UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File No. 1-12504
THE MACERICH COMPANY
(Exact name of registrant as specified in its charter)
MARYLAND
 
95-4448705
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification Number)
401 Wilshire Boulevard, Suite 700, Santa Monica, California
 
90,401
(Address of principal executive office, including zip code)
 
(Zip Code)
(310) 394-6000
 (Registrant's telephone number, including area code)
N/A
 (Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past ninety (90) days. YES x   NO o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding twelve (12) months (or for such shorter period that the registrant was required to submit such files). YES x        NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of large accelerated filer, accelerated filer, smaller reporting company and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
 
Non-accelerated filer o
 
 
Smaller reporting company o 
 
 
 
 
 
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o       NO x
Securities registered pursuant to Section 12(b) of the Securities Act:
Title of each class
Trading symbol
Name of each exchange on which registered
Common Stock, $0.01 Par Value
MAC
New York Stock Exchange
Number of shares outstanding as of May 3, 2019 of the registrant's common stock, par value $0.01 per share: 141,238,583 shares




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

2

Table of Contents


THE MACERICH COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value)
(Unaudited)
 
March 31,
2019
 
December 31,
2018
ASSETS:
 
 
 
Property, net
$
6,737,198

 
$
6,785,776

Cash and cash equivalents
111,022

 
102,711

Restricted cash
43,053

 
46,590

Tenant and other receivables, net
104,738

 
123,492

Right-of-use assets, net
156,260

 

Deferred charges and other assets, net
307,667

 
390,403

Due from affiliates
14,903

 
85,181

Investments in unconsolidated joint ventures
1,528,080

 
1,492,655

Total assets
$
9,002,921

 
$
9,026,808

LIABILITIES AND EQUITY:
 
 
 
Mortgage notes payable
$
4,162,072

 
$
4,073,916

Bank and other notes payable
848,948

 
908,544

Accounts payable and accrued expenses
59,024

 
59,392

Lease liabilities
122,105

 

Other accrued liabilities
244,649

 
303,051

Distributions in excess of investments in unconsolidated joint ventures
116,634

 
114,988

Financing arrangement obligation
364,220

 
378,485

Total liabilities
5,917,652

 
5,838,376

Commitments and contingencies

 

Equity:
 
 
 
Stockholders' equity:
 
 
 
Common stock, $0.01 par value, 250,000,000 shares authorized, 141,332,786 and 141,221,712 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively
1,413

 
1,412

Additional paid-in capital
4,574,600

 
4,567,643

Accumulated deficit
(1,714,789
)
 
(1,614,357
)
Accumulated other comprehensive loss
(6,511
)
 
(4,466
)
Total stockholders' equity
2,854,713

 
2,950,232

Noncontrolling interests
230,556

 
238,200

Total equity
3,085,269

 
3,188,432

Total liabilities and equity
$
9,002,921

 
$
9,026,808

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

3

Table of Contents

THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
 
 
For the Three Months Ended March 31,
 
 
2019
 
2018
Revenues:
 
 
 
 
Leasing revenue
 
$
211,008

 
$
218,112

Other
 
5,334

 
8,080

Management Companies
 
10,180

 
10,542

Total revenues
 
226,522

 
236,734

Expenses:
 
 
 
 
Shopping center and operating expenses
 
69,604

 
74,510

Leasing expenses
 
7,505

 
3,334

Management Companies' operating expenses
 
19,014

 
34,989

REIT general and administrative expenses
 
6,961

 
8,019

Depreciation and amortization
 
81,468

 
79,937

 
 
184,552

 
200,789

Interest (income) expense:
 
 
 
 
Related parties
 
(10,447
)
 
10,169

Other
 
48,804

 
42,466

 
 
38,357

 
52,635

Loss on extinguishment of debt, net
 
351

 

Total expenses
 
223,260

 
253,424

Equity in income of unconsolidated joint ventures
 
12,243

 
16,872

Income tax (expense) benefit
 
(346
)
 
2,949

Loss on sale or write down of assets, net
 
(6,316
)
 
(37,512
)
Net income (loss)
 
8,843

 
(34,381
)
Less net income (loss) attributable to noncontrolling interests
 
1,019

 
(808
)
Net income (loss) attributable to the Company
 
$
7,824

 
$
(33,573
)
Earnings per common share—attributable to common stockholders:
 
 
 
 
Basic
 
$
0.05

 
$
(0.24
)
Diluted
 
$
0.05

 
$
(0.24
)
Weighted average number of common shares outstanding:
 
 
 
 
Basic
 
141,262,000

 
141,024,000

Diluted
 
141,262,000

 
141,050,000

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

4

Table of Contents

THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands, except per share amounts)
(Unaudited)
 
 
For the Three Months Ended March 31,
 
 
2019
 
2018
Net income (loss)
 
$
8,843

 
$
(34,381
)
Other comprehensive income (loss):
 
 
 
 
Interest rate cap/swap agreements
 
(2,045
)
 
61

Comprehensive income (loss)
 
6,798

 
(34,320
)
Less net income (loss) attributable to noncontrolling interests
 
1,019

 
(808
)
Comprehensive income (loss) attributable to the Company
 
$
5,779

 
$
(33,512
)
   The accompanying notes are an integral part of these consolidated financial statements.





5

Table of Contents

THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in thousands, except per share data)
(Unaudited)
 
Stockholders' Equity
 
 
 
 
 
Common Stock
 
Additional Paid-in Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Loss
 
Total Stockholders' Equity
 
 
 
 
 
Shares
 
Par
Value
 
 
 
 
 
Noncontrolling
Interests
 
Total Equity
Balance at January 1, 2019
141,221,712

 
$
1,412

 
$
4,567,643

 
$
(1,614,357
)
 
$
(4,466
)
 
$
2,950,232

 
$
238,200

 
$
3,188,432

Net income

 

 

 
7,824

 

 
7,824

 
1,019

 
8,843

Cumulative effect of adoption of ASC 842

 

 

 
(2,203
)
 

 
(2,203
)
 

 
(2,203
)
Interest rate cap/swap agreements

 

 

 

 
(2,045
)
 
(2,045
)
 

 
(2,045
)
Amortization of share and unit-based plans
90,074

 
1

 
6,664

 

 

 
6,665

 

 
6,665

Distributions declared ($0.75 per share)

 

 

 
(106,053
)
 

 
(106,053
)
 

 
(106,053
)
Distributions to noncontrolling interests

 

 

 

 

 

 
(8,343
)
 
(8,343
)
Conversion of noncontrolling interests to common shares
21,000

 

 
1,005

 

 

 
1,005

 
(1,005
)
 

Redemption of noncontrolling interests

 

 
(15
)
 

 

 
(15
)
 
(12
)
 
(27
)
Adjustment of noncontrolling interests in Operating Partnership

 

 
(697
)
 

 

 
(697
)
 
697

 

Balance at March 31, 2019
141,332,786

 
$
1,413

 
$
4,574,600

 
$
(1,714,789
)
 
$
(6,511
)
 
$
2,854,713

 
$
230,556

 
$
3,085,269

 
Stockholders' Equity
 
 
 
 
 
Common Stock
 
Additional Paid-in Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive (Loss) Income
 
Total Stockholders' Equity
 
 
 
 
 
Shares
 
Par
Value
 
 
 
 
 
Noncontrolling
Interests
 
Total Equity
Balance at January 1, 2018
140,993,985

 
$
1,410

 
$
4,510,489

 
$
(830,279
)
 
$
(42
)
 
$
3,681,578

 
$
286,421

 
$
3,967,999

Net loss

 

 

 
(33,573
)
 

 
(33,573
)
 
(808
)
 
(34,381
)
Cumulative effect of adoption of ASU 2014-09

 

 

 
(424,859
)
 

 
(424,859
)
 

 
(424,859
)
Interest rate cap

 

 

 

 
61

 
61

 

 
61

Amortization of share and unit-based plans
109,602

 
1

 
13,611

 

 

 
13,612

 

 
13,612

Distributions declared ($0.74 per share)

 

 

 
(104,707
)
 

 
(104,707
)
 

 
(104,707
)
Distributions to noncontrolling interests

 

 

 

 

 

 
(9,075
)
 
(9,075
)
Conversion of noncontrolling interests to common shares
1,000

 

 

 

 

 

 

 

Redemption of noncontrolling interests

 

 
(46
)
 

 

 
(46
)
 
(19
)
 
(65
)
Adjustment of noncontrolling interests in Operating Partnership

 

 
25,694

 

 

 
25,694

 
(25,694
)
 

Balance at March 31, 2018
141,104,587

 
$
1,411

 
$
4,549,748

 
$
(1,393,418
)
 
$
19

 
$
3,157,760

 
$
250,825

 
$
3,408,585

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

6

Table of Contents

THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 
For the Three Months Ended March 31,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income (loss)
$
8,843

