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Since early March, I have promulgated the idea that REITs have been overly punished by the market. While there are certainly some garbage REITs out there, there are also high-quality REITs selling at bargain-basement prices. Prices have risen since early March, but I still believe REITs in the aggregate tend to be undervalued. All the same, I want to focus my investing efforts on particular companies with attributes I like.

In my recent article on Pennsylvania REIT, a dissenting commenter wrote:

“I would invite the author to do the same recovery analysis on CBL at current prices, I would suggest a far better result.”
I have decided to take the commenter up on his/her offer. This will be Part IX in my “Quest for REIT Value” series and it will focus on CBL & Associates (CBL). Here’s a rundown of the previous episodes:

Part I: Winthrop Realty Trust (FUR)

Part II: Colonial Properties Trust (CLP)

Part III: Agree Realty Corporation (ADC)
Part IV: Douglas Emmett, Inc (DEI)
Part V: Alexander’s (ALX)
Part VI: Lexington Realty Trust (LXP)
Part VII: Brandywine Realty Trust (BDN)
Part VIII: Pennsylvania REIT (PEI)
Qualifying Criteria

In my previous articles, I have mentioned several factors I initially search for when examining REITs. My list has evolved a bit since my first articles, but here’s the general rundown of what I am looking for:

(1) Relatively low leverage

(2) Insider buying and a substantial amount of inside ownership

(3) High levels of liquidity

(4) Property in markets near a bottom, with no excessive exposure to “bubble markets”

(5) Strong asset quality in real estate holdings and other balance sheet accounts

(6) Focus on residential RE favored over commercial RE

(7) Office and industrial RE favored over retail RE

CBL could arguably meet three of these prongs. Their properties are concentrated in smaller and middle markets that did not “bubble up” as much as the larger markets, so you could argue their properties are closer to a bottom. Their properties could also be considered relatively high quality for a retail REIT. Plus, there have been some large insider buys over the past few months.

Overview

CBL & Associates is a REIT primarily focused on developing and operating regional shopping malls; however, they also deal with community centers and some office properties. CBL mostly operates in medium-sized and small- markets, which gives them some advantages of the companies operating in the big city environments with the biggest bubbles.