# Macerich Co: Form 10-Q for the period ended Jun 30, 2012

- Company: [Macerich Co](/companies/mac.md) (CIK 912242)
- Form: 10-Q
- Filed: 2012-08-03
- Accepted by EDGAR: Aug 3, 2012, 12:45 ET
- Period: 2012-06-30
- Accession: 0001047469-12-007728
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/912242/000104746912007728/a2210369z10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/912242/000104746912007728/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2012-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2012-04-01 to 2012-06-30 | $204.5m | us-gaap:Revenues |
| Revenue | 6 months, 2012-01-01 to 2012-06-30 | $414.5m | us-gaap:Revenues |
| Interest expense | 3 months, 2012-04-01 to 2012-06-30 | $43.3m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2012-01-01 to 2012-06-30 | $85.8m | us-gaap:InterestExpense |
| Income tax | 3 months, 2012-04-01 to 2012-06-30 | −$3.1m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2012-01-01 to 2012-06-30 | −$1.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2012-04-01 to 2012-06-30 | $144.5m | us-gaap:ProfitLoss |
| Net income | 6 months, 2012-01-01 to 2012-06-30 | $132.8m | us-gaap:ProfitLoss |
| Diluted EPS | 3 months, 2012-04-01 to 2012-06-30 | $1.00 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2012-01-01 to 2012-06-30 | $0.90 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2012-04-01 to 2012-06-30 | $1.00 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2012-01-01 to 2012-06-30 | $0.90 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2012-04-01 to 2012-06-30 | 132,877,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2012-01-01 to 2012-06-30 | 132,611,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2012-01-01 to 2012-06-30 | $144.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 6 months, 2012-01-01 to 2012-06-30 | $161.1m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2012-06-30 | $89.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2012-06-30 | $7.73bn | us-gaap:Assets |
| Total liabilities | at 2012-06-30 | $4.59bn | us-gaap:Liabilities |
| Shareholders' equity | at 2012-06-30 | $2.80bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 60,635 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," "estimates," "scheduled" and variations of these words and similar expressions. Statements concerning current conditions may also be forward-looking if they imply a continuation of current conditions. Forward-looking statements appear in a number of places in this Form 10-Q and include statements regarding, among other matters:

expectations regarding the Company's growth;

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

the Company's acquisition, disposition and other strategies;

regulatory matters pertaining to compliance with governmental regulations;

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

the Company's expectations regarding income tax benefits;

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

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

Stockholders are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company or the industry to differ materially from the Company's future results, performance or achievements, or those of the industry, expressed or implied in such forward-looking statements. You are urged to carefully review the disclosures we make 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, 2011, as well as our other reports filed with the Securities and Exchange Commission (the "SEC"), which disclosures are incorporated herein by reference. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document. The Company does not intend, and undertakes no obligation, to update any forward-looking information to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, unless required by law to do so.

### Management's Overview and Summary

The Company is involved in the acquisition, ownership, development, redevelopment, management and leasing of regional and community 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, 2012, the Operating Partnership owned or had an ownership interest in 63 regional shopping centers and seven community shopping centers totaling approximately 64 million square feet of gross leasable area. These 70 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 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, 2012 and 2011. It compares the results of operations for the three months ended June 30, 2012 to the results of operations for the three months ended June 30, 2011, and it compares the results of operations and cash flows for the six months ended June 30, 2012 to the results of operations and cash flows for the six months ended June 30, 2011. This information should be read in conjunction with the accompanying consolidated financial statements and notes thereto.

#### Acquisitions and Dispositions:

On February 24, 2011, the Company's joint venture in Kierland Commons Investment LLC ("KCI") acquired an additional ownership interest in PHXAZ/Kierland Commons, L.L.C. ("Kierland Commons"), a 434,642 square foot community center in Scottsdale, Arizona. As a result of this transaction, the Company's ownership interest in KCI increased from 24.5% to 50.0%. The Company's share of the purchase price consisted of a cash payment of $34.2 million and the assumption of a pro rata share of debt of $18.6 million.

On February 28, 2011, the Company, in a 50/50 joint venture, acquired The Shops at Atlas Park, a 377,924 square foot community center in Queens, New York, for a total purchase price of $53.8 million. The Company's share of the purchase price was $26.9 million and was funded from the Company's cash on hand.

On February 28, 2011, the Company acquired the additional 50% ownership interest in Desert Sky Mall, an 893,863 square foot regional shopping center in Phoenix, Arizona, that it did not own. The total purchase price was $27.6 million, which included the assumption of the third party's pro rata share of the mortgage note payable on the property of $25.8 million. Concurrent with the purchase of the partnership interest, the Company paid off the $51.5 million loan on the property.

On April 29, 2011, the Company purchased a fee interest in a freestanding Kohl's store at Capitola Mall in Capitola, California for $28.5 million. The purchase price was paid from cash on hand.

On June 3, 2011, the Company acquired an additional 33.3% ownership interest in Arrowhead Towne Center, a 1,197,006 square foot regional shopping center in Glendale, Arizona, an additional 33.3% ownership interest in Superstition Springs Center, a 1,204,540 square foot regional shopping center in Mesa, Arizona and an additional 50% ownership interest in the land under Superstition Springs Center in exchange for the Company's ownership interest in six anchor stores, including five former Mervyn's stores and a cash payment of $75.0 million. The cash purchase price was funded from borrowings under the Company's line of credit. This transaction is referred to herein as the "GGP Exchange".

