{"id":57996,"date":"2025-01-16T15:51:28","date_gmt":"2025-01-16T14:51:28","guid":{"rendered":"https:\/\/www.captrader.com\/?post_type=analyse&p=57996"},"modified":"2025-01-16T15:51:29","modified_gmt":"2025-01-16T14:51:29","slug":"cbl-associates-properties-phoenix-from-the-ashes","status":"publish","type":"analyse","link":"https:\/\/www.captrader.com\/en\/analyse\/cbl-associates-properties-phoenix-aus-der-asche\/","title":{"rendered":"CBL & Associates Properties: Phoenix from the ashes?"},"content":{"rendered":"

Welcome to 2025 for a new blog article. Today we are once again talking about a rather unknown Real Estate Investment Trust (REIT)<\/a>which has a very interesting risk\/reward ratio. We are talking about CBL & Associates Properties, a REIT for which the last few years have been very volatile.<\/p>\n\n\n\n

Business model and strategy: What does CBL & Associates Properties do?<\/strong> <\/h2>\n\n\n\n

CBL & Associates Properties (TWS abbreviation: CBL) is (once again) a genuine small cap REIT with a focus on mainly malls and open-air centers in the mid-market segment. With a market capitalization of around USD 888 million and a P\/FFO of around 4.5x, the US company is massively undervalued compared to its peers such as Simon Property Group, Tanger or Macerich.<\/p>\n\n\n\n

\"Slide
Summary (Source: Investor Presentation Q3 2024)<\/em><\/figcaption><\/figure>\n\n\n\n

CBL is one of the companies that did not survive the pandemic well and had to file for bankruptcy. Since its return from Chapter 11 bankruptcy proceedings in 2021, however, the situation at the REIT has changed dramatically. Through a fundamental restructuring, the company was able to reduce around 2 billion US dollars in debt, revitalize its balance sheet and thus reposition itself financially. Since then, CBL has pursued a clear strategy: (further) reducing debt, returning unprofitable properties to lenders and increasing the return on capital for shareholders through dividends and share buybacks. CBL appears to be a jewel overlooked by the market.<\/p>\n\n\n\n

Portfolio & Acquisitions<\/strong> <\/h2>\n\n\n\n

CBL currently manages a portfolio of 91 properties, mainly located in the growing Sunbelt region of the USA. During the restructuring, the company returned unprofitable properties in economically stagnating regions such as the Midwest and focused more on dynamic markets (e.g. in the Sunbelt states).<\/p>\n\n\n\n

\"Slide
Our portfolio (source: Investor Presentation Q3 2024)<\/em><\/figcaption><\/figure>\n\n\n\n

The current geographical distribution of the portfolio shows a strong concentration in southern states such as Texas, Kentucky and Tennessee, which are known for their economic dynamism and population growth.<\/p>\n\n\n\n

Key figures: A look at the figures<\/strong> <\/h2>\n\n\n\n

A healthy balance sheet is a decisive criterion for investors in REITs. CBL & Associates Properties' balance sheet was in poor condition for various reasons, but after the restructuring it is in perfect order. Even a little more, because in my opinion there is a lot of potential for a future upside.<\/p>\n\n\n\n

Debt and maturities<\/strong> <\/p>\n\n\n\n

CBL's management has made impressive progress in terms of debt and has now reduced net debt from 6.4x net operating income (NOI) to below 5x and is in the process of reducing it further. If you exclude the properties that do not generate cash flow, then it is even closer to 4x. At the same time, the dividend payout has increased by a full 60 % since 2022, while the company has bought back shares worth over 25 million US dollars. And this is very likely to continue.<\/p>\n\n\n\n

To take a closer look at the assets that do not have a Cash flow<\/a> delivered. Part of CBL's strategy is to return these unprofitable properties (via so-called \"non-recourse loans\") to the lenders, which has given CBL a certain operational flexibility that is rarely found in other REITs. These properties were a burden on the balance sheet but contributed nothing to cash flow. So by returning them, CBL was able to reduce its leverage without reducing operating income.<\/p>\n\n\n\n

\"A
Flexible Balance Sheet (Source: Investor Presentation Q3 2024<\/em>)<\/em><\/em><\/figcaption><\/figure>\n\n\n\n

A particular advantage for CBL in the current market environment is the high proportion of variable interest rates in its debt (approx. 39 % of liabilities). In an environment of falling interest rates, this leads to considerable savings in interest costs. Following the latest interest rate cuts by the Federal Reserve, interest expense is expected to fall by around USD 7.4 million per year. And each further interest rate cut reduces this further.<\/p>\n\n\n\n

However, the management is also refinancing fixed-interest debt very wisely. For example, the interest rate on a smaller 45 million US dollar loan was reduced from 8.2% to 5.86% by postponing the maturity date by 8 years to 2034.<\/p>\n\n\n\n

(Adjusted) Funds From Operations<\/strong> <\/p>\n\n\n\n

CBL currently generates a free cash flow yield of around 16 %, while the dividend yield is currently around 5.5 %. With a discretionary cash flow of USD 67 million per year, CBL has sufficient funds to continue to reduce debt and return capital to shareholders. Funds from operations are also expected to grow by up to $7% p.a. in the coming years (due to lower interest costs), which in turn would significantly increase free cash flow.<\/p>\n\n\n\n

\"The
Flexible Balance Sheet (Source: Investor Presentation Q3 2024<\/em>)<\/em><\/em><\/em><\/figcaption><\/figure>\n\n\n\n

Dividend (and share buy-backs)<\/strong><\/p>\n\n\n\n

CBL has evolved from a pure restructuring case to a REIT that prioritizes shareholder returns. The dividend has risen from USD 1 to USD 1.60 since 2022 (excl. special dividend). In addition, management has done a lot for shareholders in 2024, as CBL has, among other things, repurchased approximately 8% of the outstanding shares and increased the Dividend<\/a> is likely to increase further in the future.<\/p>\n\n\n\n

\"A
CBL Dividend Payout History (Source: SeekingAlpha)<\/em><\/figcaption><\/figure>\n\n\n\n

Video: Concrete gold with REITs vs own real estate | Philipp K\u00e4ssinger REIT Profiinvestor<\/h2>\n\n\n\n
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Video: Concrete gold with REITs vs own real estate | Philipp K\u00e4ssinger REIT Profiinvestor<\/figcaption><\/figure>\n\n\n\n

Peer comparison<\/strong>: Higher rating among competitors<\/h2>\n\n\n\n

CBL is currently trading at a P\/FFO of 4.5x, while comparable REITs such as Tanger (SKT), Macerich, Kimco (KIM) Simon Property Group or Whitestone REIT are (in some cases) valued considerably higher. The discrepancy is extraordinary even in the highly differentiated REIT sector and offers investors a potentially attractive entry opportunity.<\/p>\n\n\n\n

One reason for the lower valuation: CBL's portfolio has an implied cap(italization) rate of around 18 %, which is well above the industry average.<\/p>\n\n\n\n