Not Every Mall Is Dying. Two Value Funds Are Betting on It.

John Coumarianos John Coumarianos Factor Investing Value Investing MAC Macerich Smead Capital Management Inc Trusts/Funds/Financial Vehicles Closed-end Funds/Investment Trusts Real Estate Investment Trusts Real Estate/Construction Financial Services Investing/Securities Real Estate Retail REITs Company Public North America United States I/IAV I/REI I/RRT M/FCL M/RECN MAC N/ANL N/ARG N/CNW N/DJN N/WER R/NME R/US Barrons.com Barrons Blogs Wires Smead Value Fund Third Avenue Real Estate Value S&P 500 SPX SMVLX TAREX CODES_REVIEWED Factor Investing Funds Investing Markets Mutual Funds Real Estate Sector Focus Value Investing author John Coumarianos author|John Coumarianos id john_coumarianos name John Coumarianos topicid rank 1 extractedtext John Coumarianos codetype author code john_coumarianos nameformat surname_first author John Coumarianos id John Coumarianos author john_coumarianos author|john_coumarianos name John Coumarianos value John Coumarianos source EXPANDER barrons_display_brand barfactor barrons_display_brand|barfactor name Factor Investing value BARFACTOR source EXPANDER barrons_display_brand BARFACTOR barrons_display_brand|BARFACTOR codetype BARRONS_DISPLAY_BRAND canbedisplaybrand true value BARFACTOR source MANUAL status modified name Factor Investing code BARFACTOR barrons_display_subject barval barrons_display_subject|barval name Value Investing value BARVAL source EXPANDER barrons_display_subject BARVAL barrons_display_subject|BARVAL codetype BARRONS_DISPLAY_SUBJECT canbedisplaysubject true value BARVAL source MANUAL status modified name Value Investing code BARVAL co macerc co|macerc fcode macerc why about significance prominent onlinesignificance prominent subcat com orgtype public extractedtext Macerich fullextractedtext Macerich name Macerich displayname Macerich exchange NYSE countrycode US country US symbol MAC seoname macerich exchangeisocode XNYS ticker MAC chartingsymbol STOCK/US/XNYS/MAC confidence 100 confidencerange high relevance 77 relevancerange high source FACTIVA occurs true co MACERC co|MACERC symbol MAC country US codetype co displayname Macerich extractedtext Macerich source MANUAL code mac name Macerich significance prominent onlinesignificance prominent exchange U.S.: NYSE exchangeisocode XNYS chartingsymbol STOCK/US/XNYS/MAC fcode MACERC status modified company MAC company|MAC name Macerich significance PROMINENT djn mac djn|mac fcode MAC why about significance prominent onlinesignificance prominent name MAC source FACTIVA occurs true value MAC source EXPANDER djn amzn djn|amzn fcode AMZN why occur significance passing onlinesignificance passing-mention name AMZN source FACTIVA djn morn djn|morn fcode MORN why occur significance passing onlinesignificance passing-mention name MORN source FACTIVA djn m_fcl djn|m_fcl fcode M/FCL why lineage name M/FCL source FACTIVA value M/FCL source EXPANDER djn i_iav djn|i_iav fcode I/IAV why lineage name I/IAV source FACTIVA value I/IAV source EXPANDER djn i_rei djn|i_rei fcode I/REI why lineage name I/REI source FACTIVA value I/REI source EXPANDER djn m_recn djn|m_recn fcode M/RECN why lineage name M/RECN source FACTIVA value M/RECN source EXPANDER djn i_rrt djn|i_rrt fcode I/RRT why association name I/RRT source FACTIVA value I/RRT source EXPANDER djn r_us djn|r_us fcode R/US why about significance prominent onlinesignificance prominent name R/US source FACTIVA value R/US source EXPANDER djn r_nme djn|r_nme fcode R/NME why lineage name R/NME source FACTIVA value R/NME source EXPANDER djn n_wer djn|n_wer name