered public accounting firm, Deloitte and Touche, LLP, have issued an audit report on the Company's assessment of our internal control over financial reporting, which is included herein.

The Macerich Company    63


Report of Independent Registered Public Accounting Firm

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

We have audited management's assessment, included in the accompanying Management's Report on Internal Control over Financial Reporting, that The Macerich Company and its subsidiaries (the "Company") maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.

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

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

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

64     The Macerich Company



In our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2004 of the Company and our report dated March 25, 2005 expressed an unqualified opinion on those financial statements and financial statement schedules.

Deloitte & Touche, LLP
Los Angeles, California

March 25, 2005

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during the quarter ended December 31, 2004 that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.


Item 9B. Other Information

None

The Macerich Company    65



Part III

Item 10. Directors and Executive Officers of the Registrant

There is hereby incorporated by reference the information which appears under the captions "Information Regarding Nominees and Directors," "Executive Officers," "Section 16(a) Beneficial Ownership Reporting Compliance," "Audit Committee Matters" and "Code of Ethics" in the Company's definitive proxy statement for its 2005 Annual Meeting of Stockholders and is responsive to the information required by this Item.


Item 11. Executive Compensation

There is hereby incorporated by reference the information which appears under the caption "Election of Directors" in the Company's definitive proxy statement for its 2005 Annual Meeting of Stockholders and is responsive to the information required by this Item. Notwithstanding the foregoing, the Report of the Compensation Committee on executive compensation and the Stock Performance Graph set forth therein shall not be incorporated by reference herein, in any of the Company's prior or future filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent the Company specifically incorporates such report or stock performance graph by reference therein and shall not be otherwise deemed filed under either of such Acts.


Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters

There is hereby incorporated by reference the information which appears under the captions "Principal Stockholders," "Information Regarding Nominees and Directors" and "Executive Officers" in the Company's definitive proxy statement for its 2005 Annual Meeting of Stockholders and is responsive to the information required by this Item.

Equity Compensation Plan Information

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

Summary Table.    The following table sets forth, for each of the Company's equity compensation plans, the number of share of Common Stock subject to outstanding awards, the weighted-average exercise of

66     The Macerich Company



outstanding options, and the number of shares remaining available for future award grants as of December 31, 2004.

Plan Category

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

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

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


Equity Compensation Plans approved by stockholders   691,532(2)   $23.16   6,688,449(3)
Equity Compensation Plans not approved by stockholders   20,000(4)   $30.75   0(4)

Total   711,532       6,688,449

(1)
Weighted average exercise price of outstanding options; does not include stock units.

(2)
Represents 582,740 shares subject to outstanding options under the 1994 Plan, 2000 Plan and 2003 Plan and 92,292 shares underlying stock units, payable on a one-for-one basis, credited to stock unit accounts under the Director Phantom Stock Plan, and 16,500 shares subject to outstanding options under the Director Plan.

(3)
Of these shares, 5,802,247 were available for options, stock appreciation rights, restricted stock, stock units, stock bonuses, performance based awards, dividend equivalent rights and operating partnership units or other convertible or exchangeable units under the 2003 Plan, 139,846 were available for issuance under stock units under the Director Phantom Stock Plan and 746,356 were available for issuance under the Employee Stock Purchase Plan.

(4)
Represents 20,000 shares subject to outstanding options under the 2000 Plan. The 2000 Plan did not require approval of, and has not been approved by, the Company's stockholders. No additional awards will be made under the 2000 Plan. The 2000 Plan generally provided for the grant of options, stock appreciation rights, restricted stock awards, stock units, stock bonuses and dividend equivalent rights to employees, directors and consultants of the Company or its subsidiaries. The only awards that were granted under the 2000 Plan were stock options and restricted stock. The stock options granted generally expire not more than 10 years after the date of grant and vest in three equal annual installments, commencing on the first anniversary of the grant date. The restricted stock grants generally vest over three years.


Item 13. Certain Relationships and Related Transactions

There is hereby incorporated by reference the information which appears under the captions "Certain Transactions" in the Company's definitive proxy statement for its 2005 Annual Meeting of Stockholders.

The Macerich Company    67



Item 14. Principal Accountant Fees and Services

There is hereby incorporated by reference the information which appears under the captions "Principal Accountant Fees and Services" and "Audit Committee Pre-Approval Policy" in the Company's definitive proxy statement for its 2005 Annual Meeting of Stockholders.

68     The Macerich Company



PART IV

Item 15. Exhibits, Financial Statements and Financial Statement Schedules

 
   
   
  Page


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

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

71

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

72

 

 

 

 

Consolidated balance sheets of the Company as of December 31, 2004 and 2003

 

73

 

 

 

 

Consolidated statements of operations of the Company for the years ended December 31, 2004, 2003 and 2002

 

74

 

 

 

 

Consolidated statements of common stockholders' equity of the Company for the years ended December 31, 2004, 2003 and 2002

 

75

 

 

 

 

Consolidated statements of cash flows of the Company for the years ended December 31, 2004, 2003 and 2002

 

76

 

 

 

 

Notes to consolidated financial statements

 

77-109

 

 

2.

