Case 20-13076-BLS Doc 351 Filed 01/18/21 Page 1 of 14 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: Chapter 11 Case No. 20-13076 (BLS) FRANCESCA’S HOLDINGS CORPORATION, et (Jointly Administered) al.,1 Debtors. Obj. Deadline: Jan. 18, 2021 @ 5:00 p.m. Sale Hearing: Jan. 21, 2021 @ 11:00 a.m. Re: Docket Nos. 45, 262, 266, 271 and 295 LIMITED OBJECTION OF BROOKFIELD PROPERTIES RETAIL, INC., HINES GLOBAL REIT, JONES LANG LASALLE AMERICAS, INC., QIC PROPERTIES US, INC., REGENCY CENTERS L.P., TANGER FACTORY OUTLET CENTERS, INC., TEACHER’S INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, TURNBERRY ASSOCIATES AND THE WOODMONT COMPANY TO CURE AMOUNTS, INCLUDING STUB RENT AMOUNTS, AND PROPOSED ASSUMPTION AND ASSIGNMENT OF LEASES Brookfield Properties Retail, Inc., Hines Global REIT, Jones Lang Lasalle Americas, Inc., QIC Properties US, Inc., Regency Centers L.P., Tanger Factory Outlet Centers, Inc., Teacher’s Insurance and Annuity Association of America, Turnberry Associates and The Woodmont Company (collectively, the “Landlords”) submit this limited objection (the “Objection”) to the potential assumption and assignment of their Leases (as defined below) by the above-captioned debtors (the “Debtors”). In support of this Objection, the Landlords respectfully state as follows: PRELIMINARY STATEMENT 1. The Landlords do not object to the assumption and assignment of the Leases to a qualified operator per se, but file this limited Objection to address two key issues: cure amounts must include all amounts due and owing under the Leases, and the Debtors must 1 The Debtors in these cases, along with the last four digits of each Debtor’s federal tax identification number, are Francesca’s Holdings Corporation (4704), Francesca’s LLC (2500), Francesca’s Collections, Inc. (4665), and Francesca’s Services Corporation (5988). The address of the Debtors’ corporate headquarters is 8760 Clay Road, Houston, Texas 77080. Case 20-13076-BLS Doc 351 Filed 01/18/21 Page 2 of 14 provide the Landlords with adequate assurance of future performance with respect to the proposed assignee of any lease. 2. First, to satisfy the Debtors’ burden under sections 363 and 365 of the Bankruptcy Code, the Debtors must furnish the Landlords with sufficient adequate assurance information to determine if the proposed assignee is creditworthy and could be a viable operator of the business, specifically in the context of heightened requirements afforded counterparties to shopping center leases under section 365(b)(3) of the Bankruptcy Code. 3. Second, in connection with the potential assumption and assignment of the Leases, the Debtors or the proposed assignee must be required to pay the cure amounts set forth in the column “Landlord Cure Amount” on Exhibit A, attached hereto, plus any additional pecuniary losses suffered by the Landlords, including reasonable attorneys’ fees. The “Landlord Cure Amount” includes the stub rent amounts set forth in the column “Landlord Stub Rent Amount” on Exhibit B attached hereto. Such stub rent amounts must be paid in accordance with the relevant provisions of the Final DIP Order. 4. Third, as part of adequate assurance of future performance, the Debtors or the proposed assignee must satisfy all accrued and unbilled obligations, including any Adjustment Amounts (as defined below) which have not yet been billed or have not yet become due under the terms of the Leases. The Debtors or the proposed assignee must also (i) be required to comply with all contractual obligations to indemnify and hold the Landlords harmless with regard to events which occurred before assumption and assignment, but which were not known to the Landlords as of the date of the assumption and assignment, and (ii) continue to timely pay all rent and additional rent due under the Leases until the Leases are assumed, assumed and assigned, or rejected, pursuant to section 365(d)(3) of the Bankruptcy Code. Case 20-13076-BLS Doc 351 Filed 01/18/21 Page 3 of 14 5. The Landlords hope to resolve some, if not all, of the issues raised herein with the Debtors consensually, but reserve the right to argue these issues at the hearing. Furthermore, pursuant to paragraph 13 of the Bidding Procedures Order entered on January 4, 2021, this Objection also constitutes an objection to entry of the Sale Order, as such capitalized term is defined in the Bidding Procedures Order. BACKGROUND 6. The Landlords are the owners or managing agents for the owners of shopping centers located throughout the United States where the Debtors lease retail space pursuant to written leases (each a “Lease” and, collectively, the “Leases”) for the stores at the locations listed on the attached Exhibit A (collectively, the “Leased Premises”). The Leased Premises are located in shopping centers as that term is used in section 365(b)(3) of the Bankruptcy Code. See In re Joshua Slocum, Ltd., 922 F.2d 1081 (3d Cir. 1990). 