CBL & Associates Properties, Inc. (NYSE:CBL): Emerging Market Trend; Amazon Threat

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CBL & Associates Properties, Inc. (NYSE:CBL): Emerging Market Trend; Amazon Threat

CBL & Associates reported disappointing fourth quarter and full year financial results, further compounding its woes on Wall Street. The real estate investment reported Funds From Operations (FFO) (equivalent to earnings) that were down 17.6% year-over-year.

FFO came in at $0.56 a share, compared to $0.68 reported the prior year period. Full year FFO Per share came in at $2.08 compared to $2.41 reported the prior year.

The decline was as a result of retail bankruptcies that cost the company $0.09 in FFO. Portfolio occupancy was down by 160 basis points to 93.2% as average gross rent per square foot dropped by 5.4%.

Net income attributed to shareholders for 2017 stood at $76 million or $0.44 per diluted share, compared to $128 million or $0.75 per diluted share for 2016.

Disappointing Outlook

For the current year, CBL & Associates expects Funds from Operations of between $1.70 and $1.80, representing a 15.9% drop from 2017’s full-year FFO, which was down by 13.7% from 2016.

A major point of concern is that a decline in FFO is accelerating. The situation could get worse given that 2018-2021 will see about 47% of total annualized gross rent come up for renewal.

Rating firm Moody’s has already downgraded the company’s debt to Ba1 from Baa3 citing weaker than expected operating performance as well as the lower 2018 outlook.

17% Dividend Yield Concern

Very few companies offer dividend yield near the 17% that CBL & Associates offers. Given the underperformance in the recent past, the company’s free cash flow holdings could come under pressure which could force the company to slash its current yield.

The board of Directors has approved a cash dividend of $0.20 on the company’s common stock for the quarter ending March 31, 2018. The dividend is payable on April 17, 2018.

Management Position

CBL & Associates management remains surprisingly optimistic despite the underperformance. According to the Chief Executive Officer, Stephen, D. Lebovitz, the company’s balance sheet should be able to support the company’s strategy.

“In addition, we fund the majority of our redevelopment and capital expenditures using our significant portfolio free-cash-flow, which allows us to generate new income on a leverage neutral basis,” said Mr. Lebovitz.

What Does The Future Hold For CBL & Associates?

A disappointing earnings report compounded by a weak 2018 outlook all but points to an uncertain future for CBL & Associates. The company is under immense pressure from emerging trends which continue to affect the ability of department stores retail outlets to rent brick and mortar space.

As retail outlets continue to file for bankruptcy, the company’s revenue stream could come under immense pressure, a trend that could get worse given the number of leases up for renewal.

CBL & Associates has lost more than 70% in market value over the past three years as the retail sector continues to face major headwinds. The uncertainty in the sector should continue to raise serious doubts about the company’s ability to rebound anytime soon.

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