Dillard's Using Lawsuit As Exit Strategy In Texas Mall
17 Aprile 2009 - 10:12PM
Dow Jones News
Frustrated by leaky roofs, high vacancies and down-market
tenants, Dillard's Inc. (DDS) is suing a Texas mall owned by Simon
Property Group Inc. (SPG) and General Growth Properties Inc. (GGP)
for neglect.
Although similar lawsuits have been filed before, they don't
appear very common outside of bankruptcy proceedings. But that
could change as many mall landlords have less cash to spend on
maintenance and lack leverage to attract and retain desirable
tenants.
Dillard's is asking the U.S. District Court, Western District of
Texas, Austin Division, to void the lease of a Highland Mall store.
The retailer in a court filing claimed the mall was allowed "to
deteriorate in character and quality such that it is now
approximately half vacant, has a poor tenant mix that is not
consistent with a first-class shopping center operation."
The department store chain cited the closure of a J.C. Penny Co.
(JCP) anchor and the emergence of discount retailers, including a
new store that sold toilet paper, as contributing to a poor
business environment. In addition, Dillard's says the mall was
slack on ,maintenance including not repairing store damage caused
by a leaky roof.
Dillard's may simply be a dissatisfied customer, but the
retailer may also be in the forefront of a new strategy retailers
may take to get out of their leases, said Dave Marcotte, director
of Retail Insights, a retail consulting firm.
"This is not common yet," said Marcotte. "But it may be another
shoe dropping - seeking legal remedies as an exit strategy."
The lawsuit comes at a time when mall landlords and retailers
are struggling amid a brutal recession that has severly curtailed
consumer spending, halted expansion and fueled massive store
closings nationwide. The International Council of Shopping Centers
has projected 73,000 store closures during the first half of this
year.
A prolonged credit crunch has also hindered many mall owners
from refinancing debt forcing them to conserve as much cash as
possible to pay maturing loans.
General Growth, the second largest public U.S. mall operator
after Simon Property, filed for bankruptcy Thursday as it crumbled
under a $27 billion debt load.
The Dillard's lawsuit, filed in late March, shouldn't be
impacted by the Chapter 11 since Highland Mall wasn't one of the
affected properties.
Representatives from Dillard's and General Growth declined to
comment, citing the matter being under litigation. Simon Property
had no comment.
David Bruck, a bankruptcy attorney at Greenbaum Rowe Smith and
Davis, expects that similar lawsuits will follow, with creditors
being pulled in.
"My sense is this is really a play to bring pressure from the
lenders to advance some money," Bruck said, noting that creditors
usually have a bigger investment in these properties.
The worsening economy has already emboldened retailers to ask
for more rent concessions, tenant improvement allowances and more
say about which stores set up shop in a mall or shopping
center.
Dillard's is part of a department store group that is being
especially hard hit by the recession. The retailer swung to a
fourth-quarter loss as sales and margins fell, and Standard &
Poor's Corp. on Friday cut its debt rating for the company two
notches deeper into junk territory, to B-minus.
Store operations have been troublesome, with Dillard's posting
negative monthly same-store-sales since last July, and in the last
three months the drops have exceeded analysts' expectations.
Suing "is not a bad way to break a lease so you can essentially
get a store closed at a minimal cost," Marcotte said, noting there
are shareholder considerations.
"To investors, saying I'm closing a store because of lease
problems is different than saying it's closing for business
reasons," he said.
-By A.D. Pruitt, Dow Jones Newswires, 201-938-2269,
angela.pruitt@dowjones.com
-By Karen Talley; Dow Jones Newswires; 201-938-5106;
karen.talley@dowjones.com