The Only Mall in Town in Upswing

chart01.pngCBL & Associates Properties, nicknamed the “Only Game in Town,” appears to be working its way up, after the recent crisis. Following the news that the SEC had been investigating the REIT has caused a drop in the share price. But during this month the stock finally surged and spiked up to 20%. It was not long after that when the market timers started to recommend that the stock is a buying opportunity. After reviewing the financial results, and the history they could be right, but is it really a quality investment?

While the SEC accusations seemed to be very bad at the beginning, the company has been able to respond and reduce their importance. The confusion all started when the Wall Street Journal back in May mentioned the SEC was investigating the company for accounting fraud. There was even a link to Donald Trump because a potential vice president had profited from the stocks, needless to say the company promptly denied any wrongdoing. Then weeks later the company issued a press release which said that they had discovered that the SEC was looking into four secured loans that dated between 2011 to 2012. The company also hired Ernst & Young to conduct an independent investigation.

The damages done to the stock was severe. The share price reached its lowest point since late June of 2009 at $8.86. During this month, the stock has rebounded and is now trading around $11. The multiple at 7 times AFFO is still considered to be cheap when it is compared to its peers. In fact, the share price needs to triple in order to approach multiples that are equivalent to its successful peers, which is unlikely.

The company is able to check most of the items that the investors get excited about, which can include dividend payout, consistent dividend paying history, seasoned management, and dividend yield. The REIT is a part of a low productivity malls that have been plagued by secular threats to malls. Due to the bankruptcies, last year, 175 stored were closed and the company lost 310 basis points in occupancy. The company was able to find the other tenants and recoup most of the ground that was lost. But it might be too late since the episode exposed the company’s weak spots.

In conclusion, after reaching its lowest point CBL is starting to bounce back. Which is causing many of the investors to enjoy the ride, but this upswing could last a short amount of time.

PS. The company releases Q2-2016 results on Thursday 28.

 

Source: CBL & Associates Properties In(NYSE:CBL)

Disclaimer: This newsletter 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. Please do your own due diligence before making any investment decision. 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 is long FCH, XHR, and CLDT.

Why This Mall REIT Is Not on Our Radar

chart01WP Glimcher (WPG), a $2 billion market cap mall REIT, has been the center of attention due to its activities over the last few weeks. First, there was some speculation that the firm was interested in merging with the shopping center REIT Kite Realty Group Trust. WPG denied that it had any interest in doing business with any third party. Another strange event took place when Michael Glimcher surprisingly stepped down from being the CEO of the company. His position has been temporarily filled by a board member.

To be frank, we’ve watched WPG’s activities with a jaundiced eye. Let’s look at why we are skeptical of WPG.

WPG has average sales per square foot of $374. This unimpressive figure puts WPG in the low productivity small group. It is also important to note that this group is often seen as more vulnerable to online retail activity.

WPG hasn’t been successful with its effort in managing its tier 2 malls (about a quarter of their portfolio). In Q1, tier 2 malls’ NOI growth headed to negative rates. This prompted us to place it in the same group as the Regional Malls REITs CBL & Associates Properties (which apparently just turned over a mall to the lenders) and Pennsylvania Real Estate Investment Trust.

Our due diligence uncovered that the stock is undervalued, and has yet to show its potential. Formerly known as Washington Prime Group, the stock has not performed well since its spin-off of Simon Property Group back in 2014 and merger with Glimcher Realty Trust in 2015. Underperforming by almost 50%, we haven’t had full confidence in the stock. As a consequence, it is one of the mall REITs that has high dividend yields. This separates it from its peers. Even with a dividend payout of 70%, the dividend yield has been a little more than 9%.

At this point, it is very difficult to pinpoint where the stock is going. To our surprise, the company has not provided full details about the abrupt change of leadership. The company proposed to change its name back to Washington Prime Group after the sudden departure of Michael Glimcher. This only added more drama to the confusion.

In short, we may miss a golden buying opportunity for a REIT, but recent events and weaker fundamentals are forcing us to keep our distance.

Source: WP Glimcher Inc. (NYSE: WPG), CBL & Associates Properties Inc. (NYSE:CBL), Pennsylvania Real Estate Investment Trust (NYSE:PEI), Simon Property Group Inc. (NYSE:SPG).

Disclaimer: This newsletter 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. Please do your own due diligence before making any investment decision. 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.

 

Mystery Around This Mall REIT Mortgage Default

chart01Bloomberg has reported that the mall REIT General Growth Properties has failed to make a $144 million payment earlier this month on a mortgage associated with Lakeside Mall in Michigan. As a result, the mortgage has been transferred to a service provider that specializes in handling troubled commercial mortgages, which should come as concerning news to not just General Growth Properties investors but also other investors in other mall REITs.

