Macerich insiders have bought a record $2.8 million of the retail mall developer’s stock over the last two months as Macerich (MAC) shares hit seven year lows.
A great story needs a great title. And what could be better than “Retail Apocalypse” to capture the demise of brick-and-mortar retail. For investors, the phrase conjures images of shopping centers turned into ghost-malls, victims of inexorable internet disruption. It’s Amazon as the grim reaper.
Never mind that ecommerce only accounts for 14.3% of total retail sales (After factoring out the sale of items not normally purchased online, such as fuel, automobiles and sales in restaurants.) That’s up from 5.1% of total retail purchases a decade ago, according to Internet Retailer.
Macerich stock may be in a “negative bubble.”
Nonetheless, the Retail Apocalypse narrative is very compelling, and resonates strongly with investors. The idea that brick-and-mortar is dying seems confirmed by events — like Sears and other mall-based companies going bankrupt, and plunging earnings from many retailers. As retail-related stocks plunge, investor fears seem justified, causing more selling. This has become a negative feedback loop, a bubble — or rather a “negative bubble” as Robert Shiller put it in his classic book Irrational Exuberance.
We’ll have to wait until October, but Shiller’s upcoming book, Narrative Economics: How Stories Go Viral and Drive Major Economic Events, will no doubt delve deeply into this phenomenon. From the promotional blurb:
Spread through the public in the form of popular stories, ideas can go viral and move markets—whether it’s the belief that tech stocks can only go up, that housing prices never fall, or that some firms are too big to fail. Whether true or false, stories like these—transmitted by word of mouth, by the news media, and increasingly by social media—drive the economy by driving our decisions about how and where to invest, how much to spend and save, and more. But despite the obvious importance of such stories, most economists have paid little attention to them.
The stories people tell—about economic confidence or panic, housing booms, the American dream, or Bitcoin—affect economic outcomes. Narrative Economics explains how we can begin to take these stories seriously.
Mr. Market is freaked-out by the Retail Apocalypse
But of course, bubbles are driven by emotion. And as Benjamin Graham relates in The Intelligent Investor via the parable of Mr. Market, emotional selling sometimes presents opportunity. “Mr. Market is very obliging indeed…his enthusiasm or his fears run away with him, and the value he proposes seems to you a little short of silly.” Mr. Market appears freaked-out by the Retail Apocalypse, and has been dumping any stocks related to brick-and-mortar retail.
However, rational investors, guided by tangible metrics of business value, soberly assess the merits of a retail-related companies, crunch the numbers, and determine if there is sufficient margin of safety to warrant investing.
Macerich Co. is one of the country’s leading owners, operators and developers of major retail real estate in the U.S. The company is also something of a poster child for the Retail Apocalypse — it seems like all the dying retailers have locations in Macerich’s malls. At the end of 2018, the REIT had 90 stores whose tenants had filed for bankruptcy, including 21 Sears stores. Macerich net income fell 59 percent, to $60 million from $146 million in 2017. For Q1 2019 Macerich reported EPS of 80 cents, compared with 82 cents in the year-ago quarter.
“While 2019 started with a heavy volume of retailer bankruptcies, all of which we had anticipated, the leasing environment for backfill of these vacancies is strong and the sales productivity and attractiveness of our portfolio continues to improve,” CEO Tom O’Hern said on the Q1 call.
Should we believe O’Hern? Maybe, because he bought $800K of MAC stock in May.
Macerich insiders are signaling the stock is a buy. A 9% yield while waiting for a takeover?
In April of 2015 Macerich Company walked away from a $95.50, $23.2 billion hostile takeover by Simon Property Group, Inc. (SPG), saying the offer undervalued Macerich. MAC’s market cap is now $4.55 billion. Though the stock closed on June 27 at $33.44, up 3.85% on the day, MAC has lost nearly 50% of value from its 2018 high of $63.90.
I don’t know if a buyout of Macerich is on the horizon, but I do know that officers and directors of the company have purchased $2.8 million of MAC stock since the beginning of May. That’s easily the largest amount ever bought by Macerich insiders over a two month period. For comparison, during the 2008-09 financial crises, Macerich traded as low as $3.28, but between Nov. of ’08 and March of ’09, Macerich insiders only bought $1.6 million of stock.
