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EX-32.1 - EXHIBIT 32.1 - MACERICH COmac-6302017xexhibit321.htm
EX-31.2 - EXHIBIT 31.2 - MACERICH COmac-6302017xexhibit312.htm
EX-31.1 - EXHIBIT 31.1 - MACERICH COmac-6302017xexhibit311.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
Commission File No. 1-12504
THE MACERICH COMPANY
(Exact name of registrant as specified in its charter)
MARYLAND
 
95-4448705
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification Number)
401 Wilshire Boulevard, Suite 700, Santa Monica, California 90401
 (Address of principal executive office, including zip code)
(310) 394-6000
 (Registrant's telephone number, including area code)
N/A
 (Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past ninety (90) days.
YES x       NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding twelve (12) months (or for such shorter period that the registrant was required to submit and post such files).
YES x        NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of large accelerated filer, accelerated filer, smaller reporting company and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
 
Non-accelerated filer o
 (Do not check if a smaller
reporting company)
 
Smaller reporting company o 
 
 
 
 
 
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES o       NO x
Number of shares outstanding as of August 4, 2017 of the registrant's common stock, par value $0.01 per share: 141,414,438 shares




THE MACERICH COMPANY
FORM 10-Q
INDEX
Part I
 
Financial Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part II
 
Other Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2



THE MACERICH COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value)
(Unaudited)
 
June 30,
2017
 
December 31,
2016
ASSETS:
 
 
 
Property, net
$
7,198,283

 
$
7,357,310

Cash and cash equivalents
87,133

 
94,046

Restricted cash
50,304

 
49,951

Tenant and other receivables, net
116,089

 
136,998

Deferred charges and other assets, net
452,280

 
478,058

Due from affiliates
81,545

 
68,227

Investments in unconsolidated joint ventures
1,696,572

 
1,773,558

Total assets
$
9,682,206

 
$
9,958,148

LIABILITIES AND EQUITY:
 
 
 
Mortgage notes payable:
 
 
 
Related parties
$
174,037

 
$
176,442

Others
3,817,348

 
3,908,976

Total
3,991,385

 
4,085,418

Bank and other notes payable
996,129

 
880,482

Accounts payable and accrued expenses
56,596

 
61,316

Other accrued liabilities
322,643

 
366,165

Distributions in excess of investments in unconsolidated joint ventures
95,131

 
78,626

Co-venture obligation
59,647

 
58,973

Total liabilities
5,521,531

 
5,530,980

Commitments and contingencies

 

Equity:
 
 
 
Stockholders' equity:
 
 
 
Common stock, $0.01 par value, 250,000,000 shares authorized, 141,556,410 and 143,985,036 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively
1,416

 
1,440

Additional paid-in capital
4,521,945

 
4,593,229

Accumulated deficit
(663,805
)
 
(488,782
)
Total stockholders' equity
3,859,556

 
4,105,887

Noncontrolling interests
301,119

 
321,281

Total equity
4,160,675

 
4,427,168

Total liabilities and equity
$
9,682,206

 
$
9,958,148

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

3


THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
Minimum rents
$
152,893

 
$
152,448

 
$
298,448

 
$
303,496

Percentage rents
2,060

 
2,394

 
3,978

 
5,408

Tenant recoveries
68,948

 
75,948

 
141,360

 
156,121

Other
13,519

 
17,789

 
28,783

 
30,937

Management Companies
10,003

 
11,325

 
21,899

 
19,942

Total revenues
247,423

 
259,904

 
494,468

 
515,904

Expenses:
 
 
 
 
 
 
 
Shopping center and operating expenses
71,032

 
73,910

 
146,929

 
153,234

Management Companies' operating expenses
26,216

 
24,299

 
54,733

 
52,199

REIT general and administrative expenses
7,458

 
7,681

 
15,921

 
16,310

Depreciation and amortization
83,243

 
85,190

 
166,316

 
172,121

 
187,949

 
191,080

 
383,899

 
393,864

Interest expense:
 
 
 
 
 
 
 
Related parties
2,181

 
2,256

 
4,392

 
4,528

Other
40,140

 
38,939

 
79,230

 
76,443

 
42,321

 
41,195

 
83,622

 
80,971

Loss on extinguishment of debt

 

 

 
3,575

Total expenses
230,270

 
232,275

 
467,521

 
478,410

Equity in income of unconsolidated joint ventures
16,936

 
14,616

 
32,779

 
26,276

Co-venture expense
(4,123
)
 
(3,212
)
 
(8,000
)
 
(6,501
)
Income tax (expense) benefit
(437
)
 
(514
)
 
3,047

 
(1,831
)
(Loss) gain on sale or write down of assets, net
(477
)
 
10,915

 
49,088

 
445,371

Net income
29,052

 
49,434

 
103,861

 
500,809

Less net income attributable to noncontrolling interests
2,414

 
4,212

 
7,980

 
34,672

Net income attributable to the Company
$
26,638

 
$
45,222

 
$
95,881

 
$
466,137

Earnings per common share—net income attributable to common stockholders:
 
 
 
 
 
 
 
Basic
$
0.19

 
$
0.31

 
$
0.67

 
$
3.12

Diluted
$
0.19

 
$
0.31

 
$
0.67

 
$
3.12

Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
141,695,000

 
146,644,000

 
142,640,000

 
149,314,000

Diluted
141,728,000

 
146,769,000

 
142,687,000

 
149,459,000

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

4


THE MACERICH COMPANY
CONSOLIDATED STATEMENT OF EQUITY
(Dollars in thousands, except per share data)
(Unaudited)
 
Stockholders' Equity
 
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Par
Value
 
Additional
Paid-in
Capital
 
Accumulated Deficit
 
Total
Stockholders'
Equity
 
Noncontrolling
Interests
 
Total Equity
Balance at January 1, 2017
143,985,036

 
$
1,440

 
$
4,593,229

 
$
(488,782
)
 
$
4,105,887

 
$
321,281

 
$
4,427,168

Net income

 

 

 
95,881

 
95,881

 
7,980

 
103,861

Cumulative effect of adoption of ASU 2016-09

 

 

 
6,484

 
6,484

 

 
6,484

Amortization of share and unit-based plans
84,287

 
1

 
23,946

 

 
23,947

 

 
23,947

Employee stock purchases
20,443

 

 
986

 

 
986

 

 
986

Stock repurchases
(2,885,373
)
 
(29
)
 
(107,425
)
 
(74,286
)
 
(181,740
)
 

 
(181,740
)
Distributions declared ($1.42) per share

 

 

 
(203,102
)
 
(203,102
)
 

 
(203,102
)
Distributions to noncontrolling interests

 

 

 

 

 
(16,844
)
 
(16,844
)
Conversion of noncontrolling interests to common shares
352,017

 
4

 
11,792

 

 
11,796

 
(11,796
)
 

Redemption of noncontrolling interests

 

 
(61
)
 

 
(61
)
 
(24
)
 
(85
)
Adjustment of noncontrolling interests in Operating Partnership

 

 
(522
)
 

 
(522
)
 
522

 

Balance at June 30, 2017
141,556,410

 
$
1,416

 
$
4,521,945

 
$
(663,805
)
 
