Washington Prime Group: Deep Value Vs. Deep Trouble

Summary

• WPG management’s frustration is blindingly clear.
• The one and only way to get analysts off your back is through improved financial performance.
• Our recommendation here is rooted in fundamental analysis, and we consider Washington Prime to be highly speculative.
• Looking for a portfolio of ideas like this one? Members of Rhino Real Estate Advisors get exclusive access to our model portfolio. Start your free trial today »

Williams Equity Research co-produced this article...

Source

The SUV on the right has a price tag of approximately $52,000, while the seemingly identical vehicle on the left costs a mere $18,200. Instinctively, this type of arbitrage might appear extremely attractive. At the same time, however, we know there's a catch.

There's always a catch.

This rule was recently made prominent when Jaguar Land Rover won a landmark court case against the Chinese firm Jiangling Motor Corporation (JMC) for copying its successful Evoque model.

Distribution Yield (as of 5/3/2019)

Consider the following retail REITs and the dividend yields they sport according to Yahoo Finance...

Federal Realty Investment Trust (FRT): 3.05%

National Retail Properties (NNN): 3.61%

Realty Income (O): 3.87%

Saul Centers, Inc. (BFS): 4.13%

Simon Property Group (SPG): 4.72%

Spirit Realty Capital (SRC): 6.18%

Kimco Realty Corporation (KIM): 6.44%

Pennsylvania Real Estate Investment Trust (PEI): 13.35%

Washington Prime Group (WPG): 17.70%

CBL & Associates (CBL) 19.35%

In all, there are 36 retail REITs according to NAREIT, with an average dividend yield of 4.82%. And, while Washington Prime is not the highest yielding among them, it's nearly four times the sector average.

Now, I already know what you're thinking. So what’s the catch?

The answer is identical to the Land Rover example. We need to look under the hood to understand what sets these REITs apart.

Source

Imagine buying a car without knowing the manufacturer, model year, or anything about the engineering quality behind it. Many investors will scoff at such a notion, yet that’s exactly what they turn around and do in their brokerage account.

How Was Washington Prime Group Manufactured?

In May 2014, Simon Property Group made a portfolio disposition to create a new company. Eight months later, the entity merged with Glimcher Realty Trust, which was listed under the ticker symbol GRT up

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.