On Jan 2, 2014, we reaffirmed our long-term recommendation on
The Macerich Company
) at Neutral. The decision reflects the company's recent deal
with Deliv, strong third-quarter performance and an improving
balance sheet. Yet, a substantial development and redevelopment
pipeline increases its operational risk and rise in online
purchases still remain a concern for the company.
Macerich's recent tie-up with Deliv is a significant step
toward combating the competitive pressure in the present
technologically advanced age. With this new collaboration,
Macerich would use its properties as distribution centers and use
Deliv's technological platform to support same day delivery. This
move is expected to boost the shopping experience and enhance
sales volume at the tenant stores, consequently raising the
demand for Macerich's properties.
Moreover, Macerich kept its winning streak alive by reporting
impressive quarterly results. The company reported third-quarter
2013 adjusted funds from operations (AFFO) per share of 86 cents,
beating the Zacks Consensus Estimate by 3 cents and the year-ago
figure by 8 cents. Strong growth in revenue, overall portfolio
occupancy and re-leasing spreads boosted the results.
For full-year 2013, Macerich raised its FFO per share outlook
in the range of $3.46-$3.52 from $3.38-3.48. Macerich also
increased the quarterly dividend by 6.9% to 62 cents per share
from 58 cents paid in the last quarter. These activities raise
investors' confidence in the stock.
On the flip side, we believe that though a notable development
as well as redevelopment pipeline of Macerich is encouraging,
that also increases its operational risks by exposing it to
rising construction costs, entitlement delays and lease-ups.
Moreover, the rising trend in online shopping through the
Internet, mobile phones and tablets has led to increasing
competition and adversely affected the demand for retail real
estates. While the company is making efforts to counter such
pressure through the recent deal with Deliv, we believe this
factor still hinders Macerich's growth prospects.
Over the last 60 days, the Zacks Consensus Estimate for 2013
and 2014 FFO remained stable at $3.50 and $3.62 per share,
respectively. Macerich now carries a Zacks Rank #3 (Hold).
Other Stock to Consider
Investors interested in the REIT-Equity Trust - Retail
industry may consider stocks like
Cedar Realty Trust, Inc.
Retail Properties of America, Inc.
and Agree Realty Corp.
). All these stocks carry a Zacks Rank #2 (Buy).
Note: FFO, a widely used metric to gauge the performance of
REITs, is obtained after adding depreciation and amortization
and other non-cash expenses to net income.
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