As I have already completed my reviews of the two leading retail REITs, I figured I would finish with a review of Macerich Co. (NYSE:MAC) which is another important retail REIT. The company itself operates the same way a large number of retail REITs do. It acquires, owns, and manages retail space for a profit. Macerich Co. owns 51 regional shopping centers and seven community and power shopping centers. Most recently, Macerich Co. has been in the news for numerous sell offs of properties. Most recent was their joint venture where the company sold 49% of their interest in Deptford Mall in New Jersey and only a week before they had been in the news for selling 40% of their interest in Arrowhead Towne Center in Arizona. While sales can be normal for retail REITs to continue profitability, it is a little worrisome when the amount of sales start to stack up. This led me to question the current company standing which I shall cover here.
Most REIT investors like to place the majority of the weight of their analysis on funds from operations. This is due to the fact that they can be one of the best benchmarks for REIT evaluation. Macerich Co. has had an interesting history with their FFO. In the last five years, it has gone up, then down, then up again. In 2011, they ended their year with 400. This climbed to 578 in 2012 but then fell in 2013 to 528. In 2014 however the stock recovered again to reach an FFO of 543 and then it experienced a huge jump to 642 in 2015 (all numbers expressed in millions). As the general progression has been going up over time, it doesn't worry me too much that they had a year or two of decline. The sum can be seen as greater than the parts. Retail can be a tough business and some years may force some losses. The important thing is to generally be moving in an upward trend and Macerich Co. has done so over the last five years.
On the other hand, the company has a very low debt load in comparison to their assets and capital. The REIT has a debt-to-equity ratio of only 1.38 at their last filing of their 10-K. Couple this with their Net Asset Value, which is only 31.76, and you've got the start of a conversation. With a D/E ratio as low as 1.38, investors that would think about approaching the REIT can feel much more comfortable with it in their portfolio. Moving towards a bear market that I personally feel may be coming in a short amount of time, it is very important to hold companies and REITs in your portfolio that have low debt loads. The lower the debt, the less likely they are to be affected moving forward should that type of market come about.
In addition, as I mentioned earlier, Macerich Co. has a NAV of 31.76. As I rely on NAV as a general guideline for pricing in relation to intrinsic value for REITs, I feel that this supports that the current price of the stock at $75.79/share is fair. This is much lower than the 52 week high of $86.29 and is right above the 52 week low of $71.98. I do not like paying full price for anything. This stock would be no exception to that desire. As it is right above the 52 week low, I think a great deal of investors would agree that the price is just ripe for the purchase right now.
There are a few concerns that I have for the future of this REIT however. As retail continues to move towards an online model, centers that support brick and mortar retail are needed less and less. Couple this together with ever increasing costs of maintenance, retail property values that are constantly changing, and decreased spending for customers that come with bear markets and you have got your hands on an REIT that may see some challenges should a bear market occur. I do not want to confuse readers however. I am not by any means saying that I can predict a bear market, in fact I would argue that most people cannot. I do however feel that one should be best prepared when one does arrive which is I feel inevitable. Regardless of whether or not my feeling is right that one is coming soon, I would rather have stocks that can weather a bear market well than those who cannot when I am adding stocks to a long hold investment portfolio.
In conclusion, I would argue that Macerich Co. makes a great investment moving forward. The price appears fair in relation to the current NAV and 52-week high/low, the D/E ratio is comfortably low, and the REIT appears to be making moves to unload unwanted properties that may not be generating as much revenue. This however does come with the assumed risk that an investor must be willing to make when entering into an REIT that deals in real estate heavy investments that may weather a bear market far less well than some other sectors. Regardless, I feel that Macerich Co. would make a great pick for a tax-differed portfolio moving forward.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.