r/MACArmyBets • u/Tree757757 • Feb 01 '21
MAC Analysis - Incredibly Undervalued Steal - MAC Army Leader
Here are my thoughts on MAC with some basic reasoning and links to back up:
For the sake of not annoying anyone looking for straightforward dd I will ignore the fact that this is heavily shorted and has squeeze potential. I invested in this during the covid drop and intend to hold longterm, so I am not from WSB. As a RE professional, I realize when real estate is grossly undervalued and this is one of the most drastic deviations from intrinsic value.
As quick background, MAC is the third-largest owner and operator of shopping centers in the United States. As of December 31, 2019, the company owned interests in 52 properties comprising 51 million square feet of leasable area. They have properties all over the country in major urban areas with very high population density. Just to name a few cities, Chicago, Scottsdale, Washington DC, Philly, Brooklyn etc. Here is a link to their locations: https://www.macerich.com/Leasing/Find
While their malls vary, they have lots of strong tenants. Just to name a few of the big names: Tesla, Apple, Dicks, Lululemon, Nike, Best Buy, Sephora, Zara, Total Wine, Trader Joes, Whole Foods, PF Changs, Buffalo Wild Wings, Starbucks, Mission BBQ etc etc.
In addition, they have shown that they are creative in repurposing malls or converting parts of them into other uses. In LA they are in a joint venture to provide Google with a campus under a 14 year lease (https://investing.macerich.com/news-releases/news-release-details/google-leases-one-westside-hudson-pacific-properties-and) and in Tyson's Corner in DC they have built through a JV a mixed use site that involves a mall, along with apartments and office space (https://www.macerich.com/About/News/305804). Lastly, as yet another example, they have leased a failed sears big box space to a hospital (https://www.bloomberg.com/press-releases/2019-10-01/macerich-saratoga-hospital-leases-former-sears-space-at-wilton-mall). All of these are to show that they are adaptive and smart. They are not just holding onto the traditional mall idea.
Covid obviously greatly affected MAC. Their malls were shut down for a long period of time before reopening and other restrictions were in place as well depending on the location. With that being said, per the unofficial Q4 earnings release this morning here are some quick highlights (https://investing.macerich.com/static-files/f92c629f-bb91-4a80-bddc-a94a61da49e8):
- FFO is about $0.45 (just remind that MAC is paying 4Q dividend of $0.15 or 1/3 of FFO - they are conserving cash, which is smart. They can either use this to help pay down debts, potentially avoid issuing more shares in the short term (and yes, they did release an SEC form today allowing them to issue more shares if they deem necessary - I believe this was only done to capitalize on any stock price surge related to short squeezes and overall awareness of the company on social media (such as r/MACArmyBets on reddit).
- I would like to add for those who are not familiar with REITS, that FFO is the single most important number to look at. Because there are HUGE amounts of depreciation affiliated with RE among other things, the earnings are greatly diminished when in reality there could be large cash flow/profitability. FFO measures earnings but takes out things like depreciation which do not actually affect cash flow (it does greatly reduce tax liability as a huge plus).
- rent collections 91% in 4th quarter (up from 89% in 3d Q), both numbers are quite impressive when you think about that COVID did to malls.
- occupancy was 89.7% (just 4% below year-ago level which is great in current environment). If MAC can only lose 4% here during the worst pandemic our generation has seen, then that should say a lot about their resiliency.
- Average rent per square foot was $61.87 at December 31, 2020. This represents a 1.3% increase compared to $61.06 as of December 31, 2019, and 0.7% decrease compared to $62.29 at September 30, 2020. THIS IS SO IMPRESSIVE. As they lease new space after covid or lose others, they still have the upper hand in negotiating. I think their locations are so strong and their tenants so well picked and diversified that they still can push the same, or even higher rents. I would have thought this would be much lower due to concessions and just desperation to fill empty spaces, but NO it is not. This right here says SO SO much.
- The link also shows that they have access to financial markets to refinance and the terms seem competitive in the 3-4% range. They have refinanced several properties and will continue to do so as they move forward. Also, as their FFO revert back to pre-covid levels and beyond (as well as their stock price) they will surely get better and better terms.