 
$
(34,381
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Loss on extinguishment of debt, net
351

 

Loss on sale or write down of assets, net
6,316

 
37,512

Depreciation and amortization
83,233

 
81,524

Amortization of premium on mortgage notes payable
(234
)
 
(235
)
Amortization of share and unit-based plans
5,519

 
11,003

Straight-line rent and amortization of above and below market leases
(2,650
)
 
(2,531
)
Provision for doubtful accounts
1,826

 
1,354

Income tax expense (benefit)
346

 
(2,949
)
Equity in income of unconsolidated joint ventures
(12,243
)
 
(16,872
)
Distributions of income from unconsolidated joint ventures
118

 
155

Change in fair value of financing arrangement obligation
(14,265
)
 
4,382

Changes in assets and liabilities, net of dispositions:
 
 
 
Tenant and other receivables
16,867

 
11,699

Other assets
9,284

 
11,473

Due from affiliates
5,148

 
(2,512
)
Accounts payable and accrued expenses
8,715

 
13,239

Other accrued liabilities
(18,334
)
 
(17,893
)
Net cash provided by operating activities
98,840

 
94,968

Cash flows from investing activities:
 
 
 
Development, redevelopment, expansion and renovation of properties
(28,256
)
 
(49,242
)
Property improvements
(8,827
)
 
(4,968
)
Proceeds from repayment of notes receivable
65,348

 
202

Deferred leasing costs
(8,848
)
 
(13,384
)
Distributions from unconsolidated joint ventures
41,439

 
418,333

Contributions to unconsolidated joint ventures
(63,093
)
 
(40,990
)
Proceeds from sale of assets
1,015

 
1,450

Net cash (used in) provided by investing activities
(1,222
)
 
311,401

 
 
 
 

7

Table of Contents

THE MACERICH COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
(Unaudited)
 
For the Three Months Ended March 31,
 
2019
 
2018
Cash flows from financing activities:
 
 
 
Proceeds from mortgages, bank and other notes payable
425,000

 
120,000

Payments on mortgages, bank and other notes payable
(397,358
)
 
(387,643
)
Deferred financing costs
(965
)
 
(132
)
Payments on finance leases
(278
)
 

Payment of finance deposits
(4,820
)
 

Redemption of noncontrolling interests
(27
)
 
(65
)
Dividends and distributions
(114,396
)
 
(113,782
)
Net cash used in financing activities
(92,844
)
 
(381,622
)
Net increase in cash, cash equivalents and restricted cash
4,774

 
24,747

Cash, cash equivalents and restricted cash, beginning of period
149,301

 
143,105

Cash, cash equivalents and restricted cash, end of period
$
154,075

 
$
167,852

Supplemental cash flow information:
 
 
 
Cash payments for interest, net of amounts capitalized
$
50,650

 
$
46,418

Non-cash investing and financing transactions:
 
 
 
Accrued development costs included in accounts payable and accrued expenses and other accrued liabilities
$
42,539

 
$
36,286

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

8

Table of Contents

THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)
1. Organization:
The Macerich Company (the "Company") is involved in the acquisition, ownership, development, redevelopment, management and leasing of regional and community/power shopping centers (the "Centers") located throughout the United States.
The Company commenced operations effective with the completion of its initial public offering on March 16, 1994. As of March 31, 2019, the Company was the sole general partner of and held a 93% ownership interest in The Macerich Partnership, L.P. (the "Operating Partnership"). The Company was organized to qualify as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code").
The property management, leasing and redevelopment of the Company's portfolio is provided by the Company's management companies, Macerich Property Management Company, LLC, a single member Delaware limited liability company, Macerich Management Company, a California corporation, Macerich Arizona Partners LLC, a single member Arizona limited liability company, Macerich Arizona Management LLC, a single member Delaware limited liability company, Macerich Partners of Colorado LLC, a single member Colorado limited liability company, MACW Mall Management, Inc., a New York corporation, and MACW Property Management, LLC, a single member New York limited liability company. All seven of the management companies are collectively referred to herein as the "Management Companies."
All references to the Company in this Quarterly Report on Form 10-Q include the Company, those entities owned or controlled by the Company and predecessors of the Company, unless the context indicates otherwise.
2. Summary of Significant Accounting Policies:
Basis of Presentation:
The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements and have not been audited by an independent registered public accounting firm.
The Company's sole significant asset is its investment in the Operating Partnership and as a result, substantially all of the Company's assets and liabilities represent the assets and liabilities of the Operating Partnership. In addition, the Operating Partnership has investments in a number of consolidated variable interest entities ("VIEs").
The Operating Partnership's consolidated VIEs included the following assets and liabilities:
 
March 31,
2019
 
December 31,
2018
Assets:
 
 
 
Property, net
$
261,610

 
$
263,511

Other assets
25,734

 
23,001

Total assets
$
287,344

 
$
286,512

Liabilities:
 
 
 
Mortgage notes payable
$
124,247

 
$
125,273

Other liabilities
33,144

 
32,503

Total liabilities
$
157,391

 
$
157,776

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

9

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

The unaudited interim consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial statements for the interim periods have been made. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The accompanying consolidated balance sheet as of December 31, 2018 has been derived from the audited financial statements but does not include all disclosures required by GAAP.
The following table presents a reconciliation of the beginning of period and end of period cash, cash equivalents and restricted cash reported on the Company's consolidated balance sheets to the totals shown on its consolidated statements of cash flows:
 
For the Three Months Ended March 31,
 
2019
 
2018
Beginning of period
 
 
 
Cash and cash equivalents
$
102,711

 
$
91,038

Restricted cash
46,590

 
52,067

Cash, cash equivalents and restricted cash
$
149,301

 
$
143,105

End of period
 
 
 
Cash and cash equivalents
$
111,022

 
$
118,175

Restricted cash
43,053

 
49,677

Cash, cash equivalents and restricted cash
$
154,075

 
$
167,852

Adoption of New Lease Standard:
On January 1, 2019, the Company adopted Accounting Standards Codification ("ASC") 842 "Leases", under the cumulative retrospective method. The new standard amended the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). In connection with the adoption of the new lease standard, the Company elected to use the transition packages of practical expedients for implementation provided by the Financial Accounting Standards Board ("FASB"), which included (i) relief from re-assessing whether an expired or existing contract meets the definition of a lease, (ii) relief from re-assessing the classification of expired or existing leases at the adoption date, (iii) allowing previously capitalized initial direct leasing costs to continue to be amortized, and (iv) application of the standard as of the adoption date rather than to all periods presented.
The standard requires that lessors expense, on an as-incurred basis, certain initial direct costs that are not incremental in negotiating a lease. Initial direct costs include the salaries and related costs for employees directly working on leasing activities. Prior to January 1, 2019, these costs were capitalizable and therefore the new lease standard resulted in certain of these costs being expensed as incurred. For comparison purposes, the Company has reclassified leasing costs that were included in management companies' operating expenses to leasing expenses for the three months ended March 31, 2018, to conform to the presentation for the three months ended March 31, 2019. Upon the adoption of the new standard, the Company elected the practical expedient to not separate non-lease components, most significantly certain common area maintenance recoveries, from the associated lease components, resulting in the Company presenting all revenues associated with leases as leasing revenue on its consolidated statement of operations. For comparison purposes, the Company has reclassified minimum rents, percentage rents, tenant recoveries and other leasing income to leasing revenue for the three months ended March 31, 2018, to conform to the presentation for the three months ended March 31, 2019. The new standard also requires the Company to reduce leasing revenue for credit losses associated with lease receivables. In addition, straight-line rent receivables are written off when the Company believes there is uncertainty regarding a tenant's ability to complete the term of the lease. As a result, the Company recognized a cumulative effect adjustment of $2,203 upon adoption for the write off of straight-line rent receivables of tenants

10

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

that were in litigation or bankruptcy.
The standard requires lessees to classify its leases as either finance or operating leases. The lessee records a right-of-use ("ROU") asset and a lease liability for all leases with a term of greater than twelve months, regardless of their lease classification. Upon adoption, the Company recognized initial ROU assets and corresponding lease liabilities of $109,299, representing the discounted value of future lease payments required for leases classified as operating leases. In addition, the Company reclassified $59,736 from deferred charges and other assets, net, $5,978 from accounts payable and accrued expenses and $4,342 from other accrued liabilities, relating to existing intangible assets and straight-line rent liabilities. The Company's lease liabilities were increased at adoption by $15,268 for lease liabilities associated with finance leases that were previously included in other accrued liabilities. See Note 8Leases for further disclosure on the Company's adoption of the new standard.
Other Recent Accounting Pronouncements:
In August 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities,” which aims to (i) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities and (ii) reduce the complexity of and simplify the application of hedge accounting by preparers. The Company's adoption of the standard on January 1, 2019 did not have an impact on its consolidated financial statements.
3. Earnings Per Share ("EPS"):
The following table reconciles the numerator and denominator used in the computation of EPS for the three months ended March 31, 2019 and 2018 (shares in thousands):
 
