Shares of Macerich MAC have rallied 20.7% over the past six months, outperforming the industry's 3.1% growth.

Macerich enjoys a portfolio of premium shopping centers in the United States. With a decent leasing pipeline, MAC is likely to continue witnessing healthy leasing activity at its properties in the quarters ahead, driving occupancy.

Its focus on omnichannel retailing is likely to support its long-term growth. The balance sheet strengthening efforts will lower its leverage. However, tenant bankruptcy and an elevated interest rate environment remain concerning.

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Factors Behind MAC Stock’s Price Surge: Will the Trend Last?

Macerich has a high concentration of premium malls in vibrant U.S. markets. These properties are located in densely populated areas, where affluent consumers with significant disposable incomes live, offering the company solid scope to generate decent cash flows.

MAC is witnessing healthy demand for its assets as evidenced by decent leasing activities, boosting occupancy. During the third quarter of 2024, the company signed leases encompassing 0.83 million square feet. On a comparable center basis, it reflected a 16% year-over-year increase in leased square footage. As of Sept. 30, 2024, portfolio occupancy was 93.7%, up 40 basis points from 93.3% reported in the prior quarter. For the 12 months ended Sept. 30, 2024, base rent re-leasing spreads were 11.9% more than the expiring base rent.

Macerich has been making efforts to enhance its assets’ quality as well as customer relationships through increasing the adoption of the omnichannel model. The omnichannel business model has become crucial among several store retailers resorting to fulfilling orders out of their mall-based stores. Many digital brands are focusing on enhancing their brick-and-mortar presence, which is playing a key role in satisfying orders.

Further, Macerich’s shift toward reuse and mixed-use properties through recapture and repositioning of anchor tenants remains a key emphasis. Bringing brands to new markets at its mall will likely attract shoppers.

Macerich has been focusing on an aggressive capital-recycling program. It involves the divestiture of non-core and slower-growth assets and the use of the proceeds to increase its presence in core markets and invest in higher-growth properties through acquisitions, developments and redevelopment initiatives. This will also lower its leverage. Its strategic plan also entails business simplification through selective consolidation of some JV interests over time.

Key Risks for MAC Stock

Tenant bankruptcies are likely to affect Macerich’s performance in the upcoming quarters. From the beginning of 2024 through Nov. 6, 2024, the company witnessed nine bankruptcy filings from its tenants, totaling 45 leases and representing approximately 312,000 square feet of leased space and $18.4 million of annual leasing revenues at its share. We expect the company’s total revenues to decrease marginally in 2024.

Macerich has a substantially leveraged balance sheet. As of Sept. 30, 2024, its total pro-rata share of debt was approximately $6.78 billion. This leveraged balance sheet limits its strength to withstand any credit crisis and unexpected negative externalities in the future. In addition, the still high interest rate environment is likely to result in high interest expenses for the company, affecting its ability to purchase or develop real estate.

Analysts seem bearish on this retail REIT carrying a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its 2025 funds from operations (FFO) per share has been lowered marginally to $1.56 over the past month.

Stocks to Consider

Some better-ranked stocks from the retail REIT sector are Kimco Realty KIM and Regency Centers REG, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Kimco Realty’s 2024 FFO per share is pegged at $1.64, up 4.5% year over year.

The consensus estimate for Regency Centers’ 2024 FFO per share is pegged at $4.28, up 3.1% year over year.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs

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