TheChek News Flow

Some agreements will allow tenants to defer some rent if the government orders another shutdown related to coronavirus

Retail landlords are including pandemic language in new leases, a previously rare feature as tenants seek protection after the first government-mandated coronavirus shutdowns in March complicated their negotiations for rent relief.

Because many insurance policies didn’t cover pandemic-related losses, landlords have offered various concessions to attract and retain tenants, including allowing them to defer part of their rent if another shutdown is ordered. Both sides get breathing room: Tenants are able to lower expenses while landlords are still able to collect some money for overhead and their mortgage.

“You have to provide the tenant an easy decision. If you make it complicated, you’re not going to get this done,” said Philippe Lanier, principal at EastBanc, a property developer, owner and manager of 25 open-air retail properties in Washington, D.C.’s Georgetown neighborhood.

Mr. Lanier has offered to cut the minimum base rent to 50% if the District of Columbia prohibits tenants from operating their business again because of the coronavirus, and for the tenant to repay the difference in six equal monthly installments on the first day after reopening. He also is open to leases structured on a percentage of the retailer’s sales—“percentage rents”—which would limit tenants’ expenses if their sales decline. He said he had signed amended leases with around 30 retail tenants, with an additional 15 still in the works.

Real-estate brokers said landlords have to contend with a glut of stores and social-distancing measures that have forced many retailers to shrink the number of stores. The trend puts more bargaining power in hands of tenants such as restaurants, apparel retailers, grocery stores and discount stores that are still expanding.

“We have begun to clarify and strengthen some of our force majeure language to more clearly define governmental shutdown, et cetera, which could happen for a multitude of reasons,” said Josh Goldstein, director of real estate and store development at Pet Supplies Plus, referring to “act of God” clauses that allow tenants to terminate leases or reduce rents in extraordinary circumstances.

While the pet industry has been deemed essential and is less affected by the recent store closures, future shutdowns could include such businesses, brokers said.

Pet Supplies Plus also is getting language related to delays on store openings included in new leases. Some stores haven’t been able to open on time because they have been affected by limitations on training new staff and building inspectors working from home, Mr. Goldstein said. The company, based in Livonia, Mich., has more than 500 stores across 34 states and is opening nearly 40 stores this year.

Questions remain about how long Covid-19 will persist, and some businesses are wary about the recent resurgence in infections in California, Texas and Florida. Landlords have extended more relief to tenants such as small local and regional apparel retailers, salons and restaurants that have felt the most pain. They also said they anticipate more tenant bankruptcies.

In downtown Detroit, Bedrock, a development company founded by billionaire Dan Gilbert, offered to waive base rents in return for 7% of gross sales for eligible tenants in its portfolio of 125 restaurants and retailers. It also allowed the use of security deposits for other purposes, including for reopening or reconfiguring of stores. Only one blow-dry salon and an apparel retailer closed permanently during the past few months, Bedrock said.

While landlords said their focus is on sustaining occupancy, they also are adamant that they shouldn’t bear all the risk of another government shutdown. One issue that many wouldn’t budge on is to include pandemics as a force majeure event.

Having such language in a lease hurts owners’ ability to get financing for the property. With courts still far from consensus on whether the pandemic constitutes force majeure, many owners are pushing back against clauses they deem excessive. Instead, they have offered sweeteners including bigger allowances for new and existing tenants to improve their spaces as well as easier access and help for retailers and restaurants looking to place tables on the sidewalks or to provide curbside pickup for goods bought online.

Some, such as retail-property investor and landlord Pacific Retail Capital Partners, are signing more license agreements with tenants, which have shorter terms and are more easily revocable by either party compared with traditional leases.

National tenants are more aggressive in demanding more pandemic language in new leases. “This is an effect of the pandemic that is going to last,” said Steve Plenge, managing principal of Pacific Retail.

Others have rent structures tied to a tenant’s revenue, or more favorable kick-out clauses allowing tenants to vacate the premises if sales don’t reach a certain number or if occupancy at a shopping center falls below a lower threshold.

