Macerich Buys Operator of Shopping Malls in East

Macerich Co. did some last-minute holiday shopping, announcing Thursday that it had agreed to pay $1.45 billion for controlling stakes in 11 East Coast shopping malls.

The Santa Monica-based real estate investment trust said it would buy Wilmorite Properties Inc. and its operating partnership, Wilmorite Holdings, whose holdings include large malls in McLean, Va.; Freehold, N.J., and Danbury, Conn.

The Wilmorite malls have annual revenue of more than $2 billion and sales are “increasing very nicely,” Macerich President Arthur Coppola said in a conference call with analysts. Mall rents are below the market rate, he said, and Coppola expects “very significant rent growth” in the years ahead.

The sale is expected to close in March. Terms of the deal call for Macerich to issue $320 million in convertible preferred units to limited partners of Rochester, N.Y.-based Wilmorite. The balance, about $1.13 billion, would be paid in cash, and Macerich has agreed to assume about $882 million of debt.

The acquisition would expand Macerich’s portfolio to 74 shopping malls and give it a substantial presence in the East, where it has been a minor player.

News of the deal caused shares of Macerich to tumble 4%, closing down $2.57 to $61.53 on the New York Stock Exchange. The REIT’s shares have risen 38% this year, partly because of speculation that Macerich was a takeover target.

“The Street clearly didn’t like this acquisition,” said analyst Craig Silvers of Bricks & Mortar Capital, who doesn’t own the stock. “Now Macerich is a true national company and that makes them tougher to acquire.”

Also disappointing to some investors, Silvers said, was Macerich’s decision to not raise its earnings guidance for 2006, although the company expects that the new malls will have a long-term positive effect on the bottom line.

Analyst Greg Andrews of Greenstreet Advisors Inc. said he was surprised Macerich won the bidding for Wilmorite against larger national competitors.

“Macerich is borrowing most of the money to do this, so it does stretch their balance sheet,” Andrews said. “Its financial flexibility is a bit constrained following this deal.”

However, Silvers and other analysts said additional malls will give Macerich more strength in its negotiations with national retailer tenants. The mall business has been consolidating in the last few years and the survivors will have more control over their leases because few indoor regional malls are being built.

“REITs own over 60% of indoor malls,” Silvers said. “This will give them pricing power to charge higher rents. Longer term, this will be excellent” for Macerich.

The Macerich deal caps a busy year of consolidation in the shopping mall arena. In June, Simon Property Group Inc. agreed to buy Chelsea Property Group for about $3.5 billion. Two months later General Growth Properties Inc., the second-biggest U.S. shopping center operator, struck a $7.2-billion deal to take over Rouse Co.

Macerich also has expansion plans close to home.

Last month, the company unveiled plans to raze its Santa Monica Place indoor mall and extend the Third Street Promenade shopping district through its two-block downtown property. Macerich also hopes to build high-rise residential towers, offices and parkland.