Displaying items by tag: Macerich

Wednesday, 09 December 2009 00:00

Note to all subscribers

Please join in on the private  discussion on Macerich in the retail subscriber discussion forum.
Wednesday, 09 December 2009 00:00

Note to all subscribers

Please join in on the private  discussion on Macerich in the retail subscriber discussion forum.
Monday, 07 December 2009 00:00

The Latest REIT Updates are Now Available

In case subscribers haven't noticed, I have decided to decrease the frequency of analysis in order to increase the depth of the subjects analyzed. Due to the market's detachment from the fundamentals (a phenomenon that looks like it has just about run its course, btw), fundamental practitioners must tread very, very carefully. On that note, I am releasing the 2nd REIT analysis, which I feel makes for an  outstanding short opportunity, particularly in comparison to the previous analysis whose subject has no immediate and/or pressing concerns. This is the most comprehensive work performed in the real estate space since the GGP project, and has the potential to be just as successful as well. The professional version of the document is nearly 30 pages long, and although it is dense reading, I strongly recommend subscribers read through every page very carefully. The retail version is twice its normal length as well.

There will be a substantial amount of follow up analysis and opinion coming. Basically, I am at loggerheads with Goldman Sachs who has out a buy call on the banking and CRE space, wherein my readers know that I am very bearish on this space for fundamental reasons for 2010. I will present evidence to support my case both privately through the subscription services and public through the blog by pulling up instances in the past when GS turned bullish on real estate and what happened to those clients a year or two afterwards.

Enjoy!

MAC Report Consolidated 051209 Retail MAC Report Consolidated 051209 Retail 2009-12-07 03:46:49 580.11 Kb

MAC Report Consolidated 051209 Professional MAC Report Consolidated 051209 Professional 2009-12-07 03:48:11 1.03 Mb

Monday, 07 December 2009 00:00

The Latest REIT Updates are Now Available

In case subscribers haven't noticed, I have decided to decrease the frequency of analysis in order to increase the depth of the subjects analyzed. Due to the market's detachment from the fundamentals (a phenomenon that looks like it has just about run its course, btw), fundamental practitioners must tread very, very carefully. On that note, I am releasing the 2nd REIT analysis, which I feel makes for an  outstanding short opportunity, particularly in comparison to the previous analysis whose subject has no immediate and/or pressing concerns. This is the most comprehensive work performed in the real estate space since the GGP project, and has the potential to be just as successful as well. The professional version of the document is nearly 30 pages long, and although it is dense reading, I strongly recommend subscribers read through every page very carefully. The retail version is twice its normal length as well.

There will be a substantial amount of follow up analysis and opinion coming. Basically, I am at loggerheads with Goldman Sachs who has out a buy call on the banking and CRE space, wherein my readers know that I am very bearish on this space for fundamental reasons for 2010. I will present evidence to support my case both privately through the subscription services and public through the blog by pulling up instances in the past when GS turned bullish on real estate and what happened to those clients a year or two afterwards.

Enjoy!

MAC Report Consolidated 051209 Retail MAC Report Consolidated 051209 Retail 2009-12-07 03:46:49 580.11 Kb

MAC Report Consolidated 051209 Professional MAC Report Consolidated 051209 Professional 2009-12-07 03:48:11 1.03 Mb

The unprecedented turn of events in the global financial space has frozen credit markets, jeopardizing global economic growth. This, coupled with a rapidly deteriorating retail climate and declining commercial real estate valuations, has severely damaged the fundamentals of real estate investment trusts (REITs) with significant amounts of debt maturities in the near-to-medium term. Macerich (MAC), which has nearly $4 bn of debt due over the next three years faces a daunting task ahead to navigate as a going concern. Further compounding the problems for MAC is the Company’s property portfolio, which is highly susceptible to the current crisis, built on high leverage (current LTV of 85% based on market value) and including a significant number of underwater properties with negative equity. As expectations of a recession are fast turning into a reality, a slowdown in consumer spending and a consequent impact on retailers would result in additional pressure on the Company’s occupancy levels, impacting its rental rate growth and net operating income.  As we navigate through future, the problems in the financial sector are expected to get worse before they stabilize wherein our expectations of the Distressed scenario (of the four scenarios explained in the report) could well turn into a reality.

