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What's in the Cards for Macerich (MAC) This Earnings Season?

Zacks Equity Research

The Macerich Company MAC is scheduled to report fourth-quarter and full-year 2018 results on Feb 7, after the market closes. The company’s performance is likely to reflect a year-over-year decline in revenues and funds from operations (FFO) per share.

In the last reported quarter, this retail real estate investment trust (REIT) delivered a negative surprise of 1% in terms of funds from operations (FFO) per share.

Over the trailing four quarters, Macerich beat estimates in one occasion, met in another and missed in the other two, with average negative surprise of 0.16%. This is depicted in the chart below:

Macerich Company (The) Price and EPS Surprise

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

For full-year 2018, Macerich expects FFO per share, excluding costs related to shareholder activism, of $3.82-$3.87. The Zacks Consensus Estimate for the same is currently pinned at $3.86.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Macerich has concentration of premium malls in vibrant markets. The company has been making concerted efforts to enhance its asset quality and customer relationships. It is focusing on improving mall traffic and drive sales by trying to grab attention from new and productive tenants.

The company is also focused on transformation of suitably-placed retail properties to office spaces. Efforts include transformation of 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 the last year, Macerich announced a national partnership with premium workplace operator, Industrious. Such measures are a strategic fit as demand for office assets are likely to remain high amid economic improvement and job-market gains.

Nevertheless, despite the company resorting to different strategies, mall traffic continues to decline owing to a change in shopping patterns with online purchases taking precedence over in-store purchase. This has forced retailers to reconsider their strategy and shift investments from traditional retailing to online channels, and optimize their brick-and-mortar presence.

These optimization efforts and the consequent decision to close stores by a number of retailers have raised concerns over cash flows of mall landlords. Also, retailers unable to cope with competition have been filing bankruptcies. This is affecting the demand for retail real estate space and has emerged as a pressing concern for retail REITs like Macerich.

While Macerich is striving to counter such pressure through various initiatives, we expect bankruptcies and early terminations to persistently keep the market challenging the company’s near-term and moderate growth.

In addition, the recent data from Reis shows that the neighborhood and community shopping center vacancy rate remained flat in the fourth quarter at 10.2%. However, it inched up from 10% at year-end 2017. Mall vacancy rate edged down to 9% in the quarter from 9.1% in the third quarter. At year-end 2017, mall vacancy was 8.3%. Despite the store-closure issue plaguing the market, the little stability indicates slowdown in new development.

Amid these, the Zacks Consensus Estimate for fourth-quarter revenues is pegged at $234.2 million — indicating a year-over-year fall of 8.8%. Minimum rental revenues are expected to have registered a 2.6% decline year over year to $147 million.  

Furthermore, Macerich’s activities during the quarter were inadequate to win analysts’ confidence. Consequently, the Zacks Consensus Estimate for FFO per share, which witnessed a marginal decrease over the last 60 days, is currently pinned at $1.09. The figure also indicates nearly a 3.5% decline, year over year.

Here is what our quantitative model predicts:

Macerich does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Macerich is +0.65%.

Zacks Rank: Macerich carries a Zacks Rank #3, currently.

A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. But Macerich does not have a favorable Zacks rank to make us reasonably confident of a positive surprise.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Hersha Hospitality Trust HT, scheduled to release earnings on Feb 25, has an Earnings ESP of +1.21% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CyrusOne Inc. CONE, slated to release fourth-quarter results on Feb 20, has an Earnings ESP of +3.07% and a Zacks Rank of 3.

Federal Realty Investment Trust FRT, set to report quarterly numbers on Feb 13, has an Earnings ESP of +1.53% and carries a Zacks Rank #3.

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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