N/WER value N/WER source EXPANDER djn n_djn djn|n_djn name N/DJN value N/DJN source EXPANDER djn n_cnw djn|n_cnw name N/CNW value N/CNW source EXPANDER djn n_arg djn|n_arg name N/ARG value N/ARG source EXPANDER djn n_anl djn|n_anl name N/ANL value N/ANL source EXPANDER djn MAC djn|MAC significance prominent onlinesignificance prominent name MAC why about source FACTIVA occurs true fcode MAC codetype djn code mac djn M/FCL djn|M/FCL name M/FCL why lineage source FACTIVA fcode M/FCL codetype djn code m_fcl djn I/IAV djn|I/IAV name I/IAV why lineage source FACTIVA fcode I/IAV codetype djn code i_iav djn I/REI djn|I/REI name I/REI why lineage source FACTIVA fcode I/REI codetype djn code i_rei djn M/RECN djn|M/RECN name M/RECN why lineage source FACTIVA fcode M/RECN codetype djn code m_recn djn I/RRT djn|I/RRT name I/RRT why association source FACTIVA fcode I/RRT codetype djn code i_rrt djn N/ANL djn|N/ANL significance prominent onlinesignificance prominent name N/ANL why about source FACTIVA fcode N/ANL codetype djn code n_anl djn N/ARG djn|N/ARG significance prominent onlinesignificance prominent name N/ARG why about source FACTIVA fcode N/ARG codetype djn code n_arg djn N/CNW djn|N/CNW name N/CNW why lineage source FACTIVA fcode N/CNW codetype djn code n_cnw djn R/US djn|R/US significance prominent onlinesignificance prominent name R/US why about source FACTIVA fcode R/US codetype djn code r_us djn R/NME djn|R/NME name R/NME why lineage source FACTIVA fcode R/NME codetype djn code r_nme djn N/DJN djn|N/DJN codetype djn value N/DJN source DJN-CONTROL status modified inactivebydefault true name N/DJN code n_djn djn N/WER djn|N/WER codetype djn value N/WER source DJN-CONTROL status modified inactivebydefault true name N/WER code n_wer editorial-seo-id reit-malls-value-investors-retail-landlord-dividend-ffo-51573504791 editorial-seo-id|reit-malls-value-investors-retail-landlord-dividend-ffo-51573504791 first_publish_headline Not Every Mall Is Dying. Investors See Value in Retail Landlord. first_publish_headline|Not Every Mall Is Dying. Investors See Value in Retail Landlord. flow barrons_com flow|barrons_com name Barrons.com value Barrons.com source EXPANDER flow barrons_blogs flow|barrons_blogs name Barrons Blogs value Barrons Blogs source EXPANDER flow nwregular flow|nwregular name Wires value NWREGULAR source EXPANDER flow NWREGULAR flow|NWREGULAR codetype FLOW value NWREGULAR source MANUAL status modified name Wires code NWREGULAR flow Barrons.com flow|Barrons.com codetype FLOW value Barrons.com source MANUAL status modified name Barrons.com code online name Online title Product code Barrons.com flow Barrons Blogs flow|Barrons Blogs codetype FLOW value Barrons Blogs title Product source MANUAL status modified name Barrons Blogs code Barrons_Blogs fund third_avenue_real_estate_value fund|third_avenue_real_estate_value name Third Avenue Real Estate Value value Third Avenue Real Estate Value source EXPANDER fund smead_value_fund fund|smead_value_fund name Smead Value Fund value Smead Value Fund source EXPANDER fund Smead Value Fund fund|Smead Value Fund symbol SMVLX country US codetype fund displayname Smead Value Fund;Investor extractedtext Smead Value Fund source MANUAL code smvlx name Smead Value Fund significance prominent onlinesignificance prominent exchange U.S.: Nasdaq exchangeisocode XNAS chartingsymbol FUND/US/XNAS/SMVLX status modified fund Third Avenue Real Estate Value fund|Third Avenue Real Estate Value symbol TAREX country US codetype fund displayname Third Avenue Real Estate Value Fund;Institutional extractedtext Third Avenue Real Estate