Macerich's Rich Pipeline
Macerich deserves the rising earnings multiple that is now being accorded to quality mall operators in major markets, and if tech continues to falter that multiple will probably continue to expand. Friedman Billings Ramsey analysts say the company has a growing mall-development pipeline that offers earnings visibility into 2008, and that it has done a nice job of redeveloping and expanding older properties. Its key asset is a dominant position in fast-growing Phoenix, Ariz.
Currently sporting a $3 billion market cap, Macerich is still small enough that it could be purchased easily while also being large enough to provide a material boost to the acquiring REIT. Deutsche Bank analyst Louis Taylor said in an Aug. 5 report that he believes Macerich "can generate the best risk-adjusted returns among the mid-cap real estate stocks," with 10% earnings growth over the next four years a given.
Mills' Unique CharacterMills builds and runs malls that combine shopping with recreation and restaurants in an effort to encourage shoppers to spend more time and money in one place. Its 15 Landmark Mills Centers add a factory outlet mall to that formula. The company is creative, to say the least. Its Meadowlands Xanadu project -- a redevelopment of the dated Meadowlands complex in New Jersey -- will combine retail, movies, sports, restaurants, offices, hotels and an indoor ski resort. Morningstar analysts note that its 95% occupancy rate considerably exceeds rivals like General Growth Properties, while its rents are just a tad below that of the top mall operators. International growth is expected to add quite a bit to this story over the coming years, although financing and currency variability issues could be a problem. But with steady 15% growth and a relatively small $2.6 billion market cap, it should be an attractive buyout candidate. Significant risks to this nascent buyout boom would be sharply rising interest rates or a jolt to consumer spending that may hurt mall tenants' ability to pay their bills. Also, since the stocks have run up quite a bit lately, they aren't urgent buys at these levels. Investors could probably wait for Macerich to return to the $48.50 to $50 area and for Mills to hit the $46 to $48 area. Both Macerich and Mills rate highly in the MSN StockScouter rating system, at 9 and 10 (out of 10), respectively. The chart below offers the rating system's top 15 REITs. I'll watch them all over the next few months, and report back regularly.
|MSN StockScouter's Top-Rated REITs|
|Company||Sym||SS #||% Chg '04||REIT Type||8/24 Close|
|The Mills Corporation||MLS||10||7.7||Retail||49.65|
|CBL & Assoc. Properties||CBL||10||4.9||Retail||60.55|
|Innkeepers USA Trust||KPA||9||38.4||Hotel/Motel||11.70|
|Simon Property Group||SPG||9||17.3||Retail||55.84|
|The Macerich Co.||MAC||9||14.6||Retail||52.66|
|Developers Diversified Realty||DDR||9||12.7||Diversified||38.00|
|Source: MSN StockScouter|