The increasingly difficult macroeconomic climate has particularly badly struck the real estate investment trusts (REITs) market.
Given the current macroeconomic backdrop of high inflation and interest rate hikes, we think The Macerich Company (MAC) and Urban Edge Properties (UE) might be best avoided now, considering their bleak fundamentals.
The retail landscape has changed dramatically with the decline of brick-and-mortar retail. E-commerce sales have been increasing amid changing consumer preferences. The impressive growth of the e-commerce market might keep retail REITs under pressure.
Moreover, Tom Hainlin, national investment strategist at U.S. Bank, said, “Although REITs are often considered a way to hedge the risk of higher inflation, the unfavorable interest rate environment resulted in REITs underperforming other parts of the equity market.”
Let’s discuss the stocks mentioned above in detail.
The Macerich Company (MAC)
MAC is a fully integrated, self-managed, and self-administered real estate investment trust (REIT).
MAC’s trailing-12-month EV/EBIT of 53.71x is 60.7% higher than the industry average of 33.42x.
For the first quarter of the fiscal first quarter that ended March 31, 2023, MAC’s total revenues decreased marginally year-over-year to $214.85 million. However, its net loss came in at $58.73 million, up 59% year-over-year. Its loss per share came in at $0.27, up 58.8% year-over-year.
Analysts expect MAC’s revenue to decrease 5.3% year-over-year to $813.9 million in 2023. Its EPS is expected to decline 8.6% year-over-year to $1.76 in 2023. It missed EPS estimates in all the four trailing quarters. MAC has lost 26.2% over the past three months to close the last trading session at $9.71.
MAC’s POWR Ratings reflect its bleak outlook. The stock has an overall D rating, which equates to a Sell in our rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MAC has an F grade for Sentiment and a D for Quality. The stock is ranked #28 out of 30 stocks in the D-rated REITs - Retail category. Click here for additional ratings for MAC’s Growth, Stability, Momentum, and Value.
Urban Edge Properties (UE)
UE is an NYSE-listed real estate investment trust focused on managing, acquiring, developing, and redeveloping retail real estate in urban communities, primarily in the New York metropolitan region.
UE’s trailing-12-month Price/Book of 1.80x is 32.7% higher than the industry average of 1.36x. Its trailing-12-month non-GAAP P/E of 31.64x is 22.7% higher than the industry average of 25.79x.
UE’s total revenue decreased marginally year-over-year to $99.44 million for the first quarter of the fiscal year that ended March 31, 2023. However, its net loss came in at $19.11 million, compared to a net income of $9.49 million in the year-ago period. Its loss per share came in at $0.16, compared to EPS of $0.08 for the same period the prior year.
UE’s revenue is expected to decline 2.5% year-over-year to $99.03 million for the fourth quarter December 2023. Its EPS is expected to decrease by 13.1% year-over-year to $0.29 for the same period. The stock has lost 12.7% over the past nine months to close the last trading session at $14.36.
UE’s POWR Ratings reflect its fundamental weakness. The stock has an overall rating of D, translating to a Sell in our proprietary rating system. It has a D grade for Growth. UE is ranked #26 in the same category.
Beyond what we’ve stated above, we have also given UE grades for Value, Sentiment, Momentum, Stability, and Quality. Get all UE ratings here.
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MAC shares were trading at $9.51 per share on Thursday afternoon, down $0.20 (-2.06%). Year-to-date, MAC has declined -14.45%, versus a 8.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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