Macerich Tries To Pacify Spirits

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The “crown jewel” of Regional Mall REITs, Macerich (NYSE:MAC) continues to perform strongly in Q2 2015 as if to pacify spirits after rejecting the offer bid of Simon Property (NYSE:SPG). Same-center NOI has increased 7.5 percent over the same period last year, and management expects the full-year figure to be between 5.5 and 6.0 percent. But, at the end of the day, the stock continues relatively expensive.

Demand for high-quality mall space from both tenants and customers has been managing well, and Macerich has positioned itself in ideal locations. Over 85 percent of the current NOI comes from ZIP codes where median household income is $120,000 and 70 percent of the adult population has a college degree. The results have been:

(1) The releasing spreads for the year increased 17.5 percent.

(2) Mall portfolio occupancy advanced 10 basis points from 95.4 percent in Q2 2014 to 95.5 percent.

(3) Mall tenant annual sales per square foot for the portfolio went up 10 percent, from $567 to $623 for the year ended June 30, 2015.

Management expects operating margins to increase in aggregate 400 basis points (due to both the revenue and expense lines) over the next 18-24 months because the active portfolio management in which they have been disposing the bottom-performing assets and redeploying the capital into development and acquisitions.

For such strong operating-growth rates, I was expecting FFO-per-share to be stronger, but in fact, it only increased 3 percent to $0.89 due to expenses related to Simon Property’s unsolicited takeover attempt. On the other hand, Macerich narrowed the guidance, and an 8 percent FFO-per-share increase is expected for 2015.

With regard to tenant financial health, eight national retailers declared bankruptcy, affecting 76 stores that contained 247,000 of the total 55,000,000 square feet gross leasable area.

Simon Property has made an offer of $95.05 per share, and Macerich is trading at around $78, a 18 percent discount. To be fair, when the offer was rejected back in March, the stock was trading at a higher price before capital markets left the REIT stocks “high and dry.” At the current share price, Macerich has been trading at around 20, placing it on a par with Simon Property.

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Source: Macerich, Fast Graphs

Written by Heli Brecailo

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