The Macerich Company (MAC - Free Report) enjoys a premium portfolio and the presence of well-capitalized tenants in its roster. Additionally, the company’s increasing adoption of the omni-channel model in retailing is anticipated to enhance shopping experience and bolster sales volume at the tenant stores, thereby raising demand for Macerich’s properties.
Notably, Macerich has a high concentration of premium malls in some vibrant U.S. markets. The company has been diversifying its traditional tenant base by including several emerging digital and store-based retailers for offering enhanced shopping experience at the company’s retail centers.
Additionally, Macerich has been focusing on an aggressive capital-recycling program, involving divestiture of non-core and slower-growth assets, and usage of the proceeds in higher-growth properties through acquisitions, developments, and redevelopment initiatives. As part of such measures, since 2013, Macerich sold 21 non-core retail centers for an aggregate of $1.8 billion in proceeds.
Moreover, the company remains on track with its redevelopment pipeline and pre-leasing deals. Further, Macerich is aiming to enhance its assets quality as well as customer relationships. Going forward, we expect such moves to offer an upside potential to the company and strengthen its high-end portfolio.
Nevertheless, with e-retail taking precedence, retail real estate investment trusts (REIT) continue to suffer as mall traffic has taken a beating. In fact, with e-commerce gaining market share from the brick-and-mortar stores, retailers are compelled to reconsider their footprint and eventually opt for store closures, while others unable to cope with competition have been filing for bankruptcies.
This dreary environment has also resulted in tenants demanding substantial lease concessions, which, however, mall landlords find unjustified. As such, retail REITs like Macerich, GGP Inc. (GGP - Free Report) , Kimco Realty Corp. (KIM - Free Report) , Simon Property Group (SPG - Free Report) and others have been affected, and the companies’ share prices have been suffering for the past 12 months.
Further hike in interest rate can also pose a challenge for the company. Essentially, rising rates imply higher borrowing cost for the company, which would affect its ability to purchase or develop real estate and lower dividend payouts as well. Moreover, the dividend payout itself might become less attractive compared to the yields on fixed income and money market accounts.
Amid such retail woes, shares of this Zacks Rank #3 (Hold) company have underperformed the industry it belongs to in the past three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Macerich has lost 0.6% against the industry’s growth of 7.8%. However, the Zacks Consensus Estimate for 2018 funds from operations per share has been revised marginally upward in two months’ time.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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