The virus pandemic - with its temporary and permanent store closures, strict social distancing requirements, e-commerce boom, and supply chain disruption - since March has fueled uncertainty among US retailers as many find themselves in a $52 billion hole.
Bloomberg, citing new data via CoStar Group Inc., outlines how restaurants, gyms, and other businesses have accumulated insurmountable rent payments that have been deferred for months. This has resulted in landlords demanding outstanding balances be immediately paid, could drive some retailers into bankruptcy.
"You're going to have big bubbles that are going to be hitting next year or even in the fourth quarter," 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."
The problem with overdue rents, totaling $52 billion as of November, is that retail sales growth in October slumped and is expected to wane into year-end.
Furthermore, coronavirus cases are exponentially increasing in almost every US state. Local governments across the country are reimposing strict social distancing measures that will stymie retail sales and increase the threat of a double dip recession.
CoStar reveals the amount of rent collected from retailers rose from 54% at the end of April to 86% this month. Only 79% of rent due this month for malls was collected.
"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.
From Signet Jewelers Ltd. to Red Robin Gourmet Burgers Inc. to Bed Bath and Beyond, Bloomberg lists the major retailers who have deferred rent payments. Their unpaid rents total in the tens of millions of dollars per company - the question, with slumping retail sales and a virus pandemic that continues to rage - how will these retailers ever pay back past rents?
Signet Jewelers Ltd., for one, deferred about $78 million of its rent payments, according to a September quarterly filing. In its most recent quarterly filing, Bed Bath & Beyond Inc. said it's held back $50.6 million in rent payments and is in negotiations with landlords, while Francesca's Holdings Corp. has said it owed $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's in danger of financial collapse.
Red Robin Gourmet Burgers Inc., meanwhile, said that it's received default notices from some landlords after it stopped making full payments in April. Chief Financial Officer Lynn Schweinfurth told investors on 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 won't 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 didn't immediately respond to requests for comment. A representative for Signet didn't have a comment beyond recent filings. -Bloomberg
Earlier this month, deferred rents and a tidal wave of tenants exiting leases helped two mall REITs, Pennsylvania Real Estate Investment Trust and CBL & Associates Properties file for Chapter 11 protection - together the two REITs account for 87 million square feet of real estate across the US.
Even though collections are improving at high-quality malls - mall giant Simon Property Group Inc. only collected 85% of rents in the third quarter, up from 72% in the previous quarter. Brookfield Property Partners LP said it collected 75% of rents from mall tenants over the same quarter.
Jay Indyke, a lawyer who chairs Cooley LLP's restructuring practice, said landlords and lenders are willing to make accommodations out of court to resolve overdue rent payments because of the recent news of a promising vaccine.
"There are certainly some players that are willing to at least convert some of their debt to equity," Indyk said.
While the brick and mortar retail "apocalypse" was already a problem for the US economy ahead of the virus pandemic thanks to the destructive forces of Amazon and the e-commerce boom, the pandemic continues to complicate the outlook for retailers that may extend the bankruptcy wave well into 2021.