Company Reports

Macerich has successfully repositioned itself over the past decade as a true owner and operator of Class A regional malls. Over the past 20 years, the company has sold over $5 billion in mostly lower-quality assets and recycled the capital into acquiring new Class A malls, with $1.3 billion of those sales coming in the past two years as management looks to reduce leverage. As a result, the portfolio should produce higher tenant sales productivity, occupancy levels, and rent and therefore be much better positioned to face the economic headwinds of e-commerce. We expect Macerich to continue improving its portfolio through redevelopment, opportunistic acquisitions, and asset sales, which should deliver strong earnings growth over time.

Macerich reported funds from operations of $0.35 per share and same-store net operating income growth of 3.8% for the second quarter.

Macerich has successfully repositioned the company over the past decade as a true owner and operator of Class A regional malls. Over the past 20 years, the company has sold over $5 billion in mostly lower-quality assets and recycled the capital into acquiring new Class A malls, with $1.2 billion of those sales coming in the past two years as management looks to reduce company leverage. As a result, the company's portfolio should produce higher tenant sales productivity, occupancy levels, and rent, and therefore is much better-positioned to face the economic headwinds of e-commerce. We expect Macerich to continue improving its portfolio through redevelopment, opportunistic acquisitions, and asset sales, which should deliver strong earnings growth for Macerich over time.

Macerich reported funds from operations of $0.34 per share and same-store net operating income growth of 1.2% for the first quarter.

Macerich reported funds from operations of $0.48 per share and same-store net operating income growth of 1.8% for the fourth quarter.

Macerich has successfully repositioned the company over the past decade as a true owner and operator of Class A regional malls. Over the past 20 years, the company has sold over $5 billion in mostly lower-quality assets and recycled the capital into acquiring new Class A malls, with $1.2 billion of those sales coming in the past two years as management looks to reduce company leverage. As a result, the company's portfolio should produce higher tenant sales productivity, occupancy levels, and rent, and therefore is much better-positioned to face the economic headwinds of e-commerce. We expect Macerich to continue improving its portfolio through redevelopment, opportunistic acquisitions, and asset sales, which should deliver strong earnings growth for Macerich over time.

Macerich reported funds from operations of $0.33 per share and same-store net operating income growth of 2.5% for the third quarter.

Macerich has successfully repositioned the company over the past decade as a true owner and operator of Class A regional malls. Over the past 20 years, the company has sold over $5 billion in mostly lower-quality assets and recycled the capital into acquiring new Class A malls, with over $1 billion of those sales coming in the past two years as management looks to reduce company leverage. As a result, the company's portfolio should produce higher tenant sales productivity, occupancy levels, and rent, and therefore is much better-positioned to face the economic headwinds of e-commerce. We expect Macerich to continue improving its portfolio through redevelopment, opportunistic acquisitions, and asset sales, which should deliver strong earnings growth for Macerich over time.

Macerich reported funds from operations of $0.33 per share and same-store net operating income growth of 2.7% in the second quarter.

Macerich has successfully repositioned the company over the past decade as a true owner and operator of Class A regional malls. Over the past 20 years, the company has sold nearly $5 billion in mostly lower-quality assets and recycled the capital into acquiring new Class A malls, with over $500 million of those sales coming in the past year as managment looks to reduce company leverage. As a result, the company's portfolio should produce higher tenant sales productivity, occupancy levels, and rent and therefore is much better-positioned to face the economic headwinds of e-commerce. We expect Macerich to continue improving its portfolio through redevelopment, opportunistic acquisitions, and asset sales, which should deliver strong earnings growth for Macerich over time.

Macerich reported funds from operations of $0.33 per share and same-store net operating income growth of 2.9% for the first quarter.

Macerich has successfully repositioned the company over the past decade as a true owner and operator of Class A regional malls. Over the past 15 years, the company has sold over $4 billion in mostly lower-quality assets, either directly owned or owned through joint ventures, and recycled the capital into acquiring new Class A malls, buying out its partners' share in the unconsolidated portfolio or redeveloping its own portfolio. As a result, the company's portfolio should produce higher tenant sales productivity, occupancy levels, and rent and therefore is much better-positioned to face the economic headwinds of e-commerce. We expect Macerich to continue improving its portfolio through redevelopment, opportunistic acquisitions, and asset sales, which should deliver strong earnings growth for Macerich over time.

No-moat Macerich reported fourth-quarter results that were mixed compared with our expectations, though we didn’t see anything that would materially change our $24 fair value estimate. Occupancy increased 40 basis points sequentially and 60 basis points year over year to 94.1%, relatively in line with our 94.0% estimate. Trailing 12-month tenant sales per square foot were flat at $837 for 2024 compared with $836 for 2023, an improvement over the declines the company had reported over the prior several quarters. Re-leasing spreads were 8.8% in the fourth quarter, better than our 5.6% estimate. However, there was a significant difference between the consolidated portfolio, which saw re-leasing spreads decline 0.5%, and the joint-venture portfolio, which saw rents increase 33.9%. Macerich’s joint-venture assets tend to be higher-quality, so this is in line with our view that higher-quality retail will generally outperform lower-quality assets. Same-store net operating income fell 0.4% in the fourth quarter, though that is better than our estimate for a 2.9% decline. Macerich reported funds from operations of $0.47 per share, which was $0.02 below our $0.49 estimate.

