Tag Archives: Stock
[unable to retrieve full-text content]
CBL & Associates Properties (CBL) is the most experienced operator of B mall properties. As their common share price continues to struggle, they have also seen their preferred stock drop considerably. Preferred dividends must be paid before those of the common, making their distributions inherently safer. In spite of tremendous cash flow coverage, their preferred shares nonetheless trade at a very opportunistic 10.4% yield. Shares have 25% upside, including dividends. The following are the two Preferred Shares of CBL:
- CBL & Associates Properties, 7.375% Series D Cumulative Redeemable Preferred (CBL-D) – Last price $ 17.80 (Annual Dividend $ 1.84375, Yield 10.36%).
- CBL & Associates Properties, 6.625% Series E Cumulative Redeemable Preferred (CBL-E) – Last Price $ 16.60 (Annual Dividend $ 1.65625, Yield 9.98%)
Note that your investment broker may list the preferred stock as CBL-PD and CBL-PE instead of CBL-D and CBL-E. Some other brokers such as IB list them as (CBL PRD) and (CBL PRE).
Business Overview: A Story Of Stability And Transformation
This is a portfolio which has undergone an impressive transformation. After the 2008 recession, management has reduced debt to EBITDA from 8.5 times to 6.7 times. Since 2013, CBL has disposed of 20 underperforming properties, increasing their net operating income (‘NOI’) exposure to Tier 1 & Tier 2 malls from 78% to 86%. This has also led to increases of tenant sales per square foot:
In spite of the headlines that malls are dying, CBL has maintained very stable mall occupancy rates, indicating the strong demand for leasing space in B malls:
This shows that strong management matters in this tough retail environment. It is not enough to have the best properties – only the strong operators will survive. This is a management team that endured the 2008 recession and adapted by cleaning up the balance sheet.
With their common stock trading at around $ 4.40 per share, this is a multiple of 2.5 times 2018 funds from operations (‘FFO’) and an 18% dividend yield, which is dirt cheap. With such a low valuation, future rent concessions appear to have been more or less priced in. We are reiterating our strong buy rating for the CBL common shares. This article, however, focuses on the preferred stock issues, which are also attractive, recently yielding 10.4%. These preferred shares have fallen considerably after trading near par for quite some time:
Preferred stock, in comparison to their common counterparts, is usually less volatile due to their more secured dividend payouts. This is a unique opportunity to take advantage of unexpected volatility.
Free Cash Flow Coverage
Using the midpoint of 2018 guidance, CBL will have approximately $ 350 million in funds from operations and $ 167 million in common dividends. CBL has guided for $ 75-125 million of annual redevelopment spending along with $ 90 million of annual capital expenditures and $ 50 million of annual debt principal repayment. As we can see, the majority of redevelopment spending is likely to be internally funded.
Using FFO, the $ 44.9 million in total preferred dividends are handily covered at 7.8 times. After recurring capital expenditures (including amortization), the preferred dividends are covered 4.68 times. This is also known as “free cash flow” coverage.
And finally, even after accounting for redevelopment expense, they are still covered at ~2 times. We can see the cash flow coverage laid out below:
(Chart by Author)
Anyway you put it, the preferred stock dividends are very well covered and appear to be very safe.
The main threat would be violation of any of their debt covenants, but even here CBL is still very strong:
Impact of Moody’s and S&P Downgrade
In February 2018, Moody’s downgraded CBL’s unsecured credit rating to Ba1, down from Baa3. This comes after S&P had downgraded the corporate credit rating (note the distinction) to BB+ from BBB-. They did maintain their BBB- unsecured credit rating. As stated in their 2017 10-K, CBL has elected to use their unsecured credit rating to determine the interest rates on three unsecured credit facilities and two unsecured term loans. As of December 31, 2017, the “three unsecured credit facilities bear interest at LIBOR plus 120 basis points and our unsecured term loans bear interest at LIBOR plus 135 and 150 basis points, respectively.” If they were to receive a downgrade from Standard and Poor’s (S&P) on their unsecured credit rating, then the unsecured credit facilities “would bear interest at LIBOR plus 155 basis points and the interest rate on our two unsecured term loans would bear interest at LIBOR plus 175 basis points and 200 basis points, respectively.”