 
For the Three Months Ended March 31,
 
 
2019
 
2018
Numerator
 
 
 
 
Net income (loss)
 
$
8,843

 
$
(34,381
)
Less net income (loss) attributable to noncontrolling interests
 
1,019

 
(808
)
Net income (loss) attributable to the Company
 
7,824

 
(33,573
)
Allocation of earnings to participating securities
 
(281
)
 
(244
)
Numerator for basic and diluted EPS—net income attributable to common stockholders
 
$
7,543

 
$
(33,817
)
Denominator
 
 
 
 
Denominator for basic EPS—weighted average number of common shares outstanding
 
141,262

 
141,024

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

 
26

Denominator for diluted EPS—weighted average number of common shares outstanding
 
141,262

 
141,050

EPS—net income (loss) attributable to common stockholders:
 
 
 
 
Basic
 
$
0.05

 
$
(0.24
)
Diluted
 
$
0.05

 
$
(0.24
)
 
 
 
(1)
Diluted EPS excludes 90,619 convertible preferred partnership units for the three months ended March 31, 2019 and 2018, as their impact was antidilutive. Diluted EPS excludes 10,415,190 and 10,291,217 Operating Partnership units ("OP Units") for the three months ended March 31, 2019 and 2018, respectively, as their impact was antidilutive.

11

Table of Contents
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)

4. Investments in Unconsolidated Joint Ventures:
The Company has made the following recent investments and dispositions in its unconsolidated joint ventures:
On February 16, 2018, the Company's joint venture in Fashion District Philadelphia sold its ownership interest in an office building for $41,800, resulting in a gain on sale of assets of $5,545. The Company's pro rata share of the gain on the sale of assets of $2,773 was included in equity in income from unconsolidated joint ventures. The Company used its share of the proceeds to pay down its line of credit and for general corporate purposes.
On March 1, 2018, the Company formed a 25/75 joint venture with Hudson Pacific Properties, whereby the Company agreed to contribute Westside Pavilion (also referred to as One Westside), a 680,000 square foot regional shopping center in Los Angeles, California in exchange for $142,500. From March 1, 2018 to August 31, 2018, the Company accounted for its interest in the property as a collaborative arrangement (See Note 15Collaborative Arrangement). On August 31, 2018, the Company completed the sale of the 75% ownership interest in the property to Hudson Pacific Properties, resulting in a gain on sale of assets of $46,242. The sales price was funded by a cash payment of $36,903 and the assumption of a pro rata share of the mortgage note payable on the property of $105,597. Concurrent with the sale of the ownership interest, the joint venture defeased the loan on the property by providing a $149,175 portfolio of marketable securities as replacement collateral in lieu of the property. The Company funded its $37,294 share of the purchase price of the marketable securities portfolio with the proceeds from the sale of the ownership interest in the property. Upon completion of the sale of the ownership interest in the property, the Company has accounted for its remaining ownership interest in the property under the equity method of accounting.
On July 6, 2018, the Company’s joint venture in The Market at Estrella Falls, a 298,000 square foot community center in Goodyear, Arizona, sold the property for $49,100, resulting in a gain on sale of assets of $12,598. The Company's share of the gain of $2,996 was included in equity in income from unconsolidated joint ventures. The proceeds were used to pay off the $24,118 mortgage loan payable on the property, settle development obligations and for distributions to the partners. The Company used its share of the net proceeds for general corporate purposes.
On September 6, 2018, the Company formed a 50/50 joint venture with Simon Property Group to develop Los Angeles Premium Outlets, a premium outlet center in Carson, California that is planned to open with approximately 400,000 square feet, followed by an additional 165,000 square feet in the second phase. The joint venture expects to complete the first phase of the development in Fall 2021.

12

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

Combined and condensed balance sheets and statements of operations are presented below for all unconsolidated joint ventures.
Combined and Condensed Balance Sheets of Unconsolidated Joint Ventures:
 
March 31,
2019
 
December 31,
2018
Assets(1):
 
 
 
Property, net
$
9,267,357

 
$
9,241,003

Other assets
777,348

 
703,861

Total assets
$
10,044,705

 
$
9,944,864

Liabilities and partners' capital(1):
 
 
 
Mortgage and other notes payable
$
6,053,545

 
$
6,050,930

Other liabilities
424,462

 
388,509

Company's capital
1,938,931

 
1,913,475

Outside partners' capital
1,627,767

 
1,591,950

Total liabilities and partners' capital
$
10,044,705

 
$
9,944,864

Investments in unconsolidated joint ventures:
 
 
 
Company's capital
$
1,938,931

 
$
1,913,475

Basis adjustment(2)
(527,485
)
 
(535,808
)
 
$
1,411,446

 
$
1,377,667

 
 
 
 
Assets—Investments in unconsolidated joint ventures
$
1,528,080

 
$
1,492,655

Liabilities—Distributions in excess of investments in unconsolidated joint ventures
(116,634
)
 
(114,988
)
 
$
1,411,446

 
$
1,377,667

 
 
 
(1)
These amounts include the assets of $3,023,148 and $3,047,851 of Pacific Premier Retail LLC (the "PPR Portfolio") as of March 31, 2019 and December 31, 2018, respectively, and liabilities of $1,852,923 and $1,859,637 of the PPR Portfolio as of March 31, 2019 and December 31, 2018, respectively.
(2)
The Company amortizes the difference between the cost of its investments in unconsolidated joint ventures and the book value of the underlying equity into income on a straight-line basis consistent with the lives of the underlying assets. The amortization of this difference was $4,539 and $4,103 for the three months ended March 31, 2019 and 2018, respectively.

13

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

Combined and Condensed Statements of Operations of Unconsolidated Joint Ventures:

 
PPR Portfolio
 
Other
Joint
Ventures
 
Total
Three Months Ended March 31, 2019
 
 
 
 
 
Revenues:
 
 
 
 
 
Leasing revenue
$
46,020

 
$
173,524

 
$
219,544

Other
182

 
12,064

 
12,246

Total revenues
46,202

 
185,588

 
231,790

Expenses:
 
 
 
 
 
Shopping center and operating expenses
9,672

 
59,650

 
69,322

Leasing expenses
467

 
1,707

 
2,174

Interest expense
16,951

 
36,911

 
53,862

Depreciation and amortization
25,514

 
64,467

 
89,981

Total operating expenses
52,604

 
162,735

 
215,339

Loss on sale or write down of assets, net
(6
)
 
(135
)
 
(141
)
Net (loss) income
$
(6,408
)
 
$
22,718

 
$
16,310

Company's equity in net (loss) income
$
(1,199
)
 
$
13,442

 
$
12,243

Three Months Ended March 31, 2018
 
 
 
 
 
Revenues:
 
 
 
 
 
Leasing revenue
$
45,420

 
$
180,443

 
$
225,863

Other
168

 
8,271

 
8,439

Total revenues
45,588

 
188,714

 
234,302

Expenses:
 
 
 
 
 
Shopping center and operating expenses
9,681

 
61,321

 
71,002

Interest expense(1)
16,726

 
33,032

 
49,758

Depreciation and amortization
24,484

 
62,412

 
86,896

Total operating expenses
50,891

 
156,765

 
207,656

Gain on sale or write down of assets, net

 
970

 
970

Net (loss) income
$
(5,303
)
 
$
32,919

 
$
27,616

Company's equity in net (loss) income
$
(616
)
 
$
17,488

 
$
16,872

(1)
Interest expense includes $4,958 related to a mortgage notes payable to an affiliate of Northwestern Mutual Life ("NML") (See Note 18Related Party Transactions).
Significant accounting policies used by the unconsolidated joint ventures are similar to those used by the Company.

14

Table of Contents
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)

5. Derivative Instruments and Hedging Activities:
The Company uses interest rate cap and interest rate swap agreements to manage the interest rate risk of its floating rate debt. The Company recorded other comprehensive loss related to the marking-to-market of derivative instruments of $(2,045) and $61 for the three months ended March 31, 2019 and 2018, respectively.
        The following derivatives were outstanding at March 31, 2019:
 
 
 
 
 
 
 
 
 
 
Fair Value
Property
 
Notional Amount
 
Product
 
LIBOR Rate
 
Maturity
 
3/31/2019
 
12/31/2018
Santa Monica Place
 
$
300,000

 
Cap
 
4.00
%
 
12/9/2019
 
$

 
$
(53
)
The Macerich Partnership, L.P.
 
