The coronavirus pandemic has turned consumerism right on its head with its strict social distancing measures, supply chain disruptions, both temporary and permanent store closures, and e-commerce boom – which ultimately has left US retailers in a $52 billion hole of overdue rents.
According to recent data compiled by CoStar Group Inc and later cited by Bloomberg, many gyms, restaurants, retail stores, and various other businesses across the US have accumulated overwhelming amounts of debt due to deferred rents payments as a result of the pandemic. Now over eight months into the crisis, landlords have begun demanding immediate payments on outstanding balances, and thus driving many already-struggling businesses to the brink of bankruptcy.
With total overdue rents topping $52 billion in November, along with a slump in retail sales growth in October that is expected to continue on a downward trend heading into the end of 2020, the likelihood of bubbles bursting come next year continues to rise. Many establishments are certainly going to struggle with making their overdue payments, let alone their existing rent on top of that. CoStar reveals that the total amount of rent payments collected from retailers increased from April’s low of 54% to 86% in November while 21% of rent from malls remains outstanding.
As Bloomberg notes, various major US retailers have been deferring their rent payments including Bed Bath and Beyond, Signet Jewelers Ltd, and Red Robin Gourmet Burgers Inc as many consumers have refrained from shopping at brick-and-mortar stores. The unpaid rents are now totalling in the tens of millions of dollars for reach retailer, and with amid a decline in retail sales and a surge in coronavirus cases, how will these companies be able to pay their past rents in a timely manner?
Earlier in the month, two major mall REITs, CBL & Associates Properties and Pennsylvania Real Estate Investment, both of which account for more than 87 million square feet of retail space across the country, filed for Chapter 11 bankruptcy protection after their tenants succumbed to pandemic-related pressures, and by implication, themselves as well. Despite that though, rent collections for various other high-end malls has somewhat improved, with mall giant Simon Property Group Inc noting it has collected 85% of rents in the third quarter, compared to only 72% in the second quarter.
According to Jay Indyke, who is a lawyer at restructuring firm Cooley LLP, many landlords and their tenants have been inclined to make overdue rent payment arrangements outside of court as a result of the recent news surrounding the success rate of coronavirus vaccines. However, the pandemic still continues to complicate the situation for many US retailers, especially amid an e-commerce boom that was already in the making long before the coronavirus crisis.
Information for this briefing was found via Bloomberg and CoStar Group Inc. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.