Value source MANUAL code tarex name Third Avenue Real Estate Value significance prominent onlinesignificance prominent exchange U.S.: Nasdaq exchangeisocode XNAS chartingsymbol FUND/US/XNAS/TAREX status modified headline Not Every Mall Is Dying. Investors See Value in Retail Landlord. headline|Not Every Mall Is Dying. Investors See Value in Retail Landlord. in i81502 in|i81502 fcode i81502 why about significance prominent onlinesignificance prominent name Trusts/Funds/Financial Vehicles source FACTIVA codetype in code i81502 in ifinal in|ifinal fcode ifinal why lineage name Financial Services source FACTIVA codetype in code ifinal in iinv in|iinv fcode iinv why lineage name Investing/Securities source FACTIVA codetype in code iinv in i8150206 in|i8150206 fcode i8150206 why lineage name Closed-end Funds/Investment Trusts source FACTIVA codetype in code i8150206 in i815020602 in|i815020602 fcode i815020602 why lineage name Real Estate Investment Trusts source FACTIVA codetype in code i815020602 in icre in|icre fcode icre why lineage name Real Estate/Construction source FACTIVA codetype in code icre in ireest in|ireest fcode ireest why lineage name Real Estate source FACTIVA codetype in code ireest in iretreit in|iretreit fcode iretreit why association name Retail REITs source FACTIVA codetype in code iretreit index s_p_500 index|s_p_500 name S&P 500 value S&P 500 source EXPANDER index spx index|spx name SPX value SPX source EXPANDER index S&P 500 index|S&P 500 symbol SPX country US codetype index displayname S&P 500 Index extractedtext S&P 500 source MANUAL code spx name S&P 500 significance prominent onlinesignificance passing-mention exchange S&P US exchangeisocode S&P US chartingsymbol INDEX/US/S&P US/SPX status modified media media-2 media|media-2 responsive layout wrap softcrop Horizontal imphotoid im-125781 location https://images.barrons.com/im-125781/?size=1.5 media media-1 media|media-1 softcrop Horizontal imphotoid im-125781 location https://images.barrons.com/im-125781/?size=1.5 mutual-fund tarex mutual-fund|tarex name TAREX value TAREX source EXPANDER mutual-fund smvlx mutual-fund|smvlx name SMVLX value SMVLX source EXPANDER mutual-fund TAREX mutual-fund|TAREX name TAREX source EXPANDER value TAREX codetype MUTUAL-FUND code tarex mutual-fund SMVLX mutual-fund|SMVLX name SMVLX source EXPANDER value SMVLX codetype MUTUAL-FUND code smvlx ns c1521 ns|c1521 significance prominent onlinesignificance prominent name Analysts' Comments/Recommendations why about source FACTIVA fcode c1521 codetype ns code c1521 ns ccat ns|ccat name Corporate/Industrial News why lineage source FACTIVA fcode ccat codetype ns code ccat ns ncat ns|ncat name Content Types why lineage source FACTIVA internalsymbol true fcode ncat codetype ns code ncat ns nfact ns|nfact name Factiva Filters why lineage source FACTIVA internalsymbol true fcode nfact codetype ns code nfact ns nfce ns|nfce name C&E Exclusion Filter why lineage source FACTIVA internalsymbol true fcode nfce codetype ns code nfce nwchain SB505194705123685243787045860120632595264941 nwchain|SB505194705123685243787045860120632595264941 pe Dobratz pe|Dobratz lastname Dobratz displayname Dobratz name Dobratz extractedtext Dobratz source FACTIVA codetype pe code dobratz nameformat surname_first pe Ryan Dobratz pe|Ryan Dobratz firstname Ryan lastname Dobratz displayname Dobratz, Ryan name Ryan Dobratz extractedtext Ryan Dobratz source FACTIVA codetype pe code ryan_dobratz nameformat surname_first pe Scherrer pe|Scherrer lastname Scherrer displayname Scherrer name Scherrer extractedtext Scherrer source FACTIVA codetype