I am just another retard looking for a value play in this recovering market from COVID-19, I thought most boats had sailed until I chance upon some DD’s on MAC. I decided to dig deeper and reconfirm the facts I’ve seen from [other DD’s](https://www.reddit.com/r/MACArmyBets/comments/lahv40/mac_analysis_incredibly_undervalued_steal_mac/). I am open to counter-arguments so please feel free to roast me on my first DD.
TLDR: Retail is not dying, it is transforming and even COVID was not enough to kill Class A malls. Bears and paper hands are driving MAC below their intrinsic value. Boomers are gonna flock to MAC when previous dividends are reinstated. MAC is at the Launchpad ready for its moon mission.
Positions: $15k in $35 Jan 2023 leaps and $5k in $35 Jan 2022 leaps (because I am a non-resident alien and I do not want Uncle Sam to tax 30% of my dividends, and whats a YOLO without options?)
**What is MAC?**
MAC is Macerich Company, which owns and operate 52 regional malls in the United States. Macerich’s malls comprises of trophy properties (Class A Malls) in the most desirable, densely populated and highest-barrier-to-entry U.S. markets.
**So what happened? (Bear thesis)**
1. Retail Apocalypse
The biggest factor responsible for the rapid dying of brick and mortar stores is the rise and shift of consumer habits towards e-commerce, and Amazon stands as the apex predator of brick and mortar stores. If so, then how do you explain this - [Five Reasons Why Amazon Is Moving Into Bricks-And-Mortar Retail](https://www.forbes.com/sites/annaschaverien/2018/12/29/amazon-online-offline-store-retail/)?
Not all malls are created equal, and they are further classified into Class A, B, C, & D’s. [Per Green Street’s analysis](https://www.cnbc.com/2020/06/10/a-third-of-americas-malls-will-disappear-by-next-year-jan-kniffen.html), there are roughly 380 C- and D-rated malls out of the 1,000. And those are considered the most at risk of going dark, permanently, as they don’t generate enough sales to maintain the property and have greater vacancy rates. Green Street has said C malls “are not viable retail centers long term.”
The population then gets redirected towards the surviving Class A malls, which theoretically means that there will be even higher human traffic, triggering a chain reaction of boosting sales psf, which increases rent levels, thus improving dividend yield, and ultimately share price.
2. Debt on its balance sheet
Macerich ended the [most recent quarter](https://finance.yahoo.com/quote/MAC/key-statistics/) with $6.2bn worth of debt and equity of $2.4bn, resulting in a Debt-to-Equity Ratio of 2.5 times. This drew concerns to its highly leveraged balance sheet, however, roughly $4.3bn of debt are Mortgage Notes Payable, and are non-recourse to the company according to [Form 10-Q filed 11/06/2020](http://secfilings.nasdaq.com/filingFrameset.asp?FilingID=14486154&RcvdDate=11/6/2020&CoName=MACERICH%20CO&FormType=10-Q&View=html). This means that each property is responsible to generate income to cover its own mortgage, and a default on mortgage will result in Macerich turning over the defaulted property’s keys to its lenders (banks), while the rest of Macerich’s operations continue unaffected.
The reality though, is that banks would rather award extensions to the maturing mortgages than to take over the keys of properties as evidenced by [SPG's jingle mail](https://wolfstreet.com/2021/02/04/deutsche-bank-got-jingle-mail-from-1-us-mall-reit-simon-property-group-foreclosed-on-mall-got-no-bids/). And Macerich has [successfully secured over $660m](https://www.fool.com/earnings/call-transcripts/2021/02/11/the-macerich-company-mac-q4-2020-earnings-call-tra/) for 4 of their mortgage loans, with similar expectations on the remaining mortgages which matures in 2021.
The remaining debt comes in the form of their revolving credit line which they [withdrew the last $550m](https://www.prnewswire.com/news-releases/macerich-provides-covid-19-update-301030753.html) of $1.5bn in March 2020 in preparation to handle the impact of COVID-19. And at the end of 2020, they were sitting on [$555m of cash on hand, with collection efforts improving to over 90%.](https://www.fool.com/earnings/call-transcripts/2021/02/11/the-macerich-company-mac-q4-2020-earnings-call-tra/)
3. Largest shareholder dumps shares
The Ontario Teachers’ Pension Plan [liquidated all of its 25 million shares](https://www.nasdaq.com/articles/wallstreetbets-short-squeeze-mania-subsides-for-macerich-2021-02-02) which it had held for over two decades, and this was seen as “smart money” pulling out of Macerich. However institutional ownership still stands at [over 85% of total outstanding shares](https://www.nasdaq.com/market-activity/stocks/mac/institutional-holdings). Some viewed the liquidation as the pension fund capitalizing on the bump in the share price due to the short squeeze, and pulling out of a highly volatile holding which wasn’t suited to its more passive investment style.
The pandemic was supposed to be the last nail in the coffin in the retail apocalypse, with the lockdowns and mall closures. But the pandemic has also shown that the population cannot live without malls, check out the walking tour of Tysons Corner Center in Dec 2020 on youtube (unable to post youtube links, idk why). Imagine the amount of shoppers around Macerich’s malls when we finally achieve herd immunity with the successful rollouts of vaccines.