$
3,859,556

 
$
301,119

 
$
4,160,675

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

5


THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 
For the Six Months Ended June 30,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income
$
103,861

 
$
500,809

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Loss on early extinguishment of debt, net

 
3,575

Gain on sale or write down of assets, net
(49,088
)
 
(445,371
)
Depreciation and amortization
169,216

 
175,090

Amortization of net premium on mortgage notes payable
(1,860
)
 
(2,063
)
Amortization of share and unit-based plans
19,652

 
22,008

Straight-line rent adjustment
(4,544
)
 
(2,503
)
Amortization of above and below-market leases
(1,082
)
 
(4,178
)
Provision for doubtful accounts
3,358

 
2,291

Income tax (benefit) expense
(3,047
)
 
1,831

Equity in income of unconsolidated joint ventures
(32,779
)
 
(26,276
)
Distributions of income from unconsolidated joint ventures

 
4,483

Co-venture expense
8,000

 
6,501

Changes in assets and liabilities, net of acquisitions and dispositions:
 
 
 
Tenant and other receivables
5,401

 
4,061

Other assets
2,346

 
(15,930
)
Due from affiliates
(13,365
)
 
4,330

Accounts payable and accrued expenses
(2,002
)
 
(15,403
)
Other accrued liabilities
(13,840
)
 
6,454

Net cash provided by operating activities
190,227

 
219,709

Cash flows from investing activities:
 
 
 
Development, redevelopment, expansion and renovation of properties
(60,603
)
 
(107,565
)
Property improvements
(16,750
)
 
(14,267
)
Proceeds from repayment of notes receivable
619

 
3,161

Deferred leasing costs
(19,553
)
 
(14,698
)
Distributions from unconsolidated joint ventures
170,734

 
308,952

Contributions to unconsolidated joint ventures
(51,303
)
 
(382,910
)
Proceeds from sale of assets
167,631

 
695,724

Restricted cash
(353
)
 
(3,613
)
Net cash provided by investing activities
190,422

 
484,784

 
 
 
 

6


THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
(Unaudited)
 
For the Six Months Ended June 30,
 
2017
 
2016
Cash flows from financing activities:
 
 
 
Proceeds from mortgages, bank and other notes payable
300,000

 
2,596,138

Payments on mortgages, bank and other notes payable
(279,419
)
 
(1,929,969
)
Deferred financing costs
(32
)
 
(1,979
)
Proceeds from share and unit-based plans
986

 
834

Payment of debt extinguishment costs

 
(12,028
)
Stock repurchases
(181,740
)
 
(800,018
)
Redemption of noncontrolling interests
(85
)
 
(30
)
Dividends and distributions
(219,946
)
 
(561,611
)
Distributions to co-venture partner
(7,326
)
 
(9,202
)
Net cash used in financing activities
(387,562
)
 
(717,865
)
Net decrease in cash and cash equivalents
(6,913
)
 
(13,372
)
Cash and cash equivalents, beginning of period
94,046

 
86,510

Cash and cash equivalents, end of period
$
87,133

 
$
73,138

Supplemental cash flow information:
 
 
 
Cash payments for interest, net of amounts capitalized
$
82,864

 
$
72,224

Non-cash investing and financing transactions:
 
 
 
Accrued development costs included in accounts payable and accrued expenses and other accrued liabilities
$
31,500

 
$
24,177

Mortgage notes payable assumed in exchange for investments in unconsolidated joint ventures
$

 
$
997,695

Conversion of Operating Partnership Units to common stock
$
11,796

 
$
3,119

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

7


THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
1.
Organization:
The Macerich Company (the "Company") is involved in the acquisition, ownership, development, redevelopment, management and leasing of regional and community/power shopping centers (the "Centers") located throughout the United States.
The Company commenced operations effective with the completion of its initial public offering on March 16, 1994. As of June 30, 2017, the Company was the sole general partner of and held a 93% ownership interest in The Macerich Partnership, L.P. (the "Operating Partnership"). The Company was organized to qualify as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code").
The property management, leasing and redevelopment of the Company's portfolio is provided by the Company's management companies, Macerich Property Management Company, LLC, a single member Delaware limited liability company, Macerich Management Company, a California corporation, Macerich Arizona Partners LLC, a single member Arizona limited liability company, Macerich Arizona Management LLC, a single member Delaware limited liability company, Macerich Partners of Colorado LLC, a single member Colorado limited liability company, MACW Mall Management, Inc., a New York corporation, and MACW Property Management, LLC, a single member New York limited liability company. All seven of the management companies are collectively referred to herein as the "Management Companies."
All references to the Company in this Quarterly Report on Form 10-Q include the Company, those entities owned or controlled by the Company and predecessors of the Company, unless the context indicates otherwise.
2.
Summary of Significant Accounting Policies:
Basis of Presentation:
The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements and have not been audited by an independent registered public accounting firm.
The Company's sole significant asset is its investment in the Operating Partnership and as a result, substantially all of the Company's assets and liabilities represent the assets and liabilities of the Operating Partnership. In addition, the Operating Partnership has investments in a number of variable interest entities ("VIEs").
The Operating Partnership's VIEs included the following assets and liabilities:
 
June 30,
2017
 
December 31,
2016
Assets:
 
 
 
Property, net
$
302,822

 
$
307,582

Other assets
68,781

 
68,863

Total assets
$
371,603

 
$
376,445

Liabilities:
 
 
 
Mortgage notes payable
$
131,153

 
$
133,245

Other liabilities
75,548

 
75,913

Total liabilities
$
206,701

 
$
209,158

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

8

THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
2. Summary of Significant Accounting Policies: (Continued)

The unaudited interim consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial statements for the interim periods have been made. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The accompanying consolidated balance sheet as of December 31, 2016 has been derived from the audited financial statements but does not include all disclosures required by GAAP.
Recent Accounting Pronouncements:
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2014-09, “Revenue From Contracts With Customers,” which outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU 2014-09 states that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” While ASU 2014-09 specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate or equipment. ASU 2014-09 is effective for the Company beginning January 1, 2018, with early adoption permitted beginning January 1, 2017. The Company has evaluated each of its revenue streams and related accounting policies under the standard. The standard will initially apply to the Company's recognition of minimum rents, percentage rents and other revenues. This standard will not apply to the Company's recognition of tenant recoveries until January 1, 2019, when it adopts ASU 2016-02, "Leases (Topic 842)", as discussed below. The Company expects to adopt this standard on a modified retrospective basis and does not expect that it will significantly impact its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, which sets out principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The standard requires that lessors expense, on an as-incurred basis, certain initial direct costs that are not incremental in negotiating a lease. Under existing standards, certain of these costs are capitalizable and therefore this new standard may result in certain of these costs being expensed as incurred after adoption.
Under ASU 2016-02, lessees apply a dual approach, classifying leases as either finance or operating leases. A lessee is required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months, regardless of their lease classification. The Company is a lessee on ground leases at certain properties, on certain office space leases and on certain other improvements and equipment. ASU 2016-02 will impact the accounting and disclosure requirements for these leases. ASU 2016-02 is effective for the Company under a modified retrospective approach beginning January 1, 2019. The Company is evaluating the impact of the adoption of this standard on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, "Compensation-Stock Compensation (Topic 718)," which amended the accounting for share-based payments, including the income tax consequences, classification of awards and classification on the statement of cash flows. The Company's adoption of this standard on January 1, 2017 under the modified retrospective method resulted in the recognition of excess tax benefits of $6,484 as a cumulative effect adjustment, which reduced its accumulated deficit and increased its deferred tax assets by the same amount.
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash flows (Topic 230)," which amended the accounting for the statement of cash flows by providing guidance on how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The Company's adoption of this standard on January 1, 2017 resulted in the reclassification of $12,028 of debt extinguishment costs from operating activities to financing activities on its consolidated statement of cash flows for the six months ended June 30, 2016.

