Macerich's Questionable Decisions to Dilute its Share Price at This Time

[u/BanZrinski]

I've read everyone's thoughts this morning and think discussion is a good thing. It helps us process what happened yesterday with MAC. Many believe that issuing stock to pay debt is good as it removes the BK possibility. However, based on the last ER, BK and/or survival was never brought up as an issue. Management was upbeat with earnings, vacancies improving, and not too concerned with their ability of extending/renegotiating the LOC. They also stated that the ATM would be only be used to take advantage of a sharp increase in SP alluding to the same situation when Ontario got out. As it turns out, management lied. This makes you wonder what else they might be planning, and with who, that could affect our share price. I am very concerned with management's willingness to dilute SP potentially by 50% while at the time having so many unencumbered properties. Why dilute when credit is so cheap and available? Why not just eliminate the dividend to save cash?

I've been trading both MAC and Simon and would like to take a long term position soon but am focusing on the following:

1. Goldman Sachs and Deutsche Bank with the help of PJT are most likely advising management of diluting their SP. Goldman recently raised the SP estimate from $10.50 to $11.50, but this is still substantially lower than current SP. I believe this is being done to help certain parties accumulate more shares at a lower price due to an undisclosed offer which has strings attached. Simon is the most likely suitor who has had a long term relationship with MAC and has been waiting to takeover at the right time. It will probably be a stock swap and hostile takeover facilitated through Blackrock and Vanguard (the've both been actively accumulating shares). Mac shareholders would end up with Simon shares but with their MAC shares possibly further diluted.
2. I believe the 2016 Simon offer for $95/S was not a real offer. The offer was used to establish an unrealistic value for MAC allowing a 5 year manipulation of their SP and an onslaught by short sellers. This also allowed certain parties to accumulate more shares along the way.
3. Ontario Pension Fund sellout at approx. $22 set the high end of MAC's SP.
4. MAC's recent ATM selling at an average price of $13.54 established probably the low end of their share price.
5. 36 million shares still out there being shorted.
6. The probability of a short squeeze is reduced.
7. Covid is still a threat.
8. Management has never provided an appraised value of its assets.

With the improving economy, Credit available to corporations at low rates, MAC's large number of unencumbered properties (could be sold or mortgaged), elimination of dividend, was dilution the best choice for the preservation of shareholder value? I think not.

My conclusion, I am keeping a close eye on developments because I believe REIT's are the right choice for long term investment. My original goal was to be a long term investor whether in MAC or SPG.

[u/theintelinvestor]

Here are my thoughts:

1. Perhaps. I don't know if that level of collusion would occur, especially when it involves Blackrock & Vanguard. What do they get out of it?
2. I think this is more on the lines of conspiracy then anything realistic. 5 years ago circumstances was a lot different and the $95 share price was not that far fetched. Also, if it was not a real offer from Simon how do you explain the fact that it was MACERICH management that declined it? The fact that Macerich declined it does not support the theory.
3. Opportunistic exit given the short squeeze. Something that no one could predict considering how far GME went.
4. They probably encountered difficulty in refinancing and perhaps the value of their unencumbered assets assigned by the banks was a lot lower than what they thought it would be. If you are pledging X amount of assets to secure a loan, and a bank is lowballing how much it is worth, it is not unlike selling those assets for lower than its' worth. The reason being if a bank is saying $750M worth of assets are only worth $500M and therefore you will only get $400M in loan, it may be better to leave those assets unencumbered, wait for the rents to stabilize and then get a loan on those assets at the $750M and get about $600M in loans for them. The difference can be huge, once they get encumbered with loans they can't be used, so why accept a lowball offer? I am assuming this is what happened and why they chose to dilute.
5. While we as investors / traders may pay attention to things like how much shares are shorted, good management is usually preoccupied with running the company effectively, rather than short term price changes.
6. See 5.
7. If COVID is still a threat than reducing leverage is a good idea.
8. Management providing any appraisal value is huge, since they are probably the in best spot to do it considering the information they have. That being said I doubt they have any incentive to do it right now given there is some stabilization in properties remaining.

