The Macerich Company

What is Macerich?

Macerich is the third-largest owner and operator of shopping malls in the entire US. It is a fully integrated self-managed REIT. The owns an interest in 52 properties (47 regional shopping centres and 5 community/power shopping centres) with a total area of around 50 million square feet – Gross Leasable Area (GLA). The company’s focus is on densely populated areas. Its malls are located in areas of high household income and have the largest population density around them. The majority of its shopping centres are located in California, Arizona and New York.

MORAM - Macerich top 20 properties
MORAM - Macerich top 40 properties

The business model of Macerich

Macerich owns shopping centres and rents these locations to clients. It develops and operates malls in proximity to affluent residential neighbourhoods, which allows them to maintain tenant lists that are heavy on the higher-end retailers. Macerich properties often include entertainment options such as movie theatres and bowling alleys, all of which positions luxury malls more as destinations for a night out as well as places to shop.

The combination of locating near wealthier communities and featuring upscale stores and entertainment options has enabled luxury malls to show much better productivity metrics than the average American mall. Macerich’s average mall produces sales per square foot of $746 compared to the industry average mall at $571. Moreover, Macerich has redeveloped part of its malls into hotels, offices and residential apartments. Proof of that is the new office they will rent to Google starting in 2022.

Macerich’s Debt

The amount of debt that Macerich is holding is the biggest concern for its shareholders. The total amount taking into account the consolidated and its part in the joint ventures are $8836MM. It is a huge number compared to the $2.3bn market cap.

The important point for MAC is that it has 31 non-recourse loans which account for ca. 84% of the total obligations. Non-recourse debt means that if Macerich cannot pay the debt in the future. It simply can give back the buildings to the creditor and continue with the rest of the business. This is important because there is no real threat of bankruptcy as a consequence of the type of debt it has. The only non-recourse is the credit facility, which accounts for $1.5bn. MAC has risen the money to payback this credit line and change it for $600-800MM. It diminishes the risk for the company.

Liquidity Macerich

In March 2021, MAC sold 36MM additional shares at an average cost of $13.54, obtaining $487.44MM. Moreover, it sold 95% interest in the Paradise Mall at Phoenix for $95MM and it is negotiating a $600-800MM revolving credit line to be able to repay its current RCL of $1.5bn.

At the end of March, the company has reported $1’645.3-1’845.3MM liquidity (the sum of the last paragraphs items plus $463MM cash available)

After repaying its $1.5bn RCL in June, it is expected to have a liquidity around $250-300MM

Macerich: current situation

As a consequence of the current pandemic, the revenues from retailers have diminished a lot. Some clients have been unable to pay their rents to Macerich. Forcing Macerich to give them extensions. Other retailers have closed. As a result, the occupation of the shopping centres has diminished (it is around 90% vs 95% historic).

MAC not only makes money from renting the surfaces but also there is also a part linked to the number of sales that the retailers do. So, because of the lower occupation and fewer client’s sales, Macerich revenues have been affected, diminishing around 25% compared to the previous year. MAC’s NOI had been also declining for some time even before the pandemic.

Macerich has further been hurt by its mall characteristics, which has included conversions into mixed-use town centres with an emphasis on experiences, dining, and activities. 

Recent Results

  • Q4-20 FFO of $0.45/share, down from $0.98/share in Q4-19.
  • Occupancy was 89.7% at Dec-20 compared to 94.0% at Dec-19.
  • 92% rent collections.
  • Guidance of FFO $2.05-$2.25 for FY21. 5.8x P/FFO 

During 2020, there were 42 bankruptcy filings involving the Company’s tenants, totalling 323 leases and involving approximately 6.0 million square feet and $85.8 million of annual leasing revenue at the Company’s share.

Risks

  • A new pandemic closes malls again.
  • Vacancy rates spike or operators can’t rent vacant locations.
  • Debt can’t be refinanced at historic rates

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