On July 22, 2011, the Company acquired Fashion Outlets of Niagara, a 529,059 square foot outlet center in Niagara Falls, New York. The initial purchase price of $200.0 million was funded by a cash payment of $78.6 million and the assumption of the mortgage note payable of $121.4 million. The cash purchase price was funded from borrowings under the Company's line of credit. The purchase and sale agreement includes contingent consideration based on the performance of Fashion Outlets of Niagara from the acquisition date through July 21, 2014 that could increase the purchase price from the initial $200.0 million up to a maximum of $218.7 million. As of June 30, 2012, the Company estimated the fair value of the contingent consideration as $15.4 million, which has been included in other accrued liabilities.

On December 31, 2011, the Company and its joint venture partner reached agreement for the distribution and conveyance of interests in SDG Macerich that owned 11 regional malls in a 50/50 partnership. Six of the eleven assets were distributed to the Company on December 31, 2011. The Company received 100% ownership of Eastland Mall in Evansville, Indiana, Lake Square Mall in

Leesburg, Florida, SouthPark Mall in Moline, Illinois, Southridge Mall in Des Moines, Iowa, NorthPark Mall in Davenport, Iowa and Valley Mall in Harrisonburg, Virginia (collectively referred to herein as the "SDG Acquisition Properties"). These wholly-owned assets were recorded at fair value at the date of transfer, which resulted in a gain of $188.3 million. The gain reflected the fair value of the net assets received in excess of the book value of the Company's interest in SDG Macerich. The distribution and conveyance of the properties from SDG Macerich to the Company is referred to herein as the "SDG Transaction".

On February 29, 2012, the Company acquired a 324,000 square foot mixed-use retail/office building ("500 North Michigan Avenue") in Chicago, Illinois for $70.9 million. The building is adjacent to The Shops at North Bridge. The purchase price was paid from borrowings under the Company's line of credit.

On March 30, 2012, the Company sold its 50% ownership interest in Chandler Village Center, a 273,439 square foot community center in Chandler, Arizona, for a total sales price of $14.8 million, resulting in a gain on the sale of assets of $8.2 million. The sales price was funded by a cash payment of $6.0 million and the assumption of the Company's share of the mortgage note payable on the property of $8.8 million. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes.

On March 30, 2012, the Company sold its 50% ownership interest in Chandler Festival, a 500,426 square foot community center in Chandler, Arizona, for a total sales price of $31.0 million, resulting in a gain on the sale of assets of $12.3 million. The sales price was funded by a cash payment of $16.2 million and the assumption of the Company's share of the mortgage note payable on the property of $14.8 million. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes.

On March 30, 2012, the Company's joint venture in SanTan Village Power Center, a 491,037 square foot community center in Gilbert, Arizona, sold the property for $54.8 million, resulting in a gain on the sale of assets of $23.3 million for the joint venture. The Company's pro rata share of the gain recognized was $7.9 million.

On April 30, 2012, the Company sold The Borgata, a 93,693 square foot community center in Scottsdale, Arizona, for $9.2 million, resulting in a loss on the sale of $1.3 million. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.

On May 17, 2012, the Company sold Hilton Village, a 79,814 square foot community center in Scottsdale, Arizona, for $24.8 million, resulting in a gain on the sale of assets of $3.3 million. The Company used the proceeds from the sale to pay down its line of credit and for general corporate purposes.

On May 31, 2012, the Company sold its 50% ownership interest in Chandler Gateway, a 259,535 square foot community center in Chandler, Arizona, for a total sales price of $14.3 million, resulting in a gain on the sale of assets of $3.3 million. The sales price was funded by a cash payment of $4.9 million and the assumption of the Company's share of the mortgage note payable on the property of $9.4 million. The Company used the cash proceeds from the sale to pay down its line of credit and for general corporate purposes.

On June 28, 2012, the Company sold Carmel Plaza, a 111,945 square foot community center, for $52.0 million, resulting in a gain on the sale of assets of $7.9 million. The Company used the proceeds from the sale to pay down its line of credit.

#### Mervyn's:

In December 2007, the Company purchased a portfolio of ground leasehold interests and/or fee interests in 39 freestanding Mervyn's stores located in the Southwest United States. In January 2008, the Company purchased a ground leasehold interest in a freestanding Mervyn's store located in Hayward, California and in February 2008, the Company purchased a fee simple interest in a freestanding Mervyn's store located in Monrovia, California. These former Mervyn's stores are referred to herein as the "Mervyn's Properties." Mervyn's filed for bankruptcy protection in July 2008 and rejected all of its leases during the remainder of the year.

On March 4, 2011, the Company sold a fee interest in a former Mervyn's store in Santa Fe, New Mexico, for $3.7 million, resulting in a loss on the sale of $1.9 million. The Company used the proceeds from the sale for general corporate purposes.

On June 3, 2011, the Company disposed of five former Mervyn's stores in connection with the GGP Exchange (See "Acquisitions and Dispositions").

On October 14, 2011, the Company sold a former Mervyn's store in Salt Lake City, Utah, for $8.1 million, resulting in a gain on the sale of $3.8 million. The proceeds from the sale were used for general corporate purposes.

On November 30, 2011, the Company sold a former Mervyn's store in West Valley City, Utah, for $2.3 million, resulting in a loss on the sale of $0.2 million. The proceeds from the sale were used for general corporate purposes.

On May 11, 2012, the Company sold a former Mervyn's store in Montebello, California for $20.8 million, resulting in a loss on the sale of $0.4 million. The proceeds from the sale were used for general corporate purposes.

Currently, four former Mervyn's stores in the Company's portfolio remain vacant. The Company is actively seeking replacement tenants for these spaces.

#### Other Transactions and Events:

On July 15, 2010, a court appointed receiver assumed operational control of Valley View Center and responsibility for managing all aspects of the property. In March 2012, the Company recorded an impairment charge of $54.3 million to write down the carrying value of the long-lived assets to its estimated fair value. On April 23, 2012, the property was sold by the receiver for $33.5 million, which resulted in a gain on the extinguishment of debt of $104.0 million.

