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Macerich: Debunking Three Bear Theses, Including Why I Want A Dividend Cut

Published Wed, 26 Feb 2020 11:00:00 -0500 on Seeking Alpha

High-quality malls aren't dying.
MAC's high leverage isn't as bad as it seems.
Investors shouldn't fear a dividend cut: they should welcome it.
MAC is a conviction buy.
Macerich (MAC) is a landlord of high-quality mall real estate. Whereas "Class A malls" have tenant sales psf of around $525 or over, MAC's portfolio has an average sales psf of $801, or $916 on a net operating income ('NOI') weighted basis. Malls are out of favor, but is the selloff overdone? I think so, as MAC's A-mall portfolio is selling for a dividend yield of around 12%. Many malls will not survive in the changing environment, but I think that high-quality malls will adapt and thrive. In this report, I do my best to refute three of the main bear theses against MAC. MAC is a conviction buy.
Malls Are Dying - Wrong!
It is almost common knowledge that malls are dying at the hands of e-commerce. Is this really true?
There is some truth to it. 2019 saw an unprecedented amount of store closures, from companies such as Forever 21, GameStop (GME), Payless ShoeSource, and others. That said, are the store closures really solely due to e-commerce? And perhaps more importantly, do these store closures imply that all brick and mortar retail stores are in trouble? Not so fast.
When I look at the list of store closures, many names stand out to me as being struggling in their own right irrespective of e-commerce. These include the aforementioned GameStop, Payless ShoeSource, as well as Charlotte Russe, Dressbarn, and Things Remembered. These stores arguably would have eventually closed down due to either having poor business models or having brands that have been long out of fashion.
How has this impacted MAC? MAC reported same-store NOI ('SS NOI') growth of 0.65% in 2019. MAC's occupancy rate dropped from 95.4% in 2018 to 94.0%. This lower occupancy rate plus rent concessions given to retailers like Forever 21 counteracted their 2%-3% annual lease escalators to arrive at... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
CBL & ASSOCIATES PROPERTIES 1.38   0.0 -0.95 0.35 27.34
TANGER FACTORY OUTLET CENTERS 16.50   21.4 0.77 1.42 8.35
TAUBMAN CENTERS 43.64   59.0 0.74 2.70 6.16
SIMON PROPERTY GROUP 155.27   20.8 7.48 8.40 5.21


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