Why Mall Owner CBL Properties May File for Bankruptcy

MajorsAug 24, 2020

Why Mall Owner CBL Properties May File for Bankruptcy

As the company nears a bankruptcy filing, here’s how it got there and how it may get out.

Mall owner CBL Properties is nearing a bankruptcy filing as retailers struggle to stay afloat and pay rent.

Chattanooga, Tenn.—Mall owner CBL Properties may soon file for bankruptcy as rent payments stall and debt piles higher.

As the company enters a restructuring process, here’s a look at how it reached the brink of bankruptcy and how it will try to recover.

COVID-19 halted the retail world and rent payments.

The company posted rough second-quarter results recently, noting the temporary closure of many of its properties and its tenants’ inability to pay rent.

While some tenants filed for bankruptcy, others were struggling financially or had negotiated abatements, CBL said.

“Leasing activity for the quarter was muted as we shifted our focus to negotiating with existing tenants,” it said.

“Most traditional retailers have paused on new store plans until they can stabilize their existing store base and have better clarity on the outlook,” the company said, but added some have seen an opportunity for growth.

The company has worked out deals with some retailers, providing flexible terms on rent and other assistance, like rent deferrals.

CBL said rent collection improved as a result, allowing more retailers to pay all or some of past-due and current rents.

The company made moves to offset the rent loss from company-wide salary reductions to furloughs, but it may prove not to be enough.

A dozen of its tenants filed for bankruptcy.

Twelve of CBL’s tenants declared bankruptcy, including JC Penney, Ascena Retail Group, Stage Stores, and GNC.

JC Penney, which placed 15th in its top 25 retailers in terms of revenue, rents 49 stores, or 5.88 million square feet of retail space, according to an SEC filing.

It accounts for 1 percent of total revenue.

Faced with a mountain of debt and struggling sales, the anchor store filed for Chapter 11 bankruptcy protection in May with plans to close 200 stores.

Ascena, which owns Ann Taylor and Lane Bryant, is No. 4 on the list, and rents 164 stores and 840,000 square feet of retail space, accounting for 4 percent of total revenue.

The company submitted a Chapter 11 filing in July with plans to close 1,600 of its stores.

GNC is No. 25, renting 65 stores. Its Chapter 11 filing in June included plans to close 1,200 locations.

Stage Stores, which owns brands like Goody’s and Bealls, didn’t make the list, so CBL didn’t disclose its store count, but the retailer planned to close more than 200 stores overall.

Forever 21, No. 13 on its top 25 list, planned to close 350 stores as part of its bankruptcy filing

in October 2019.

Other retailers on its top 25 list that have filed for bankruptcy in recent years include Charlotte Russe (No. 16) and Claire’s (No. 23).

Major tenants are downsizing their physical presence.

While not all of CBL’s major tenants are filing for bankruptcy protection, many are struggling amid COVID-19 while others are rethinking their physical footprint as online sales grow.

A look at who is else on its top 25 tenants list in terms of revenue may give a clearer picture of its situation.

L Brands, the parent company of Bath & Body Works, Pink, Victoria’s Secret and White Barn Candle, is CBL’s top tenant in terms of revenue, renting 137 stores and accounting for 4 percent of total revenue.

L Brands said it could close 250 Victoria’s Secret and Pink stores and 50 Bath & Body Works locations.

No.2 on the list is Signet Jewelers Ltd., which rents 172 stores and accounts for nearly 3 percent of CBL’s total revenue.

Signet closed 13 percent of its stores last year, exiting Class B malls and shuttering its regional banners.

This year, the speciality jeweler said at least 150 stores in North America and 80 in Europe will not reopen following their pandemic-related shutdowns, and it will close an additional 150 stores.

Children’s Place (No. 22) announced plans in June to close 300 stores while H&M (No. 9) has plans to close 170 stores.

CBL’s restructuring plans may include a bankruptcy filing.

In a statement last week, the real estate investment trust said it reached a restructuring agreement with some of its debt holders.

The restructuring will happen via an “in-court process” expected to begin by Oct. 1.

The agreement would eliminate about $900 million of debt and $600 million of other obligations, CBL Properties said.

The plan is expected to bolster its balance sheet and increase its liquidity without disrupting operations at its malls.

Its portfolio includes more than 100 properties across 26 states.

“Reaching this agreement with our noteholders is a major milestone for CBL,” CEO Stephen D. Lebovitz said in a press release.

“The agreement will significantly improve our balance sheet by reducing leverage and increasing net cash flow and will simplify our capital structure, providing enhanced financial flexibility going forward.

The mall owner entered into a forbearance agreement— a deal between the lender and borrower to reduce or suspend payments for a certain amount of time—in July after being unable to pay millions of dollars in interest payments.

However, by August, CBL had made $30.4 million in interest payments to stay current on its unsecured debt.

CBL can’t predict its future in light of the current situation.

CBL said it will be difficult to accurately predict future quarters and will therefore not be providing full-year guidance.

However, it does expect to see additional store closures and rent loss through the end of the year.

“Operators of such malls, facing declining operating performance and weak liquidity positions, are having difficulty navigating the additional stresses brought on by the pandemic,” said Fitch Ratings in a press release about CBL’s potential bankruptcy.

The analyst expects to see “even greater occupancy issues and will see lower property cash flows due to reduced rent collections and requests for rent deferrals.”

The company said it has about $220 million in cash on hand, which is expected to be enough to cover its operations and restructuring.
Lenore Fedowis the associate editor, news at National Jeweler, covering the retail beat and the business side of jewelry.

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