After the storm, the clouds lift. That’s the story of retail real estate in the stock market this year, evidenced by a record week for Santa Monica’s Macerich Co.
Shares of the real estate investment trust responsible for the revamping of the Santa Monica Place shopping mall jumped to a 52-week high last week, rising to $56.50 on July 7 before closing down slightly. Overall, Macerich shares are up 17 percent this year.
Analysts attributed the gains to the continuing rebound of retail REITs, especially those with higher-end holdings such as Macerich. The gains were boosted in part by surprisingly strong June retail sales figures released last week, evidence of a recovery in the industry.
“It’s not just them – you’re seeing it across the board,” said Tayo Okusanya, an analyst at New York-based Jefferies Group Inc., who rates the stock a “hold.” “You’re also seeing a disproportionate improvement in Class A malls vs. Class B and C, and that favors Macerich given the high-quality portfolio it has.”
Shares of other retail REITs, including Indianapolis-based Simon Property Group Inc.; Chicago-based General Growth Properties Inc.; and Bloomfield Hills, Mich.-based Taubman Centers Inc., also hit 52-week highs last week.
Major chain stores posted a 6.5 percent year-to-year increase in June sales last Thursday, beating analyst expectations.
Rich Moore, an analyst at Solon, Ohio’s RBC Capital Markets, said investors were particularly attracted to Macerich because of its healthy balance sheet and an aggressive growth plan centered on redeveloping existing assets. The $265 million renovation of Santa Monica Place, which opened in August to overflow crowds, is an example of what the company can do with its assets, he added.
“Santa Monica Place showed pretty much everybody the skills Macerich has at taking an asset that was just OK and turning it into something outstanding,” Moore said.
Through refinancing, capital raises, and buying and selling properties, the company has cleaned up its balance sheet and positioned itself for a slew of projects, including an ambitious 1.3 million-square-foot mixed-use project next to a mall it owns in the Washington, D.C., area.
It’s a stunning turnaround for a company that just two years ago was considered highly overleveraged and was trading at less than $6, Okusanya said.
“The low interest rates and the financial markets have been good to the REIT sector in terms of refinancing debt,” he said. “Macerich’s balance sheet looks pretty good, and they have excess cash on their hands.”
The company swung out of the red in the first quarter of this year, accompanied by a 5 percent rise in revenue. It will announce its second quarter earnings July 28.
Of 18 analysts tracking the company according to Bloomberg News, eight rate the stock a “buy” and 10 a “hold.”
Representatives of Macerich did not respond to a request for comment for this article.