On April 1, 2011, the Company's joint venture in SDG Macerich conveyed Granite Run Mall to the mortgage note lender by a deed-in-lieu of foreclosure. The mortgage note was non-recourse. The Company's pro rata share of gain on extinguishment of debt was $7.8 million.

On May 11, 2011, the non-recourse mortgage note payable on Shoppingtown Mall went into maturity default. As a result of the maturity default and the corresponding reduction of the estimated holding period, the Company recognized an impairment charge of $35.7 million to write-down the carrying value of the long-lived assets to its estimated fair value. On September 14, 2011, the Company exercised its right and redeemed the outside ownership interests in the Center for a cash payment of $11.4 million. On December 30, 2011, the Company conveyed the property to the mortgage note lender by a deed-in-lieu of foreclosure. As a result of the conveyance, the Company recognized an additional $3.9 million loss on the disposal of the property.

On May 31, 2012, the Company conveyed Prescott Gateway, a 339,771 square foot shopping center in Prescott, Arizona, to the mortgage note lender by a deed-in-lieu of foreclosure. The mortgage loan was non-recourse. As a result of the conveyance, the Company recognized a gain on extinguishment of debt of $16.4 million.

#### Redevelopment and Development Activity:

In August 2011, the Company entered into a joint venture agreement with a subsidiary of AWE/Talisman for the development of Fashion Outlets of Chicago in the Village of Rosemont, Illinois. The Company will own 60% of the joint venture and AWE/Talisman will own 40%. The Center will be a fully enclosed two level, 528,000 square foot outlet center. The site is located within a mile of O'Hare International Airport. The project broke ground in November 2011 and is expected to be completed in Summer 2013. The total estimated project cost is approximately $200.0 million. As of June 30, 2012, the joint venture has incurred $107.0 million of development costs. On March 2, 2012, the joint venture obtained a construction loan on the property that allows for borrowings up to $140.0 million, bears interest at LIBOR plus 2.50% and matures March 2, 2017. As of June 30, 2012, no borrowings have been made under the loan. Fashion Outlets of Chicago is referred herein as the "Development Property."

The Company's joint venture in Tysons Corner, a 1,985,179 square foot regional shopping center in McLean, Virginia, is currently expanding the property to include a 500,000 square foot office building, a 450 unit residential tower and a 300 room hotel. The joint venture started the expansion project in October 2011 and expects it to be completed in Fall 2014. The total estimated cost of the project is estimated at $600.0 million, of which $300.0 million is estimated to be the Company's pro rata share. The Company has funded $41.9 million of the total of $83.7 million incurred by the joint venture as of June 30, 2012.

#### 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 an annual multiple of increases in the Consumer Price Index ("CPI"). In addition, about 6% to 15% 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. The Company has generally entered 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, which places the burden of cost control on the Company. Additionally, certain leases require the tenants to pay their pro rata share of operating expenses.

#### 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 in the Company's Notes to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K. 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, 62% of the mall store and freestanding store 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:

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 |

#### Capitalization of Costs:

The Company capitalizes costs incurred in redevelopment, development, renovation and improvement of properties. 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. These capitalized costs include direct and certain indirect costs clearly associated with the project. Indirect costs include real estate taxes, insurance and certain shared administrative costs. In assessing the amounts of direct and indirect costs to be capitalized, allocations are made to projects based on estimates of the actual amount of time spent on each activity. Indirect costs not clearly associated with specific projects are expensed as period costs. Capitalized indirect costs are allocated to development and redevelopment activities based on the square footage of the portion of the building not held available for immediate occupancy. If costs and activities incurred to ready the vacant space cease, then cost capitalization is also discontinued until such activities are resumed. Once work has been completed on a vacant space, project costs are no longer capitalized. For projects with extended lease-up periods, the Company ends the capitalization when significant activities have ceased, which does not exceed the shorter of a one-year period after the completion of the building shell or when the construction is substantially complete.

#### Accounting for Acquisitions:

The Company first determines the value of land and buildings utilizing an "as if vacant" methodology. The Company then assigns the fair value to any debt assumed at acquisition. The Company then allocates the purchase price based on fair value of the land, building, tenant improvements and identifiable intangible assets received and liabilities assumed. Tenant improvements represent the tangible assets associated with the existing leases valued on a fair value basis at the acquisition date prorated over the remaining lease terms. The tenant improvements are classified as an asset under property 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 are 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.

The allocated values of above and below-market leases are amortized into minimum rents on a straight-line basis over the individual remaining lease terms. The remaining lease terms of below-market leases may include certain below-market fixed-rate renewal periods. In considering whether or not a lessee will execute a below-market fixed-rate lease renewal option, the Company evaluates economic factors and certain qualitative factors at the time of acquisition such as tenant mix in the center, the Company's relationship with the tenant and the availability of competing tenant space.

The Company immediately expenses costs associated with business combinations as period costs.

#### Asset Impairment:

The Company assesses whether an indicator of impairment in the value of its properties exists by considering expected future operating income, trends and prospects, as well as the effects of demand, competition and other economic factors. Such factors include projected rental revenue, operating costs and capital expenditures as well as estimated holding periods and capitalization rates. If an impairment indicator exists, the determination of recoverability is made based upon the estimated undiscounted future net cash flows, excluding interest expense. The amount of impairment loss, if any, is determined by comparing the fair value, as determined by a discounted cash flows analysis, with the carrying value of the related assets. The Company generally holds and operates its properties long-term, which decreases the likelihood of their carrying values not being recoverable. Properties classified as held for sale are measured at the lower of the carrying amount or fair value less cost to sell.

