Company Reports

While there were a few bright spots in no-moat Macerich's first-quarter results, we ultimately view the company's bottom-line numbers as disappointing compared with our expectations. Total occupancy fell 10 basis points sequentially to 93.4%, though occupancy normally falls following the fourth-quarter holiday high point and this quarter's decline is smaller than our assumed 50-basis-point decline. First-quarter sales per square foot were only down 0.8% year over year, slightly better than the 1.2% we estimate for all brick-and-mortar retail. Re-leasing spreads were also strong at 14.7%, better than our estimate of 11.6% higher rents on new leases. However, other retail revenue was down in the quarter amid an increase in bad debt expense. So, while rental revenue was better than we anticipated, same-store net operating income was down 2.3% in the first quarter, below our estimate of a 2.3% gain. As a result, Macerich reported diluted funds from operation, or FFO, of $0.31 per share, which was seven cents below our $0.38 estimate. While we find the miss disappointing, we believe the solid fundamentals reported in the quarter are enough to support our long-term outlook and $24 fair value estimate.

We believe that there are several attractive opportunities across the US REIT sector for investors to consider. Following the recovery of many REIT sector fundamentals from the pandemic by mid-2021, we viewed the REIT sector as fairly valued through early 2022. However, the past two years have seen the rapid rise in interest rates and a slowing economy, which has led to major valuation declines across the sector. Our analysis of the REIT sector over the past 25 years suggests that the relative stock performance of REITs is negatively correlated with interest rate movements. The second and third quarters of 2023 saw large interest rate increases with the 10-year Treasury approaching 5%, which led to the sector underperforming. This occurred even as many REITs reported same-store net operating income, or NOI, growth at historical highs in 2022 due to high inflation. Higher interest rates, lower liquidity, tighter capital market conditions, and decelerating same-store NOI growth all led to a significant correction in the stock price for many REITs.

Macerich has successfully repositioned the company over the past decade as a true owner and operator of Class A regional malls. Over the past 13 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.

Macerich reported fourth-quarter results that were relatively in line with our expectations, giving us confidence in our $25 fair value estimate for the no-moat company. Total occupancy improved 10 basis points sequentially to 93.5%, above our 93.1% estimate. Re-leasing spreads were a very strong 17.2% in the fourth quarter, well above our estimate of new rent being 5.5% higher than expiring rent terms. As a result, average base rent increased by 2.6% in the fourth quarter, which is a relatively strong result for the company, and same-store net operating income grew by 3.0%. Macerich reported diluted funds from operation of $0.56 per share for the quarter, a penny better than our $0.55 estimate and three cents better than the $0.53 figure the company reported in the fourth quarter of 2022.

Third-quarter results for Macerich were generally better than we anticipated, leading us to reaffirm our $25 fair value estimate for the no-moat company. Occupancy sequentially improved 80 basis points to 93.4% in the third quarter, well ahead of our estimate of flat growth. Re-leasing spreads were also very strong this quarter with new rent 10.6% higher than prior rent terms, well above our estimate of re-leasing spreads of 5.6% in the quarter. As a result, average base rent increased by 2.8% in the quarter, the largest increase since 2019. Same-store net operating income excluding lease termination income increased 4.8%. Macerich reported diluted funds from operations of $0.42 per share in the third quarter, which was two cents better than our $0.40 estimate.

Macerich has successfully repositioned the company over the past decade as a true owner and operator of Class A regional malls. Over the past 12 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.

The share prices of U.S. real estate investment trusts have fallen by approximately 30% from their 2021 highs because of higher interest rates and stress in some commercial real estate sectors. We think that the correction is overdone and the current valuations offer an attractive entry point for patient investors. Our core REIT coverage is trading at a discount of approximately 25% to our fair value estimate. We estimate that the average REIT within our U.S. coverage is currently trading at a dividend yield that is 126 basis points higher than the historical average. We see marked differences in valuation across different REIT sectors in the United States. For instance, the industrial sector is fairly valued, with stock valuations already accounting for future growth, but other sectors like offices, hotels, and malls are trading at attractive discounts.

Macerich reported second-quarter results that were relatively in line with our expectations, leading us to reaffirm our $26.50 fair value estimate for the no-moat company. Occupancy increased 40 basis points sequentially to 92.6%, slightly better than our 92.3% estimate, and is up 80 basis points over the 91.8% figure the company reported in the second quarter of 2022. Re-leasing spreads were up a very strong 11.3% in the quarter, well above our estimate of flat rent terms on new leases, and led to 2.3% year-over-year rent growth, the strongest quarter since the first quarter of 2020. Same-store net operating income only grew 0.4% in the second quarter, which matched our estimate. However, the company benefited from significant non-recurring termination lease fee income in the second quarter of 2022, so excluding that same-store NOI was up 5.6%. Macerich reported funds from operations of $0.40 per share in the second quarter, a penny below our $0.41 estimate.

First-quarter results for no-moat Macerich were relatively in line with our expectations, leading us to reaffirm our $26.50 fair value estimate. Occupancy fell 40 basis points sequentially as there is typically a seasonality-related drop in occupancy from the fourth quarter into the first quarter. Still, occupancy is up 90 basis points year over year and was relatively in line with our 92.3% estimate. Re-leasing spreads were up 6.6% in the first quarter, better than our estimate of flat growth. Same-store net operating income was down 1.4% year over year. However, same-store NOI growth was negatively impacted by Macerich receiving less lease termination income, which we view as a positive for Macerich as that indicates that tenants are healthier than they were a year ago. Excluding lease termination income, same-store NOI was up 4.8%, well above our estimate of 1.6% growth. Funds from operations came in at $0.40 per share in the first quarter, which was a penny below our $0.41 estimate for the 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 10 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.

