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Will Macerich’s Value Creation Efforts Take Its Stock Higher?

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Higher valuations

On a price-to-FFO (funds from operations) multiple basis, most major retail REITs (real estate investment trusts) trade in the range of 18.3x to 25.5x. Currently, Macerich shares are trading at the highest price-to-FFO multiple of 25.5x, while the average price-to-FFO multiple for apartment REITs is 15.2x. The highest price-to-FFO multiple can be attributed to Simon Property Group’s (SPG) takeover attempt in March 2015. This boosted Macerich’s valuation after November 2014. Macerich remains a prime acquisition target for major companies in the retail REIT segment. Though the management is trying its best to create value, it is yet to be determined how far this will translate into higher stock movement.

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Other major apartment REITs such as General Growth Properties (GGP) and Taubman Centers (TCO) are trading at price-to-FFO multiples of 22.9x and 18.3x, respectively. CBL & Associates Properties (CBL) and WP Glimcher (WPG) are trading at lower price-to-FFO multiples of 5.7x and 6.8x, respectively. The iShares US Real Estate ETF (IYR) invests 1.3% of its portfolio in Macerich.

Analysts’ recommendations

On October 28, Macerich’s (MAC) stock closed at $85.60. Currently, the company has a consensus “hold” rating with an average consensus price target of $84.33. At the current price, the stock is trading at a premium of 1.5% to analysts’ expectations.

Among the 21 analysts following the stock, two have assigned a “buy” rating. Macerich (SPG) received a “sell” rating from one analyst while 18 brokerages have assigned a “hold” rating. Presently, Macerich has a consensus “hold” rating. However, it must be noted that the analyst consensus rating on Macerich’s stock was before the release of its 3Q15 earnings. It is yet to be seen if analysts will change their price target on the stock in view of the latest data.

A number of brokerage houses came out with research reports on Macerich. In a research report released on October 14, Cowen and Company increased their target price on Macerich to $102 from $85.50. On October 7, RBC Capital Markets reaffirmed a “sector perform” rating on Macerich’s stock, with a price target of $83 per share. On September 8, Evercore Partners assigned a “hold” rating on the stock and cut its target price to $81 from $84.

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