Macerich insiders’ recent buying spree
|Filing Date||Insider||Title||Transaction||Trade Date||Shares||Avg. Price||Total||Change in Holdings|
|26-Jun-2019||Stephen Andrea M||Director||Purchase||26-Jun-2019||10000||32.06||$ 320,599||21.47%|
|26-Jun-2019||Coppola Edward C||President, Director||Private Purchase||25-Jun-2019||5000||32.88||$ 164,400||1.83%|
|26-Jun-2019||Stephen Andrea M||Director||Private Purchase||24-Jun-2019||10000||32.93||$ 329,283||27.34%|
|12-Jun-2019||Stephen Andrea M||Director||Market Purchase||11-Jun-2019||10000||34.8||$ 348,000||37.62%|
|12-Jun-2019||Stephen Andrea M||Director||Market Purchase||10-Jun-2019||10000||35.23||$ 352,300||60.31%|
|31-May-2019||Kingsmore Scott W||Chief Financial Officer||Market Purchase||30-May-2019||3000||37.14||$ 111,409||49.04%|
|29-May-2019||Coppola Edward C||President, Director||Market Purchase||29-May-2019||2500||37||$ 92,500||0.92%|
|30-May-2019||O Hern Thomas E||Chief Executive Officer, Director||Market Purchase||29-May-2019||5000||37.11||$ 185,563||7.86%|
|29-May-2019||Coppola Edward C||President, Director||Market Purchase||24-May-2019||2500||39.91||$ 99,784||0.93%|
|23-May-2019||O Hern Thomas E||Chief Executive Officer, Director||Market Purchase||23-May-2019||5000||39.69||$ 198,450||8.53%|
|13-May-2019||Coppola Edward C||President, Director||Market Purchase||10-May-2019||5000||40.5||$ 202,500||1.90%|
|09-May-2019||O Hern Thomas E||Chief Executive Officer, Director||Market Purchase||08-May-2019||10000||40.99||$ 409,850||20.57%|
Macerich Insiders are certainly aware that activist hedge funds have targeted their company in the past
Activist investors have a history of making runs at Macerich. In 2016, after the company rejected Simon’s offer, two activists, Land and Buildings Investment Management LLC and Orange Capital (now defunct), launched a proxy battle in 2016 to install four directors to Macerich’s board. Eventually the REIT agreed to add two independent directors to its 10-person board. It also agreed to de-stagger its director elections and remove an anti-takeover poison pill. In 2017 Third Point LLC and Starboard Value’s Jeff Smith accumulated stakes, but eventually sold.
At the end of Q1, the list of MAC shareholders shows one activist with a stake: Paul Singer’s Elliott Management with a small 470,000 position. It will be interesting to see if any activists have been buying into the Q2 selloff.
Speaking of Elliott Management, that hedge fund announced on June 7 a deal to acquire Barnes and Noble for $683 million, including debt. Elliott will manage Barnes and Noble as a private company. The bookseller is a leading example of brick-and-mortar obsolescence due to Amazon disruption. In the early 90’s Barnes and Noble dominated the retail book business, today it’s a shadow of its former self.
Might Simon Property make a new buyout offer for Macerich, now that it trades at 25% of SPG’s 2015 offer?
Nonetheless, in a sign that values may be found among the victims of the Retail Apocalypse, Elliott’s $6.50 acquisition price was a 33% premium to Barnes & Noble’s average closing price over the previous 20 trading sessions.
Might Simon Property Group revisit its offer for Macerich, now that MAC trades at 25% of what SPG thought the company was worth four years ago? There is recurring speculation that could happen. The two companies announced last Sept. that they are partnering to develop a 566,000-square-foot outlet center in Carson, CA. So, they are familiar with each other.
In any case, the significant purchases by Macerich insiders suggest the Retail Apocalypse may be overhyped, and may have driven Macerich to bargain levels. It seems reasonable to follow the insiders’ example, buy MAC at theses levels, and collect a 9% yield while waiting for higher prices.
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