Gap (NYSE:GPS) went on a rent strike during the coronavirus pandemic to save money, but it may get more expensive as shopping mall operator Simon Property Group (NYSE:SPG) is suing the retailer for failing to pay what was due.
Gap is Simon's largest tenant, in terms of both stores represented in its malls and the amount of rent it pays, and though the retailer has suffered from being forced to close because of the COVID-19 outbreak, malls have expenses they're required to pay as well.
As Simon CEO David Simon noted during last month's earnings conference call, "The bottom line is, we do have a contract and we do expect to get paid."
The mall operator says Gap owes $65.9 million in rent and other fees due during the pandemic, and wants the courts to compel future rent payments as well.
A big hole in the bottom line
Simon Property Group operates 234 properties in North America, Europe, and Asia, with 168 malls located in the U.S. It is the country's largest mall operator, and Gap, which also owns Banana Republic and Old Navy, has 412 stores sited in Simon malls. It accounts for over 2% of total square footage and 3.5% of total base minimum rent.
Gap isn't the only delinquent tenant Simon has, as Calvin Klein owner PVH, Coach owner Tapestry, and Victoria's Secret parent L Brands have all similarly withheld rents.
They believe they can legally not pay due to force majeure provisions, or material adverse event clauses of their contracts. Another mall operator, Taubman Centers, which Simon is acquiring, notified its tenants in March they needed to keep paying their rent and should turn to their insurance companies if they needed to seek relief.