With a number of major department store brands struggling and shrinking, malls have suffered. Macy's has closed a number of underperforming stores over the past few years and J.C. Penney only survived a Chapter 11 bankruptcy because two of its landlords, Simon Property Group and Brookfield Asset Management, bought it.
Malls have also largely lost Sears as an anchor tenant since that chain has shrunk to just a handful of stores. This year's big retail bankruptcies of Bed Bath & Beyond, Tuesday Morning, and Christmas Tree Shops largely hurt strip malls rather than indoor shopping centers, but their closures put an awful lot of real estate on the market.
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In reality, though, not all malls are created equally. Traffic to top-tier malls has stayed relatively flat year-over-year, according to data from Placer.ai. Wealthy customers in general are actually visiting malls more.
"While the wealthiest mall shoppers tend to visit Open-Air Lifestyle Centers, all mall visitors are wealthier than the national median...wealthier areas of the country experienced the greatest YoY visit growth to malls," according to the report.
That's good news for a player like Simon Property Group, which generally owns high-end malls and outdoor outlet malls in wealthy areas. It's not as bright a picture for Pennsylvania Real Estate Investment Trust (PREIT) which has a mix of holdings.
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PREIT files for Chapter 11 bankruptcy (again)
PREIT has filed what is known as a "prepackaged' bankruptcy. Basically, it's using the court to enact a plan that it expects will allow the business to emerge in a healthier financial position.
The plan, which is supported by 100% of PREIT’s first and second Lien Lenders, according to a company press release would reduce its debt by roughly $880 million and push some of its loan due dates further out.
"The company has received commitments for new money debtor-in-possession (DIP) and exit revolver financing in an aggregate amount of approximately $135 million from a diverse group of leading investors, led by Redwood Capital Management, LLC and Nut Tree Capital Management, LP," the company shared.
At the end of the process, if everything goes as planned, PREIT, which is filing Chapter 11 for the second time in three years, would emerge as a privately held company.
PREIT owns and operates 23 retail centers with more than 18.3 million square feet of retail space in eight states across the eastern U.S.
"We are a Real Estate Investment Trust owning a portfolio of bullseye locations in high barrier-to-entry markets that create the opportunity to reinvent what we deliver to our communities. We use our assets to attract a variety of new businesses to redefine the future of the American mall into mixed-use districts," the company shared on its website.
PREIT will shed some assets
As part of the plan, PREIT could end up surrendering some lower-performing assets to its creditors but continue to run those properties. Banks generally don't have the ability to operate malls, and there are few, if any, buyers for weaker malls.
Simon, however, could purchase some of PREIT's higher-end malls as the company has made acquisitions of top-tier properties over the past few years.
"Today’s announcement will position a restructured PREIT to execute on strategic initiatives to continue transforming its portfolio for the tenants and communities it serves. We look forward to quickly emerging from this process as a financially stronger company with the resources and support to continue creating diverse, multi-use property experiences throughout our portfolio,” said PREIT CEO Joseph F. Coradino.
The company expects to continue to pay all of its bills including both its vendors and workers during the bankruptcy period.
While the company expects to act on its plans quickly, the filing does require court approval. The company filed its voluntary Chapter 11 bankruptcy in the United States Bankruptcy Court for the District of Delaware.
