Dive Brief:

• Mall operator Taubman sent a letter last week to its retail tenants stating that, "[a]ll Tenants will be expected to meet their Lease obligations," according to the memo, obtained by Retail Dive and reported on by other media.
• The letter follows "numerous inquiries" to Taubman about rent and charges under their leases amid widespread store closures that have become part of the response to COVID-19's spread. Earlier in March, Taubman announced the closure of most of the malls it operates.
• "We are attempting to navigate through this situation in the best way we can, while being as flexible as we can with our tenants in light of our ongoing obligations," a Taubman spokesperson said in an emailed statement. "The tenant memo does not replace our willingness to talk to each tenant about their respective challenges and help them chart an appropriate course for the future." 

Dive Insight:

More than 100 major retailers have closed their stores or reduced hours as the country tries to slow the spread of COVID-19. Tens of thousands of stores have closed, while Taubman, Simon Property Group and Washington Prime Group, among other operators, have closed their malls. When stores will re-open is still uncertain. 

The closures are unprecedented and pose a major financial challenge for brick-and-mortar retailers, many of whom were already struggling with declining sales. Of prime importance right now is cash and liquidity. 

To maintain their cash positions, many retailers are undertaking some combination of tapping their credit lines, furloughing employees, cutting pay including to executives, cutting shareholder dividends and reviewing every expense — including rent. 

The restaurant chain Cheesecake Factory said in a regulatory filing that it wouldn't be paying rent on its leases for the month of April. Credit Suisse analyst Michael Binetti said in an emailed client note that softlines retailers including Gap, Nordstrom, Kohl's, J.C. Penney and others, may join the restaurant in skipping April rent. "Our real estate contacts say Softlines prepping to announce the same [i.e., as Cheesecake Factory] to save cash," Binetti said. 

But of course, landlords have their own bills to pay and their own liquidity needs. "Landlord's obligation to pay its lenders, utility companies, insurance companies and the like, to ensure the safety and security of the building and maintain the appropriate level of operations, remains," Taubman said in its memo. "The rental income that we receive from Tenants is essential in order to meet these obligations."

The spokesperson noted that the mall operator has already been on "numerous" calls with retail tenants and said that "most fully understand our position as it is a challenging time for all involved."

Statements by landlords and tenants, like those of Taubman and Cheesecake Factory, may be starting points in longer conversations and negotiations as the broader retail industry tries to weather a global health and economic crisis. Then again, for some retailers who were already struggling with tight liquidity, they simply lack the funds to pay rent. Landlords in those cases will likely have to weigh lost rent against the permanent loss of a tenant.