The Company reviews its investments in unconsolidated joint ventures for a series of operating losses and other factors that may indicate that a decrease in the value of its investments has occurred which is other-than-temporary. The investment in each unconsolidated joint venture is evaluated periodically, and as deemed necessary, for recoverability and valuation declines that are other than temporary.

#### Fair Value of Financial Instruments:

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. As these deferred leasing costs represent productive assets incurred in connection with the Company's provision of leasing arrangements at the Centers, the related cash flows are classified as investing activities within the Company's Consolidated Statements of Cash Flows. 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 | 1 - 10 years |

44

### Results of Operations

Many of the variations in the results of operations, discussed below, occurred because of the transactions affecting the Company's properties described above, including the Acquisition Properties (as defined below) and the Development Property.

For purposes of the discussion below, the Company defines "Same Centers" as those Centers that are substantially complete and in operation for the entirety of both periods of the comparison. Non-Same Centers for comparison purposes include recently acquired properties ("Acquisition Properties") and those Centers or properties that are going through a substantial redevelopment often resulting in the closing of a portion of the Center ("Development Properties"). The Company moves a Center in and out of Same Centers based on whether the Center is substantially complete and in operation for the entirety of both periods of the comparison. Accordingly, Same Centers consists of all consolidated Centers, excluding the Acquisition Properties and the Development Properties for the periods of comparison.

For comparison of the three months ended June 30, 2012 to the three months ended June 30, 2011, the Acquisition Properties include the Kohl's store at Capitola Mall, the land under Superstition Springs Center, Fashion Outlets of Niagara, the SDG Acquisition Properties and 500 North Michigan Avenue. For comparison of the six months ended June 30, 2012 to the six months ended June 30, 2011, the Acquisition Properties include Desert Sky Mall, the Kohl's store at Capitola Mall, the land under Superstition Springs Center, Fashion Outlets of Niagara, the SDG Acquisition Properties and 500 North Michigan Avenue. The increase in revenues and expenses of the Acquisition Properties during the three and six months ended June 30, 2012 in comparison to the three and six months ended June 30, 2011 is primarily due to the inclusion of the SDG Acquisition Properties in the results of operations in 2012. (See "Acquisitions and Dispositions" in Management's Overview and Summary).

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 of unconsolidated joint ventures.

The Company considers tenant annual sales per square foot (for tenants in place for 12 months or longer and under 10,000 square feet), occupancy rates (excluding large retail stores or "Anchors") for the Centers and releasing spreads (i.e. a comparison of average base rent per square foot on leases executed during the trailing twelve months to average base rent per square foot on leases expiring during the year) to be key performance indicators of the Company's internal growth.

Tenant sales per square foot increased from $458 for the twelve months ended June 30, 2011 to $513 for the twelve months ended June 30, 2012. Occupancy rate increased from 92.3% at June 30, 2011 to 92.7% at June 30, 2012. Releasing spreads increased 16.3% for the twelve months ended June 30, 2012. These calculations exclude Valley View Center, Granite Run Mall, Shoppingtown Mall, Prescott Gateway and Centers under development or redevelopment.

The Company's recent trend of retail sales growth continued during the twelve months ended June 30, 2012 with tenant sales per square foot and releasing spreads increasing compared to the twelve months ended June 30, 2011. The Company expects that releasing spreads will continue to be positive during 2012 as it renews or relets leases that are scheduled to expire during the year. The Company's occupancy rate as of June 30, 2012 increased compared to June 30, 2011. Although certain aspects of the U.S. economy, the retail industry as well as the Company's operating results have continued to improve, economic and political uncertainty remains in various parts of the world. In addition, the U.S. economy is still experiencing weakness, high levels of unemployment have persisted and rental rates and valuations for retail space have not fully recovered to pre-recession levels. Any further continuation of these adverse conditions could harm the Company's business, results of operations and financial condition.

### Comparison of Three Months Ended June 30, 2012 and 2011

#### Revenues:

Minimum and percentage rents (collectively referred to as "rental revenue") increased $13.3 million, or 12.4%, from 2011 to 2012. The increase in rental revenue is attributed to an increase of $16.2 million from the Acquisition Properties offset in part by a decrease of $2.9 million from the Same Centers. 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 $1.9 million in 2011 to $1.1 million in 2012. The amortization of straight-line rents increased from $1.4 million in 2011 to $1.5 million in 2012. Lease termination income decreased from $1.7 million in 2011 to $0.8 million in 2012.

Tenant recoveries increased $6.7 million, or 11.5%, from 2011 to 2012. This increase in tenant recoveries is attributed to an increase of $6.2 million from the Acquisition Properties and $0.5 million from the Same Centers.

Management Companies' revenue increased from $8.1 million in 2011 to $9.7 million in 2012 due primarily to an increase in development fees.

#### Shopping Center and Operating Expenses:

Shopping center and operating expenses increased $6.0 million, or 10.2%, from 2011 to 2012. The increase in shopping center and operating expenses is attributed to an increase of $8.1 million from the Acquisition Properties offset in part by a decrease of $2.1 million from the Same Centers.

#### Management Companies' Operating Expenses:

Management Companies' operating expenses increased $2.8 million from 2011 to 2012 due to an increase in compensation costs in 2012.

#### REIT General and Administrative Expenses:

REIT general and administrative expenses increased by $1.9 million from 2011 to 2012 due to an increase in compensation costs in 2012.

#### Depreciation and Amortization:

Depreciation and amortization increased $10.6 million from 2011 to 2012. The increase in depreciation and amortization is primarily attributed to an increase of $10.2 million from the Acquisition Properties and $0.4 million from the Same Centers.

