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Is It Wise to Retain Macerich (MAC) Stock in Your Portfolio?

The Macerich Company MAC, 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 omnichannel retailing augurs well.

The 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 is likely to attract shoppers. However, growing e-commerce adoption raises concerns for the company. High interest rates add to its woes.

What’s Aiding MAC?

The increase in consumers’ preference for an in-person shopping experience following the pandemic downtime has been driving the recovery in the retail real estate industry. Amid this, Macerich’s shopping centers, located in densely populated areas having an affluent customer base with significant disposable income, are witnessing healthy demand from retailers as they continue to rent out more physical store spaces. Moreover, solid tenant demand has helped the company backfill its spaces, which is an upside.

In 2023, the company signed leases for 4.2 million square feet. This indicates a 12% increase in square footage signed from the prior-year period. Further, the retail REIT has an encouraging leasing pipeline, which, upon opening, is expected to drive same-center net operating income (NOI) growth in 2024 and 2025. We expect the company’s total revenues to increase 1.5% and 3.8% in 2024 and 2025, respectively, on a year-over-year basis.

MAC has been making efforts to enhance its asset quality as well as customer relationships through the increasing adoption of the omnichannel model, a popular choice among several store retailers post the pandemic. This is likely to pay off well.

Macerich’s healthy balance sheet position with ample financial flexibility is likely to continue supporting its growth endeavors. As of Feb 7, 2024, the company had around $657 million of liquidity, including $490 million of available capacity on its $650 million revolving line of credit. Furthermore, as of Dec 31, 2023, Macerich had $151.7 million available to be sold under its March 2021 at-the-market (ATM) program. Its well-laddered debt maturity profile and decent financial position are likely to continue supporting its growth endeavors.

Macerich has been focusing on an aggressive capital-recycling program, which involves the divestiture of non-core and slower-growth assets and the usage of the proceeds to increase its presence in core markets and invest in higher-growth properties through acquisitions, developments and redevelopment initiatives.

Apart from raising capital, strategic dispositions reduced impending bankruptcy issues across the lower-quality disposed portfolio. For 2024, Macerich expects to incur around $160-$180 million for development, redevelopment, expansion and renovations.

Over the past six months, shares of this Zacks Rank #3 (Hold) company have rallied 45.8% compared with the industry's upside of 5.3%. Also, the Zacks Consensus Estimate for 2024 and 2025 FFO per share have been revised northward over the past month, indicating analysts’ bullish sentiments.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

What’s Hurting MAC?

Given the conveniences of online shopping, growing e-commerce adoption may weigh on Macerich’s prospects. Online retailing is likely to remain a popular choice among customers, thus adversely impacting the market share for brick-and-mortar stores.

Further, amid persistent macroeconomic uncertainty and a high interest rate environment, a slowdown in the economy and the depletion of savings could limit consumers’ willingness to spend to some extent.

A high interest rate environment is a concern for Macerich. Elevated rates imply high borrowing costs for the company, affecting its ability to purchase or develop real estate. As of Dec 31, 2023, its total pro-rata share of debt was approximately $6.92 billion with a weighted average interest rate of 5.02%. For the first quarter of 2024, we expect interest expenses to rise 2.6% on a year-over-year basis.  Further, with high interest rates still in place, the dividend payout might seem less attractive than the yields on fixed-income and money market accounts.

Stocks to Consider

Some better-ranked stocks from the retail REIT sector are Essential Properties Realty Trust, Inc. EPRT and Tanger Inc. SKT, 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 Essential Properties’ ongoing year’s funds from operations (FFO) per share has been revised a cent upward over the past two months to $1.75. It also suggests a 6.1% increase year over year.

The Zacks Consensus Estimate for Tanger’s 2024 FFO per share has been revised a cent upward over the past two months to $2.06, which implies year-over-year growth of 5.1%.

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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