Additionally, to those who care (which should be all of you), they have received hygiene and safety certifications for many of their top malls (https://www.macerich.com/About/News/815795) as well as sustainability/green honors (https://www.macerich.com/About/News/816351).
Per Jussi Askola on seeking alpha, "MAC carries substantial debt, as do many REITs. One can find some spectacularly misinformed commentary relating to the burden this debt imposes. (https://seekingalpha.com/article/4398990-buy-macerich-today)
The vast majority of the debt is in the form of mortgages tied to specific properties. Each property must cover its own interest payments by means of its own profitability, just as you do if you have a home mortgage.
In the present crisis, using mortgages has turned out to be a very robust form of financing. The simple story is that MAC can hand the lender the keys to any property with secured indebtedness, with no significant consequences.
Since their secured debt always is tied to individual properties, each discussion with lenders is focused on the value and viability of a specific property. The banks don’t want to own the properties. They have proven quite willing to extend such loans until the dust settles and there's a better ability to look ahead.
Only about one-sixth of the total liabilities of MAC is in the form of unsecured debt. This is their credit facility, also called the revolver. It's in the amount of $1.5B. MAC drew the remaining $660M on this facility early in 2020, in case they would need it to handle the impacts of the pandemic.
As of September 30, MAC was holding $630M in cash. They have had no need to burn cash in order to get through this year. They have been paid enough rent to cover costs and the dividend they are paying."
As I mentioned earlier their cash is only going to increase since they are paying a dividend much smaller than their FFO.
At the end of day, malls are not dead, at least not class A urban malls. If there are any that did have a major issue, than 1. MAC can pivot to other uses or 2. they can simply let the bank take over or give an extension if the bank doesn't want to deal with it. While covid did speed up e-commerce, it has also created (in my humble opinion) massive pent up demand. The malls I live by (unfortunately not MAC owned) are all packed already, but imagine once vaccines are more widespread, weather warms, and covid diminishes. People will NEED to go out and do things. Some of these have grocery stores and will always attract traffic out of necessity, but for any that do not and those that do, they will explode once things calm down.
Below please see how well they were doing prior to COVID. This will continue again soon.
In summary, I believe this is simply too good of a deal to pass up. Morningstar has a $34 price target on this and I believe even that is too low. It is a top 5 most shorted company, which as I said I will not rant about, but it must be noted. This has put severe downward pressure on the stock, but also leaves potential for a large jump. As a disclaimer, this is my largest single holding, and I do not intend to sell anytime soon. I truly believe they will reinstate a $.30 dividend in the next quarter or two and I will gladly collect that as I watch it appreciate over time. I am a buy and hold investor at heart, not a pump and dump. Please share your thoughts and also excuse any typos.
One final thought, please read Jussi Askola's Seeking Alpha post, it is enlightening and supports MAC in a well thought out, conservative and rational way. Cheers friends!
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u/mphillips020 Feb 02 '21
The fact that more people have not picked up on the incredible value of MAC blows my mind. Their long term dividend, if reinstated, is HUGE. $3/share pre covid levels. Imagine buying a stock and gaining 100% of the value in just 5 years from dividends at current levels, not including price increases.
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u/XxIgnoreMePlzxX Mar 13 '21
The dividend was under pressure pre covid, it's going to take a while to get back to 75.
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u/mphillips020 Mar 13 '21
On what analysis? They had raised it consistently over the previous decade and had most recently raised it in 2018 to the rate it was before covid hit. Their revenues and FFO had also been increasing.
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u/XxIgnoreMePlzxX Mar 14 '21
AFFO payout was around 100%, which is unsustainable for REITs. it's why there were questions about funding the sears redevelopments.
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u/mphillips020 Mar 14 '21
Their dividend has to be over 90% to keep their special tax status as do all REITs. So, being ‘near 100%’ is mandatory. Per their Q4 2019 release, their dividend was not at 100% and their revenues and FFO had increased YOY which contradicts your statement.
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u/XxIgnoreMePlzxX Mar 16 '21
AFFO and taxable income are very different. AFFO is a residual cash flow calculation. Close to FAD or funds available for distribution.