#### Interest Expense:

Interest expense decreased $0.8 million from 2011 to 2012. The decrease in interest expense was primarily attributed to decreases of $8.0 million from the Senior Notes (See Liquidity and Capital Resources), $0.3 million from the Same Centers and $0.2 million from the Development Property offset in part by increases of $5.0 million from the Acquisition Properties, $1.9 million from the borrowings under the Company's line of credit and $0.8 million from the term loan (See Liquidity and Capital Resources).

The above interest expense items are net of capitalized interest, which decreased from $3.3 million in 2011 to $2.6 million in 2012.

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

Equity in income of unconsolidated joint ventures decreased $6.5 million from 2011 to 2012. The decrease is primarily attributed to the $7.8 million pro rata share of the gain on extinguishment of debt on Granite Run Mall in 2011 (See "Other Transactions and Events" in Management's Overview and Summary).

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

Loss on remeasurement, sale or write down of assets increased $2.1 million from 2011 to 2012. The increase is primarily attributed to an increase in the write down of development costs in 2012.

#### Income (Loss) From Discontinued Operations:

Income from discontinued operations increased $170.2 million from 2011 to 2012. The increase in income from discontinued operations is primarily due to the gain on extinguishment of debt of $104.0 million on Valley View Center and $16.4 million on Prescott Gateway in 2012, the $7.9 million gain on the sale of Carmel Plaza in 2012 and the impairment charge of $35.7 million on the write down of the long-lived assets of Shoppingtown Mall in 2011 (See "Acquisitions and Dispositions" and "Other Transactions and Events" in Management's Overview and Summary).

#### Net Income (Loss):

Net income increased $165.5 million from 2011 to 2012. The increase is primarily attributed to the increase in income from discontinued operations of $170.2 million as discussed above.

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

Primarily as a result of the factors mentioned above, FFO—diluted increased 119.9% from $102.9 million in 2011 to $226.2 million in 2012. For a reconciliation of FFO and FFO—diluted to net income (loss) available to the common stockholders, the most directly comparable GAAP financial measure, see "Funds from Operations and Adjusted Funds from Operations."

### Comparison of Six Months Ended June 30, 2012 and 2011

#### Revenues:

Rental revenue increased by $31.2 million, or 14.7%, from 2011 to 2012. The increase in rental revenue is attributed to an increase of $32.9 million from the Acquisition Properties offset in part by a decrease of $1.7 million from the Same Centers. The amortization of above and below-market leases decreased from $4.0 million in 2011 to $3.7 million in 2012. The amortization of straight-line rents increased from $1.5 million in 2011 to $2.6 million in 2012 primarily because of the Acquisition Properties. Lease termination income decreased from $3.0 million in 2011 to $2.4 million in 2012.

Tenant recoveries increased $13.1 million, or 11.3%, from 2011 to 2012. This increase in tenant recoveries is attributed to an increase of $13.0 million from the Acquisition Properties and $0.1 million from the Same Centers.

Management Companies revenue increased from $18.7 million in 2011 to $20.9 million in 2012 due primarily to an increase in development fees.

#### Shopping Center and Operating Expenses:

Shopping center and operating expenses increased $14.4 million, or 12.4%, from 2011 to 2012. The increase in shopping center and operating expenses is attributed to an increase of $16.3 million from the Acquisition Properties offset in part by a decrease of $1.9 million from the Same Centers.

#### Management Companies' Operating Expenses:

Management Companies' operating expenses decreased $0.5 million from 2011 to 2012.

#### REIT General and Administrative Expenses:

REIT general and administrative expenses decreased by $1.2 million from 2011 to 2012 due to a decrease in compensation costs in 2012.

#### Depreciation and Amortization:

Depreciation and amortization increased $24.7 million from 2011 to 2012. The increase in depreciation and amortization is primarily attributed to an increase of $20.6 million from the Acquisition Properties and $4.1 million from the Same Centers.

#### Interest Expense:

Interest expense decreased $6.8 million from 2011 to 2012. The decrease in interest expense was primarily attributed to decreases of $11.2 million from the Senior Notes (See Liquidity and Capital Resources), $6.3 million from the Same Centers, $0.5 million from the Development Property and $0.4 million from the borrowings under the Company's line of credit. These decreases were offset in part by an increase of $10.0 million from the Acquisition Properties and $1.6 million from the term loan (See Liquidity and Capital Resources). The decrease in interest expense at the Same Centers is primarily attributed to the maturity of a $400.0 million interest rate swap agreement in April 2011.

The above interest expense items are net of capitalized interest, which decreased from $6.6 million in 2011 to $4.9 million in 2012, primarily due to a decrease in interest rates.

#### Loss on Early Extinguishment of Debt:

The loss on early extinguishment of debt of $9.1 million in 2011 is attributed to the prepayment of the mortgage note payable on Chesterfield Towne Center.

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

Equity in income of unconsolidated joint ventures decreased $6.2 million from 2011 to 2012. The decrease is primarily attributed to the $7.8 million pro rata share of the gain on extinguishment of debt on Granite Run Mall in 2011 (See "Other Transactions and Events" in Management's Overview and Summary).

#### Gain on Remeasurement, Sale or Write Down of Assets:

Gain on remeasurement, sale or write down of assets increased $15.6 million from 2011 to 2012. The increase is primarily attributed to the sales of the Company's investments in Chandler Festival, Chandler Village Center and Chandler Gateway in 2012 (See "Acquisitions and Dispositions" in Management's Overview and Summary).

#### Income (Loss) From Discontinued Operations:

Income from discontinued operations increased $115.7 million from 2011 to 2012. The increase in income from discontinued operations is primarily due to the gain on extinguishment of debt of $104.0 million on Valley View Center and $16.4 million on Prescott Gateway in 2012, the $7.9 million gain on the sale of Carmel Plaza in 2012 and the impairment charge of $35.7 million on Shoppingtown Mall in 2011 offset in part by the impairment charge of $54.3 million on Valley View Center in 2012 (See "Other Transactions and Events" in Management's Overview and Summary).