REITs are very labor and intellectual capital intensive companies to value properly. General Growth Properties and Macerich consumed an enormous number of man (and woman!) hours and required extensice modeling, macro research and fact gathering. Thus, this particular professional report is 37 pages long, nearly twice the normarl report size, and this is after releasing over 100 pages of preliminary findings! The effort is well worth it, though, for it illustrates the anwer to the quesion: Is Macerich an undervalued victim of a bear market slaughter, or is it a bankruptcy waiting to happen?

The work that went into this...

We have arrived at MAC’s valuation by valuing each of MAC’s 103 properties (including that of consolidated and unconsolidated JVs) after consideration of their expected rental income and debt repayment obligations. Each individual property valuation assumes rental income based on the current prevailing market rentals for similar properties in the same location (zip codes) sourced through prominent info sources and brokers including Loopnet and CB Richard Ellis. The rental stream for each property has been projected for the next 20 years based on macro-economic factors like expected population and household growths at each of the subject property location. In addition, the valuation takes into account the total gross leasable area and rentable area, occupancy rates, property management expenses including insurance and taxes, renovation and maintenance capex, mortgage outstanding, and refinancing requirements.

The above methodology has been followed under four different scenarios - Refinancing scenario, Asset Sale scenario, Foreclosure scenario and Distressed scenario. We have arrived at MAC’s valuation based on weighted average (probability of likelihood being weights used) of valuations arrived at under each of these scenarios.

   A sizeable portion of MAC’s portfolio was acquired over the last 5 years, during the period when property prices were on an upswing. As of September 30, 2008, MAC had an ownership interest in 103 regional shopping centers and community shopping centers, primarily concentrated in the western US, with 80.7 mn square feet of gross leasable area. Of these properties, nearly 32% were acquired between 2002 and 2004, and 25% were acquired after 2004. With nearly 57% of the properties acquired in or after 2002, when the commercial real estate prices were witnessing a steep rise, a sizeable portion of MAC’s properties currently have a market value lower than the book value (purchase cost net of depreciation) and have a loan-to-value greater than 100%, representing negative equity.

  Subscribers may download the full reports here:

icon Macerich Forensic Valuation - Retail (264.45 kB 2008-11-28 14:49:36) 

icon Macerich Sensitivity Analyis - Pro (298.73 kB 2008-11-20 12:02:08)

 

The unprecedented turn of events in the global financial space has frozen credit markets, jeopardizing global economic growth. This, coupled with a rapidly deteriorating retail climate and declining commercial real estate valuations, has severely damaged the fundamentals of real estate investment trusts (REITs) with significant amounts of debt maturities in the near-to-medium term. Macerich (MAC), which has nearly $4 bn of debt due over the next three years faces a daunting task ahead to navigate as a going concern. Further compounding the problems for MAC is the Company’s property portfolio, which is highly susceptible to the current crisis, built on high leverage (current LTV of 85% based on market value) and including a significant number of underwater properties with negative equity. As expectations of a recession are fast turning into a reality, a slowdown in consumer spending and a consequent impact on retailers would result in additional pressure on the Company’s occupancy levels, impacting its rental rate growth and net operating income.  As we navigate through future, the problems in the financial sector are expected to get worse before they stabilize wherein our expectations of the Distressed scenario (of the four scenarios explained in the report) could well turn into a reality.

