Last week, the Wall Street Journal published the news that CBL & Associates is under investigation by federal authorities for accounting fraud. In an attempt to make its financial statements that much more attractive to banks, they allegedly inflated rental numbers and occupancy rates. Although the mall REIT has denied the allegations, its strenuous effort to combat the investors’ pessimistic perception of its prospects in the long run makes them all too plausible, meaning that they may or may not be true but will nonetheless hurt it in the short run. Something that CBL & Associates really doesn’t need right now.
In short, CBL & Associates is a mall REIT, which like any other mall has suffered from fears that online shopping will render them obsolete. Even worse, CBL & Associates is a mall REIT that specializes in malls without local competition, which come with a host of other problems as well. For example, such malls tend to have more market power but pay for that by having access to less purchasing power, as shown by how they are managing average sales per square foot of less than $400.
Furthermore, such malls (low productive) are more vulnerable to economic fluctuations, which are a relevant issue at the moment because of some lack of investor confidence in the U.S. economy as a whole. Summed up, this means that CBL & Associates has the misfortune of being one of the less promising investments in a category not that promising, which is a position that no one would want to be in.
The investigation caused CBL & Associates’ share price to fall, which is particularly concerning because its share price has already been falling throughout the last year in spite of its management’s efforts to revive it. Given that a string of successes such as a gradual move towards more high growth properties as well as the disposition of undesirable properties have not managed to change this trend, it seems likely that the mall REIT will continue to suffer now that this has happened, meaning that REIT investors should stay away from the time being.
Source: CBL & Associates Properties In(NYSE:CBL)
Disclaimer: This is not a recommendation to buy or sell stocks. The highest-yield stocks are not necessarily the best portfolio investment choice. The purpose of this report — which is essentially a snapshot of information available on May 27, 2016 — is to reduce your stock analysis by enabling you to compare stock and sector performance. Please do your own due diligence before making any investment decision.
As of April 29, 2016, the equity REITs are constituent companies of the FTSE NAREIT All REITs Index. Companies whose equity market capitalization is lower than $100 million have been disregarded.
This report is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.
Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.