 

Financial Statements of Pacific Premier Retail Trust

 

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

110

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

111

 

 

 

 

Consolidated balance sheets of Pacific Premier Retail Trust as of December 31, 2004 and 2003

 

112

 

 

 

 

Consolidated statements of operations of Pacific Premier Retail Trust for the years ended December 31, 2004, 2003 and 2002

 

113

 

 

 

 

Consolidated statements of stockholders' equity of Pacific Premier Retail Trust for the years ended December 31, 2004, 2003 and 2002

 

114

 

 

 

 

Consolidated statements of cash flows of Pacific Premier Retail Trust for the years ended December 31, 2004, 2003 and 2002

 

115

 

 

 

 

Notes to consolidated financial statements

 

116-125

 

 

3.

 

Financial Statements of SDG Macerich Properties, L.P.

 

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

126

 

 

 

 

Balance sheets of SDG Macerich Properties, L.P. as of December 31, 2004 and 2003

 

127

 

 

 

 

Statements of operations of SDG Macerich Properties, L.P. for the years ended December 31, 2004, 2003 and 2002

 

128

 

 

 

 

Statements of cash flows of SDG Macerich Properties, L.P. for the years ended December 31, 2004, 2003 and 2002

 

129
             

The Macerich Company    69



 

 

 

 

Statements of partners' equity of SDG Macerich Properties, L.P. for the years ended December 31, 2004, 2003 and 2002

 

130

 

 

 

 

Notes to financial statements

 

131-136

 

 

4.

 

Financial Statement Schedules

 

 

 

 

 

 

Schedule III—Real estate and accumulated depreciation of the Company

 

137-138

 

 

 

 

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

 

139-140

 

 

 

 

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

 

141-142

(b)

 

1.

 

Exhibits

 

 

 

 

 

 

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

 

 

70     The Macerich Company



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheet of The Macerich Company (the "Company") as of December 31, 2004, and the related consolidated statements of operations, common stockholders' equity, and cash flows for the year then ended. Our audit also included the consolidated financial statement schedules listed in the Index at Item 15(a)(4) as of and for the year ended December 31, 2004. These consolidated financial statements and consolidated financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and consolidated financial statement schedules based on our audit. The consolidated financial statements and the consolidated financial statement schedules of the Company for the years ended December 31, 2003 and 2002 were audited by other auditors whose report, dated March 11, 2004, expressed an unqualified opinion on those statements. We did not audit the consolidated financial statements or the consolidated financial statement schedule of SDG Macerich Properties, L.P. (the "Partnership"), the Company's investment in which is reflected in the accompanying consolidated financial statements using the equity method of accounting. The Company's equity of $147,915,000 in the Partnership's net assets at December 31, 2004 and $16,499,000 in the Partnership's net income for year ended are included in the accompanying consolidated financial statements. Such financial statements and financial statement schedule were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the Partnership, is based solely on the report of such other auditors.

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

In our opinion, based on our audit and the report of the other auditors, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, based on our audit and the report of the other auditors, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 25, 2005 expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

   

Deloitte & Touche, LLP
Los Angeles, California

 

March 25, 2005

 

The Macerich Company    71



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of The Macerich Company:

In our opinion, based on our audits and the report of other auditors, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of The Macerich Company (the "Company") at December 31, 2003, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(4) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule of the Company based on our audits. We did not audit the financial statements of SDG Macerich Properties, L.P. (the "Partnership"), the investment in which is reflected in the accompanying consolidated financial statements using the equity method of accounting. The investment in the Partnership represents approximately 3.7% of the Company's consolidated total assets at December 31, 2003 and the equity in income, net of minority interest, represents approximately 12.5% and 22.6% of the related consolidated net income for each of the two years in the period ended December 31, 2003. Those statements were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for the Partnership, is based solely on the report of the other auditors. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.

   

PricewaterhouseCoopers LLP

 

Los Angeles, CA
March 11, 2004 except for Note 2, "Accounting for the Impairment or Disposal of Long Lived Assets" as to which the date is March 11, 2005

 

72     The Macerich Company



THE MACERICH COMPANY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

 
  December 31,

 
  2004

  2003


ASSETS        
Property, net   $3,574,553   $3,186,725
Cash and cash equivalents   72,114   40,356
Restricted cash   12,351   6,804
Tenant receivables, net   68,716   67,765
Deferred charges and other assets, net   280,694   231,392
Loans to unconsolidated joint ventures   6,643   29,237
Due from affiliates   3,502   5,406
Investments in unconsolidated joint ventures   618,523   577,908

    Total assets   $4,637,096   $4,145,593


LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY:

 

 

 

 
Mortgage notes payable:        
  Related parties   $141,782   $129,084
  Others   2,195,338   1,787,714

  Total   2,337,120   1,916,798
Bank notes payable   893,000   765,800
Accounts payable and accrued expenses   47,755   54,682
Other accrued liabilities   123,081   116,067
Preferred stock dividend payable   2,358   2,212

    Total liabilities   3,403,314   2,855,559

Minority interest   221,315   237,615

Commitments and contingencies (Note 11)        
Series A cumulative convertible redeemable preferred stock, $.01 par value, 3,627,131 shares authorized, issued and outstanding at December 31, 2004 and 2003   98,934   98,934
Common stockholders' equity:        
  Common stock, $.01 par value, 145,000,000 shares authorized, 58,785,694 and 57,902,524 shares issued and outstanding at December 31, 2004 and 2003, respectively   586   578
  Additional paid-in capital   1,029,940   1,008,488
  Accumulated deficit   (103,489)   (38,541)
  Accumulated other comprehensive income (loss)   1,092   (2,335)
  Unamortized restricted stock   (14,596)   (14,705)

