# Macerich Co: Form 10-Q for the period ended Jun 30, 2009

- Company: [Macerich Co](/companies/mac.md) (CIK 912242)
- Form: 10-Q
- Filed: 2009-08-07
- Accepted by EDGAR: Aug 7, 2009, 16:09 ET
- Period: 2009-06-30
- Accession: 0001047469-09-007391
- Inline XBRL: no
- Main document: https://www.sec.gov/Archives/edgar/data/912242/000104746909007391/a2193924z10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/912242/000104746909007391/

## Management's discussion and analysis

As filed, 56,511 characters.

### IMPORTANT INFORMATION RELATED TO FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q of The Macerich Company (the "Company") contains or incorporates statements that constitute forward-looking statements within the meaning of the federal securities laws. Any statements that do not relate to historical or current facts or matters are forward-looking statements. You can identify some of the forward-looking statements by the use of forward-looking words, such as "may," "will," "could," "should," "expects," "anticipates," "intends," "projects," "predicts," "plans," "believes," "seeks," and "estimates" and variations of these words and similar expressions. Statements concerning current conditions may also be forward-looking if they imply a continuation of current conditions. Forward- looking statements appear in a number of places in this Form 10-Q and include statements regarding, among other matters:

expectations regarding the Company's growth;

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

the Company's acquisition, disposition and other strategies;

regulatory matters pertaining to compliance with governmental regulations;

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

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

the Company's expectations for refinancing its indebtedness and entering into joint venture arrangements.

Stockholders are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company or the industry to differ materially from the Company's future results, performance or achievements, or those of the industry, expressed or implied in such forward-looking statements. You are urged to carefully review the disclosures the Company makes concerning risks and other factors that may affect our business and operating results, including those made in "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2008, as well as our other reports filed with the Securities and Exchange Commission, which disclosures are incorporated herein by reference. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document. The Company does not intend, and undertakes no obligation, to update any forward-looking information to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, unless required by law to do so.

### Management's Overview and Summary

The Company is involved in the acquisition, ownership, development, redevelopment, management and leasing of regional and community 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 Operating Partnership. As of June 30, 2009, the Operating Partnership owned or had an ownership interest in 72 regional shopping centers and 20 community shopping centers totaling approximately 76 million square feet of gross leasable area. These 92 regional and community shopping centers are referred to hereinafter as the "Centers", unless the context otherwise requires. The Company is a self-administered and self-managed REIT and conducts all of its operations through the Operating Partnership and the Company's Management Companies.

The following discussion is based primarily on the consolidated financial statements of the Company for the three and six months ended June 30, 2009 and 2008. It compares the results of operations for the three months ended June 30, 2009 to the results of operations for the three months ended June 30, 2008 and the results of operations and cash flows for the six months ended June 30, 2009 to the results of operations and cash flows for the six months ended June 30, 2008. This information should be read in conjunction with the accompanying consolidated financial statements and notes thereto.

Management's Discussion and Analysis of Financial Condition and Results of Operations has been updated to reflect the adjustment of the consolidated statements of operations and cash flows for the three and six months ended June 30, 2008 for the adoption of FSP APB 14-1, "Accounting for Convertible Debt That May Be Settled In Cash Upon Conversion (Including Partial Cash Settlement)," and Statement of Financial Accounting Standards ("SFAS") No. 160, "Noncontrolling Interests in Consolidated Financial Statements—An Amendment of ARB No 51." For a more detailed description of the adjustment, see Note 21—Cumulative Effect of Adoption of Accounting Principles of the Company's Consolidated Financial Statements.

#### Acquisitions and Dispositions:

On January 1, 2008, a subsidiary of the Operating Partnership, at the election of the holders, redeemed its 3.4 million Class A participating convertible preferred units ("PCPUs"). As a result of the redemption, the Company received the 16.32% noncontrolling interest in the portion of the Wilmorite portfolio acquired on April 25, 2005 that included Danbury Fair Mall, Freehold Raceway Mall, Great Northern Mall, Rotterdam Square, Shoppingtown Mall, Towne Mall, Tysons Corner Center and Wilton Mall, collectively, referred to as the "Non-Rochester Properties," for total consideration of $224.4 million, in exchange for the Company's ownership interest in the portion of the Wilmorite portfolio that consisted of Eastview Mall, Eastview Commons, Greece Ridge Center, Marketplace Mall and Pittsford Plaza, collectively referred to as the "Rochester Properties," including approximately $18.0 million in cash held at those properties. Included in the redemption consideration was the assumption of the remaining 16.32% interest in the indebtedness of the Non-Rochester Properties, which had an estimated fair value of $106.0 million. In addition, the Company also received additional consideration of $11.8 million, in the form of a note, for certain working capital adjustments, extraordinary capital expenditures, leasing commissions, tenant allowances, and decreases in indebtedness during the Company's period of ownership of the Rochester Properties. The Company recognized a gain of $99.1 million on the exchange based on the difference between the fair value of the additional interest acquired in the Non-Rochester Properties and the carrying value of the Rochester Properties, net of noncontrolling interest. This exchange is referred to herein as the "Rochester Redemption."

On January 10, 2008, the Company, in a 50/50 joint venture, acquired The Shops at North Bridge, a 680,933 square foot urban shopping center in Chicago, Illinois, for a total purchase price of $515.0 million. The Company's share of the purchase price was funded by the assumption of a pro rata share of the $205.0 million fixed rate mortgage on the Center and by borrowings under the Company's line of credit.

On January 31, 2008, the Company purchased a ground leasehold interest in a freestanding Mervyn's store located in Hayward, California. The purchase price of $13.2 million was funded by cash and borrowings under the Company's line of credit.

