The rent is coming due in retail.
Simon is looking to collect rent from the classic American clothier for the April through June stretch when stores were shut down amid the coronavirus outbreak, per the suit filed Wednesday in a Marion County Superior Court in Indiana, according to the Indianapolis Business Journal.
The IBJ quoted the lawsuit as stating that Brooks first wrote Simon at the end of March indicating that “it was refusing, and would continue to refuse, to pay rent and threatening to close its stores in Simon’s shopping centers permanently.”
Neither a Brooks Brothers spokeswoman nor a Simon Property executive responded to requests for comment by press time.
With the bills piling up and past due, Simon has resorted to legal action in the hopes of squeezing cash out of its tenant base. The real estate investment trust filed a lawsuit earlier this month against Gap Inc. seeking $65.9 million for unpaid rent. Publicly-listed Gap said in a regulatory filing with the Securities and Exchange Commission that its unpaid rent bills total $115 billion for all North American landlords.
Retailers operating stores in the U.S. temporarily closed stores starting in mid-March when state and local government began issuing shelter-in-place orders to curb the spread of the COVID-19, outbreak. Some retailers at the end of April began reopening stores while Simon resumed business at select malls in early May.
Last month, Simon CEO David Simon told Wall Street analysts during a first-quarter conference call after it reported first-quarter results that it was in conversation with many retailers on issues including rent and their store openings.
“Each situation is analyzed individually based upon our tenant’s market position, their financial status and the history and depth of our relationship,” Simon said of how his firm works with its tenant-client base. However, the company had been able to collect more rent than expected, he said at the time.
That said, Simon told analysts the company fully expects tenants to pay their rent. “The bottom line is we do have a contract,” he said, “and we do expect to get paid.”
Brooks Brothers and Gap are far from the only ones that have elected not to make rent payments while stores have been closed due to COVID-19. Count Macy’s Inc. and J.C. Penney Co. Inc., as well as New York & Co.‘s parent, RTW Retailwinds Inc., among retail chains that have skipped out on their rent obligations.
With a lack of cash flow coming in from shuttered brick-and-mortar stores, the pandemic’s impact has exacerbated the financial strain on retailers already struggling to hold weak balance sheets together before the coronavirus crisis erupted in mid-March. Penney’s and Neiman Marcus have already filed Chapter 11 petitions for bankruptcy court protection. New York & Co. and Brooks are both moving closer to a bankruptcy filing, with Ann Taylor’s parent company and the owner of Men’s Wearhouse also said to be considering filings of their own.
In the case of New York & Co., which held back April and May rent payments to landlords, the company faces a default notice on its loan on June 30, and is said by sources to be moving closer to a filing. The question is whether it will re-emerge in a new form or end up shutting down completely. The latter would mean another 387 more stores would end up closing due to COVID-19’s impact.
Privately held Brooks is closely weighing options for debtor-in-possession financing, should it elect to go the bankruptcy route. Sources said they believe the company will need to file, and indicated that it is already in talks with possible buyers that could become stalking-horse candidates, which means they would submit a bid prior to the case going to court auction.
Financial sources said Brooks was already looking at strategic options, including selling itself, as far back as late 2018. These sources said brand management firms are showing considerable interest, adding that the Brooks name strongly resonates in the marketplace even if its balance sheet suggests that operations haven’t been to par. That’s typically the criteria that attracts these licensing firms, which own the intellectual property and strip away overhead like stores, making the brands far more profitable. Brand management firms are beginning to open stores for their brands, usually in partnership with an operator that can compensate with skills outside the licensing company’s core competency.
Authentic Brands Group and Simon Property, which a few years back joined forces to acquire bankrupt Aérospostale, are said to be on the hunt for fresh investment opportunities. The two are said to be considering making a play for Penney’s. And they are also believed to be weighing a bid for Brooks, according to WWD.