CBL Properties: How Much Longer Can Goldman Keep Cheerleading?

Everyone's favorite Goldman REIT analyst is still not downgrading CBL & Associates Properties (CBL) to a Conviction List Sell. In fact, Habermann is doing all he can to salvage whatever he can. That being said, we give this stock at most 3-4 weeks before it gets whacked if not to a Sell to at least a "Conviction List" Hold.

From yesterday's CBL update report:

CBL: Still see long-term value amid sell-off; reiterate Buy

What's changed

Regional mall REIT CBL remains one of our top ideas in REITs /Commercial Real Estate and we continue to see current pricing as an attractive entry point. Since the announcement of its follow-on offering on June 8th, the stock has declined 35%, despite the fact that the $400 million offering served to improve the balance sheet and near-term liquidity. We recently removed the stock from the GS Conviction Buy List due to the aforementioned underperformance versus our coverage universe; however, we continue to favor the name over a 12-18 month timeframe. Key drivers include: (1) Improving outlook – With the US economy expected to post modest growth in 2010 (+1.5 to 2.0%), retailer demand for space should begin to improve, resulting in increasing NOI growth; (2) Attractive yield – After reducing the dividend to a current, sustainable rate of $0.11 per quarter ($0.44 annualized), the current yield of 9.0% remains attractive and well covered (vs. adjusted FFO of roughly $1.00 per share); and (3) Deeply discounted valuation – CBL trades at just 2.7X based on our 2010 estimate of $1.80/share, or a sizable 72% discount to the REIT average of 10.0X. Moreover, the stock trades well below our NAV estimate of $9/share (using a cap rate of 9.75%). As cap rates return the mid- to late-1990s levels (in the 8%-12% range), we point out that CBL was able to buy assets at that time at yields of 9%-11% and develop at returns of 12%-plus, so our cap rate assumption appears to be in line with past cycles.

Implications
We remain Cautious on REITs but selectively favor regional malls and
downtown office and remain cautious on apartments and global industrial.

Valuation
Our unchanged 12-month PT remains $10 and implies 109% total return
potential (including the 9.0% annual dividend yield).

Key risks
Risks include rising tenant defaults and deteriorating credit conditions.

I don't even care to comment on key drivers 1, 2 and 3. If there is anyone out there who actually believes any/all of those, please e-mail me: I am happy to transact in size in the name (presumably we will be axed).

hat tip Ryan

Comments

[User 397098:]

The old wise one forgot to mention one little factor in the the mall/reit universe: SUPPLY !!!!!!!!!!!!!!!!!!!!!!... CRIMINALS !!!!!!!!!!!!!!!!!!!!!!!!!

Jun 24 04:40 PM

[conceptwizard:]

The Wall Street Journal conducted a survey of 940 lenders finding that CRE loans could create losses in excess of $100 billion for the industry by the end of the year. The Journal collected data from each of the banks' Federal Reserve findings to assess their health, applying the loan-loss criteria used in the federal stress tests of the largest banks. 923 of the banks' estimated losses would exceed bank revenue (as projected by the analysis), and at 634 banks the gap would be wide enough to reduce capital below the level considered comfortable by regulators.

Jun 24 09:39 PM

[dcb:]

Hey Tyler,
keep an eye out on goldman's prop desk. I see a pttern developing that looking a bit too similar to the sell off Jan into march. controlled. I expect it to stop at about dow 7500. Esp in the past 5 days. do I really see the cycle. the IMF/World bank report may have altered things a bit.

the big sell off today, on "good" news for the manufacturing sector. If pattern continues will see top today, then two days sell off. then down up day, then up two days, etc.
this was exactly the same six day cycle before on the last part of the drop!!!!.
I remember it very well, and new something fishy was going on for sure for the first time!!! that would have stared about feb 10th

Jun 25 02:42 AM

[dcb:]

I have a friend a goldman whom I like very much, but I'd have to say these people are whores. the fire wall give the analyists the ability to endorse things their own people are trading down. In fact looking at their suggestions I would have to say that almost on a universal basis they are trading the other way, or soon to be the other way from what their analiyst says.

Knowing the bit of technical analysis I do it amazes me that these people are always pushing the buy when things should be correcting

Jun 25 02:47 AM

[Rhino Realty:]

on CBL, they started as developers and ; consequently, they have significant experience with development, redevelopment, and vertical construction. I think this is important as many peer REITs are simply financiers and are more likely to blow over in a gust of wind. When CBL loses a Circuit City or a Pier One they are more likely to fill the void as they have roots in redevelopment and enjoy many healthy tenant relationships.

Jun 25 02:27 PM

[CoinAphrase:]

Clever of them to focus on 2010 predictions, while not mentioning the impending cratering THIS year. Tell me why GS I should buy a stock before it goes down vs after? Doing my part to prop up the economy?

Jun 25 02:34 PM

[Miss Doff:]

I will have to agree with you. It's true to a degree - nothing they should be put in prison for, perhaps, but they don't always do things on the up and up.

For example, CBL is in bed, so to speak, with the company that performs their maintenance and security functions, ERMC. They charge the contract price to the retailers through CAM, but then allow this company to short hours and services - significantly! The malls are not being taken care of anymore. Who wants to shop or lease space in an unpleasing environment?

I don't care how sweet and kind the CBL officers are (I do think very highly a few of them), but they have treated their employees very badly over the last year, stripping them of hard earned bonuses and freezing salaries. They didn't even bother giving their mall level employess reviews for 2008.

They have laid off approximately 200+ wonderful, loyal, employees since August '08, including development managers, all of the marketing directors, any general manager who wouldn't be a "yes man," and recently, they closed most of, if not all, of their customer service booths. The layoffs resulted in overflowing plates for the remaining emloyees and, in turn, has created unlimited communication breakdowns. While this was happening, while morale was at its lowest, they announced a promotion of the HR Director! I understand that sometimes hard decisions have to be made, but the way they went about it was, indeed, criminal. It is so sad to see that Human Resource Departments are no longer in it to train (what training?), develop and protect its future leaders. Their only purpose now is to prevent law suits. Don't get me started about that!

CBL has been very reactionary during this economic hardship and I don't foresee much leasing or shopping in the future if the malls crumble to the ground. Customer service is already buried.


On Jun 24 04:40 PM User 397098 wrote:

> The old wise one forgot to mention one little factor in the the mall/reit
> universe: SUPPLY !!!!!!!!!!!!!!!!!!!!!!... CRIMINALS !!!!!!!!!!!!!!!!!!!!!!!!!

Jul 10 05:06 PM