More problems in US retailing with two big mall owners finally going broke on Sunday as the second and third wave of COVID-19 infections sweep across the country.
Mall operator CBL & Associates Properties (based in Tennessee) voluntarily filed for Chapter 11 bankruptcy protection on Sunday, the same day as Pennsylvania Real Estate Investment Trust also went into Chapter 11.
Both companies said the COVID-19 pandemic and lockdowns had hurt their respective businesses as shoppers stayed at home and went online.
Not even the prospects of the annual Black Friday post-Thanksgiving shopping surge was enough to keep them solvent.
In fact, thanks to the coronavirus this year’s Thanksgiving-Christmas shopping season will be muted and more online than ever – the very trend that helped bring both mall owners down.
CBL owns 107 malls across the US and revealed that more than 30 of its tenants have filed for bankruptcy protection this year and are shutting stores, including woman’s clothing retailer Ascena, which has 100 Ann Taylor, LOFT and other outlets in these centres, as well as JC Penny.
In a filing on the US Bankruptcy court for the Southern District of Texas, CBL listed both estimated assets and liabilities in the range of about $US1 billion to $US10 billion.
US media reports said CBL had debts of $1.5 billion which will be now restructured.
Reuters reported that not all the company’s shareholders agree with the move and a court fight now looms between them and bondholders who have driven the decision.
The dual collapses came as big department store retailers, including JC Penney and Nordstrom are restructuring, closing stores, and negotiating lower rents with landlords
JC Penny is one of CBL’s biggest tenants.
Both companies utilised pre-packaged bankruptcy deals after months of negotiations with lenders and advisers.
Chapter 11 will give the companies the chance to continue operating while reorganising their finances, cutting costs, revamping debt deals and writing down book values.
CBL had announced in August that it had entered into a restructuring support agreement with a group of bondholders to allow it to strengthen its balance sheet and Pennsylvania Real Estate Investment Trust (PREIT) has interests in 26 malls across the US.
Two of the malls are 50% owned with Simon Property Group, America’s biggest mall owner which earlier this year sent 30% of its staff on unpaid leave and has since sacked most of them to cut costs.
PREIT has added restaurants, cinemas and gyms to its malls in recent years to try and attract and hold shoppers but those establishments have been hit harder by the pandemic and have stricter social distancing rules on how many people can visit (especially cinemas, many of which remain closed).
Simon itself is struggling because of COVID and instead of cutting back, it has been buying some of its failed tenants including brooks Brothers menswear Forever 21 and Lucky Brand.
Simon and Brookfield Asset Management are looking to but JC Penny out of bankruptcy.
Brookfield’s associate, Brookfield Property Partners has cut 20% of its staff in recent months. It has more than 170 retail properties in 43 US states, according to its website.
US reports say at least seven of its malls had defaulted on their mortgages by the end of June. In July, Brookfield Property Reit — a subsidiary that holds many of Brookfield’s mall assets, renegotiated a $US6.4 billion credit package with banks including Wells Fargo.
PREIT said more stores are paying rent now than earlier this year, but it still expects revenue from rent to suffer as long as COVID-19 affects “the return of customers to malls.”
That is the same across America’s huge and volatile retail sector.
At some stage in early 2021 the online surge will start fading and settle down to reflect purchases of everyday products and necessities and sales of big tick items will slow, as will their online and bricks and mortar sellers.