On February 29, 2008, the Company purchased a fee simple interest in a freestanding Mervyn's store located in Monrovia, California. The purchase price of $19.3 million was funded by cash and borrowings under the Company's line of credit.

On May 20, 2008, the Company purchased a fee simple interest in a 161,350 square foot Boscov's department store at Deptford Mall in Deptford, New Jersey. The total purchase price of $23.5 million was funded by the assumption of the existing $15.2 million mortgage note on the property and by borrowings under the Company's line of credit.

The Boscov's store is referred to herein as the "2008 Acquisition Property."

On June 11, 2008, the Company became a 50% owner in a joint venture that acquired One Scottsdale, which plans to develop a mixed-use property in Scottsdale, Arizona. The Company's share of the purchase price was $52.5 million, which was funded by borrowings under the Company's line of credit.

On December 19, 2008, the Company sold a fee and/or ground leasehold interest in three freestanding Mervyn's department stores to Pacific Premier Retail Trust, one of the Company's joint ventures, for $43.4 million, resulting in a gain on sale of assets of $1.5 million. The Company's pro rata share of the proceeds was used to pay down the Company's line of credit.

#### Mervyn's:

In July 2008, Mervyn's filed for bankruptcy protection and announced in October its plans to liquidate all merchandise, auction its store leases and wind down its business. The Company had 45 former Mervyn's stores in its portfolio. The Company owned the ground leasehold and/or fee simple interest in 44 of those stores and the remaining store was owned by a third party but is located at one of the Centers. In connection with the acquisition of the Mervyn's portfolio (See Note 15—Acquisitions of the Company's Consolidated Financial Statements) and applying SFAS No. 141(R), the Company recorded intangible assets of $110.7 million and intangible liabilities of $59.0 million.

In September 2008, the Company recorded a write-down of $5.2 million due to the anticipated rejection of six of the Company's leases by Mervyn's. In addition, the Company terminated its former plan to sell the 29 Mervyn's stores located at shopping centers not owned or managed by the Company. (See Note 16—Discontinued Operations of the Company's Consolidated Financial Statements). The Company's decision was based on current conditions in the credit market and the assumption that a better return could be obtained by holding and operating the assets. As a result of the change in plans to sell, the Company recorded a loss of $5.3 million in order to adjust the carrying value of these assets for depreciation expense that otherwise would have been recognized had these assets been continuously classified as held and used.

In December 2008, Kohl's and Forever 21 assumed a total of 23 of the Mervyn's leases and the remaining 22 leases were rejected by Mervyn's under the bankruptcy laws. As a result, the Company wrote off the unamortized intangible assets and liabilities related to the rejected and unassumed leases in December 2008. The Company wrote off $27.7 million of unamortized intangible assets related to lease in place values, leasing commissions and legal costs to depreciation and amortization. Unamortized intangible assets of $14.9 million relating to above market leases and unamortized intangible liabilities of $24.5 million relating to below market leases were written off to minimum rents.

During the period of July 15, 2009 through July 30, 2009, the Company sold five of the Mervyn's stores for approximately $50.8 million in total proceeds. As a result of the sale and in accordance with SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets," the Company recorded an impairment charge of $26.0 million to loss on sale or write down of assets for the three and six months ended June 30, 2009. See Note 22—Subsequent Events of the Company's Consolidated Financial Statements.

The Mervyn's stores acquired in 2007 and 2008 are referred to herein as the "Mervyn's Properties."

#### 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 Consumer Price Index ("CPI"). In addition, about 6%-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 required the tenants to pay their pro rata share of operating expenses. In January 2005, 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, earnings are generally higher in the fourth quarter.

### Critical Accounting Policies

The preparation of financial statements in conformity with generally accepted accounting principles ("GAAP") 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 judgments on revenue recognition, estimates for common area maintenance and real estate tax accruals, provisions for uncollectible 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—Summary of Significant Accounting Policies of the Company's Consolidated Financial Statements. However, the following policies are deemed to be critical.

#### Revenue Recognition:

Minimum rental revenues are recognized on a straight-line basis over the term 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 line rent adjustment." Currently, 53% 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. Percentage rents are recognized when the tenants' specified sales targets have been met. Estimated recoveries from certain tenants for their pro rata share of real estate taxes, insurance and other shopping center operating expenses are recognized as revenues in the period the applicable expenses are incurred. Other tenants pay a fixed rate and these tenant recoveries' revenues are recognized on a straight-line basis over the term of the related leases.

#### Property:

The Company capitalizes costs incurred in redevelopment and development of properties in accordance with SFAS No. 34, "Capitalization of Interest Cost," and SFAS No. 67 "Accounting for Costs and the Initial Rental Operations of Real Estate Properties." The costs of land and buildings under development include specifically identifiable costs. The capitalized costs include pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes, salaries and related costs and other costs incurred during the period of development. Capitalized costs are allocated to the specific components of a project that are benefited. The Company considers a construction project as completed and held available for occupancy and ceases capitalization of costs when the areas under development have been substantially completed.

Maintenance and repair 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 | 5 - 7 years |
| Equipment and furnishings | 5 - 7 years |

#### Accounting for Acquisitions:

The Company accounts for all acquisitions in accordance with SFAS No. 141 (R), "Business Combinations." The Company first determines the value of the land and buildings utilizing an "as if vacant" methodology. The Company then assigns a fair value to any debt assumed at acquisition. The balance of the purchase price is 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 the 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) leasing commissions and legal costs, which represent the value associated with "cost avoidance" of acquiring in-place leases, such as lease commissions paid under terms generally experienced in the Company's 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. Leasing commissions and legal costs are recorded in deferred charges and other assets and are amortized over the remaining lease terms. The value of in-place leases are recorded in deferred charges and other assets and amortized over the remaining lease terms plus an estimate of renewal of the acquired leases. Above or below market leases are classified in deferred charges and other assets or in other accrued liabilities, depending on whether the contractual terms are above or below market, and the asset or liability is amortized to minimum rents over the remaining terms of the leases.

