REIT Stocks

Macerich Co Valuation – January 2016 Update $MAC

REITs often attract a great deal of investors because of their strong cash flows and dividends, and those investors often overlook other parts of the business, choosing to analyze the company under a different set of criteria than companies in other sectors.  This can create a problem in that it becomes difficult to compare a REIT to an industrial, which is fine if you use the typical top-down approach to stock selection; however, a top-down approach invites speculation in the fact that you are theorizing which sector will perform well going forward.  Benjamin Graham taught that we should avoid speculation as much as possible, which is why it is critical to develop a system for analyzing companies that will allow them to be compared across industries.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another investment opportunity.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a stock analysis showing a specific look at how Macerich Co (MAC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Macerich Company is a self-managed and self-administered real estate investment trust (REIT). The Company is engaged in the acquisition, ownership, development, redevelopment, management and leasing of regional and community/power shopping centers located throughout the United States. The Company, through its partnership and ownership interests in the Macerich Partnership, L.P., has an ownership interest in 51 regional shopping centers and eight community/power shopping centers. These 59 regional and community/power shopping centers (which include any related office space) consist of approximately 55 million square feet of gross leasable area (GLA). The Centers primarily included 194 Anchors totaling approximately 28 million square feet of GLA and approximately 6,000 Mall Stores and Freestanding Stores totaling approximately 26 million square feet of GLA.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of MAC – January 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $13,054,057,372 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.37 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 138.68% Pass
6. Moderate PEmg Ratio PEmg < 20 19.15 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.39 Pass
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.37 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -17.57 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

MAC value Chart January 2016

EPSmg $4.27
MG Growth Estimate 15.00%
MG Value $164.40
Opinion Undervalued
MG Value based on 3% Growth $61.92
MG Value based on 0% Growth $36.30
Market Implied Growth Rate 5.32%
Current Price $81.77
% of Intrinsic Value 49.74%

Macerich Co qualifies for both the Enterprising Investor and the more conservative Defensive Investor.  The Defensive Investor’s only concern is the low current ratio.  The Enterprising Investor is willing to overlook concerns regarding the level of debt relative to the current assets because the company qualifies for the more conservative Defensive Investor.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.09 in 2011 to an estimated $4.27 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.32% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Macerich Co (MAC)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

MAC Charts January 2016

Net Current Asset Value (NCAV) -$48.51
Graham Number $32.96
PEmg 19.15
Current Ratio 0.37
PB Ratio 2.39
Dividend Yield 3.18%
Number of Consecutive Years of Dividend Growth 4

 

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Most Recent Balance Sheet Figures

Balance Sheet Information Sep15
Total Current Assets $227,640,000
Total Current Liabilities $616,262,000
Long-Term Debt $6,826,158,000
Total Assets $13,350,180,000
Intangible Assets $272,658,000
Total Liabilities $7,922,205,000
Shares Outstanding (Diluted Average) 158,634,000

Earnings Per Share History

Next Fiscal Year Estimate $1.41
Dec14 $10.45
Dec13 $3.00
Dec12 $2.51
Dec11 $1.18
Dec10 $0.19
Dec09 $1.45
Dec08 $2.17
Dec07 $0.98
Dec06 $3.07
Dec05 $0.85
Dec04 $1.35
Dec03 $2.01
Dec02 $1.56
Dec01 $1.66
Dec00 $1.07
Dec99 $2.88
Dec98 $1.02
Dec97 $0.82
Dec96 $0.86
Dec95 $0.70

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.27
Dec14 $4.96
Dec13 $2.03
Dec12 $1.53
Dec11 $1.09
Dec10 $1.22
Dec09 $1.72
Dec08 $1.80
Dec07 $1.63
Dec06 $1.89
Dec05 $1.36
Dec04 $1.59
Dec03 $1.75
Dec02 $1.63
Dec01 $1.60
Dec00 $1.49
Dec99 $1.56

Recommended Reading:

Other ModernGraham posts about the company

10 Undervalued Companies for the Defensive Dividend Stock Investor – December 2015
10 Undervalued Companies for the Defensive Dividend Stock Investor – November 2015
10 Undervalued Companies for the Defensive Dividend Stock Investor – September 2015
15 Best Stocks For Value Investors This Week – 9/4/15
Macerich Company Analysis – September 2015 Update $MAC

Other ModernGraham posts about related companies

American Tower Corp Valuation – November 2015 Update $AMT
Weyerhaeuser Co Valuation – November 2015 Update $WY
Boston Properties Inc. Valuation – November 2015 Update $BXP
Welltower Inc. Valuation – November 2015 Update $HCN
Kimco Realty Corporation Valuation – November 2015 Update $KIM
Prologis Inc. Valuation – October 2015 Update $PLD
HCP Inc. Valuation – October 2015 Update $HCP
Essex Property Trust Inc. Analysis – October 2015 Update $ESS
Macerich Company Analysis – September 2015 Update $MAC
Alexandria Real Estate Equities Inc. Analysis – Initial Coverage $ARE

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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