Macerich Sells Office Asset For $86.4M, Eyes Retail Growth

The Macerich Company (NYSE:MAC) announced that it has sold its wholly owned office property at 500 North Michigan Avenue in Chicago for $86.4 million. This transaction is in line with the company’s efforts to reposition and improve its portfolio quality on the back of strategic acquisitions and sale of non-core assets.

The 500 North Michigan Avenue property offers 326,000 square feet of office space and was unencumbered. It is located adjacent to The Shops — a shopping center owned by Macerich. The four-level shopping center, spread across 673,000 square feet of space, is anchored by Eataly and Nordstrom (NYSE:JWN). With 99.2% occupancy level as of Sep 30, 2017, Macerich enjoys high demand for retail space in the assets. Further, the area boasts strong trade demographics which help generate high sales per square foot of $906.

The sale is consistent with Macerich’s aggressive capital-recycling program, which involves the divestiture of non-core and slower-growth assets, and using the proceeds in higher-growth properties through acquisitions, developments and redevelopment initiatives. Specifically, the company aims at rotating capital out of its non-strategic assets and reinvesting in high-quality retail properties in key retail destinations across the nation.

In fact, per the latest earnings call, the company continued to shrink its non-core portfolio and shed interest in a Philadelphia-based office building for $31 million. Macerich recorded a gain of $6.7 million from this transaction. Additionally, the proceeds from these dispositions were used for share buybacks.

Going forward, we expect such moves to offer an upside potential to the company and strengthen its high-end portfolio which consist of ownership in 54 million square feet gross leasable area, in mainly 48 regional shopping centers.

However, year to date, amid the choppy retail real estate environment, shares of Macerich have underperformed the industry it belongs to. During this time frame, shares of the company have dropped 9.9%, whereas the industry has registered growth of 9.6%.

Also, the Zacks Consensus Estimate for funds from operations (FFO) per share for 2017 has been revised 0.2% downward to $3.95 in a month’s time.

Macerich currently carries a Zacks Rank #3 (Hold).

Key Picks

Better-ranked stocks in the real estate investment trust (REIT) space include Cedar Realty Trust (NYSE:CDR) , Extra Space Storage (NYSE:EXR) and Urstadt Biddle Properties (NYSE:UBA) . All three carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cedar Realty’s 2017 FFO per share estimates remained unchanged at 54 cents during the same time period. Year to date, its share price has dipped 8.1%.

Extra Space Storage’s FFO per share estimates for the current year have moved up to $4.33 in a week’s time. Its shares have gained 13.2%, year to date.

Urstadt Biddle Properties’ FFO per share estimates for the current year remained unchanged at $1.25 over the past 60 days. Its share price has declined 3.4%, year to date.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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