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Here's Why You Should Hold on to Macerich Stock for Now

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Macerich Company (MAC - Free Report) ), similar to other retail real estate investment trusts (REIT), has been facing high tenant turnover for its real estate amid a rising trend in online purchases. Hence, the company is focusing on enhancing its assets quality and customer relationships.

Specifically, Macerich is increasingly adopting the omni-channel model in its brick-and-mortar space to strengthen its retail platform. This is anticipated to boost the shopping experience and bolster sales volume at tenant stores, in turn, raising demand for Macerich’s properties.

Further, a recovering economy amid better employment scenario is likely to drive demand for retail goods. Consequently, this is an opportune moment for Macerich to provide real estate support to the retail sector. Additionally, there is limited supply of new properties in the market.

In fact, Macerich announced that its retail mall — Tysons Corner Center — will add four retail brand outlets in its shopping center. These consist of Superdry, Shinola, Charles Tyrwhitt and Origins.

Macerich’s portfolio has a high concentration of premium malls in certain vibrant U.S. markets. In addition, Tysons Corner Center is one of the top performing malls in the nation. It is one of the many high-end properties present in the company’s portfolio.

However, as online purchases are taking precedence over in-store purchases, a number of retailers are jumping on the dot-com bandwagon and optimizing their brick-and-mortar presence. These efforts and the consequent decision to close stores by several retailers have raised concerns over cash flows of mall landlords.

Also, retailers unable to cope with competition have been filing bankruptcies. This is adversely affecting the demand for retail real estate space and has emerged as a pressing concern for retail REITs. While Macerich is striving to counter such pressure through various initiatives, we believe this factor poses a challenge to the company’s growth. We also expect that this will likely restrict any improvement in margins in the near term.

Further, interest rate risks and substantial assets concentration in California and Arizona remain concerns for Macerich.

Shares of this Zacks Rank #3 (Hold) company have underperformed the industry it belongs to, year to date. Macerich’s shares have lost 23.2% versus the industry’s 4.1% decline during the same time frame. In addition, the Zacks Consensus Estimate for funds from operation (FFO) per share for third-quarter 2017 moved 1% downward to 98 cents over the past 60 days, while the 2017 FFO estimate edged down 0.7% to $3.95 in a week’s time.

Key Picks

Better-ranked stocks in the REIT space include Getty Realty Corporation (GTY - Free Report) , Seritage Growth Properties and Communications Sales & Leasing, Inc. (UNIT - Free Report) . While Getty Realty boasts a Zacks Rank #1 (Strong Buy), Seritage and Communications Sales & Leasing carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Getty Realty’s FFO per share estimates for the current year moved 3.1% upward to $2 over the past week.

Over the last 60 days, Seritage’s FFO per share estimates for full-year 2017 inched up 0.5% to $2.01.

Communications Sales & Leasing’s 2017 FFO per share estimates climbed 14.4% to $2.54 in the last 60 days.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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