9

THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
2. Summary of Significant Accounting Policies: (Continued)

Recent Accounting Pronouncements: (Continued)
On November 17, 2016, the FASB issued ASU 2016-18, “Restricted Cash,” which requires that the statement of cash flows explain the change during a reporting period in the total of cash, cash equivalents, and amounts generally described as restricted cash and restricted cash equivalents. This standard states that transfers between cash, cash equivalents, and restricted cash are not part of the entity’s operating, investing, and financing activities. Therefore, restricted cash should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for the Company beginning January 1, 2018 with early adoption permitted. The Company does not believe that the adoption of ASU 2016-18 will have a significant impact on its consolidated statements of cash flows.
On January 5, 2017, the FASB issued ASU 2017-01, “Business Combinations,” which clarifies the definition of a business. The objective of the standard is to add further guidance that assists entities in evaluating whether a transaction will be accounted for as an acquisition of an asset or a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If so, the set of transferred assets and activities are not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs. ASU 2017-01 is effective for the Company beginning January 1, 2018 with early adoption permitted using a prospective transition method. The Company does not believe that the adoption of 2017-01 will have a significant impact on its consolidated financial statements.
In February 2017, the FASB issued ASU No. 2017-05, “Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets,” which clarifies the scope of asset derecognition and adds further guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with non-customers. The Company is required to adopt ASU 2017-05 beginning January 1, 2018 with early adoption permitted. The Company does not believe that the adoption of ASU No. 2017-05 will have a significant impact on its consolidated financial statements.


10

THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)

3.
Earnings per Share ("EPS"):
The following table reconciles the numerator and denominator used in the computation of EPS for the three and six months ended June 30, 2017 and 2016 (shares in thousands):
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Numerator
 
 
 
 
 
 
 
Net income
$
29,052

 
$
49,434

 
$
103,861

 
$
500,809

Net income attributable to noncontrolling interests
(2,414
)
 
(4,212
)
 
(7,980
)
 
(34,672
)
Net income attributable to the Company
26,638

 
45,222

 
95,881

 
466,137

Allocation of earnings to participating securities
(188
)
 
(170
)
 
(375
)
 
(557
)
Numerator for basic and diluted EPS—net income attributable to common stockholders
$
26,450

 
$
45,052

 
$
95,506

 
$
465,580

Denominator
 
 
 
 
 
 
 
Denominator for basic EPS—weighted average number of common shares outstanding
141,695

 
146,644

 
142,640

 
149,314

Effect of dilutive securities(1):
 
 
 
 
 
 
 
Share and unit-based compensation plans
33

 
125

 
47

 
145

Denominator for diluted EPS—weighted average number of common shares outstanding
141,728

 
146,769

 
142,687

 
149,459

Earnings per common share—net income attributable to common stockholders:
 
 
 
 
 
 
 
Basic
$
0.19

 
$
0.31

 
$
0.67

 
$
3.12

Diluted
$
0.19

 
$
0.31

 
$
0.67

 
$
3.12

 
 
 
(1)
Diluted EPS excludes 90,619 and 138,759 convertible preferred partnership units for the three months ended June 30, 2017 and 2016, respectively, and 90,619 and 138,759 convertible preferred partnership units for the six months ended June 30, 2017 and 2016, respectively, as their impact was antidilutive.
Diluted EPS excludes 10,526,547 and 10,833,354 Operating Partnership units ("OP Units") for the three months ended June 30, 2017 and 2016, respectively, and 10,558,809 and 10,826,849 OP Units for the six months ended June 30, 2017 and 2016, respectively, as their impact was antidilutive.

11

THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)

4.
Investments in Unconsolidated Joint Ventures:
The Company has made the following recent investments and dispositions in its unconsolidated joint ventures:
On January 6, 2016, the Company sold a 40% ownership interest in Arrowhead Towne Center, a 1,197,000 square foot regional shopping center in Glendale, Arizona, for $289,496, resulting in a gain on the sale of assets of $101,629. The sales price was funded by a cash payment of $129,496 and the assumption of a pro rata share of the mortgage note payable on the property of $160,000. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes, which included funding the Special Dividend (See Note 12Stockholders' Equity). Upon completion of the sale of the ownership interest, the Company no longer has a controlling interest in the joint venture due to the substantive participation rights of the outside partner. Accordingly, the Company accounts for its investment in Arrowhead Towne Center under the equity method of accounting.
On January 14, 2016, the Company formed a joint venture, whereby the Company sold a 49% ownership interest in Deptford Mall, a 1,039,000 square foot regional shopping center in Deptford, New Jersey; FlatIron Crossing, a 1,432,000 square foot regional shopping center in Broomfield, Colorado; and Twenty Ninth Street, an 847,000 square foot regional shopping center in Boulder, Colorado (the "MAC Heitman Portfolio"), for $771,478, resulting in a gain on the sale of assets of $340,734. The sales price was funded by a cash payment of $478,608 and the assumption of a pro rata share of the mortgage notes payable on the properties of $292,870. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes. Upon completion of the sale of the ownership interest, the Company no longer has a controlling interest in the joint venture due to the substantive participation rights of the outside partner. Accordingly, the Company accounts for its investment in the MAC Heitman Portfolio under the equity method of accounting.
On March 1, 2016, the Company, through a 50/50 joint venture, acquired Country Club Plaza, a 1,006,000 square foot regional shopping center in Kansas City, Missouri, for a purchase price of $660,000. The Company funded its pro rata share of the purchase price of $330,000 from borrowings under its line of credit. On March 28, 2016, the joint venture placed a $320,000 loan on the property that bears interest at an effective rate of 3.88% and matures on April 1, 2026. The Company used its pro rata share of the proceeds to pay down its line of credit and for general corporate purposes.
On March 17, 2017, the Company's joint venture in Country Club Plaza sold an office building for $78,000, resulting in a gain on sale of assets of $4,580. The Company's pro rata share of the gain on sale of assets of $2,290 was included in equity in income from joint ventures. The Company used its share of the proceeds to fund repurchases under the 2017 Stock Buyback Program (See Note 12Stockholders' Equity).

