SANTA MONICA, CA-The Macerich Co. could possibly take on a partner now that it has closed its $2.3-billion acquisition of Rochester, NY-based Wilmorite Properties' portfolio of 13 centers. Macerich president and CEO Arthur Coppola unveiled the plan during Monday's conference call in which the shopping center owner reported that funds from operations increased 10% per share for the first quarter ended March 31.
Coppola commented on what he called "a lot of speculation about whether we're going to be bringing in a joint venture partner at an entity level" in connection with the Wilmorite deal. If Macerich does take on such a partner, it will be months away, Coppola indicated.
"We have extremely strong interest from an existing partner to come into that transaction," Coppola said, but "nothing is imminent" in terms of such a partnership. The Macerich president said the REIT is going to "take complete inventory of everything at Wilmorite" and then make the decision on whether to bring in a partner "over the months to come."
Since such a transaction would amount to about $1.2 billion, Coppola said, "We are going to treat that decision like any major corporate finance decision." Macerich also will review its portfolio with an eye toward selling some properties and reducing its debt, "just as we did when we bought Westcor three years ago," a reference to the REIT's 2002 purchase of the 27-property Westcor portfolio for nearly $1.5 billion.
The Wilmorite acquisition provided Macerich with a 50% stake in the two-million-sf Tysons Corner Center in McLean, VA that is "probably our most exciting expansion and redevelopment under way right now," according to Coppola. The 365,000-sf, $130-million redevelopment of Tyson's Corner, anticipated to be open by Oct. 1, is already under way with AMC Theatres as 100,000-sf key anchor. Macerich's share of the budget is $65 million.
The REIT's funds from operations for the first quarter rose 10% to 99 cents per share, compared to 90 cents per share for the comparable period in 2004. Total FFO for the quarter rose to $73.6 million, compared with $66.4 million, while net income totaled $18.1 million, or 30 cents per share, compared with first-quarter 2004 net income that was also $18.1 million but worked out to 31 cents per share last year. Revenue totaled $68.4 million versus $61.4 million in 2004's first quarter, with same-center tenant sales for the quarter up 5.8% compared to the first quarter of 2004. The REIT's portfolio remained 92.2% occupied, up about four-tenths of a percentage point since a year ago.
In reviewing Macerich's leasing for the quarter, CFO Thomas E. O'Hern noted that 53% of the company's leases now include rent increases based upon the Consumer Price Index. "We made the move to CPI a number of years ago and it's giving us a built-in inflation hedge that is unique to Macerich," O'Hern said. He added that most of the company's competitors still use fixed rent increases rather than CPI-based rent increases, but at Macerich, "We continue to write about 95% of our new leases and renewals with these CPI increases included."
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