When the Company acquires a real estate property, the Company allocates the purchase price to 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 and gains or losses recorded on future sales of properties.

#### Asset Impairment:

The Company assesses whether there has been 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 impairment losses 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.

#### Fair Value of Financial Instruments:

On January 1, 2008, the Company adopted SFAS No. 157, "Fair Value Measurements." SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The fair value hierarchy distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity and the reporting entity's own assumptions about market participant assumptions.

Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity's own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

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.

#### Deferred Charges:

Costs relating to obtaining tenant leases are deferred and amortized over the initial term of the agreement using the straight-line method. Costs 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 the renewal term. Leasing commissions and legal costs are amortized on a straight-line basis over the individual remaining lease years. The ranges 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 |
| Leasing commissions and legal costs | 5 - 10 years |

### Results of Operations

Many of the variations in the results of operations, discussed below, occurred due to the transactions described above, including the 2008 Acquistion Property, the Mervyn's Properties and the Redevelopment Centers. For the comparison of the three and six months ended June 30, 2009 to the three and six months ended June 30, 2008, the "Same Centers" include all consolidated Centers, excluding the 2008 Acquistion Property, the Mervyn's Properties and the Redevelopment Centers.

The "Redevelopment Centers" include The Oaks, Northgate Mall, Santa Monica Place and Shoppingtown Mall.

Unconsolidated joint ventures are reflected using the equity method of accounting. The Company's pro rata share of the results from these Centers is reflected in the Consolidated Statements of Operations as equity in income from unconsolidated joint ventures.

### Comparison of Three Months Ended June 30, 2009 and 2008

#### Revenues:

Minimum and percentage rents (collectively referred to as "rental revenue") decreased by $6.6 million, or 5.0%, from 2008 to 2009. The decrease in rental revenue is attributed to a decrease of $5.6 million from the Mervyn's Properties and $3.1 million from the Same Centers, offset in part by an increase of $1.8 million from the Redevelopment Centers and an increase of $0.3 million from the 2008 Acquisition Property. The decrease in rental revenues from the Mervyn's Properties is due to the rejection of the leases by Mervyn's in 2008 offset in part by the assumption of 23 of the leases by Kohl's and/or Forever 21 in December 2008. The Company is currently seeking replacement tenants for the vacant Mervyn's spaces. If these spaces are not leased this trend will continue throughout 2009. The decrease in the revenues from the Same Centers is primarily attributable to decreases in occupancy, lease termination income and amortization of above and below market leases.

Rental revenue includes the amortization of above and below market leases, the amortization of straight-line rents and lease termination income. The amortization of above and below market leases decreased from $2.6 million in 2008 to $2.5 million in 2009. The amortization of straight-line rents was $1.9 million in 2008 and 2009. Lease termination income decreased from $1.8 million in 2008 to $0.9 million in 2009.

Tenant recoveries decreased $4.4 million, or 6.6%, from 2008 to 2009. The decrease in tenant recoveries is attributed to a decrease of $3.2 million from the Same Centers, $1.2 million from the Mervyn's Properties and $0.1 million from the Redevelopment Centers offset in part by an increase of $0.1 million from the 2008 Acquisition Property. The decrease from Same Centers is due to a decrease of recoverable operating expenses, utilities and property taxes.

Management Companies' revenues decreased by $1.0 million from 2008 to 2009, primarily due to a decrease in leasing and development fees from joint ventures and third-party managed properties.

#### Shopping Center and Operating Expenses:

Shopping center and operating expenses decreased $1.5 million, or 2.1%, from 2008 to 2009. The decrease in shopping center and operating expenses is due to a decrease of $2.6 million from the Same Centers relating to decreases in recoverable operating expenses, utilities and property taxes. This is offset in part by an increase of $0.7 million from the Mervyn's Properties, $0.2 million from the Redevelopment Centers and $0.1 million from the 2008 Acquisition Property.

#### Management Companies' Operating Expenses:

The Management Companies' operating expenses decreased $1.7 million from 2008 to 2009 in connection with the implementation of the Company's workforce reduction plan in 2009.

#### REIT General and Administrative Expenses:

REIT general and administrative expenses increased by $0.5 million from 2008 to 2009. The increase is primarily due to an increase in compensation expense in 2009.

#### Depreciation and Amortization:

Depreciation and amortization increased $6.3 million from 2008 to 2009. The increase in depreciation and amortization is primarily attributed to an increase of $2.8 million from the Redevelopment Centers, $2.4 million from the Same Centers, $1.0 million from the Mervyn's Properties and $0.1 million from the 2008 Acquisition Property.

#### Interest Expense:

Interest expense decreased $0.1 million from 2008 to 2009. The decrease in interest expense was primarily attributed to a decrease of $4.3 million from borrowing on the Company's line of credit and $3.8 million from the convertible senior notes ("Senior Notes") offset in part by an increase of $4.6 million from the Redevelopment Centers, $3.3 million from the Same Centers and $0.1 million from the 2008 Acquisition Property.

The decrease in interest expense on the Company's line of credit was due to a decrease in the weighted average interest rate of 4.53% in 2008 to 3.36% in 2009 due to lower LIBOR rates and spreads. The decrease in interest expense on the Senior Notes is due to the reduction of the Senior Notes outstanding from a weighted-average of $950.0 million in 2008 to $613.3 million in 2009.

The above interest expense items are net of capitalized interest, which decreased from $8.6 million in 2008 to $4.8 million in 2009 primarily due to a decrease in interest rates.

