Is it the end of shopping malls?
Bankrupt in USA 0:53
New York (CNN Business) -
Washington Prime Group, a major owner of shopping centers in more than 100 locations in the United States, has filed for bankruptcy, citing closures related to the pandemic.
The Columbus, Ohio-based company filed for Chapter 11 Sunday night on the grounds that COVID-19 "created significant challenges" and that the measure is "necessary."
Washington Prime has secured $ 100 million in new funding to support its day-to-day operations so that it can "continue its normal course without interruption."
"The company's financial restructuring will allow Washington Prime to properly size its balance sheet and position the company for future success," said CEO Lou Conforti.
"During the financial restructuring, we will continue to work to maximize the value of our assets and our operating infrastructure."
Shares of Washington Prime (WPG) fell as much as 55% in early trading.
The stock is down 60% for the year.
Temporary closures and the relaxation of rent payments for some of its tenants were the causes of bankruptcy.
Washington Prime, which in recent regulatory filings had already warned that this measure would come, said it will use Chapter 11 to "implement a comprehensive and consensual financial restructuring" to reduce the level of its debt of almost $ 1 billion.
Changes in consumer habits and the pandemic rocked the retail industry over the past year.
Two other mall owners, CBL Properties (CBLPRD) and PREIT (PEI), filed for bankruptcy last year and mentioned similar problems.
All three mall owners were hurt by some major tenants who also filed for bankruptcy.
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"The bankruptcy shows that while things are now returning to normal, many of the scars left by the pandemic have not been fully healed," said Neil Saunders, Retail Analyst and Managing Director of GlobalData.
Dozens of chain stores and restaurants, bankrupt 1:12
"Strong balance sheets and strong operations are needed for real estate companies to get through this period," he added.
"Washington Prime did not have those fundamentals and therefore chose Chapter 11 as a way to restructure and pay off its debts."
The pandemic accelerated the shift to online shopping, and continued growth in e-commerce sales will cause more stores to close after the pandemic ends, UBS retail analysts predicted in a recent report.
The report estimates that around 80,000 stores will close over the next five years.
They also believe that the number of American shopping malls will decline during the same period.
"While the trajectory of retail is far from dire, shopping centers are under increasing pressure from higher vacancy rates and tenants are more demanding about rent," said Saunders.
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