#### Net Income (Loss):

Net income increased $153.6 million from 2011 to 2012. The increase is primarily attributed to the increases in income from discontinued operations of $115.7 million and the gain on remeasurement, sale or write down of assets of $15.6 million as discussed above.

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

Primarily as a result of the factors mentioned above, FFO—diluted increased 88.2% from $176.6 million in 2011 to $332.4 million in 2012. For a reconciliation of FFO and FFO—diluted to net income (loss) available to the common stockholders, the most directly comparable GAAP financial measure, see "Funds from Operations and Adjusted Funds from Operations."

#### Operating Activities:

Cash provided by operating activities increased from $89.9 million in 2011 to $144.6 million in 2012. The increase was primarily due to changes in assets and liabilities and the results at the Acquisition Properties as discussed above.

#### Investing Activities:

Cash provided by investing activities increased from a deficit of $197.3 million in 2011 to a surplus of $7.7 million in 2012. The increase in cash provided by investing activities was primarily due to an increase of $125.8 million in proceeds from the sale of assets and a decrease of $101.2 million in contributions to unconsolidated joint ventures offset in part by an increase of $42.5 million in acquisitions of property, development, redevelopment, renovations and property improvements. The increase in proceeds from the sale of assets is primarily due to the sales of The Borgata, Carmel Plaza, Chandler Festival, Chandler Village Center, Chandler Gateway, Hilton Village and a former Mervyn's store in 2012 (See "Acquisitions and Dispositions" in Managements Overview and Summary).

#### Financing Activities:

Cash used in financing activities decreased from $265.0 million in 2011 to $129.8 million in 2012. The decrease in cash used in financing activities was primarily due to an increase in proceeds from mortgages, bank and other notes payable of $963.9 million offset in part by an increase in payments on mortgages, bank and other notes payable of $850.2 million.

### Liquidity and Capital Resources

The Company anticipates meeting its liquidity needs for its operating expenses and debt service and dividend requirements for the next twelve months through cash generated from operations, working capital reserves and/or borrowings under its unsecured line of credit.

The following tables summarize capital expenditures incurred at the Centers:

*(Dollars in thousands)*

| Consolidated Centers: | For the Six Months Ended June 30, 2012 | 2011 |
| --- | ---: | ---: |
| Acquisitions of property and equipment | $76,935 | $70,114 |
| Development, redevelopment, expansion and renovations | 53,011 | 52,461 |
| Tenant allowances | 8,543 | 8,792 |
| Deferred leasing charges | 13,580 | 16,868 |
|  | $152,069 | $148,235 |
| **Joint Venture Centers (at Company's pro rata share):** |  |  |
| Acquisitions of property and equipment | $1,754 | $137,291 |
| Development, redevelopment, expansion and renovations | 46,457 | 16,410 |
| Tenant allowances | 2,490 | 2,697 |
| Deferred leasing charges | 2,576 | 2,878 |
|  | $53,277 | $159,276 |

The Company expects amounts to be incurred during the next twelve months for tenant allowances and deferred leasing charges to be comparable or less than 2011 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 $200 million and $300 million during the next twelve months 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 debt or equity financings, which are expected to include borrowings under the Company's line of credit and construction loans. The Company has also generated liquidity in the past through equity offerings, property refinancings, joint venture transactions and the sale of non-core assets including the recent sales of The Borgata, Carmel Plaza, Chandler Gateway, Chandler Village Center, Chandler Festival, Hilton Village and SanTan Village Power Center (See "Acquisitions and Dispositions" in Management's Overview and Summary), and may sell additional non-core assets in the future. Furthermore, the Company has filed a shelf registration statement which registered an unspecified amount of common stock, preferred stock, depositary shares, debt securities, warrants, rights and units.

The capital and credit markets can fluctuate, and at times, limit access to debt and equity financing for companies. As demonstrated by the Company's recent activity, including its new $1.5 billion line of credit, the Company has recently been able to access capital; 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. 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 borrowings under its line of credit. These events could result in an increase in the Company's proportion of floating rate debt, which would cause it to be subject to interest rate fluctuations in the future.

The Company's total outstanding loan indebtedness at June 30, 2012 was $6.0 billion (including $740.0 million of unsecured debt and $1.9 billion of its pro rata share of joint venture debt). The majority of the Company's debt consists of fixed-rate conventional mortgages notes collateralized by individual properties. The Company expects that all of the maturities during the next twelve months will be refinanced, restructured, extended and/or paid off from the Company's line of credit or cash on hand. The Company's loan obligations regarding Valley View Center and Prescott Gateway were discharged on April 23, 2012 and May 31, 2012, respectively (See "Other Transactions and Events" in Management's Overview and Summary).

On March 15, 2012, the Company repaid the $439.3 million of senior convertible notes ("Senior Notes") that had matured. The repayment was funded by additional borrowings under the Company's line of credit.

The Company has a $1.5 billion revolving line of credit that bears interest at LIBOR plus a spread of 1.75% to 3.0% depending on the Company's overall leverage and matures on May 2, 2015 with a one-year extension option. Based on the Company's current leverage levels, the borrowing rate on the new facility is LIBOR plus 2.0%. The line of credit can be expanded, depending on certain conditions, up to a total facility of $2.0 billion less the outstanding balance of the $125.0 million unsecured term loan, as discussed below. All obligations under the line of credit are unconditionally guaranteed by the Company and certain of its direct and indirect subsidiaries and are secured, subject to certain exceptions, by pledges of direct and indirect ownership interests in certain of the subsidiary guarantors. At June 30, 2012, total borrowings under the line of credit were $615.0 million with an average effective interest rate of 2.78%.

