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.

Last Week Sees Rebounding REITs

chart01REITs saw a boost throughout last week. In particular, there have been a number of REITs under stress that have managed to make a rebound, which speaks well of them as well as REITs as a whole. Here are some highlights:

* One of the examples is CBL & Associates Properties, which is a mall REIT that specializes in low-productivity malls. Its shares tumbled by about 10 percent in May because of allegations from the Wall Street Journal that they had been conducting fraudulent accounting in order to firm up their financial numbers. Since then, no further news has come up, which seems to be why its shares have bounced back to their former level.

* CorEnergy Infrastructure Trust is another example of a REIT that has managed to make a comeback after serious losses. In its case, this seems to be partly because of the rise in oil prices as shown by Brent passing the $50 per barrel mark and partly because REIT investors have confidence in its leadership even though its two main clients are in Chapter 11 bankruptcies.

* Finally, there is Ashford Prime with its 23 percent stock return, which is seeing renewed attention because of an unsolicited offer from The Weisman Group in California to buy the embattled REIT. In short, the REIT had been suffering in recent months because of the struggle between its external management and activist Sessa Capital over who gets to control the REIT. They’ve been in a court battle over whether or not Sessa could nominate candidates for the REIT’s Board of Directors.

Since the Weisman offer was made just before the annual shareholders’ meeting this Friday, it put significant pressure on the REIT’s senior leadership.  Particularly since it came with a number of conditions such as a limit on the value of Ashford’s external management agreement. However, it should be noted that the offer has its flaws, below what the management thinks it is the fair value. This could be why investors have not been enthusiastic as they could be and have instead been treating it with a degree of skepticism.

Source: CBL & Associates Properties, Inc. (NYSE:CBL), CorEnergy Infrastructure Trust, Inc. (CORR), Ashford (NYSE MKT: AINC), Ashford Hospitality Prime (NYSE: AHP)

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 June 10, 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.

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.

Has This Mall REIT Done Enough for the Long Haul?

chart01.pngThe share price of CBL & Associate Properties, a second tier mall REIT, has been attractive. CBL’s good Q1 results suggest that the company has healed from last year’s high tenant bankruptcy activity. However, one question remains. Have they done enough for the long haul?

Following this year’s volatility period, CBL, a second tier mall REIT, has shown some reaction in the financial markets. However, the stock remains cheap, trading at 7.2x AFFO and at a 9% yield. Since the company recently reported good Q1 results, it brings up an interesting question. Will there be some sort of a new rally? I believe the answer runs deep.

The company’s efforts to recover tenants appeared to have paid off in Q1. After losing tenants in 2015 due to significant bankruptcy activity, the company looked to generate temporary income through short-term leases, while it searched for a definitive releasing. In Q1, occupancy advanced to 130 basis points. Also, AFFO per share went up by 8% and same center net operating income increased by 3%. In the end, the balance is positive.

At the same time, the company has promoted a disposition program and has been committed to balance sheet improvement. They have also reduced the dependency on anchors, thus reducing the average number of anchors per mall. The company will also announce a new outlet center project.

chart02.pngHowever, this stills leaves the question as to whether these measures, some of which are short-term, are enough. The regional mall REIT sector performance has been split into high and low productivity groups. While the shares of the high productivity groups are faring well, we can’t say the same about the shares of the low productivity groups, which includes CBL.

CBL invests in second tier malls where there is little competition. They tend to invest in properties where the nearest major competitor is an average of 25 miles away. As management says, they have great local support because they work as regional centers where locals hang out. CBL’s average sales per square foot is less than $400. Despite lower productivity, retailers have less pressure from competition and have room to grow.

The explanation for the discrepancy in their stock performance is that low productivity has meant lower rents, which can result in lower profits. It can also mean increased vulnerability in downturns. Although the company has distributed dividends for the past 22 years, the company did have to cut dividends during the great recession.

Of course, there are exceptions. Rouse Properties was purchased at a 26% premium by Brookfield in January. Prior to the transaction, Brookfield was aware of the portfolio intricacies for having a minority stake in the company.

In summary, CBL management has addressed more immediate concerns, but it has not yet proved that it is enough to take the stock out of the undervalue zone.

Source: CBL & Associates Properties In(NYSE:CBL),Rouse Properties, Inc.(NYSE:RSE)

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.

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.

Simon Spoiled Taubman’s Mall Project

Last Friday, some investors in the financial markets were disappointed at the Q4-2015 results of Simon Property Group, a huge regional mall REIT ($58 billion market cap), but in the world of brick and mortar, that may not be the case. Simon looks to have beaten Taubman Centers’ ($4 billion market cap regional mall REIT) plan to open an enclosed shopping mall in downtown Miami. Taubman is instead settling for a high end retail street.

chart03.pngAlong with Miami Worldcenter Associates and Forbes Company, Taubman intended to construct a 765,000 square foot mall which was fully enclosed. While retail, dining and entertainment were to be key, over 40% of the mall was set to be dedicated to Bloomingdale’s and Macy’s. Included in the plan was a pedestrian-only street which featured multiple restaurants and shops on 7th street, which led directly to the American Airlines Arena. A press release on Jan 11 stated that the mall project had been discarded, and in its place would be a high end retail street, positioned south to north between 7th and 10th streets.

chart04.pngSimon planned to construct an open-air shopping center simultaneously in downtown Miami. The luxury mall is to be 500,000 square feet, and complete with high-end retailers along with plenty of dining and entertainment facilities in the Brickell neighborhood. Part of the project has already been finished and is to open this year. Local developers have been developing the project with Simon. Both projects are mixed-use and also include offices, hotels and residences.

chart05.pngTaubman’s decision strikes many as yet another signal that the idea of a mall no longer works in America. Cities have become increasingly urbanized and, along with the growth of online shopping and the boost to high street shopping, malls have become marginalized. But while Taubman is looking to expand overseas, and in particular to Asia, it’s unlikely that they will scrap future mall projects in the U.S. This scenario appears to be just a downtown Miami battle between two competitors.

chart02Due to recent selloffs, some regional malls REIT stocks have returned poorly, whereas others have been holding better. Simon has been the latter. Following the release of its results on Friday, Simon stocks dropped, but they quickly rebounded. Simon’s Q4-15 funds from operations have fallen in comparison with Q4-14. Also, occupancy dropped by 100 basis points. Despite this result, vacancy levels for malls in general have trended downwards.

The regional malls REITS that have higher sales per square foot have been doing better. Macerich, Taubman, Simon and General Growth average an AFFO multiple of 24x. In contrast, Rouse Properties, Pennsylvania Real Estate, WP Glimcher and CBL & Associates are languishing badly with an AFFO multiple of just 11x.

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As a result of the project change, Taubman’s share price fell for days after the announcement was made. Taubman trades at 27x yield at 3.2%, which is the highest AFFO multiple among its peers.

chart06Source: Taubman Centers, Inc.(NYSE:TCO), Simon Property Group Inc.(NYSE:SPG), General Growth Properties, Inc(NYSE:GGP), WP GLIMCHER Inc.(NYSE:WPG), Pennsylvania Real Estate Inves(NYSE:PEI),The Macerich Company(NYSE:MAC), CBL & Associates Properties In(NYSE:CBL), Rouse Properties, Inc.(NYSE:RSE), Yahoo!Finance, Fast Graphs, Brickell City Centre, Miami Worldcenter, Reis

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.