$
400,000

 
Swaps
 
2.85
%
 
9/30/2021
 
$
(6,511
)
 
$
(4,413
)
        The above derivative instruments were designated as hedging instruments with an aggregate fair value (Level 2 measurement) and were included in deferred charges and other accrued liabilities. The fair value of the Company's interest rate derivatives was determined using discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty's nonperformance risk in the fair value measurements.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparties. The Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its interest rate swap. As a result, the Company determined that its interest rate cap and swap valuations in their entirety are classified in Level 2 of the fair value hierarchy.
6. Property, net:
Property, net consists of the following:
 
March 31,
2019
 
December 31,
2018
Land
$
1,506,232

 
$
1,506,678

Buildings and improvements
6,292,157

 
6,288,308

Tenant improvements
682,655

 
678,110

Equipment and furnishings(1)
210,709

 
206,398

Construction in progress
200,893

 
199,326

 
8,892,646

 
8,878,820

Less accumulated depreciation(1)
(2,155,448
)
 
(2,093,044
)
 
$
6,737,198

 
$
6,785,776

(1)
Equipment and furnishings and accumulated depreciation include the cost and accumulated amortization of ROU assets in connection with finance leases at March 31, 2019 (See Note 8Leases).
Depreciation expense was $70,717 and $67,944 for the three months ended March 31, 2019 and 2018, respectively.

15

Table of Contents
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)
6. Property, net: (Continued)


The loss on sale or write down of assets, net was $6,316 and $37,512 for the three months ended March 31, 2019 and 2018, respectively. The loss on sale or write down of assets, net for the three months ended March 31, 2019 consists of a write down of development costs of $6,850 offset in part by a gain of $534 on the sale of land. The loss on sale or write down of assets, net for the three months ended March 31, 2018 includes impairment losses of $36,338 on SouthPark Mall and $1,043 on Promenade at Casa Grande. The impairment losses were due to the reduction of the estimated holding periods of the properties.
The following table summarizes certain of the Company's assets that were measured on a nonrecurring basis as a result of impairment losses recorded for the three months ended March 31, 2018, as described above:
 
 
Total Fair Value Measurement
 
Quoted Prices in Active Markets for Identical Assets
 
Significant Other Unobservable Inputs
 
Significant Unobservable Inputs
 
 
(Level 1)
 
(Level 2)
 
(Level 3)
March 31, 2018
 
$
49,000

 
$

 
$
49,000

 
$

The fair values relating to the impairments were based on sales contracts.
7. Tenant and Other Receivables, net:
Included in tenant and other receivables, net is an allowance for doubtful accounts of $4,319 and $2,919 at March 31, 2019 and December 31, 2018, respectively. Also included in tenant and other receivables, net are accrued percentage rents of $1,280 and $8,949 at March 31, 2019 and December 31, 2018, respectively, and a deferred rent receivable due to straight-line rent adjustments of $74,041 and $72,456 at March 31, 2019 and December 31, 2018, respectively.
8. Leases:
Lessor Leases:
The Company leases its Centers under agreements that are classified as operating leases. These leases generally include minimum rents, percentage rents and recoveries of real estate taxes, insurance and other shopping center operating expenses. Minimum rental revenues are recognized on a straight-line basis over the terms of the related leases. Percentage rents are recognized and accrued when 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 are recognized as revenues on a straight-line basis over the term of the related leases.
The following table summarizes the components of leasing revenue for the three months ended March 31, 2019:
Leasing revenue - fixed payments
$
164,061

Leasing revenue - variable payments
46,947

Leasing revenue
$
211,008



16

Table of Contents
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)
8. Leases: (Continued)


The following table summarizes the minimum rental payments to the Company:
Year ending March 31,
 
 
2020
 
$
502,144

2021
 
427,470

2022
 
369,955

2023
 
319,094

2024
 
273,412

Thereafter
 
769,564

 
 
$
2,661,639


Lessee Leases:
The Company has certain properties that are subject to non-cancelable operating leases. The leases expire at various times through 2098, subject in some cases to options to extend the terms of the lease. Certain leases provide for contingent rent payments based on a percentage of base rental income, as defined in the lease. In addition, the Company has three finance leases that expire at various times through 2022.
The following table summarizes the lease costs for the three months ended March 31, 2019:
Operating lease costs
 
$
4,347

Finance lease costs:
 
 
   Amortization of ROU assets
 
919

   Interest on lease liabilities
 
154

   Total lease costs
 
$
5,420


Future minimum rental payments required under the leases are as follows:
 
 
March 31, 2019
 
December 31, 2018
Year ending
 
Operating Leases
 
Finance Leases
 
Operating Leases
 
Finance Leases
2019
 
$
12,635

 
$
1,699

 
$
16,627

 
$
2,106

2020
 
17,144

 
2,106

 
17,183

 
2,106

2021
 
16,992

 
10,440

 
17,124

 
10,440

2022
 
16,855

 
2,418

 
17,450

 
2,418

2023
 
11,043

 

 
11,390

 

Thereafter
 
140,403

 

 
140,562

 

Total undiscounted rental payments
 
215,072

 
16,663

 
$
220,336

 
$
17,070

Less imputed interest
 
(107,957
)
 
(1,673
)
 
 
 
 
Total lease liabilities
 
$
107,115

 
$
14,990

 


 



The Company's weighted average remaining lease term for its operating and finance leases at March 31, 2019 was 30.8 years and 2.4 years, respectively. The Company's weighted average incremental borrowing rate of its operating and finance leases at March 31, 2019 was 7.7% and 4.2%, respectively.

17

Table of Contents
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)

9. Deferred Charges and Other Assets, net:
Deferred charges and other assets, net consist of the following:
 
March 31,
2019
 
December 31,
2018
Leasing
$
203,533

 
$
226,885

Intangible assets:
 
 
 
In-place lease values
87,776

 
94,966

Leasing commissions and legal costs
22,301

 
23,508

Above-market leases
65,195

 
140,889

Deferred tax assets
31,851

 
32,197

Deferred compensation plan assets
50,244

 
45,857

Other assets
59,295

 
75,497

 
520,195

 
639,799

Less accumulated amortization(1)
(212,528
)
 
(249,396
)
 
$
307,667

 
$
390,403

 
 
 
(1)
Accumulated amortization includes $67,094 and $72,286 relating to in-place lease values, leasing commissions and legal costs at March 31, 2019 and December 31, 2018, respectively. Amortization expense of in-place lease values, leasing commissions and legal costs was $3,205 and $3,835 for the three months ended March 31, 2019 and 2018, respectively.
The allocated values of above-market leases and below-market leases consist of the following:
 
March 31,
2019
 
December 31,
2018
Above-Market Leases
 
 
 
Original allocated value
$
65,195

 
$
140,889

Less accumulated amortization
(35,404
)
 
(49,847
)
 
$
29,791

 
$
91,042

Below-Market Leases(1)
 
 
 
Original allocated value
$
102,621

 
$
108,330

Less accumulated amortization
(55,296
)
 
(56,345
)
 
$
47,325

 
$
51,985

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

18

Table of Contents
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)

10. Mortgage Notes Payable:
Mortgage notes payable at March 31, 2019 and December 31, 2018 consist of the following:
 
 
Carrying Amount of Mortgage Notes(1)
 
 
 
 
 
 
Property Pledged as Collateral
 
March 31, 2019
 
December 31, 2018
 
Effective Interest
Rate(2)
 
Monthly
Debt
Service(3)
 
Maturity
Date(4)
Chandler Fashion Center(5)
 
$
199,989

 
$
199,972

 
3.77
%
 
$
625

 
2019
Danbury Fair Mall
 
200,336

 
202,158

 
5.53
%
 
1,538

 
2020
Fashion Outlets of Chicago(6)
 
299,055

 
199,622

 
4.61
%
 
1,145

 
2031
Fashion Outlets of Niagara Falls USA
 
108,829

 
109,651

 
4.89
%
 
727

 
2020
Freehold Raceway Mall(5)
 
398,254

 
398,212

 
3.94
%
 
1,300

 
2029
Fresno Fashion Fair
 
323,509

 
323,460

 
3.67
%
 
971

 
2026
Green Acres Commons(7)
 
128,236

 
128,006

 
5.20
%
 
503

 
2021
Green Acres Mall
 
282,941

 
284,686

 
3.61
%
 
1,447

 
2021
Kings Plaza Shopping Center
 
434,479

 
437,120

 
3.67
%
 
2,229

 
2019
Oaks, The
 
190,832

 
192,037

 
4.14
%
 
1,064

 
2022
Pacific View
 
120,583

 
121,362

 
4.08
%
 
668

 
2022
Queens Center
 
600,000

 
600,000

 
3.49
%
 
1,744

 
2025
Santa Monica Place(8)
 
297,256

 
297,069

 
4.08
%
 
958

 
2022
SanTan Village Regional Center(9)
 
120,776

 
121,585

 
3.14
%
 
589

 
2019
Towne Mall
 
20,619

 
20,733

 
4.48
%
 
117

 
2022
Tucson La Encantada
 
64,947

 
65,361

 
4.23
%
 
368

 
2022
Victor Valley, Mall of
 
114,690

 
114,675

 
4.00
%
 
380

 
2024
Vintage Faire Mall
 
256,741

 
258,207

 
3.55
%
 
1,256

 
2026
 
 
$
4,162,072

 
$
4,073,916

 
 