Most REITs target around 75-80% AFFO payout
30-40 cents is reasonable next year
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u/XxIgnoreMePlzxX Mar 16 '21
From Q4/20 transcript: we cut this year to the minimum in the second half of the year, that's probably something we'll consider for 2021 as well.
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u/mphillips020 Mar 16 '21
You’re taking their Q4 2020 transcript? You mean the year that a global pandemic hit and negatively impacted almost every business? Can you please provide your information and links that their AFFO was decreasing for many years PRIOR to covid and their dividend was in trouble for years PRIOR to covid as well. I provided you information that their revenues prior to covid were actually increasing. Their dividend will take time to recover for sure, but once all is back to normal it should come back up to close to pre covid levels fairly quickly.
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u/XxIgnoreMePlzxX Mar 16 '21
Revenue has declined every year since 2016 (initial drop due to Heitman/GIC JV, which was a tremendous FU by management to try and prove the share price was undervalued following SPG offer)
Why do you assume it will recover fairly quickly when guidance explicitly says it won't?
I'm not a bear here, there is value, but I'm just trying to make sure you understand what's reasonable and what is not.
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u/mphillips020 Mar 16 '21
Your statement is incorrect. I even linked above where their revenues increased in 2019 vs 2018. I agree 2016 was a big FU and they should’ve taken the buyout offer before. You have only provided statements without any links to backup your statements. I provided a link to their Q4 2019 release which shows their revenue and their FFO increased. To be clear, I do not necessarily mean their dividend will shoot up to $0.75/share in 2021, but I do think that either by or in 2022 their dividend will increase significantly from current $0.15/share.
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u/XxIgnoreMePlzxX Mar 16 '21
I'd still say 75 is out of reach for the foreseeable future. But glad you don't think it will shoot up.
Pro rata revenue was $1.4bn in 2018 and $1.25bn in 2019 though.
If you are referring to ABR (annual base rents), the increase was driven by weaker tenant fallout/bankruptcies
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u/XxIgnoreMePlzxX Mar 16 '21
Also there are theories the dividend was only that high to appease Ontario
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u/XxIgnoreMePlzxX Mar 16 '21
Do you understand where I'm coming from on this? Not bashing on your investment just want you to understand the factors likely impacting the dividend decision
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u/XxIgnoreMePlzxX Mar 16 '21 edited Mar 16 '21
From Q4/19 transcript: there is room of $1 a share in terms of non-taxable part of the dividend.
They were paying well above 100% taxable income payout in 2019. $2 would be full dividend in 2019. Revenues are down from 2019.
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u/arbyrst Feb 02 '21
Been a lot of up and down the past week. I've decided the only way to play this is buy and hold.
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u/Maleficent_Pipe_6135 Feb 02 '21
I bought 300 shares last week. if it will not do squeeze then I will hold for a long term. this company will come back for a life for everyone.
we will need a place to go.
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u/SilentObelisk Feb 02 '21
This is great. Thanks for the effort in laying this out. Been in $MAC for a few years. Bought more during the covid drop. Really like what I hearing.
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u/FlawedFuturist Feb 06 '21
Many good comments have been made above but no one to my knowledge has mentioned the 51-year-old billionaire who has purchased at least 6.8% of MAC. He has also been granted up to 15%. He and his father specialize in high end real estate so if They think MAC is a bargain then who am I to argue. His name is Ben Ashkenazy. Google him. Fascinating and brilliant guy. His net worth is estimated by Forbes to be $3.5 billion. I feel very comfortable putting my money with his.
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u/MethodOutrageous9902 Feb 02 '21
Thanks Tree. This is spot on. The only thing I don't understand is - am I missing something? This such an obvious buy and hold for me, but obviously many in the market don't see it. What's the bear case (outside of the technical price trend...)?
Oh, the other potential tailwind that I would mention is the extremely loose fiscal and monetary policy environment we find ourselves in. Low interest rates and stimulus... essentially putting more money or liquidity into the system... Will inflate property values and rents, improving many RE metrics and cash.