12

THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
4. Investments in Unconsolidated Joint Ventures: (Continued)

Combined and condensed balance sheets and statements of operations are presented below for all unconsolidated joint ventures.
Combined and Condensed Balance Sheets of Unconsolidated Joint Ventures:
 
June 30,
2017
 
December 31,
2016
Assets(1):
 
 
 
Property, net
$
9,092,493

 
$
9,176,642

Other assets
647,492

 
614,607

Total assets
$
9,739,985

 
$
9,791,249

Liabilities and partners' capital(1):
 
 
 
Mortgage and other notes payable(2)
$
5,324,700

 
$
5,224,713

Other liabilities
435,822

 
403,369

Company's capital
2,174,786

 
2,279,819

Outside partners' capital
1,804,677

 
1,883,348

Total liabilities and partners' capital
$
9,739,985

 
$
9,791,249

Investments in unconsolidated joint ventures:
 
 
 
Company's capital
$
2,174,786

 
$
2,279,819

Basis adjustment(3)
(573,345
)
 
(584,887
)
 
$
1,601,441

 
$
1,694,932

 
 
 
 
Assets—Investments in unconsolidated joint ventures
$
1,696,572

 
$
1,773,558

Liabilities—Distributions in excess of investments in unconsolidated joint ventures
(95,131
)
 
(78,626
)
 
$
1,601,441

 
$
1,694,932

 
 
 
(1)
These amounts include the assets of $3,126,583 and $3,179,255 of Pacific Premier Retail LLC (the "PPR Portfolio") as of June 30, 2017 and December 31, 2016, respectively, and liabilities of $1,881,513 and $1,887,952 of the PPR Portfolio as of June 30, 2017 and December 31, 2016, respectively.
(2)
Included in mortgage and other notes payable are amounts due to an affiliate of Northwestern Mutual Life ("NML") of $487,077 and $265,863 as of June 30, 2017 and December 31, 2016, respectively. NML is considered a related party because it is a joint venture partner with the Company in Macerich Northwestern Associates—Broadway Plaza. Interest expense on these borrowings was $4,929 and $4,992 for the three months ended June 30, 2017 and 2016, respectively, and $8,089 and $11,358 for the six months ended June 30, 2017 and 2016, respectively.
(3)
The Company amortizes the difference between the cost of its investments in unconsolidated joint ventures and the book value of the underlying equity into income on a straight-line basis consistent with the lives of the underlying assets. The amortization of this difference was $4,197 and $4,669 for the three months ended June 30, 2017 and 2016, respectively, and $8,224 and $9,126 for the six months ended June 30, 2017 and 2016, respectively.

13

THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
4. Investments in Unconsolidated Joint Ventures: (Continued)

Combined and Condensed Statements of Operations of Unconsolidated Joint Ventures:
 
PPR Portfolio
 
 
Other
Joint
Ventures
 
Total
Three Months Ended June 30, 2017
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
Minimum rents
$
32,045

 
 
$
126,765

 
$
158,810

Percentage rents
221

 
 
2,126

 
2,347

Tenant recoveries
11,373

 
 
46,119

 
57,492

Other
1,402

 
 
13,017

 
14,419

Total revenues
45,041

 
 
188,027

 
233,068

Expenses:
 
 
 
 
 
 
Shopping center and operating expenses
9,711

 
 
58,886

 
68,597

Interest expense
16,675

 
 
32,976

 
49,651

Depreciation and amortization
24,802

 
 
62,090

 
86,892

Total operating expenses
51,188

 
 
153,952

 
205,140

Loss on sale of assets

 
 
(2
)
 
(2
)
Net (loss) income
$
(6,147
)
 
 
$
34,073

 
$
27,926

Company's equity in net (loss) income
$
(1,034
)
 
 
$
17,970

 
$
16,936

Three Months Ended June 30, 2016
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
Minimum rents
$
31,474

 
 
$
119,664

 
$
151,138

Percentage rents
343

 
 
2,624

 
2,967

Tenant recoveries
11,919

 
 
46,652

 
58,571

Other
689

 
 
12,752

 
13,441

Total revenues
44,425

 
 
181,692

 
226,117

Expenses:
 
 
 
 
 
 
Shopping center and operating expenses
9,314

 
 
58,930

 
68,244

Interest expense
16,055

 
 
31,266

 
47,321

Depreciation and amortization
26,796

 
 
60,764

 
87,560

Total operating expenses
52,165

 
 
150,960

 
203,125

Gain on sale of assets

 
 
5

 
5

Net (loss) income
$
(7,740
)
 
 
$
30,737

 
$
22,997

Company's equity in net (loss) income
$
(1,730
)
 
 
$
16,346

 
$
14,616

 
 
 
 
 
 
 



14

THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
4. Investments in Unconsolidated Joint Ventures: (Continued)

 
PPR Portfolio
 
 
Other
Joint
Ventures
 
Total
Six Months Ended June 30, 2017
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
Minimum rents
$
65,581

 
 
$
250,268

 
$
315,849

Percentage rents
951

 
 
3,864

 
4,815

Tenant recoveries
22,812

 
 
94,034

 
116,846

Other
2,428

 
 
24,528

 
26,956

Total revenues
91,772

 
 
372,694

 
464,466

Expenses:
 
 
 
 
 
 
Shopping center and operating expenses
19,471

 
 
121,081

 
140,552

Interest expense
33,401

 
 
65,255

 
98,656

Depreciation and amortization
51,078

 
 
124,969

 
176,047

Total operating expenses
103,950

 
 
311,305

 
415,255

(Loss) gain on sale or write down of assets, net
(35
)
 
 
4,579

 
4,544

Net (loss) income
$
(12,213
)
 
 
$
65,968

 
$
53,755

Company's equity in net (loss) income
$
(1,996
)
 
 
$
34,775

 
$
32,779

Six Months Ended June 30, 2016
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
Minimum rents
$
62,057

 
 
$
226,037

 
$
288,094

Percentage rents
1,102

 
 
4,377

 
5,479

Tenant recoveries
23,895

 
 
90,095

 
113,990

Other
3,527

 
 
23,104

 
26,631

Total revenues
90,581

 
 
343,613

 
434,194

Expenses:
 
 
 
 
 
 
Shopping center and operating expenses
19,100

 
 
112,228

 
131,328

Interest expense
31,269

 
 
59,004

 
90,273

Depreciation and amortization
54,880

 
 
117,297

 
172,177

Total operating expenses
105,249

 
 
288,529

 
393,778

Net (loss) income
$
(14,668
)
 
 
$
55,084

 
$
40,416

Company's equity in net (loss) income
$
(2,974
)
 
 
$
29,250

 
$
26,276


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

15

THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)

5.
Property, net:
Property, net consists of the following:
 
June 30,
2017
 
December 31,
2016
Land
$
1,582,191

 
$
1,607,590

Buildings and improvements
6,408,362

 
6,511,741

Tenant improvements
610,084

 
622,878

Equipment and furnishings
180,735

 
177,036

Construction in progress
321,142

 
289,966

 
9,102,514

 
9,209,211

Less accumulated depreciation
(1,904,231
)
 
(1,851,901
)
 
