Looking back at late 2020, the outlook for all mall owners was grim, and CBL was in the eye of the storm. Pressures from COVID shutdowns were piling on top of retailer bankruptcies and empty anchor stores. The REIT filed for Chapter 11 bankruptcy reorganization in November 2020. After exiting bankruptcy in late 2021, CBL is on a more solid footing and has been experiencing positive leasing momentum. Commerce + Communities Today contributing editor Beth Mattson-Teig talked with CEO Stephen Lebovitz and COO Katie Reinsmidt about how the company has positioned itself for success.

Can you set the stage for how far you’ve come in the past couple of years? What really tipped you into Chapter 11 in the first place?

Lebovitz: We were dealing with a challenging environment in the mall business in the late 20-teens with department stores closings. Bon-Ton had liquidated, and we had about 14 of those stores. Sears was closing a lot of stores, and then there was a lot of small-shop bankruptcy activity in 2018 and ’19. So it was a challenging landscape, and then COVID hit and the malls got shut down and retailers had a lot of issues with paying rent. We had a lot of corporate debt, public debt, that wasn’t maturing until 2024/25, but after COVID and the impact of that, we realized that we really needed to deal with our debt in a more holistic way. And restructuring was the best way to do that versus sitting around and waiting for several years to pass and just delaying the inevitable. The filing really allowed us to restructure our balance sheet and to position the company in a lot stronger financial place going forward.

What was your mindset at that time? Were you worried that there was a train at the end of the tunnel, or did you see this as an opportunity to restructure?

Lebovitz: We weren’t looking at it opportunistically. We were just being realistic about what we would face coming out of COVID. It hit our net operating income significantly, and it accelerated bankruptcies by small shops that had been very weak financially. COVID cleared our watchlist, which was kind of healthy in a way but it also had a severe impact on our income and our revenues. So we had a reset of our revenues at a lower level that wasn’t going to cut it to pay the debt. We took a hard look in the mirror, so to speak, and realized that if we wanted to survive long term, we needed to take a difficult step, which was to move towards a restructuring.

Can you give us a high-level view of the things that you needed to address in that bankruptcy reorganization?

Lebovitz: It really didn’t involve any changes to our portfolio or our management. It was really focused on the balance sheet. We had preferred stock, and we had unsecured debt that was guaranteed by the company. Those were the two aspects of the balance sheet that we focused on. We negotiated with our creditors to exchange roughly $2 billion of obligations for 89% equity in the company, so there was a significant impact to the ownership but it didn’t impact our operations. We tried to separate the operations and keep the business running and keep leasing and maintaining our redevelopment program so that the properties would remain intact.

What does that balance sheet look like today?

Reinsmidt: We reduced our overall leverage by a couple billion dollars, and then we continued that really good work after we came out of bankruptcy in November of 2021. We had some high-coupon bonds, some converts that we exited bankruptcy with, and we were actually able to refinance those using our outparcels and open-air portfolio to do secured loans to replace that with more favorable debt. Since that time, we’ve continued our debt reduction, and we’re in a much stronger place today than really our company’s been in a very long time. We have a lot of cash on our balance sheet that gives us the flexibility to be opportunistic. That restructuring really was a springboard for us to be able to continue to do a lot of good work and put our company in a position that we could take advantage of what ended up being a very strong operating environment coming out of COVID.

What does your leverage look like today?

Reinsmidt: Our debt-to-EBITDA [ratio] is now in the low 6x range compared to above 9x at our peak, so we were able to reduce it pretty significantly.

Based on recent leasing announcements, CBL seems to have pretty healthy momentum. What has fueled that momentum?

Reinsmidt: Having a solid foundation with that balance sheet coming out of COVID allowed us to continue some of the good redevelopment work that we had started. Certain projects were delayed during COVID, but we were able to take those right back up after things opened back up and tenants unfroze their expansion programs. Continuing our redevelopment program leveraging our strong balance sheet, we had record growth in tenant sales and traffic coming out of COVID. Everybody was tired of sitting at home in their pajamas shopping online and was craving that social experience that the mall delivers. We were able to take advantage of a great opportunity where tenants were expanding and their sales were strong. That led us to be able to start improving our occupancy. So we really had a pretty strong rebound coming out of COVID where we were able to grow our operations and enjoy that constructive leasing and operating environment.

Even before COVID, you had redevelopment projects underway for some of those vacant anchor stores. What does that pipeline look like now?

Lebovitz: When a lot of companies go into bankruptcy, they don’t have any cash, and we had cash that we could invest. That was a key factor in allowing us to keep our redevelopment program going. We also had figured out how to be creative with our redevelopment and have done a lot of joint ventures, have done pad sales and ground leases. So we’ve come up with different financial strategies to allow the redevelopment program to go forward even in the face of the challenging financial environment. We do roughly a half dozen projects a year. A lot of that is around replacing former anchors, and they happen over time and not all at once. We haven’t been doing $100 million redevelopments. A lot of them are more bite size, in the $5 to $20 million range, just depending on who the user is and whether we’re doing it ourselves or with a partner. And they’re all different. There’s no one-size-fits-all. It’s all market driven, but there are some common themes with entertainment, dining and nonretail: education, medical, hotels, self-storage. We’ve really diversified, and I think that [strategy] is really key to why malls are having such a resurgence. And it’s not just us; it’s across the board in the business.