The Company has a $125.0 million unsecured term loan under the Company's line of credit that bears interest at LIBOR plus a spread of 1.95% to 3.20% depending on the Company's overall leverage and matures on December 8, 2018. Based on the Company's current leverage levels, the borrowing rate is LIBOR plus 2.20%. As of June 30, 2012, the total interest rate was 2.59%.

Cash dividends and distributions for the six months ended June 30, 2012 were $161.1 million. A total of $144.6 million was funded by cash flows provided by operations. The remaining $16.5 million was funded through distributions received from unconsolidated joint ventures which are included in cash flows from investing activities in the Company's Consolidated Statements of Cash Flows.

At June 30, 2012, the Company was in compliance with all applicable loan covenants under its agreements.

At June 30, 2012, the Company had cash and cash equivalents available of $89.8 million.

#### Off-Balance Sheet Arrangements:

The Company accounts for its investments in joint ventures that it does not have a controlling interest in or is not the primary beneficiary of, 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" and "Distributions in excess of investments in unconsolidated joint ventures".

In addition, certain joint ventures also have secured 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. At June 30, 2012, the balance of the debt that could be recourse to the Company was $372.4 million offset in part by indemnity agreements from joint venture partners for $178.6 million. The maturities of the recourse debt, net of indemnification, are $168.0 million in 2013, $16.8 million in 2015 and $9.0 million in 2016.

Additionally, as of June 30, 2012, the Company is contingently liable for $4.6 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, 2012 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) | $4,240,650 | $639,511 | $656,241 | $1,626,880 | $1,318,018 |
| Operating lease obligations(1) | 274,907 | 12,511 | 22,497 | 20,251 | 219,648 |
| Purchase obligations(1) | 92,060 | 82,704 | 9,356 | — | — |
| Other long-term liabilities | 244,982 | 201,935 | 2,835 | 3,137 | 37,075 |
|  | $4,852,599 | $936,661 | $690,929 | $1,650,268 | $1,574,741 |

(1)

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

### Funds From Operations and Adjusted 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 Generally Accepted Accounting Principles ("GAAP") measures. The National Association of Real Estate Investment Trusts ("NAREIT") defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from extraordinary items and sales of depreciated operating properties, plus real estate related depreciation and amortization, impairment write-downs of real estate and write-downs of investments in an affiliate where the write-downs have been driven by a decrease in the value of real estate held by the affiliate and after adjustments for unconsolidated joint ventures. Adjustments for unconsolidated joint ventures are calculated to reflect FFO on the same basis.

Adjusted FFO ("AFFO") excludes the FFO impact of Shoppingtown Mall and Valley View Center for the three and six months ended June 30, 2012 and 2011. In December 2011, the Company conveyed Shoppingtown Mall to the lender by a deed-in-lieu of foreclosure. In July 2010, a court-appointed receiver assumed operational control of Valley View Center and responsibility for managing all aspects of the property. Valley View Center was sold by the receiver on April 23, 2012, and the related non-recourse mortgage loan obligation was fully extinguished on that date. On May 31, 2012, the Company conveyed Prescott Gateway to the lender by a deed-in-lieu of foreclosure and the debt was forgiven resulting in a gain on the extinguishment of debt of $16.4 million. AFFO also excludes the gain on the extinguishment of debt on Prescott Gateway for the three and six months ended June 30, 2012.

FFO and FFO on a diluted basis are useful to investors in comparing operating and financial results between periods. This is especially true since FFO excludes real estate depreciation and amortization, as the Company believes real estate values fluctuate based on market conditions rather than depreciating in value ratably on a straight-line basis over time. The Company believes that AFFO and AFFO on a diluted basis provide useful supplemental information regarding the Company's performance as they show a more meaningful and consistent comparison of the Company's operating performance and allow investors to more easily compare the Company's results without taking into account non-cash credits and charges on properties controlled by either a receiver or loan servicer. FFO and AFFO on a diluted basis are measures investors find most useful in measuring the dilutive impact of outstanding convertible securities.

FFO and AFFO do 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 are not indicative of cash available to fund all cash flow needs. The Company also cautions that FFO and AFFO, as presented, may not be comparable to similarly titled measures reported by other real estate investment trusts.

Management compensates for the limitations of FFO and AFFO by providing investors with financial statements prepared according to GAAP, along with this detailed discussion of FFO and AFFO and a reconciliation of FFO and AFFO and FFO and AFFO-diluted to net income available to common stockholders. Management believes that to further understand the Company's performance, FFO and AFFO should be compared with the Company's reported net income and considered in addition to cash flows in accordance with GAAP, as presented in the Company's Consolidated Financial Statements.

The following reconciles net income (loss) available to common stockholders to FFO and FFO-diluted for the three and six months ended June 30, 2012 and 2011 and FFO and FFO—diluted to AFFO and AFFO—diluted for the same periods (dollars and shares in thousands):

