Macerich Co. has signaled its intent to join the major leagues of mall developers with its May 30 announcement of a deal to pay $1.475 billion for a collection of properties owned by Westcor Realty.

“This is a major strategic transformation of the Macerich Co.,” says David Schulman of Lehman Brothers in New York. “After this it will be a completely different company.”

The acquisition, which includes nine regional malls containing 10 million sq. ft. and 18 urban villages containing 5.6 million sq. ft. located primarily in the Phoenix area, “puts [Macerich] in the top tier of mall companies,” notes Schulman. “With it, they unambiguously move into different economies of scale, and a regional focus. Also, we view Phoenix in some respects as an economic suburb of Los Angeles, so this all ties together very nicely.”

What's more, adds Mike Mueller of CIBC World Markets Corp. in New York, Macerich has acquired development expertise (it is keeping the Westcor management team intact) and a development pipeline. A Salomon Smith Barney report supports that contention, noting the deal “gives Macerich a development staff and enhances its own leasing department.”

The acquisition includes two shopping centers currently under construction and three in the pre-planning stages, as well as 352 acres of outparcel land. “Macerich had been very reliant on internal growth and looking out to 2004 and its big Queens Center redevelopment,” Mueller notes.

“Now, when that's done there will be more in the pipeline.” That pipeline should begin contributing to growth in 2004, says CIBC.

Analysts agree that the 8.5% cap rate on the purchase is impressive for a deal of this nature. But the Westcor acquisition follows on the heels of Macerich's $152.5 million purchase of The Oaks mall in Thousand Oaks, Calif., leaving many analyst wondering how Macerich will ultimately fund the deal, and how will that impact its stock price?

In addition to $733 million of assumed debt and $80 million in convertible OP units, the remainder of the $1.475 billion acquisition price, or about $600 million, is covered by a bridge facility from Deutsche Bank. “We're probably a month away from knowing how it will close,” notes Mueller.

“The range of estimates is insane — from 58% to 70% leverage. If they do an equity offering, it will be dilutive; if they leave current financing in place, it will be $0.65 accretive, but it's unreasonable to expect that they will do that. What's the ultimate mix of asset sales, joint ventures and equity going to be and when will it happen? We have no way of knowing.”