The wild stock market ride lately has not only affected individuals’ 401(k)s, but has also taken a toll on one Chattanooga-based mall operator whose shares have dropped 51 percent this month.
CBL & Associates Properties Inc.’s stock on Friday closed at $9.70, down 51 percent from Oct. 1’s closing of $19.81. It was up 26¢ for the day.
The stock is down 70.8 percent from $33.21 a year ago.
“It’s incredibly low, and the dividend we pay is extremely high, so it should be an excellent, excellent investment for people if they’re focused on real estate,” said John Foy, CBL’s chief financial officer.
CBL’s debt on Hamilton Place is due in 2016. CBL did not have the loan value available. The Terrace, home to Circuit City on Gunbarrel Road, is debt-free as is The Shoppes at Hamilton Place, home to Ross Dress for Less.
Source: John Foy, CBL
Mr. Foy said companies like CBL are unfairly hit harder than companies in other sectors. CBL is a real estate investment trust, which means the company must pay at least 90 percent of its earnings as dividends to investors in lieu of paying corporate taxes. CBL’s dividend is $2.18 per share on an annual basis, said Mr. Foy and Katie Reinsmidt, director of corporate communications and investor relations.
“Yeah, we have taken a hit,” Mr. Foy said. “Every stock is not equal. They (investors) have painted all the REITs with a broad brush.”
Investors are concerned about debt levels, capital constraints and debts coming due, he said, but it’s unfair to apply those concerns to all REITs, especially CBL.
An Oct. 9 report by analysts with Stifel, Nicolaus & Co. Inc., a brokerage and investment banking firm, said the equity market is dumping REIT stocks because of challenges facing General Growth Properties, which owns Northgate Mall and many others.
“GGP was and we believe is far more levered than any peer, and in our view made many mistakes that we believe are now attributed unfairly to the entire group,” the report states.
A General Growth spokesman cited the company’s second quarter report and a Sept. 22 press release.
General Growth is “pursuing a comprehensive evaluation of its alternatives ... in an effort to align the market value of the company’s common stock more closely with the intrinsic value of the company’s stable, high quality portfolio of real estate assets,” according to the statement.
General Growth’s shares closed at $6.12 on Friday, down from $30.10 on July 18.
Mr. Foy said CBL long ago decided to structure its debt in such a way that only a percentage comes due every year, versus a large amount coming due at once. Approximately $370 million came due this year for refinancing, and will close in 30 to 60 days, he said. Next year only $304 million will come due.
General Growth has to pay $19 billion in debt through 2011, the Baltimore Business Journal reports. Forbes and Dividend.com reported earlier this month that General Growth replaced its chief financial officer and suspended dividends after reports that executives have been selling shares.
To further reduce its risk, CBL takes out debt on the properties it owns, not on the company itself, which runs counter to practices of a number of other REITs, Mr. Foy said. After the Sept. 11, 2001, terror attacks, a number of REITs which have offices in New York took out corporate debt which they believed would be cheaper in light of expensive terrorism insurance.
“We have always done property debt,” Mr. Foy said. “No matter how good you are, you will strike out” sometime. “You don’t want a strike out to pull down your whole company.”
The National Association of Real Estate Investment Trusts, a trade group, reports that while returns on REITs are down for the year, they are faring better than the stock market as a whole.
As of Wednesday, all REITs were down 29.9 percent for 2008 for returns on investments, versus a 35.2 percent drop for the Nasdaq Composite and a 32.3 percent drop for the Dow Jones Industrials, according to NAREIT.
CBL’s senior managers are going counter to the stock market and bought up shares until last Monday, the last day they could buy shares, Mrs. Reinsmidt said. The executives now are in a blackout period where they can’t buy or sell shares leading up to the company’s Nov. 4 release of its third-quarter earnings results.
Charles B. Lebovitz, chairman and chief executive, on Monday bought 50,000 shares, Mrs. Reinsmidt said. Also Monday, Mr. Foy bought 7,946 shares, she said. Director Leo Fields bought 5,000 shares then as well, she said.