Gap Inc. has suspended rent payments and said that, if unable to change lease terms, it could be deemed to be in default.
The long-struggling retailer also warned that it will have to take further actions to add to its liquidity as it might not have enough cash flow to sufficiently fund operations as its stores remain closed amid the COVID-19 pandemic.
Gap said in a Securities and Exchange filing that, beginning in April, it stopped paying rent on its stores and is in discussions to renegotiate or, in some cases, even terminate leases and close stores entirely. The rents amount to about $115 million per month in North America.
“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 there under,” Gap stated in the filing.
Gap, whose store brands beyond its namesake one include Banana Republic, Athleta and Old Navy, is Simon’s biggest in-line tenant at its malls in terms of rent, according to CNBC.
Gap has drawn down its full $500 million revolving credit facility. It expects to have $750 million to $850 million in cash, equivalents and short-term investments on hand at the end of its fiscal quarter on May 2. The company warned that it will need to take additional measures to preserve and add to its liquidity within the next 12 months as existing cash and cash expected to be generated from operations may not be sufficient to fund its operations.
The additional measures will include some combination of new debt financing or other short-term credit facility along with the following: further deferring capital expenditures, further reducing headcount, further reducing operating expenses, further reducing receipts and orders for merchandise, and extending the terms for payment of goods and services.
“There can be no assurance that we will successfully complete these actions,” Gap stated in the filing. “There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impacts of the outbreak on our business, and the steps we may need to take to address those impacts, are highly uncertain and subject to change.”