On Jul 18, 2013, we reiterated our long-term recommendation on The Macerich Company (MAC) – a retail real estate investment trust (REIT) – at Neutral. This was based on Macerich’s strong portfolio fundamentals and successful ongoing capital-recycling program. However, the company’s significant development pipeline and rise in online shopping remains plausible concerns.
Why Neutral?
Macerich’s Class A shopping centers portfolio, located across some of the most vibrant U.S. markets, helped the company to charge higher rental rates and steadily maintain the upward trend. In addition, the company boasts a cluster of industry leading well-capitalized retailers – such as The Gap, Inc. (GPS) and Saks Incorporated (SKS) – that have fared well post recession.
Moreover, the divestiture of older and slower-growth assets and usage of the proceeds in upscale higher-growth assets promises long-term value potential and steady revenue growth. Also, Macerich has a strong balance sheet with adequate liquidity.
However, the company’s in-process development pipeline exposes it to various risks such as rising construction costs, entitlement delays and lease-ups. Additionally, excess retail space in a number of its markets and the rise in consumer purchases through catalogs and the Internet could hurt the demand for its properties. This remains a matter of concern for the company, going forward.
Over the last 60 days, the Zacks Consensus Estimate for 2013 funds from operations (FFO) per share moved north 1.8% to $3.45. For 2014, the Zacks Consensus Estimate upped 1.1% to $3.62. Thus, Macerich now carries a Zacks Rank #2 (Buy).
Macerich is scheduled to report second-quarter 2013 earnings on Aug 5 after the market closes. The Zacks Consensus Estimate for FFO per share for the upcoming quarter results is pegged at 81 cents per share.
The earnings ESP (Read: Zacks Earnings ESP: A Better Method) for Macerich is positive 1.24% for the second quarter. This, along with its Zacks Rank #2 signifies that the company will definitely beat earnings this season.
Other Stock to Consider
Retail REITs that are currently performing better include American Realty Capital Properties Inc. (ARCP), which has a Zacks Rank #1 (Strong 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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