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Macerich (MAC) Hurt by E-commerce Adoption & High Rates

The Macerich Company MAC is expected to bear the brunt of higher e-commerce adoption and limited consumers’ willingness to spend amid persistent macroeconomic uncertainties. Also, an elevated interest rate environment adds to the company’s woes.

Given the convenience of online shopping, the growing acceptance of e-commerce is expected to weigh on Macerich’s prospects. Online retailing is likely to remain a popular choice among customers, negatively impacting the market share of brick-and-mortar stores. This may hurt the demand for the company’s properties and limit top-line growth.

An expected slowdown in the economy and the depletion of savings amid persistent macroeconomic uncertainties and a high interest rate environment are concerning for this retail real estate investment trust (REIT). The phenomenon could result in limited consumers’ willingness to spend, stalling the company’s growth tempo to some extent.

Also, with high interest rates in place, it may find it difficult to purchase or develop real estate with borrowed funds as the costs are likely to be on the higher side. Further, the dividend payout may seem less attractive than the yields on fixed-income and money market accounts.

Macerich has a substantial number of centers in California, New York and Arizona, which accounted for 27.6%, 21.6% and 17.4%, respectively, of its 2023 estimated pro-rata real estate net interest income. This geographical concentration risk is likely to impact the company's earnings in times of economic and political uncertainty.

Analysts seem bearish regarding MAC’s 2023 funds from operations (FFO) per share growth prospects as Zacks Consensus Estimate has been revised marginally downward over the past month.

For 2023, we project a year-over-year decline of 9.2% in FFO per share, excluding financing expenses in connection with Chandler Freehold and accrued default interest expense.

The company currently carries a Zacks Rank #4 (Sell).

Over the past three months, shares of MAC have declined 3% against the industry's growth of 0.8%.

Zacks Investment Research
Zacks Investment Research

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Despite the above-mentioned concerns, MAC remains well poised to benefit from the healthy retail demand for its premium portfolio of shopping centers in some of the vibrant markets of the United States.

Following the pandemic, consumers’ preference for in-person shopping experience has driven the recovery in the retail real estate industry. As a result, Macerich’s portfolio has experienced healthy leasing activity over the past few quarters and an improvement in tenant sales per square foot. Its encouraging leasing pipeline of signed and in-process leases is likely to aid the company in the upcoming period.

Macerich has been focusing on enhancing its asset quality and customer relationships by increasing its adoption of the omnichannel model, which has gained immense popularity in recent years and has become the focal point for many retailers. It has also shifted toward re-use and mixed-used properties by recapturing and repositioning anchor tenants. Such efforts will enable the company to ring in premium brands at its properties and boost sales.

Furthermore, the REIT’s aggressive capital-recycling program to enhance the overall quality of its portfolio highlights its prudent capital-management practices and helps preserve balance sheet strength.

Stocks to Consider

Some better-ranked stocks from the retail REIT sector are TANGER INC SKT and Urban Edge Properties UE.

TANGER currently sports a Zacks Rank #1 (Strong Buy). Its Zacks Consensus Estimate for current-year FFO per share has moved 1% northward over the past week to $1.94. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Urban Edge Properties’ ongoing year’s FFO per share has been raised 1.7% over the past two months to $1.19. Currently, UE carries a Zacks Rank #2 (Buy).

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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