$
7,198,283

 
$
7,357,310

Depreciation expense was $69,364 and $68,175 for the three months ended June 30, 2017 and 2016, respectively, and $138,320 and $138,078 for the six months ended June 30, 2017 and 2016, respectively.
The (loss) gain on sale or write down of assets, net was $(477) and $10,915 for the three months ended June 30, 2017 and 2016, respectively, and $49,088 and $445,371 for the six months ended June 30, 2017 and 2016, respectively.
The (loss) gain on sale or write down of assets, net for the six months ended June 30, 2017 includes a gain of $59,698 on the sale of Cascade Mall and Northgate Mall (See Note 14Dispositions) offset in part by a loss of $10,138 on the write down of an investment in non-real estate assets.
The (loss) gain on sale or write down of assets, net for the three and six months ended June 30, 2016 includes a gain of $24,894 on the sale of Capitola Mall (See Note 14Dispositions), a loss of $3,066 on the sale of a former Mervyn's store (See Note 14Dispositions) and an impairment loss of $7,188 due to the reduction of the estimated holding period of The Marketplace at Flagstaff.
The (loss) gain on sale or write down of assets, net for the six months ended June 30, 2016 also includes a gain of $101,629 on the sale of a 40% ownership interest in Arrowhead Towne Center (See Note 4Investments in Unconsolidated Joint Ventures), $340,734 on the sale of a 49% ownership interest in the MAC Heitman Portfolio (See Note 4Investments in Unconsolidated Joint Ventures) and a loss of $14,750 on an adjustment to contingent consideration (See Note 13—Acquisitions).
6.
Tenant and Other Receivables, net:
Included in tenant and other receivables, net is an allowance for doubtful accounts of $2,996 and $1,991 at June 30, 2017 and December 31, 2016, respectively. Also included in tenant and other receivables, net are accrued percentage rents of $966 and $9,509 at June 30, 2017 and December 31, 2016, respectively, and a deferred rent receivable due to straight-line rent adjustments of $59,226 and $56,761 at June 30, 2017 and December 31, 2016, respectively.
On March 17, 2014, in connection with the sale of Lake Square Mall, the Company issued a note receivable for $6,500 that bears interest at an effective rate of 6.5%, matures on March 17, 2018 and is collateralized by a trust deed on Lake Square Mall. At June 30, 2017 and December 31, 2016, the note had a balance of $6,253 and $6,284, respectively.

16

THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)

7.
Deferred Charges and Other Assets, net:
Deferred charges and other assets, net consist of the following:
 
June 30,
2017
 
December 31,
2016
Leasing
$
225,933

 
$
239,983

Intangible assets:
 
 
 
In-place lease values
114,999

 
140,437

Leasing commissions and legal costs
28,242

 
32,384

Above-market leases
172,473

 
181,851

Deferred tax assets
47,833

 
38,301

Deferred compensation plan assets
47,205

 
42,711

Other assets
60,222

 
72,206

 
696,907

 
747,873

Less accumulated amortization(1)
(244,627
)
 
(269,815
)
 
$
452,280

 
$
478,058

 
 
 
(1)
Accumulated amortization includes $74,239 and $88,785 relating to in-place lease values, leasing commissions and legal costs at June 30, 2017 and December 31, 2016, respectively. Amortization expense of in-place lease values, leasing commissions and legal costs was $5,545 and $8,203 for the three months ended June 30, 2017 and 2016, respectively, and $11,549 and $17,050 for the six months ended June 30, 2017 and 2016, respectively.
The allocated values of above-market leases and below-market leases consist of the following:
 
June 30,
2017
 
December 31,
2016
Above-Market Leases
 
 
 
Original allocated value
$
172,473

 
$
181,851

Less accumulated amortization
(57,813
)
 
(57,505
)
 
$
114,660

 
$
124,346

Below-Market Leases(1)
 
 
 
Original allocated value
$
129,893

 
$
144,713

Less accumulated amortization
(55,052
)
 
(58,400
)
 
$
74,841

 
$
86,313

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

17

THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)

8.
Mortgage Notes Payable:
Mortgage notes payable at June 30, 2017 and December 31, 2016 consist of the following:
 
 
Carrying Amount of Mortgage Notes(1)
 
 
 
 
 
 
 
 
June 30, 2017
 
December 31, 2016
 
 
 
 
 
 
Property Pledged as Collateral
 
Related Party
 
Other
 
Related Party
 
Other
 
Effective Interest
Rate(2)
 
Monthly
Debt
Service(3)
 
Maturity
Date(4)
Chandler Fashion Center(5)
 
$

 
$
199,868

 
$

 
$
199,833

 
3.77
%
 
$
625

 
2019

Danbury Fair Mall
 
106,287

 
106,286

 
107,929

 
107,928

 
5.53
%
 
1,538

 
2020

Fashion Outlets of Chicago(6)
 

 
199,137

 

 
198,966

 
2.44
%
 
380

 
2020

Fashion Outlets of Niagara Falls USA
 

 
114,272

 

 
115,762

 
4.89
%
 
727

 
2020

Freehold Raceway Mall(5)
 

 
218,479

 

 
220,643

 
4.20
%
 
1,132

 
2018

Fresno Fashion Fair
 

 
323,159

 

 
323,062

 
3.67
%
 
971

 
2026

Green Acres Mall
 

 
294,598

 

 
297,798

 
3.61
%
 
1,447

 
2021

Kings Plaza Shopping Center
 

 
452,121

 

 
456,958

 
3.67
%
 
2,229

 
2019

Northgate Mall(7)
 

 

 

 
63,434

 

 

 

Oaks, The
 

 
199,007

 

 
201,235

 
4.14
%
 
1,064

 
2022

Pacific View
 

 
125,868

 

 
127,311

 
4.08
%
 
668

 
2022

Queens Center
 

 
600,000

 

 
600,000

 
3.49
%
 
1,744

 
2025

Santa Monica Place
 

 
216,858

 

 
219,564

 
2.99
%
 
1,004

 
2018

SanTan Village Regional Center
 

 
126,220

 

 
127,724

 
3.14
%
 
589

 
2019

Stonewood Center
 

 
96,528

 

 
99,520

 
1.80
%
 
640

 
2017

Towne Mall
 

 
21,367

 

 
21,570

 
4.48
%
 
117

 
2022

Tucson La Encantada
 
67,750

 

 
68,513

 

 
4.23
%
 
368

 
2022

Victor Valley, Mall of
 

 
114,588

 

 
114,559

 
4.00
%
 
380

 
2024

Vintage Faire Mall
 

 
266,534

 

 
269,228

 
3.55
%
 
1,256

 
2026

Westside Pavilion
 

 
142,458

 

 
143,881

 
4.49
%
 
783

 
2022

 
 
$
174,037

 
$
3,817,348

 
$
176,442

 
$
3,908,976

 
 

 
 

 
 


(1)
The mortgage notes payable balances include the unamortized debt premiums (discounts). Debt premiums (discounts) represent the excess (deficiency) of the fair value of debt over (under) the principal value of debt assumed in various acquisitions and are amortized into interest expense over the remaining term of the related debt in a manner that approximates the effective interest method. Debt premiums (discounts) consist of the following:
Property Pledged as Collateral
June 30,
2017
 
December 31,
2016
Fashion Outlets of Niagara Falls USA
$
3,094

 
$
3,558

Stonewood Center
955

 
2,349

 
$
4,049

 
$
5,907

The mortgage notes payable balances also include unamortized deferred finance costs that are amortized into interest expense over the remaining term of the related debt in a manner that approximates the effective interest method. Unamortized deferred finance costs were $11,059 and $12,716 at June 30, 2017 and December 31, 2016, respectively.
(2)
The interest rate disclosed represents the effective interest rate, including the debt premiums (discounts) and deferred finance costs.
(3)
The monthly debt service represents the payment of principal and interest.
(4)
The maturity date assumes that all extension options are fully exercised and that the Company does not opt to refinance the debt prior to these dates. These extension options are at the Company's discretion, subject to certain conditions, which the Company believes will be met.

