WP Glimcher: Biting Off More than It Can Chew

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The ambitious WP Glimcher (NYSE: WPG) is currently in the midst of a race to pay back a bridge loan amounting to a significant portion of its market capitalization and to cut down its debt level even as its operational metrics flatten and its dividend yield soars. WP Glimcher was formed last January by a merger of Glimcher Realty Trust (former NYSE:GRT) and Washington Prime Group, which was created in 2014 to hold the strip center business and smaller enclosed malls of Simon Property Group (NYSE: SPG). The new business entity now owns and manages 121 shopping centers, including outlet centers and mixed-use, open-air and enclosed regional malls that it inherited from Glimcher.

To finance this transaction, WP Glimcher had to borrow $1.19 billion under a bridge loan to be paid in January 2016. In March, the company issued bonds payable and used $248.4 million of the funds thus earned to pay back part of the debt. This week, the company announced a joint venture with O’Connor Mall Partners, which will reduce its debt by another $800 million. Proceeds from the aforementioned joint venture, plus the replacement of the bridge loan with a term loan, should help improve Glimcher’s debt profile. The remaining balance will be repaid, according to Glimcher’s plans, with the proceeds from a new five-year $500 million loan.

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Among its regional mall peers, WP Glimcher was the worst performer of 2015. Its share price tanked eighteen percent, the sector’s median return being minus four. The company’s market capitalization went down to $2.5 billion, its outstanding debt being estimated at $4.4 billion — far too much for a retail REIT focused on class B malls. Both S&P and Moody’s have placed a negative outlook and Fitch has downgraded the Company to a BBB- rating.

Operationally, as a result of the merger, revenues have gone up by fifty percent in the first quarter of 2015, compared with last year. Comparable store net operating income has increased slightly, while funds from operations (FFO) per share have decreased, though they have been essentially the same except for expenses incurred by the merger. Average rent per square foot has also got up slightly.

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Because of its high level of debt, it is not surprising that WP Glincher’s valuation metrics have been undervalued. With a price-to-FFO ratio of about eight — one of the lowest among its peers — the business has been on the risky side of the spectrum, yielding 7.4 percent. Only for investors who are willing to go for the ride.

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Source: WP Glimcher


Written by Heli Brecailo

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