#### Gain on Early Extinguishment of Debt:

The Company recorded a gain of $7.1 million on the early extinguishment of $27.5 million of the Senior Notes in 2009 (See "Liquidity and Capital Resources".)

#### Equity in Income of Unconsolidated Joint Ventures:

The equity in income of unconsolidated joint ventures decreased $10.4 million from 2008 to 2009. The decrease in equity in income of unconsolidated joint ventures primarily results from a $6.6 million termination fee received in 2008 from a development contract and a decrease of $1.6 million in gain on sale of assets in 2009 compared to 2008.

#### (Loss) Gain on Sale or Write Down of Assets:

The Company recorded a loss on sale or write down of assets of $25.6 million in 2009 as compared to a gain on sale of assets of $0.5 million in 2008. The loss on sale or write down of assets in 2009 is primarily attributed to a $26.0 million adjustment to reduce the carrying value of five Mervyn's stores. See Note 22—Subsequent Events of the Company's Consolidated Financial Statements.

#### Funds From Operations ("FFO"):

Primarily as a result of the factors mentioned above, FFO—diluted decreased 39.9% from $99.6 million in 2008 to $59.9 million in 2009. For disclosure of net income, the most directly comparable GAAP financial measure, for the periods and a reconciliation of FFO and FFO—diluted to net income available to common stockholders, see "Funds from Operations."

### Comparison of Six Months Ended June 30, 2009 and 2008

#### Revenues:

Rental revenue decreased by $10.2 million, or 3.8%, from 2008 to 2009. The decrease in rental revenue is attributed to a decrease of $8.7 million from the Mervyn's Properties and $5.2 million from the Same Centers, offset in part by an increase of $2.9 million from the Redevelopment Centers and $0.8 million from the 2008 Acquisition Property. The decrease in rental revenues from the Mervyn's Properties is due to the rejection of the leases by Mervyn's in 2008 offset in part by the assumption of 23 of the leases by Kohl's and/or Forever 21 in December 2008. The Company is currently seeking replacement tenants for the vacant Mervyn's spaces. If these spaces are not leased this trend will continue throughout 2009. The decrease in the revenues from the Same Centers is primarily attributable to decreases in occupancy, lease termination income and amortization of above and below market leases.

Rental revenue includes the amortization of above and below market leases, the amortization of straight-line rents and lease termination income. The amortization of above and below market leases decreased from $6.1 million in 2008 to $5.5 million in 2009. The amortization of straight-line rents decreased from $3.3 million in 2008 to $3.2 million in 2009. Lease termination income decreased from $3.9 million in 2008 to $2.0 million in 2009.

Tenant recoveries decreased $7.1 million, or 5.3%, from 2008 to 2009. The decrease in tenant recoveries is attributed to a decrease of $4.6 million from the Same Centers, $2.8 million from the Mervyn's Properties offset in part by an increase of $0.2 million from the 2008 Acquisition Property and $0.1 million from the Redevelopment Centers. The decrease from Same Centers is due to a decrease of recoverable operating expenses, utilities and property taxes.

Management Companies' revenues decreased by $2.2 million from 2008 to 2009, primarily due to a decrease in leasing and development fees from joint ventures and third-party managed properties.

#### Shopping Center and Operating Expenses:

Shopping center and operating expenses decreased $1.3 million, or 0.9%, from 2008 to 2009. The decrease in shopping center and operating expenses is due to a decrease of $3.0 million from the Same Centers relating to decreases in recoverable operating expenses, utilities and property taxes. This is offset in part by an increase of $0.8 from the Mervyn's Properties, $0.3 million from the 2008 Acquisition Property and $0.2 million from the Redevelopment Centers.

#### Management Companies' Operating Expenses:

The Management Companies' operating expenses increased $3.4 million from 2008 to 2009 in connection with the implementation of the Company's workforce reduction plan in 2009.

#### REIT General and Administrative Expenses:

REIT general and administrative expenses increased by $1.4 million from 2008 to 2009. The increase is primarily due to an increase in compensation expense in 2009.

#### Depreciation and Amortization:

Depreciation and amortization increased $10.5 million from 2008 to 2009. The increase in depreciation and amortization is primarily attributed to an increase of $4.8 million from the Same Centers, $3.0 million from the Mervyn's Properties, $2.4 million from the Redevelopment Centers and $0.3 million from the 2008 Acquisition Property.

#### Interest Expense:

Interest expense decreased $4.6 million from 2008 to 2009. The decrease in interest expense was primarily attributed to a decrease of $10.4 million from borrowing on the Company's line of credit, $6.2 million from the Senior Notes and $0.2 million from the term loans offset in part by an increase of $7.4 million from the Redevelopment Centers, $4.6 million from the Same Centers and $0.3 million from the 2008 Acquisition Property.

The decrease in interest expense on the Company's line of credit was due to a decrease in the weighted average interest rate of 4.97% in 2008 to 3.40% in 2009 due to lower LIBOR rates and spreads. The decrease in interest expense on the Senior Notes is due to the reduction of the Senior Notes outstanding from a weighted-average of $950.0 million in 2008 to $613.3 million in 2009. The increase in interest expense on the Redevelopment Centers is primarily attributed to increased development activity.

The above interest expense items are net of capitalized interest, which decreased from $15.6 million in 2008 to $9.8 million in 2009 primarily due to a decrease in interest rates.

#### Gain on Early Extinguishment of Debt:

The Company recorded a gain of $29.6 million on the early extinguishment of $84.3 million of the Senior Notes in 2009 (See "Liquidity and Capital Resources".)

#### Equity in Income of Unconsolidated Joint Ventures:

The equity in income of unconsolidated joint ventures decreased $16.8 million from 2008 to 2009. The decrease in equity in income of unconsolidated joint ventures is due to a decrease of $6.6 million related to a termination fee received in 2008, decreases in rental revenue of various joint ventures and a $2.9 million decrease in gains from sales of assets in 2009 compared to 2008.

