Macquarie DDR Operational Update

Key highlights
• Overall portfolio leased rate at  96.2% (96.7% at 30 June 2008)
• Leases signed on 376,142 sqft or 2.3% of the total portfolio during the quarter
• Average rental increase of 8.6% from prior rents on new leases and renewals
• Lease expiry in FY09 has reduced from 5.3% to 3.0%
Macquarie DDR Chief Executive Officer, Mr Luke Petherbridge said: “The rental increases and leasing results achieved during the September quarter are robust given current economic conditions in the US. This overall leased rate reflects the Trust’s stable tenant format, where over 90% of the Trust’s gross lettable area is leased by anchor or junior anchor tenants on long term leases.”
Shopping centre portfolio

The Trust’s shopping centre portfolio, excluding 37 Mervyns’ assets, contributes 89.7% of annual base rent and was 95.5% leased at 30 September 2008 (compared to 96.0% at 30 June 2008).

Leases were signed on 376,142 sqft or 2.7% of the shopping centre portfolio during the quarter and is comparatively higher than the 242,278 sqft leased in the 2007 September quarter. The weighted average rental increase for the September quarter was 8.6% on new leases and renewals with a weighted average lease term of 6.2 years.

Key leasing transactions completed in the September quarter included 15 new leases for 128,974 sqft, with an average rental increase of 23.2% [2] and a weighted average lease term of 8.6 years. New leases include those with national retailers such as Michaels, Dress Barn and Homegoods (a TJX company).

The 33 renewals secured during the June period covered 247,168 sqft and delivered an average rental increase of 7.1% from prior rents with an average lease term of 4.8 years. Retailers renewing leases include Borders, Bealls and TJ Maxx.

Mervyns’ portfolio update

Mervyns, which has 37 leases within the Macquarie DDR portfolio, covering 2.8 million sqft or approximately 10.3% of the Trust’s annual base rental income, announced on 17 October 2008 it would begin to wind down and liquidate its business.

Mervyns, which filed for Chapter 11 bankruptcy protection in July 2008, announced that it will hold ”going out of business” sales at all of its remaining 149 locations. The sales are expected to extend through the holiday season, during which time Mervyns’ must remain current on all rental payments. During and after the sales, Mervyns may attempt to assign the leases to other retailers. In the event it is unable to assign the leases, Mervyns may reject or cancel the leases through the bankruptcy proceedings.

Since Mervyns’ original announcement seeking bankruptcy protection, management has monitored developments closely and short-listed retailers that may be interested in leasing spaces that are to be vacated by Mervyns. Strong interest has been received from many retailers interested in leasing or buying the space. However, Mervyns has not yet rejected or cancelled any leases, and has not announced a definitive auction date for many of its locations.  This enables retailers or other interested parties, including owners of adjacent retail assets, to acquire the Mervyns’ lease locations through the Chapter 11 proceedings. The buyer of such locations will be obligated to perform under the current Mervyns’ lease, and the joint venture and Macquarie DDR would potentially not be obligated to spend any funds to re-tenant such space or experience any interruption in rental payments.
The stores are predominantly located in infill locations with high population densities, with over 75% of the stores located in California with over 1.0 million sqft in the Los Angeles county and 0.5 million sqft in the San Francisco area. 

The Trust, through its joint venture with DDR, has access to approximately US$7.5 million (US$3.75 million, MDT share) in a security deposit letter of credit, which equates to approximately three months’ rent. This becomes available if and when leases are rejected or Mervyns defaults on rental payments. This provides financial support to the joint venture, which is in addition to the already received US$25 million Mervyns letter of credit, which forms part of the US$58 million cash collateral pool (US$29 million, MDT share). This collateral pool has been established to offset possible re-tenanting costs.


Continued economic uncertainty in the US is likely to impact the Trust’s operational performance in the short to medium term. However, the Trust’s geographically diverse portfolio will benefit from its relationship-focused leasing activities and a tenant mix consisting of discount retailers with over 80% being national brands.

As previously announced, management continue to progress with several initiatives which are designed to provide additional strength to Macquarie DDR’s balance sheet including managing upcoming debt maturities and finalising asset sales.

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Marc Pallisco

A former property analyst and print journalist, Marc is the publisher of