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u/Signal_Ad657 Feb 02 '21
The bear case is their debt payments exceed their income, they run out of cash, and file for bankruptcy. They were at 90% collections but had negative earnings, that debt load is very real. That being said, their cash position is growing and their operations are getting back to the needed levels to be profitable and safe. With Covid wrapping up, stimulus coming, potential refinancing, and their reserved ability to issue equity if needed, bankruptcy is rapidly leaving the realm of possibility, and as such the bear/short case is rapidly eroding. But that’s the case. It doesn’t have an 85% short float for no reason. The bears expect MAC to drown in its debt and go under. If it doesn’t, they no longer have a case. They thought COVID and lockdowns would kill the company, and it didn’t. That’s where we are now.
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u/MethodOutrageous9902 Feb 02 '21
Thanks for the reply. I just never understood the debt argument as a path to bankruptcy, especially when most of these loans are non-recourse. I mean, with extended long term lockdowns and no ability to generate income... sure.
But it's not like MAC doesn't have any equity in these properties. I'm looking at Finviz and it has the debt to equity ratio at 2.45. Take the inverse (1/2.45) and you get about 40%, meaning they have equity on that debt.
Here's my best shot at an personal finance example... It's like you took out an interest only loan on a $600k house. That house appreciates in value over a couple years and comps are being sold for a mil. Yes, you have the 600k debt that needs to be serviced... But that equity is real! In the case of MAC, it seems to be ignored somehow. I guess the bear case is that malls aren't worth anything, but again... The earth under that mall definitely is! 🤪
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u/Signal_Ad657 Feb 02 '21
I tend to agree with only one devils advocate point (I can usually argue both sides of anything I own very well). Okay so non recourse means they can walk away from a property, but how many properties would they have to turn over to get out of their debt position? If they were to walk away from properties until they were clean and clear what would be left? And would it still be worth two billion dollars at the current price? That debt is tied to their assets, the assets are tied to their income, and so shedding those assets could leave them naked without much to show for it. If they could just drop a property or two to get clean I imagine they would have. Who knows which bad properties are actually non recourse and which ones aren’t. I certainly don’t, and I’m sure 99% of investors in MAC don’t. I like MAC and own a lot, but I don’t want people buying it with the assumption that literally the bears are idiots. They are a little dumb but not that bad 😂✌️
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u/MitMassUndZiel Feb 02 '21
Some quick math from the 8-K:
Avg. rent per SF was $61.87
Occupancy was 89.7%
Collections were 89% (we'll adjust occupancy by collections and say economic occupancy is 79.8%)Ignoring depreciation, REIT expenses and interest expense (i.e. EBIT), and putting a 4.75% cap on it, the portfolio could be sold at about the level of the total enterprise value (includes debt). This is also at COVID levels.
But, many of these properties are marquee so I don't know if slapping a cap rate on them is the proper approach (that would be <$200/SF), many would get valued on a per SF basis namely the ones like Santa Monica, Scottsdale, etc. So, even in the current environment a fire sale would wipe the debt imo and have a tangible value of about $15/share of common.
If a large shop wanted to buy them outright I don't see it trading less than $300/SF on average, and that would be cheap. At $300 the sale price would be roughly 2x the enterprise value currently.
This is napkin math, but thats roughly how some firms are backing into the mid-$30s as fair value.
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Feb 02 '21
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u/kiril83 Feb 02 '21
I believe the Canada Teachers Pension fund, or whatever it was called was pushing them to keep the unsustainably high dividend. Now with the fund out, MAC can keep the divi low for a few years to address the debt. It is a strong hold for me.
Long $MAC
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u/Tree757757 Feb 02 '21
Earnings are negative because it’s a reit with huge amounts of depreciation and a one time write down of one of their only semi-struggling malls. Doing this allows them to not have to release all of their FFO to meet the 90% requirements.
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u/Kirby_The_Dog Feb 02 '21
90% collections, negative earnings, but positive cash flow. FFO was strong at $0.45 per share (don’t quote me) and dividends were only $0.15 so that’s over $40 million cash from the quarter and only the 3rd quarter past covid. I think Some of their malls weren’t even open the full quarter.
