CBL & Associates Properties, Inc. (CBL), Pennsylvania R.E.I.T. (PEI): Want to Own a Shopping Mall? 3 Retail REITs to Consider

P/E EPS (ttm) Forward P/E Annual EPS Est (Dec-13) Dividend (yield)
PEI N/A -0.33 10.39 1.96 0.72 (3.40%)

Data obtained from Yahoo Finance May 23.

Pennsylvania R.E.I.T. (NYSE:PEI) currently has negative earnings, so like CBL & Associates Properties, Inc. (NYSE:CBL), it looks better when considering future earnings. Even more so, actually. If the company meets annual EPS estimates going forward, the current dividend payment would be only at around a 37% payout.

P/E EPS (ttm) Forward P/E Annual EPS Est (Dec-13) Dividend (yield)
GRT N/A -0.23 15.82 0.66 0.40 (3.00%)

Data obtained from Yahoo Finance May 23.

Glimcher is in a similar predicament as Pennsylvania with its negative earnings, but its payout ratio (when considering today’s dividend with forward EPS estimates) is around 60%. If the company can meet annual EPS estimates, nice dividends may reward investors in the future.

But are REITs valued the same way as traditional stocks?

Many would argue that REITs are better valued by looking at the funds from operations (FFO) or even the adjusted funds from operations (AFFO) in comparison to price to calculate a REITs true worth. This is because it is a better and more precise measure of residual cash flow, which many would argue would be the best way to judge the firm’s true ability to pay and increase its dividends.

For instance, CBL’s full year FFO guidance is in the $2.18-$2.26 per share range. This means that the company is trading at a forward price/FFO ratio of 11-12, which looks much more reasonable than when considering just the firm’s earnings — and this ratio also gives a much clearer picture of the REITs actual valuation.

Pennsylvania R.E.I.T. (NYSE:PEI) is guiding towards a range of $2.00-$2.08 per share in Adjusted FFO for 2013, which gives it a Price/AFFO ratio of around 10 going forward.

With a guidance of $0.63-$0.67 FFO per share, Glimcher looks to be the most expensive of these three REITs — trading at 19-20 times 2013 projected FFO.

The bottom line

The key to these mall and retail REITs are their prospects. If these firms can live up to what analysts are expecting them to earn going forward, they look relatively cheap and will have a good amount of room to possibly up their dividend payouts. If not, it could get ugly.

One possibly good sign for these REITs comes from UBS AG (USA) (NYSE:UBS), which is apparently bullish and currently overweight mall REITs. These mall REITs may be somewhat risky, but they could also end up paying off big if earnings get to where they need to be and/or consumer spending picks up.

While FFO is a better valuation metric for REITs, net income is still important, and investors should still keep a watchful eye on earnings as well.