This month's REIT Focus is on The Macerich Company (MAC) - an independent real estate investment trust that primarily engages in the acquisition, ownership, development, redevelopment, management and leasing of regional and community shopping centers located throughout the U.S.
Macerich is a self-administered and self-managed Maryland real estate investment trust, owning 92% of the general partner interest in The Macerich Partnership, L.P. - the UPREIT partnership that owns the assets of Macerich. The REIT owns a diverse portfolio of 62 regional shopping centers with 64 million sq. ft. of space. Its properties are located throughout the U.S., and average rent per sq.ft., occupancy and sales per sq.ft. were $38, 92.7% and $489, respectively, as of 2011. Macerich was incorporated in the State of in Maryland in 1993 and is based in Santa Monica, CA.
The company has 132 million shares outstanding, a stock price of $58 per share and a market capitalization of approximately $7.7 billion. Macerich has a solid and well regarded management team, including Arthur M. Coppola, 60, Chairman of the Board and Chief Executive Officer and Thomas E. O'Hern, 56, Senior Executive Vice President, Chief Financial Officer and Treasurer. Both Coppola and O'Hern have been with the company since 1993.
Select financial data for Macerich as of the 3/31/12 10Q and for the period 1/1-3/31/12 is as follows (in millions where applicable):
|Real Estate Assets, Gross||$7,508|
|Bank, Venture and Notes Payable||$1,077|
|Earnings Per Share||($.11)|
|Cash Flow from Operations||$86|
|Unsecured Revolving Credit Facility ($695 million available)||$1,500|
|Market Capitalization (equity value only)||14%|
|Real Estate Assets Per Sq. Ft.||$117,000|
|Dividend and Yield ($2.20/sh)||3.70%|
|NOI and Value Calculation:|
|Revenue Per Above Annualized||$860|
|Less: Operating Expenses||$505|
|Projected NOI 2012||$355|
|Projected Inflation Rate||x103.5%|
|Projected NOI for Next Year||$367|
|Projected Cap Rate||7.5%|
|Projected Value of Company||$4,899|
|Less: Total Debt||($1,077)|
|Projected Value of Company Equity||$3,822|
|Projected Value Per Share||$29|
|Market Price Per Share (7/13/12)||$58|
As shown above, our value for Macerich is $29 per share versus the market price of about $58 per share. The market is valuing the company at a very low cap rate of 4%, which is similar to many of the better managed REITs with high-quality real estate portfolios. For valuation purposes, our cap rate of 7.5% is in line with the average cap rate for retail properties as per CBRE and PricewaterhouseCoopers surveys. As we have previously stated, REIT values have been bid up to pricey levels due to positive growth fundamentals and the desire for yield in this low interest rate environment. In addition, momentum investors have pushed capital into the REIT sector thereby pushing up the prices further and lowering dividend yields.
Net income and cash flow from operations have increased 30% and 96%, respectively, from 2009 to 2011. The company's debt level is only 14% of its market cap and assets. We would recommend the company increase its leverage to about 30% to acquire additional properties or a smaller shopping center company. This will boost growth, cash flow and enterprise value. Macerich is a high-quality owner and manager of first class retail assets; however, we do not recommend buying the stock at this price. If the stock pulls back to the $30 range, we would buy. A five-year price chart of Macerich is shown below.
REIT Focus reviews in prior issues of VOM are as follows:
1. BRE Properties, Inc. (BRE), June 15, 2011
2. Boston Properties, Inc. (BXP), July 15, 2011
3. Simon Properties Group, Inc. (SPG), August 15, 2011
4. First Industrial Realty Trust, Inc. (FR), September 15, 2011
5. Public Storage (PSA), October 15, 2011
6. Ashford Hospitality Trust, Inc. (AHT), November 15, 2011
7. AvalonBay Communities, Inc. (AVB), December 15, 2011
8. Alexandria Real Estate Equities, Inc. (ARE), January 15, 2012
9. Federal Realty Investment Trust (FRT), February 15, 2012
10. Digital Realty Trust, Inc. (DLR), March 15, 2012
11. Lasalle Hotel Properties (LHO), April 15, 2012
12. Apartment Investment & Management Company (AIV), May 15, 2012
13. Equity Residential (EQR), June 15, 2012