Chandler mall owner optimistic about future SanTan Sun News

Chandler mall owner optimistic about future

November 19th, 2020 Editorial Staff
Chandler mall owner optimistic about future
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By Wayne Schutsky
Staff Writer

The COVID-19 pandemic and associated shutdowns have hurt shopping malls across the country, but executives with Macerich see some small signs of improvement heading into 2021.

Macerich, the California-based real estate investment company that owns and operates Scottsdale Fashion Square, San Tan Village Mall in Gilbert and Chandler Fashion Center, held a conference call with investors on Nov. 5 and told them conditions improved between the second and third quarters this year.

Macerich said the overall occupancy rate for the company’s malls was at 91 percent – down three percent from the same time one year ago.

Traffic at Macerich’s malls was at about 80 percent compared to a year prior and sales were trending at 90 percent compared to one year ago, according to the call.

Zacks Equity Research, an investment research firm, reported that Macerich’s revenues of $185.8 million for the third quarter were down 19.6 percent compared to a year ago.

But the Macerich executives noted some signs of optimism, including that all of its malls had reopened as of Oct. 7 and it had around $630 million in cash and cash equivalents, up from $573 million in June.

Macerich is also seeing improvement in rent collections, which had become a problem for malls earlier this year after many states shuttered retail stores due to COVID-19.

The company collected about 80 percent of its billed rents in the third quarter, up from 64 percent in the second quarter.

“October is trending above 80 percent,” Macerich CEO Thomas O’Hern said.

Additionally, O’Hern said Macerich came to deals with most tenants who missed rent payments to defer back rent payments to 2021 “in many cases in exchange for landlord-friendly amendments to leases.”

That included deals with most of the company’s top-200 retailers.

Of those 200 retailers, Macerich had reached agreements with 147 of them and was nearing agreements with another 23, according to information presented on the call.

Even with those deals in place, Macerich or related entities have a number of lawsuits pending in Maricopa County Superior Court for unpaid rent.

Macerich-owned entities have at least nine active lawsuits alleging breach of contract against tenants at Scottsdale Fashion Square and Chandler Fashion Center, including The Disney Store, Gap, Banana Republic, Express, Guess, The Children’s Place, J. Jill, Talbots, MAC Cosmetics and Windsor Fashions.

Macerich leadership said the closure of local stores during the pandemic and retailer bankruptcies was largely to blame for the three-percent drop in occupancy.

Scottsdale Fashion Square actually added several new tenants recently.

According to a recent filing with the SEC, the Scottsdale mall opened six new stores in the third quarter, including Amazon 4-Star, Capital One Café, Golden Goose, Indochino, Levi’s and Warby Parker.

The additions were likely welcome news for Macerich as the mall has suffered a string of bad luck this year.

Earlier this year, Scottsdale Fashion Square and surrounding properties suffered millions of dollars in damage due to an overnight riot on May 31 that saw hundreds of looters descend on the area.

Then, in August, Phoenix Business Journal reported that Scottsdale Fashion Square, suffering from a decline in rent collections due to the pandemic, was behind on its mortgage payments.

According to the Business Journal report, Macerich was able to reach a deal with the loan servicer to defer $47 million in debt service payments in 2020.

In August, Scott Kingmore, Macerich’s CFO, told investors the company would repay that balance in installments in late 2020 and early 2021.

In the most recent call in November, Kingmore said Macerich is in the process of paying off loan deferrals for a total of 19 properties.

This all came after Macerich invested $140 to $160 million to renovate the mall and build out a luxury wing that opened up in late 2018 featuring high-end retailers like Louis Vuitton, Gucci and Bulgari.

Not all experts thought the expansion was a smart play, even pre-pandemic, as online shopping continues to eat into traditional retail sales.

“Absolutely bad idea,” said Hitendra Chaturvedi, professor of supply chain management at Arizona State University’s W. P. Carey School of Business.

Chaturvedi said the pandemic is only accelerating the shift away from brick-and-mortar retail experiences to online shopping and has also hurt sales of luxury clothing items like those sold in the new wing at Fashion Square.

“When you are buying a Gucci or high-end… you typically end up going out with people and going to places where you can show off some of the stuff,” Chaturvedi said.

“With us staying at home, if you look at the data, you will see that high-end shoes and clothes and accessories sales have come down.”

But there were signs the new luxury wing was paying off for Macerich and Scottsdale Fashion Square prior to the pandemic – which could give the company some hope of a speedier recovery in Scottsdale if promising vaccines or other mitigation measures allow shoppers to return to a semblance of normalcy in 2021.

In Dec. 2019, Macerich reported that year-over-year sales at the mall reached $1,472 per square foot compared to $1,032 prior to the luxury wing expansion.

That outpaced already-strong performances by malls throughout the Macerich portfolio in 2019, according to The Motley Fool.

In Nov. 2019, the Fool reported Macerich’s malls posted yearly sales per square foot of $800, up from $707 the year before.

Still, even if 2021 includes a return to normal shopping habits, Macerich may sell off non-core assets in order to better its financial position.

The company did something similar coming out of the Great Recession when it sold 25 properties and generated around $500 million in liquidity, O’Hern said.

“We expect post-pandemic, post-vaccine things will return to a more normal level, and we will have the opportunity to dispose of non-core assets and use that capital for reducing leverage levels,” O’Hern said.

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