 
 

 
 

(1)
The mortgage notes payable balances includes an unamortized debt premium. Debt premiums represent the excess of the fair value of debt over the principal value of debt assumed in various acquisitions and are amortized into interest expense over the remaining term of the related debt in a manner that approximates the effective interest method. The loan on Fashion Outlets of Niagara Falls USA had a premium of $1,469 and $1,701 at March 31, 2019 and December 31, 2018, respectively.
The mortgage notes payable also include unamortized deferred finance costs that are amortized into interest expense over the remaining term of the related debt in a manner that approximates the effective interest method. Unamortized deferred finance costs were $12,524 and $13,053 at March 31, 2019 and December 31, 2018, respectively.
(2)
The interest rate disclosed represents the effective interest rate, including the impact of debt premium and deferred finance costs.
(3)
The monthly debt service represents the payment of principal and interest.
(4)
The maturity date assumes that all extension options are fully exercised and that the Company does not opt to refinance the debt prior to these dates. These extension options are at the Company's discretion, subject to certain conditions, which the Company believes will be met.
(5)
A 49.9% interest in the loan has been assumed by a third party in connection with the Company's joint venture in Chandler Freehold (See Note 12Financing Arrangement).
(6)
On January 10, 2019, the Company replaced the existing loan on the property with a new $300,000 loan that bears interest at an effective rate of 4.61% and matures on February 1, 2031.
(7)
The loan bears interest at LIBOR plus 2.15%. At March 31, 2019 and December 31, 2018, the total interest rate was 5.20% and 5.06%, respectively.
(8)
The loan bears interest at LIBOR plus 1.35%. The loan is covered by an interest rate cap agreement that effectively prevents LIBOR from exceeding 4.0% during the period ending December 9, 2019 (See Note 5Derivative Instruments and Hedging Activities). At March 31, 2019 and December 31, 2018, the total interest rate was 4.08% and 4.01%, respectively.

19

Table of Contents
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)
10. Mortgage Notes Payable: (Continued)

(9)
On February 13, 2019, the Company’s joint venture in SanTan Village Regional Center entered into a commitment for a ten-year $220,000 loan to replace the existing loan on the property. The new loan will bear interest at a fixed rate of 4.30% and is expected to close during the second quarter of 2019.
Most of the mortgage loan agreements contain a prepayment penalty provision for the early extinguishment of the debt.
The Company's mortgage notes payable are secured by the properties on which they are placed and with the exception of $65,000 of the loan on Green Acres Commons, are non-recourse to the Company.
The Company expects that all loan maturities during the next twelve months will be refinanced, restructured, extended and/or paid-off from the Company's line of credit or with cash on hand.
Total interest expense capitalized was $2,710 and $4,331 for the three months ended March 31, 2019 and 2018, respectively.
The estimated fair value (Level 2 measurement) of mortgage notes payable at March 31, 2019 and December 31, 2018 was $4,209,689 and $4,082,448, respectively, based on current interest rates for comparable loans. Fair value was determined using a present value model and an interest rate that included a credit value adjustment based on the estimated value of the property that serves as collateral for the underlying debt.
11. Bank and Other Notes Payable:
Bank and other notes payable consist of the following:
Line of Credit:
The Company has a $1,500,000 revolving line of credit that bears interest at LIBOR plus a spread of 1.30% to 1.90%, depending on the Company's overall leverage level, and matures on July 6, 2020 with a one-year extension option. The line of credit can be expanded, depending on certain conditions, up to a total facility of $2,000,000.
Based on the Company's leverage level as of March 31, 2019, the borrowing rate on the facility was LIBOR plus 1.45%. The Company has four interest rate swap agreements that effectively convert a total of $400,000 of the outstanding balance from floating rate debt of LIBOR plus 1.45% to fixed rate debt of 4.30% until September 30, 2021 (See Note 5Derivative Instruments and Hedging Activities). As of March 31, 2019 and December 31, 2018, borrowings under the line of credit were $850,000 and $910,000, respectively, less unamortized deferred finance costs of $4,523 and $5,145, respectively, at a total interest rate of 4.20%. As of March 31, 2019 and December 31, 2018, the Company's availability under the line of credit for additional borrowings was $649,719 and $589,719, respectively, The estimated fair value (Level 2 measurement) of the line of credit at March 31, 2019 and December 31, 2018 was $855,862 and $912,163, respectively, based on a present value model using a credit interest rate spread offered to the Company for comparable debt.
Prasada Note:
On March 29, 2013, the Company issued a $13,330 note payable that bears interest at 5.25% and matures on May 30, 2021. The note payable is collateralized by a portion of a development reimbursement agreement with the City of Surprise, Arizona. At March 31, 2019 and December 31, 2018, the note had a balance of $3,471 and $3,689, respectively. The estimated fair value (Level 2 measurement) of the note at March 31, 2019 and December 31, 2018 was $3,487 and $3,690, respectively, based on current interest rates for comparable notes. Fair value was determined using a present value model and an interest rate that included a credit value adjustment based on the estimated value of the collateral for the underlying debt.
As of March 31, 2019 and December 31, 2018, the Company was in compliance with all applicable financial loan covenants.

20

Table of Contents
THE MACERICH COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share and square foot amounts)
(Unaudited)

12. Financing Arrangement:
On September 30, 2009, the Company formed a joint venture, whereby a third party acquired a 49.9% interest in Chandler Fashion Center, a 1,318,000 square foot regional shopping center in Chandler, Arizona, and Freehold Raceway Mall, a 1,672,000 square foot regional shopping center in Freehold, New Jersey, referred to herein as Chandler Freehold. As a result of the Company having certain rights under the agreement to repurchase the assets after the seventh year of the formation of Chandler Freehold, the transaction did not qualify for sale treatment. The Company, however, is not obligated to repurchase the assets. The Company accounts for its investment in Chandler Freehold as a financing arrangement. The fair value (Level 3 measurement) of the financing arrangement obligation at March 31, 2019 and December 31, 2018 was based upon a multiple on net operating income of 21 times, a discount rate of 5.8% and market rents per square foot of $30 to $100. The fair value of the financing arrangement obligation is sensitive to these significant unobservable inputs and a change in these inputs may result in a significantly higher or lower fair value measurement. Distributions to the partner and changes in fair value of the financing arrangement obligation are recognized as interest (income) expense in the Company's consolidated statements of operations.
During the three months ended March 31, 2019 and 2018, the Company incurred interest (income) expense in connection with the financing arrangement as follows:
 
 
For the Three Months Ended March 31,
 
 
2019
 
2018
Distributions of the partner's share of net income
 
$
1,897

 
$
2,002

Distributions in excess of the partner's share of net income
 
1,921

 
1,638

Adjustment to fair value of financing arrangement obligation
 
(14,265
)
 
4,382

 
 
$
(10,447
)
 
$
8,022

13. Noncontrolling Interests:
The Company allocates net income of the Operating Partnership based on the weighted average ownership interest during the period. The net income of the Operating Partnership that is not attributable to the Company is reflected in the consolidated statements of operations as noncontrolling interests. The Company adjusts the noncontrolling interests in the Operating Partnership at the end of each period to reflect its ownership interest in the Company. The Company had a 93% ownership interest in the Operating Partnership as of March 31, 2019 and December 31, 2018. The remaining 7% limited partnership interest as of March 31, 2019 and December 31, 2018 was owned by certain of the Company's executive officers and directors, certain of their affiliates and other third party investors in the form of OP Units. The OP Units may be redeemed for shares of stock or cash, at the Company's option. The redemption value for each OP Unit as of any balance sheet date is the amount equal to the average of the closing price per share of the Company's common stock, par value $0.01 per share, as reported on the New York Stock Exchange for the 10 trading days ending on the respective balance sheet date. Accordingly, as of March 31, 2019 and December 31, 2018, the aggregate redemption value of the then-outstanding OP Units not owned by the Company was $451,189 and $448,116, respectively.
The Company issued common and preferred units of MACWH, LP in April 2005 in connection with the acquisition of the Wilmorite portfolio. The common and preferred units of MACWH, LP are redeemable at the election of the holder. The Company may redeem them for cash or shares of the Company's stock at the Company's option and they are classified as permanent equity.
Included in permanent equity are outside ownership interests in various consolidated joint ventures. The joint ventures do not have rights that require the Company to redeem the ownership interests in either cash or stock.