Can you share an example of a current or recently completed redevelopment that illustrates those trends?

Lebovitz: Here in Chattanooga, we have Hamilton Place, where we bought the Sears and then we initially added Cheesecake Factory. Then we took the existing Sears building, and we opened Dick’s Sporting Goods, Dave & Buster’s and now we have a Crunch Fitness that is under construction that will fill what was formerly the Sears building. Then we have two other restaurant locations, one will open next year and the last one is still TBD. So we took a Sears that was doing under $10 million in sales, and it’s at least five times that coming out of that entire retail combination of new users.

During the middle of our restructuring, we took a former Sears at Cross Creek Mall in Fayetteville, North Carolina, and we pivoted with our plan to allow us to bring in users but sell off pads. We sold off pads to Rooms to Go, Main Event and we ground-leased a pad to LongHorn Steakhouse. We tore down the Sears building in this case, which was different than at Hamilton Place, where we just kept the building and re-leased that. We have another restaurant that is under construction, Bahama Breeze, which is a Darden operation, and then a third restaurant that is under negotiation. So there is a similar mix with different types of users, and we were able to do that efficiently from a capital investment point of view because we used pad sales and ground leases instead of having a huge investment in buildings and construction.

You also mentioned your JVs. Can you share some examples where you have used those?

Lebovitz: At Hamilton Place, we also did a hotel as part of the Sears redevelopment, and that is a joint venture where we have a local hotel developer that we’ve worked with in the past. Typically, we sold land to him, but in this case, we did a joint venture where we agreed to a land value of the parcel that went into the partnership and then we invested to end up being a 50-50 partner in that project with him that he operates. We’re not a hotel operator or developer, but we can benefit from the success of the property, which is going to be successful because of the mall and all that traffic and the synergies with it.

What metrics can you share to where your portfolio is at today?

Reinsmidt: There are a few things to look at. The traffic and sales— while we’ve seen it moderate a little bit back down in late ’22 and ’23, they’re still well above pre-pandemic 2019 levels. On a sales basis, you’re still talking mid-teens above where we were in 2019. That’s a great indicator of how much stronger the properties are from a traffic standpoint. We also have some pretty strong occupancy improvement. Starting in the third quarter of ’21, we really started seeing some 50- to 100- to 150-basis point year-over-year improvement in occupancy on a consistent basis. At year-end 2020, our year-end occupancy numbers were at 87.5%, and last year at the end of ’22, it was at 91%.

Those are a few things that really demonstrate the operating environment that we’re in today and how much stronger it is even from pre-pandemic levels. We’re not just seeing demand from traditional retailers, we’re also seeing demand from some of these other nontraditional uses, whether it’s entertainment or hotels. The mall, or at least our properties, are becoming known for the best real estate in their markets. And that opens up the demand to a wider variety of uses that really allows us to do a lot of these projects and bring in more experiences and more traffic drivers than the traditional 100% retail focus that malls had been known for in the past.

How are you continuing to position the company for resiliency and growth?

Lebovitz: We went through a lot to get us to the point where we’re at with a strong balance sheet, strong cash flow and a cash balance. That financial stability is something that we’re really protecting in terms of looking and going forward and being really smart with capital allocation. Every dollar is precious, so to speak. That financial discipline is something that is really important as we look forward. And then also what Katie was saying about the malls continuing to evolve and change and bring in the new uses to our redevelopments and being creative. With our leasing and our specialty leasing, we’re really doing everything we can to innovate, to bring in local users and regional users, to provide more experience opportunities and more reasons to bring people out to shop. It’s a very competitive environment, and that hasn’t changed from even going back to pre-COVID. Amazon is still out there and all the online shopping and all the boxes, so we’ve just got to continue to raise the level of experience at the mall to be competitive.

Retail is an interesting space because it’s always evolving. Stephen, your father started the company back in the late 1970s. What’s your personal view in terms of where you’ve come today as a company?

Lebovitz: When my dad started the company, there was a formula approach to malls. There were three, four or five anchors. There was the ring road. A lot of the shops were similar with national brands that were expanding rapidly across the country with malls that were being built in the ’60s, ’70s and ’80s. I think that there’s a life cycle to every product and the original malls have to be redone and reinvented, and that’s what we’re doing now. It’s the same business, but it’s a very different business. There’s no formula. Every local market has considerations, but what we really do have is the organization experience in the operations and the capabilities to be successful in this new paradigm for the mall business.