Citigroup – Citi Says It’s Time to Promote Upscale Mall Operator Macerich. Right here’s Why.
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Malls will proceed to battle because the pandemic forces new enterprise shutdowns throughout the nation, based on
which says it’s time to promote shares of
The issue isn’t the corporate’s skill to get by way of these powerful occasions, Citi’s Katy McConnell wrote in a observe on Tuesday. It’s Macerich’s (ticker: MAC) debt, which can power it to boost capital in some unspecified time in the future—and potential asset gross sales or joint ventures are troublesome within the present setting.
Whereas optimistic information on Covid-19 vaccines have sparked a run-up within the stock for the reason that starting of October, “we see more risk of downside,” she mentioned, downgrading the shares to Promote from Impartial. She expects continued volatility within the shares within the close to time period.
The shares had been up 4.3%, at $11.48, in latest buying and selling, however are down 57% for the reason that starting of this 12 months, in contrast with a 14% acquire within the
Macerich is the third-largest U.S. operator of upscale malls, with 52 areas on the East and West coasts and within the Southwest, reminiscent of Tyson’s Nook in Washington’s northern Virginia suburbs; Washington Sq. in Portland, Ore., and Biltmore Style Park in Phoenix.
E-commerce was a problem for mall operators even earlier than the pandemic pushed consumers on-line, however Macerich has highlighted one sudden development on this space. On-line retailers like
(PTON), Bonobos, and even
(AMZN) have opened bodily shops, too, to get within the line of sight of mall consumers. U.S. retail house leased by these previously online-only retailers has risen since 2015.
Malls have additionally been reinventing house as artwork facilities, group assembly locations, and workplace campuses. Two years in the past Macerich struck a deal to redevelop the Westside Pavillion in Los Angeles, together with a 14-year lease to Google to occupy greater than half 1,000,000 sq. toes of workplace house. Google is meant to maneuver in by 2022, and the plans had been nonetheless on even after the pandemic started.
Citi mentioned high-quality portfolios reminiscent of Macerich’s are higher positioned to recuperate as soon as enterprise returns to regular and folks enterprise again to malls.
However McConnell pointed to Macerich’s debt-laden stability sheet. “We are concerned about near term capital commitments, given limited liquidity and a fully utilized line of credit, especially in an environment where capex needs are likely rising due to accelerated tenant fallout,” the analyst wrote.
Macerich had $650 million of liquidity on the finish of September, together with $630 million of cash and $20 million in credit score, however subsequent 12 months it has $740 million of debt and the $1.5 billion line of credit score coming due, plus it pays about $100 million in annual dividends.
It’s additionally nonetheless spending on the Westside Pavillion venture in addition to a three way partnership with
(SHLDQ). “MAC has been able to push out some debt maturities, but just by a year or two,” Citi wrote.
McConnell did increase her price goal, to $9.50 from $8.
Write to Liz Moyer at Liz.Moyer@barrons.com