SBUX Starbucks Corporation

By Esther Fung 

Mall owner Simon Property Group won an usual victory over Starbucks Corp. after an Indiana judge ordered the coffee giant to keep open Teavana stores in 77 of Simon's shopping centers, striking a blow to underperforming tenants hoping to wiggle out of their leases in a retail storm.

Landlords are pushing back against tenants that try to end their leases prematurely if they can remain economically viable with the store remaining open.

The judge at Marion County Superior Court last week granted a preliminary injunction to halt Starbucks from closing and conducting any going-out-of-business sales in its Teavana stores in 77 retail locations owned by Simon. Only two of the leases are set to expire before the spring of 2018, with the rest extending as far out as 2027.

"We are disappointed in the judge's ruling and will continue to focus on finding a resolution," said a Starbucks spokeswoman. She declined to comment on whether Starbucks would continue its plan to close Teavana stores elsewhere. Simon didn't respond to a request for comment.

The Indianapolis-based real-estate investment trust had argued the store closures could hurt other tenants that rely on their co-tenants for foot traffic, and that if Teavana stores were allowed to close it might precipitate other tenants to do the same.

"The real concern was how other tenants would interpret this," said Jennifer Recine, a partner at law firm Kasowitz Benson Torres LLP, noting that landlords don't want a mass exodus of tenants. Kasowitz doesn't represent either party in the lawsuit.

In July, Starbucks said it would close all 379 Teavana stores, a chain of tea shops, by the spring of 2018. The Seattle-based company cited weak foot traffic, particularly in malls, for the chain's underperformance.

In August, Simon filed a lawsuit in Indiana stating that Starbucks would breach its lease obligations by closing its Teavana outlets in its shopping centers. The 18-page complaint also alleges the public announcement of the closures in July caused "irreparable harm" to the value of Simon's malls and its reputation.

Starbucks had acquired Teavana in 2012 for $620 million and had continued to sign new leases for Teavana stores in Simon's malls, with the most recent lease signed on March 30, 2016, according to court documents. Starbucks also operates more than 67 Starbucks branded stores in the 77 Simon malls in which it operates a Teavana store.

The lawsuit against Starbucks comes amid an increase in retailer bankruptcies and store closures.

More tenants are becoming more aggressive in demanding for lease concessions or fewer penalties to walk out of leases, but some landlords say that some of the demands aren't warranted.

Write to Esther Fung at esther.fung@wsj.com

(END) Dow Jones Newswires

December 05, 2017 12:42 ET (17:42 GMT)

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