Opinions
Andy Nasr
Washington Prime Group
WPG-N
DON'T BUY
Mar 31, 2017
Stock price when the opinion was issued
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Chart shows a long downward slope, and he is not bothered in the least. The entire US REIT market has been declining. There is a lot of irrationality. This is now trading at values that are so excessively cheap, that he finds it very compelling. He is looking at adding to his holdings, and will eventually be doubling his position. They buy secondary malls, but US unemployment is going to be 4% and wage growth is coming up. Very good yield of nearly 8%.
(A Top Pick June 23/15. Down 5.43%.) As a value investor, he buys discounted names. Bought this at a 30% discount to the value of the properties, and it then went to a 50% discount, so he added more. Comparing it to Simon Properties (SPG-N), the finest mall REIT in the US, which trades at 22X earnings, this one is trading at 8X. Cheap by every single metric. There have been some recent changes in the executive suite with the CEO leaving in a huff, along with rumours that the company is for sale, and it is 30%-40% below analysts’ NAV, so he thinks there is a really good chance here.
Secondary malls in the US, as well as some good grocery anchored strips. It hasn’t done great, but thinks it will get taken out at some point. The whole question is, is retail dead and are malls dead? Being in suburban locations, is mid-American going to pick up? If you think Trump is going to increase employment in Mid-America, and people will be shopping again, this is a good way to participate. The stock is exceedingly cheap, but with not a lot of growth going forward. The dividend of around 10% is fully covered.
Is the yield sustainable? Its properties are not prime, but they are renovating them. The stock is trading at less than 5X earnings, ridiculously cheap. Over this last quarter, it has shown some sharp declines. The current yield is over 11%. The yield is safe, because they have the money to pay it out, but they could cut it. He is holding this as a long-term hold. Over time, this property could be liquidated and value will matter at some point.
This is retail in secondary markets in the US. This is ‘B’ and ‘C’ quality properties. The challenges around the retail industry apply to these properties more so than the ‘A’ type properties. He prefers Simon Properties (SPG-N).