'sleadership, by its own admission,has approached 2016 cautiously with respect to tenant bankruptcies. But executivessought on the company's first-quarter earningscall to reorient the conversationto focus on the opportunities e-tailers offer today's landlords.
Certainly,there are traditional brick-and-mortar tenants looking to downsize, but e-tailerappetite for physical stores is increasing and, in the coming quarters and years,the group will "change the face" of the industry in a positive way, Chairmanand CEO Arthur Coppola said during the Q&A segment.
"Theacceptance ratio, and the quality of the conversations, and the conversions intodeals, is causing me to be very optimistic and very convinced that 2016 is the yearwhere tech and real estate come together," Coppola said.
The executiveinvoked the baseball analogy to illustrate his optimism: The market is in the topof the first inning with respect to e-tailer conversions to brick-and-mortar space.
"Imean we got a whole game to play this out. But the early results are really strongin my view," Coppola said. "They're not going to be moving the needlefinancially in the early days here. But it is going to create incremental demand,incremental excitement for our shoppers. And I believe that it's going to changethe face of our shopping centers going forward. To be determined, to be watchedas time goes on — but I sit here today very bullish and optimistic about the opportunityhere."
An analystlater sought color on how leasing economics might change at properties with thenew e-tailer wave. Coppola said that currently there is no "rule of thumb"in dealing with the new tenant base, insofar as firm rules might alienate tenants-to-be.In the beginning, leases will be short-term, and there will be some pop-up stores.
"There'llbe some rents that we think are really being paid for out of the marketing budgetof the retailer, where they're looking to try and extend their brand awareness,"he said. "It'll be a much more creative and approachable lease structure —with the hope and a view that as these retailers pan out, they will essentiallyhave become incubated, and then they'll be migrated into the more traditional long-termrelationship that we have with the vast majority of our tenants."
In preparedremarks, COO Bobby Perlmutter said the current level of tenant bankruptcies andstore closures is low. The clothing brand PacSun filed for Chapter 11 bankruptcyprotection subsequent to quarter end, but since 2012, Macerich has reduced its exposureto the company to 28 stores from 36 stores.
"Whiletoo early to determine conclusively, we anticipate PacSun will attempt to reorganizewith a smaller store count," he said, noting that the retailer represents "approximately1/2 of 1%" of the company's gross rents.
Perlmuttersaid the case of the clothing retailer Aeropostale, which filed for bankruptcy protectionMay 4, is similar. Since 2012, Macerich has reduced its exposure to Aeropostaleto 27 stores from 44 stores, and the company represents roughly 0.5% to 1% of Macerich'sgross rents.
"Weanticipate Aeropostale will reorganize with a smaller store count," Perlmuttersaid. "Like expirations, we have witnessed that bankruptcies and store closuresoften present opportunities to improve the merchandise mix, increase sales productivityand generate higher rental income."