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, 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.