Macerich Seeks a Joint Venture Partner
Macerich Co. is looking to sell half its stake in as much as $500 million worth of shopping malls to raise cash to reduce debt and possibly buy back shares, company officials said Thursday.
The Santa Monica-based real estate investment trust, which has acquired retail properties at a rapid clip recently, expects to line up a new joint venture partner by year-end, Chief Financial Officer Thomas O’Hern said.
The company has a total market capitalization, stock and debt, of about $2.9 billion, according to PaineWebber Inc.
More REITs, facing slumping stock prices and high debt loads taken on during the industry’s buying binge of the mid-1990s, are forming joint ventures with pension funds and other institutional investors as a way to gain access to cash they need to keep growing.
Macerich shares are down 10.8% in the last 12 months. The Bloomberg Shopping Mall REIT Index, by comparison, is off 16% for the same period. On Thursday, Macerich shares rose 38 cents to close at $24.13 on the New York Stock Exchange.
“We see joint ventures as a viable way to raise capital and acquire assets,” O’Hern said.
One option Macerich is considering, O’Hern said, is forming a joint venture to buy properties.
Either way, Macerich expects any partner it takes on to contribute about $100 million of equity.
Though they give up some control, REITs who set up such ventures reduce debt and get income from fees from managing the properties.
With so many REITs looking to form joint ventures, however, investors and analysts have become concerned that there is too much demand chasing too little capital.
“Although the short-term logic of this strategy has some validity, we believe that joint ventures present complexities, and may pose additional risks for the company in the long run if not thoroughly considered,” Prudential Securities Inc. said in a research report. Prudential puts a “hold” rating on Macerich stock.
Last year, Macerich formed a 50-50 partnership with Simon Property Group Inc. to buy 12 malls from an IBM Corp. pension fund for about $1 billion. And in July, it teamed up with the Ontario Teachers’ Pension Plan Board of Canada to buy four malls from insurer Safeco Corp. for $427 million.
The return on these acquisitions has exceeded 9% on an annual basis for Macerich, O’Hern said.
Many mall properties have sold at prices translating into an 8% return for the buyers, according to analysts.
Overall, the company owns 47 properties with 41.5 million square feet of space; about half of that was bought over the last 18 months.
But Macerich has $2.2 billion in debt, which Prudential notes limits its “financial flexibility” and makes a new joint venture all the more important.
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Under Pressure
Macerich shares have pulled back from their 1998 highs, pressured in part by concerns over the company’s high debt load. Monthly closes and latest:
Thursday: $24.13 up 38 cents on the NYSE
Source: Bridge Information Systems
