On Wednesday, Piper Sandler adjusted its stance on The Macerich Company (NYSE:NYSE:MAC), moving its rating from Neutral to Underweight. The firm also revised its price target downward to $11 from the previous $17. The change reflects skepticism about the company's long-term restructuring plan.
The Macerich Company, a real estate investment trust (REIT) focused on shopping centers, has been advised to undergo a restructuring process that is expected to span 3-4 years. This strategy includes a combination of leasing efforts, asset givebacks, and raising approximately $500 million in equity. Despite the new energy brought in by Jackson Hsieh, the company's management, Piper Sandler expresses concern that this is the third iteration of a similar plan over the last decade, which has prompted the downgrade.
The firm acknowledges that Macerich's management intends to maintain the dividend, citing free cash flow (FCF) as the most cost-effective form of capital. However, there is an acknowledgment that the balance sheet issues are not being tackled directly and immediately.
Piper Sandler's analysis suggests that while Macerich's equity recapitalization plan is valued at around $2 billion, it aligns closely with their own February 27 estimate of $2.5 billion needed to achieve a leverage ratio in the 6x range. The firm notes that addressing the balance sheet more aggressively could result in a $0.40 dilution today, compared to management's more gradual approach aiming for $1.80 dilution over the coming years.
The Macerich Company had previously been projected to earn approximately $1.80 this year, a figure that is now under scrutiny given the company's current strategic direction and the adjustments made by Piper Sandler.
InvestingPro Insights
As The Macerich Company (NYSE:MAC) navigates through its restructuring process, real-time data from InvestingPro provides a clearer picture of the company's financial health. The market capitalization stands at $3.11 billion, indicating the size of the company in the current market. Despite the concerns raised by Piper Sandler, Macerich's gross profit margin remains strong at 53.89% over the last twelve months as of Q1 2023, reflecting a robust ability to control costs relative to sales.
InvestingPro Tips highlight that Macerich is not expected to be profitable this year, aligning with Piper Sandler's skepticism. Additionally, the company's short-term obligations exceed its liquid assets, which could raise questions about its immediate financial flexibility. On a positive note, Macerich has maintained dividend payments for 31 consecutive years, a testament to its commitment to returning value to shareholders, with the latest yield at a notable 4.94%.
Investors looking to dive deeper into Macerich's financials and future outlook can find additional InvestingPro Tips at https://www.investing.com/pro/MAC. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, where 7 more tips are available to guide your investment decisions.
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