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Macerich (MAC) Implements Path-Forward Plan, Bolsters Growth

Macerich MAC recently announced a thorough Path-Forward plan, which is designed to simplify the business, enhance operational performance and decrease leverage. Additionally, the company plans to strategically consolidate selected joint venture assets that are core to the overall strategy.

Specifically, Macerich aims to reduce the leverage of the capital structure to a range of low-to-mid 6x within the next three to four years. Over the same period, it expects to deliver a clean FFO/share launch point of approximately $1.80/share.

The company has outlined the Path-Forward Plan, which encompasses three main elements aimed at fostering long-term growth.

The initial element of the Path-Forward Plan involves simplifying its business operations. This initiative aims to refresh the ranking of the portfolio by prioritizing criteria beyond sales per square foot. It seeks to enhance the quality of the portfolio through asset sales and give-backs.

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The second element of the plan focuses on improving operational performance. Macerich plans to proactively replace outdated anchor spaces while prioritizing anchors that align with future trends. This will be funded through the growth of cash flow and careful allocation of capital.

The goal of this initiative is also to restore net operating income (NOI) growth among Eastern Seaboard assets to the levels seen before the COVID-19 pandemic, aiming for approximately $65 million in target NOI growth. This will be primarily achieved through existing plans that are already in place. Moreover, the company continues to supplement the current $68 million of future incremental rent revenues through an executed lease pipeline.

By enhancing operational efficiency, Macerich expects to improve occupancy across the go-forward portfolio. In order to attain outstanding results, the company will evaluate and realign internal processes, including offshoring, CRM integration, and the implementation of more automated systems.

Finally, the third initiative from the Path-Forward Plan aims to reduce leverage in order to maintain a healthy balance sheet position. This will involve reducing leverage by approximately 1x through organic NOI growth. Additionally, the goal is to enhance and expand Macerich's existing free cash flow generation to nearly $300 million annually.

By selling assets and receiving accretive proceeds, as well as asset give-backs, the company can achieve a leverage reduction of approximately 1x. This reduction will primarily come from the sale of non-mall assets and free-standing, triple-net parcels that have attractive valuations. Assets with negative equity can also be sold or returned to secured lenders, resulting in an estimated leverage reduction of around 0.4x.

Particularly, the company’s asset disposition program is expected to reduce debt by nearly $2 billion and generate $450-$500 million of liquidity.

Although a decent leasing pipeline at its properties and its focus on omni-channel retailing is likely to support its long-term growth, a continued inflationary environment raises concerns for the near term. The company’s performance in the upcoming quarters is expected to be affected by the recent bankruptcy of Express.

Over the past three months, shares of this Zacks Rank #5 (Strong Sell) company have declined 9.3% compared with the industry’s fall of 7.1%.

 

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Stocks to Consider

Some better-ranked stocks from the retail REIT sector are Kite Realty Group Trust KRG and Acadia Realty Trust AKR, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for KRG’s 2024 funds from operations (FFO) per share has been revised a cent northward over the past month to $2.05.

The Zacks Consensus Estimate for AKR’s current-year FFO per share has been revised a cent upward over the past month to $1.28.

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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