Author Topic: CBL- CBL Properties  (Read 6149 times)

DTEJD1997

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CBL- CBL Properties
« on: November 13, 2017, 10:30:10 AM »
Hey all:

Anybody have a position or opinion of CBL Properties?

I have a very small position.

I am somewhat surprised that they cut their dividend.

If they can HOLD the new dividend rate, CBL is trading for an almost 14% yield.

Question is...is price reflection of people getting out in a panicked rush, OR, does the market not expect even the new dividend rate to hold?

If CBL is going to get wiped out, or very nearly so...a lot of other retail REITs are going to get hurt too.


heth247

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Re: CBL- CBL Properties
« Reply #1 on: November 13, 2017, 11:39:55 AM »
I don't think CBL will be wiped out. They will survive. But the transformation will take multiple years to complete. The yield will remain 10%+ for a while. I am waiting to buy CBL when SHLD files.

rogermunibond

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Re: CBL- CBL Properties
« Reply #2 on: November 13, 2017, 01:27:42 PM »
I don't think it's a wipe out either but entry is like a limbo dance at a rum soaked bar in Jamaica before last call.

How low can you go?

thepupil

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Re: CBL- CBL Properties
« Reply #3 on: November 13, 2017, 02:36:59 PM »
The callable 7 3/8% pref's @ 22.45 ($90, 8.3% yield) look like an interesting short...not sure if I want to be long the common against that, but 11% of appreciation potential plus 8.3% of yield is not enough compensation.

 the equity looks like a zero or multi-bagger, so I think going long $1 of common and shorting $1 of pref could create a pretty nice payoff profile. The equity is at <3x FFO. The prefs are paying you 8.3% and are negatively convex.

Even the 2026 unsecured's @ 435 over look like a good short, but you have event risk if a really high quality borrower comes in and buys it and they rip. that's mitigated with the callable prefs.

« Last Edit: November 13, 2017, 02:39:40 PM by thepupil »

peridotcapital

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Re: CBL- CBL Properties
« Reply #4 on: November 13, 2017, 03:00:15 PM »
I like the preferreds as a way to play the company's survival. Get paid nicely and avoid having to worry about the common dividend and the share price volatility that comes with it. They haven't covered the common dividend with free cash flow in years and probably won't even at the new 80-cent payout level.

thepupil

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Re: CBL- CBL Properties
« Reply #5 on: November 13, 2017, 03:19:26 PM »
I like the preferreds as a way to play the company's survival. Get paid nicely and avoid having to worry about the common dividend and the share price volatility that comes with it. They haven't covered the common dividend with free cash flow in years and probably won't even at the new 80-cent payout level.

I disagree. Why would you lend to a company facing existential* risk when you only have 10 pts of upside and are getting paid 8.3%?

If things deteriorate more then they'll cut the common and pref and the illiquid pref's (and common) will collapse, no?
If they get better the common will rip by far more than 11%.

The only way the prefs beat the common is if things get better but they issue a ton of equity and dilute the hell out of the common (improving the credit quality of the pref's). the pref's are short volatility in a situation where intrinsic value is very volatile/uncertain. the common is long vol to the upside. you get lots of leverage.

The pref's are behind $4.2B of debt ($1.8B of is non-recourse) and will be behind more if they need to draw from their line. I'd argue they have all the almost all downside of the common and but a smidge of the upside. I like prefs a lot in general.  I invested in BAC prefs on this thesis at ~6.2% http://www.philosophicaleconomics.com/2017/03/a-value-opportunity-in-preferred-stocks/, just a few months ago, but lending to  CBL at 8.3% with no duration/ tightening upside is really unattractive to me (and attractive as a short, if there's cheap borrow).

if the pref's had some nice duration to them, I could see it to express a moderately bulled up view, but they're callable so you have no upside on the tightening / improving.

*we can debate whether or not the company is facing that risk, but an 80% peak to trough drawdown in the stock is sufficient evidence that things aren't going great.

EDIT: The 7 3/4% preferreds traded to $5.90 (23.6% of par) in the financial crisis,  and have never traded above $26.25 ($105). That's negative convexity at work, low upside, high downside.

I have no position, btw, just coming in from 20K feet and observing.

« Last Edit: November 13, 2017, 03:30:28 PM by thepupil »

peridotcapital

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Re: CBL- CBL Properties
« Reply #6 on: November 13, 2017, 04:49:37 PM »
I like the preferreds as a way to play the company's survival. Get paid nicely and avoid having to worry about the common dividend and the share price volatility that comes with it. They haven't covered the common dividend with free cash flow in years and probably won't even at the new 80-cent payout level.

I disagree. Why would you lend to a company facing existential* risk when you only have 10 pts of upside and are getting paid 8.3%?

If things deteriorate more then they'll cut the common and pref and the illiquid pref's (and common) will collapse, no?
If they get better the common will rip by far more than 11%.

The only way the prefs beat the common is if things get better but they issue a ton of equity and dilute the hell out of the common (improving the credit quality of the pref's). the pref's are short volatility in a situation where intrinsic value is very volatile/uncertain. the common is long vol to the upside. you get lots of leverage.

