Macerich’s tough Q1 comes amid store closures, redevelopment plans

The mall REIT, which has been redeveloping some properties, has been hit hard by Sears' woes

National /
May.May 02, 2019 01:30 PM
Macerich executives Tom O'Hern and Scott Kingsmore and a rendering of co-working space at One Westside
Macerich executives Tom O’Hern and Scott Kingsmore and a rendering of co-working space at One Westside

Macerich continues to feel the bite of the retail rattlesnake as the mall landlord posted declines in first quarter revenue and funds from operation compared to the same time last year. It has been dealing with store closures — particularly Sears — and tenant bankruptcies across its portfolio, while trying to redevelop other lagging properties.

The Santa Monica-based real estate investment trust’s net income for the quarter was $7.8 million, an improvement on the $33.6 million net loss from January through March 2018. But that first quarter net income was down from the $11.7 million the company posted in the fourth quarter.

Funds from operations dipped to $122.3 million over the first quarter, from $123.5 million last year. The company also reported declines in leasing, which contributed to a drop in revenue, to $226.5 million from $236.7 million year over year.

The company continues its push to redevelop poor-performing properties. It is seeking construction financing on one of its largest redevelopment projects, a joint venture with Hudson Pacific Properties to turn the Westside Pavilion mall in Los Angeles into a co-working space. HPP announced in January that Google would lease the entirety of the 584,000-square-foot co-working space at the mall, now rebranded as One Westside.

One of Macerich’s biggest hurdles going forward is dealing with shuttered former Sears anchor stores. Macerich had 21 Sears stores at its malls as of the fourth quarter of 2018. The company has said it wants to demolish or repurpose those stores once it gains control of them. That will cost Macerich $250-$300 million, it has said.

Despite the gloom, there were a couple of bright spots for Macerich in the first quarter. Occupancy was one of them. Occupancy was 94.7 percent across its properties, up from 94 percent at the same time last year. Rents were also up, 3.9 percent, to $60.74 per square foot.

At Thursday’s earnings call, Macerich CEO Tom O’Hern said it has been able to back fill 55 percent of mall spaces vacated by retailers or from those that have declared bankruptcy. But there was a caveat. Some of that space has been filled be temporary tenants, he said, which typically pay about a third as much as those with long-term leases.

Macerich’s quarter stands in contrast to mall REIT Simon Property Group, which on Tuesday reported higher earnings for the quarter. The company, which acknowledged that the continued wave of retailer bankruptcies has taken a toll, reported funds from operations of $1.08 billion in the first quarter, up from the nearly $1.03 billion in the first quarter of 2018.

CFO Scott Kingsmore suggested that the company wasn’t looking back, saying some of those retailers that closed had “no in-store experience.” They did not adapt to the rapidly evolving industry, he said, so they “became obsolete.”

As it is doing with the former Westside Pavilion, Macerich is overhauling other properties and bringing in new types of tenants. Co-working firm Industrious opened a location at its Scottsdale Fashion Square property in Arizona recently.


Related Articles

arrow_forward_ios
The future of San Francisco’s Oceanwide Center is up in the air again (Getty, Foster and Partners)

Contractors pull out as Oceanwide Center sale falls through again

Contractors pull out as Oceanwide Center sale falls through again
Granite CEO Michael Dardick and Industrious CEO Jamie Hodari

Industrious partners with landlords to offer tenants satellite workplaces

Industrious partners with landlords to offer tenants satellite workplaces
Colorado Campus at 2041-2115 Colorado Avenue and Northwestern Mutual CEO John E. Schlifske

Northwestern Mutual picks up Santa Monica office campus for $166M

Northwestern Mutual picks up Santa Monica office campus for $166M
Macerich CEO Thomas O’Hern and Santa Monica Place mall

Here’s what tenants are paying at Macerich’s Santa Monica Place

Here’s what tenants are paying at Macerich’s Santa Monica Place
Hudson Pacific Properties CEO Victor Coleman and Sunset Las Palmas Studios (Google Maps, iStock)

Hudson Pacific studio revenue takes hit

Hudson Pacific studio revenue takes hit
Prop 15 property tax measure draws millions (Credit: iStock)

Prop 15 property tax measure draws millions of dollars from for and against campaigns

Prop 15 property tax measure draws millions of dollars from for and against campaigns
Los Angeles County plans to clear several businesses to reopen over the next 10 days

Malls, nail salons, other LA businesses to open in next 10 days

Malls, nail salons, other LA businesses to open in next 10 days
Gap sues mall REIT Haagen Company to void its lease at Village at Century. (Credit: iStock)

The Gap sues Inglewood mall owner, seeking to void lease

The Gap sues Inglewood mall owner, seeking to void lease
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...