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Macerich (MAC) Gears Up for Q4 Earnings: What to Expect?

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The Macerich Company MAC is slated to report fourth-quarter and full-year 2019 results on Feb 6, before the market opens. The company’s quarterly performance will likely reflect year-over-year increase in revenues, while its funds from operations (FFO) per share might display a decline.

In the last reported quarter, this retail real estate investment trust (REIT) adjusted FFO per share of 88 cents, in line with the Zacks Consensus Estimate. The company witnessed strong tenant sales growth as well as increase in average rent and releasing spreads, while occupancy declined.

Over the preceding four quarters, Macerich beat estimates on one occasion and met in the other three, the average positive surprise being 0.58%. This is depicted in the chart below:

Macerich Company (The) Price and EPS Surprise

Let’s see how things have shaped up for this announcement.

Per a report by CBRE Group (CBRE - Free Report) , retail sales increased 3.8%, year over year, in the December-end quarter, supported by strong sales growth in the food service & drinking places as well as non-store retailer categories. Record-low unemployment levels, rebound in consumer sentiment and confidence in the economy drove retail sales growth. All retail asset types also recorded positive net absorption, with the sector absorbing more than 9.8 million square feet of space during the quarter under review.

However, the health of this sector in 2019 was defined by the all-time high announced store closures with the growing threat of e-commerce. In fact, according to a Costar Group article, announced store closures for 2019 totaled more than 10, 500 stores as of November 2019. Amid this choppy retail environment, mall owners were compelled to reduce rents in a bid to preserve occupancy. In fact, rents for the lifestyle and mall segment in the fourth quarter declined 12.4% sequentially.   

As for Macerich, the company’s dominant shopping centers in vibrant retail destinations will likely enable it to tide over retail blues in fourth-quarter 2019. Additionally, over the past quarters, the company has been actively adapting omni-channel modeling to enhance its traditional business model.

Specifically, it is reducing exposure to struggling department stores while embracing more experiential retail that is thriving. These efforts will likely boost mall traffic and drive sales for the company in the October-December quarter.

Additionally, the mall operator has been active on the redevelopment front, through which it is undertaking unique and transformative densification projects focused on repurposing the properties as well as improving merchandizing mix. 

The company witnessed robust demand at Scottsdale Fashion Square during 2019, with the mall’s sales surging 42.7% year over year to $1,472 per square foot, following redevelopment and expansion of the property’s luxury wing that was inaugurated in November 2018.

Moreover, the company bagged several leases at Scottsdale Fashion Square, Fashion District Philadelphia and Wilton Mall during the quarter. These outline solid leasing activity that have likely supported leasing revenues. In fact, the Zacks Consensus Estimate for fourth-quarter leasing revenues of $218 million calls for sequential growth of 1.9%. 

Given these efforts and factors, we expect the productivity metric trends to have remained healthy during the fourth quarter.

Further, the Zacks Consensus Estimate for quarterly revenues is pegged at $218.4 million, indicating a year-on-year rise of 1.2%.

Nonetheless, Macerich has been witnessing high volumes of tenant bankruptcies and these are expected to weigh on its fourth-quarter and full-year operating results.

In fact, Forever 21’s bankruptcy filing affects 15 of Macerich’s stores, while lease termination with Sears is likely to have resulted in rent reductions and deceleration of same-store net operating income growth.

Additionally, given the disposal of weaker-performing malls over the past few years, the earnings dilution from such sales might have thwarted the company’s bottom-line growth.

In fact, the Zacks Consensus Estimate of FFO per share for the quarter under review has been revised 1% south to 99 cents over the past month. Further, it represents a year-over-year decline of 9.2%.

Lastly, prior to the fourth-quarter earnings release, the company has been witnessing downward estimate revisions, indicating bearish analyst sentiments. The full-year 2019 FFO per share estimate has been revised marginally downward over the past month to $3.54, calling for an 8% year-over-year fall. Management projects 2019 adjusted FFO per share at $3.50-$3.58.

Here is what our quantitative model predicts:

Our proven model does not conclusively show that Macerich is likely to beat estimates in terms of FFO per share this quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of a FFO beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Macerich currently carries a Zacks Rank of 3 and has an Earnings ESP of -2.02%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Healthpeak Properties, Inc. PEAK, slated to release fourth-quarter earnings on Feb 11, has an Earnings ESP of +1.15% and carries a Zacks Rank of 3, at present.

Host Hotels & Resorts, Inc. HST, scheduled to release October-December quarter results on Feb 19, has an Earnings ESP of +1.52% and currently holds a Zacks Rank #3.

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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