18

THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
8. Mortgage Notes Payable: (Continued)

(5)
A 49.9% interest in the loan has been assumed by a third party in connection with a co-venture arrangement (See Note 10Co-Venture Arrangement).
(6)
The loan bears interest at LIBOR plus 1.50% and matures on March 31, 2020. At June 30, 2017 and December 31, 2016, the total interest rate was 2.44% and 2.43%, respectively.
(7)
On January 18, 2017, the loan was paid off in connection with the sale of the underlying property (See Note 14Dispositions).
Most of the mortgage loan agreements contain a prepayment penalty provision for the early extinguishment of the debt.
The Company's mortgage notes payable are secured by the properties on which they are placed and are non-recourse to the Company.
The Company expects that all loan maturities during the next twelve months will be refinanced, restructured, extended and/or paid-off from the Company's line of credit or with cash on hand.
Total interest expense capitalized was $3,343 and $2,562 for the three months ended June 30, 2017 and 2016, respectively, and $5,977 and $4,865 for the six months ended June 30, 2017 and 2016, respectively.
Related party mortgage notes payable are amounts due to an affiliate of NML. See Note 16Related Party Transactions for interest expense associated with loans from NML.
The estimated fair value (Level 2 measurement) of mortgage notes payable at June 30, 2017 and December 31, 2016 was $4,019,860 and $4,126,819, respectively, based on current interest rates for comparable loans. Fair value was determined using a present value model and an interest rate that included a credit value adjustment based on the estimated value of the property that serves as collateral for the underlying debt.
9.
Bank and Other Notes Payable:
Bank and other notes payable consist of the following:
Line of Credit:
The Company has a $1,500,000 revolving line of credit that bears interest at LIBOR plus a spread of 1.30% to 1.90%, depending on the Company's overall leverage level, and matures on July 6, 2020 with a one-year extension option. The line of credit can be expanded, depending on certain conditions, up to a total facility of $2,000,000.
Based on the Company's leverage level as of June 30, 2017, the borrowing rate on the facility was LIBOR plus 1.45%. As of June 30, 2017 and December 31, 2016, borrowings under the line of credit, were $1,000,000 and $885,000, respectively, less unamortized deferred finance costs of $8,804 and $10,039, respectively, at a total interest rate of 2.68% and 2.40%, respectively. The estimated fair value (Level 2 measurement) of the line of credit at June 30, 2017 and December 31, 2016 was $979,140 and $865,921, respectively, based on a present value model using a credit interest rate spread offered to the Company for comparable debt.
Prasada Note:
On March 29, 2013, the Company issued a $13,330 note payable that bears interest at 5.25% and matures on May 30, 2021. The note payable is collateralized by a portion of a development reimbursement agreement with the City of Surprise, Arizona. At June 30, 2017 and December 31, 2016, the note had a balance of $4,933 and $5,521, respectively. The estimated fair value (Level 2 measurement) of the note at June 30, 2017 and December 31, 2016 was $5,086 and $5,786, respectively, based on current interest rates for comparable notes. Fair value was determined using a present value model and an interest rate that included a credit value adjustment based on the estimated value of the collateral for the underlying debt.
As of June 30, 2017 and December 31, 2016, the Company was in compliance with all applicable financial loan covenants.

19

THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)

10.
Co-Venture Arrangement:
On September 30, 2009, the Company formed a joint venture, whereby a third party acquired a 49.9% interest in Freehold Raceway Mall, a 1,671,000 square foot regional shopping center in Freehold, New Jersey, and Chandler Fashion Center, a 1,318,000 square foot regional shopping center in Chandler, Arizona.
As a result of the Company having certain rights under the agreement to repurchase the assets after the seventh year of the venture formation, the transaction did not qualify for sale treatment. The Company, however, is not obligated to repurchase the assets. The transaction has been accounted for as a profit-sharing arrangement, and accordingly the assets, liabilities and operations of the properties remain on the books of the Company and a co-venture obligation was established for the amount of $168,154, representing the net cash proceeds received from the third party. The co-venture obligation is increased for the allocation of income to the co-venture partner and decreased for distributions to the co-venture partner. The co-venture obligation was $59,647 and $58,973 at June 30, 2017 and December 31, 2016, respectively.
11. Noncontrolling Interests:
The Company allocates net income of the Operating Partnership based on the weighted average ownership interest during the period. The net income of the Operating Partnership that is not attributable to the Company is reflected in the consolidated statements of operations as noncontrolling interests. The Company adjusts the noncontrolling interests in the Operating Partnership at the end of each period to reflect its ownership interest in the Company. The Company had a 93% ownership interest in the Operating Partnership as of June 30, 2017 and December 31, 2016. The remaining 7% limited partnership interest as of June 30, 2017 and December 31, 2016 was owned by certain of the Company's executive officers and directors, certain of their affiliates and other third party investors in the form of OP Units. The OP Units may be redeemed for shares of stock or cash, at the Company's option. The redemption value for each OP Unit as of any balance sheet date is the amount equal to the average of the closing price per share of the Company's common stock, par value $0.01 per share, as reported on the New York Stock Exchange for the 10 trading days ending on the respective balance sheet date. Accordingly, as of June 30, 2017 and December 31, 2016, the aggregate redemption value of the then-outstanding OP Units not owned by the Company was $601,404 and $733,141, respectively.
The Company issued common and preferred units of MACWH, LP in April 2005 in connection with the acquisition of the Wilmorite portfolio. The common and preferred units of MACWH, LP are redeemable at the election of the holder. The Company may redeem them for cash or shares of the Company's stock at the Company's option and they are classified as permanent equity.
Included in permanent equity are outside ownership interests in various consolidated joint ventures. The joint ventures do not have rights that require the Company to redeem the ownership interests in either cash or stock.
12.
Stockholders' Equity:
2015 Stock Buyback Program:
On September 30, 2015, the Company's Board of Directors authorized the repurchase of up to $1,200,000 of the Company's outstanding common shares over the period ending September 30, 2017, as market conditions warranted.
On November 12, 2015, the Company entered into an accelerated share repurchase program ("ASR") to repurchase $400,000 of the Company's common stock. In accordance with the ASR, the Company made a prepayment of $400,000 and received an initial share delivery of 4,140,788 shares. On January 19, 2016, the ASR was completed and the Company received delivery of an additional 970,609 shares. The average price of the 5,111,397 shares repurchased under the ASR was $78.26 per share. The ASR was funded from proceeds in connection with the financing and sale of a 40% ownership interest in the PPR Portfolio.

