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Mall REIT CBL Properties to Go Chapter 11


Aug 21, 2020 by Marc Rapport

A pandemic-stricken economy has forced CBL Properties (NYSE: CBL) to announce Wednesday that the retail real estate investment trust (REIT) had reached a restructuring agreement that would slash at least $1.5 billion in debt and other obligations while allowing it to continue operating.

While the Chattanooga, Tennessee-based operator of about 90 shopping centers and malls did not say so in its press release, the company told the Chattanooga Times Free Press that it expects to file Chapter 11 bankruptcy no later than Oct. 1.

The press release did say that daily operations would continue at all the properties owned and managed by one of the nation's largest and oldest mall operators, a company founded in 1978 by Charles B. Lebovitz.

"Reaching this agreement with our noteholders is a major milestone for CBL," CEO Stephen Lebovitz said in the company release. "The agreement will significantly improve our balance sheet by reducing leverage and increasing net cash flow and will simplify our capital structure, providing enhanced financial flexibility going forward."

CBL was already in decline when the pandemic struck

CBL Properties was already undergoing well-publicized struggles from the long decline in brick-and-mortar retail before the COVID-19 plague arrived, forcing shutdowns that paralyzed rent flow this spring.

In fact, the company itself had said in an SEC filing that "there is substantial doubt about our ability to continue as a going concern."

The REIT had gone into forbearance on July 1 after missing millions of dollars in debt payments before making $30.4 million in interest payments on Aug. 1 that kept it current on its unsecured debt, news reports said.

That happened as many of its tenants struggled to pay rent or simply folded as the pandemic shut down in-person shopping across the country.

The REIT's FFO already had declined by 21.6% last year and another 13.3% in the first quarter year over year this year before reporting $0.02 in FFO for the second quarter just ended.

That report also showed same-center NOI down 32.0% for the second quarter and 20.4% for the first two quarters of this year compared to the same periods last year.

Portfolio occupancy also fell, to 88.1% from 90.2% as of June 30, 2019, the second quarter report said, citing "store closures related to tenants in bankruptcy" for much of that decline.

Confidence in a restructuring plan and a move away from traditional malls

CBL Properties' stock has a 52-week high of $1.78 and closed today at $0.24 a share. The company said its leadership will stay in place, and they expressed confidence in the future, citing $220 million it has in cash and available securities to sell.

"The company's cash position, combined with positive cash flow generated by ongoing operations, is expected to be sufficient to meet CBL's operational and restructuring needs," today's press release said.

"Once the process is complete, we will emerge as a stronger and more stable company, with an enhanced ability to execute on our key strategies of diversifying our sources of revenue and transforming our properties from traditional enclosed malls to suburban town centers," CEO Lebovitz said.

"As a result, we will be better positioned to grow our business over the near and long term."

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Marc Rapport has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.