From reading some of the management commentary in Washington Prime's (NYSE:WPG) first-quarter earnings report, one might come away with the impression that the struggling REIT has decisively turned the corner and is on the road to health.

The reality is far more complicated. Last quarter, Washington Prime beat expectations for funds from operations (FFO) -- a metric that many investors use as an alternative to earnings per share for REITs -- but many of its other financial metrics remain quite poor. Management's efforts to drive a recovery may be a case of too little, too late.

Thus, while Washington Prime stock's incredible 22% yield may look enticing, investors should probably steer clear of this potential value trap.

Mixed results for the first quarter

Washington Prime reported FFO of $0.31 per share for the first quarter. That was just ahead of its guidance range of $0.28 to $0.30 but down from $0.39 a year earlier. Moreover, the FFO beat was driven primarily by one-time gains related to outparcel sales and other items not related to core business performance.

A corridor in a mall.

FFO fell more than 20% at Washington Prime last quarter. Image source: Getty Images.

Other business metrics were mixed as well. Leasing volume (as measured by square footage) surged 20% year over year, with a 10% increase in the number of lease transactions. However, leasing spreads for the trailing-12-month period are negative, indicating that Washington Prime is taking lower rents to maximize occupancy. And despite those efforts, occupancy for the REIT's tier-one and open-air properties fell to 93.3% as of the end of last quarter, compared to 93.7% a year earlier.

Additionally, sales per square foot for Washington Prime's tier-one malls receded to $399 over the past 12 months, compared to $400 for the prior 12-month period. This subpar result looks even worse when accounting for inflation. With stagnant or declining sales per square foot in its malls, Washington Prime will continue to face an unpleasant trade-off between reducing rents and losing tenants.

The turnaround plan may not be good enough

Falling retail traffic -- particularly for enclosed malls -- is the underlying problem for mid-tier mall owners like Washington Prime and CBL & Associates (NYSE:CBL).

Malls with higher sales per square foot have been quite resilient in recent years, as they have a critical mass of strong tenants to keep shoppers coming back. By contrast, most malls owned by Washington Prime and CBL have far less in their favor. As a result, it doesn't take much of a setback to push them into death spirals. A wave of department store closures has been that catalyst over the past several years.

An aerial view of a mall.

The best malls are thriving -- but many of the rest are dying. Image source: Washington Prime Group.

Washington Prime is busy addressing the anchor vacancies in its portfolio, of which there are already 22. It has semifirm plans in place for half of those spaces already, but only a few of the redevelopment projects have actually begun. Given a typical construction timeline, late 2020 or 2021 is probably a realistic guess of when new rent-paying tenants will be able to open for business at most of the 11 properties.

In other words, there's no help coming between now and year-end. Indeed, Washington Prime acknowledged in its Q1 earnings report that comparable net operating income (NOI) for its tier-one and open-air properties is likely to fall about 3% this year. Its initial full-year guidance had called for a 1% to 3% decline in that metric.

Furthermore, management's forecast for a quick NOI recovery in 2020 could easily be derailed by additional national retailer bankruptcies, a recession, or further store closures by weaker department store chains (which still have dozens of stores in Washington Prime malls).

When the numbers are bad...

Of particular concern for investors, Washington Prime's management has taken to using creative metrics to make the REIT's performance look better.

For example, Washington Prime reports changes in sales per square foot and NOI for its tier-one and open-air properties. That ignores its tier-two and noncore malls, which still produced 10% of its NOI last year. Those are generally the worst-performing malls. In fact, Washington Prime reclassified three more tier-two malls as noncore properties last quarter, suggesting that they will likely be turned over to lenders.

Additionally, management boasted that leasing spreads rose 13.2% for new leases signed at tier-one and open-air properties last quarter. Aside from ignoring tier-two properties again, this metric also excludes renewal leases, which have been the main source of pressure on rents.

Bulls clearly believe that Washington Prime is fundamentally better than CBL. Washington Prime shares have "only" shed 36% of their value over the past three years after dividends, compared to CBL's nearly 87% plunge. But management's repeated attempts to "spin" the news make it seem like Washington Prime has something to hide.

WPG Total Return Price Chart

Washington Prime vs. CBL Total Return. Data by YCharts.

Don't count on the dividend

Income investors may be tempted to buy Washington Prime despite the obvious risks facing mall owners. After all, management has expressed a strong commitment to maintaining the REIT's quarterly dividend at $0.25 per share, giving Washington Prime shares an annual yield near 22%.

However, the current dividend is barely covered by Washington Prime's projected 2019 FFO of $1.16 to $1.24 per share -- and not fully covered after accounting for necessary maintenance expenditures that are excluded from FFO. Redevelopment costs will further strain the REIT's cash flow.

CBL shareholders have learned the hard way that FFO declines can spiral out of control in a hurry, forcing huge dividend cuts. There's no way to know if or when Washington Prime may be forced to bite the bullet and slash its payout, but its anchor replacement efforts are moving too slowly for investors to be confident that the dividend is sustainable.

Until Washington Prime shows more concrete signs of progress -- based on generally accepted business metrics -- investors shouldn't risk their hard-earned money in this struggling REIT.