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

14. Stockholders' Equity:
On February 12, 2017, the Company's Board of Directors authorized the repurchase of up to $500,000 of its outstanding common shares as market conditions and the Company’s liquidity warrant. Repurchases may be made through open market purchases, privately negotiated transactions, structured or derivative transactions, including ASR transactions, or other methods of acquiring shares, from time to time as permitted by securities laws and other legal requirements. The program is referred to herein as the "2017 Stock Buyback Program".
There were no repurchases under the 2017 Stock Buyback Program during the three months ended March 31, 2019 or 2018. At March 31, 2019, there was $278,707 available under the 2017 Stock Buyback Program.
15. Collaborative Arrangement:
On March 1, 2018, the Company formed a 25/75 joint venture with a third party, whereby the Company agreed to contribute One Westside, a 680,000 square foot regional shopping center in Los Angeles, California in exchange for $142,500. The Company completed the transfer on August 31, 2018.
During the period from March 1, 2018 to August 31, 2018, the Company accounted for the operations of One Westside as a collaborative arrangement. Both partners shared operating control of the property and the Company was reimbursed by the outside partner for 75% of the carrying cost of the property, which were defined in the agreement as operating expenses in excess of revenues, debt service and capital expenditures. Accordingly, the Company reduced leasing revenue, other revenue, shopping center and operating expenses and interest expense by its partner's 75% share and recorded a receivable due from its partner, which was settled upon completion of the transfer of the property. In addition, the Company was reimbursed by its partner for its 75% share of mortgage loan principal payments and capital expenditures during the period. Since completion of the transfer, the Company has accounted for its investment in One Westside under the equity method of accounting (See Note 4Investments in Unconsolidated Joint Ventures).
16. Dispositions:
On May 17, 2018, the Company sold Promenade at Casa Grande, a 761,000 square foot community center in Casa Grande, Arizona, for $26,000, resulting in a loss on sale of assets of $311. The Company used the proceeds from the sale to pay down its line of credit and for other general corporate purposes.
17. Commitments and Contingencies:
As of March 31, 2019, the Company was contingently liable for $65,814 in letters of credit guaranteeing performance by the Company of certain obligations relating to the Centers. The Company does not believe that these letters of credit will result in a liability to the Company.
The Company has entered into a number of construction agreements related to its redevelopment and development activities. Obligations under these agreements are contingent upon the completion of the services within the guidelines specified in the agreements. At March 31, 2019, the Company had $13,068 in outstanding obligations which it believes will be settled in the next twelve months.

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

18. Related Party Transactions:
Certain unconsolidated joint ventures have engaged the Management Companies to manage the operations of the Centers. Under these arrangements, the Management Companies are reimbursed for compensation paid to on-site employees, leasing agents and project managers at the Centers, as well as insurance costs and other administrative expenses.
The following are fees charged to unconsolidated joint ventures:
 
 
For the Three Months Ended March 31,
 
 
2019
 
2018
Management fees
 
$
4,481

 
$
4,679

Development and leasing fees
 
3,496

 
3,604

 
 
$
7,977

 
$
8,283

Certain mortgage notes on the properties are held by NML. NML was considered a related party due its ownership interest in Broadway Plaza until it sold its ownership interest in the property to a third party on October 12, 2018. Interest expense in connection with these notes, during the period NML that was a related party, was $2,147 for the three months ended March 31, 2018.
Interest (income) expense from related party transactions also includes $(10,447) and $8,022 for the three months ended March 31, 2019 and 2018, respectively, in connection with the Financing Arrangement (See Note 12Financing Arrangement).
Due from affiliates includes unreimbursed costs and fees from unconsolidated joint ventures due to the Management Companies. As of March 31, 2019 and December 31, 2018, the amounts due from the unconsolidated joint ventures was $11,432 and $6,385, respectively.
In addition, due from affiliates at March 31, 2019 and December 31, 2018 included a note receivable from RED/303 LLC ("RED") that bears interest at 5.25% and matures on May 30, 2021. Interest income earned on this note was $48 and $60 for the three months ended March 31, 2019 and 2018, respectively. The balance on this note was $3,471 and $3,689 at March 31, 2019 and December 31, 2018, respectively. RED is considered a related party because it is a partner in a joint venture development project. The note is collateralized by RED's membership interest in the development project.
Also included in due from affiliates at December 31, 2018 was a note receivable from Lennar Corporation that bore interest at LIBOR plus 2% and was to mature upon the completion of certain milestones in connection with the development of Fashion Outlets of San Francisco. As a result of those milestones not being completed, the Company elected to terminate the development agreement and the note was paid off on February 13, 2019. Interest income earned on this note was $1,112 and $749 for the three months ended March 31, 2019 and 2018, respectively. The balance on this note, including interest, was $75,107 at December 31, 2018. Lennar Corporation was considered a related party because it was a joint venture partner in the project.
19. Share and Unit-Based Plans:
Under the Long-Term Incentive Plan ("LTIP"), each award recipient is issued a form of units ("LTIP Units") in the Operating Partnership. Upon the occurrence of specified events and subject to the satisfaction of applicable vesting conditions, LTIP Units (after conversion into OP Units) are ultimately redeemable for common stock of the Company, or cash at the Company's option, on a one-unit for one-share basis. LTIP Units receive cash dividends based on the dividend amount paid on the common stock of the Company. The LTIP may include both market-indexed awards and service-based awards.

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

The market-indexed LTIP Units vest over the service period of the award based on the percentile ranking of the Company in terms of total return to stockholders (the "Total Return") per share of common stock relative to the Total Return of a group of peer REITs, as measured at the end of the measurement period.
During the three months ended March 31, 2019, the Company granted the following LTIP Units:
Grant Date
 
Units
 
Type
 
Fair Value per LTIP Unit
 
Vest Date
1/1/2019
 
81,732

 
Service-based
 
$
43.28

 
12/31/2021
1/1/2019
 
250,852

 
Market-indexed
 
$
29.25

 
12/31/2021
 
 
332,584

 
 
 
 
 
 
The fair value of the market-indexed LTIP Units (Level 3) granted on January 1, 2019 was estimated on the date of grant using a Monte Carlo Simulation model that assumed a risk free interest rate of 2.46% and an expected volatility of 23.52%.
The following table summarizes the activity of the non-vested LTIP Units, phantom stock units and stock units:
 
LTIP Units
 
Phantom Stock Units
 
Stock Units
 
Units
 
Value(1)
 
Units
 
Value(1)
 
Units
 
Value(1)
Balance at January 1, 2019
661,578

 
$
48.38

 

 
$

 
129,457

 
$
64.21

Granted
332,584

 
32.70

 
18,315

 
43.13

 
89,505

 
42.00

Vested
(7,654
)
 
59.85

 
(3,934
)
 
45.55

 
(80,954
)
 
64.53

Forfeited
(14,635
)
 
34.26

 

 

 

 

Balance at March 31, 2019
971,873

 
$
43.13

 
14,381

 
$
42.46

 
138,008

 
$
49.62

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Value represents the weighted average grant date fair value.
        
The following table summarizes the activity of the stock options outstanding:
 
 
Stock Options
 
 
Units
 
Value(1)
Balance at January 1, 2019
 
35,565

 
$
57.32

Granted
 

 

Exercised
 

 

Balance at March 31, 2019
 
35,565

 
$
57.32

 
 
 
 
 
 
 
 
 
 
(1) Value represents the weighted average exercise price.

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

The following summarizes the compensation cost under the share and unit-based plans:
 
 
For the Three Months Ended March 31,
 
 
2019
 
2018
LTIP Units
 
$
3,714

 
$
10,108

Stock units
 
2,660

 
3,230

Stock options
 
51

 
31

Phantom stock units
 
240

 
243

 
 
$
6,665

 
$
13,612


The Company capitalized share and unit-based compensation costs of $1,146 and $2,609 for the three months ended March 31, 2019 and 2018, respectively. Unrecognized compensation costs of share and unit-based plans at March 31, 2019 consisted of $9,050 from LTIP Units, $2,921 from stock units and $611 from phantom stock units.
20. Income Taxes:
The Company has made taxable REIT subsidiary elections for all of its corporate subsidiaries other than its qualified REIT subsidiaries. The elections, effective for the year beginning January 1, 2001 and future years, were made pursuant to Section 856(l) of the Code. The Company's taxable REIT subsidiaries ("TRSs") are subject to corporate level income taxes which are provided for in the Company's consolidated financial statements. The Company's primary TRSs include Macerich Management Company and Macerich Arizona Partners LLC.
The income tax provision of the TRSs are as follows:
 
 
For the Three Months Ended March 31,
 
 
2019
 
2018
Current
 
$

 
$
439

Deferred
 
(346
)
 
2,510

   Total income tax (expense) benefit
 
$
(346
)
 
$
2,949

The net operating loss ("NOL") carryforwards generated through the 2017 tax year are scheduled to expire through 2037, beginning in 2025. Pursuant to the Tax Cuts and Jobs Act of 2017, NOLs generated in 2018 and subsequent tax years, carryforward indefinitely subject to the 80% of taxable income limitation. Net deferred tax assets of $31,851 and $32,197 were included in deferred charges and other assets, net at March 31, 2019 and December 31, 2018, respectively.
The tax years 2015 through 2018 remain open to examination by the taxing jurisdictions to which the Company is subject. The Company does not expect that the total amount of unrecognized tax benefit will materially change within the next twelve months.
21. Subsequent Events:
On April 25, 2019, the Company announced a dividend/distribution of $0.75 per share for common stockholders and OP Unit holders of record on May 8, 2019. All dividends/distributions will be paid 100% in cash on June 3, 2019.