pe code scherrer nameformat surname_first pe Smead pe|Smead lastname Smead displayname Smead name Smead extractedtext Smead source FACTIVA codetype pe code smead nameformat surname_first pe Tony Scherrer pe|Tony Scherrer firstname Tony lastname Scherrer displayname Scherrer, Tony name Tony Scherrer extractedtext Tony Scherrer source FACTIVA codetype pe code tony_scherrer nameformat surname_first re usa re|usa fcode usa why about significance prominent onlinesignificance prominent name United States subcat cntry source FACTIVA codetype re code usa re namz re|namz fcode namz why lineage name North America subcat snr source FACTIVA codetype re code namz relay SYND relay|SYND name Syndication source EXPANDER value SYND codetype RELAY code synd status modified statistic CODES_REVIEWED statistic|CODES_REVIEWED name CODES_REVIEWED value CODES_REVIEWED source EXPANDER codetype STATISTIC code CODES_REVIEWED subject barsecfocus subject|barsecfocus name Sector Focus value BARSECFOCUS source EXPANDER subject barmutualfunds subject|barmutualfunds name Mutual Funds value BARMUTUALFUNDS source EXPANDER subject barfactor subject|barfactor name Factor Investing value BARFACTOR source EXPANDER subject barval subject|barval name Value Investing value BARVAL source EXPANDER subject barinvst subject|barinvst name Investing value BARINVST source EXPANDER subject barfunds subject|barfunds name Funds value BARFUNDS source EXPANDER subject barmkts subject|barmkts name Markets value BARMKTS source EXPANDER subject barreast subject|barreast name Real Estate value BARREAST source EXPANDER subject ONLY subject|ONLY comments Mapping:ARTICLETYPE=Stock Alert description 15|Other|Send to Factiva source EXPANDER value ONLY codetype SUBJECT code only status modified subject BARMKTS subject|BARMKTS ruleid BARMKTS codetype SUBJECT value BARMKTS selectable true canbedisplaysubject true name Markets title Markets status modified code BARMKTS subject BARREAST subject|BARREAST ruleid BARREAST codetype SUBJECT value BARREAST canbedisplaysubject true name Real Estate title Real Estate status modified code BARREAST subject BARFUNDS subject|BARFUNDS ruleid BARFUNDS codetype SUBJECT value BARFUNDS selectable true canbedisplaysubject true name Funds title Funds status modified code BARFUNDS subject BARMUTUALFUNDS subject|BARMUTUALFUNDS ruleid BARMUTUALFUNDS codetype SUBJECT value BARMUTUALFUNDS canbedisplaysubject true name Mutual Funds title Mutual Funds status modified code BARMUTUALFUNDS subject BARINVST subject|BARINVST ruleid BARINVST codetype SUBJECT value BARINVST canbedisplaysubject true name Investing title Investing status modified code BARINVST subject BARVAL subject|BARVAL ruleid BARVAL codetype SUBJECT value BARVAL canbedisplaysubject true name Value Investing title Value Investing status modified code BARVAL subject BARFACTOR subject|BARFACTOR ruleid BARFACTOR codetype SUBJECT value BARFACTOR canbedisplaybrand true name Factor Investing title Factor Investing status modified code BARFACTOR subject BARSECFOCUS subject|BARSECFOCUS ruleid BARSECFOCUS codetype SUBJECT value BARSECFOCUS canbedisplaybrand true name Sector Focus title Sector Focus status modified code BARSECFOCUS wordcount 740 wordcount|740 id facebook id|facebook news_tab_url https://www.barrons.com/articles/not-every-mall-is-dying-investors-see-value-in-retail-landlord-51573556400 Photograph by Brendan Hoffman/Getty Images Not Every Mall Is Dying. Investors See Value in Retail Landlord. Not Every Mall Is Dying. Investors See Value in Retail Landlord. Not Every Mall Is Dying. Investors See Value in Retail Landlord.