#### (Loss) Gain on Sale or Write Down of Assets:

The Company recorded a loss on sale or write down of assets of $24.8 million in 2009 as compared to a gain on sale of assets of $1.2 million in 2008. The loss on sale or write down of assets in 2009 is primarily attributed to a $26.0 million adjustment to reduce the carrying value of five Mervyn's stores. See Note 22—Subsequent Events of the Company's Consolidated Financial Statements.

#### Discontinued Operations:

Income from discontinued operations decreased $100.2 million from 2008 to 2009. The decrease is primarily due to the $99.3 million gain from the Rochester Redemption in 2008. See "Management's Overview and Summary—Acquisitions and Dispositions." As a result of the Rochester Redemption, the Company classified the results of operations for these properties to discontinued operations for all periods presented.

#### Noncontrolling Interests

Income attributable to noncontrolling interests decreased $20.3 million from 2008 to 2009. The decrease is primarily attributed to a decrease in net income as discussed above and a decrease in the weighted average interest in the Operating Partnership not owned by the Company from 14.7% in 2008 to 13.2% in 2009.

#### Funds From Operations:

Primarily as a result of the factors mentioned above, FFO—diluted decreased 15.3% from $192.1 million in 2008 to $162.8 million in 2009. For disclosure of net income, the most directly comparable GAAP financial measure, for the periods and a reconciliation of FFO and FFO—diluted to net income available to common stockholders, see "Funds from Operations."

#### Operating Activities:

Cash flow from operations decreased from $107.2 million in 2008 to $65.8 million in 2009. The decrease was primarily due to changes in assets and liabilities in 2008 compared to 2009 and the results at the Centers as discussed above.

#### Investing Activities:

Cash used in investing activities decreased from $453.2 million in 2008 to $36.2 million in 2009. The decrease in cash used in investing activities was primarily due to decreases in capital expenditures of $229.4 million and contributions to unconsolidated joint ventures of $122.7 million and an increase in distributions from unconsolidated joint ventures of $47.8 million. In addition, the Company incurred $18.9 million in expenditures for the Rochester Redemption in 2008.

The decrease in contributions to unconsolidated joint ventures is primarily due to the Company's purchase of a pro rata share of The Shops at North Bridge for $155.0 million in 2008. The decrease in capital expenditures is primarily due to the purchase of a ground leasehold and fee simple interest in two Mervyn's freestanding stores in 2008 and the decrease in development activity in 2009. See "Management's Overview and Summary—Acquisitions and Dispositions for a discussion of the acquisition of The Shops at North Bridge and Mervyn's. The increase in distributions from unconsolidated joint ventures is due to the receipt of the Company's pro rata share of loan proceeds from refinancing activities at various unconsolidated joint ventures in 2009.

#### Financing Activities:

Cash flow from financing activities decreased $352.7 million from 2008 to 2009. The decrease in cash from financing activities was primarily attributed to decreases in cash provided by mortgages, bank and other notes payable of $628.9 million and payments on mortgages, bank and other notes payable of $268.2 million. In addition, the Company paid $50.7 million to repurchase and retire $84.3 million of Senior Notes (see "Liquidity and Capital Resources.")

### Liquidity and Capital Resources

Although general market liquidity is constrained, the Company anticipates meeting its liquidity needs for its operating expenses and debt service and dividend requirements through cash generated from operations, working capital reserves and/or borrowings under its unsecured line of credit. Additional liquidity was provided as a result of the Company reducing its quarterly dividend to $0.60 per share and paying 90% of that dividend in stock. In addition, further liquidity will be provided as a result of the Company's announced payment of a portion of its next quarterly dividend in stock, which is payable on September 21, 2009. (See Note 22—Subsequent Events of the Company's Consolidated Financial Statements). The form, timing and or amount of future dividends will be at the discretion of the Company's Board of Directors.

The following tables summarize capital expenditures incurred at the Centers:

*(Dollars in thousands)*

| Consolidated Centers: | For the Six Months Ended June 30, 2009 | 2008 |
| --- | ---: | ---: |
| Acquisitions of property and equipment | $5,672 | $69,094 |
| Development, redevelopment and expansion of Centers | 108,318 | 266,288 |
| Renovations of Centers | 4,043 | 4,739 |
| Tenant allowances | 4,799 | 6,445 |
| Deferred leasing charges | 11,211 | 12,256 |
|  | $134,043 | $358,822 |
| **Joint Venture Centers (at Company's pro rata share):** |  |  |
| Acquisitions of property and equipment | $1,039 | $265,834 |
| Development, redevelopment and expansion of Centers | 21,202 | 16,372 |
| Renovations of Centers | 1,206 | 6,017 |
| Tenant allowances | 1,609 | 3,653 |
| Deferred leasing charges | 1,440 | 1,741 |
|  | $26,496 | $293,617 |

Management expects levels to be incurred in future years for tenant allowances and deferred leasing charges to be comparable or less than 2008 and that capital for those expenditures will be available from working capital, cash flow from operations, borrowings on property specific debt or unsecured corporate borrowings. The Company expects to incur between $100 million to $180 million in 2009 for development, redevelopment, expansion and renovations. Capital for these major expenditures, developments and/or redevelopments has been, and is expected to continue to be, obtained from a combination of equity or debt financings, which include borrowings under the Company's line of credit and construction loans. In addition, the Company has generated additional liquidity in the past through joint venture transactions and the sale of non-core assets, and may continue to do so in the future, as evidenced by the July 2009 non-core asset sales and the recent sale of a 49% interest in Queens Center to a joint venture partner. Furthermore, equity financing may be available to the Company through a shelf registration statement the Company filed in November 2008, which registered an unspecified amount of common stock, preferred stock, debt securities, warrants, rights and units.