    Total common stockholders' equity   913,533   953,485

      Total liabilities, preferred stock and common stockholders' equity   $4,637,096   $4,145,593

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

The Macerich Company    73



THE MACERICH COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except share and per share amounts)

 
  For the years ended December 31,

 
  2004

  2003

  2002


REVENUES:            
  Minimum rents   $329,689   $286,298   $219,537
  Percentage rents   17,654   12,427   10,735
  Tenant recoveries   159,005   152,696   115,993
  Management Companies   21,751   14,630   4,826
  Other   19,169   17,526   11,819

    Total revenues   547,268   483,577   362,910


EXPENSES:

 

 

 

 

 

 
  Shopping center and operating expenses   164,983   151,325   113,808
  Management Companies' operating expenses   38,298   31,587   13,181
  REIT general and administrative expenses   11,077   8,482   7,435

    214,358   191,394   134,424

  Interest expense:            
    Related parties   5,800   5,689   5,815
    Others   140,527   125,018   114,473

    Total interest expense   146,327   130,707   120,288

  Depreciation and amortization   142,096   104,920   74,504
Equity in income of unconsolidated joint ventures and the management companies   54,881   59,348   43,049
Gain (loss) on sale of assets   927   12,420   (3,820)
Loss on early extinguishment of debt   (1,642)   (170)   (3,605)

Income from continuing operations   98,653   128,154   69,318
Discontinued operations:            
  Gain on sale of assets   7,114   22,031   26,073
  Income from discontinued operations   5,736   6,756   6,180

Total from discontinued operations   12,850   28,787   32,253

Income before minority interest   111,503   156,941   101,571
Less: Minority interest   19,870   28,907   20,189

Net income   91,633   128,034   81,382
Less: Preferred dividends   9,140   14,816   20,417

Net income available to common stockholders   $82,493   $113,218   $60,965

Earnings per common share—basic:            
Income from continuing operations   $1.23   $1.68   $0.98
  Discontinued operations   0.18   0.43   0.65

Net income per share available to common stockholders   $1.41   $2.11   $1.63

Weighted average number of common shares outstanding—basic   58,537,000   53,669,000   37,348,000

Earnings per common share—diluted:            
Income from continuing operations   $1.22   $1.71   $0.98
  Discontinued operations   0.18   0.38   0.64

Net income per share available to common stockholders   $1.40   $2.09   $1.62

Weighted average number of common shares outstanding—diluted   73,099,000   75,198,000   50,066,000

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

74     The Macerich Company



THE MACERICH COMPANY

CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY

(Dollars in thousands, except per share data)

 
  Common Stock
(# shares)

  Common Stock
Par Value

  Additional
Paid-in
Capital

  Accumulated
Earnings
(Deficit)

  Accumulated Other
Comprehensive
(Loss) Income

  Unamortized
Restricted
Stock

  Total Common
Stockholders'
Equity


Balance December 31, 2001   33,981,946   $340   $366,349   ($4,944)   ($5,820)   ($6,971)   $348,954
Comprehensive income:                            
  Net income               81,382           81,382
  Reclassification of deferred losses                   1,328       1,328
  Interest rate swap agreement                   (319)       (319)
               
     
  Total comprehensive income               81,382   1,009       82,391
  Issuance costs           (23,390)               (23,390)
  Common stock offerings   17,148,957   172   495,100               495,272
  Issuance of restricted stock   262,082       7,748               7,748
  Unvested restricted stock   (262,082)                   (7,748)   (7,748)
  Restricted stock vested in 2002   152,967                   4,784   4,784
  Exercise of stock options   207,059   2   4,254               4,256
  Distributions paid $(2.22) per share               (79,891)           (79,891)
  Preferred dividends               (20,417)           (20,417)
  Adjustment to reflect minority interest on a pro rata basis according to year end ownership percentage of Operating Partnership           (14,161)               (14,161)

Balance December 31, 2002   51,490,929   514   835,900   (23,870)   (4,811)   (9,935)   797,798
Comprehensive income:                            
  Net income               128,034           128,034
  Reclassification of deferred losses                   1,328       1,328
  Interest rate swap agreement                   1,148       1,148
               
     
  Total comprehensive income               128,034   2,476       130,510
  Issuance costs           (254)               (254)
  Issuance of restricted stock   374,846   4   12,262               12,266
  Unvested restricted stock   (374,846)   (4)               (12,262)   (12,266)
  Restricted stock vested in 2003   214,641   2               7,492   7,494
  Exercise of stock options   519,954   5   10,981               10,986
  Distributions paid $(2.32) per share               (127,889)           (127,889)
  Preferred dividends               (14,816)           (14,816)
  Conversion of OP Units to common stock   190,000   2   6,937               6,939
  Conversion of Series B Preferred Stock to common stock   5,487,000   55   148,347               148,402
  Adjustment to reflect minority interest on a pro rata basis according to year end ownership percentage of Operating Partnership           (5,685)               (5,685)

Balance December 31, 2003   57,902,524   578   1,008,488   (38,541)   (2,335)   (14,705)   953,485
Comprehensive income:                            
  Net income               91,633           91,633
  Reclassification of deferred losses                   1,351       1,351
  Interest rate swap agreement                   2,076       2,076
               
