Fully integrated and self-managed real estate investment trust (REIT) The Macerich Company (MAC) in Santa Monica, Calif., focuses on the acquisition, leasing, management, development, and redevelopment of regional malls throughout the United States. The company currently owns 48 million square feet of real estate, which consists primarily of interests in 44 regional town centers. Also, MAC announced it would welcome 17 Cotton On Group stores to regional town centers across the U.S., adding to the 12 stores already open within Macerich’s portfolio.

MAC is rebounding from the COVID-19 pandemic hit, with people returning to in-person experiences and mall visits since last year with easing of restrictions and increasing consumer demand and spending. In the first quarter, ended March 31, 2022, MAC’s portfolio comparable tenant sales from spaces less than 10,000 were 14.5% higher than the first quarter of 2021 and 11.5% higher than the first quarter of 2019. Its portfolio tenant sales per square foot for spaces less than 10,000 square feet for the trailing 12 months, ended March 31, 2022, were a record high of $843. Also, during the quarter, MAC signed 22% more leases than it signed during the first quarter of 2021. Furthermore, its same-center net operating income (NOI), excluding lease termination income, increased 24.7% year-over-year. However, the company’s bottom line is still in the red.

MAC shares have slumped 23.7% in price over the past year and 33.9% year-to-date to close the last trading session at $11.43. It is currently trading below its 50-day and 200-day moving averages.

Here is what could shape MAC’s performance in the near term:

Mixed Growth Story

MAC’s revenues have declined at a 5.3% CAGR over the past three years, while its EBITDA has declined at a 10.1% CAGR over the past three years. And its net income and EPS have declined at CAGRs of 26.3% and 35.8%, respectively,  over the past three years.

For its fiscal first quarter ended March 31, 2022, the company’s total revenues increased 13.5% year-over-year to $216.14 million. Its FFO came in at $104.87 million, reflecting an increase of 43.6% from its  year-ago value, while its FFO per share rose 9.3% year-over-year to $0.47. Its net loss attributable to the company was $37.18 million or $0.17 per share during the first quarter of 2022, compared to $63.60 million or $0.40 per share in the prior-year quarter.

Mixed Profitability

MAC’s 38.51% forward AFFO ratio  is 47% lower than the 72.64% industry average. Also, its 30.96% forward FFO payout ratio is 52.6% lower than the 65.29% industry average, while its 42.40% trailing-12-month cash dividend payout ratio  is 33.9% lower than the 64.31% industry average. Furthermore, its trailing-12-month gross profit margin and net income margin are 17.8% and 74.9% lower than the industry averages, respectively.

However, its 42.46% trailing-12-month levered FCF margin compares with the 37.61% industry average. Also, its 18.73% trailing-12-month dividend yield to FAD payout ratio compares with the 5.90% industry average.

Bearish Analysts Sentiments

Analysts expect the company’s revenues to decrease 7.8% year-over-year in the current quarter, ending June 30, 2022, to $198.58 million. Also, its revenues are expected to decline 4% in the next quarter, ending Sept. 30, r 2022, and 3.3% in the quarter ending Dec. 31, 2022. The company’s revenue is expected to increase 1.6% year-over-year in the current year. And  the consensus FFO per share estimate of $1.96 for the fiscal year ending Dec. 31, 2022, indicates a 3.6% year-over-year decline. Moreover, MAC’s FFO per share is expected to decline  23.1% in the current  quarter. In addition, the Street expects the company’s EPS to decline 157.1% in the current  year. And its EPS is expected to remain negative for at least this year.

Furthermore, among the seven Wall Street analysts that have rated the stock, five have rated it Sell, one rated it Hold, and one rated it Buy.

POWR Ratings Reflect Uncertain Prospects

MAC has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of C for Quality, which is consistent with its mixed profitability.

MAC has an F grade for Sentiment. Bearish analyst sentiment about the stock justifies this grade.

Among  the 32 stocks in the D-rated REITs – Retail industry, MAC is ranked #27.

Beyond what I have stated above, one can also view MAC’s grades for Value, Growth, Momentum, and Stability here.

View the top-rated stocks in the REITs – Retail industry here.

Bottom Line

Although REITs typically tend to be attractive to income investors due to their reliable dividend payouts, MAC’s dividend payouts have declined at a 41.4% CAGR over the past three years and 26.4% over the past five years. Furthermore, it has an extremely high dividend payout ratio of 315.8%, which questions the sustainability of its dividend payment. The company has demonstrated a significant rebound in its last reported quarter, but I think it could be wise to wait for further improvement in its financial positioning before investing in the stock.

How Does the Macerich Company (MAC) Stack Up Against its Peers?

While MAC has an overall POWR Rating of C, one  might want to consider taking a look at its industry peers, Saul Centers, Inc. (BFS), SmartCentres Real Estate Investment Trust (CWYUF), and RioCan Real Estate Investment Trust (RIOCF), which have a B (Buy) rating.

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