Shares in Gap Inc. continued falling in morning trading after it issued some dreadful financial news this week.
On April 23, the San Francisco–based retailing giant disclosed in a filing to the Securities and Exchange Commission that in April, it halted rent payments of $115 million (all figures in U.S. dollars) per month for stores closed due to the COVID-19 pandemic.
"We are currently negotiating with the counterparties under those leases to defer or abate the applicable rent during the store closure period, to modify the terms (including rent) of our leases going forward after the stores reopen, or in certain instances to terminate the leases and permanently close some of the stores," Gap Inc. stated.
The company maintained that it has "strong legal grounds" for not paying rent for stores closed because of orders by governments or public-health authorities.
But it couldn't assure investors that this argument would succeed in court.
"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 thereunder," Gap Inc. stated.
In the same statement, Gap Inc. revealed that planned capital expenditures will be cut by $300 million in this fiscal year.
It's also "pausing pay" for "the majority of our store teams in the United States and Canada".
These furloughed employees will continue receiving benefits until the stores reopen.
In addition, Gap executives and directors will see their pay temporarily reduced.
This morning, Gap Inc. shares are trading at $6.76 on the New York Stock Exchange, down nearly five percent from the morning opening.
The price hasn't been this low since 1995.
In addition to the Gap, the company also owns Banana Republic, Old Navy, and other brands.
Gap Inc. has fallen on hard times in recent times, and that's only been intensified by the pandemic.
On February 1, it had cash, cash equivalents, and short-term investments of $1.7 billion. By the end of this quarter on May 2, it expects those reserves to fall to $750 million to $800 million.
Lower Mainland Gap stores have been temporarily closed at Park Royal, Metropolis at Metrotown, McArthurGlen, and Morgan Crossing.
Banana Republic stores have been temporarily closed on Robson Street and at CF Pacific Centre, Oakridge Centre, Park Royal, Metropolis at Metrotown, McArthurGlen, Tsawwassen Mills, and Morgan Crossing.
Temporarily closed Old Navy stores in the region are on Robson Street and at Park Royal, CF Richmond Centre, Metropolis at Metrotown, Tsawwassen Mills, Guildford Town Centre, and SmartCentres Langley.
One of Canada's largest owners of shopping centres, Ivanhoé Cambridge, declined to comment about Gap Inc.'s rent strike when contacted by the Straight.
"We don’t discuss our tenant’s lease agreement as the information are confidential in nature," spokesperson Katherine Roux Groleau stated in an email. "We will not comment."
In Metro Vancouver, Ivanhoé Cambridge owns Guildford Town Centre, Metropolis at Metrotown I & II, Tsawwassen Mills, and Woodgrove Centre.
In 2017, Ivanhoé Cambridge sold Oakridge Centre to QuadRreal Property Group, which was created by the B.C. Investment Management Corporation.
Another Canadian real-estate giant, Cadillac Fairview, owns Pacific Centre and Richmond Centre.
Trudeau offers rent help for small businesses
Gap Inc.'s declaration about refusing to pay rent came shortly before a new announcement on this topic by Canadian prime minister Justin Trudeau.
This morning, he revealed that a new federal-provincial initiative, the Canada Emergency Commercial Rent Assistance program, will offer loans to property owners to cover 50 percent of three monthly rent payments from tenants from April to June.
Under this program, companies that pay up to $50,000 per month would be eligible for these rent subsidies.
If property owners cut rent to these commercial tenants by 75 percent, these loans will be forgiven.
Registered charities and nonprofit associations are eligible for this assistance.