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This Mall Operator’s Portfolio of Troubled Retailers Could Force a Bankruptcy Filing

Mall operator CBL & Associates Properties Inc. is believed to be inching toward a Chapter 11 filing.

If the filing were to happen, it would make CBL the first mall operator to file in the wake of the coronavirus outbreak. Last month the real estate investment trust issued a going-concern warning, flagging a $139-million first-quarter loss. It also skipped an $11.8 million interest payment due June 1 though its grace period is set to expire at the end of the month.

Most of CBL’s tenants have sought rent relief through deferrals or abatements, further exacerbating the company’s more than $3 billion in debt. “We have placed a number of tenants in default for non-payment of rent. For the month of April, we received approximately 27 percent of billed cash rents,” CBL wrote in a Securities and Exchange Commission filing. The company expected to collect just 25 percent to 30 percent of May’s rent, but anticipates recouping some of the monies owed later this year or even into 2021.

Retail bankruptcies are compounding CBL’s financial disarray, too. Bankrupt J. C. Penney operate 47 stores in CBL’s portfolio, the REIT noted, accounting for about $13.1 million in gross annual rent. CBL added that it expects the mass-market chain to shutter eight stores, amounting to $2.1 million in yearly rental income. The pair continue negotiations regarding “significant rent abatement and reductions for their remaining stores,” CBL added.

All but three of CBL’s 108 malls have reopened as lockdowns ease across its 26-state footprint, though 12 are operating only with curbside-pickup service.

The REIT has also locked in forbearance agreements with certain entities in an effort to resolve some of its financial woes. However, CBL has also violated a covenant in its senior secured credit facility. Bloomberg first reported Monday on CBL’s potential bankruptcy.

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One reason why CBL has been especially hard hit from the coronavirus is because many of its malls have what many view as “B-level” tenants, those that were struggling even before the arrival of COVID-19. Gap, for one, has also been sued for $65.9 million in back rent by competing mall operator Simon Property Group, though it owes a total of $115 million to all North American landlords.

And other omnipresent mall tenants that have announced store closures include Victoria’s Secret, The Children’s Place, and the parent of New York & Co., to name a few.

The mall problem could get worse as the rate of coronavirus infections rise and lockdowns are resintated, even if in localized regions. It’s a scenario that could see more mall operators and real estate developers on the path to defaults on mortgage payments and other financing obligations.