Mall Portfolios Will Decline Despite Leasing Momentum

Key Takeaways

• Persistent shifts toward e-commerce and alternative consumer spending reduce mall traffic, depress tenant demand, and limit Macerich's ability to raise rents or maintain high occupancy.
  
• High capital requirements and refinancing needs strain cash flow and threaten earnings growth, limiting the company's flexibility to invest and maintain dividend capacity.
  
• Strong leasing momentum, strategic asset sales, and focus on high-quality properties in affluent markets position Macerich for long-term growth and enhanced financial stability.

Catalysts

Macerich is a fully integrated, self-managed, self-administered real estate investment trust (REIT).

• Rapid and persistent growth of e-commerce, combined with evolving omni-channel retail strategies that prioritize smaller or fewer physical locations, is expected to continue depressing foot traffic, reducing tenant demand for large-format retail, and suppressing overall rent and occupancy levels across Macerich's mall portfolio, placing sustained downward pressure on revenue and net operating income.
  
• Shifting consumer spending toward online channels and experiences outside of retail, such as travel or entertainment, threatens core tenant sales and in-mall traffic, which in turn raises the risk of higher vacancy rates, pressured lease spreads, and reduced ability to command premium rents, impacting future earnings growth.
  
• Ongoing refinancing risks and heavy capital commitments required for redevelopments and tenant improvements will likely result in persistent high interest expenses and muted free cash flow, constraining Macerich's ability to invest for growth and potentially eroding net margins despite efforts to deleverage.
  
• Elevated capital expenditures required to refresh or repurpose aging mall assets and to backfill departures from struggling or bankrupt anchor tenants may not yield sufficient rent uplift in a structurally challenged retail landscape, leading to lower long-term returns on investment and stagnant or declining NOI.
  
• Increased competition for service, entertainment, and experience-driven tenants among retail landlords drives extended lease-up periods and lower average rents compared to legacy retail uses, limiting potential revenue recovery and putting additional pressure on Macerich's earnings trajectory and dividend paying capacity.

Macerich Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Macerich compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Macerich's revenue will decrease by 0.3% annually over the next 3 years.
• The bearish analysts are not forecasting that Macerich will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Macerich's profit margin will increase from -11.7% to the average US Retail REITs industry of 20.1% in 3 years.
• If Macerich's profit margin were to converge on the industry average, you could expect earnings to reach $201.6 million (and earnings per share of $0.62) by about August 2028, up from $-118.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 31.4x on those 2028 earnings, up from -35.7x today. This future PE is greater than the current PE for the US Retail REITs industry at 25.4x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.37%, as per the Simply Wall St company report.

Macerich Future Earnings Per Share Growth

Risks

• Macerich's accelerated leasing activity, including a 60 percent new deal completion rate and a large signed-not-open (SNO) pipeline that is expected to generate $80 million in incremental revenue by early 2028, could drive stronger-than-anticipated revenue and NOI growth if this momentum continues.
  
• The company's successful execution of its Path Forward strategy-demonstrated by surpassing $1.1 billion in asset dispositions, completing a $500 million equity raise, and refinancing ahead of plan-suggests improved balance sheet strength, lower leverage, and enhanced credit metrics, which may support net margin expansion and earnings resilience.
  
• Persistent positive same-store leasing spreads over 14 consecutive quarters, including 22 percent on new deals and the backfilling of vacated anchor space (like Forever 21) at significantly higher rents, indicate strong demand for Macerich's high-quality retail space, which could sustain or increase overall rental income and profit margins.
  
• Robust pre-leasing and tenant demand for redevelopment projects (such as Green Acres with nearly 70 percent of space committed or in negotiation prior to opening) and a diversified pipeline of non-traditional tenants (e.g., digitally native brands, entertainment, medical, fitness, and restaurant operators) may help offset secular retail headwinds and drive diversified long-term revenue streams.
  
• Strategic focus on core fortress properties in affluent, high-density markets-where permanent occupancy and sales productivity are set to rise-combined with steady progress in deleveraging, positions Macerich to benefit from long-term secular trends favoring experience-driven, omnichannel, and high-barrier assets, which could underpin improved FFO and long-run share price appreciation.

Valuation

• The assumed bearish price target for Macerich is $15.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Macerich's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $25.0, and the most bearish reporting a price target of just $15.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $1.0 billion, earnings will come to $201.6 million, and it would be trading on a PE ratio of 31.4x, assuming you use a discount rate of 9.4%.
• Given the current share price of $16.69, the bearish analyst price target of $15.0 is 11.3% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.