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 specific look at how Macerich Company (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.
[level-free]
To read the rest of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.
Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.
[/level-free]
[level-mg-stocks-screens-subscriber]
Downloadable PDF version of this valuation:
ModernGraham Valuation of MAC – August 2015
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 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 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 | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | Pass | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 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 | Fail | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 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
| EPSmg | $4.55 |
| MG Growth Estimate | 15.00% |
| MG Value | $175.18 |
| Opinion | Undervalued |
| MG Value based on 3% Growth | $65.98 |
| MG Value based on 0% Growth | $38.68 |
| Market Implied Growth Rate | 4.04% |
| Current Price | $75.45 |
| % of Intrinsic Value | 43.07% |
Macerich Company qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor’s only concern is the low current ratio and the Enterprising Investor is willing to overlook concerns regarding the level of debt relative to the current assets because the company meets the more stringent Defensive Investor requirements. As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable with 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 $4.55 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.04% 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 Company (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
| Net Current Asset Value (NCAV) | -$48.08 |
| Graham Number | $41.87 |
| PEmg | 16.59 |
| Current Ratio | 0.38 |
| PB Ratio | 2.18 |
| Dividend Yield | 3.40% |
| Number of Consecutive Years of Dividend Growth | 4 |
[/level-mg-stocks-screens-subscriber]
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Total Current Assets | $240,729,000 |
| Total Current Liabilities | $637,803,000 |
| Long-Term Debt | $6,739,208,000 |
| Total Assets | $13,360,380,000 |
| Intangible Assets | $303,504,000 |
| Total Liabilities | $7,867,048,000 |
| Shares Outstanding (Diluted Average) | 158,633,000 |
Earnings Per Share History
| Next Fiscal Year Estimate | $2.25 |
| 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 | $4.55 |
| 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
Other ModernGraham posts about related companies
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.
Leave a Reply