Over the past few years, we have observed an inverse relationship between share prices in the REIT sector and interest-rate movements. We believe a major reason is that all commercial real estate valuations are connected to interest rates. Capitalization rates directly indicate the return expectations for a real estate investment and expectations for risk and growth. Historically, we have observed that commercial real trades at cap rates consistently spread above the 10-year US Treasury. If interest rates rise, investors will require a higher return, and thus a higher cap rate, to accept the risk associated with an investment in a real estate asset. Since return expectations have held relatively steady for most real estate sectors over the past few years, higher cap rates translate to falling prices for real estate.

Third-quarter results for no-moat Macerich were in line with our expectations, giving us confidence in our $24 fair value estimate. Occupancy increased 10 basis points sequentially to 93.4% in the third quarter. Trailing 12-month tenant sales per square foot were $834 for the third quarter. While that is a 1.5% decline compared with the 12 months prior to the third quarter of 2023, sales are only down 0.2% compared with all of 2023, indicating that the sales decline is leveling off. Re-leasing spreads were 11.9% in the quarter, marking the sixth straight quarter the company has reported a double-digit figure. Macerich reported same-store net operating income growth of 1.9% for the third quarter, slightly better than our estimate of 0.6% growth. The company reported funds from operations of $0.36 per share, which was in line with our estimate.

The REIT sector in the US offers many companies that should see relatively stable cashflow growth over the next several years. While the pandemic hurt REIT valuations in 2020, the recovery of fundamentals across most sectors combined with low interest rates led to strong total returns in 2021 and early 2022. However, despite fundamentals continuing to perform well over the past three years with many reaching historical levels of net operating income growth, the REIT sector underperformed the broader equity markets in 2023 and into the first half of 2024. We believe that is due to the sector’s negative correlation with interest rates, as income-oriented investors rotate out of the sector, higher rates lower the value REITs can create with external growth, and property valuations fall in line with higher rates. However, interest rates have fallen since the end of July, leading to a rally for the REIT sector. Still, we still view many of companies in the US REIT sector as being undervalued as the companies should continue to produce solid long-term growth.

Macerich has successfully repositioned the company over the past decade as a true owner and operator of Class A regional malls. Over the past 14 years, the company has sold over $4 billion in mostly lower-quality assets, either directly owned or owned through joint ventures, and recycled the capital into acquiring new Class A malls, buying out its partners' share in the unconsolidated portfolio or redeveloping its own portfolio. As a result, the company's portfolio should produce higher tenant sales productivity, occupancy levels, and rent and therefore is much better-positioned to face the economic headwinds of e-commerce. We expect Macerich to continue improving its portfolio through redevelopment, opportunistic acquisitions, and asset sales, which should deliver strong earnings growth for Macerich over time.

Despite a rally over the past two months, we still view the US REIT sector as being undervalued. While the pandemic hurt REIT valuations in 2020, the recovery of fundamentals across most sectors led combined with low interest rates led to strong total returns in 2021 and early 2022. However, despite fundamentals continuing to perform well over the past three years, with many reaching historical levels of net operating income growth, the REIT sector has underperformed the broader equity markets in 2023 and into the first half of 2024. We believe that the cause has been due to the sector's negative correlation with interest rates as income-oriented investors rotate out of the sector, higher rates lower the value REITs can create with external growth, and property valuations fall in line with higher rates. However, interest rates have fallen since the end of July, leading to a rally for the REIT sector. We believe that US REITs will continue to see share price movements that are inverse of interest rate movements.

Macerich reported second-quarter results that were relatively in line with our expectations, leading us to reaffirm our $24 fair value estimate for the no-moat company. Occupancy fell 10 basis points sequentially to 93.3% in the second quarter. While trailing 12-month tenant sales per square foot were down 2.1% compared with the 12 months prior to the second quarter of 2023, the first half of 2024 sales are only down 0.6% compared with the first half of 2023, suggesting the sales decline is slowly leveling off. Re-leasing spreads were 10.1% in the quarter, marking the fifth straight quarter the company has reported a double-digit figure. Same-store net operating income grew 1.4%, which was better than our estimate of a 1.3% decline. Macerich reported funds from operations of $0.37 per share, in line with our estimates for the quarter.

The US REIT sector remains significantly undervalued, in our perspective. While the pandemic hurt REIT valuations in 2020, the recovery of fundamentals across most sectors combined with low interest rates led to strong total returns in 2021 and early 2022. However, despite fundamentals continuing to perform well over the past two years, with many REITs reaching historical levels of net operating income growth, the sector has underperformed the broader equity markets over the past two years. We believe that the cause has been the sector’s negative correlation with interest rates as income-oriented investors rotate out of the sector, higher rates lower the value REITs can create with external growth, and property valuations fall in line with higher rates. However, we don’t believe that higher rates significantly change our fair value estimates for the sector. Additionally, interest rates are down from the October 2023 highs, and REIT share prices have generally inversely followed the movements of the US 10-year Treasury.