CAKE - The Cheesecake Factory

[A Dhandho Investor]

Here in Belgium it was in the financial news today that none of the tenants (clothing chains, food chains, etc) are planning to pay this month’s rent, so I think this is a kind of practice that will become more widespread.

[Guest roark33]

Yeah, it is going to happen in April, but someone has to take that hit, the tenant, the landlord, the creditor on the mortgage, who is going to eat it short term is the question and how soon will everyone be forced to make it up.  Will CAKE be able to defer rent payments for 6 months and then have to make it up for the next 3 years....

[Spekulatius]

Yeah, it is going to happen in April, but someone has to take that hit, the tenant, the landlord, the creditor on the mortgage, who is going to eat it short term is the question and how soon will everyone be forced to make it up.  Will CAKE be able to defer rent payments for 6 months and then have to make it up for the next 3 years....

 

Yeas, this is kicking the can to the next guy, but someone still eats the loss. Can a large landlord like SPG force bankruptcy? They have taken over distressed retailers in the past and have the means to run this operation. CAKE is a pretty good business in normal times, so taking them out and eliminating the equity could be highly profitable in the long run.

 

Or another take, perhaps this is the end of fixed lease payments. Make the leases variable cost and pay the landlord a percentage of the revenues. To some extend this exists right now, but is only a small part of the lease payment, it could be made a total variable cost.

 

There interesting angles on this, but it is clearly a high stakes poker game.

[coc]

I have trouble understanding why any competent landlord would want to lean on their tenants, least of all a large and profitable tenant like CAKE, at a time like this. Does anything think SPG wants to announce its vacancy rate is skyrocketing?

 

SPG probably also doesn't want every large national tenant to stop paying their rent either. So it's complicated. But SPG taking over distressed/dead retailers is a different thing than taking over a healthy tenant going through an air pocket. It's just not going to happen that way. CAKE will likely need to make some concessions going forward but SPG throwing them out would be shocking.

[Haasje]

If there's equity left I wouldn't be thrilled not to get my rent

[johnny]

If I were a landlord my offer would be paying rent, in full, in-kind via stock, at market. If they scoff at that, I would pick somebody to serve as an example and act with the maximum amount of aggression the lease language could justify.

 

Yes, you don't want to systematically push your tenants into distress, but as the CEOs of all those tenants would have gladly told investors six months ago, stock issuance is a non-cash expense and has no impact whatsover on EBITDA. Talk about a win-win situation!