20

THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
12. Stockholders' Equity: (Continued)

On February 17, 2016, the Company entered into an ASR to repurchase an additional $400,000 of the Company's common stock. In accordance with the ASR, the Company made a prepayment of $400,000 and received an initial share delivery of 4,222,193 shares. On April 19, 2016, the ASR was completed and the Company received delivery of an additional 861,235 shares. The average price of the 5,083,428 shares repurchased under the ASR was $78.69 per share. The ASR was funded from borrowings under the Company's line of credit, which had been paid down from the proceeds from the financings and sale of ownership interests in Arrowhead Towne Center and the MAC Heitman Portfolio (See Note 4Investments in Unconsolidated Joint Ventures).
On May 9, 2016, the Company entered into an ASR to repurchase the remaining $400,000 of the Company's common stock authorized for repurchase. In accordance with the ASR, the Company made a prepayment of $400,000 and received an initial share delivery of 3,964,812 shares. On July 11, 2016, the ASR was completed and the Company received delivery of an additional 1,104,162 shares. The average price of the 5,068,974 shares repurchased under the ASR was $78.91 per share. The ASR was funded from borrowings under the Company's line of credit, which had been paid down from the proceeds from the financings and sale of ownership interests in Arrowhead Towne Center and the MAC Heitman Portfolio (See Note 4Investments in Unconsolidated Joint Ventures).
2017 Stock Buyback Program:
On February 12, 2017, the Company's Board of Directors authorized the repurchase of up to $500,000 of its outstanding common shares as market conditions and the Company’s liquidity warrant. Repurchases may be made through open market purchases, privately negotiated transactions, structured or derivative transactions, including ASR transactions, or other methods of acquiring shares and pursuant to Rule 10b5-1 of the Securities Act of 1934, from time to time as permitted by securities laws and other legal requirements.
During the period from February 12, 2017 to June 30, 2017, the Company repurchased a total of 2,885,373 of its common shares for $181,740, representing an average price of $62.96 per share. The Company funded the repurchases from the net proceeds of the sale of Cascade Mall and Northgate Mall (See Note 14Dispositions), its share of the proceeds from the sale of an office building at Country Club Plaza (See Note 4Investments in Unconsolidated Joint Ventures) and from borrowings under its line of credit.
Special Dividends:
On October 30, 2015, the Company declared two special dividends/distributions ("Special Dividend"), each of $2.00 per share of common stock and per OP Unit. The first Special Dividend was paid on December 8, 2015 to common stockholders and OP Unit holders of record on November 12, 2015. The second Special Dividend was paid on January 6, 2016 to common stockholders and OP Unit holders of record on November 12, 2015. The Special Dividends were funded from proceeds in connection with the financing and sale of ownership interests in the PPR Portfolio and Arrowhead Towne Center (See Note 4Investments in Unconsolidated Joint Ventures).
At-The-Market Stock Offering Program ("ATM Program"):
On August 20, 2014, the Company entered into an equity distribution agreement with a number of sales agents (the "ATM Program") to issue and sell, from time to time, shares of common stock, par value $0.01 per share, having an aggregate offering price of up to $500,000 (the “ATM Shares”). Sales of the ATM Shares can be made in privately negotiated transactions and/or any other method permitted by law, including sales deemed to be an “at the market” offering, which includes sales made directly on the New York Stock Exchange or sales made to or through a market maker other than on an exchange. The Company agreed to pay each sales agent a commission that was not to exceed, but could have been lower than, 2% of the gross proceeds of the ATM Shares sold through such sales agent under the distribution agreement.
As of June 30, 2017, $500,000 of the ATM Shares were available to be sold under the ATM Program. Actual future sales of the ATM Shares under the ATM Program will depend upon a variety of factors including but not limited to market conditions, the trading price of the Company's common stock and the Company's capital needs. The ATM program will expire by its terms in August 2017.

21

THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)

13.
Acquisitions:
Fashion Outlets of Chicago:
On October 31, 2014, the Company purchased the outside ownership interest in its consolidated joint venture in Fashion Outlets of Chicago for $69,987. The purchase price was funded by a cash payment of $55,867 and the settlement of the balance on notes receivables of $14,120. The purchase agreement included contingent consideration based on the financial performance of Fashion Outlets of Chicago at an agreed upon date in 2016. On August 19, 2016, the Company paid $23,800 in full settlement of the contingent consideration obligation.
14.
Dispositions:
The following are recent dispositions of properties:
On April 13, 2016, the Company sold Capitola Mall, a 586,000 square foot regional shopping center in Capitola, California, for $93,000, resulting in a gain on the sale of assets of $24,894. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On May 31, 2016, the Company sold a former Mervyn's store in Yuma, Arizona, for $3,200, resulting in a loss on the sale of assets of $3,066. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.
On July 15, 2016, the Company conveyed Flagstaff Mall, a 347,000 square foot regional shopping center in Flagstaff, Arizona, to the mortgage lender by a deed-in-lieu of foreclosure and was discharged from the mortgage note payable. The loan was non-recourse to the Company. As a result, the Company recognized a gain on the extinguishment of debt of $5,284.
On January 18, 2017, the Company sold Cascade Mall, a 589,000 square foot regional shopping center in Burlington, Washington; and Northgate Mall, a 750,000 square foot regional shopping center in San Rafael, California, in a combined transaction for $170,000, resulting in a gain on the sale of assets of $59,698. The proceeds were used to pay off the mortgage note payable on Northgate Mall and to repurchase shares of the Company's common stock under the 2017 Stock Buyback Program (See Note 12Stockholders' Equity).
15.
Commitments and Contingencies:
The Company has certain properties that are subject to non-cancelable operating ground leases. The leases expire at various times through 2098, subject in some cases to options to extend the terms of the lease. Certain leases provide for contingent rent payments based on a percentage of base rental income, as defined in the lease. Ground lease rent expense was $2,592 and $2,406 for the three months ended June 30, 2017 and 2016, respectively, and $5,168 and $4,917 for the six months ended June 30, 2017 and 2016, respectively. No contingent rent was incurred during the three and six months ended June 30, 2017 or 2016.
As of June 30, 2017, the Company was contingently liable for $61,002 in letters of credit guaranteeing performance by the Company of certain obligations relating to the Centers. The Company does not believe that these letters of credit will result in a liability to the Company.
The Company has entered into a number of construction agreements related to its redevelopment and development activities. Obligations under these agreements are contingent upon the completion of the services within the guidelines specified in the agreements. At June 30, 2017, the Company had $73,843 in outstanding obligations which it believes will be settled in the next twelve months.

