Gap Halts Rent Payments On Temporarily Closed Stores

As its retail locations are closed due to the COVID-19 pandemic, Gap cautioned on Thursday (April 23) that it might not have enough cash to adequately fund its operations. The clothing retailer said it has to take additional steps to come across liquidity over the next year like debt financing and further job reductions, CNBC reported.

Gap said per the report that stopped paying rent on its retail locations that are temporarily closed starting this month — an amount that comes out to approximately $115 million in monthly expenses in North America. The retailer said it was working with landlords to agree on an abatement or delay payments for rent.

Gap said per the report, “If we are unable to renegotiate the leases and continue to suspend rent payments, the landlords under a majority of the leases for our stores in the United States could allege that we are in default under the leases and attempt to terminate our lease and accelerate our future rents due.”

Simon Property Group, the largest U.S. mall owner, has 412 Gap stores, with the inclusion of Old Navy and Banana Republic, at its shopping centers.  As a result, Gap is said to be the real estate firm’s largest in-line tenant at its shopping centers when it comes to rent.

Gap has also warned that is profit margins could be negatively impacted as it will need to use steep discounts in an effort to sell product.

Shares in the company opened a bit higher following an approximately 7 percent drop in premarket trading. Gap’s stock has plummeted almost 60 percent this year.

As previously reported, battles are afoot between landlords and big company tenants that haven’t paid rent amid the COVID-19 pandemic, with the inclusion of luminary names such as Victoria’s Secret, Dick’s Sporting Goods and Petco. Some other names include Burlington Stores, Louis Vuitton, and Staples.