Based on the latest financial statements released by General Growth Properties, Lakeside Mall is one of its bottom performers, as shown by the fact that it has an 85 percent occupancy rate compared to the average of a 96 percent occupancy rate for the mall REIT. However, it is curious that General Growth Properties has failed to make the payment because it should have no problems doing so, based on a relatively manageable debt level as well as relatively few debt obligations until 2018.

So far, General Growth Properties has not provided an explanation for its choice, whether because Lakeside Mall’s fair value was not worth the mortgage or something else. As a result, there is rampant speculation, with some people suggesting that it might not be an isolated case but a problem with mall REITs as a whole.

Source: General Growth Properties, Inc. (NYSE: GGP) 

http://www.bloomberg.com/news/articles/2016-06-16/day-of-reckoning-comes-for-u-s-shopping-malls-laden-with-debt

http://www.streetinsider.com/Analyst+Comments/Mizuho+Analyst+Takes+Exception+to+Bloomberg+Story+on+General+Growth+(GGP)+Lakeside+Mall+Strategic+Default/11747868.html

Disclaimer: This newsletter 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. Please do your own due diligence before making any investment decision. 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.

Are There Opportunities to Be Found in this Mall REIT’s Stumble?

 

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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.

Macy’s, Gap, and Staples Put Mall REIT Investor in a Bad Mood

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Retailers don’t appear to have gotten off to a strong start in 2016. In fact, for many major retailers, the Q1 results are very disappointing. Some have argued that Q1 is not defining for the rest of the year and retailers could potentially make up ground in the coming months. While that’s true, it also means the 2016 results could be even worse than one might think.

Equity REIT stock returns have been negative over the past week. This is largely because of regional mall REITs. Regional mall REIT stocks fell by 6% across the board. This time, the drop affected REITs with high productivity, as well as those who have been the least productive.

For instance, Macy’s Q1 results left investors bearish on retail. The company downgraded their guidance for 2016 and referred to the uncertain direction of consumer spending as the cause of a projected 3 to 4% drop on 2016 comparable sales. Their previous guidance was minus 1%.

It is uncertain what is causing retail sales to drop, but there are plenty of possible reasons. Migration to online sales is definitely a possibility. In addition, we are in a presidential election year. Still others argue that we are heading into a recession. In addition, Macy’s mentioned that apparel spending by international visitors has dropped in major markets where Macy’s is a key destination. During the last week, Macy’s share prices plummeted by 17%.

Gap was another company that suffered immensely during the last week. Gap’s shares fell by 19% following the downgrade of its credit rating by Fitch from investment grade to junk status. The credit agency is not confident the company will be able to sustain its EBITDA levels, which dropped from 2014 to 2015. The company continues to see a decline in traffic and volatile gross margins.

To make perceptions worse, Staples merger with Office Depot didn’t work out after a judge agreed with government regulators’ decision to block the transaction for antitrust concerns. Staples stocks dropped by 19%, while Office Depot stocks plummeted by 40%.

This news has definitely resonated with Green Street Advisors’ recent research paper saying that one-fifth of anchor space in malls should be closed to regain the productivity they had a decade ago. Without a doubt, the pendulum didn’t swing in favor of retail this week.

Source: Macy’s, Inc.(NYSE:M), The Gap, Inc.(NYSE:GPS), Staples, Inc.(NasdaqGS:SPLS), Office Depot, Inc.(NasdaqGS:ODP), Fitch Ratings, WSJ

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 13, 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.

Should You Be Investing in Mall REITs?

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Click here to check dividend yields and stock performance.

Macy’s, J.C. Penney, and Wal-Mart are some of the retailers that are closing stores, prompting fears that now is not the time to invest in mall REITs. For example, Chris Versace, a writer for the Eagle Daily Investor, has stated that anchor store closings and the rising number of online sales are changing how retailers operate, meaning that people should not invest in mall REITs until the resulting wave of store closures have come to a conclusion.

Are These Concerns Warranted?

There are reasons to believe that fears about mall REITs are overblown. For starters, some stocks have been performing better than others, meaning that there is still hope in the form of REITs with high sales per square foot such as General Growth Properties, Macerich, and Simon Property Group. Also, REITs are still planning new malls, which they probably wouldn’t be if the prospects were really so bad. Mall vacancy rate has been trending downwards since the great recession.