The approximate impact to interest expense related to these unsecured credit facilities and unsecured term loans is shown below. Again, S&P has not yet downgraded the unsecured credit rating, thus, this is only a projected impact (in 000’s, only showing credit-rating sensitive loans):
(Chart by Author, data from 2017 10-K)
As we can see, the net near-term impact to interest expense would be just over $ 4 million, which is not very significant considering the approximately $ 350 million in funds from operations. Further, we anticipate that CBL will be able to regain their investment grade rating from Moody’s as their redevelopments begin to bear fruit.
Which Preferred Issue Is Better?
CBL has two preferred issues, as seen below:
(Chart by Author)
Both issues are cumulative, meaning any unpaid preferred dividends would accumulate until they are paid in full in the future. Both issues also are currently callable. Preferred shares have a natural cap on the upside around call value (or par value) of $ 25/share. For example, in general, investors do not like to buy preferred stocks at above par their value of $ 25/share plus accrued interest. A trade-off is that the preferred D shares have significantly greater liquidity, with 1.815 million shares outstanding versus 0.69 million outstanding E shares. Both issues are strong buys at the current prices.
Comparison With Peers
Mall REIT peers Washington Prime Group (WPG) and Pennsylvania Real Estate Investment Trust (PEI) both also have preferred stock, but these are yielding around 8.5%, considerably lower than what is seen at CBL. We believe that this discount is undeserved as in comparison with these two peers, CBL will be able to fund the majority of their redevelopment expense with cash flow alone. The tremendous cash flow coverage of the CBL preferred shares also makes them comparably less risky than those from these two peers.
Our short-term price target is $ 20.50 per CBL-D share or $ 18.40 per CBL-E share for a 9% yield. Including dividends, this would be a 25% total return in a period of 12 months. We believe that both issues have more upside potential if held for longer than 1 year.
The biggest risk to the preferred issues is if CBL suffers a liquidity crisis and would need to dilute preferred shareholders in order to redeem debt maturities. This, however, does not seem likely due to the currently low leverage of their balance sheet. These also have a significant cash flow cushion and the common dividend must be cut first before any suspension to the preferred dividend. This does look to be a distorted risk to the reward proposition.
CBL is investing heavily into redeveloping their mall properties. The market is not giving them any credit for their ability to internally fund these value-enhancing capital expenditures, and this pessimism has reached their preferred stock. The CBL preferred stocks are not only safe but too cheap to pass up at 10.4% yields. These have the greatest cash flow coverage compared to peers and are unlikely to remain this cheap for long.
If you enjoyed this article and wish to receive updates on our latest research, click “Follow” next to my name at the top of this article.
Note: All images/tables above were extracted from the Company’s website unless otherwise stated.
Disclosure: I am/we are long CBL, WPG.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
[unable to retrieve full-text content]
(Reuters) – Tesla Inc (TSLA.O) was reported to be making 2,000 of its Model 3 sedans per week, enough to ease stock market nerves around billionaire Elon Musk’s electric carmaker on Monday after a week dominated by news of a crash involving its semi-autonomous autopilot.
Musk told employees in a company-wide email on Monday that Tesla had just passed the 2,000 per week rate, according to auto website Jalopnik.
That was short of its 2,500 per week target but a big increase on the 793 Model 3s that the company built in the final week of last year. It produced 2,425 of the cars in the whole fourth quarter. [nL4N1OY42A
Tesla shares recovered from an 8 percent loss before the Jalopnik report filtered into markets to trade down 3.5 percent on the day. bit.ly/2uFdEBr
The company did not immediately respond to requests for comment.
Jalopnik also quoted Musk in the email to employees as saying: “If things go as planned today, we will comfortably exceed that number over a seven day period!”
