CBL Properties: How Much Longer Can Goldman Keep Cheerleading?

 |  Includes: CBL, GS
by: Tyler Durden

Everyone's favorite Goldman REIT analyst is still not downgrading CBL & Associates Properties (NYSE: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.

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

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