     
  Total comprehensive income               91,633   3,427       95,060
  Issuance of restricted stock   153,692   2   8,282               8,284
  Unvested restricted stock   (153,692)   (2)               (8,282)   (8,284)
  Restricted stock vested in 2004   320,114   3               8,391   8,394
  Exercise of stock options   465,984   5   9,509               9,514
  Issuance of phantom stock   17,862       795               795
  Distributions paid $(2.48) per share               (147,441)           (147,441)
  Preferred dividends               (9,140)           (9,140)
  Conversion of OP Units to common stock   79,210       1,785               1,785
  Adjustment to reflect minority interest on a pro rata basis according to year end ownership percentage of Operating Partnership           1,081               1,081

Balance December 31, 2004   58,785,694   $586   $1,029,940   ($103,489)   $1,092   ($14,596)   $913,533

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

The Macerich Company    75



THE MACERICH COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

 
  For the years ended December 31,

 
  2004

  2003

  2002


Cash flows from operating activities:            
  Net income-available to common stockholders   $82,493   $113,218   $60,965
  Preferred dividends   9,140   14,816   20,417

  Net income   91,633   128,034   81,382

Adjustments to reconcile net income to net cash provided by operating activities:            
  Loss on early extinguishment of debt   1,642   155   3,605
  (Gain) loss on sale of assets   (927)   (12,420)   3,820
  Discontinued operations gain on sale of assets   (7,114)   (22,031)   (26,073)
  Depreciation and amortization   146,378   109,029   78,837
  Amortization of net premium on trust deed note payable   (805)   (2,235)   (1,070)
  Minority interest   19,870   28,907   20,189
  Equity in income of unconsolidated joint ventures and the management companies   (54,881)   (59,348)   (43,049)
  Changes in assets and liabilities, net of acquisitions:            
    Tenant receivables, net   (951)   (21,207)   (5,204)
    Other assets   (12,162)   (7,573)   111
    Accounts payable and accrued expenses   (3,678)   20,267   4,394
    Due to affiliates   1,904   (4,088)   (2,316)
    Other accrued liabilities   13,324   48,276   48,368
    Accrued preferred stock dividend   146   (2,983)   182

      Total adjustments   102,746   74,749   81,794

  Net cash provided by operating activities   194,379   202,783   163,176

Cash flows from investing activities:            
  Acquisitions of property and property improvements   (369,279)   (167,643)   (487,325)
  Development, redevelopment and expansion of centers   (139,292)   (166,309)   (58,062)
  Renovations of centers   (21,241)   (21,718)   (3,403)
  Tenant allowances   (10,875)   (7,265)   (7,818)
  Deferred leasing charges   (16,822)   (15,214)   (7,352)
  Distributions from joint ventures   93,031   59,825   74,107
  Contributions to joint ventures   (41,913)   (44,714)   (8,680)
  Acquisitions of joint ventures   (36,538)   (68,320)   (363,459)
  Repayments from (loans to) unconsolidated joint ventures   22,594   (704)   (28,533)
  Proceeds from sale of assets   46,630   107,177   15,316
  Restricted cash   (5,547)   (3,487)   177

  Net cash used in investing activities   (479,252)   (328,372)   (875,032)

Cash flows from financing activities:            
  Proceeds from mortgages, notes and debentures payable   770,306   646,429   1,295,390
  Payments on mortgages, notes and debentures payable   (276,003)   (373,965)   (889,045)
  Deferred financing costs   (8,723)   (3,326)   (14,361)
  Net proceeds from equity offerings       471,882
  Exercise of common stock options   9,514   10,986   4,256
  Dividends and distributions   (169,323)   (149,605)   (108,583)
  Dividends to preferred stockholders   (9,140)   (14,816)   (20,417)

  Net cash provided by financing activities   316,631   115,703   739,122

  Net increase (decrease) in cash   31,758   (9,886)   27,266
Cash and cash equivalents, beginning of period   40,356   50,242   22,976

Cash and cash equivalents, end of period   $72,114   $40,356   $50,242

Supplemental cash flow information:            
  Cash payment for interest, net of amounts capitalized   $140,552   $138,067   $125,949

Non-cash transactions:            
  Acquisition of property by assumption of debt   $54,023     $373,452

  Acquisition of property by issuance of operating partnership units     $30,201   $90,597

  Acquisition of property by assumption of joint venture debt     $180,000  

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

76     The Macerich Company



THE MACERICH COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

1.    Organization and Basis of Presentation:

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

The Company commenced operations effective with the completion of its initial public offering (the "IPO") on March 16, 1994. The Company is the sole general partner of and assuming conversion of the preferred units, holds a 81% ownership interest in The Macerich Partnership, L. P. (the "Operating Partnership"). The interests in the Operating Partnership are known as OP Units. OP Units not held by the Company are redeemable, subject to certain restrictions, on a one-for-one basis for the Company's common stock or cash at the Company's option.

The Company was organized to qualify as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended. The 19% limited partnership interest of the Operating Partnership not owned by the Company is reflected in these financial statements as minority interest.

The property management, leasing and redevelopment of the Company's portfolio is provided by the Company's management companies, Macerich Property Management Company, LLC, ("MPMC, LLC") a single-member Delaware limited liability company, Macerich Management Company, a California corporation, Westcor Partners, LLC, a single member Arizona limited liability company, Macerich Westcor Management, LLC, a single member Delaware limited liability company and Westcor Partners of Colorado, LLC, a Colorado limited liability company. The three Westcor management companies are collectively referred to as the "Westcor Management Companies."