REITs are very labor and intellectual capital intensive companies to value properly. General Growth Properties and Macerich consumed an enormous number of man (and woman!) hours and required extensice modeling, macro research and fact gathering. Thus, this particular professional report is 37 pages long, nearly twice the normarl report size, and this is after releasing over 100 pages of preliminary findings! The effort is well worth it, though, for it illustrates the anwer to the quesion: Is Macerich an undervalued victim of a bear market slaughter, or is it a bankruptcy waiting to happen?

The work that went into this...

We have arrived at MAC’s valuation by valuing each of MAC’s 103 properties (including that of consolidated and unconsolidated JVs) after consideration of their expected rental income and debt repayment obligations. Each individual property valuation assumes rental income based on the current prevailing market rentals for similar properties in the same location (zip codes) sourced through prominent info sources and brokers including Loopnet and CB Richard Ellis. The rental stream for each property has been projected for the next 20 years based on macro-economic factors like expected population and household growths at each of the subject property location. In addition, the valuation takes into account the total gross leasable area and rentable area, occupancy rates, property management expenses including insurance and taxes, renovation and maintenance capex, mortgage outstanding, and refinancing requirements.

The above methodology has been followed under four different scenarios - Refinancing scenario, Asset Sale scenario, Foreclosure scenario and Distressed scenario. We have arrived at MAC’s valuation based on weighted average (probability of likelihood being weights used) of valuations arrived at under each of these scenarios.

   A sizeable portion of MAC’s portfolio was acquired over the last 5 years, during the period when property prices were on an upswing. As of September 30, 2008, MAC had an ownership interest in 103 regional shopping centers and community shopping centers, primarily concentrated in the western US, with 80.7 mn square feet of gross leasable area. Of these properties, nearly 32% were acquired between 2002 and 2004, and 25% were acquired after 2004. With nearly 57% of the properties acquired in or after 2002, when the commercial real estate prices were witnessing a steep rise, a sizeable portion of MAC’s properties currently have a market value lower than the book value (purchase cost net of depreciation) and have a loan-to-value greater than 100%, representing negative equity.

  Subscribers may download the full reports here:

icon Macerich Forensic Valuation - Retail (264.45 kB 2008-11-28 14:49:36) 

icon Macerich Sensitivity Analyis - Pro (298.73 kB 2008-11-20 12:02:08)

 

Thursday, 20 November 2008 01:00

The Macerich Sensitivity Analysis

This is an actionable intelligence note for profesional level subscribers.

We have done a sensitivity analysis of Macerich's (MAC) valuation based on different scenarios representing re-financing conditions and sale assumptions.  We have broadly assumed four scenarios loosely based upon the options that were available to GGP (see GGP and the type of investigative analysis you will not get from your brokerage house), which had a vastly superior portfolio:

  • Re-financing scenario: Macerich would be able to re-finance all its loans, though at higher interest rate (6.5%, which is slightly conservative considering they just announced 2 loans at 6% and 7.5% in an increasingly adverse environment).
  • Sale scenario: Macerich would be able to re-finance its properties at 65% LTV and the balance of re-financing requirement would be met through sale of some of its properties. We expect MAC to sell a few properties at a discount to the current NOI-based valuation (assuming 15% discount, again taking into consideration the success of GGP over the last few months given their significantly superior portfolio).
  • Foreclosure scenario: Macerich would be able to refinance its properties at 65% LTV and will have to foreclose some of its properties to meet its re-financing requirements. As a result of foreclosure, we expect MAC's interest rates to increase (by 250 basis points).
  • Distressed scenario: Macerich would be able to re-finance at 50% LTV and would have to sell and foreclose some of its properties to meet its re-financing requirements. This is the worst case scenario under which we expect a 20% discount on NOI-based valuation on sale of properties and increase in refinancing costs by 350 basis points. All these conditions may drive the company close to a bankruptcy situation.
macerich_chart.jpg
Professional subscribers may download the actionable note here: Macerich Sensitivity Analyis - Pro. Adobe Acrobat Reader version 9 or better required.