“We are seeing rents 25% cheaper than pre-Covid 19,” said Corey Bialow, chief executive at Bialow Real Estate LLC, a firm that represents retail tenants. “Some landlords may not make a profit for six to seven years.”

July total of $101bn reached after net inflows of $6.76bn

Global assets held in exchange traded funds and products invested according to good environmental, social and governance principles surpassed $100bn last month, according to research by ETFGI, a consultancy.

The milestone was breached after $6.76bn of net inflows in July, which brought assets in globally listed ESG ETFs and ETPs to a total of $101bn, up from $88bn at the end of June.

ESG vehicles domiciled in Europe accounted for 51.6 per cent of those assets, while US-based ETFs and ETPs held just over 40 per cent of the market.

By the end of July, global ETFs and ETPs had garnered $38.8bn of net new money, far more than the $12.4bn such vehicles gathered in the same period of 2019 and the $26.7bn of net inflows recorded over the entire year.

ETFGI research found that the 20 best-selling ETFs gathered $4bn of net inflows in July.

Amundi’s MSCI Emerging ESG Leaders Ucits ETF was the most popular fund in the space and collected $588.8m.

ETFGI said that since the first ESG ETF launch in 2002 — the iShares MSCI USA ESG Select ETF offered by BlackRock’s ETF arm — the number and diversity of products had “increased steadily”.

The global ESG ETF and ETP industry comprises 393 products with 1,077 listings, from 92 providers on 31 exchanges in 25 countries, according to the consultancy.

ETFGI organises ETFs and ETPs into categories, including core ESG products and theme-based groups, such as clean energies and gender diversity.

The consultancy reported earlier this month that ETFs and ETPs listed in Europe garnered $17.5bn of net new money across all categories in July, taking inflows in 2020 to just over $50bn, below the $62.7bn the industry had gathered in the same period in 2019.

At the end of July, overall assets in the European ETF/ETP industry stood at $1.08tn.

The first international luxury brands are set to start launching in September, as show season kicks off.

Amazon is forging ahead with plans for a luxury brand platform, with the first of a dozen international accessories and ready-to-wear labels opening shops on the site as fashion show season kicks off in September, WWD has learned.

The labels, which hail from Europe and the U.S., will operate their own concessions on the site with a business model that’s more similar to the Farfetch marketplace than Net-a-porter or Matchesfashion.

The brands partnering with Amazon will also have access to centralized warehousing in the U.S., operated by Amazon, and be able to lean on the tech giant’s vast delivery network.

The platform will be launched in the U.S. initially, and Amazon has been working directly with the brands’ U.S. offices and subsidiaries. Dany Keirouz, head of brands relations and development at Amazon Fashion, is understood to be heading up the project, according to a market source.

Asked about the platform, an Amazon spokeswoman said the company “can’t comment on rumors or speculation.” Keirouz did not return a request for comment.

As WWD reported in January, Amazon planned to unveil the concessions-based luxury platform in the spring, but because of the coronavirus quarantines, the launch was pushed to September.

Amazon is understood to be giving the brands full control over the look and feel of their virtual stores, allowing them to sell as much as they please, control when or if they go on markdown, and — crucially — leverage Amazon’s speedy delivery and customer service platform.

As reported, sources said a sprawling warehouse is being built in Arizona to accommodate the platform, while a $100 million marketing campaign is in the works.

According to multiple sources, Amazon also plans to work with these brands on TV, film and streaming projects going forward.

The 12 launch brands are understood to be higher-end than those involved in the Common Threads: Vogue x Amazon Fashion initiative supported by the Council of Fashion Designers of America.

The Common Threads/Amazon Fashion project was formed specifically to boost designers’ sales during the pandemic. Those taking part in that program include Anna Sui, Thakoon, Tabitha Simmons, Derek Lam and Batsheva.

