CBL & Associates Properties, Inc.: This Turnaround Stock Yields 17.5%
August 29, 2018
This High-Yield REIT Pays 17.5%
Americans love a comeback story. And in the financial world, comeback stories can represent lucrative investment opportunities.
From time to time, good companies get in trouble. During these periods, you can sometimes lock in a double-digit yield for life.
Of course, not all turnarounds play out. Whenever you see a high yield, you know it comes with higher risk. But for those of us who can stomach the ups and downs, these situations can be quite profitable.
Take CBL & Associates Properties, Inc. (NYSE:CBL). The company operates a portfolio of shopping malls, most of which are anchored by struggling department store tenants. Falling rental income, increasing vacancy rates, and a large debt load have hammered profits over the past few years.
That situation has started to change, however. CBL has plowed millions of dollars into renovating its existing properties, transforming malls from shopping destinations into entertainment centers. The landlord has diversified its tenant base to boost sagging foot traffic, adding everything from gyms and restaurants to arcades and hotels.
Those efforts have started to put a floor underneath profits. Same-center sales for the partnership’s stabilized mall portfolio topped $376.00 per square foot for the 12 months ended June 30, compared with $375.00 per square foot during the same period a year prior. Management forecasts that funds from operations (FFO) will come in around $1.80 per share for the full fiscal year, down only slightly from 2017. (Source: “CBL Properties Reports Results for Second Quarter 2018,” CBL & Associates Properties, Inc., August 1, 2018.)
CBL has shored up its balance sheet, too. Over the past year, executives have slashed costs and begun paying down debt. Management has also unloaded underperforming properties, freeing up capital for more promising investments.
Those efforts have put a big dent in CBL’s outstanding liabilities. The partnership’s total debt load now stands at $4.7 billion, down from $5.5 billion in 2013. And by refinancing bonds at lower yields, executives now save millions of dollars in interest payments each quarter.
Chart courtesy of StockCharts.com
In the meantime, investors will get well paid while they wait. CBL pays a quarterly distribution of $0.20 per unit for an annual yield of around 17.5%.
Of course, you can’t call that big payout set in stone. For those distributions to keep rolling in, management will need to put a floor underneath profits, fund renovations of existing malls, and churn out enough cash to pay shareholders.
Easier said than done. That said, CBL & Associates Properties, Inc.’s great yield compensates investors well for the risk they’re taking on. If the company can pull off a turnaround, income hunters could lock in an impressive payout.
