Shares of The Macerich Company MAC, currently holding a Zacks Rank #3 (Hold), have gained 11.8% in the quarter-to-date period, outperforming the industry’s rally of 3.2%.
Headquartered in Santa Monica, CA, this retail real estate investment trust (REIT) witnessed robust leasing demand in the second quarter, with tenant sales continuing to gain momentum.
Also, management narrowed the guidance range and increased the midpoint of its 2022 funds from operations (FFO) per share. It expects 2022 FFO per share, excluding financing expenses in relation to Chandler Freehold, in the range of $1.92-$2.04, revised from the earlier expectation of $1.90-$2.04. The Zacks Consensus Estimate for the same is currently pegged at $1.96.
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Let us now look at the factors behind the rally in the stock price.
Macerich has a significant presence in California, the Pacific Northwest, Arizona and the Metro New York to Washington, DC corridor. These densely populated areas have an affluent customer base with significant disposable income. This has helped the company capture the post-pandemic rebound in retail demand, aiding its cash flow generation. Moreover, Macerich’s current cash flow growth is projected at 224.02% compared with 26.69% growth estimated for the industry.
With the relaxations in the pandemic-related restrictions and widespread vaccination drives, traffic at retail outlets and tenant sales have considerably improved, with figures surpassing the 2021 and the pre-pandemic levels. The portfolio tenant sales per square foot for spaces less than 10,000 square feet in the trailing 12 months ended Jun 30, 2022, touched $860 — a record high.
During second-quarter 2022, Macerich signed 274 new and renewal leases encompassing 1.2 million square feet, representing a nearly 27% increase in the number of leases signed year over year. Also, MAC’s portfolio occupancy improved year over year from 89.4% to 91.8% as of Jun 30, 2022.
Macerich has been focusing on enhancing its asset quality and customer relationships through increasing the adoption of the omni-channel model. Moreover, the company has been shifting toward re-use and mixed-used properties by recapturing and repositioning anchor tenants.
In addition, its efforts to bring brands to new markets at its mall are expected to attract shoppers. In July, Macerich opened its doors to a popular large-format entertainment brand — Round1 Bowling & Amusement — which will open its entertainment space at two of Macerich’s popular centers — Arrowhead Towne Center in suburban Phoenix and Danbury Fair in Connecticut. Earlier this June, it announced that Target, a leading retailer, will open at the former Sears site in Danbury Fair.
Further, to enhance its portfolio, Macerich has been following an aggressive capital-recycling program. Through this, the company divests its non-core and slow-growing assets and uses the proceeds for acquisitions and developments and redevelopment activities. Particularly, for the 2013-2021 period, MAC raised $2.2 billion of liquidity through capital recycling from non-core asset sales. Such moves highlight its prudent capital-management practices and release the pressure off its balance sheet.
However, given the conveniences of online shopping, rising e-commerce adoption is still a concern for Macerich. Online retailing will likely remain a popular choice among customers, thus adversely impacting the market share for brick-and-mortar stores.
Also, higher interest rates might increase the company's borrowing costs, affecting its ability to purchase or develop real estate.
Stocks to Consider
Some better-ranked stocks in the retail REIT sector are STORE Capital STOR, Kite Realty Group Trust KRG and Tanger Factory Outlet Centers 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 STORE Capital’s 2022 FFO per share has moved 1.3% upward in the past month to $2.27.
The Zacks Consensus Estimate for Kite Realty’s 2022 FFO per share has moved 1.1% upward in the past month to $1.84.
The Zacks Consensus Estimate for Tanger Factory Outlet Centers’ ongoing year’s FFO per share has been raised marginally over the past month to $1.76.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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