Reporting by Sonam Rai in Bengaluru, Editing by Peter Henderson and Patrick Graham
The race to become the first public U.S. company valued at $ 1 trillion has largely been seen as Apple versus Google, with a recent surge by Amazon putting the e-commerce giant in the conversation as well. But on Monday, analysts at Morgan Stanley made the case that Microsoft has a good chance of reaching the $ 1 trillion mark.
With the company’s shares trading around $ 87 at Friday’s close, Microsoft had a stock market value of $ 680 billion. To reach $ 1 trillion, with some stock buybacks in the mix, its shares would have to hit almost $ 130. That’s plausible within the next three years, Morgan Stanley analysts Keith Weiss and Melissa Franchi wrote on Monday in a detailed report on Microsoft’s various lines of business called “Plotting the Path to $ 1 Trillion.”
“With Public Cloud adoption expected to grow from 21% of workloads today to 44% in the next three years, Microsoft looks poised to maintain a dominant position in a public cloud market we expect to more than double in size to (more than) $ 250 billion dollars,” the analysts wrote.
Microsoft shares jumped 5% to $ 91.90 in midday trading on Monday after the report came out. With a midday market cap of $ 707 billion, Microsoft almost exactly tied Google (goog) and trailed only Apple (aapl) at almost $ 849 billion and Amazon (amzn) at $ 733 billion.
Get Data Sheet, Fortune’s technology newsletter.
The software company run by Satya Nadella could impress investors enough to reach a $ 1 trillion value within three years by increasing revenue to $ 136 billion in its fiscal year 2020, up 41% from $ 97 billion last year, and operating income to $ 46 billion, up 58% from $ 29 billion, the Morgan Stanley analysts forecast. Nadella took over for CEO Steve Ballmer in 2014 and immediately prioritized the company’s cloud businesses, while getting out of distracting sidelines like making phones. It has worked so far, with Microsoft’s stock price nearly tripling since Nadella assumed the top job.
The key to reaching the needed level of additional growth would be Microsoft’s booming cloud business, both via its Office 365 subscription software and its Azure cloud platform for businesses, analysts Weiss and Franchi wrote. At the same time, shrinking sales of traditional Windows PCs and servers would need to stabilize.
That could happen as the number of corporate users of Office 365 could almost double from 105 million at the end of 2017 to 204 million at the end of 2020, the analysts said, with revenue from the popular software subscription package increasing from $ 10.7 billion to $ 25.6 billion. Revenue will compound even more quickly at Azure, growing from $ 3.9 billion last year to $ 21.6 billion in 2020. Altogether, total cloud revenue at Microsoft—which includes Office 365, Azure, search ad revenue and a few other items—should grow from $ 22.3 billion last year to $ 58.5 billion in 2020.
The analysts warned that they could also be underestimating Microsoft’s (msft) growth if its Xbox gaming business expands faster than expected, the company’s tax rate drops more than Microsoft forecast, or the company increases purchases of its own stock.
Kim Kardashian West revealed what husband Kanye West gave her this Christmas: Hundreds of thousands of dollars worth of stock in major companies including Disney, Apple, and Amazon. In an Instagram story—visible to her 105 million followers—shared on Tuesday, the reality TV star and entrepreneur shared how Kanye delivered the stock-ing stuffer.
“So for one of my Christmas presents from Kanye, he gives me this little box with a Disney Mickey toy, Apple headphones, Netflix [and] Amazon gift cards and Adidas socks,” Kardashian says, as her camera pans over the box of gifts. “And I’m like ‘that’s so sweet, thanks!’”
“But then, I open the next box and it is stock to Amazon, where he got the gift cards, stock to Netflix, stock to Apple—hence the little headphones—Adidas stock and Disney stock,” she says in the next installment, revealing stock certificates for the five companies. Kardashian wrote “best husband alert!” as the caption.
