The most common way to calculate the relative value of REITs like Macerich (MAC) is by determining the price-to-FFO (funds from operations) multiple. FFO is widely used because it’s the main earnings metric for REITs, similar to EPS (earnings per share) in other industries. In this sense, an REITs price-to-FFO multiple is equivalent to the PE (price-to-earnings) ratio used in other industries.
Peer group price-to-FFO multiple
A closer look at Macerich’s (MAC) trailing twelve-month price-to-FFO multiple shows that it’s in line with its historical valuation. Over the past five years, Macerich’s price ranged between 13.3x–26.7x of its FFO, with a current price-to-FFO multiple of around 21x. In 2010, Macerich experienced its lowest price-to-FFO multiple, whereas the company recorded its highest multiple in March 2015. The higher multiple for Macerich in March 2015 was due to Simon Property Group’s acquisition bid on the company.
At this level, Macerich’s (MAC) stock is trading at a higher multiple compared to most of its peers, except Taubman Centers (TCO), which is trading at a multiple of 23.3x. The industry average price-to-FFO multiple is 15.7x. General Growth Properties (GGP) is trading at 18.9x, and Simon Property Group (SPG) is trading at 18.6x.
Higher dividend yields in the peer group
Historically, a better-than-average price-to-FFO multiple for Macerich (MAC) signifies that the company was able to provide consistent capital value return along with higher dividend yield to investors. Currently, Macerich (MAC) offers a dividend yield of 3.49%, which is higher than its close competitors. For example, Simon Property Group (SPG) offers a dividend yield of 3.36%, followed by Taubman Centers (TCO) at 3.25%, and General Growth Properties (GGP) at 2.87%. Macerich (MAC) makes up 1.84% of the total holdings of the SPDR DJ Wilshire REIT ETF (RWR).
In the next part of this series, we’ll discuss Macerich’s EV (enterprise value)-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) multiple.