Mid-tier mall operator CBL recently postponed filing for bankruptcy until October 15. The bankruptcy would be the first in the retail REIT sector since 2008, and the first caused by “a structural issue with the business model,” of retail REITs, according to Zachary Klein, associate director for REITs at Fitch. It may only be the first domino to fall.
Even “Class A” mall owner Simon Property Group is on the “defensive,” according to Klein. The company has been buying out bankrupt brands, some of which “aren’t viable long term” in an effort to keep the stores from closing all at once. The move is “worth it,” Klein concluded, “but not the sign of a strong business.”
💎 Data Digs
Indeed, “Class A” mall operators like Simon and the bankruptcy-bound CBL might not be as different as they'd like you to think. Thinknum data show that they share 4 of their top 10 tenants.
|
CBL Tenant Name |
Store Count |
Simon Tenant Name |
Store Count |
|
Bath & Body Works |
60 |
American Eagle Outfitters |
173 |
|
Claire’s |
57 |
Sunglass Hut |
168 |
|
Journey’s |
54 |
Zumiez |
147 |
|
Kay Jewelers |
53 |
Journeys |
144 |
|
American Eagle Outfitters |
53 |
Aeropostale |
140 |
|
Justice |
50 |
Lids |
134 |
|
JCPenney |
46 |
Bath & Body Works |
133 |
|
Hot Topic |
45 |
Starbucks Coffee |
132 |
|
Buckle |
43 |
Management Office |
123 |
|
Lids |
42 |
Skechers |
117 |
Even with its recent acquisitions, Simon Property Group has lost 4.3% of its tenants in the last six months. Meanwhile, after defaulting on an interest payment in June, CBL announced in August that it was planning a Chapter 11 process planned for mid-October.
⚔️ Big Picture
- Simon Property Group recently purchased Brooks Brothers and Lucky Brand in partnership with brand management company Authentic Brands Group.
- SPG also teamed up with Brookfield Properties to acquire Forever 21 during the pandemic, and is in the process of acquiring JC Penney.
- CBL’s looming bankruptcy would make it the first retail REIT to file for bankruptcy since GGP during the 2008 financial crisis.
- CBL’s problems started before the pandemic, with the company struggling to access capital or invest in assets.
⚡ Get Ahead
Even before the pandemic shut down malls for months, mall-owners across the country were dealing with store closures, a rise in online shopping and a fall in foot traffic. The difference between CBL and Simon is the difference between a REIT that can afford to invest in its properties and one that can’t. To that point, Klein argues, successful REITs will need “substantial and sustained investment” to evolve with the changing retail landscape, regardless of where the mall currently is on the quality spectrum.
He admitted, however, that this will be harder for REITs on “the lower end of the spectrum” with less capital. Such companies may therefore face more of a struggle than REITs like Simon Property Group, but even Simon’s strategy of buying up bankrupt brands can only go so far. Even when people return to malls, retail REITs will still be facing the same problems they saw before the pandemic. To survive, malls of any quality will have to commit to keeping up with the times.
About the Data:
Thinknum tracks companies using the information they post online, jobs, social and web traffic, product sales, and app ratings, and creates data sets that measure factors like hiring, revenue, and foot traffic. Data sets may not be fully comprehensive (they only account for what is available on the web), but they can be used to gauge performance factors like staffing and sales.
