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Strangling Macerich

Apr. 08, 2021 6:30 AM ETThe Macerich Company (MAC)122 Comments


  • I would, figuratively speaking, like to strangle the management of Macerich (MAC), but that is not what this article is about.
  • Instead, this article describes my current positions in MAC options, which together form a “strangle.”.
  • My strangle is entered from a perspective very different than one finds in standard descriptions.
  • If you are willing to take on more shares at a lower price, and to sell some of those you already have at a higher price, a strangle may be for you.
  • I do much more than just articles at High Yield Landlord: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »

At my core, I am a value investor. My general preference is to do little with options.

In fact, my only options right now are all options on Macerich (NYSE:MAC) stock. In particular, I have ended up with what is called a short strangle.

This article discusses the way I think about this position. It is not quite the way one reads about it.

Background on MAC

If you are reading this, you likely know that Macerich is a mall REIT. They hold some of the best malls in the United States, measured by sales per square foot.

The MAC portfolio is concentrated in highly urban areas with high incomes. They have evolved it over the past decade to be even more that way. If malls have a future anywhere, and I believe they do, the MAC malls are among the best positioned.

Like all malls, MAC has faced the need for a lot of redevelopment during the recent years of transition in retail. I’ve discussed this in previous articles, most recently here.

But, in the process, MAC mismanaged their finances. They ended up too exposed when the pandemic hit and, by my calculation, reached the point of a covenant violation.

Worse, they had no shelf registration in place, so they could not sell shares when the stock price rocketed above $20 during the Reddit-driven mania in January, centered on GameStop (GME). And all of this was after turning down a buyout offer at $95/share in 2015.

Data by YCharts

To get out of the mess they created, Macerich management sold 40M shares at much lower prices, and it seems likely they are now selling more. I expect to end up diluted by 33%.

You can see why, figuratively speaking, I would like to strangle their management.

That said, by getting

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This article was written by

R. Paul Drake profile picture
Become a “Passive Landlord” with our 8% Yielding Real Estate Portfolio.
R Paul Drake brings a retiree perspective to his writing. After investing via employer tax-deferred plans for several decades, he has in recent years broadened into a variety of more focused investments. Paul is a life-long reader of works on economics, finance, and investment. He embraces a value-investing approach, which led him to join the team of authors at High Yield Landlord and to learn to analyze REITs. Most of his writing at present is focused on REITs.

          Paul brings substantial experience in research, and in understanding and developing models of uncertain systems, from his decades working as a physicist. He wrote his first Monte Carlo model aimed at investments in 2006. He has intensively researched and modeled a wide variety of portfolio options. Among other degrees, he holds a doctorate in physics and a bachelors in philosophy. His career began with running large projects for a major research laboratory, and continued with a long, and award-winning run as a professor at the University of Michigan. He has authored nearly 300 articles published in formal academic journals, and two editions of a textbook.

Analyst’s Disclosure: I am/we are long MAC. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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