Current turmoil in the capital and credit markets has significantly limited access to debt and equity financing for many companies. As demonstrated by recent activity, the Company was able to access capital throughout 2008 and the six months ended June 30, 2009. However, there is no assurance the Company will be able to do so in future periods or on similar terms and conditions. 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. As a result of the volatility in the capital and commercial lending markets, the Company may be required to finance more of its business activities with borrowings under its line of credit rather than with public and private unsecured debt and equity securities, fixed-rate mortgage financing and other traditional sources. In addition, in the event that the Company has significant tenant defaults as a result of the overall economy and general market conditions, the Company could have a decrease in cash flow from operations, which could create further borrowings under its line of credit. These events could result in an increase in the Company's proportion of variable-rate debt, which could cause it to become subject to increased interest rate fluctuations in the future.

The Company's total outstanding loan indebtedness at June 30, 2009 was $8.0 billion (including $2.3 billion of unsecured debt and $2.0 billion of its pro rata share of joint venture debt). The majority of the Company's debt consists of fixed-rate conventional mortgages payable collateralized by individual properties. The Company has arranged financing for new loans at Paradise Valley Mall and Northgate of $90.0 million and $80.0 million, respectively. In addition, the Company's joint venture that owns Village of Corte Madera has arranged for a new $80 million loan that will replace the existing $63.0 million loan. Upon completion of these three loans, the Company will have approximately $55.6 million in remaining loans (excluding loans with extension options) with maturities in 2009. The Company expects these remaining loans to be refinanced, extended and/or paid off from the Company's line of credit.

The Senior Notes bear interest at 3.25%, payable semiannually, are senior unsecured debt of the Company and are guaranteed by the Operating Partnership. Prior to December 14, 2011, upon the occurrence of certain specified events, the Senior Notes will be convertible at the option of the holder into cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the election of the Company, at an initial conversion rate of 8.9702 shares per $1 principal amount. On and after December 15, 2011, the Senior Notes will be convertible at any time prior to the second business day preceding the maturity date at the option of the holder at the initial conversion rate. The initial conversion price of approximately $111.48 per share represented a 20% premium over the closing price of the Company's common stock on March 12, 2007, the date of issuance of the Senior Notes. The initial conversion rate is subject to adjustment under certain circumstances. Holders of the Senior Notes do not have the right to require the Company to repurchase the Senior Notes prior to maturity except in connection with the occurrence of certain fundamental change transactions. During the six months ended June 30, 2009, the Company repurchased and retired $84.5 million of the Senior Notes for $49.8 million and recorded a gain on extinguishment of $29.6 million. The repurchases were funded by borrowings under the Company's line of credit. The carrying value of the Senior Notes at June 30, 2009 and December 31, 2008 was $613.3 million and $687.7 million, respectively, which included an unamortized discount of $29.5 million and $39.5 million, respectively.

The Company purchased two capped calls ("Capped Calls") from affiliates of the initial purchasers of the Senior Notes that effectively increased the conversion price to approximately $130.06, which represents a 40% premium to the March 12, 2007 closing price of $92.90 per common share of the Company. The Capped Calls are expected to generally reduce the potential dilution upon exchange of the Senior Notes in the event the market value per share of the Company's common stock, as measured under the terms of the relevant settlement date, is greater than the strike price of the Capped Calls. If, however, the market value per share of the Company's common stock exceeds $130.06 per common share, then the dilution mitigation under the Capped Calls will be capped, which means there would be dilution from exchange of the Senior Notes to the extent that the market value per share of the Company's common stock exceeds $130.06.

The Company has a $1.5 billion revolving line of credit that matures on April 25, 2010 with a one-year extension option. The interest rate fluctuates from LIBOR plus 0.75% to LIBOR plus 1.10% depending on the Company's overall leverage. The Company has an interest rate swap agreement that effectively fixed the interest rate on $400.0 million of the outstanding balance of the line of credit at 6.23% until April 25, 2011. As of June 30, 2009 and December 31, 2008, borrowings outstanding were $1.2 billion and $1.1 billion, at an average interest rate, excluding the $400.0 million swapped portion, of 1.69% and 3.19%, respectively.

The Company obtained a five-year term loan that bears interest at LIBOR plus 1.50% and matures on April 26, 2010. The loan is covered by an interest rate swap agreement that effectively fixed the interest rate of the term loan at 6.30% until maturity. As of June 30, 2009 and December 31, 2008, the note had a balance outstanding of $442.5 million and $446.3 million, respectively, with an effective interest rate of 6.50%. During the period of July 15, 2009 to July 30, 2009, the Company sold five of the Mervyn's stores and sold a 49% interest in Queens Center for a total of approximately $200.6 million in total proceeds. The Company used the proceeds from these sales to make principal payments of $180.0 million and $20.0 million on the term loan on July 30, 2009 and August 3, 2009, respectively.

Dividends and distributions for the six months ended June 30, 2009 were $81.0 million. A total of $65.8 million of the dividends and distributions were funded by cash flows provided by operations. The remaining $15.2 million was funded through distributions received from unconsolidated joint ventures which are included as return of investment distributions in the cash flows from investing activities section of the Company's consolidated statement of cash flows.

At June 30, 2009, the Company was in compliance with all applicable loan covenants under its debt agreements.

At June 30, 2009, the Company had cash and cash equivalents available of $57.9 million.

#### Off-Balance Sheet Arrangements:

The Company has an ownership interest in a number of unconsolidated joint ventures as detailed in Note 4 to the Company's Consolidated Financial Statements included herein. The Company accounts for those investments that it does not have a controlling interest or is not the primary beneficiary 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."