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Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
IMPORTANT INFORMATION RELATED TO FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q of The Macerich Company (the "Company") contains or incorporates statements that constitute forward-looking statements within the meaning of the federal securities laws. Any statements that do not relate to historical or current facts or matters are forward-looking statements. You can identify some of the forward-looking statements by the use of forward-looking words, such as "may," "will," "could," "should," "expects," "anticipates," "intends," "projects," "predicts," "plans," "believes," "seeks," "estimates," "scheduled" and variations of these words and similar expressions. Statements concerning current conditions may also be forward-looking if they imply a continuation of current conditions. Forward-looking statements appear in a number of places in this Form 10-Q and include statements regarding, among other matters:
expectations regarding the Company's growth;
the Company's beliefs regarding its acquisition, redevelopment, development, leasing and operational activities and opportunities, including the performance of its retailers;
the Company's acquisition, disposition and other strategies;
regulatory matters pertaining to compliance with governmental regulations;
the Company's capital expenditure plans and expectations for obtaining capital for expenditures;
the Company's expectations regarding income tax benefits;
the Company's expectations regarding its financial condition or results of operations; and
the Company's expectations for refinancing its indebtedness, entering into and servicing debt obligations and entering into joint venture arrangements.
Stockholders are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company or the industry to differ materially from the Company's future results, performance or achievements, or those of the industry, expressed or implied in such forward-looking statements. Such factors include, among others, general industry, as well as national, regional and local economic and business conditions, which will, among other things, affect demand for retail space or retail goods, availability and creditworthiness of current and prospective tenants, anchor or tenant bankruptcies, closures, mergers or consolidations, lease rates, terms and payments, interest rate fluctuations, availability, terms and cost of financing and operating expenses; adverse changes in the real estate markets including, among other things, competition from other companies, retail formats and technology, risks of real estate development and redevelopment, acquisitions and dispositions; the liquidity of real estate investments, governmental actions and initiatives (including legislative and regulatory changes); environmental and safety requirements; and terrorist activities or other acts of violence which could adversely affect all of the above factors. You are urged to carefully review the disclosures we make concerning these risks and other factors that may affect our business and operating results, under "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2018, as well as our other reports filed with the Securities and Exchange Commission (the "SEC"), which disclosures are incorporated herein by reference. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document. The Company does not intend, and undertakes no obligation, to update any forward-looking information to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, unless required by law to do so.
Management's Overview and Summary
The Company is involved in the acquisition, ownership, development, redevelopment, management and leasing of regional and community/power shopping centers located throughout the United States. The Company is the sole general partner of, and owns a majority of the ownership interests in, The Macerich Partnership, L.P. (the "Operating Partnership"). As of March 31, 2019, the Operating Partnership owned or had an ownership interest in 47 regional shopping centers and five community/power shopping centers aggregating approximately 51 million square feet of gross leasable area. These 52 regional and community/power shopping centers are referred to hereinafter as the "Centers," unless the context otherwise requires. The Company is a self-administered and self-managed real estate investment trust ("REIT") and conducts all of its operations through the Operating Partnership and the Management Companies.
The following discussion is based primarily on the consolidated financial statements of the Company for the three months ended March 31, 2019 and 2018. It compares the results of operations and cash flows for the three months ended March 31, 2019 to the results of operations and cash flows for the three months ended March 31, 2018.

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This information should be read in conjunction with the accompanying consolidated financial statements and notes thereto.
Acquisitions and Dispositions:
The financial statements reflect the following acquisitions, dispositions and changes in ownership subsequent to the occurrence of each transaction.
On February 16, 2018, the Company's joint venture in Fashion District Philadelphia sold its share of an office building for $41.8 million, resulting in a gain on sale of assets of $5.5 million. The Company's pro rata share of the gain on the sale of assets of $2.8 million was included in equity in income from unconsolidated joint ventures. The Company used its portion of the proceeds to pay down its line of credit and for general corporate purposes.
On March 1, 2018, the Company formed a 25/75 joint venture with Hudson Pacific Properties, whereby the Company agreed to contribute Westside Pavilion (referred to hereafter as One Westside), a 680,000 square foot regional shopping center in Los Angeles, California in exchange for $142.5 million. The Company completed the sale of the 75% ownership interest in the property to Hudson Pacific Properties on August 31, 2018, resulting in a gain on sale of assets of $46.2 million. The sales price was funded by a cash payment of $36.9 million and the assumption of a pro rata share of the mortgage note payable on the property of $105.6 million. The Company used the proceeds to fund its share of the cost to defease the mortgage note payable on the property (See "Financing Activities"). From March 1, 2018 to the completion of the sale, the Company accounted for its interest in the property as a collaborative arrangement (See Note 15Collaborative Arrangement of the Company's consolidated financial statements). Upon completion of the sale, the Company has accounted for its ownership interest in the property under the equity method of accounting.
On May 17, 2018, the Company sold Promenade at Casa Grande, a 761,000 square foot community center in Casa Grande, Arizona for $26.0 million, resulting in a loss on sale of assets of $0.3 million. The Company used the proceeds from the sale to pay down its line of credit and for other general corporate purposes.
On July 6, 2018, the Company’s joint venture in The Market at Estrella Falls, a 298,000 square foot community center in Goodyear, Arizona, sold the property for $49.1 million, resulting in a gain on sale of assets of $12.6 million. The Company's share of the gain of $3.0 million was included in equity in income from unconsolidated joint ventures. The proceeds were used to pay off the $24.1 million mortgage loan payable on the property, settle development obligations and for distributions to the partners. The Company used its share of the net proceeds for general corporate purposes.
Financing Activities:
On January 22, 2018, the Company's joint venture in Fashion District Philadelphia obtained a $250.0 million term loan that bears interest at LIBOR plus 2.0% and matures on January 22, 2023. Concurrent with the loan closing, the joint venture borrowed $150.0 million on the term loan and borrowed the remaining $100.0 million on March 26, 2018. The Company used its share of the proceeds to pay down its line of credit and for general corporate purposes.
On March 29, 2018, the Company's joint venture in Broadway Plaza placed a $450.0 million loan on the property that bears interest at an effective rate of 4.19% and matures on April 1, 2030. The Company used its share of the proceeds to pay down its line of credit and for general corporate purposes.
On August 31, 2018, concurrent with the sale of the ownership interest in One Westside (See "Acquisitions and Dispositions"), the joint venture defeased the $140.8 million mortgage note payable on the property by providing a $149.2 million portfolio of marketable securities as replacement collateral in lieu of the property. The Company funded its $37.3 million share of the purchase price of the marketable securities portfolio with the proceeds from the sale of the ownership interest in the property.
On September 14, 2018, the Company entered into four interest rate swap agreements that effectively convert a total of $400.0 million of the outstanding balance of the Company’s line of credit from floating rate debt of LIBOR plus 1.45% to fixed rate debt of 4.30% until September 30, 2021.
On November 7, 2018, the Company's joint venture in Boulevard Shops replaced the existing loan on the property with a new $18.8 million loan that bears interest at LIBOR plus 1.85% and matures on December 5, 2023. The loan can be expanded, depending on certain conditions, up to $23.0 million. The Company used its share of the proceeds to pay down its line of credit and for general corporate purposes.
On January 10, 2019, the Company replaced the existing loan on Fashion Outlets of Chicago with a new $300.0 million loan that bears interest at an effective rate of 4.61% and matures on February 1, 2031. The Company used the net proceeds to pay down its line of credit and for general corporate purposes.