In fact, these companies have been performing better than the average equity REIT. Their dividend yields have been lower, usually an indication that things are going in their favor. As another point of view, WP GLIMCHER and CBL & Associates Properties are offering higher-than-average dividend yields because they have suffered from tenant bankruptcies and store closures with corresponding consequences for their own financial states and share prices.

Also, Brookfield Asset Management bought mall REIT Rouse Properties last month, elevating Rouse’s share price by 25% in 2016. This transaction elevated mall profile, as well.

It is worth mentioning that the concerns over store closures have been exaggerated. For example, Macy’s opened 26 stores even as it closed 40 stores in 2015, suggesting that the problem wasn’t across the board but concentrated in particular locations. Similarly, both Macy’s and J.C. Penney have pointed out the positive correlation between brick-and-mortar stores and their online counterparts that exist because people are able to browse and return products that they buy online. In other words, the conclusion that the rising number of online sales is causing an industry-wide problem for mall REITs is suspect because the evidence shows that having both an online and offline store actually drives up sales rather than drive them down.

Further Considerations

Summed up, it is debatable that mall REITs should be avoided because of the rising number of online sales and stores closures. However, interested individuals should remember that successful investing is based on a lot of hard work, meaning that they should not take this as an endorsement to invest in mall REITs at random without putting in the necessary time and effort.

Source: CBL & Associates Properties In(NYSE:CBL), Rouse Properties, Inc.(NYSE:RSE), WP GLIMCHER Inc.(NYSE:WPG), Simon Property Group Inc.(NYSE:SPG), The Macerich Company(NYSE:MAC), General Growth Properties, Inc(NYSE:GGP)

Disclaimer: This newsletter 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. Please do your own due diligence before making any investment decision. 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.

Jeff Bezos, Did You Get Mad at a Future Landlord?

chart01 Here’s a quick look at how the 21st century retail business model works. First, you open an online store because it’s so cheap (today, you don’t even need your own website). Next, you sell as much as you can and use the profits to build huge warehouses where you both store your inventory and finish off your brick and mortar competition. Finally, you open up physical stores for better logistics. If somebody had told you this is how things would work fifteen years ago, you wouldn’t have believed it. However, this is the way things are going.

Amazon is a newcomer to the brick and mortar world. Last week they left many people scratching their heads when the CEO of a regional mall REIT, General Growth Partners, allegedly disclosed Amazon’s plans to open anywhere from 300 to 400 bookstores in the US. Later, in an effort to fix the confusion, the CEO stated that he had never meant to speak on Amazon’s behalf. However, given that Amazon said there’s no immediate plan, one can always assume that there’s something along these lines in the works.

Investors have been well aware that Amazon has been trying their hand at brick and mortar stores. This time last year, Amazon opened its first physical “bookstore” at Purdue University in Indiana. In fact, the store didn’t have any visible inventory, but it was a place where you could order online and pick up your merchandise in the “store”. Last fall, Amazon has also opened a physical store in Seattle, which does have visible inventory.

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purdue.amazon.com

The bankruptcy of Borders, a bookstore with locations across the nation, in 2011 still remains fresh on the minds of investors. People have become convinced that physical stores are a thing of the past. With Kindles everywhere and a humongous online library, why would you even bother with building a chain of bookstores? Some people, however, see a lot of value in the brick and mortar store proposition, mostly related to delivery. Here are a few situations where they would be useful:

  • You don’t want your package delivered to your doorstop.
  • You don’t want to wait and prefer to pick up your purchase in a nearby store.
  • Amazon wants to reduce dependency on shipping companies.
  • To return merchandise, it’s much easier to go directly to the store than the post office.
  • Stores can function as local warehouses to deliver in the neighborhood by land or using drones.

There’s no doubt that the bookstore giant Barnes & Noble is now doubly scared. In addition to competing with Amazon online, it is now likely to have to fight Amazon with physical space. In fact, shares plummeted by 10% when the possible plan was made public, but went back up.

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So, what does this have to do with REITs? The fact that a mall REIT operator was the source leads to speculations about lease negotiations with Amazon. Like Apple and other online companies, Amazon could very well begin to show up in American malls.

It’s never too late to see a revenge of the malls. The same companies that have prompted specialists to pronounce the slow death of malls in America, while also creating an entire generation of people questioning why malls even exist, have now become their tenants. After all, as far as I’m concerned, stores may have become digital, but people still need a physical place to hang out.

Source: General Growth Properties, Inc(NYSE:GGP),Barnes & Noble, Inc.(NYSE:BKS),Amazon.com, Inc.(NasdaqGS:AMZN),Yahoo!Finance

Disclaimer: This newsletter 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. Please do your own due diligence before making any investment decision. 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.