Business Overview and History

The Macerich Company (MAC) is a fully integrated, self-managed, and self-administered real estate investment trust (REIT) that has established itself as a leading owner, operator, and developer of high-quality retail properties in densely populated and attractive U.S. markets. With a strategic focus on California, the Pacific Northwest, Phoenix/Scottsdale, and the Metro New York to Washington, D.C. corridor, Macerich has curated a portfolio of 43 million square feet of gross leasable area (GLA) across 40 regional retail centers, 2 community shopping centers, and 1 redevelopment property.

The Macerich Company commenced operations on March 16, 1994, with the completion of its initial public offering. As of December 31, 2024, Macerich held a 96% ownership interest in The Macerich Partnership, L.P., serving as its sole general partner. The company was organized to qualify as a REIT under the Internal Revenue Code of 1986, focusing on the acquisition, ownership, development, redevelopment, management, and leasing of regional and community-power shopping centers throughout the United States.

Macerich's operations are fully integrated, with property management, leasing, and redevelopment services provided by its own management companies. Over the years, the company has made strategic investments, dispositions, and financings in unconsolidated joint ventures, including acquiring additional ownership interests in certain joint ventures to consolidate its control.

Throughout its history, Macerich has faced various challenges, including the significant impact of the COVID-19 pandemic on its business, financial condition, and results of operations. The company has also navigated issues related to tenant bankruptcies, store closures, and the evolving retail landscape, which have affected occupancy levels and rental income at its shopping centers. In response to these challenges, Macerich has implemented initiatives such as lease modifications, property dispositions, and balance sheet management to maintain its competitive position in the market.

Financial Performance and Ratios

As of the most recent fiscal year, Macerich reported annual revenue of $918.20 million and a net loss of $194.12 million. The company's operating cash flow and free cash flow stood at $283.44 million. Macerich's financial ratios paint a mixed picture, with a current ratio of 0.51, a debt-to-equity ratio of 1.84, and an interest coverage ratio of 1.70.

The company's leverage, as measured by the net debt-to-EBITDA ratio, was slightly below 8x at the end of 2024, indicating an area of focus for management as they work to strengthen the balance sheet. Macerich's liquidity position, with $89.86 million in cash and cash equivalents and $539.78 million in available credit facility capacity, provides the flexibility to navigate the current operating environment.

For the most recent quarter (Q4 2024), Macerich reported revenue of $273.68 million, representing a 14.7% increase compared to Q4 2023. However, the company recorded a net loss of $211.21 million for the quarter. The company's $650 million revolving loan facility matures on February 1, 2027, with a one-year extension option.

Operational Highlights and Strategies

A key aspect of Macerich's strategy is its "Path Forward Plan," unveiled in 2024. This multifaceted initiative aims to simplify the business, improve operational performance, and reduce leverage. The company has made significant progress in achieving these goals, consolidating joint venture interests in several of its premier assets, including Arrowhead Towne Center, South Plains Mall, Los Cerritos Center, Washington Square, and Lakewood Center.

Macerich's leasing efforts have also been a focal point, with the company signing 880 new and renewal leases totaling 3.7 million square feet in 2024. This leasing volume, which is on par with the record-setting 2023, demonstrates the continued demand for space at Macerich's properties. The company is particularly focused on attracting new-to-portfolio tenants, having secured commitments for over 430,000 square feet of space from unique and emerging brands in 2024.

In 2024, Macerich achieved 8.8% base rent re-leasing spreads for permanent tenants under 10,000 square feet, with new leases signed during this period showing a 17.6% higher base rent compared to the prior period permanent rent. Including vacant and temporary lease space, the re-leasing base rent percentage increase was over 50%.

Another key element of Macerich's strategy is the optimization of its tenant mix and the repositioning of underperforming spaces. The company has developed a comprehensive asset management and portfolio management framework, which includes the creation of five-year business plans for each property. This data-driven approach has enabled Macerich to identify opportunities to upgrade tenant quality, increase occupancy levels, and drive incremental rental revenue.

Redevelopment and Development Initiatives

Macerich's growth strategy also includes selective redevelopment and development projects. The company is currently undertaking the redevelopment of the northeast quadrant of Green Acres Mall, a 2.06 million square foot regional retail center in Valley Stream, New York. This project will introduce new exterior shops, a grocery tenant, and the redevelopment of a vacant anchor building, among other enhancements.

