COVID-19 was just the last straw for mall operator CBL & Associates Properties ($CBL), the Chattanooga-based owner of 108 malls in 26 states. The company is preparing to file for bankruptcy, according to Bloomberg, after cashflow was eroded by store closures and it missed multiple interest payments over $10 million. The REIT has been losing money for the past five years and has seen diminishing foot traffic, falling rents and ballooning debt. Shares are 99% down from their peak in 2007, alongside their tenant count.
Even as malls have reopened, shoppers have not been keen to risk it all just to wolf down a soft pretzel from behind a mask, or browse trays of 5 for $25 panties, wondering if any of the boyshorts carry a lethal virus. With profits obliterated starting in April, mall tenants stopped paying rent and started going bankrupt themselves. CBL collected only 27% of billed rent in April and expected a similar rate in May.
Many of the landlord’s biggest tenants have been hit hard by the pandemic. L Brands (Bath & Bodyworks, Victoria’s Secret) and Signet Jewelers (Kay Jewelers, Zales, Piercing Pagoda) are both planning hundreds of store closures in the near future, according to Retail Dive. Former anchor stores Bonton and Sears went bust in 2018, and JCPenney, GNC, and Ascena Retail Group (Ann Taylor, Loft, Lane Bryant) have all filed for bankruptcy due to the pandemic, meaning less rent and more vacancies for CBL.
|
Rank |
Tenant name |
Store count |
|
1 |
Signet Jewelers (Kay Jewelers, Piercing Pagoda, Zales) |
125 |
|
2 |
Genesco (Journeys, Journeys Kids, Lids, Johnston & Murphy) |
124 |
|
3 |
L Brands (Bath & Body Works, Victoria’s Secret) |
118 |
|
4 |
Ascena (Justice, Loft, Lane Bryant, Ann Taylor) |
105 |
|
5 |
JCPenney |
88 |
|
6 |
Claire’s |
61 |
|
7 |
GNC |
52 |
|
8 |
Hot Topic |
48 |
|
9 |
Claire’s |
61 |
|
10 |
Buckle |
43 |
CBL is the first major landlord to become casualty of the pandemic, but they’re also the first major mall operator broadly to succumb to the industry’s decade-long decline.
While malls REITS across the board are seeing missed rent payments and lower revenues because of the pandemic, CBL’s demise isn’t necessarily an indicator for all other malls. CBL operates mostly middle and lower-tier shopping centers, called ”Class B” or “C” malls. This means they largely serve a middle-tier market, which has been gutted by the current recession, not to mention shrunk over the last few decades of intense class stratification. Formerly stable families who, before the pandemic, could afford to splurge at the JCPenney or Dick’s Sporting Goods while grabbing a bite from California Pizza Kitchen at their local mall, are now struggling to pay rent and mortgages. Class B and C malls tend to be located in less populous areas, have lower foot traffic and fewer high-end tenants, meaning lower rent.
High-end malls with Nordstrom, Neiman Marcus, Saks, Bloomingdale’s, or Apple Stores are faring much better (despite several bankruptcies among this list). So are their customers: upper and higher middle class shoppers. “Class A” mall owners like Macerich, Taubman Centers and Simon Property Group are bouncing back from the shut-down almost shockingly well. Though each saw volatility over the course of the month, Taubman’s shares rose a net 31% in June, Simon Property Group is up 18.5% and Macerich jumped just under 16%. Investors in these lucky REITs are optimistic right now, but that could change as infection rates fluctuate, boarding malls back up in certain states.
The future is looking especially bright for Simon, increasingly seen as the most dominant mall REIT. With some of the most profitable malls in the country in its portfolio, the company says it's been able to reopen almost all of its 204 shopping centers. They’re even considering buying or helping finance struggling tenants like Brooks Brothers, JCPenney and Lucky Brands as a way to help stabilize their business.
As long as they’re in the game, eulogies for malls are premature. A certain breed of mall may die out with the pandemic, but anywhere with a Louis Vuitton or valet will probably be safe.
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