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.
Originally published at BoomBustBlog.com and reproduced here with the author’s permission.