Basis Of Presentation:

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements include the accounts of the Company and the Operating Partnership. Investments in which the Company has the ability to exercise significant influence over operating and financial policies, but does not hold a controlling interest are accounted for under the equity method of accounting and are reflected as "Investment in Joint Ventures." Effective July 1, 2003, the Company began consolidating the accounts of Macerich Management Company, in accordance with FIN 46 (See Note 2). Effective July 26, 2002, concurrent with the acquisition of the Westcor portfolio, (See Note 4), the Company began consolidating the accounts of the Westcor Management Companies. Prior to July 1, 2003, the Company accounted for Macerich Management Company under the equity method of accounting. The use of the term "Macerich Management Company" refers to Macerich Management Company prior to July 1, 2003 when their accounts were reflected in the Company's consolidated financial statements under the equity method of accounting.

The Macerich Company    77


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

2.    Summary of Significant Accounting Policies:

Cash and Cash Equivalents:

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents, for which cost approximates fair value. Restricted cash includes impounds of property taxes and other capital reserves required under the loan agreements.

Tenant Receivables:

Included in tenant receivables are allowances for doubtful accounts of $5,604 and $4,177 at December 31, 2004 and 2003, respectively. Also included in tenant receivables are accrued percentage rents of $7,174 and $5,057 at December 31, 2004 and 2003, respectively.

Revenues:

Minimum rental revenues are recognized on a straight-line basis over the terms of the related lease. The difference between the amount of rent due in a year and the amount recorded as rental income is referred to as the "straight-lining of rent adjustment." Rental income was decreased by $1,864 in 2004, increased by $2,887 in 2003 and increased by $1,173 in 2002 due to the straight-lining of rent adjustment. Percentage rents are recognized and accrued when tenants' specified sales targets have been met.

Estimated recoveries from tenants for real estate taxes, insurance and other shopping center operating expenses are recognized as revenues in the period the applicable expenses are incurred.

The Macerich and Westcor management companies provide property management, leasing, corporate, development, redevelopment and acquisition services to affiliated and non-affiliated shopping centers. In consideration for these services, the Macerich and Westcor management companies receive monthly management fees generally ranging from 1.5% to 6% of the gross monthly rental revenue of the properties managed.

Property:

Costs related to the development, redevelopment, construction and improvement of properties are capitalized. Interest incurred or imputed on development, redevelopment and construction projects is capitalized until construction is substantially complete.

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

78     The Macerich Company


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


Buildings and improvements   5-40 years
Tenant improvements   initial term of related lease
Equipment and furnishings   5-7 years

The Company accounts for all acquisitions entered into subsequent to June 30, 2001 in accordance with Statement of Financial Accounting Standards ("SFAS") No. 141, Business Combinations ("SFAS 141"). The Company will first determine the value of the land and buildings utilizing an "as if vacant" methodology. The Company will then assign a fair value to any debt assumed at acquisition. The balance of the purchase price will be allocated to tenant improvements and identifiable intangible assets or liabilities. Tenant improvements represent the tangible assets associated with the existing leases valued on a fair market value basis at acquisition date prorated over the remaining lease terms. The tenant improvements are classified as an asset under real estate investments and are depreciated over the remaining lease terms. Identifiable intangible assets and liabilities relate to the value of in-place operating leases which come in three forms: (i) origination value, which represents the value associated with "cost avoidance" of acquiring in-place leases, such as lease commissions paid under terms generally experienced in our markets; (ii) value of in-place leases, which represents the estimated loss of revenue and of costs incurred for the period required to lease the "assumed vacant" property to the occupancy level when purchased; and (iii) above or below market value of in-place leases, which represents the difference between the contractual rents and market rents at the time of the acquisition, discounted for tenant credit risks. Origination value is recorded as an other asset and is amortized over the remaining lease terms. Value of in-place leases is recorded as an other asset and amortized over the remaining lease term plus an estimate of renewal of the acquired leases. Above or below market leases are classified as an other asset or liability, depending on whether the contractual terms are above or below market, and the asset or liability is amortized to rental revenue over the remaining terms of the leases.

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

Generally, the Company engages a valuation firm to assist with the allocation.

The Company adopted SFAS 144 on January 1, 2002 which addresses financial accounting and reporting for the impairment or disposal of long-lived assets.

The Macerich Company    79



The Company assesses whether there has been an impairment in the value of its long-lived assets by considering factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other economic factors. Such factors include the tenants' ability to perform their duties and pay rent under the terms of the leases. The determination of recoverability is made based upon the estimated undiscounted future net cash flows, excluding interest expense. The amount of impairment loss, if any, is determined by comparing the fair value, as determined by a discounted cash flows analysis, with the carrying value of the related assets. Long-lived assets classified as held for sale are measured at the lower of the carrying amount or fair value less cost to sell. Management believes no such impairment has occurred in its net property carrying values at December 31, 2004 and 2003.

Deferred Charges:

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


Deferred lease costs   1-15 years
Deferred financing costs   1-15 years
In-place lease values   Remaining lease term plus an estimate for renewal (weighted average 17 years)
Leasing commissions and legal costs   5-10 years

Income Taxes:

The Company elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, commencing with its taxable year ended December 31, 1994. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it distribute at least 90% of its taxable income to its stockholders. It is management's current intention to adhere to these requirements and maintain the Company's REIT status. As a REIT, the Company generally will not be subject to corporate level federal income tax on net income it distributes currently to its stockholders. As such, no provision for federal income taxes has been included in the accompanying consolidated financial statements. If the Company fails to qualify as a REIT in any taxable year, then it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property and to federal income and excise taxes on its undistributed taxable income, if any.

