On Oct 4, 2013, we reiterated our long-term Neutral recommendation on The Macerich Company (MAC). The decision reflects the company’s decent performance in the recent quarters, successful portfolio repositioning moves and an improving balance sheet.
Why the Reiteration?
Macerich’s portfolio of high quality malls positioned across the most attractive U.S. markets drive occupancy and revenue growth. Moreover, significant developments and portfolio restructuring activities strengthened the long-term growth prospects. Macerich boasts a cluster of industry leading tenants such as Gap Inc. (GPS) and Abercrombie & Fitch Co. (ANF), which are well-capitalized retailers.
In tandem with its winning streak, Macerich reported impressive quarterly results on the back of solid operating fundamentals. The company reported second-quarter 2013 adjusted funds from operations (:AFFO) per share of 87 cents, beating the Zacks Consensus Estimate of 81 cents. Moreover, this was substantially higher than the year-ago figure of 74 cents. Strong escalation in revenues, overall portfolio occupancy and re-leasing spreads aided the results.
Moreover, for full-year 2013, Macerich raised its FFO per share guidance in the range of $3.38–3.48 from the prior range of $3.35–3.45. The guidance increase also boosts investors’ confidence in the stock.
Yet, its substantial development pipeline increases its operational risks. Amid the technological advancements, there is a significant rise in online shopping through the Internet, mobile phones and tablets. This in turn affects the demand for physical stores and thereby adversely affects the demand for the company’s properties. Also, rising interest rates hamper the company’s cost of borrowing.
Over the last 60 days, the Zacks Consensus Estimate for 2013 FFO per share escalated 1.5% to $3.49, while that for 2014 moved north by 0.6% to $3.64. Consequently, Macerich now carries a Zacks Rank #2 (Buy).
Macerich is scheduled to report its third-quarter 2013 earnings on Oct 28, 2013, after the closing bell. The Zacks Consensus Estimate for FFO per share for the upcoming quarter is pegged at 83 cents per share, depicting a year-over-year increase of 6.61%.
Other Stock to Consider
Another retail REIT that is currently performing better is Simon Property Group Inc. (SPG), which has 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.