One of America’s mall owners could go out of business as its retail tenants fail to pay rent amid the coronavirus pandemic.
In a filing today with the Securities and Exchange Commission, CBL & Associates Properties Inc. revealed it was unable to make an interest payment of $11.8 million to bondholders on Monday. Now it has a 30-day grace period to “advance discussions with its lenders and explore alternative strategies.”
If it’s unable to make the payment, CBL would go into default, becoming the first major retail landlord to do so during the health crisis.
“Given the impact of the COVID-19 pandemic on the retail and broader markets, the ongoing weakness of the credit markets and significant uncertainties associated with each of these matters, the company believes that there is substantial doubt that it will continue to operate as a going concern,” it wrote in the filing.
CBL has hired advisors Weil, Gotshal & Manges and Moelis & Co. to explore alternatives, which include bankruptcy. If CBL were to file for Chapter 11 protection, it would mark the first commercial retail real estate casualty amid the outbreak.
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Tensions between landlords and their tenants continue to mount: As retailers skip out on their lease obligations, commercial owners that need to meet their own mortgage terms have been forced to take legal action against their shuttered tenants.
In its filing, CBL noted that majority of its occupants have requested rent relief. In April, the Chattanooga, Tennessee-based company, which owns 108 properties, said it had collected about 27% of rent payments. It expects to receive from 25% to 30% of rents in May and has already put a number of tenants in default for not making their payments.
CBL also called out JCPenney, which filed for bankruptcy in mid-May and has announced the planned closures of roughly 30% of its brick-and-mortar fleet. The mall owner said it has 47 JCPenney units in its portfolio, which composes about $13.1 million in gross annual rent, and expects eight of those outposts to permanently shutter.
“JCPenney has also requested significant rent abatement and reductions for their remaining stores,” CBL added. “We are in early discussions with JCPenney and are unable to predict the outcome at this time.”
Separately, America’s biggest mall owner, Simon Property Group, has sued one of its largest tenants, Gap Inc., after the chain allegedly skipped out on nearly $66 million in rent payments. On the other hand, the country’s biggest shopping center, Mall of America, has missed two months of payments on its $1.4 billion mortgage.