80     The Macerich Company


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 Internal Revenue Code. The Company's Taxable REIT Subsidiaries are subject to corporate level income taxes which are provided for in the Company's consolidated financial statements.

Each partner is taxed individually on its share of partnership income or loss, and accordingly, no provision for federal and state income tax is provided for the Operating Partnership in the consolidated financial statements.

The following table reconciles net income available to common stockholders to taxable income available to common stockholders for the years ended December 31:

 
  2004

  2003

  2002


Net income available to common stockholders   $82,493   $113,218   $60,965
  Add: Book depreciation and amortization available to common stockholders   117,882   73,343   49,113
  Less: Tax depreciation and amortization available to common stockholders   (101,122)   (90,989)   (44,463)
    Book/tax difference on gain on divestiture of real estate   (3,383)   (19,255)   (9,377)
    Book/tax difference related to SFAS 141 purchase price allocation and market value debt adjustment (excluding SFAS 141 depreciation and amortization)   (12,436)   (7,523)   (2,683)
    Other book/tax differences, net(1)   (3,529)   1,571   3,096

Taxable income available to common stockholders   $79,905   $70,365   $56,651

(1)
Primarily due to rent, stock option exercises deductible for tax purposes and investments in unconsolidated joint ventures and Taxable REIT Subsidiaries.

The Macerich Company    81


For income tax purposes, distributions paid to common stockholders consist of ordinary income, capital gains, unrecaptured Section 1250 Gain and return of capital or a combination thereof. The following table details the components of the distributions for the years ended December 31:

 
  2004

   
  2003

   
  2002

   

Ordinary income   $1.58   63.7%   $1.57   67.7%   $1.67   75.2%
Capital gains   $0.03   1.2%   $0.04   1.6%   $0.03   1.3%
Unrecaptured Section 1250 Gain   $0.00   0.0%   $0.08   3.3%     0.0%
Return of capital   $0.87   35.1%   $0.63   27.4%   $0.52   23.5%

Dividends paid or payable   $2.48   100.0%   $2.32   100.0%   $2.22   100.0%

Reclassifications:

Certain reclassifications have been made to the 2002 and 2003 consolidated financial statements to conform to the 2004 consolidated financial statements presentation.

Accounting for the Impairment or Disposal of Long-Lived Assets:

In October 2001, the Financial Accounting Standards Board ("FASB") issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supersedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"). SFAS 144 establishes a single accounting model, based on the framework established in SFAS 121, for long-lived assets to be disposed of by sale. The Company adopted SFAS 144 on January 1, 2002. The Company sold Boulder Plaza on March 19, 2002 and in accordance with SFAS 144 the results of Boulder Plaza for the periods from January 1, 2002 to March 19, 2002, have been reclassified into "discontinued operations" on the consolidated statements of operations. Total revenues associated with Boulder Plaza were $495 for the period January 1, 2002 to March 19, 2002. The Company sold Paradise Village Gateway, which was acquired on July 26, 2002, on January 2, 2003 and recorded a loss on sale of $0.2 million for the twelve months ending December 31, 2003. Total revenue associated with Paradise Village Gateway for the period ending December 31, 2002 was $2,356. Additionally, the Company sold Bristol Center on August 4, 2003, and the results from the period January 1, 2003 to August 4, 2003 and for the year ended December 31, 2002 have been reclassified to discontinued operations. The sale of Bristol Center resulted in a gain on sale of asset of $22.2 million in 2003. Total revenues associated with Bristol Center were $2,523 for the period from January 1, 2003 to August 4, 2003 and $3,966 for the year ended December 31, 2002.

The Company sold Westbar on December 16, 2004, and the results for the period January 1, 2004 to December 16, 2004 and for the year ended December 31, 2003 and for the period July 26, 2002 to December 31, 2002 have been reclassified to discontinued operations. The sale of Westbar resulted in a

82     The Macerich Company



gain on sale of asset of $6,835. Total revenues associated with Westbar was approximately $4,784 for the period January 1, 2004 to December 16, 2004 and $5,738 for the year ended December 31, 2003 and $2,066 for the period July 26, 2002 to December 31, 2002.

Additionally, the results of Crossroads Mall in Oklahoma for the twelve months ending December 31, 2004, 2003 and 2002 have been reclassified to discontinued operations. The Company has identified this asset for disposition. Total revenues associated with Crossroads Mall were approximately $11,227, $12,249 and $11,798 for the years ended December 31, 2004, 2003 and 2002, respectively.

Early Extinguishment of Debt:

In May 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS 13, and Technical Corrections" ("SFAS 145"), which is effective for fiscal years beginning after May 15, 2002. SFAS 145 rescinds SFAS 4, SFAS 44 and SFAS 64 and amends SFAS 13 to modify the accounting for sales-leaseback transactions. SFAS 4 required the classification of gains and losses resulting from extinguishments of debt to be classified as extraordinary items. In accordance with SFAS 145, the Company has reclassified losses from early extinguishment of debt from extraordinary items to continuing operations. Accordingly, the Company reclassified a loss of approximately $3,605 for the year ended December 31, 2002.

