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Macerich's (MAC) Q4 FFO Meets, Revenues Miss Estimates

Zacks Equity Research

Retail REIT The Macerich Company MAC delivered fourth-quarter 2018 funds from operations (FFO) per share of $1.09, in line with the Zacks Consensus Estimate. The figure compares favorably with the prior-year tally of $1.03.

However, the company posted adjusted revenues of $215.7 million for the quarter, missing the Zacks Consensus Estimate of $234.2 million. Also, the figure comes in 6.2% lower than the prior-year figure.

Results reflect a decline in minimum rents and tenant recoveries. However, the company witnessed an uptick in occupancy and mall tenant annual sales.

Moreover, Macerich provided its guidance for 2019. The REIT expects FFO per share of $3.50-3.58, and $3.65-$3.73 (excluding impact of ASC 842). This is lower than the Zacks Consensus Estimate for full-year 2019 FFO per share of $3.81.   

Notably, the 2019 outlook has been negatively impacted by expectations related to interest rates, anchor closures, anticipated tenant bankruptcies and other factors, the company said. The guidance assumes 0.5-1% (excluding lease termination income) growth in same center net operating income.

Reflecting negative sentiments, the shares are down in pre-market trading.

Notably, Macerich's joint venture (JV) in One Westside, previously known as Westside Pavilion, in Los Angeles, CA, entered into a lease with Google, Inc. for the whole of its 584,000-square-foot Class A creative office campus. Also, its JV in Country Club Plaza in Kansas City entered into a lease with Nordstrom.

Quarter in Detail

As of Dec 31, 2018, mall portfolio occupancy expanded 40 basis points (bps) year over year to 95.4%. Mall tenant annual sales increased 10% year over year to $726 per square feet. Re-leasing spreads for the year ended Dec 31, 2018, increased 11.1%. Average rent per square foot ascended 3.7% to $59.09 from $56.97 as of Dec 31, 2017.

Also, same center net operating income (excluding lease termination revenue) rose 4.2% from the prior-year quarter.

As of Dec 31, 2018, Macerich’s cash and cash equivalents summed $102.7 million, up from $91 million reported as of Dec 31, 2017.

Our Viewpoint

Macerich has been making concerted efforts to boost mall traffic and drive sales by trying to grab attention from new and productive tenants. The company is repurposing properties, as well as improving its merchandizing mix. It is also focusing on transformation of suitably placed retail properties to office spaces.

Macerich created a JV with Hudson Pacific Properties, Inc. (HPP) early in 2018 to transform the iconic mall, The Westside Pavilion, in West Los Angeles into a 584,000-square-foot Class A urban creative office campus called One Westside. Moreover, in 2018, Macerich announced a national partnership with premium workplace operator, Industrious. This first-of-a-kind partnership, targeted at multi-property rollout between a co-working company and a major mall owner, came as good news for the retail space.

Nevertheless, despite the company resorting to different strategies in a bid to improve its asset quality, shrinking footfall amid shift of consumers toward online channels, store closures and bankruptcy of retailers are anticipated to affect its performance in the near term.

Macerich currently has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Macerich Company (The) Price, Consensus and EPS Surprise

Macerich Company (The) Price, Consensus and EPS Surprise | Macerich Company (The) Quote

We now look forward to the earnings releases of other retail REITs Regency Centers Corporation REG, Federal Realty Investment Trust FRT and Taubman Centers, Inc. TCO, which are slated to report their quarterly numbers on Feb 13.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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