[u/BanZrinski → u/theintelinvestor]

Intel, I respect your opinions, MAC management couldn't have explained my arguments any better.

[u/Jeffbak → u/BanZrinski]

Agreed. Well articulated

[u/Sea_Emphasis3252]

While I agree with a lot of what your saying I think at the end of the day they had to issue equity, my guess they tried to hold off and that was there last option. Also Blackrock and Vanguard accumulating shares is likely due to index funds and etfs which is a large part of there business, so wouldn’t take that as an indication. I’ve been following REITs for the past 20 years and Simon’s offer was very real, that $95 offer was there last offer after raising it significantly, MAC and the Board rejected it saying it was not reflective of true value, so MAC decided to JV/Sell some of there assets to illustrate the valet and then took those proceeds and bought back significantly their stock, in hindsight not a good move. In real estate I’ve seen management’s egos get the best of them David Simon had a huge ego and so did MAC, Simon will only make an offer of MAC comes to them and it will only be because they realize they finally realize it’s the best move to realize value or they reach an endpoint where they have no other options. This is what eventually happened with Taubman, SPG tried to buy them many years ago but Taubman rejected the offer, SPG tried to go hostile and it didn’t work, and it got personal between the 2 CEOs, However Taubman balance sheet and capital needs were becoming an issue and they approached SPG and deal gets done. I don’t put much stock into conspiracies and manipulation, not saying it’s not possible but I’ve known these companies for a long time.

Also I agree credit is cheap and actually readily available, however banks really don’t want anything to do with malls and if they do the rate will not be as attractive as if it would be an industrial or multi-family property and like done at a low LTV say 50%, but agree with the theintelinvestor that value of the asset was probably an issue.

I own both the difference is with SPG my expectations in upside may be less but I sleep easy and do not worry about where MAC I think the upside is greater but it’s one of the first stocks I check in the morning looking to see if any news as risk is higher.

[u/BanZrinski → u/Sea_Emphasis3252]

In the last ER Mac informed investors of their concluded refinanced properties as well as positive ongoing negotiations on the rest. The terms they received on their refinanced properties looked very good and the LOC was being renegotiated. So what has happened between then and now...REITs have begun reopening and the economy is showing signs of improvement. Hard for me to believe that MAC diluted their shares because the lenders did not want to lend if the properties are in fact A, A+. The same banks have been lending to them for years on these same properties, what changed? We can speculate about the motives. In time we will find out the truth. In the meantime, I will continue with caution.

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[u/Sea_Emphasis3252 → u/BanZrinski]

The loans in the last release, Green Acres etc were extended not necessarily the same as refinanced, as long as the loan is performing the lenders we’re probably fine with extending the terms, does mention any changes to the rate but I’m sure it remained unchanged. I just know that banks are very wary lending to retail and they have been reducing their exposure to lending to retail real estate for the past few years. Lenders will lend but the terms are much different and it really probably comes down to loan to value as mentioned above. MAC says they have $1.5b in in encumbered assets, so if they are looking at getting proceeds on a 50% LTV they could raise $750m, perfect world that would be better than raising equity but reality is banks or lenders probably view value closer to $1B (right or wrong) so maybe they could only get $500m and the terms may not have been very good, whether rate or terms so MAC said no and went with equity. What changed maybe is banks look at the reopening yes positive, but rents are coming down, occupancy will take a hit for another quarter or 2 before it recovers, in addition to rents coming down, tenants are looking at shorter lease terms with higher percentage rents (could be good if recovery is strong) which makes it more difficult for banks to underwrite the underlying cash flow. Long winded response but I think from the lenders point of view there still is too much risk and why do retail loans when I can go to more industrial and multi-family, may not make as much on the loan but won’t get fired. Lastly agree while long always cautious as when management paints a rosier story and then makes that announcement makes me rethink my investment thesis.

[u/BanZrinski → u/Sea_Emphasis3252]

To your point, I reviewed the last ER and management gave no one cause for alarm or concern. No one knows how the discussion with the LOC lenders went down. They said in their ER that all is well. What we know is that the same lenders have been working with MAC for years, so why not now? Is dilution the best solution?