While most of the certificates are hidden from the camera, viewers of the Instagram story can see that Kim was gifted 920 Disney (dis) shares, which the certificate says are valued at around $ 100,000. The Instagram story also shows that she was given 995 Adidas (addyy) shares, which would also have a total value of around $ 100,000 at current prices.
Four years ago, almost to the day, it was obvious that Snapchat should have taken the money: $ 3 billion Facebook offered to acquire it. But, no, the company’s founders insisted that it would be a bad move. Co-founder and CEO Evan Spiegel and, presumably, others were sure it was worth more. Not according to the earnings release today by parent Snap Inc.
Snap’s 2017 third quarter results were egregious. It was like watching the Coyote in a Road Runner Cartoon stop off the edge of a cliff and keep moving for a bit until, looking down, it realized the situation.
Revenue was up by 62%, which is wonderful. Only, analysts expected nearly $ 237 million in revenue instead of the $ 207.9 million the company had. There was little change in the number of users, and when you depend on advertising revenue to grow the business, that’s really bad. The quarter’s net loss of $ 443,159,000 was more than 3.5 times larger than the same period last year.
The company uses the non-standard measure of “adjusted EBITDA” to measure its, uh, success. Net income or loss excluding interest income and expense, other income or expense, depreciation, amortization, stock-based compensation and the related payroll tax expense, and “certain other non-cash or non-recurring items impacting” the bottom line. Even with that twisting, there was a $ 178,901,000 loss, which tells you just how many contortions it takes to massage the real loss.
Wall Street is not happy and Snap’s stock price dropped by 20 percent inside an hour. Spiegel and his co-founder, Bobby Murphy, are probably not happy either: Between them, their stock holdings lost $ 1 billion in value before the Coyote could finish the long drop with that soft pooft at the end.
If only Snap were an aberration on the West Coast tech scene. But it’s not. There’s billions of investment money in Uber, which is in the red a couple of billion dollars a year at this point. Juciero and its crazy-expensive juicers and juice packs finally packed it in a couple of months ago when it was clear few people were crazy enough to spend many hundreds on a machine and then $ 140 to $ 200 a month on juice. Heck, you could invest the cash and start your own small juice bar at that rate. And Juciero had only $ 118.5 million in venture money.
There’s an old saying: owe the bank $ 100 dollars and it owns you; owe it $ 100 million and you own the bank. This is what Silicon Valley and U.S.-style tech investing has come to. Forget a Microsoft of Apple or even a Facebook, where the companies went public after they were making real money. They build businesses that understand the profit concept, not almost eternal indebtedness that was supposed to turn the corner one day.
Here’s the difference: Snap’s founders lost a lot in paper worth on a company that, if you took away all the venture money, would be out of business. Microsoft launched Bill Gates who, back in 1986 when he was 30, was “probably one of the 100 richest Americans,” according to Fortune. Now he’s the richest man in the world.
Investors have been entranced by companies that seem like they should be worth billions and billions because they have scalable architecture and, doggonit, people like them. But it’s not enough to have a likeable business. Attention isn’t enough. Do VCs and money people not know the history of the dot com bubble? “Eyeballs,” a former crazy measure of success, don’t count for squat unless you have a solid business model that can create revenue and, eventually, profit.
Entrepreneurs would be better off to forget the nonsense that has passed for business acumen all too often and instead focus on the three basic questions: What needs to people have, what can you do to solve them, and how will you get paid? If you can’t answer all three, better keep working on the idea.
But, too many investors will keep hoping for the magical company that will make their fortunes, and too many entrepreneurs will want to be the mighty captain of industry. Things won’t change until a couple of these unicorns go spiraling into the desert floor so hard and fast that it makes a Coyote landing look like a short drop to a fluffy mattress.
As seen, Alibaba Group Holding Ltd (NYSE:BABA) has quickly grown its cloud computing paying customer base. When compared to the likes of …
The market had become extremely pessimistic about IBM’s ability to adapt to a world where cloud computing was growing in importance. Revenue …