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Macerich (MAC) Unveils Initial Achievements in Strategic Plan

Macerich MAC has purchased the remaining 40% stake of both Arrowhead Towne Center in Metro Phoenix and South Plains Mall in Lubbock, TX, for $36.5 million plus the debt from its joint venture partner, which is a global institutional investor. With the move, Macerich has gained full ownership of both the properties.

Apart from the acquisition, Macerich disclosed the execution of a contract for the sale of a prominent retail asset in a major market. This transaction, which is likely to close this summer, is expected to generate around $110 million of net proceeds based on an expected cap rate of 6.5%.

These transactions showcase Macerich’s initial progress on its strategic plan that entails disposing of certain assets to lower its leverage and business simplification through selective consolidation of some JV interests over time.

Achieving full ownership of these retail assets through the purchase of stakes from JVs seems a strategic fit for Macerich.

The 1.1 million-square-foot, super-regional Arrowhead Towne Center is located in a high-growth area of Metro Phoenix. It is a leading, top 10 NOI center for MAC and a top 10 sales PSF center at more than $1,100 PSF — second only to Scottsdale Fashion Square among Macerich's Phoenix assets. Fully leased, it is anchored by Dillard’s, Macy’s, JCPenney, DICK’s Sporting Goods, AMC Theatres and Round1 Spo-Cha.

The trade area comprises 1.6 million people and is home to the Taiwan Semiconductor Manufacturing Company’s new site. It consists of three fabs, opening in phases beginning in 2025, creating 6,000 direct high-tech, high-wage jobs, 20,000 construction jobs and numerous indirect jobs, bringing TSMC’s total investment in Arizona to more than $65 billion.

Also, Arrowhead Towne Center’s trade area includes three top-ranked universities and 13,000 K-12 students. This area is home to more than one-third of Phoenix Metro residents and is projected to account for more than 43% of the county's growth over the next 25 years. Therefore, given the solid prospects, the acquisition of Arrowhead Towne Center seems prudent.

The South Plains Mall, a 1.1 million-square-foot super-regional shopping center, serves the area surrounding Texas Tech University, which boasts a $4.3 billion annual economic impact. The trade area spans more than 40,000 square miles across 35 counties.

With Lubbock’s population increasing at 6% annually, double the national average, the mall is poised for growth. Longtime anchor Dillard’s is investing more than $40 million in a new flagship store, consolidating its two existing locations, and is set to open in fourth-quarter 2024 on the former Sears site.

Macerich, with a solid leasing pipeline, is likely to continue witnessing healthy leasing activity at its properties in the quarters ahead, driving occupancy. Its focus on omni-channel retailing augurs well. Shift toward re-use and mixed-use properties through recapture and repositioning of anchor tenants remains a key emphasis, while bringing brands to new markets at its mall will likely attract shoppers. However, growing e-commerce adoption raises concerns for the company. High interest rates add to its woes.

Shares of this Zacks Rank #3 (Hold) company have risen 41.6% in the past six months compared with the industry's upside of 4%.

Zacks Investment Research
Zacks Investment Research


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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 Kite Realty Group’s ongoing year’s funds from operations (FFO) per share is pegged at $2.05, which indicates a year-over-year increase of 1%.

The Zacks Consensus Estimate for Acadia Realty Trust’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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