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Key Reasons Why Macerich's (MAC) Shares Soared 65.8% QTD

Shares of The Macerich Company MAC have skyrocketed 65.8% in the quarter-to-date period compared with its industry’s growth of 19.1%.

Earlier this month, this retail real estate investment trust (REIT), headquartered in Santa Monica, CA, reported third-quarter 2022 FFO per share of 46 cents, excluding financing expenses in relation to Chandler Freehold. The figure grew 2.2% year over year.  

It witnessed robust leasing demand during the third quarter, with tenant sales continuing to gain momentum. The portfolio occupancy improved year over year, and the re-leasing spreads were the strongest since the end of third-quarter 2019.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Let us decipher the factors behind the surge in the stock price.

The increase in consumers’ preference for in-person shopping experiences following the pandemic downtime has been driving the recovery in the retail real estate industry. Retailers continue to rent out more physical store spaces to meet this growing demand.

As a result, Macerich’s portfolio of premium assets in the United States, with a notable presence in California, the Pacific Northwest, Arizona and the Metro New York to Washington, DC corridor, has been experiencing solid leasing activity.

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.

During third-quarter 2022, Macerich signed 219 new and renewal leases encompassing 1.1 million square feet. Its portfolio occupancy improved year over year from 90.3% to 92.1% as of Sep 30, 2022.

Moreover, the portfolio tenant sales per square foot for spaces less than 10,000 square feet in the trailing 12 months ended Sep 30, 2022, touched $877 — a record high.

In recent years, omni-channel retailing has gained momentum and has become the focal point for many retailers. In line with this, Macerich has been focusing on enhancing its asset quality and customer relationships by increasing its adoption of the omni-channel model. The company has also been shifting toward re-use and mixed-used properties by recapturing and repositioning anchor tenants.

Moreover, MAC’s development and redevelopment initiatives seem encouraging.

In October 2022, Macerich announced plans for the next phase of the ongoing reinvestment in the company’s iconic Scottsdale Fashion Square, encompassing 1.9 million square feet. This will provide the company an opportunity to capitalize on the expenditure trend of affluent customers and generate decent cash flows.

Further, this November, MAC announced that Dillard's DDS will construct a new and bigger store to replace its existing operations at South Plains Mall in Lubbock, TX.

The new flagship store encompassing 220,000 square feet will take over the former Sears site, replacing the two locations Dillard's currently occupies at South Plains Mall. The construction for the same is slated to begin immediately, with an anticipated opening date in early 2024.

Macerich’s aggressive capital-recycling program to enhance the overall quality of its portfolio highlights its prudent capital-management practices and releases the pressure off its balance sheet.

As of Nov 3, MAC had more than $615 million of liquidity. Its well-laddered debt maturity profile and ample financial flexibility have positioned it well to capitalize on long-term growth opportunities.

Moreover, its projected current cash flow growth is significant compared with 26.69% growth estimated for the industry.

Solid dividend payouts remain the biggest attraction for REIT investors, and Macerich has remained committed to that. In October 2022, it increased the quarterly cash dividend payment from 15 cents per share to 17 cents, reflecting a hike of 13.3%. Such efforts boost investors’ confidence in the stock.

Nonetheless, given the conveniences of online shopping, rising e-commerce adoption is still a concern for this Zacks Rank #3 (Hold) company. Also, amid the inflationary environment and interest rate hikes, a slowdown in the economy and the depletion of savings could limit consumers’ willingness to spend to some extent.

Stocks to Consider

Some better-ranked stocks from the retail REIT sector are Tanger Factory Outlet Centers SKT and American Assets Trust AAT, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Tanger Factory Outlet Centers’ ongoing year’s FFO per share has presently stands at $1.80.

The Zacks Consensus Estimate for American Assets Trust’s 2022 FFO per share is pegged at $2.29, presently.

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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