Although the two projects are separate, both are part of Amazon’s wider push into fashion and luxury.

Amazon is also understood to be working with a selection of London Fashion Week designers on another, sustainability related, commercial project that will be revealed next month ahead of the shows.

Since 2012, Amazon has put fashion at the top of the agenda, shifting from one approach to another looking for an opening, testing and iterating, buying companies, launching brands, mashing up trends and formats, moving ahead with some while abandoning others.

In Europe, however, it has met with resistance — at least on the luxury end.

Nearly two years ago, according to sources, Amazon suggested that multibrand retailers set up online shops to sell designer and luxury goods, but the idea never came to fruition.

Boosted by the Shanghai show, Qixi festival and trapped spending, the monthly tally is believed to be the highest one in China’s history.

LONDON — Louis Vuitton is on track to make sales history in China amid a strong COVID-19 rebound.

Its flagship in Shanghai’s Plaza 66, the largest in China, is expected to make $22 million in August, according to local financial information platform Xueqiu. A sales representative at the mall confirmed the number’s accuracy with WWD. In a typical month, the representative said, sales at the store come in between $11 million and $13 million.

Though Louis Vuitton declined to verify the number, it’s believed to be the highest monthly sales figure in China’s history.

The record-high sales tally was boosted in part by the brand’s men’s spring 2021 show held in Shanghai at the beginning of the month, which set the record for livestreams in China.

The spectacle, which featured giant inflatables and models stepping out of cargo containers, generated more than 100 million views across multiple platforms worldwide, including 68 million views on microblogging site Weibo, 18 million on Douyin, China’s version of TikTok and eight million on Tencent.

Local press said showgoers flocked to the Plaza 66 store to pick up head-to-toe new season looks for the event of the summer, which helped send sales up.

Qixi Festival, the Chinese Valentine’s Day, and pent-up demand for luxury goods were also key factors driving up August sales. The event has been a national phenomenon, with shoppers queuing outside luxury stores in recent weeks to get a hold of limited-edition items brands have released exclusively for the world’s biggest luxury market.

Talks nod to rising tensions between the nations, as President Trump regularly criticizes Beijing

WASHINGTON—Senior U.S. and Chinese officials said they were committed to carrying out the phase-one trade accord between the two nations, the two governments said, after the two sides discussed the pact Monday evening U.S. time.

The videoconference brought together U.S. Trade Representative Robert Lighthizer, Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He for a formal review of the trade deal signed in January. The trade representative’s office released a one-paragraph summary of the talks, which it said included discussions of “significant increases” in the purchases of U.S. products by China.

Talks also reviewed steps Beijing had taken to protect American intellectual property and liberalize China’s market for financial services, according to the statement. “Both sides see progress and are committed to taking the steps necessary to ensure the success of the agreement,” it said.

But the USTR statement made no mention of any subjects that China planned to bring up. Those included concerns over the intensifying U.S. actions against Chinese technology firms. In recent days, the Trump administration has threatened bans on the TikTok app owned by Chinese internet company ByteDance Ltd. and Tencent Holdings Ltd. ’s WeChat.

A statement published by China’s official Xinhua News Agency said the two sides had “a constructive dialogue on strengthening bilateral coordination of macroeconomic policies and the implementation of the phase-one trade agreement.”

In a nod to the intensifying tensions between the two world powers, the statement published by Xinhua also said that “both sides agreed to create conditions and atmosphere to continue to promote the implementation” of the trade pact. For Beijing, that means Washington should refrain from pushing too hard on sovereignty issues such as those involving Hong Kong and Taiwan.

The main significance of the talks is that they occurred at all, said trade experts, given the deepening divides between the two nations. While Washington and Beijing fought for two years over trade issues, the phase-one deal represents one of the few strands holding the relationship together.

“The phase-one deal has become this shiny spot in a diminishing relationship,” said Kelly Ann Shaw, a former Trump White House trade official.

