CBL Properties has acquired a portfolio of four malls for $178.9 million as retail landlords accelerate their efforts to swap out noncore properties for better performers with growth potential.
Chattanooga, Tennessee-based CBL said it had purchased a quartet of enclosed regional malls from WPG, formerly Washington Prime Group of Columbus, Ohio. Earlier this year WPG announced it planned to sell its entire retail portfolio, shopping centers and malls.
CBL's deal includes Ashland Town Center in Ashland, Kentucky, Mesa Mall in Grand Junction, Colorado, Paddock Mall in Ocala, Florida, and Southgate Mall in Missoula, Montana.
The real estate investment trust said Wednesday the purchase enhanced its position as an "owner and manager of successful enclosed malls in dynamic and growing middle markets" where it is dominant.
The CEOs of CBL, Brixmor Property Group and Urban Edge Properties this week all used the same term, "capital recycling," to explain the strategy behind their recent acquisitions and divestitures. The goal is to shed properties that don't have much growth potential and replace them with malls and shopping centers that are already performing well or have upside — the potential to do even better because of the markets where they are located or with some additional investment by a savvy owner.
Landlords now have the ability to do such deals because the acquisition market has been heating up and financing is available, with more types of investors and lenders interested in the sector, according to Urban Edge Chairman and CEO Jeff Olson.
"The investment sales market for retail assets is thriving, driven by both public and private buyers," Olson said Wednesday on a second-quarter earnings call. "One of our board members recently described the current shopping-center landscape as the revenge of the nerds, highlighting that retail is back in demand driven by solid operating fundamentals, increased debt availability and increased capital flows."
Lenders step up
Since October 2023, New York-based Urban Edge has acquired $552 million "of high-quality shopping centers at a 7.2% [capitalization rate] and sold $493 million of noncore low-growth assets at a 5.2% cap rate," Olson said. Most recently in June, the REIT closed on the sales of two shopping centers in North Jersey and the Philadelphia suburbs for an aggregate price of $41.2 million.
"What’s happened sort of in this post COVID environment, investors have realized that in the shopping center space, the cash flows are durable and there’s actually a fair amount of growth coming going forward," Olson said. "In addition, the lenders have really stepped up, in particular, the banks. So we’re starting to see them become much more active in the market. And as you know, the banks are much more flexible than [commercial mortgage-backed security] lenders, and the pricing is very competitive."
And "as financing becomes more attractive in this space, there certainly are more buyers now willing to pay higher prices," according to Olson.
Cash yield
CBL's acquisition of the WPG malls represents the company's progress executing its "portfolio optimization strategy — to redeploy proceeds from non-core asset sales into stable and growing assets that generate immediate accretion to CBL’s portfolio cash yield," the REIT said in a statement. It owns and manages 89 properties totaling 55.4 million square feet across 22 states, including 55 enclosed malls, outlet centers and lifestyle retail centers as well as more than 30 open-air centers and other properties.
In 2024 and year-to-date, CBL has sold more than $241 million in noncore malls, open-air centers and outparcels. Most recently, it closed the $83.1 million sale of The Promenade, a mall in D’Iberville, Mississippi.
The purchase of the WPG properties exemplifies CBL's ability to strategically leverage the attractive valuations of its "high-quality open-air and outparcel portfolio to fund investments in market-dominant enclosed malls," according to Stephen Lebovitz, the REIT's CEO.
"Each of these newly acquired assets enjoys strong market positioning and both near- and long-term growth potential. ... Additionally, the scalability of our existing platform allows for seamless integration of the properties into our existing portfolio, further enhancing the financial benefits of the transaction," Lebovitz said in a statement.
CBL's purchase of the WPG portfolio, so-called Class B malls, is unusual, according to Rudolph Milian, president and CEO of retail consultant firm Woodcliff Realty Advisors.
"Here we have a large publicly traded mall REIT acquiring (rather than disposing of) Class B malls in middle markets that management has obviously identified as having plenty of upside in re-leasing and making other upgrades to create new value," he said in an email to CoStar News.
Loan modification
Concurrent with buying the WPG portfolio, CBL completed a modification and extension of its existing $333 million non-recourse outparcel and open-air center loan with Beal Bank USA, which was scheduled to initially mature in June 2027, with one, two-year extension option. The loan was modified to include the acquisition properties, increasing the principal balance by $110 million to roughly $443 million and providing for a seven-year term, comprised of an initial maturity in October 2030, with one, two-year extension option for a final maturity in October 2032.
Milian pointed out debt issues are known to weigh on some mid-level malls.
"The most problematic thing about B malls is the debt they hold and their impending maturity dates because they hold mortgage loans from a decade ago that are higher than the underlying valuation today," Milian said.
"In this acquisition, CBL can properly value the property and place the right amount of debt that also comes with redevelopment funds. CBL has the expertise to redevelop the properties and stabilize the income by the end of the decade, then refinance those properties when valuations improve. Those properties have limited competition and in middle markets where new developments are not likely to surface anytime soon," he said.