Pennsylvania REIT: Is Its 11.4%-Yielding Dividend A Buy?

Investment Thesis
Pennsylvania REIT (PEI) delivered an unimpressive Q3 2018 as it is still in the midst of transforming its portfolio. We think there may be more headwinds ahead as some of its tenants such as J.C. Penney (JCP) continues to struggle. In addition, an economic recession will likely result in more store closures in its portfolio. Despite its attractive dividend and undervalued share price, we think investors should wait on the sideline until signs of improvement become evident. This is because we are now in the latter stage of the current economic cycle.

Source: YCharts
Recent Developments: Q3 2018 Financial Highlights
Pennsylvania continues its progress to transform its portfolio. In 2018, the company sold 17 of its low productivity malls and has been busy replacing some of its underperforming department store tenants with new tenants that have better credit ratings and more sales per square feet. The activities in 2018 have resulted in dilutive quarterly results. In the past quarter, the company continues to see a decline in its funds from operations. Its adjusted FFO of $0.35 per share in Q3 2018 was a decline of $0.05 per share from a year ago. However, management believes that the worst part is now over and things will gradually improve in 2019.
Reasons Why We Do Not Think Pennsylvania REIT is a Buy Now
More department store closures likely
The decline of department stores is a direct result of the rise of online shopping, although... Read more

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