The rent chickens have come home to roost.
Gap’s unpaid rent bill totals $115 billion for all North American landlords, according to an April regulatory filing with the Securities and Exchange Commission. Like numerous other store-based retailers suffering when COVID-19 banished non-essential brick-and-mortar business in the middle of March, Gap has sought to negotiate with landlords some form of rent relief—whether a deferral or abatement. In the filing, Gap acknowledged that the disputes could spiral into litigation, while raising liquidity concerns stemming from the prolonged store closures—the lifeblood of its brand.
As the U.S.’s largest mall operator, Simon faces a growing number issues as retail bankruptcies pile up, particularly around co-tenancy clauses—which allow some tenants to bail if another pulls up stakes. And as retailers stockpile cash to ensure their reserves, Gap is far from alone in deciding rent payments can wait.
Simon began reopening malls in early May, and when the real estate investment trust posted first-quarter earnings last month, CEO David Simon said the company was in dialogue with retailers on issues including rent and their store reopenings.
“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 added.
But at the end of the day, the REIT expects tenants to make good on their rental payments. “We will navigate this,” he said. “This is not easy, but I just think it’s better to have our discussion directly with the retailers. And the bottom line is we do have a contract and we do expect to get paid.”
TheRealDeal was first to report on Wednesday that Simon filed its lawsuit against Gap in a Delaware state court. Gap, through its Gap, Banana Republic and Old Navy nameplates, reportedly leases 400 stores at Simon’s malls and owes rent for April, May and June.
Simon could not immediately be reached for comment.
“Like many retailers, Gap Inc. was forced to close its North American stores due to the COVID-19 pandemic, during which period we suspended rent payments. It’s important to note the profound effect that COVID has had on shopping centers as well, leaving them closed to us and our customers for months,” Mark Daniel Snyder, Gap’s communications manager, said. “We remain committed to working directly with our landlords on mutually agreeable solutions and fair rent terms, just as our hundreds of industry and and governmental partners have sat with us in good faith to shape the post COVID business landscape. We are pleased with the progress we’ve made with many landlords as we’re reopening stores across the country, moving forward together towards growth.”
Gap isn’t the only retailer that has put rent payments on hold. Macy’s and J.C. Penney Co. Inc., which is now in bankruptcy proceedings, have held off on rent payments, and even extended the time frame for payments to vendors. And New York & Co.’s parent RTW Retailwinds Inc. on Wednesday said it too has been in talks with landlords to defer rent payments until its stores reopen, although now the company is on bankruptcy watch.