Financial Accounting Standards Board Interpretation Number ("FIN") 46—Consolidation of Variable Interest Entities

In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities—an interpretation of ARB No. 51." FIN 46 addresses consolidation by business enterprises of variable interest entities, which have one or both of the following characteristics: 1) the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, which is provided through other interests that will absorb some or all of the expected losses of the entity, and 2) the equity investors lack an essential characteristic of a controlling financial interest. FIN 46 was effective immediately for all variable interest entities acquired after January 31, 2003 and for the first fiscal year or interim period beginning after June 15, 2003 for variable interest entities in which an enterprise holds a variable interest that was acquired before February 1, 2003. In December 2003, the FASB deferred the effective date of FIN 46 for variable interests acquired before February 1, 2003 to the first reporting period ending after March 15, 2004. The Company has adopted the provisions of FIN 46 for all non-special purpose entities created after February 1, 2003, and the Company has determined that FIN 46 does not apply to its investments in such entities or that such entities are not variable interest entities. In considering investments in joint ventures made prior to February 1, 2003, the Company adopted the provisions of FIN 46. As a result, the adoption of FIN 46 did not have a material effect on the Company's consolidated financial statements. Effective July 1, 2003, the Company has consolidated Macerich Management Company ("MMC"), in accordance with FIN 46. Consolidating MMC did not have a

The Macerich Company    83


material impact on the consolidated financial statements. Prior to July 1, 2003, MMC was accounted for under the equity method in the Company's consolidated financial statements.

Recent Accounting Pronouncements

In December 2004, the FASB issued Statement 123 (revised), "Share-Based Payment" ("FAS 123(R)"). FAS 123(R) requires that all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. The new standard will be effective in the first reporting period ending after June 15, 2005. The adoption of this statement is not expected to have a material effect on the Company's results of operations or financial condition.

In December 2004, the FASB issued Statement 153 ("FAS 153"), "Exchanges of Nonmonetary Assets—an amendment of APB Opinion No. 29." The guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. FAS 153 amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. FAS 153 will be effective in the first reporting period ending after June 15, 2005. The adoption of this statement is not expected to have a material effect on the Company's results of operations or financial condition.

On February 7, 2005, the SEC staff published certain views concerning the accounting by lessees for leasehold improvements, rent holidays, lessor funding of lessee expenditures and other tenant inducements. Although the application of these views to lessors was not specified by the SEC and a formal accounting standard modifying existing practice on these items has not been issued or proposed, the Company has conducted a detailed evaluation of its accounting relative to such items. The Company believes that our leases with our tenants that provide that leasehold improvements that the Company funds represent fixed assets that the Company owns and controls and that leases with such arrangements are properly accounted for as commencing at the completion of construction of such assets. On tenant leases that do not provide for landlord funding but rather provide for tenant funded construction and furnishing of the leased premises prior to the formal commencement of the lease the Company has concluded that the cumulative incremental straight-line rental revenue that would have been recognized on such leases if it had commenced with the turn-over of such space rather than the lease-specified commencement date to be immaterial to current and previous periods. Beginning on January 1, 2005, the Company will begin recognition of straight-line rental revenue on this accelerated basis for all new leases. This is not expected to have a material effect on future periods and will have no effect on periodic or cumulative cash flows to be received pursuant to a tenant lease.

84     The Macerich Company



Fair Value of Financial Instruments

To meet the reporting requirement of SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," the Company calculates the fair value of financial instruments and includes this additional information in the notes to consolidated financial statements when the fair value is different than the carrying value of those financial instruments. When the fair value reasonably approximates the carrying value, no additional disclosure is made. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

In accordance with SFAS 133—"Accounting for Derivative Instruments and Hedging Activities", the Company recognizes all derivatives in the consolidated financial statements and measures the derivatives at fair value. The Company uses derivative financial instruments in the normal course of business to manage or hedge interest rate risk. The Company requires that hedging derivative instruments are effective in reducing the risk exposure that they are designated to hedge. For derivative instruments associated with the hedge of an anticipated transaction, hedge effectiveness criteria also require that it be probable that the underlying transaction occurs. Any instrument that meets these cash flow hedging criteria, and other criteria required by SFAS 133, is formally designated as a hedge at the inception of the derivative contract. When the terms of an underlying transaction are modified resulting in some ineffectiveness, the portion of the change in the derivative fair value related to ineffectiveness from period to period will be included in net income. If any derivative instrument used for risk management does not meet the hedging criteria then it is marked-to-market each period, however, generally the Company intends for its derivative transactions to meet all the hedge criteria and qualify as hedges.

On an ongoing quarterly basis, the Company adjusts its balance sheet to reflect the current fair value of its derivatives. Changes in the fair value of derivatives are recorded each period in income or comprehensive income, depending on whether the derivative is designated and effective as part of a hedged transaction. For derivatives that do not meet the cash flow hedging criteria, the Company reflects those on the balance sheet quarterly at fair value with the difference being reflected in income. To the extent that the change in value of a derivative does not perfectly offset the change in value of the instrument being hedged, the ineffective portion of the hedge is immediately recognized in income. There was no ineffective portions in 2004, 2003 or 2002. Over time, the unrealized gains and losses held in accumulated other comprehensive income will be reclassified to income. This reclassification occurs when the hedged items are also recognized in income. The Company has a policy of only entering into contracts with major financial institutions based upon their credit ratings and other factors.