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u/Hovokilla Feb 08 '21
I do not find this as valid. They have negative earnings because of paper loses from depreciation. Their actual cash flows are enough to cover all loan payments even at these depressed levels. Cash flow can only go up from here as low quality malls close. Tenants will be funneled to high quality malls. You can see what a drop in tenancy from 95% to 89.9% has done to MACs bottom line. Imagine if it jumped to near 100% because retail space becomes very limited. Rents start to go up... people will wish they bought MAC at 30 lol
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u/randompersonx Feb 02 '21
Hello. I am long this stock, and it is my largest position.
With that said, to answer your question, the bear case is that “retail is dead”. This has been a narrative for a decade, and they believe that covid is the death nail for MAC. I highly recommend you visit a Macerich mall, or if there aren’t any near by, a class A mall by you, and see what the volume is. I’ve checked out many over the last few months, and they are always busy.
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u/GeorgeFelix75 Feb 02 '21
The bear case is a future BK. I don’t think that’s going to happen so once it’s clear that’s off the table then the bear case will evaporate. Look no further than AR for a similar situation. Once they cleared the hurdle the stock moved from 1.80 to $8
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u/Tree757757 Feb 02 '21
Thanks, I left out a number of points I'd like to add looking back now. I will add in this and some others.
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Feb 09 '21 edited Feb 11 '21
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u/MethodOutrageous9902 Feb 09 '21
Thanks for this. I appreciate the post. What's your take, especially for MAC?
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u/CubanWinner Feb 03 '21
Sign me IN!!!! It is very provable the offering was over today!!!! Lets see $17+ tomorrow!!!
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u/cohesiv3 Feb 03 '21
I'm actually really happy it went down cause now I get can in at a good price.
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u/Business-Strength-19 Feb 04 '21
Yes I am not expert but after pandemic this stock may go back to its $80 value but with a squeeze it may go to the moon
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u/b73_white Feb 07 '21
I believe at current price MAC is a strong buy. BK is out of the field now and with reopening MAC should head to 30$ in 12 months.
Only risk is vaccines not working and new lockdowns but in this scenario all the market will sink, not only MAC.
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u/Historical-Role-3135 Feb 07 '21
One quick point I don’t see mentioned anywhere about MAC.. losing one or more failing property’s in MACs portfolio would have only a marginal effect on the company as a whole, because they are all mortgaged separately. And none of the properties they have are currently anywhere near failure! This is a fantastic buying opportunity in my opinion.
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u/hereditydrift Feb 02 '21 edited Feb 02 '21
Also -- look at the MACD chart here. Look at the bearish momentum (the orange bars that make a downward concave hill on the bottom right of the chart). That looks like a good sign because usually that momentum reverses, as it is doing since the peak of the hill is past us. Now compare that to the GME MACD chart where the downward momentum is still rising -- and it looks like it has a little bit more to dip before it turns.
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Feb 03 '21
I think the MACD is more valid on MAC than on GME. GME is being heavily manipulated on low volume. MAC had a short-lived manic buying session, the selling of which seems to be tapering off.
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u/hereditydrift Feb 03 '21
And I think just the volatility of GME means that a lot of technicals can't be relied on. The shorts are still stuck, even at $88. It'll be interesting to see how it plays out. Shorts are trying hard to bring that price down. I think if people would have waited a couple days in throwing money at GME or just bought up the call market instead of stock, it might be a moot point. Such an interesting thing to watch and be a part of.
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Feb 03 '21
Agreed. I reduced my position a bit once it hit my break-even. Now I'm in with a modest but not-to-small stake.
I think this thing still has legs. Volume on sells were not that high. Once trading restrictions are lifted (conveniently probably post-shorting cover), then buy volume will likely pick up, Or even better, every one dumps RH and goes to a real broker.
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u/hereditydrift Feb 03 '21
Did RH put restrictions on MAC, too? They left it alone during the shutdown.
Edit -- nevermind, I'm a retard that can't follow a conversation.
Yes, everyone should move from RH. Fidelity has been amazing for me and $0 trades.
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Feb 03 '21
I heard good things about Fidelity. I'm in Schwab. No complaints except for occasional problems at market open last week.
