Bankruptcy looming for parent company of Westmoreland, Monroeville malls
After months of struggling to regain lost revenues after foot traffic was essentially choked off at malls across the country, mall owner CBL Properties announced a restructuring plan that could lead to a bankruptcy filing in the coming months.
The Chattanooga, Tenn.-based company, which owns Monroeville and Westmoreland malls, is one of the first major mall operators to succumb to pressures from the coronavirus pandemic in the form of temporarily shuttered facilities, little to no rent payments and the permanent closure of several stores.
“People definitely did not go to shopping malls as much as they did before, even before the pandemic, because they did a lot more online shopping. … It was kind of questionable how malls were going to sustain themselves to begin with,” said Deborah Good, a business professor at the University of Pittsburgh.
CBL Properties announced last week that it entered into an agreement with some beneficial owners and creditors to reorganize its finances. Known as a restructuring support agreement, the plan, if implemented, would eliminate $900 million of debt and reduce annual interest expenses of more than $20 million.
The goal, according to CBL, is to have stronger finances by reducing debt and to extend debt maturities.
A bankruptcy filing would come no later than Oct. 1. The restructuring process would be paid for by CBL, which has about $220 million in cash on hand in addition to positive cash flow from ongoing operations. Properties will continue to operate as normal. Officials did not immediately respond to requests for comment.
The looming bankruptcy, however, could mean a smaller footprint for the company. As of now, CBL owns more than 100 properties across 26 states.
“Definitely, they’re going to be selling some things off,” Good said. “If they don’t see themselves recovering in a timely manner, if there’s not some bright spots in six to eight months, I think you’ll see them sell themselves off. I don’t know that they’ll go under completely, I think they’ll be taken over by somebody else.”
For Westmoreland and Monroeville malls, that could mean new ownership.
According to Good, Monroeville Mall, with a lack of new development and a history of crime, “Can be in trouble. I don’t think, with the anchor stores, that they have there, that they’re really able to support a large mall like that. They don’t have really any of those innovative kinds of things and foot traffic has just dramatically declined.”
Good predicts that the mall would be a top contender for resale.
“There may be somebody out there, it may not be CBL, but another entity that will try to preserve that,” Good said of the services provided at Monroeville Mall. “It may change owners and they may need to change some aspect of it post-covid, but I don’t think CBL’s going to be able to handle that. They’re just in way too much debt overall with all of their properties.”
Westmoreland Mall, with the construction of a new mini casino in the former Bon-Ton store, is another story. While there is a potential the mall could be put up for sale, Good predicts CBL will try to hold onto the property as part of its footprint. If it did come to a sale, Good said it would not be difficult to find a buyer.
A daunting outlook
CBL Properties has long faced an uncertain future as retailers have shuttered, leaving behind empty storefronts, many of which have not been filled.
That, and a trend toward online shopping, left CBL behind the game as other mall owners have moved toward entertainment options for their facilities rather than just shopping. Already struggling to reach those standards, CBL facilities built largely in less affluent, middle class areas has made innovation a difficult goal to reach, Good said.
“If they don’t have the capital to try and be innovative and then market that informativeness, which is where CBL finds themselves, and they don’t have the upscale market where there’s innovators to immediately support those kind of malls, I think you’re going to see a whole lot more companies going through this,” she said.
Those struggles were accented by the virus, which caused rent rates at malls to shrink 8.3% during the second quarter of 2020, according to the International Council of Shopping Centers. Those losses brought overall mall rents to $29.43 per square foot, or almost 1% lower than the prior period.
On top of that, more than 16% of all retail industry loans are delinquent, the data firm Trepp reported.
Retail sales are recovering, however, the National Retail Federation reported. Area malls largely reopened in June following the lifting of state orders that all nonessential businesses shutter to help curb the spread of the coronavirus. NRF data shows that retail sales last month were up 1% seasonally adjusted from June, and up 10% unadjusted year-over-year.
“Retail sales are starting the third quarter on a solid footing considering the nosedive we saw this spring, but we have to remember that there’s uncertainty about economic policy and that the resurgence of the virus is putting pressure on the fledgling recovery,” said Jack Kleinhenz, NRF Chief Economist.
A possible resurgence of the virus this fall could once again send sales plummeting, he said.
Updates on CBL’s restructuring process and potential bankruptcy filing will be posted online, at cblproperties.com/restructuring.
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