On Jan 2, 2014, we reaffirmed our long-term recommendation on The Macerich Company (MAC) at Neutral. The decision reflects the company’s recent deal with Deliv, strong third-quarter performance and an improving balance sheet. Yet, a substantial development and redevelopment pipeline increases its operational risk and rise in online purchases still remain a concern for the company.
Why Neutral?
Macerich’s recent tie-up with Deliv is a significant step toward combating the competitive pressure in the present technologically advanced age. With this new collaboration, Macerich would use its properties as distribution centers and use Deliv’s technological platform to support same day delivery. This move is expected to boost the shopping experience and enhance sales volume at the tenant stores, consequently raising the demand for Macerich’s properties.
Moreover, Macerich kept its winning streak alive by reporting impressive quarterly results. The company reported third-quarter 2013 adjusted funds from operations (AFFO) per share of 86 cents, beating the Zacks Consensus Estimate by 3 cents and the year-ago figure by 8 cents. Strong growth in revenue, overall portfolio occupancy and re-leasing spreads boosted the results.
For full-year 2013, Macerich raised its FFO per share outlook in the range of $3.46–$3.52 from $3.38–3.48. Macerich also increased the quarterly dividend by 6.9% to 62 cents per share from 58 cents paid in the last quarter. These activities raise investors’ confidence in the stock.
On the flip side, we believe that though a notable development as well as redevelopment pipeline of Macerich is encouraging, that also increases its operational risks by exposing it to rising construction costs, entitlement delays and lease-ups.
Moreover, the rising trend in online shopping through the Internet, mobile phones and tablets has led to increasing competition and adversely affected the demand for retail real estates. While the company is making efforts to counter such pressure through the recent deal with Deliv, we believe this factor still hinders Macerich’s growth prospects.
Over the last 60 days, the Zacks Consensus Estimate for 2013 and 2014 FFO remained stable at $3.50 and $3.62 per share, respectively. Macerich now carries a Zacks Rank #3 (Hold).
Other Stock to Consider
Investors interested in the REIT-Equity Trust – Retail industry may consider stocks like Cedar Realty Trust, Inc. (CDR), Retail Properties of America, Inc. (RPAI) and Agree Realty Corp. (ADC). All these stocks carry a Zacks Rank #2 (Buy).
Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
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