Macerich reported fourth-quarter results that were in line with our expectations, leading us to reaffirm our $27.50 fair value estimate for the no-moat company. Occupancy improved 50 basis points sequentially and 110 basis points year over year to 92.6%. Re-leasing spreads came in at 4.0% in the fourth quarter, which is down from the 6.6% figure reported in the third quarter, but slightly better than our estimate of 3.1%. Same-store net operating income grew 2.0% in the quarter, which was also slightly better than our 1.1% estimate. As a result, Macerich reported funds from operations of $0.53 per share for the fourth quarter, which is a penny better than our $0.52 estimate and in line with the $0.53 figure reported in the fourth quarter of 2021.

Third-quarter results for Macerich were slightly below our expectations, though we don’t anticipate making any material changes to our $27.50 fair value estimate for the no-moat company. Occupancy improved 30 basis points sequentially to 92.1%, better than our estimate of remaining at 91.8%, and is up 180 basis points year over year. Re-leasing spreads of 6.6%, the strongest quarter Macerich has reported since the third quarter of 2019, were significantly better than the 6.3% decline we had anticipated. Despite improving occupancy and rent, same-store net operating income fell 3.5% year over year. However, this decline is due to lease termination income falling to just $1.5 million in the third quarter compared with $12.1 million in the third quarter of 2021, which we view as a positive for the health of Macerich’s tenants. Excluding the impact of lease termination income, same-store net operating income, or NOI, grew 2.1% in the quarter, which was relatively in line with our estimate of 2.7% growth. Funds from operation, or FFO, of $0.46 per share similarly missed our estimate of $0.49 due to lower lease termination income reported in the quarter.

With the United States experiencing historically high inflation growth, many investors are wondering if real estate provides a natural hedge against inflation and if the REIT sector should therefore outperform the broader equity market. Many REITs in our coverage have reported rent and revenue growth at or near historic peaks over the past several quarters, with inflation being one of the largest reasons for the high growth. Given this and some historical evidence that REITs outperformed in the 1970s and early 1980s when inflation was similarly high, some investors are questioning why REITs have not outperformed in 2022.

Macerich has successfully repositioned the company over the past decade as a true owner and operator of Class A regional malls. Over the past 10 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.

Macerich reported second-quarter results that were slightly better than we anticipated, leading us to reaffirm our $28.50 fair value estimate for the no-moat company. Occupancy improved 50 basis points sequentially to 91.8%, better than our estimate of 91.2%. Re-leasing spreads remained positive but very low, with new rents just 0.6% higher than prior rent levels, in line with our expectations. Still, Macerich recorded same-store net operating income growth of 7.8% in the quarter. Macerich reported funds from operations per share of $0.46 in the second quarter; this was below the $0.59 reported in the second quarter of 2021, though the $0.13 decline was due to the company benefiting from nonrecurring mark-to-market valuation adjustments and gains recorded on land sales that had a combined $0.16 impact. Therefore, Macerich reported FFO that was $0.03 better than recurring FFO reported in 2021 and $0.03 better than our estimate for the quarter.

First-quarter results for no-moat Macerich were slightly ahead of our expectations, though we didn’t see anything in the quarter that would materially change our $28.50 fair value estimate. Occupancy did fall 20 basis points sequentially to 91.3%, though occupancy usually falls in the first quarter and the decline wasn’t as large as our estimate of a 50-basis-point decline. Re-leasing spreads remain low but positive at 1.3%, in line with our estimate of a 1.2% spread of new rents over prior rent levels. Same-store net operating income grew 30.2% year over year in the first quarter, slightly better than our estimate of 27.2% growth. Macerich reported funds from operations of $0.50 per share in the first quarter, 12.4% higher than the $0.45 figure the company reported in the first quarter of 2021.

Macerich has successfully repositioned the company over the past decade as a true owner and operator of Class A regional malls. Over the past 10 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.

Macerich reported fourth-quarter earnings that were ahead of our expectations, though we don’t anticipate any material changes to our $30 fair value estimate for the no-moat company. Occupancy continues to recover with a 120-basis-point sequential improvement in the fourth quarter to 91.5%, ahead of our 90.2% estimate for the quarter. After four straight quarters of negative re-leasing spreads, rents executed on new leases across the total portfolio in the fourth quarter were 4.9% higher than the prior rent levels, which was also better than our estimate of further rent deterioration. Same-store net operating income growth was up 36.1% year over year, slightly better than our 32.4% estimate, as property EBITDA was 12.7% higher but rent adjustments went from a $27.2 million charge in the fourth quarter of 2020 from writing off uncollectable rent to a $2.6 million positive adjustment in the fourth quarter of 2021. As a result, Macerich reported funds from operations of $0.53 per share in the fourth quarter that beat our $0.49 estimate by 4 cents and was 8 cents better than the $0.45 figure reported in the fourth quarter of 2020.

While third-quarter results for no-moat Macerich were slightly ahead of our expectations, we are reaffirming our $30 per share fair value estimate. Occupancy sequentially improved by 90 basis points for the second straight quarter, rising to 90.3% in the third quarter. This was better than our estimate of a 40-basis-point sequential improvement. Re-leasing spreads continue to be negative, declining 2.5% in the third quarter, which was in line with our estimate of a 2.4% decline. Macerich reported same-store net operating income growth of 21.4%, which was slightly ahead of our forecast for 18.9% growth, as the company saw rent collection significantly improve over the third quarter of 2020. While the company reported funds from operations of $0.45 per share for the third quarter it was 14 cents below the second quarter of 2021 and 7 cents below the third quarter of 2020. That said, the reported figure was 4 cents better than our $0.41 per share estimate for the 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 nine 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.