More than a dozen of J. C. Penney Company Inc.’s commercial landlords filed objections in Texas bankruptcy court this week — arguing that bankrupt retailer should have to pay rent on outposts that have reopened post-pandemic.
Last month, JCPenney said it had asked all of its commercial landlords to defer rent payments for June and July as well as for abatement on rent from June through August. The company has called for the court to allow rent payments to be delayed to July 14. JCPenney says this will allow it to preserve $34 million in liquidity. But a number of commercials landlords — including the United States’ largest mall owner, Simon Property Group Inc., as well as The Macerich Company and GEM Realty Capital Inc. — argue that deferred payments should not apply to open stores.
Simon Property filed its objection on Wednesday. The mall owner leases 75 properties to JCPenney, 42 of which it says have reopened. It asked that there “be a distinction made between suspending lease obligations for open and operating stores as opposed to those stores that remain closed.”
“While SPG recognizes the general exigent circumstances affecting [JCPenney] and other retailers, landlords have likewise been adversely affected,” the objection reads. “It is not fair or equitable for [JCPenney] to seek to fund their restructuring on the backs of landlords like SPG.”
Similarly, a group of landlords who collectively own or represent the owners for 80 of JCPenney’s leased properties argued in a Wednesday filing that JCPenney “has the means to timely perform all of their lease obligations.”
The landlords added that they are “willing to work (and have worked) in good faith with tenants during this crisis and do not oppose the court fashioning appropriate relief to address this situation, such as where stores continue to be closed due to COVID-19.”
While JCPenney was forced to temporarily shut all of its units in mid-March, the company has since been able to reopen the majority of its nearly 850 doors and expects to reopen 95% of stores by the month’s end. The retailer, which filed for bankruptcy protection on May 15, has announced plans to permanently shutter 242 outposts by February 2021, with 154 store closures across 20 states to commence this summer. Liquidation sales are beginning at some outposts this week and are expected to last three to four months.
JCPenney is one of several retailers to file for Chapter 11 protection amid the coronavirus crisis, and rent deferrals or nonpayments have become an issue in other retail bankruptcy cases as well. Despite objections from more than a dozen landlords, including Simon and Brookfield Property REIT Inc., J.Crew received permission in late May to delay its rent payments by up to two months. The apparel and accessories retailer said deferring rent was necessary in order to adhere to its $400 million bankruptcy budget. Similarly, discount retailer Stage Stores Inc. was last month granted an extension on rent in its Chapter 11 case, but with certain caveats.
A number of retailers have skipped out on rent payments over the past few months in effort to preserve liquidity as the coronavirus crisis throws their balance sheets into disarray. In response, several landlords have taken legal action against their commercial tenants. Gap Inc., Ross Stores Inc. and H&M are among the retailers to be hit with lawsuits over unpaid rent.