Does large-mall real estate investment trust Macerich have a future, and is it cheap? Two value funds think so.

Not Every Mall Is Dying. Two Value Funds Are Betting on It.

Does large-mall real estate investment trust Macerich have a future, and is it cheap? Two value funds think so.

Not Every Mall Is Dying. Investors See Value in Retail Landlord. By John Coumarianos Photograph by Brendan Hoffman/Getty Images Shoppers make their way through Tysons Corner Center, a Macerich property, in McLean, Va.

Followers of real estate stocks know about a website called Dead Malls, dedicated to chronicling abandoned U.S. malls, most but not all of them in the Midwest. And everyone knows that Amazon is taking a toll on large parts of bricks-and-mortar retailing.

With all that, does large-mall real estate investment trust Macerich (ticker: MAC) have a future, and is it cheap? Two value funds think so.

Macerich is the owner of 47 malls, which it calls “trophy properties.” That may be an exaggeration, but not one that kills a bullish thesis for Macerich’s stock. Santa Monica Place, steps from the Pacific Ocean, and Tysons Corner Center outside of Washington, D.C., probably count as a trophy properties. Kings Plaza in Brooklyn and the Mall of Victor Valley in Victorville, Calif., maybe not.

Nevertheless, Macerich generated $3.89 a share in funds from operations, or FFO, over the past four quarters. And at a share price of around $27.50, it is trading at roughly 7 times that figure. That is awfully cheap for a REIT. High-end apartments, by contrast, are trading at more than 20 times FFO. Moreover, $3.89 a share is slightly more than the $3.81 the firm generated in 2015. Macerich may not be growing much on an FFO basis, but it seems to be holding steady.

The cash it generates to pay its dividend might be considered tight. It is paying 75 cents a quarter and averages around 95 cents a share each quarter in FFO. At its current price, the stock is yielding 10.9% and the market seems to be anticipating a dividend cut. Funds from operations is a measure that adjusts net income for depreciation and property sales, but it doesn’t add anything back for long-term expenditures required to maintain or transform properties. For this reason, Macerich’s coverage might be tighter than it looks.

Ryan Dobratz, manager of the Third Avenue Real Estate Value fund (TAREX), thinks coverage is tight, but only because the firm has an opportunity to transform some of its upscale malls. Dobratz thinks restaurants, fitness centers, movie theaters and other facilities can replace some of the department-store space at some of Macerich’s properties. Accomplishing the transformation likely means diverting some of the cash flow that is financing the dividend into capital improvements. Macerich is the 10th-largest holding in the Third Avenue fund, and constitutes nearly 4% of its assets.

Tony Scherrer at Smead Capital Management, a value-oriented investor, agrees that the prospects for Macerich are bright, and that the stock is too cheap. Macerich has increased its net operating income by more than 4% annualized over the past four years, compared with 1.5% for its competitors, according to Scherrer, who noted that the fund started buying shares a few months ago after noticing insider buying. Macerich is the 19th-largest holding and a nearly 3% position of the Smead Value Fund (SMVLX), which is one of a handful of funds in Morningstar’s large-value category to beat the S&P 500 over the past decade.

Insider ownership is one of the hallmarks of the fund’s approach, and recent insider buying, along with Macerich’s healthy cash flow, clinched it for Scherrer and Smead. Dobratz concurred that insider purchases have given him confidence recently.

Finally, Macerich is financially healthy, having restructured its debt. Scherrer and Dobratz differ slightly on the interest payments, but both put them at around 4%. Scherrer noted that, at that rate, the banks aren’t lending money to Macerich as if it is distressed. Dobratz said earnings before interest, taxes, depreciation and amortization are a comfortable 3 times higher than interest payments.

Cheap securities are hard to find, and they always have some problems. But Macerich’s cheap valuation and stable financial condition should pique the interest of value investors.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.