The pref's are behind $4.2B of debt ($1.8B of is non-recourse) and will be behind more if they need to draw from their line. I'd argue they have all the almost all downside of the common and but a smidge of the upside. I like prefs a lot in general.  I invested in BAC prefs on this thesis at ~6.2% http://www.philosophicaleconomics.com/2017/03/a-value-opportunity-in-preferred-stocks/, just a few months ago, but lending to  CBL at 8.3% with no duration/ tightening upside is really unattractive to me (and attractive as a short, if there's cheap borrow).

if the pref's had some nice duration to them, I could see it to express a moderately bulled up view, but they're callable so you have no upside on the tightening / improving.

*we can debate whether or not the company is facing that risk, but an 80% peak to trough drawdown in the stock is sufficient evidence that things aren't going great.

EDIT: The 7 3/4% preferreds traded to $5.90 (23.6% of par) in the financial crisis,  and have never traded above $26.25 ($105). That's negative convexity at work, low upside, high downside.

I have no position, btw, just coming in from 20K feet and observing.

It depends on your thesis, right?

If you think they will survive but that the equity is not super cheap (because of the high debt load and the fact that B malls are going to keep shrinking) and that the common dividend could be cut further (this is my personal view), the preferred makes a lot of sense. In that scenario, it could easily outperform both the debt and equity on a risk-adjusted basis. In fact, it is entirely possible that it does so on an absolute basis as well in a case where the business keeps shrinking but they continue to service their debt and preferred equity.






thepupil

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Re: CBL- CBL Properties
« Reply #7 on: November 13, 2017, 06:06:21 PM »
I don't really have an actual view on the company/assets (yet), but really fail to see the appeal of the pref's versus the debt in a muddle along and survive scenario that is your thesis.

So let's say the pref's benchmark is the 30 year tsy since they are perpetual.

The pref's yield 8.21%, The 30y = 2.87%, so the pref's trade 530 over. If they went to par tomorrow, they'd be at (7.375 - 2.87) = 450 bps over. so you only have 80 bps of tightening potential (unless you think they can get above par and trade at a negative YTC, which they have before)

the 5.95% of 2026's @ $93.26, 6.96% YTM according to last trade  (structurally ahead of the pref's and not the red headed stepchild of the capital structure), 6.96% - 2.35% (interpolated 9 year in absence of readily accessible 9 year tsy) = 4.61% credit spread.

the credit spread pick up of a meager 70 basis points to go down capital structure and be aligned with a bunch of retail yield pigs in the preferreds, is in my opinion, inadequate. On an absolute yield basis, not taking into account the difference in maturity, it's not that much either, 1.3%. 

To quantify it a bit let's say everything muddles along and spreads tighten by 100 bps (holding rates constant) over the next year.

Your prefs go to par (+11%) and you make your current yield (+8.2%) for total return of 19%. If you think they can trade to $105, add on another 5.5%. So the pref's will earn 19-24% (24.5% being the absolute max 1 year return).

The 2026's in a 100 bp tightening would trade to a 3.6% spread on an 8 year (since they'll roll down the curve over the year), at today's rates that'd be just above par. Let's call it $100.5, so you make 7.3% from capital appreciation and 6.4% from your coupon, call it a 14% total return.

So in a muddle along scenario where credit improves, the preferreds will beat the bonds by about 10% in a year (if they went to $105), 5% if they went to par. If credit REALLY improves the bonds have more upside. The bonds have less duration risk (being 9 years versus perpetuals), but almost as much duration upside since the prefs are callable (they go up 7.3% instead of 11% in our hypothetical)

Now if your thesis is wrong and CBL goes to shit, the bonds will definitely outperform the prefs.

In short, I think the scenarios where the prefs are better than the bonds are pretty narrow and in the end you're talking a difference that will be in the single digits in percentage terms, for a BIG step up in credit risk (no covenants, dividends can just get shut off,  preferreds get f'd over all the time).   

Another way to look at it is a waterfall

$1.8B Non-Recourse Single Asset Debt
$2.4B unsecured debt <--bonds here
$600mm preferred
$1.0B common
$5.8B rough, simplified cap structure

So the equity is the 100 - 83 tranche, the prefs are the 83 - 73, the unsecured are the 73-33 (much thicker and more protected, though the 2026's are last to mature) and then you have the mortgage debt which is in some ways senior but in other ways not since you can just hand back the keys.

Are the prefs really all that different than the common in terms of leverage / riskiness?





« Last Edit: November 13, 2017, 06:15:31 PM by thepupil »

RadMan24

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Re: CBL- CBL Properties
« Reply #8 on: November 13, 2017, 09:15:27 PM »
That was an enjoyable read I must say.

peridotcapital

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Re: CBL- CBL Properties
« Reply #9 on: November 14, 2017, 07:40:08 AM »
Are the prefs really all that different than the common in terms of leverage / riskiness?

I surely think so...

What have the average annual total returns been for each over the last 5 years? What about the standard deviations during that time period?

Seems like the next five years could be very similar from an operational perspective.