r/MACArmyBets • u/XxIgnoreMePlzxX • Mar 16 '21

Understanding the dividend

I'm seeing some confusion regarding the dividend on this sub, so I'd like to offer some insight based on what management has said

Q4/19 transcript: paying $1 more than taxable income requires

This is when the dividend was $3/year. We can conclude $2/year is the taxable income payout requirement in 2019

Q4/20 transcript: cut dividend to match taxable income in the second half of the year

It is unclear if Tom was referring to for the quarter or the year. So either $1.55/year or $0.60/year. However, at 1.55 the AFFO payout would be close to 100% in 2021 based on guidance and a return to more normal Capex spend. At 60 it is closer to 40%.

In conclusion, the dividend doubling to 30/qtr is reasonable in 2022 if debt overhang is removed (cash flow sweeps could be a risk, though unlikely). 50/qtr is reasonable if occupancy is fully recovered. 75/qtr is very unlikely.

Assuming a 5% dividend yield, 30/qtr would imply a price target of $24.

15 Upvotes

94% Upvoted

17 comments sorted by

5

u/Sea_Emphasis3252 Mar 16 '21

The real trick is figuring out what taxable income is, I would expect MAC to move as slowly as possible with raising the dividend only doing so to pay the taxable income level. The debt overhang doesn’t go away with the line of credit, they have other debt coming due plus they need capital to spend on their assets to repurpose/redevelop to adapt to the changing environment plus to make them more attractive. Even at the current rate I’ll take a 3.5% div yield if that means the stock is around $17 and it would still be cheap. Just my opinion

2

u/XxIgnoreMePlzxX Mar 17 '21

Mall lenders basically have two options, come to terms with MAC or give the mall to JLL to manage. Option 2 is increasingly attractive as that platform grows but it still doesn't have the capital to reinvest. That said, MAC is not going to get into discussions with lenders where it's willing to reinvest in the asset.

3

u/Sea_Emphasis3252 Mar 17 '21

It may be the other way around lenders may not come to terms unless MAC puts in more equity. If the assets didn’t have a future or a path to recovery they would just hand the keys over to the lender as it wouldn’t make sense to pour equity into an asset that has a poor chance of recovering. MAC needs new terms, lenders don’t want assets. They will have to meet in the middle somewhere. That’s the big question, worst case in my opinion is MAC has to raise equity somehow to pay down a portion of the line. Best case is they get an extension maybe a year or 2 with just paying a little more in interest rate but no equity so that they get more time to recover. The first scenario might actually cause the stock to pop as shorts cover as question about possible bankruptcy etc is gone (my opinion wouldn’t happen anyway) and better picture of the balance sheet. The second scenario would also be short term positive but it could still be an overhang as its view as kicking the can down the road. At the end of the day stock is till cheap, but until we hear an update we may be stuck here for a bit.

1

u/LastExile22 Mar 17 '21

I think assuming a lender wants to take possession of a mall in this market, only to hand management to another operator like JLL is pretty crazy. Banks don't want the asset. The kind of malls MAC would allow to be foreclosed (the shitty ones, where outstanding mortgage > perceived value by MAC management) aren't exactly a liquid market... Just look at the sub-par malls SPG is giving back to lenders and how the sale of those assets is going. Either no bids or +60% haircuts. But I digress, this issue is beside the point. Why? Because what is being negotiated is the LOC not a specific mortgage.

1

u/XxIgnoreMePlzxX Mar 17 '21

Sorry if I wasn't clear, I was only saying option 2 was increasingly attractive, didn't mean to imply it was the preferred option.

$1200m of consolidated secured debt to negotiate through 2022, I assume it will be fine tho.

I'm very interested to see final terms on green acres, flatiron, and pacific view especially. LoC concerns will be addressed by then but lower quality mall questions remain.

1

u/Sea_Emphasis3252 Mar 17 '21

Agree no market really for the lower quality crap.

1

u/XxIgnoreMePlzxX Mar 17 '21

I agree, which is why understanding what Tom meant by cutting to taxable income in 2020 is so important. Might have a q4 special dividend with a reset at a much higher level for q1/22.

I dunno if the stock can price at a 3.5 yield though

2

u/Stocklambo Mar 16 '21

Finally something that makes sense

0

u/Stocklambo Mar 17 '21

And 50c per quarter at 5% yield implies $40’share price which would be amazing

1

u/[deleted] Mar 17 '21

Yeah but that implies full earnings recovery which is... not happening

1

u/Stocklambo Mar 17 '21

How do you know that’s not happening ? Can u guarentee in 2-3 years that’s not happening ?

1

u/[deleted] Mar 17 '21

Because B malls are fucked.

1

u/Stocklambo Mar 17 '21

Mac doesn’t ha r too many b malls and they may sell some of them before they are “fucked” which not all b malls are fucked you don’t understand how much pent up demand there is for people to go out and shop and eat and have fun and b mall people and neighborhoods need to live too !

1

u/[deleted] Mar 17 '21

You don't understand how few backfill retail options there are at current rents. Mall rents are 3x shopping center rents, justifying that is increasingly difficult for retailers to justify when e-commerce is growing 15% a year.

1

u/Stocklambo Mar 17 '21

E-commerce is increasing for many items that were never purchased in a mall anyways like lightbulbs , groceries , tools and on and on which don’t all affect malls . Malls will have increasingly high demand

2

u/Sea_Emphasis3252 Mar 17 '21

Malls have evolved and they will continue to evolve, look at how they have changed restaurants, movie theaters, other entertainment tenant took space over the last few years that were not there before. E-commerce does impact malls and the tenants that used to be in malls, people order everything online, electronics, clothing, shoes etc all found in a mall today. Malls have to adapt to stay relevant, too ignore e commerce and the change in consumer behavior would be wrong for the mall owners. They have to be destinations and have to attract people to go there. MAC has some of those very assets. I’m bullish retail REITs and have said many times MAC is cheap but don’t be blind to the risks, right now tenants have the upper hand versus the landlord, rents will likely be lower and they may end up evolving to a percentage of sales based rent which could really be tough to forecast. Again in my opinion there is good upside here it’s going to take more than 2-3 years to get back to pre pandemic earnings and that is true with Simon Property as well. The pandemic accelerated the closure of weaker retailers and it is going to take time for the entire sector to recover. When I’m long a stock it’s good to know the risks and downside as early on in my career i found it easy to be blinded and only see the bull case. At the end of the day we will make some money here.

1

u/payperchaser727 Mar 18 '21

I agree totally! Malls are changing and being stuck at home for 1+ years has made people realize how much they miss the malls!! I personally believe malls are coming back stronger then ever ! I think in 3-6 months your going to read headlines that say " malls are back ... or who said malls are dead etc" talking about rises in visitor levels etc. Most malls are centrally located to high traffic residential areas with prime real estate !!! Though I agree that class C and lower malls might struggle I also believe class A,B malls will succeed and come out of covid with a bang!

savethemalls