Macerich Is On A Path To $30 Per Share

Some of our best investments in recent years have been mall REITs Simon Property Group (SPG) and Macerich (MAC).

We first bought SPG following the pandemic crash at about $50 per share and later sold it for more than triple that.

MAC, on the other hand, started badly as we had first invested in the company before the pandemic crash, but we got to rectify that by doubling, tripling, and even quadrupling down following the crash, bringing our average cost basis down to just $8 per share.

Today, its share price is $18, and we have also earned significant dividend income along the way.

But what about now? Is it still worth holding for the long run?

We believe so. Here is our updated investment thesis:

Macerich: Transforming Into a Higher Quality REIT

For those of you who are not familiar with Macerich (MAC), it is the owner of the highest quality malls in the US, arguably even better than those of Simon Property Group (SPG).

The chart below is old, but it still shows you how Macerich has historically focused on malls in densely populated areas with rich local populations, significant tourism, and high barriers to entry.

Its malls also generate today the highest sales per square foot, long ahead of Simon:

Good examples from its portfolio include:

Scottsdale Fashion Square:

Los Cerritos Center:

Tysons Corner Center:

When we first invested in the company, we argued that the REIT had significant untapped potential in its mall portfolio.

Most of them are in true prime locations with no more land to be built, and MAC’s properties offered significant densification and redevelopment potential.

In many cases, it could build additional residential towers on top of its malls and/or replace obsolete department stores and underutilized parking lots with new development projects.

At the same time, its malls were also rapidly transforming into mixed-use destinations with lots of services, entertainment, restaurants, grocery stores, co-workings, gyms, and other non-retail uses, which would make them more resilient and valuable than ever before.

This remains true today.

At the end of the day, real estate comes down to location, location, location... and MAC happens to own some of the best locations in the US, and has significant long-term value-add potential within its current portfolio.

But the problems that MAC has historically faced are first its management, second, some of its weaker non-core assets, and third, its balance sheet.

The management issues were resolved when the company replaced its CEO with Jack Hsieh, who is the former CEO of Spirit Realty Capital (SRC). For context, SRC was a troubled net lease REIT, and Jack Hsieh oversaw its transformation into a higher-quality REIT and later sold the company to Realty Income (O) for a large gain. We used to own SRC as well, and during our holding period, it earned 4x higher returns than the broader REIT market:

SRC was so rewarding because its transformation into a higher-quality REIT with better assets, lower leverage, and shareholder-friendly management was eventually rewarded with a much higher valuation multiple.

Therefore, we think that Jack Hsieh is the perfect person for the job at MAC. As soon as he came in, he initiated a similar plan called the “Path Forward” to transform MAC into a higher-quality REIT that would eventually earn a higher multiple, replicating his past success at SRC.

He became the CEO effective March 1st, 2024, and his plan earned investors a near 40% return in the following year, but it has since given up most of those gains due to the growing fears of a potential near-term recession.

Data by YCharts

I would add that shortly after joining the company, he bought $2 million worth of stock in the open market, and earlier this year, he bought another $1 million following the dip.

The board was also refreshed, and the executive compensation was also changed to be heavily tied to the long-term total returns of the stock.

So the management issue is now resolved, which is the first part of MAC’s transformation into a higher-quality REIT.