MW Mall giant Macerich likely to start defaulting on maturing loans, says Barclays
By Joy Wiltermuth
The Federal Reserve's extended period of higher interest rates is hitting home for mall owners with maturing debt
Shopping mall giant Macerich Co. looks poised to start defaulting on more of its maturing mall loans, according to Barclays.
Commercial-property owners - reeling from sagging building values and the end of the era of low interest rates - have been scrambling to shed assets, raise cash and hand back properties they no longer want to lenders.
That process looks to be intensifying, with property owners signaling an increased willingness to throw in the towel on problem assets as the Federal Reserve has signaled that significant rate cuts aren't likely this year.
With that backdrop, Jackson Hsieh, who took over as Macerich's $(MAC)$ president and chief executive officer in March, on Tuesday spelled out the company's own multiyear "strategic plan" during its first-quarter earnings call. That plan includes reducing leverage, pursuing property sales and "potentially giving back" some properties to lenders, he said.
"Although these changes are likely to cause pain to the firm's lenders, they are likely overdue," said analyst Lea Overby's securitized-products research team at Barclays in a Thursday client note - pointing to potentially four to six maturing property loans in commercial-mortgage bond deals that could go back to lenders. "The firm reported a net loss for the quarter, as well as for full years 2023 and 2022," the Barclays team wrote.
Scott Kingsmore, Macerich's chief financial officer and treasurer, said on the Tuesday earnings call that the company decided to default in April on a loan on Santa Monica Place, an open-air regional mall adjacent to the beachside Third Street Promenade shopping area in Santa Monica, Calif. Louis Vuitton (LVMHF), Peloton $(PTON)$, Tesla $(TSLA)$ and Tiffany & Co. are among the mall's tenants.
While talks with the property's lender remain ongoing, Kingsmore spoke of "continued challenges in the broader marketplace here in Santa Monica" during the call. "It impacts our progress; it impacts tenancy," he said. Santa Monica-based Macerich is one of the biggest owners of U.S. shopping centers.
As a borrower at Santa Monica Place, Macerich has been required only to pay interest on the $300 million floating-rate loan since it was originated at a one-month Libor plus 1.35% rate, according to CrediQ. The full amount of debt matured in December 2022, but was extended for two years.
In that time, the Federal Reserve has jacked up interest rates at its quickest pace since the 1980s, and opted on Wednesday to keep them higher for longer to fight inflation.
Floating-rate loans and borrowers with maturing low-rate debt have been hit especially hard by increased borrowing costs. When asked by a Wall Street analyst if the Santa Monica mall "is not worth the investment anymore," Kingsmore pointed to a "challenging capital structure."
Macerich didn't immediately respond to a request for comment. The company's shares gained 2.1% on Thursday, but are down about 11% on the year so far, according to FactSet.
Related: Commercial real estate faces a 'slow-moving train wreck.' Here are the fixes lawmakers could make.
-Joy Wiltermuth
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May 02, 2024 16:36 ET (20:36 GMT)
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