Additionally, Macerich's joint venture at FlatIron Crossing in Broomfield, Colorado, is developing luxury multifamily residential units, repurposed retail, and food and beverage offerings, along with a community plaza. The company's ownership stake in this mixed-use project is expected to range from 43.4% to 51%.

While Macerich remains selective in its redevelopment and development initiatives, the company's ability to execute on these value-enhancing projects is a testament to its development expertise and its commitment to continuously improving the quality and appeal of its portfolio.

Portfolio Composition and Performance

Macerich's portfolio is primarily divided into two main segments: Consolidated Centers and Unconsolidated Joint Venture Centers. As of December 31, 2024, the company owned 29 Consolidated Centers, totaling approximately 29.17 million square feet of GLA. These properties generated $850.45 million in leasing revenue in 2024, accounting for the majority of the company's total revenues. The leased occupancy rate for the Consolidated Centers was 93.7% as of December 31, 2024, up from 93.5% at the end of 2023.

The Unconsolidated Joint Venture Centers segment comprises 13 centers and one development property, totaling approximately 10.81 million square feet of GLA. These joint venture properties generated $741.46 million in leasing revenue in 2024. The leased occupancy rate for the Unconsolidated Joint Venture Centers was 95.0% as of the end of 2024.

In addition to these primary segments, Macerich owns several other assets, including office buildings, a hotel, and residential space, totaling approximately 2.32 million square feet of GLA. These other assets contributed an additional $37.94 million in revenue in 2024.

Future Outlook and Guidance

Looking ahead, Macerich is targeting an average of 4 million square feet of leasing in 2025 and 2026, focusing on a higher percentage of new lease deals versus renewals. The company's signed not open (SNO) pipeline accounts for $66 million of incremental rent, of which $27 million will be realized in 2025, with the remainder being realized between 2026 and early 2028.

Macerich's current physical permanent occupancy for their go-forward portfolio is 84%, and they are targeting an 89% physical permanent occupancy rate by 2028. This goal aligns with the company's broader strategy to enhance the quality and performance of its portfolio.

To address leverage concerns, Macerich has outlined a multi-pronged strategy that includes NOI growth, an equity offering completed in 2024, and a $2 billion disposition target, of which they have already completed almost $800 million. The company expects to close $100 million to $150 million of outparcel and non-enclosed mall asset sales in 2025, with the balance of the $500 million target closing in 2026 and the first half of 2027.

Macerich has provided a debt to EBITDA target of the low to mid 6x range over the next several years, down from slightly below 8x at the end of 2024. This target demonstrates the company's commitment to strengthening its balance sheet and improving its financial flexibility.

Challenges and Risks

Macerich, like other retail REITs, faces ongoing challenges related to the evolution of consumer behavior and the adoption of e-commerce. The company must navigate the delicate balance of adapting its properties to meet the shifting demands of retailers and shoppers, while also maintaining the long-term viability and appeal of its assets.

Additionally, the company's high concentration of properties in certain geographic regions, such as California, New York, and Arizona, exposes it to local economic and real estate conditions, which could have a disproportionate impact on Macerich's performance.

The retail sector's susceptibility to tenant bankruptcies and store closures also poses a risk to Macerich's operations. The company must actively manage its tenant roster and leasing strategies to mitigate the potential impact of such events.

Furthermore, Macerich's ability to successfully execute its redevelopment and development projects is critical to its long-term growth. Any delays, cost overruns, or market changes could adversely affect the company's financial performance and the attractiveness of its properties.

Conclusion

The Macerich Company has established itself as a leading player in the retail real estate industry, leveraging its expertise in identifying and capitalizing on evolving consumer trends. With a strategic focus on strengthening its balance sheet, improving operational efficiency, and enhancing the quality of its portfolio, Macerich is well-positioned to navigate the dynamic retail landscape and continue delivering value to its shareholders. As the company executes on its "Path Forward Plan," investors will closely monitor its ability to drive sustainable growth, reduce leverage, and maintain the relevance and competitiveness of its premier shopping destinations.