Pandemic Pushes CBL and PREIT Into Bankruptcy

Retail REITs CBL & Associates Properties and PREIT have filed voluntary bankruptcy. Both REITs announced plans to recapitalize and restructure debt as part of the bankruptcy process.

Chattanooga, Tennessee-based CBL & Associates Properties’ bankruptcy isn’t a total surprise. In recent months, the firm had warned stockholders that it would file for bankruptcy if it could not secure debt relief with its lenders. During the pandemic, stock fell 22% below its premarket price, and it currently owes $4.5 billion to creditors. In addition, several of CBL’s tenants have filed for bankruptcy this year, including J.C. Penney Co. and Ann Taylor’s parent company.

In its bankruptcy filing, CBL attempted to arrange a debt-for-equity swap. The deal would give unsecured bondholders a 90% ownership interest in CBL in exchange for $1.4 billion in debt. The company has said that the ongoing bankruptcy filling will not disrupt business operations.

PREIT filed bankruptcy as part of a plan to enhance financial flexibility, according to a statement from the company. In October, the REIT entered into a restructuring support agreement with its lenders, which included $150 million to recapitalize the business and extend the company’s debt maturity schedule. This is part of a prepackaged plan, which has been supported by 95% of its creditors.

The restructuring strategy will not have an impact on shareholders or business operations, according to the REIT. In addition, PREIT will pay vendors, suppliers and employees through the bankruptcy process, and any claims made prior to the petition will not be impacted by the proceeding, pending the court approval of the prepackaged plan.

Retail REITs have been among the most wracked by the pandemic. Mass retail closures across the country have pushed major retail tenants into bankruptcy. A report from Institutional Investor in August noted that Bank of America is anticipating occupancy rates to fall through 2021. Several tenants are being closely watched for either ongoing bankruptcy proceedings or the potential for bankruptcy, including Ascena Retail Group, Barnes & Noble, the Gap, Macy’s, Office Depot, PetSmart, PETCO Animal Supplies, Staples, J.C. Penney Co., L Brands and Neiman Marcus. This will inevitably put pressure on retail institutions, like Simon Property Group, which is also on the verge of bankruptcy.

It is important to note that CBL & Associates Properties and PREIT both have exposure to mall product, which has been among the most impacted retail property types. Owners of grocery-anchored shopping centers, on the other hand, have seen better rent collection trends, prompting positive pricing for entities like Regency Centers. Still, even the strip mall segment has seen a dramatic impact from the pandemic, thanks to the closure of gyms, restaurants and other entertainment venues.