Income Opportunity Of The Week

Next is the CBL and Associates 1DEC2023 maturity 5.250 coupon bond (CUSIP: 12505JAA1). CBL is a best in class mall operator. Much has been said about the decline of brick and mortar retailing but this mainly focuses on the big anchor stores. While CBL’s malls have Sears, JCP, and Macy’s anchors, they represent less than 1% of revenue each. As the company has lost anchors it has gotten creative to fill the space. Sometimes it puts in a national gym chain, sometimes it puts in a brewpub/movie theater complex. Other times, it is is mixed use commercial office space or mid tier casual dining.  Point is, this mall operator is keeping its inventory utilized and is a nimble operator that is dealing well with the Amazon threat.

CBL’s malls are also located in primarily in mid-tier cities that are otherwise underserved by traditional mall space. Think of places like St. Louis or Laredo, TX. The company’s top four tenants by revenue are L Brands (Victoria’s Secret) (LB), Signet Jewelers (SIG), Foot Locker (FL), and Ascena Retail (ASNA) – (Ann Taylor / Lane Bryant.) All four of these are in sound financial shape and can be expected to continue paying rent. The result is a landlord with cash profits that exceed 40% of revenue. Cash profits to interest expense has an excellent 2.7 times coverage making this a very safe bond. Profits could fall by 40% and the coupons would still be well covered.

My limit order cleared at 83.7000 this morning. My annualized yield to maturity is 10.076%, which is excellent considering the superior safety of this bond.  I am being paid 6.3% to wait on capital appreciation. The yield to maturity will soar if the bond is sold near par prior to maturity. I see four catalysts that could cause the bond price to soar and allow a profitable early exit. These are: 1) Improvement in occupancy rates 2) Refinancing of short term debt 3) Distribution cut of 50% or more 4) Conversion from REIT to C corp. Any one of these four or combination thereof could result in an early exit.

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