Washington Prime Skips Interest Payment, Brings on Debt Strategy Advisors

Retail REIT Washington Prime has skipped a $23.2 million interest payment and is reportedly considering structuring, according to a recent regulatory filing.

In an 8-K filing with the SEC, Washington Prime says it elected to withhold the payment, which was due on February 15 with respect to outstanding senior notes that mature in 2024. The firm has a 30-day grace period to make payments before triggering default; if default occurs, the trustee or the holders of at least 25% of the notes could accelerate the total outstanding balance of the debt, which would then result in a cross-default with some of Washington Prime’s other debt obligations. 

The announcement followed another 8-K filing several days earlier in which Washington Prime announced it would be giving $11.6 million in bonuses to 17 executives.

The firm has engaged Kirkland & Ellis as legal counsel and Guggenheim Securities as its investment banker as it continues discussions with lenders within its capital structure, it said in the SEC filing. Washington Prime “expects to continue to operate in the ordinary course,” the filing says.

While there have been many signs of hope for the asset class—including Wednesday’s stellar retail sales numbers—many malls are still facing an uphill climb for survival. Malls that are no longer destinations are particularly feeling the pinch, with Moody’s Analytics noting that about 250 malls in lower- to middle-income submarkets are suffering most. 

Smaller malls—defined as those less than 250,000 square feet—saw occupancy fall from 78% in 2019 to 75% in 2020, according to Moody’s data. 

It’s possible that distressed investors looking for discounts may swoop in for some of these properties. “Because commercial real estate investment firms are having a difficult time acquiring industrial, manufactured housing, suburban office and apartments, and fully leased food store/drugstore shopping centers at acceptable cap rates, it is anticipated that an infusion of new private equity capital and institutional capital will be utilized to acquire malls and distressed shopping centers,” Gary Glick, a partner at Cox, Castle & Nicholson, told GlobeSt.com in an earlier interview. 

The road ahead for malls will be an uphill one though, as Moody’s predicts most of the decline in retail rents and increased vacancies will happen this year. And as a growing number of retailers begin cutting their physical footprints this year, 2021 is shaping up to be something of a recalibration year for the sector. According to accounting firm BDO, a “real estate reset” is due, with portfolio restructuring likely a more sustainable solution than mere rent relief or additional small business aid that may be proposed by the Biden Administration.