After jettisoning part ownership in some of its prize properties to stay afloat during the recession, Macerich Co. is back to buying in a big way.
The Santa Monica mall operator and real estate investment trust recently bought three large shopping centers – two malls in the New York area and one in Colorado. Each purchase, which together cost the company more than $1.57 billion, made the Business Journal’s list of October’s biggest Mergers & Acquisitions in Los Angeles. (See page 24.)
The acquisitions come three years after Macerich began selling off portions of some of its top performing shopping centers to joint venture partners in order to pay down debt.
Arthur Coppola, chief executive at Macerich, said in a conference call with investors last month that the purchases represent progress in a plan to sell off underperforming shopping centers in favor of ones with more potential to draw large crowds.
“Our goal is to have over 90 percent of our net operating income from what we consider core centers, or fortress centers,” he said. “We’re making great strides on that front.”
Today, the company gets about 78 percent of its net operating income from its 40 best performing malls.
Macerich representatives declined to comment for this article because all three sales hadn’t closed.
So far this year, the company has sold two community shopping centers in Scottsdale, Ariz., and its 50 percent interest in a Dallas mall, among other holdings.
Anthony Paolone, an analyst for J.P. Morgan Securities in New York who covers Macerich, said in a recent note to investors that the acquisitions mark a change in the company’s focus going forward.
“During the first half of the year, the major focus for the company was development and redevelopment activity and asset sales,” he wrote. “However, in the last few weeks, acquisition activity has taken a front seat.”
Macerich owns and operates 59 regional shopping centers totaling about 62 million square feet. Its assets span the country, though most are in California, with 21 malls; Arizona, 17; and New York, eight, including the new acquisitions.
The company owns and operates seven shopping centers in Los Angeles. Three made this year’s Business Journal list of largest retail centers by gross leasable area: Lakewood Center, Los Cerritos Center and Stonewood Center in Downey.
One of its most notable L.A. properties, Santa Monica Place, reopened in 2010 after extensive renovations and is continuously upgrading its tenant mix.
Macerich stock, which sank to a low of $5.80 in 2009, was trading as high as $62.29 this May and settled to $55.83 on Nov. 28.
In one of its first major recession-era divestments, in July 2009, Macerich sold 49 percent of its interest in Queens Center, a New York mall that at the time was the top performing property in the company’s portfolio. In the next couple of months, it went on to sell portions of its interest in three more large malls. The buyers were private-equity investors.
Richard Moore, an analyst at RBC Capital Markets in Solon, Ohio, said the company sold shares of its best properties to partners to ease its debt burden.
“They had these loans coming due, but in 2008 and 2009, nobody was lending,” he said. “These guys had money, and they said ‘Great, we’ll buy. You can use the money to help you with your balance sheet issues.’ Now the balance sheet issues are gone.”
One of the company’s latest acquisitions – Broomfield, Colo., mall FlatIron Crossing – reverses a sale the company made in 2009 to Menlo Park investment firm GI Partners. Macerich bought back its 75 percent interest in the mall for $323 million, a $207 million premium on the 2009 sale price.
Macerich estimates the 1.5 million-square-foot mall generates sales of about $531 per net leasable square foot each year.
The other two acquisitions further the company’s efforts to establish a stronghold in the New York market.
King’s Plaza in Brooklyn and Green Acre’s Mall in Long Island community Valley Stream will be sold for $751 million and $500 million, respectively. King’s Plaza owner Alexander’s Inc. is a subsidiary of Green Acres owner Vornado Realty Trust.
Macerich was most interested in acquiring King’s Plaza, a 1.2 million-square-foot mall that does about $650 per net leasable square foot in sales each year and is comparable to high-end malls such as South Coast Plaza in Costa Mesa.
Green Acres is a 1.8 million-square-foot mall in Valley Stream on Long Island that does about $520 a square foot a year.
Moore at RBC Capital Markets said both New York malls are a boon to the company’s portfolio.
“It’s hard to find good malls to buy, because there are only a handful out there and few ever come up for sale,” he said. “When you can get something of this caliber in a market like New York, that’s pretty important.”
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