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On February 13, 2019, the Company’s joint venture in SanTan Village Regional Center entered into a commitment for a ten-year $220.0 million loan to replace the existing loan on the property. The new loan will bear interest at a fixed rate of 4.30% and is expected to close during the second quarter of 2019.
On February 22, 2019, the Company’s joint venture in The Shops at Atlas Park entered into an agreement to increase the total borrowing capacity of the existing loan on the property from $57.8 million to $80.0 million, and to extend the maturity date to October 28, 2021, including extension options. Concurrent with the loan modification, the joint venture borrowed an additional $18.4 million. The Company used its $9.2 million share of the additional proceeds to pay down its line of credit and for general corporate purposes.
Redevelopment and Development Activities:
The Company's joint venture is proceeding with the redevelopment of Fashion District Philadelphia, an 850,000 square foot shopping center in Philadelphia, Pennsylvania. The project is expected to be completed in September 2019. The total cost of the project is estimated to be between $400.0 million and $420.0 million, with $200.0 million to $210.0 million estimated to be the Company's pro rata share. The Company has funded $158.5 million of the total $317.1 million incurred by the joint venture as of March 31, 2019.
The Company's joint venture in Scottsdale Fashion Square is redeveloping a former Barney's store and an 80,000 square foot exterior expansion. The project is expected to be completed in 2019. The total cost of the project is estimated to be between $140.0 million and $160.0 million, with $70.0 million to $80.0 million estimated to be the Company's pro rata share. The Company has funded $29.1 million of the total $58.1 million incurred by the joint venture as of March 31, 2019.
The Company's joint venture with Hudson Pacific Properties is redeveloping One Westside into 584,000 square feet of creative office space and 96,000 square feet of dining and entertainment space. The entire creative office space has been leased to Google and is expected to be completed in 2022. The total cost of the project is estimated to be between $500.0 million and $550.0 million, with $125.0 million to $137.5 million estimated to be the Company's pro rata share. The Company has funded $36.4 million of the total $145.4 million incurred by the joint venture as of March 31, 2019.
On September 6, 2018, the Company formed a 50/50 joint venture with Simon Property Group to develop Los Angeles Premium Outlets, a premium outlet center in Carson, California that is planned to open with approximately 400,000 square feet, followed by an additional 165,000 square feet in the second phase. The first phase of the project is expected to be completed in Fall 2021. The Company has funded $17.1 million of the total $34.1 million incurred by the joint venture as of March 31, 2019.
In connection with the anticipated closures and lease rejections of several Sears stores owned or partially owned by the Company, the Company anticipates spending between $250.0 million to $300.0 million at the Company’s pro rata share to redevelop the Sears stores. The anticipated openings of such redevelopments are expected to occur between 2020 and 2024. The estimated range of redevelopment costs could increase if the Company or its joint venture decide to expand the scope of the redevelopments.
Other Transactions and Events:
On February 1 and 2, 2018, the Company reduced its workforce by approximately 10 percent. The Company incurred a one-time charge of $12.7 million in connection with the workforce reduction during the three months ended March 31, 2018. 
During the three months ended June 30, 2018, the Company incurred $19.4 million in costs associated with activities related to shareholder activism. These costs were primarily for legal and advisory services.
On January 1, 2019, the Company adopted Accounting Standards Codification ("ASC") 842 "Leases", under the cumulative retrospective method. The new standard amended the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). In connection with the adoption of the new lease standard, the Company elected to use the transition packages of practical expedients for implementation provided by the Financial Accounting Standards Board ("FASB"), which included (i) relief from re-assessing whether an expired or existing contract meets the definition of a lease, (ii) relief from re-assessing the classification of expired or existing leases at the adoption date, (iii) allowing previously capitalized initial direct leasing costs to continue to be amortized, and (iv) application of the standard as of the adoption date rather than to all periods presented.

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The new standard requires that lessors expense, on an as-incurred basis, certain initial direct costs that are not incremental in negotiating a lease. Initial direct costs include the salaries and related costs for employees directly working on leasing activities. Prior to January 1, 2019, these costs were capitalizable and therefore the new lease standard resulted in certain of these costs being expensed as incurred. For comparison purposes, the Company has reclassified leasing costs that were included in management companies' operating expenses to leasing expenses for the three months ended March 31, 2018, to conform to the presentation for the three months ended March 31, 2019. Upon adoption of the new standard, the Company has presented all revenues associated with leases as leasing revenue on its consolidated statement of operations. For comparison purposes, the Company has reclassified minimum rents, percentage rents, tenant recoveries and other leasing income to leasing revenue for the three months ended March 31, 2018, to conform to the presentation for the three months ended March 31, 2019. The new standard also requires the Company to reduce leasing revenue for credit losses associated with lease receivables. In addition, straight-line rent receivables are written off when the Company believes there is uncertainty regarding a tenant's ability to complete the term of the lease. As a result, the Company recognized a cumulative effect adjustment of $2.2 million upon adoption for the write off of straight-line rent receivables of tenants that were in litigation or bankruptcy.
Inflation:
In the last five 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 throughout 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, approximately 5% to 15% of the leases for spaces 10,000 square feet and under 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, capitalization of costs and fair value measurements. 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. However, the following policies are deemed to be critical.
Acquisitions:
The Company allocates the estimated fair value of acquisitions to land, building, tenant improvements and identified intangible assets and liabilities, based on their estimated fair values. In addition, any assumed mortgage notes payable are recorded at their estimated fair values. The estimated fair value of the land and buildings is determined utilizing an “as if vacant” methodology. 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 amortized over the remaining lease terms plus any below-market fixed rate renewal options. Above or

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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. 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 initial allocation of purchase price is based on management's preliminary assessment, which may change when final information becomes available. Subsequent adjustments made to the initial purchase price allocation are made within the allocation period, which does not exceed one year. The purchase price allocation is described as preliminary if it is not yet final. The use of different assumptions in the allocation of the purchase price of the acquired assets and liabilities assumed could affect the timing of recognition of the related revenues and expenses.
The Company immediately expenses costs associated with business combinations as period costs and capitalizes costs associated with asset acquisitions.
Remeasurement gains are recognized when the Company obtains control of an existing equity method investment to the extent that the fair value of the existing equity investment exceeds the carrying value of the investment.
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 or a contracted sales price, 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 is 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.
The Company records its Financing Arrangement (See Note 12Financing Arrangement of the Company's consolidated financial statements) obligation at fair value on a recurring basis with changes in fair value being recorded as interest expense in the Company’s consolidated statements of operations. The fair value is determined based on a discounted cash flow model, with the significant unobservable inputs including the multiple of net operating income, discount rate, and market rents. The fair value of the Financing Arrangement obligation is sensitive to these significant unobservable inputs and a change in these inputs may result in a significantly higher or lower fair value measurement.

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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 in Management's Overview and Summary above, including the Redevelopment Properties and the JV Transition Center and the Disposition Property (as defined below).
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 those Centers or properties that are going through a substantial redevelopment often resulting in the closing of a portion of the Center (“Redevelopment Properties”), those properties that have recently transitioned to or from equity method joint ventures to or from consolidated assets ("JV Transition Center") and properties that have been disposed of ("Disposition Property"). 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, the Same Centers consist of all consolidated Centers, excluding the Redevelopment Properties, the JV Transition Center and the Disposition Property, for the periods of comparison.
For the comparison of the three months ended March 31, 2019 to the three months ended March 31, 2018, the Redevelopment Properties are Paradise Valley Mall and certain ground up developments. For the comparison of the three months ended March 31, 2019 to the three months ended March 31, 2018, the JV Transition Center is One Westside. For the comparison of the three months ended March 31, 2019 to the three months ended March 31, 2018, the Disposition Property is Promenade at Casa Grande.
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 a minimum of twelve months or longer and 10,000 square feet and under), occupancy rates (excluding large retail stores or "Anchors") and releasing spreads (i.e. a comparison of initial average base rent per square foot on leases executed during the trailing twelve months to average base rent per square foot at expiration for the leases expiring during the trailing twelve months based on the spaces 10,000 square feet and under) to be key performance indicators of the Company's internal growth.
Tenant sales per square foot increased from $686 for the twelve months ended March 31, 2018 to $746 for the twelve months ended March 31, 2019. Occupancy rate increased from 94.0% at March 31, 2018 to 94.7% at March 31, 2019. Releasing spreads remained positive as the Company was able to lease available space at higher average rents than the expiring rental rates, resulting in a releasing spread of $5.84 per square foot ($58.85 on new and renewal leases executed compared to $53.01 on leases expiring), representing a 11.0% increase for the trailing twelve months ended March 31, 2019. The Company expects that releasing spreads will continue to be positive for the remainder of 2019 as it renews or relets leases that are scheduled to expire. These leases that are scheduled to expire in the next twelve months represent 0.9 million square feet of the Centers, accounting for 12.5% of the gross leasable area ("GLA") of mall stores and freestanding stores, for spaces 10,000 square feet and under, as of March 31, 2019. These calculations exclude Centers under development or redevelopment and property dispositions (See "Acquisitions and Dispositions" and "Redevelopment and Development Activities" in Management's Overview and Summary).
During the trailing twelve