In addition, certain joint ventures also have debt that could become recourse debt to the Company or its subsidiaries, in excess of the Company's pro rata share, should the joint ventures be unable to discharge the obligations of the related debt.

The following reflects the maximum amount of debt principal that could recourse to the Company at June 30, 2009 (in thousands):

| Property | Recourse Debt | Maturity Date |
| --- | ---: | --- |
| Boulevard Shops | $4,280 | 12/17/2010 |
| Chandler Village Center | 4,375 | 1/15/2011 |
| The Market at Estrella Falls | 8,785 | 6/1/2011 |
|  | $17,440 |  |

Additionally, as of June 30, 2009, the Company is contingently liable for $20.1 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 June 30, 2009 for the consolidated Centers over the periods in which they are expected to be paid (in thousands):

| Contractual Obligations | Payment Due by Period Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than five years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Long-term debt obligations (includes expected interest payments) | $6,254,561 | $725,343 | $3,766,502 | $782,970 | $979,746 |
| Operating lease obligations(1) | 822,550 | 12,356 | 25,655 | 24,653 | 759,886 |
| Purchase obligations(1) | 75,248 | 75,248 | — | — | — |
| Other long-term liabilities(2) | 404,959 | 404,959 | — | — | — |
|  | $7,557,318 | $1,217,906 | $3,792,157 | $807,623 | $1,739,632 |

(1)

See Note 17—Commitments and Contingencies of the Company's Consolidated Financial Statements.

(2)

Amount includes $2,569 of unrecognized tax benefits associated with FIN 48. See Note 20—Income Taxes of the Company's Consolidated Financial Statements.

### Funds From Operations

The Company uses FFO in addition to net income to report its operating and financial results and considers FFO and FFO-diluted as supplemental measures for the real estate industry and a supplement to 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 depreciate 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 (loss) income available to common stockholders is provided below.

The following reconciles net (loss) income available to common stockholders to FFO and FFO-diluted (dollars in thousands):

|  | For the Three Months Ended June 30, 2009 | 2008(5) | For the Six Months Ended June 30, 2009 | 2008(5) |
| --- | ---: | ---: | ---: | ---: |
| Net (loss) income—available to common stockholders | $(21,736) | $15,725 | $(7,720) | $108,335 |
| Adjustments to reconcile net income to FFO—basic: |  |  |  |  |
| Noncontrolling interest in the Operating Partnership | (3,293) | 2,590 | (1,169) | 18,665 |
| Loss (gain) on sale or write-down of consolidated assets(1) | 25,605 | (376) | 24,849 | (100,313) |
| Add: loss (gain) on undepreciated assets—consolidated assets(1) | 1,143 | 241 | 2,497 | 574 |
| Add: noncontrolling interest share of loss (gain) on sale of consolidated joint ventures(1) | 310 | 248 | 310 | 589 |
| Less: write-down of consolidated assets(1) | (27,058) | — | (27,639) | — |
| Gain on sale of assets from unconsolidated entities(2) | (3) | (1,604) | (11) | (2,923) |
| Add: gain on sale of undepreciated assets—from unconsolidated entities (pro rata) | 3 | 1,116 | 2 | 2,436 |
| Add noncontrolling interest on sale of undepreciated consolidated entities | — | 487 | — | 487 |
| Less write down of unconsolidated entities(2) | — | — | — | — |
| Depreciation and amortization on consolidated centers | 63,740 | 57,774 | 128,651 | 118,901 |
| Less: depreciation and amortization attributable to noncontrolling interest on consolidated joint ventures | (1,064) | (788) | (2,130) | (1,361) |
| Depreciation and amortization on joint ventures(2) | 25,908 | 25,755 | 52,409 | 48,034 |
| Less: depreciation on personal property | (3,635) | (2,358) | (7,289) | (4,600) |
| FFO—basic | 59,920 | 98,810 | 162,760 | 188,824 |
| Additional adjustments to arrive at FFO—diluted: |  |  |  |  |
| Impact of convertible preferred stock | — | 835 | — | 3,289 |
| Impact of convertible debt | — | — | — | — |
| FFO—diluted | $59,920 | $99,645 | $162,760 | $192,113 |
| Weighted average number of FFO shares outstanding for: |  |  |  |  |
| FFO—basic(3) | 88,970 | 86,319 | 88,759 | 85,607 |
| Adjustments for the impact of dilutive securities in computing FFO-diluted: |  |  |  |  |
| Convertible preferred stock | — | 1,852 | — | 2,460 |
| Share and unit-based compensation plans | — | 462 | — | 398 |
| FFO—diluted(4) | 88,970 | 88,633 | 88,759 | 88,465 |

(1)

The net total of these line items equal the loss (gain) on sales of depreciated assets. These line items are included in this reconciliation to provide the Company's investors with more detailed information and does not represent a departure from FFO as defined by NAREIT.

(2)

Unconsolidated assets are presented at the Company's pro rata share.

(3)

Calculated based upon basic net income as adjusted to reach basic FFO. As of June 30, 2009 and 2008, 11.8 million and 12.5 million OP Units were outstanding, respectively.

(4)

The computation of FFO—diluted shares outstanding includes the effect of share and unit-based compensation plans and the Senior Notes using the treasury stock method. It also assumes the conversion of MACWH, LP common and preferred units to the extent that they are dilutive to the FFO computation. The MACWH, LP preferred units were antidilutive to the calculations for the three and six months eneded June 30, 2009 and 2008 and were not included in the above calculations.

(5)

Net (loss) income—available to common stockholders and FFO have been reduced by $3.0 million and $3.5 million for three months ended June 30, 2008, respectively, and $6.1 million and $7.1 million for the six months ended June 30, 2008, respectively, due to the retrospective adoption of FSP APB 14-1.