The Macerich Company    85



To determine the fair value of derivative instruments, the Company uses standard market conventions and techniques such as discounted cash flow anlaysis, option pricing models, and termination cost at each balance sheet date. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.

Interest rate cap agreements were purchased by the Company from third parties to hedge the risk of interest rate increases on some of the Company's variable rate debt. Payments received as a result of the cap agreements are recorded as a reduction of interest expense. The fair value of the cap agreements are included in deferred charges. The fair value of these caps would vary with fluctuations in interest rates. The Company would be exposed to credit loss in the event of nonperformance by these counter parties to the financial instruments; however, management does not anticipate nonperformance by the counter parties.

As of December 31, 2004 and 2003, the Company had $4,109 and $5,460 reflected in other comprehensive income related to treasury rate locks settled in prior years, respectively. The Company reclassified $1,351, $1,328 and $1,328 for the twelve months ended December 31, 2004, 2003 and 2002, respectively, related to treasury rate lock transactions settled in prior years from accumulated other comprehensive income to earnings. It is anticipated that a similar amount will be reclassified in 2005. Additionally, the Company recorded other comprehensive income (loss) of $245, $1,148 and ($319) related to the mark to market of interest rate swap agreements for the twelve months ended December 31, 2004, 2003 and 2002, respectively. The amount of other comprehensive income expected for 2005 from these interest rate caps and interest rate swap agreements are entirely dependent on interest rates and cannot be estimated. The interest rate caps and interest rate swap transactions are described below.

The $250,000 variable rate debt maturing in 2007 (See—Note 7) has an interest rate swap agreement which effectively fixed the interest rate at 4.45% from November 2003 to October 13, 2005. The fair value of this swap agreement is reflected in other comprehensive income and the fair value at December 31, 2004 and 2003 is $1,900 and $228, respectively.

The Company has an interest rate cap with a notional amount of $30,000 on their loan at La Cumbre Plaza (See—Note 6). This interest rate cap prevents the interest rate from exceeding 7.12%. The fair value of this cap agreement at December 31, 2004 was zero.

The Company has an interest rate cap with a notional amount of $92,000 on their $108,000 loan on The Oaks (See—Note 6). This interest rate cap prevents the interest rate from exceeding 7.10%. The fair value of this cap agreement at December 31, 2004 and 2003 was zero.

86     The Macerich Company



Earnings Per Share ("EPS"):

The computation of basic earnings per share is based on net income and the weighted average number of common shares outstanding for the years ended December 31, 2004, 2003 and 2002. The computation of diluted earnings per share includes the effect of outstanding restricted stock and common stock options calculated using the Treasury stock method. The OP Units not held by the Company have been included in the diluted EPS calculation since they are redeemable on a one-for-one basis. The following table reconciles the basic and diluted earnings per share calculation:

(In thousands, except per share data)

 
  For the years ended

 
   
   
   
   
   
   
  2002

 
  2004

  2003

 
  Net Income

   
   
 
  Net Income

  Shares

  Per Share

  Net Income

  Shares

  Per Share

  Shares

  Per Share


Net income   $91,633           $128,034           $81,382        
Less: Preferred stock dividends   9,140           14,816           20,417        

Basic EPS:                                    
Net income available to common stockholders   $82,493   58,537   $1.41   $113,218   53,669   $2.11   $60,965   37,348   $1.63
Diluted EPS:                                    
  Conversion of OP units   19,870   14,178       28,907   13,663       20,189   12,263    
  Employee stock options     384         480         455    
Restricted stock   n/a—antidilutive for EPS   n/a—antidilutive for EPS   n/a—antidilutive for EPS
  Convertible preferred stock   n/a—antidilutive for EPS   14,816   7,386       n/a—antidilutive for EPS
  Convertible debentures                   n/a—antidilutive for EPS

Net income available to common stockholders   $102,363   73,099   $1.40   $156,941   75,198   $2.09   $81,154   50,066   $1.62

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

 
  2004

  2003

  2002


Income from continuing operations   $17,364   $23,066   $12,223
Discontinued operations:            
  Gain on sale of assets   1,387   4,470   6,440
  Income from discontinued operations   1,119   1,371   1,526

Total   $19,870   $28,907   $20,189

Concentration of Risk:

The Company maintains its cash accounts in a number of commercial banks. Accounts at these banks are guaranteed by the Federal Deposit Insurance Corporation ("FDIC") up to $100. At various times during the year, the Company had deposits in excess of the FDIC insurance limit.

The Macerich Company    87


No Center or tenant generated more than 10% of total revenues during 2004, 2003 or 2002.

The Centers derived approximately 93.8%, 93.6% and 93.3% of their total minimum rents for the years ended December 31, 2004, 2003 and 2002, respectively, from Mall and Freestanding Stores. The Limited represented 3.6%, 4.3% and 5.1% of total minimum rents in place as of December 31, 2004, 2003 and 2002, respectively, and no other retailer represented more than 3.2%, 3.2% and 4.0% of total minimum rents as of December 31, 2004, 2003 and 2002, respectively.

Management Estimates:

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the twelve months ending December 31, 2004, the Company changed its estimate for common area expense recoveries applicable to prior periods. This change in estimate resulted in a $4,129 charge for the twelve months ending December 31, 2004.

3.    Investments In Unconsolidated Joint Ventures and the Macerich Management Company:

The following are the Company's investments in various joint ventures or properties jointly owned with third parties. The Operating Partnership's interest in each joint venture as of December 31, 2004 is as follows: