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Is It Wise to Hold Macerich (MAC) in Your Portfolio Now?

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·4 min read
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The Macerich Company MAC has a high concentration of premium malls in vibrant U.S. markets. These properties are located in densely populated areas where affluent consumers with significant disposable income live and play, offering the company the solid scope to generate decent cash flows and positioning it for a strong post-pandemic rebound.

Macerich’s decent number of well-capitalized retailers in its tenant roster and a well-laddered lease maturity schedule helped it navigate through turbulent times as well as gain from a solid rebound of the retail real estate market post-pandemic.

The relaxation of government-mandated restrictions and the high levels of vaccination across the United States have resulted in a significant improvement in sales and traffic across the company’s portfolio. In the first quarter of 2022, portfolio comparable tenant sales from spaces less than 10,000 square feet were 14.5% higher year over year. Moreover, MAC’s portfolio tenant sales per square foot for spaces less than 10,000 square feet in the trailing 12 months ended Mar 31, 2022 touched $843, taking it to a record high.

Macerich has been making efforts to enhance its asset quality and customer relationships through the increasing adoption of the omnichannel model. Also, a shift toward re-use and mixed-use properties by recapturing and repositioning anchor tenants remains a key emphasis of Macerich, while bringing brands to the new markets at its mall is likely to attract shoppers.

Macerich recently announced that Target TGT, a leading retailer, will be opening its store in Danbury Fair. The mall is located in upscale suburban Connecticut, 55 miles away from New York City. This will also mark Target’s first store in Danbury, CT. Target will open its store in the former Sears site, and it will be a 126,000-square-foot, two-level store. TGT also recently opened a three-level store at Macerich's Kings Plaza in Brooklyn at a former JCPenney location.

However, higher e-commerce adoption, shrinking traffic at its retail properties and store closures are key concerns. However, with widespread vaccination drives and relaxations being implemented, the mall traffic is witnessing a rebound. However, the recovery is expected to be slow, given the concerns regarding the emergence of the new variants of COVID-19 and more consumers learning about the convenience of online purchases. Further, the substantial asset concentration raises Macerich’s risks.

Also, a hike in the interest rate is a concern for MAC. Rising rates imply higher borrowing costs for the company, which will affect its ability to purchase or develop real estate. The company has a substantial debt burden and its total debt as of Mar 31, 2022 was approximately $6.9 billion, with a weighted average interest rate of 3.86%. Moreover, the dividend payout might become less attractive than yields on fixed income and money market accounts.

Shares of this Zacks Rank #3 (Hold) firm have plunged 43.1% over the past three months compared with the industry's decline of 12.5%. Moreover, estimate revision trends for 2022 funds from operations (FFO) per share do not indicate a favorable outlook for the company as estimates have remained unchanged over the past month. Given the abovementioned concerns and lack of upward estimate revisions, the stock has limited upside potential in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment Research
Zacks Investment Research

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Stocks to Consider

Some better-ranked stocks in the REIT sector are National Retail Properties NNN and SITE Centers Corp. SITC.

The Zacks Consensus Estimate for National Retail Properties’ 2022 FFO per share has moved 2.9% upward in the past month to $3.17. NNN presently carries a Zacks Rank of 2 (Buy).

The Zacks Consensus Estimate for SITE Centers' ongoing year’s FFO per share has been raised 1.8% over the past two months to $1.14. SITC carries a Zacks Rank #2 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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Target Corporation (TGT) : Free Stock Analysis Report
Macerich Company The (MAC) : Free Stock Analysis Report
National Retail Properties (NNN) : Free Stock Analysis Report
SITE CENTERS CORP. (SITC) : Free Stock Analysis Report
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