Dear Mr. Berko: Malls and shopping centers have fallen significantly in value. I want the names of six mall REITs selling below book value and six mall REITs that have comeback potential. Then tell me why you like them. And I want all of them to yield more than 15 percent. I’ll invest $10,000 in each.
— L.L., Detroit
Dear L.L.: Things were so much less complicated when the world was flat!
Real estate investment trusts have trailed the S&P 500 by 45 percent in the past three years, including dividends. Put another way, the price component of the S&P 500 has gained 42 percent in that time frame, while REIT prices have declined by 3 percent. Since March, REITs have underperformed the S&P 500 by 9 percent. That’s not good! Many of today’s equity REITs are seriously undervalued, because they trade at 7 to 16 percent discounts or more to the market value of their portfolios. Some regional mall REITs trade at 30 to 65 percent discounts to net asset value. So if those REITs sold all their properties at today’s value and paid off their mortgages, the shareholders would receive between 30 and 65 percent more than what they paid for the stock. For example, if you paid $10 for a REIT trading at a 40 percent discount to NAV and management liquidated its properties, you’d get your $10 back plus a 40 percent premium. Therefore, some of the huge discounts in regional mall REITs may be an opportunity for super-speculators who can jump over tall buildings and land on their feet.
One REIT I’m comfortable recommending as a wild-hair speculation is CBL Properties, once one of the darlings of Wall Street. CBL traded at a record high of $48 in January 2007 and then traded at a record low of $2.60 in March 2009. Today CBL trades at $5.98, which is 27 cents below the company’s $6.25 book value. CBL owns, manages, acquires, develops and leases regional shopping malls, open-air and mixed-use centers, and office properties. CBL owns 119 properties located in 27 states, comprising 74 million square feet, and manages 6 million square feet of shopping centers for third parties. After paying salaries for 560 employees from its Chattanooga headquarters, management seems to have enough dollars remaining to pay an 80-cent dividend, which yields 18.8 percent. CBL finished 2017 with $4.2 billion in declining debt and $5.7 billion in declining total assets.
