Two value funds reportedly think large-mall real estate investment trust Macerich has a bright future despite the retail apocalypse of brick-and-mortar stores.
Macerich (MAC) generated $3.89 a share in funds from operations, or FFO, over the past four quarters, Barron’s explained. “And at a share price of around $27.50, it is trading at roughly 7 times that figure. That is awfully cheap for a REIT,” Barron’s said. High-end apartments, by contrast, are trading at more than 20 times FFO.
Ryan Dobratz, manager of the Third Avenue Real Estate Value fund (TAREX), thinks Macerich has an opportunity to transform some of its upscale malls. Dobratz thinks restaurants, fitness centers, movie theaters and other facilities can replace some of the department-store space at some of Macerich’s properties.
Tony Scherrer at Smead Capital Management, a value-oriented investor, agrees that the prospects for Macerich are bright, and that the stock is too cheap.
Macerich is the 19th-largest holding and a nearly 3% position of the Smead Value Fund (SMVLX), which is one of a handful of funds in Morningstar’s large-value category to beat the S&P 500 over the past decade.
However, mall landlords accustomed to offering rent reductions to ailing retailers reportedly are mulling a new strategy to forestall the industry’s collapse: positioning themselves as lenders to tenants struggling to stay afloat.
Boutique bank PJ Solomon has organized discussions with several mall owners about pursuing such a strategy with troubled retailer Forever 21 Inc., people with knowledge of the matter told Bloomberg, in what could serve as a model for future transactions within the sector.
The talks have centered on converting rent and other liabilities into secured debt that could give distressed companies some breathing room to stay out of court, said the people, who asked not to be identified because the discussions are private. If a retailer later goes bust, the arrangement could give landlords a stronger say in the restructuring process because lenders get higher priority in a bankruptcy, they said. The landlords potentially could use their preferred status to bid for assets, swapping their unpaid claims for ownership.
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