## Market risk

As filed, 5,680 characters.

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 floating rate exposure is kept at an acceptable level, (2) reducing interest rate exposure on certain long-term floating 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.

The following table sets forth information as of June 30, 2009 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):

| CONSOLIDATED CENTERS: Long term debt: | For the years ended June 30, 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | Total | FV |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Fixed rate(1) | $513,297 | $1,000,840 | $1,055,694 | $501,831 | $234,850 | $923,148 | $4,229,660 | $3,981,165 |
| Average interest rate | 6.42% | 6.23% | 5.61% | 6.68% | 5.44% | 6.13% | 6.11% |  |
| Floating rate | 176,169 | 1,171,225 | 380,087 | — | — | — | 1,727,481 | 1,665,582 |
| Average interest rate | 1.65% | 2.27% | 2.74% |  |  |  | 2.32% |  |
| Total debt—Consolidated Centers | $689,466 | $2,172,065 | $1,435,781 | $501,831 | $234,850 | $923,148 | $5,957,141 | $5,646,747 |
| **JOINT VENTURE CENTERS:** |  |  |  |  |  |  |  |  |
| Long term debt (at Company's pro rata share): |  |  |  |  |  |  |  |  |
| Fixed rate | $174,359 | $94,797 | $200,606 | $42,865 | $311,245 | $987,322 | $1,811,194 | $1,683,253 |
| Average interest rate | 6.17% | 6.00% | 6.91% | 5.58% | 5.83% | 5.85% | 6.01% |  |
| Floating rate | 96,173 | 102,783 | — | — | — | — | 198,956 | 192,112 |
| Average interest rate | 1.26% | 1.37% |  |  |  |  | 1.32% |  |
| Total debt—Joint Venture Centers | $270,532 | $197,580 | $200,606 | $42,865 | $311,245 | $987,322 | $2,010,150 | $1,875,365 |

(1)

Fixed rate debt includes the $442.5 million floating rate term note and $400.0 million of the line of credit balance. These amounts have effective fixed rates over the remaining terms due to swap agreements as discussed below.

The consolidated Centers' total fixed rate debt at June 30, 2009 and December 31, 2008 was $4.2 billion and $4.4 billion, respectively. The average interest rate on fixed rate debt at June 30, 2009 and December 31, 2008 was 6.11% and 5.72%, respectively. The consolidated Centers' total floating rate debt at June 30, 2009 and December 31, 2008 was $1.7 billion and $1.6 billion, respectively. The average interest rate on floating rate debt at June 30, 2009 and December 31, 2008 was 2.32% and 3.32%, respectively.

The Company's pro rata share of the Joint Venture Centers' fixed rate debt at June 30, 2009 and December 31, 2008 was $1.8 billion. The average interest rate on fixed rate debt at June 30, 2009 and December 31, 2008 was 6.01% and 5.83%, respectively. The Company's pro rata share of the Joint Venture Centers' floating rate debt at June 30, 2009 and December 31, 2008 was $199.0 million and $181.5 million, respectively. The average interest rate on the floating rate debt at June 30, 2009 and December 31, 2008 was 1.32% and 2.36%, respectively.

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 in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" (See Note 5—Derivative Instruments and Hedging Activities of the Company's Consolidated Financial Statements).

The following are outstanding derivatives at June 30, 2009 (amounts in thousands):

| Property/Entity | Notional Amount | Product | Rate | Maturity | Company's Ownership | Fair Value(1) |
| --- | ---: | --- | ---: | --- | ---: | ---: |
| Camelback Colonnade | $41,500 | Cap | 8.54% | 11/17/2009 | 75% | $— |
| Desert Sky Mall | 51,500 | Cap | 7.65% | 3/15/2010 | 50% | — |
| La Cumbre Plaza(2) | 30,000 | Cap | 7.12% | 8/9/2009 | 100% | — |
| Metrocenter Mall | 112,000 | Cap | 7.25% | 2/15/2010 | 15% | — |
| Metrocenter Mall | 21,597 | Cap | 7.25% | 2/15/2010 | 15% | — |
| Panorama Mall(2) | 50,000 | Cap | 6.65% | 3/1/2010 | 100% | — |
| The Oaks | 150,000 | Cap | 6.25% | 7/1/2010 | 100% | — |
| The Operating Partnership | 450,000 | Swap | 4.80% | 4/15/2010 | 100% | (14,401) |
| The Operating Partnership | 400,000 | Swap | 5.08% | 4/25/2011 | 100% | (24,543) |
| Westside Pavilion | 175,000 | Cap | 5.50% | 6/1/2010 | 100% | — |

(1)

Fair value at the Company's ownership percentage.

(2)

Derivative is not designated as a hedge.

Interest rate cap agreements ("Cap") offer protection against floating rates on the notional amount from exceeding the rates noted in the above schedule, and interest rate swap agreements ("Swap") effectively replace a floating rate on the notional amount with a fixed rate as noted above.

In addition, the Company has assessed the market risk for its floating rate debt and believes that a 1% increase in interest rates would decrease future earnings and cash flows by approximately $19.3 million per year based on $1.9 billion outstanding of floating rate debt at June 30, 2009.

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.

## Controls and procedures

As filed, 1,587 characters.

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, management carried out an evaluation, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on their evaluation as of June 30, 2009, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures (as defined in Rule 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 (a) recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms and (b) is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

In addition, there has been no change in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

## Risk factors

As filed, 213 characters.

There have been no material changes to the risk factors relating to the Company set forth under the caption "Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2008.

Filed Aug 7, 2009.
Source: SEC EDGAR, the filing index for accession 0001047469-09-007391. Last ingested by Listed: Nov 5, 2026, 12:24 ET. No prices; not investment advice.