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

Zacks Equity Research

The Macerich Company MAC is slated to report third-quarter 2019 results on Oct 31, before the market opens. The company’s performance will likely reflect a marginal year-over-year increase in revenues, while its funds from operations (FFO) per share might display a decline.

In the last reported quarter, this retail real estate investment trust (REIT) delivered positive surprise of 2.33% with respect to FFO per share. The company witnessed strong tenant sales growth as well as increase in average rent and releasing spreads, while its occupancy declined.

Over the preceding four quarters, Macerich beat estimates on one occasion, met in the other two and missed in another, the average positive surprise being 0.33%. This is depicted in the chart below:

Macerich Company (The) Price and EPS Surprise

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

Macerich Company (The) price-eps-surprise | Macerich Company (The) Quote

Notably, the recent data from Reis shows that the vacancy rate of neighborhood and community shopping center contracted 10 basis points (bps) sequentially to 10.1% in the third quarter. Both, national average asking rent and effective rent, which nets out landlord concessions, inched up 0.3% sequentially. However, the Regional Mall vacancy rate expanded 10 bps sequentially to 9.4%. Nonetheless, rent growth was 0.2% in the quarter.

Admittedly, store closures and bankruptcies have been affecting the retail real estate market, for long, which is, in fact, undergoing structural changes. However, with retail spending still being healthy, with consumer spending increasing amid job growth, the retail real estate sector is expected to have grown at a slow yet steady pace.

Particularly, Macerich is aimed at enhancing its asset quality as well as customer relationships through redevelopment efforts and increasing adoption of the omni-channel model. Through redevelopment, the company is focused on repurposing properties, as well as improving its merchandizing mix and shopper experience.

The company is aimed at boosting mall traffic and driving sales by trying to grab attention from new and productive tenants, and disposing the non-productive ones amid retail apocalypse. As part of such initiatives, the company has been engaged in redevelopment of The Fashion District of Philadelphia and Scottsdale Fashion Square. The company is also partnering with co-working provider Industrious to add flexible-office spaces to its retail centers. Such concerted efforts are expected to have spurred demand for its properties in the September-end quarter.

Nevertheless, the choppy retail real estate environment will keep curbing the company’s growth momentum, affecting rental growth and net operating income expansions in the days ahead. This is because secular industry headwinds, including retailer downsizing and tenant bankruptcies, keep dampening industry fundamentals.

Furthermore, though the company has been striving to counter this pressure through various initiatives, implementation of such measures requires a decent upfront cost. Therefore, this is expected to have limited any robust growth in profit margins in the quarter under review.

Amid these, the Zacks Consensus Estimate for third-quarter revenues is pegged at $217.8 million — indicating a year-on-year uptick of just 0.06%. Also, Macerich’s activities during the July-September quarter were inadequate to gain analyst confidence. Consequently, the Zacks Consensus Estimate for FFO per share of 87 cents for the quarter remained unchanged over the past month. The figure also indicates a year-over-year decline of 12.1%.

Here is what our quantitative model predicts:

Our proven model predicts a positive surprise in terms of FFO per share for Macerich this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of a FFO beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Macerich currently carries a Zacks Rank #3 and has an Earnings ESP of +0.50%.

Other Stocks That Warrant a Look

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

Stag Industrial, Inc. STAG, scheduled to release earnings on Oct 30, has an Earnings ESP of +3.30% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Simon Property Group, Inc. SPG, slated to report third-quarter results on Oct 30, has an Earnings ESP of +0.28% and a Zacks Rank of 3.

Apartment Investment and Management Company AIV, set to release quarterly numbers on Oct 31, has an Earnings ESP of +0.6% and carries a Zacks Rank of 3, currently.

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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