Mall-focused real estate investment trust (REIT) Washington Prime Group (WPG) lost nearly 30% of its value in the first hour of trading on Feb. 16. There was no question about why: The company filed a very concerning update with the SEC.
The first big piece of news in the SEC filing was that the REIT chose to withhold a $23.2 million interest payment due on Feb. 15. Washington Prime has 30 days to resolve this issue or it would constitute a default and allow some of the bondholders to demand early repayment. It is never a good sign when a company willingly refuses to pay its obligations, though it isn't surprising that a mall landlord would be facing financial strain given the negative impact the pandemic has had on the retail sector.
In the same filing, meanwhile, Washington Prime also announced that it was hiring Kirkland & Ellis LLP as its legal counsel and Guggenheim Securities, LLC as an investment banker as it looked to work with its lenders. This could be a tactic to force Washington Prime's lenders into granting concessions, but investors clearly aren't waiting around to find out if a deal can be worked out.
The clear concern here is that a troubled REIT (it hasn't paid a dividend since the first quarter of 2020) in a troubled property sector is at risk of going bankrupt. Given the missed interest payment and the hiring of advisors, that's not an unreasonable fear. Most investors should probably avoid Washington Prime for now.