|  | For the Three Months Ended June 30, 2012 | 2011 | For the Six Months Ended June 30, 2012 | 2011 |
| --- | ---: | ---: | ---: | ---: |
| Net income (loss) available to common stockholders | $133,354 | $(19,216) | $119,286 | $(19,182) |
| Adjustments to reconcile net income (loss) to FFO—basic: |  |  |  |  |
| Noncontrolling interest in the Operating Partnership | 11,294 | (1,710) | 10,106 | (1,707) |
| (Gain) loss on remeasurement, sale or write-down of consolidated assets, net | (9,512) | 34,466 | 26,215 | 34,903 |
| Add: gain on undepreciated assets—consolidated assets | — | 1,734 | — | 2,277 |
| Add: noncontrolling interest share of (loss) gain on remeasurement, sale or write down of consolidated joint ventures | (17) | (4) | 3,538 | (4) |
| Loss (gain) on remeasurement, sale or write-down of assets from unconsolidated joint ventures(1) | 354 | (10) | (11,157) | (12,560) |
| Add: gain on sale of undepreciated assets—from unconsolidated joint ventures(1) | — | 10 | — | 50 |
| Depreciation and amortization on consolidated assets | 73,003 | 65,834 | 149,968 | 130,459 |
| Less: depreciation and amortization attributable to noncontrolling interest on consolidated joint ventures | (4,578) | (4,492) | (9,428) | (8,986) |
| Depreciation and amortization on unconsolidated joint ventures(1) | 25,553 | 30,181 | 50,310 | 58,706 |
| Less: depreciation on personal property | (3,239) | (3,900) | (6,453) | (7,382) |
| FFO—basic and diluted | 226,212 | 102,893 | 332,385 | 176,574 |
| Shoppingtown Mall | 36 | 2 | 396 | 22 |
| Valley View Center | (103,745) | 2,425 | (101,116) | 3,216 |
| Prescott Gateway | (16,350) | — | (16,350) | — |
| AFFO and AFFO—diluted | $106,153 | $105,320 | $215,315 | $179,812 |
| Weighted average number of FFO shares outstanding for: |  |  |  |  |
| FFO—basic(2) | 144,030 | 143,140 | 143,741 | 142,810 |
| Adjustments for impact of dilutive securities in computing FFO-diluted: |  |  |  |  |
| Stock warrants | 68 | — | 84 | — |
| Share and unit based compensation plans | 41 | — | 7 | — |
| FFO—diluted(3) | 144,139 | 143,140 | 143,832 | 142,810 |

(1)

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

(2)

As of June 30, 2012 and 2011, 10.8 million and 11.1 million OP Units were outstanding, respectively.

(3)

The computation of FFO and AFFO—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 and AFFO—diluted computation.

## Market risk

As filed, 4,199 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, 2012 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, 2013 | 2014 | 2015 | 2016 | 2017 | Thereafter | Total | FV |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Fixed rate | $208,153 | $83,677 | $209,137 | $713,398 | $62,197 | $1,139,568 | $2,416,130 | $2,540,269 |
| Average interest rate | 5.35% | 5.46% | 5.71% | 5.98% | 5.37% | 4.41% | 5.13% |  |
| Floating rate | 409,993 | 121,705 | 210,928 | 104,008 | 679,000 | 125,000 | 1,650,634 | 1,668,480 |
| Average interest rate | 2.49% | 3.88% | 4.53% | 3.07% | 2.81% | 2.59% | 3.03% |  |
| Total debt—Consolidated Centers | $618,146 | $205,382 | $420,065 | $817,406 | $741,197 | $1,264,568 | $4,066,764 | $4,208,749 |
| **UNCONSOLIDATED JOINT VENTURE CENTERS:** |  |  |  |  |  |  |  |  |
| Long-term debt (at Company's pro rata share): |  |  |  |  |  |  |  |  |
| Fixed rate | $379,206 | $506,283 | $168,400 | $321,604 | $54,210 | $278,621 | $1,708,324 | $1,806,052 |
| Average interest rate | 6.97% | 5.47% | 5.92% | 6.33% | 6.75% | 4.44% | 5.88% |  |
| Floating rate | 273 | 69,169 | 13,599 | 25,295 | 70,044 | — | 178,380 | 181,607 |
| Average interest rate | 3.30% | 4.75% | 3.2% | 3.48% | 2.90% |  | 3.72% |  |
| Total debt—Unconsolidated Joint Venture Centers | $379,479 | $575,452 | $181,999 | $346,899 | $124,254 | $278,621 | $1,886,704 | $1,987,659 |

The consolidated Centers' total fixed rate debt at June 30, 2012 and December 31, 2011 was $2.4 billion and $2.6 billion, respectively. The average interest rate on fixed rate debt at June 30, 2012 and December 31, 2011 was 5.13% and 5.53%, respectively. The consolidated Centers' total floating rate debt at June 30, 2012 and December 31, 2011 was $1.7 billion and $1.6 billion, respectively. The average interest rate on floating rate debt at June 30, 2012 and December 31, 2011 was 3.03% and 3.09%, respectively.

The Company's pro rata share of the Unconsolidated Joint Venture Centers' fixed rate debt at June 30, 2012 and December 31, 2011 was $1.7 billion and $1.8 billion, respectively. The average interest rate on fixed rate debt at June 30, 2012 and December 31, 2011 was 5.88% and 5.92%, respectively. The Company's pro rata share of the Unconsolidated Joint Venture Centers' floating rate debt at June 30, 2012 and December 31, 2011 was $178.4 million and $161.2 million, respectively. The average interest rate on the floating rate debt at June 30, 2012 and December 31, 2011 was 3.72% and 3.88%, respectively.

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 $18.3 million per year based on $1.8 billion of floating rate debt outstanding at June 30, 2012.

The fair value of the Company's long-term debt is estimated based on a present value model utilizing interest rates that reflect the risks associated with long-term debt of similar risk and duration.

In addition, the method of computing fair value for mortgage notes payable included a credit value adjustment based on the estimated value of the property that serves as collateral for the underlying debt (See Note 10—Mortgage Notes Payable and Note 11—Bank and Other Notes Payable in the Company's Notes to the Consolidated Financial Statements).

## 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, 2012, 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, 2011.

Filed Aug 3, 2012.
Source: SEC EDGAR, the filing index for accession 0001047469-12-007728. Last ingested by Listed: Nov 5, 2026, 12:24 ET. No prices; not investment advice.