Prior to the pandemic, I owned Simon Property Group (SPG -0.68%) and Tanger Factory Outlet Centers (SKT 0.53%), believing that malls would survive the e-commerce threat. Then I kept Simon but shifted out of Tanger and into Federal Realty Investment Trust (FRT 0.71%) to broaden my retail exposure beyond malls.
At no point did I consider The Macerich Company (MAC -3.10%) an option, despite taking a close look at it several times. In fact, I still can't find enough to like about the real estate investment trust (REIT) to bother owning it. Here's why I'll probably never buy Macerich and why you might want to look at other options, too.
The good stuff
To be fair, Macerich isn't exactly a bad REIT. That becomes clear when you look at the historical productivity achieved in its focused mall portfolio, roughly $800 per square foot in sales prior to the pandemic. That's notable because the figure was up to $843 per square foot in the first quarter of 2022. In other words, it has muddled through a difficult period and come out the other side in solid shape.
Image source: Getty Images.
Some of that sales strength is likely related to the government assistance that appears to have temporarily boosted retail sales. The company's mall peers benefited as well. However, it wouldn't be shocking if Macerich's results stagnate or weaken a bit from here.
Still, the big takeaway is that the REIT managed to get through a period that pushed other competitors into bankruptcy court. And its properties seemingly remain as desirable now as they were before the pandemic began.
That's basically where the good news ends when you start to compare Macerich with other mall options.
It just doesn't stack up well
I mentioned Macerich's focused portfolio. To put a number on that, it owns 44 properties. That's hardly a small number, given the massive scale of enclosed malls. In fact, Tanger, which concentrates on outlet centers, owns just 36 assets. Which is why I stuck with Simon Property Group over Tanger when I was looking to capture some losses for tax purposes in 2020. Simon owns around 200 malls and factory outlet centers. Diversification is good for your portfolio, and given the pandemic and fears around e-commerce, it has proved to be good for mall REITs, too. In essence, I chose the one-stop shop over Macerich and Tanger.
Another key factor in why I'm not likely to buy Macerich is the REIT's dividend history. Macerich cut its dividend twice as the pandemic unfolded. Simon and Tanger cut their dividends, too. It was a wise move for all three of these REITs given the uncertainty in 2020.
The difference is that Macerich's dividend has yet to be increased again, while Simon has hiked its payment four separate times. Tanger has increased its dividend twice. Clearly, something is going on at Macerich that is not quite as positive as what's happening with these two peers.
Which brings the story to leverage. Macerich's ratio of debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) spiked during the pandemic. Like its peers, the REIT took on debt to ensure it had enough cash to muddle through the headwinds. It has even started to reduce its debt load. Only the company's debt-to-EBITDA ratio of 8.9 times remains well above those of Simon (5.7 times) and Tanger (7.7 times).
For reference, another reason for my switch from Tanger to Federal Realty was the latter's financial strength, noting Federal Realty's debt-to-EBITDA ratio is just 3.8. Given that malls require a lot of ongoing capital investment, being the name with the most leverage is not a good thing.
I don't hate it, but...
At the start, I made clear that Macerich is not a poorly run REIT, and I wouldn't fault someone who chose to own it. However, in my opinion, it is not the best enclosed-mall REIT on the market. The fact that it still hasn't increased its dividend after the pandemic cut is the proof that Simon and Tanger are both better options for most investors.
Add in the leverage issue, and Macerich is probably only appropriate for more-aggressive types. That profile just doesn't speak to me, and I'm guessing most other investors will agree.