The release also came shortly before the beginning of televised coverage of the Republican National Convention, which is expected to feature attacks on Beijing for a host of Trump administration grievances ranging from trade to China’s handling of the coronavirus pandemic.

Markets have focused on the health of the phase-one accord as a measure of the sturdiness of the U.S.-China relationship. The videoconference was initially expected to occur around Aug. 15, but was delayed while the two sides decided on an appropriate time. For markets, the talks could provide a measure of relief.

“Markets might be getting itchy,” said Christopher Johnson, a China expert at the Center for Strategic and International Studies. “Why not have [senior officials] interact when the convention opens and get a market bounce?”

In the past few months, China has stepped up its buying of U.S. corn, soybeans and other farm products. However, the pace of the purchases, as measured in dollar terms, is falling short of what is needed to meet the targets, partly reflecting declining commodity prices amid the global pandemic.

As of June, China’s purchases of all products covered by the trade pact were $33.3 billion, only at around 47% of their year-to-date targets, according to Chad Bown, a senior fellow and trade expert at the Peterson Institute for International Economics.

Chinese negotiators had planned to seek adjustments to the agreement to take into account the price fluctuations.

Despite the optimism of the USTR account, there is deep uncertainty about whether the phase-one accord will survive the presidential election. President Trump has regularly expressed his unhappiness with Beijing and, trade experts said, could decide to scrap the accord as a way to reinforce his campaign message that he is tough on China.

In an interview on Fox News on Sunday, Mr. Trump raised the prospect of “decoupling” from China—a term used to denote largely divorcing the U.S. economy from China’s. “Well, it’s something that if they don’t treat us right I would certainly, I would certainly do that,” he said.

A recent U.S. business survey showed increasing pressure on U.S. business from China to hand over technology.

According to the survey, conducted by the U.S.-China Business Council in May and June, 13% of the more than 100 respondent companies said they had been asked to transfer technology this year, compared with only 5% last year.

China has taken some steps to address the U.S.’s concerns over forced technology transfer, the council says, such as committing not to require or pressure foreign companies to transfer technology in the phase-one agreement and through language in a new foreign-investment law. “However, without specifics, it is unclear how this will reasonably be enforced,” it says in a report released earlier this month.

Investment firms with large existing stakes in ByteDance pursue deal for app’s U.S. operations, as potential alternative to Microsoft

General Atlantic and Sequoia Capital, two major investors in TikTok’s Chinese parent company, are maneuvering to be part of a deal to acquire the U.S. operations of the popular video-sharing app as it seeks to avoid a ban by the Trump administration, according to people familiar with the discussions.

The investment firms, which own large stakes in Beijing-based ByteDance Ltd., are key drivers behind a possible bid for TikTok by a group including Oracle Corp., the people said. The Oracle group emerged recently as a possible alternative to Microsoft Corp., which said early this month that it was in talks to buy TikTok’s operations in the U.S. and three other countries.

Microsoft had said it might invite some U.S. investors to join its bid. But more recently Sequoia and General Atlantic grew concerned that they wouldn’t have a place in a Microsoft deal and looked for another potential tech partner that could give them a piece of the action, some of the people said. They are now pushing the potential Oracle bid, which quickly won President Trump’s public support, although some of the people said the Microsoft talks are fluid and outside investors could still be included as minority investors in Microsoft’s bid.

Sequoia and General Atlantic both hold seats on ByteDance’s board. Sequoia’s seat is occupied by its China head, Neil Shen, while its efforts in the U.S. to participate in an acquisition are being led by Global Managing Partner Doug Leone. General Atlantic’s effort is led by its chief executive, Bill Ford, who represents his firm on ByteDance’s board. The investment firms have two points of interest that potentially conflict: their obligation as board members to maximize the value to ByteDance of its prized asset, and trying to buy into TikTok in the U.S. at a good price to capitalize on its potential.

