Mervyn's Completes $400 Million Sale Leaseback of 39 Mervyn's Stores

CoStar Group - February 29, 2008

Shopping Mall REIT, Macerich (NYSE: MAC), is nearing completion on the acquisition of 43 Mervyn's department stores, totaling 3.4 million square feet, for $430 million. The transaction consummated at the end of 2007 and Macerich has already closed on 39 of the 43 stores for $400.2 million, the remainder will close this quarter. Leaseback terms include a 20-year initial term with extension options.

In its fourth quarter conference call, Arthur Coppola, president and CEO, said the portfolio sale-leaseback deal was one of the company's "most unique and diverse" deals. Coppola explained the company's decision to seize the opportunity; "Thirteen of these Mervyn's stores are located in Macerich malls. We immediately went to Mervyn's and the broker and attempted to buy those 13 stores because we certainly did not want to have a traditional buyer all of a sudden become the owner of the Mervyn's stores in our regional Centers. In many cases, large tracts of land were connected to the Mervyn's stores. As we got deeper into the transaction, we got more intrigued with it, because we realized that we will be able to buy both our stores as well as these others stores at a very attractive return. But, more importantly, we are able to open up redevelopment opportunities at all of our existing properties [giving] Mervyn's a restricted parking area surrounding their store...they essentially have given us Carte Blanche to do anything that we want at the center, which is a tremendous amount of redevelopment freedom that we have been able to obtain as a result."

Coppola said returns on the overall portfolio ended up "very attractive," at an average 7.25 percent. "This ranges from some of the centers internally on our books, in our minds being valued at 5% to 6% cap rates, to some of the strip center locations being valued at 9% and 10% returns," he said. In total, 30 of the stores are located in regional malls, while the balance are freestanding or part of community centers.

Aside those planned for redevelopment, Macerich expects to have disposed of most of the stores within the next 18 to 24 months.

Mervyn's operates 178 stores in eight southwest states. The retailer was bought from Target Corporation by private investors including Sun Capital and Cerberus Capital Management in 2004. It has since closed approximately 80 stores. Sphere: Related Content