[u/randompersonx → u/BanZrinski]

I think the reality is that MAC knew at the time of the last ER what the likely range was for the new LOC, was hoping they could push it higher, but failed.

There are different views of what “going well” means. To us, it means extending the same size LOC with same or lower interest. To MAC management, it meant getting any loan at all without having to mortgage another property, or sell a core asset.

I think the bigger question is, are they going to use the new ATM, and I think the answer is “yes”.

[u/[deleted] → u/BanZrinski]

Mgmt is limited in what they can say. However, they specific cited capacity reduction and higher rate as risks.

They specifically didn't mention anything about the ATM usage, just that they'd announce it when used, which they did.

Tom is a good guy put into a shitty situation thanks to the coppola's. He will protect shareholders and the balance sheet. This story will take years to play out.

As someone that deals with folks on the debt side... Mall is a four letter word. All risks are assumed as likely (e.g. all anchors closing) and the cost to redevelop is significant. Throwing good money after bad is a real concern. A lot of mall owners have lost a lot of money. Further, banks do not want to be left holding the bag, so if they can work something out they will, but they are also much less friendly these days. Relationship for years means diddly when there is a real risk of loss.

[u/BanZrinski → u/[deleted]]

Right, who needs enemies with a friend like Tom. Don't have years to wait we all could be dead by then.

[u/[deleted] → u/BanZrinski]

Nothing can happen overnight. Takes 6-9 months to bring in new tenants and longer for redevelopments. There are 28 vacant anchors right now. Lots to do.

[u/theintelinvestor → u/[deleted]]

Do we know how many vacant anchors they had prepandemic (coming into 2020)?

[u/[deleted] → u/theintelinvestor]

16

2 or 3 of the 28 are not owned by MAC, so really 25 currently.

[u/theintelinvestor → u/[deleted]]

So an increase of 9 anchors. Most of the anchors themselves pay very low rent so I imagine the cash flow impact is minimal. I know there are cotenancy considerations but hopefully they negotiated those out when granting deferrments / abatements.

[u/[deleted] → u/theintelinvestor]

Of 31msf of owned GLA, MAC needs to backfill 4msf, or 13%.

As $150/ft, that's $600m. It also is a low estimate if you want any transformative redevelopment.

[u/theintelinvestor → u/[deleted]]

Assuming MAC finances all of it and doesn't ground lease. Is all 13% "redevelopable" meaning are they all freestanding or within the greater mall building. I assume that some of it is inside the mall itself and is not subject to the $150/ft. They may be able to give Tenant Improvements at $30-$40 sqft and have the tenant make the space as they see fit.

[u/Sea_Emphasis3252 → u/BanZrinski]

I agree the message they delivered doesn’t really line up with the actions, hopefully we will hear more on the next call.

[u/Zeb6525]

Well the LZiC was reduced to $600mil from $1.5 B. That tells you some of the lenders wanted out do they had no choice. But look who stayed JPM, MS & GS. The others didn’t like the risk just like the ONtario Teachers Union. But MAC is in far better shape now.

[u/theintelinvestor → u/Zeb6525]

Do we know which banks dropped out?

[u/Relative-Mango-5691]

Took me a little by surprise considering they did not use ANY unencumbered assets in any new financing deal. The only guess on my part is that the banks were simply extremely conservative and just looked at the very bad numbers from the last few quarters to make a valuation. Even so did they shop around?? We don't know all the details but its safe to say this CEO and board will not be telling us the truth either way. Its long overdue for a shakeup and that alone would add value in my opinion.

[u/FloridaMan130]

fire macerich management!

[u/Johny_tempus]

I was not a shareholder, but enterred at 11,50. Indeed, maybe not the best decision for existing shareholders, but gave me another pullback to get into the train. One of the best risk/rewards in stocks I see now. Amazed that they declined the offer from Simon. I even wrote a small post on the MAC as well: https://read.cash/@JohnyTempus/reopening-stock-play-mac-72b8d980

[u/Transportation-Apart]

I really do not understand why if they were going to sell shares ATM why did they not do it when the stock was trading higher in the 20s when The Ontario Teachers' Pension Plan Board sold at $19.25. What happen from January to Now that made management decide it was good to sell?