**What’s next? (Bull Thesis)**
1. Management Flexibility
Gone are the days where malls mostly consisted of fashion apparels and departmental stores, with many surviving malls transiting into adaptions which offer amenities, experiences and entertainment to enhance the shopping experience. Macerich has proven that it is flexible and adaptable to the evolving landscape of consumerism through the following projects:
a. [Tysons Corner Center](https://www.macerich.com/Leasing/Property/202) – Combining [luxury rental apartments](https://investing.macerich.com/news-releases/news-release-details/macerich-announces-opening-vita-residences-tysons-corner-center), [hotel managed by Hyatt Regency](https://investing.macerich.com/news-releases/news-release-details/hyatt-regency-manage-hotel-tysons-corner-center), [office towers](https://investing.macerich.com/news-releases/news-release-details/macerichs-tysons-tower-named-2014-best-new-office-development) with the ultimate shopping experience, basically creating its own city within a city.
b. [One Westside](https://investing.macerich.com/news-releases/news-release-details/google-leases-one-westside-hudson-pacific-properties-and) – Formerly known as Westside Pavilion, the dying mall has now resurrected, like a phoenix from the ashes, into Google’s creative office campus due to be completed in 2022 with a lease of 14 years.
c. [Wilton Mall](https://www.wiltonmall.com/Directory/Details/766523) – In the same space which Sears used to occupy, [Saratoga Hospital has since taken over for their hospital support functions](https://www.saratogahospital.org/News/saratoga-hospital-opens-first-offices-in-wilton-mall), to free up much needed space at the main hospital campus for more inpatient rooms and services which requires the capabilities only a hospital can provide.
d. More redevelopment plans can be found in their [Feb 2021 8-K filing](https://secfilings.nasdaq.com/filingFrameset.asp?FilingID=14694100&RcvdDate=2/11/2021&CoName=MACERICH%20CO&FormType=8-K&View=html) (pg 26).
2. Instrinsic Value
Removing properties with mortgage debt from the list of properties in their most recent [10-K filing](https://secfilings.nasdaq.com/filingFrameset.asp?FilingID=13949368&RcvdDate=2/25/2020&CoName=MACERICH%20CO&FormType=10-K&View=html), we will arrive at the same [list of properties](https://www.reddit.com/r/wallstreetbets/reddit.com/r/MACArmyBets/comments/lkon2l/25_properties_are_owned_free_and_clear/) provided by [u/IndividualPlant6861](https://www.reddit.com/user/IndividualPlant6861/), which are highly likely to be owned by Macerich free and clear of debts. For the exact values of these assets, let us refer to the transcript of their [Q4 2020 Earnings Call](https://www.fool.com/earnings/call-transcripts/2021/02/11/the-macerich-company-mac-q4-2020-earnings-call-tra/), where CEO O’Hern mentioned “unencumbered pool (of assets) is significant enough to support our existing line of credit of $1.5 billion”. Taking the face value of $1.5bn of unencumbered assets and the $555m cash on hand, Macerich has an intrinsic value of $2.05bn, even if they were to default on all outstanding mortgages in a worst case scenario.
So at their current market cap of $1.88bn, they are trading at a 9% discount in the most conservative estimate.
3. Achievements in 2020
Collection Rate – Extracted from their [8-K filing](https://secfilings.nasdaq.com/filingFrameset.asp?FilingID=14694100&RcvdDate=2/11/2021&CoName=MACERICH%20CO&FormType=8-K&View=html), Macerich has achieved collection rates of 89% in the third quarter and 92% in the fourth quarter of 2020, with significant improvement during the fourth quarter in tenant openings and leasing activity. At year-end 2020, occupancy was 89.7%.
[Bureau Veritas SafeGuard™ Certification](https://investing.macerich.com/news-releases/news-release-details/macerich-earns-bureau-veritas-safeguardtm-certification-key) – In a safety and hygiene conscious year of COVID-19, Macerich has continued to put safety first – and implementing the industry's highest hygiene and health standards to protect their employees, retailers and shoppers.
[Top Global Sustainability Honors](https://investing.macerich.com/news-releases/news-release-details/macerich-again-earns-top-global-sustainability-honors) – Macerich launched its One Million Meals Challenge to direct donated non-perishable food items to dozens of food banks across the country. Their commitment to the people, communities and the planet, during this COVID-19 pandemic, has earned them the recognition they deserved.
4. Short Interest
Although the squeeze has been squozed, with more than half of the shorts covered, the remaining 34 million shares shorted is still a significant 25% of current float. And as Macerich improves and eventually reinstate its dividends of $3 pre-COVID, these shorts will be liable to pay out those dividends, coupled with rising stock price, causing a double whammy for the bears. So when the time comes for these shorts to cover, we can expect Macerich’s share price to appreciate reasonably.
I believe that MAC has been severely undervalued due to the overreaction from the “retail apocalypse” and COVID-19 combo, and the focus on short term results on quarterly earnings. The resiliency of Macerich has proven that they will overcome this pandemic and rise from the ashes and the market will soon reflect the [fair intrinsic value](https://www.morningstar.com/stocks/xnys/mac/quote).