22

THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)

16.
Related Party Transactions:
Certain unconsolidated joint ventures have engaged the Management Companies to manage the operations of the Centers. Under these arrangements, the Management Companies are reimbursed for compensation paid to on-site employees, leasing agents and project managers at the Centers, as well as insurance costs and other administrative expenses.
The following are fees charged to unconsolidated joint ventures:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Management fees
$
4,685

 
$
5,016

 
$
9,165

 
$
8,969

Development and leasing fees
2,721

 
4,236

 
7,991

 
7,197

 
$
7,406

 
$
9,252

 
$
17,156

 
$
16,166

Certain mortgage notes on the properties are held by NML (See Note 8Mortgage Notes Payable). Interest expense in connection with these notes was $2,181 and $2,256 for the three months ended June 30, 2017 and 2016, respectively, and $4,392 and $4,528 for the six months ended June 30, 2017 and 2016, respectively. Included in accounts payable and accrued expenses is interest payable on these notes of $726 and $736 at June 30, 2017 and December 31, 2016, respectively.
Due from (to) affiliates includes unreimbursed and/or prepaid costs and fees from unconsolidated joint ventures due to (from) the Management Companies. As of June 30, 2017 and December 31, 2016, the amounts due from (to) the unconsolidated joint ventures was $5,952 and $(6,809), respectively.
In addition, due from affiliates at June 30, 2017 and December 31, 2016 included a note receivable from RED/303 LLC ("RED") that bears interest at 5.25% and matures on May 30, 2021. Interest income earned on this note was $68 and $97 for the three months ended June 30, 2017 and 2016, respectively, and $138 and $214 for the six months ended June 30, 2017 and 2016, respectively. The balance on this note was $4,933 and $5,593 at June 30, 2017 and December 31, 2016, respectively. RED is considered a related party because it is a partner in a joint venture development project. The note is collateralized by RED's membership interest in the development project.
Also included in due from affiliates is a note receivable from Lennar Corporation that bears interest at LIBOR plus 2% and matures upon the completion of certain milestones in connection with the development of Fashion Outlets of San Francisco. Interest income earned on this note was $607 and $525 for the three months ended June 30, 2017 and 2016, respectively, and $1,218 and $1,046 for the six months ended June 30, 2017 and 2016, respectively. The balance on this note was $70,660 and $69,443 at June 30, 2017 and December 31, 2016, respectively. Lennar Corporation is considered a related party because it is a joint venture partner in Fashion Outlets of San Francisco.
17.
Share and Unit-Based Plans:
Under the Long-Term Incentive Plan ("LTIP"), each award recipient is issued a form of units ("LTIP Units") in the Operating Partnership. Upon the occurrence of specified events and subject to the satisfaction of applicable vesting conditions, LTIP Units (after conversion into OP Units) are ultimately redeemable for common stock of the Company, or cash at the Company's option, on a one-unit for one-share basis. LTIP Units receive cash dividends based on the dividend amount paid on the common stock of the Company. The LTIP may include both market-indexed awards and service-based awards.
The market-indexed LTIP Units vest over the service period of the award based on the percentile ranking of the Company in terms of total return to the stockholders (the "Total Return") per common stock share relative to the Total Return of a group of peer REITs, as measured at the end of the measurement period.

23

THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
17. Share and Unit-Based Plans: (Continued)

On January 1, 2017, the Company granted 66,079 LTIP Units with a grant date fair value of $70.84 per LTIP Unit that will vest in equal annual installments over a service period ending December 31, 2019. Concurrently, the Company granted 297,849 market-indexed LTIP Units ("2017 LTIP Units") at a grant date fair value of $47.15 per LTIP Unit that vest over a service period ending December 31, 2019. The fair value of the 2017 LTIP Units was estimated on the date of grant using a Monte Carlo Simulation model that assumed a risk free interest rate of 1.49% and an expected volatility of 20.75%.
On March 3, 2017, the Company granted 134,742 LTIP Units at a fair value of $66.57 per LTIP Unit that were fully vested on the grant date.
On May 30, 2017, the Company granted 25,000 non-qualified stock options with a grant date fair value of $10.02 that will vest on May 30, 2019. The Company measured the value of each option awarded using the Black-Scholes Option Pricing Model based upon the following assumptions: volatility of 30.19%, dividend yield of 4.93%, risk free rate of 2.08%, current value of $57.55 and an expected term of 8 years.
On June 1, 2017, the Company granted 1,522 LTIP Units with a grant date fair value of $58.31 per LTIP Unit that will vest in equal annual installments over a service period ending May 29, 2020. Concurrently, the Company granted 6,714 market-indexed LTIP Units at a grant date fair value of $39.66 per LTIP Unit that vest over a service period ending May 29, 2020. The fair value of the market-indexed LTIP Units was estimated on the date of grant using a Monte Carlo Simulation model that assumed a risk free interest rate of 1.45% and an expected volatility of 21.40%.
The following summarizes the compensation cost under the share and unit-based plans:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
LTIP Units
$
5,242

 
$
5,149

 
$
19,623

 
$
22,548

Stock awards

 

 

 
20

Stock units
1,333

 
1,002

 
3,945

 
4,374

Stock options
15

 
4

 
19

 
8

Phantom stock units
183

 
194

 
360

 
798

 
$
6,773

 
$
6,349

 
$
23,947

 
$
27,748


The Company capitalized share and unit-based compensation costs of $926 and $781 for the three months ended June 30, 2017 and 2016, respectively, and $4,295 and $5,740 for the six months ended June 30, 2017 and 2016, respectively. Unrecognized compensation costs of share and unit-based plans at June 30, 2017 consisted of $10,823 from LTIP Units, $5,545 from stock units, $242 from stock options and $560 from phantom stock units.
The following table summarizes the activity of the non-vested LTIP Units, phantom stock units and stock units:
 
LTIP Units
 
Phantom Stock Units
 
Stock Units
 
Units
 
Value(1)
 
Units
 
Value(1)
 
Units
 
Value(1)
Balance at January 1, 2017
322,572

 
$
58.18

 
5,845

 
$
81.47

 
148,428

 
$
78.53

Granted
506,906

 
55.33

 
6,772

 
71.73

 
85,979

 
66.53

Vested
(134,742
)
 
66.57

 
(5,268
)
 
76.29

 
(78,573
)
 
75.79

Balance at June 30, 2017
694,736

 
$
54.48

 
7,349

 
$
76.20

 
155,834

 
$
73.28

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

24

THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
17. Share and Unit-Based Plans: (Continued)

The following table summarizes the activity of the stock appreciations rights ("SARs") and stock options outstanding:
 
SARs
 
Stock Options
 
Units
 
Value(1)
 
Units
 
Value(1)
Balance at January 1, 2017
284,146

 
$
53.85

 
10,565

 
$
56.77

Granted

 

 
25,000

 
57.55

Exercised

 

 

 

Balance at June 30, 2017
284,146

 
$
53.85

 
35,565

 
$
57.32

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Value represents the weighted average exercise price.
18. Income Taxes:
The Company has made taxable REIT subsidiary elections for all of its corporate subsidiaries other than its qualified REIT subsidiaries. The elections, effective for the year beginning January 1, 2001 and future years, were made pursuant to Section 856(l) of the Code. The Company's taxable REIT subsidiaries ("TRSs") are subject to corporate level income taxes which are provided for in the Company's consolidated financial statements. The Company's primary TRSs include Macerich Management Company and Macerich Arizona Partners LLC.
The income tax provision of the TRSs are as follows:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Current
$

 
$

 
$

 
$

Deferred
(437
)
 
(514
)
 
3,047

 
(1,831
)
Income tax (expense) benefit
$
(437
)
 
$
(514
)
 
$
3,047

 
$
(1,831
)
The net operating loss carryforwards are currently scheduled to expire through 2035, beginning in 2024. Net deferred tax assets of $47,833 and $38,301 were included in deferred charges and other assets, net at June 30, 2017 and December 31, 2016, respectively.
The tax years 2012 through 2016 remain open to examination by the taxing jurisdictions to which the Company is subject. The Company does not expect that the total amount of unrecognized tax benefit will materially change within the next twelve months.
19.
Subsequent Events:
O