Struggling retailers rack up US$52 billion in missed rents

New York

EIGHT months into the pandemic, clothing stores, restaurants, gyms and other businesses find themselves in a US$52 billion hole.

That is the total amount of retail rent that has been missed since April, said CoStar Group. While some of the overhang has since been paid back, the remainder will be a drag on merchants as they try to rebuild and landlords demand their money.

In some cases, the unpaid balances could drive them into bankruptcy.

"You're going to have big bubbles that are going to be hitting next year or even in the fourth quarter (of this year)," said Andy Graiser, co-president of A&G Real Estate Partners, an advisory firm. "I'm not sure if they are going to be able to make those payments in addition to their existing rent."

Overdue rent compounds the problems these companies have faced this year, including lost sales during shutdowns, consumers' reluctance to return to stores and restaurants and the long-running migration of shoppers from brick-and-mortar locations to online venues.

A NEWSLETTER FOR YOU

Tuesday, 12 pm

Property Insights

Get an exclusive analysis of real estate and property news in Singapore and beyond.

Sign Up

Signet Jewelers, for one, deferred about US$78 million of its rent payments, showed a September quarterly filing. In its most recent quarterly filing, Bed Bath & Beyond said it has held back US$50.6 million in rent payments and is in negotiations with landlords, while Francesca's Holdings has said it owed US$14.6 million in deferred rents and related costs as of Aug 1.

The women's clothing chain has since said it plans to shutter about 140 locations by the end of January and that it is in danger of financial collapse.

Red Robin Gourmet Burgers, meanwhile, said that it has received default notices from some landlords after it stopped making full payments in April. Chief financial officer Lynn Schweinfurth told investors in a Nov 5 call that the restaurant chain had negotiated amendments for about half of its leases by the end of its third quarter and continues in talks for the rest.

Many of these unpaid bills will not go away, but are instead being pushed into next year. Signet said it plans to pay back its overdue rent by the middle of next year, while Francesca's plans to repay the amount over the course of next year, it said in a quarterly filing in September, and is asking landlords for more concessions.

Representatives for Bed Bath and Beyond, Francesca's and Red Robin did not immediately respond to requests for comment. A representative for Signet did not have a comment beyond recent filings.

CoStar estimated missed retail rent, including payments from store chains, restaurants, gyms and bars, in each month using its own data, industry statistics and landlords' public reporting. The figures do not account for any back rent that may have been repaid in subsequent months. In all, retailers paid US$146 billion in rent from April to November, CoStar said.

By Mr Graiser's tally, the group broadly owes an average of two to four months' rent from earlier this year - but he expects making good on those debts will be hard because sales probably will not return to what he considers normal levels next year.

TIAA Real Estate Account, run by the giant Teachers Insurance and Annuity Association of America, said in a Nov 10 filing that it received more than 1,000 requests from tenants for rent relief, primarily among retailers, with most asking for deferrals of less than six months.

So far, the amount of rent collected from retailers climbed from

54 per cent at the end of April to

86 per cent this month, said CoStar.

Malls have fared worse, with only 79 per cent of rent due this month received. That makes the situation critical for landlords, too.

"It's going to take a period of years, not months, to get through this," said Michael Hirschfeld, vice-chairman at JLL, a real-estate services firm.

Deferred rents and a raft of tenants' failures helped drive CBL & Associates Properties and Pennsylvania Real Estate Investment Trust into bankruptcy earlier this month.

CBL said this week that it has made agreements with most top tenants and is seeing significant improvement in collections as these tenants pay past due rents.

In high quality malls, collections are improving, though they remain down. Mall giant Simon Property Group collected 85 per cent of rents in the third quarter, up from about 72 per cent in the previous quarter. Brookfield Property Partners said it collected about 75 per cent of rent due from mall tenants during that same period.

Landlords - and lenders - may be willing to make more accommodations out of court now that there is promising vaccine news, said Jay Indyke, a lawyer who chairs Cooley LLP's restructuring practice.

With a return to normal now in sight, lenders may find it worthwhile to keep supporting retailers instead of letting them liquidate.

"There are certainly some players that are willing to at least convert some of their debt to equity," Indyke said.

In the meantime, retailers are giving up rights to landlords in exchange for big rent reductions, such as granting landlords the ability to terminate their leases with 90 days' notice.

At the same time, retailers who saw strong online sales in recent months may decide they do not need all the stores or markets they once wanted.

"The conversations that retailers are having about their go-forward fleet is very different than pre-virus," Mr Graiser said. BLOOMBERG