Crushed by virus, two mall operators file for bankruptcy
America’s ailing malls suffered a pair of body blows over the weekend as two major landlords followed their ever-growing list of bankrupt tenants into Chapter 11 protection.
Pennsylvania Real Estate Investment Trust and CBL & Associates Properties. sought protection fromcreditors Sunday, citing pandemic-induced pressures on their tenants and, in turn, themselves. Together the two REITs account for some 87 million square feet of real estate across the U.S., according to court papers.
Both companies, CBL and PREIT, said their malls will remain open as they go through the bankruptcy process.
Even before the virus, malls have struggled to attract shoppers who are increasingly shopping online or elsewhere. But the pandemic forced many of them to temporarily close for months. Mall tenants, which operators rely on for rent payments, are also stressed. Some are going bankrupt and closing stores.
The two bankruptcies come just before the crucial holiday shopping season. With reported coronavirus cases rising, malls will need to limit crowds during what is traditionally their busiest times of the year. At the same time, big retailers that didn’t have to close during the pandemic, such as Amazon, Target and Walmart, are benefiting as they push people to shop online.
The pandemic worsened an already dire situation for brick-andmortar retailers, with a steady stream of chains falling victim to online shopping. J.C. Penney Co., J. Crew Group and the owner of Ann Taylor are among the dozens of chains that have sought court protection since COVID-19 lockdowns throttled in-store shopping this year.
That’s an even bigger problem for the likes of PREIT and CBL, which own less productive malls than rivals such as Simon Property Group and Macerich Co., according Bloomberg Intelligence analyst Lindsay Dutch.
“There’s too much retail real estate in the U.S.,” said Dutch, a REIT equity analyst. “Retailers continue to reduce their store footprints, and while brick and mortar is here to stay, the focus is on high-quality locations.”
The Chapter 11 filing doesn’t necessarily mean the malls are closing. Instead, it gives their owners time to work out a plan to turn the business around and repay creditors.
CBL, based in Chattanooga, counts 107 properties in 26 states — including Texas — in its portfolio, with enclosed malls, outlets and open-air retail centers, according to a company statement. Philadelphia-based PREIT owns malls in Pennsylvania, New Jersey, Virginia, Maryland and Michigan, according to its website.
Many of their properties are known in the industry parlance as B-class malls, which bring in fewer sales per square foot than their better-placed peers. Theymay be located outside major metropolitan areas or upscale regions, making them vulnerable as middleclass customers struggle to make ends meet, and theywere hit hard by the pullback of anchor stores such as J.C. Penney and Sears.
CBL files in Houston
Just in 2020, more than 30 of CBL’s retail tenants went bankrupt, according to court papers filed CBL in Houston on Monday. The resulting closures cut deep into revenue, whichwas also hurt by rent deferrals.
The recovery plan envisions giving a 90 percent ownership stake to holders of CBL’s senior unsecured notes, along with almost $50 million in cash. A10 percent stake in the reorganized company would be awarded to current stockholders, which may ease some of the impact on founder and Chairman Charles Lebovitz, who ranked as the biggest share owner.
The mall owners drummed up support from creditors for restructuring plans prior to their bankruptcy filings, possibly shortening their trips through bankruptcy. PREIT’s plan would, pending court approval, push out debt maturities and bring in $150 million of additional capital.
CBL’s plan would slash debt by $1.5 billion and also extend certain maturities, but the process may not be smooth. The mall company said its bank lenders cut short negotiations, acting “under cover of darkness and asserting a variety of conjured up alleged Events of Default that occurred during the global pandemic.” CBL said it was suing to void those actions.
CBL employs about 500 people and has 7,400 tenants located in more than 100 properties, most of which it owns or co-owns.
The company was founded in 1978 by Lebovitz and five business associates. Since then, the company has been run by the Lebovitz family, who remain among top shareholders. Under the deal with noteholders, shareholders would get 10 percent of the reorganized company.
Some of CBL’s biggest renters including J.C. Penney and Ann Taylor parent Ascena Retail Group have already filed for bankruptcy this year with plans to close stores. Analysts have long predicted a shakeout in malls and strip shopping centers serving less affluent areas, which dominate CBL’s roster. CBL warned investors it was in trouble because tenants weren’t paying their rent.
Hardest-hit retailers
Like other malls looking to attract shoppers, PREIT has added restaurants, movie theaters and gyms to its malls in recent years, which now account for about 24 percent of its tenants. But those establishments have been hit harder by the pandemic and have stricter rules on how many people can visit.
PREIT said more stores are paying rent now than earlier this year, but it still expects its revenue from rent to continue to suffer as long as COVID-19 affects “the return of customers to malls.”