Citing COVID-19, mall REIT Washington Prime Group lands in bankruptcy court

Dive Brief:

Washington Prime Group on Sunday filed under Chapter 11 in the U.S. Bankruptcy Court for the Southern District of Texas. Thanks to "extensive hard-fought, arm's-length negotiations," the REIT — which launched when Simon Property Group spun off a collection of properties in 2014 — has a restructuring support agreement in hand, per court documents.
The restructuring agreement, led by investment firm SVPGlobal, would knock nearly $950 million off its balance sheet through the equitization of unsecured notes, and the use of $190 million to pay down its revolving credit and term loan facilities, per a press release. The RSA also contemplates a $325 million equity rights offering, which would go toward paying off secured debt.
Washington Prime Group said it's also secured $100 million in new debtor-in-possession financing from the creditors to support day-to-day operations during the bankruptcy process.

Dive Insight:

Washington Prime Group in its press release blamed the pandemic for its financial woes, but like the many retailers that have gone bankrupt over the last year and counting, its troubles likely started well before.

In fact, they may have begun on day one, considering that its properties are Simon rejects plus struggling properties acquired later in 2014 from Glimcher Realty Trust, which together form "essentially a pile of very weak and vulnerable malls," according to Nick Egelanian, president of retail development firm SiteWorks. Egelanian calls such retail centers "junk malls."

"This is surely part of the story, i.e., the investors lose again," he said by email regarding the Washington Prime Group filing. "The other part of the story is the properties themselves. There may not be a single A or B property in the entire portfolio — meaning that we at SiteWorks rate them all as likely to be eventually liquidated. In this context, the fact that they are not spinning off enough revenue to keep the parent company solvent is not surprising at all."

The company's plans include two possible exit strategies: a debt swap or sale of assets, according to court documents.