America's malls under pressure: CBL, Pennsylvania REIT, file for bankruptcy

CoolSprings Galleria Mall, Franklin, TN

Source: CBL Properties

Mall owners CBL & Associates and r Pennsylvania Real Estate Investment Trust have filed for Chapter 11 bankruptcy protection, highlighting the pressures the retail real estate industry is facing because of the coronavirus pandemic.

Both companies filed on Sunday. The latter, the largest mall owner in Philadelphia, filed its petition to execute a prepackaged financial restructuring plan. It said it plans to unlock $150 million in new borrowing, aiming to recapitalize the business and extend its debt maturities.

CBL operates 107 properties, totaling 66.7 million square feet across 26 states, including outlet centers.

The Tennessee-based landlord said in August that it had entered into a restructuring support agreement with a group of bondholders in an attempt to try to strengthen its balance sheet.

The mall owner has struggled during the pandemic with its tenants not paying rent or pushing payments back. Some of them, like the department store chain J.C. Penney, have also filed for bankruptcy protection this year.

In its bankruptcy filing, CBL listed its estimated assets and liabilities in the range of $1 billion to $10 billion.

"After months of discussions and consideration of a number of alternatives, CBL's management and the Board of Directors firmly believe that implementing the comprehensive restructuring ... will provide CBL with the best plan to emerge as a stronger and more stable company," CBL CEO Stephen Lebovitz said in a statement.

CBL runs a number of so-called B- and C-rated malls, compared with the biggest U.S. mall operator, Simon Property Group, which owns many A-rated properties that bring in more sales per square foot.

Simon's strategy during the pandemic has pivoted to buying retailers out of bankruptcy, in part to keep those retailers' stores in Simon malls open. It acquired the denim maker Lucky Brand and the men's suit maker Brooks Brothers out of bankruptcy, with the help of apparel-licensing firm Authentic Brands Group. And late late month, it finalized the terms of its acquisition of Penney, with the help of mall owner Brookfield.

PREIT operates 22.5 million square feet of retail space, including 19 malls, according to its website. Last year, it opened Fashion District Philadelphia, a massive shopping mecca it built from the ground-up in downtown Philadelphia. It had spent recent years disposing of underperforming malls and investing in adding movie theaters, game rooms and grocery stores to its malls, lessening its dependence on traditional retail. But that strategy has been pressured this year, with consumers largely staying home because of the pandemic.

Mall owners will face another test this holiday season, which is typically their tenants' busiest time of year. But it will look a lot different during the pandemic, with Covid-19 cases rising rapidly in the U.S.

Shopping centers and malls rank as the most-avoided public places among consumers, according to a survey of 419 people by Coresight Research. The week of Oct. 27, 55.4% of those polled said they were avoiding malls.

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