ByteDance has been under pressure to reach a deal to sell TikTok’s U.S. arm ahead of a 45-day deadline the White House imposed in an Aug. 6 executive order that bans the app—which the Trump administration says poses an economic and national-security threat to U.S. interests—if it isn’t sold to U.S. buyers. A subsequent presidential order set a 90-day deadline for any transaction to be completed.

Bidders have been asked to submit offers by the end of the week, and one of the parties could enter exclusive negotiations soon, according to people familiar with the matter. It isn’t clear that a sale will happen, however. TikTok filed a lawsuit Monday challenging Mr. Trump’s initial executive order, saying his administration failed to follow due process in issuing it.

At least three camps have been circling a possible TikTok deal. In addition to Microsoft and the Oracle group, Twitter Inc. also had preliminary talks about a potential combination, people familiar with those discussions said.

Twitter remains interested but its approach hasn’t made significant headway, the people said.

Microsoft’s discussions are more advanced than any others, some of the people familiar with talks said—potentially a critical advantage given the tight timetable and the complexity of the negotiations, especially as it relates to guaranteeing the companies could satisfy U.S. national-security concerns. Microsoft has said it aimed to complete discussions with ByteDance no later than Sept. 15, adding there is no certainty it would be able to conclude a deal.

TikTok representatives have engaged with other companies about potential involvement in a bid. They approached Netflix Inc. to gauge its interest in a deal, people familiar with those discussions said, but the video-streaming giant passed, one of them said.

Oracle isn’t as obvious a potential buyer as Microsoft. Oracle has a sizable cloud-computing operation and technical capabilities, but it is mainly focused on serving business clients and has virtually no experience running a social-media platform or other major consumer-facing business. Microsoft is an even bigger player in business computing but also owns the LinkedIn social-media site and the Xbox videogame business. It also is much bigger and has about $136 billion of cash, some three times what Oracle has on hand.

Because ByteDance either has to agree to a deal that satisfies the government or risk its TikTok asset being banned entirely in the U.S., Microsoft and other suitors have significant leverage in price negotiations.

There are widely different views on valuation. ByteDance has estimated TikTok’s U.S. operations and those in the other countries could collectively be worth more than $50 billion, one of the people said, while some people familiar with TikTok’s operations put the number significantly lower. TikTok has around 100 million users in the U.S., and they are considered among the most lucrative world-wide for the app, which is still believed to be losing money.

Paying a fire-sale price could pose a risk for Microsoft, which has a sizable business in China, or another buyer, by potentially further inflaming sentiment in China, where talk of a forced sale and the U.S. government taking a cut from the transaction has been criticized.

Zhang Yiming, ByteDance’s founder and chief executive, favors Microsoft, said people familiar with his thinking. Mr. Zhang, who briefly worked at the company, likes its culture and has a good relationship with Microsoft CEO Satya Nadella, one of these people said.

While Oracle lacks experience running consumer tech businesses, it has political connections that could help its pursuit of TikTok. Larry Ellison, Oracle’s co-founder, chairman and largest shareholder, earlier this year threw a fundraiser at his home for the president. Chief Executive Safra Catz also worked on the executive committee for the Trump transition team in 2016 and has donated to his re-election campaign.

Asked about a possible Oracle bid last week, Mr. Trump said, “Well, I think Oracle is a great company and I think its owner is a tremendous guy, a tremendous person. I think that Oracle would be certainly somebody that could handle it.”

Sequoia also has ties to the administration and has been lobbying for ways to enable TikTok to keep operating in the U.S. Mr. Leone, the Sequoia global managing partner, has called Treasury Secretary Steven Mnuchin and Mr. Trump’s adviser and son-in-law Jared Kushner as part of this effort, according to people familiar with those discussions.

Mr. Leone and his wife have donated tens of thousands of dollars to Republican candidates this election cycle, including to the president’s re-election effort. In January, Mr. Leone hosted a reception for Secretary of State Mike Pompeo at his Atherton, Calif., home.

Mr. Ford has donated thousands of dollars to Republican congressional candidates this election cycle as well.