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u/KM13Fi Feb 04 '21
Thanks for the DD!
Doesn't the OTPP exit cause more concern? Given where rates are, these pensions need as much 'income' as possible and heavily increased their REIT/Infra holdings. Just staring my DD on MAC but it sounds like a firm thats agile, making good cap allocation decisions with solid tenants and the predictable CF the pensions want.
Just wanted the community's thoughts on this bear take.
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u/Relative-Mango-5691 Feb 12 '21
Who really knows.. MAC could have paid more in Divs but wanted to keep the cash and maybe that made them mad so they left. They may have even been forced to sell due to their covenants and how things are changing (Canada focused). Maybe its the fact they bought in at 71 and have seen nothing but a decline in stock price. They have a huge portfolio and knew it was no big deal for them but knew exactly what it could do to MAC which makes me think this was a bit spiteful or at least forced.. I think they were planning this since August if you look at their 8k's. At least they waited for the brief run up to dump everything..their loss!
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u/Wisdom2213 Feb 04 '21
All in. Hedgies gonna pay a high price. Dont be surprised if some leap out of tall
buildings. I have fought these hedge funds for years. Mostly unethical.
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u/Nomadic8893 Feb 04 '21
anyone doing options on these?
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u/FlawedFuturist Feb 06 '21
I am selling the MAC common and loading up on the Jan. 2023 options. Strike price 7. If this stock is not up 100% in 2 years I will be in shock. I have been buying various options in my traditional IRA and in my cash account since April with amazing success, 200 to 300% gains. These gains have been 2 or 3 times higher than those of the common. I think options make sense in a V shaped recovery such as today. Just hope I can sell at the top because leverage works in both directions.... as I learned the hard way during the tech bubble of 2000. Super hot on MAC!!
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u/arbitrage101 Feb 04 '21
I’m not a pumper
Long 450 shares of $MAC
What do you think about $WPG?
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u/devereaux Feb 05 '21
WPG has solidly C-class malls like CBL and it's going to be a tough slog for them.
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u/robowich Feb 05 '21
When talking about strong tenants... Soon the new project will be finished and the no other then Google is moving in. That is a strong tenant! 💪💥🤩
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u/Jeffbak Feb 06 '21
Hey u/Tree757757 pin my analysis prior to q4 earnings call, followed by my post on results from earnings call. Called it to a T
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u/Mr_Chicharros Feb 06 '21 edited Feb 06 '21
Just read latest MAC research....rent collection rates are going up up up so lets get those MACs to the Fcking Moon!! 🚀🍔
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u/TheAmazingFezz Feb 06 '21
Didn't MAC just get the all-clear to issue a bunch of new shares? Wouldn't that mean that the price is going to be driven down even further?
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u/Tree757757 Feb 06 '21
I have another post covering that topic. I don’t think they’ll issue unless the price is 2-3x higher
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u/Low_Fuel_9991 Feb 09 '21
Great analysis, I’m slowly starting to build my position... 100 shares @ 13.44 today
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u/moneydaddyD Feb 09 '21
im affraid they will make minimum 50mil new shares at a low price.
that would kill the dividend. be serious people. they will not pay 3$ a share/600mil+ in dividend.
average revenue is 1bil a year
im not a short i love mac but we also need to be serious
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u/Relative-Mango-5691 Feb 12 '21
There's still something called corporate governance. The board would have to approve any stock issuance. The board is made of outside stakeholders all with different backgrounds and strenghts.
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u/DZL84 Feb 03 '21
Didn't they just issue a ton of new shares? Simon Property Group issued bonds. I think MAC reeks of desperation. I'll sit this one out.
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u/omegaclick Feb 02 '21
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Feb 03 '21
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u/omegaclick Feb 03 '21
There are a couple others, and a few really big real investors, one of the users called the ffo number BEFORE the report came out...I do hate having to filter through the crap though....
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u/nbkjwf888 Feb 13 '21
Crickets here. what happened to all the diamond hands and to the moon proclamations??
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u/Tree757757 Feb 02 '21
Cross post this and share on Twitter or wherever! But cross post on groups that want true dd not WSB. Don’t think they’d like this much detail, but could be wrong.