7. On December 3, 2020 (the “Petition Date”), the Debtors filed voluntary petitions for relief pursuant to chapter 11 of the Bankruptcy Code with this Court. 8. The Debtors remain in possession of their properties and continue to manage their businesses as debtors-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code. 9. On December 4, 2020, the Debtors filed the Motion for Entry of Orders (I)(A) Approving Bidding Procedures For Sale Of Substantially All Of The Debtors’ Assets, (B) Approving Stalking Horse Bid Protections, (C) Scheduling Auction For, And Hearing To Approve, Sale Of Substantially All Of The Debtors’ Assets, (D) Approving Form And Manner Of Notices Of Sale, Auction And Sale Hearing, (E) Approving Assumption And Assignment Procedures And (F) Granting Related Relief And (Ii)(A) Approving Sale Of Substantially All Of Case 20-13076-BLS Doc 351 Filed 01/18/21 Page 4 of 14 The Debtors’ Assets Free And Clear Of All Liens, Claims, Interests And Encumbrances, (B) Approving Assumption And Assignment Of Executory Contracts And Unexpired Leases And (C) Granting Related Relief.2 10. On January 4, 2021, the Court entered the Final Order (I) Authorizing the Debtors to Obtain Postpetition Senior Secured Superpriority Financing, (II) Authorizing The Debtors’ Use of Cash Collateral, (III) Granting Adequate Protection to the Prepetition Secured Parties, and (IV) Granting Related Relief (the “Final DIP Order”).3 11. On January 4, 2021, the Court entered the Order (I)(A) Approving Bidding Procedures For Sale Of Substantially All Of The Debtors’ Assets, (B) Approving Process for Designation of Stalking Horse Bidder and Provision, of Bid Protections, (C) Scheduling Auction For, And Hearing To Approve, Sale Of Substantially All Of The Debtors’ Assets, (D) Approving Form And Manner Of Notices Of Sale, Auction And Sale Hearing, (E) Approving Assumption And Assignment Procedures And (F) Granting Related Relief (the “Bidding Procedures Order”).4 12. On January 6, 2021, the Debtors filed the Notice of Potential Assumption and Assignment of Executory Contracts or Unexpired Leases and Cure Amounts (the “Cure Notice”).5 In accordance with procedures established in the Bidding Procedures Order, the Cure Notice lists the proposed cure amounts that must be satisfied in order to assume and assign certain leases, including the Leases. The cure amounts listed in the Assumption Notice are included on Exhibit A, attached hereto, in the column titled “Debtors’ Cure Amount.” 2 Docket No. 45. 3 Docket No. 262. 4 Docket No. 266. 5 Docket No. 271. Case 20-13076-BLS Doc 351 Filed 01/18/21 Page 5 of 14 13. On January 10, 2021, the Debtors filed the Amended Notice of Potential Assumption and Assignment of Executory Contracts or Unexpired Leases and Cure Amounts (the “Stub Rent Notice”).6 The Stub Rent Notice includes the proposed cure amounts for each of the Leases as listed in the Cure Notice, and also specifies in a separate column the portion of the proposed cure amount for each of the Leases that relates to unpaid stub rent - the per-diem rent for the period from the Petition Date through December 31, 2020. The Stub Rent Notice has been provided in connection with the provisions of paragraph 7(f) of the Final DIP Order. The stub rent amounts listed in the Stub Rent Notice are included on Exhibit B, attached hereto, in the column titled “Debtors’ Stub Rent Amount.” 14. The Stub Rent Notice establishes January 18, 2021 as the deadline to object to the proposed assumption and assignment of the Leases. OBJECTION I. THE DEBTORS MUST PROVIDE EVIDENCE OF ADEQUATE ASSURANCE OF FUTURE PERFORMANCE UNDER THE LEASES (A) Adequate Assurance of Future Performance for Shopping Center Leases 15. In connection with the assumption and assignment of leases, shopping center landlords are afforded special statutory protections under the Bankruptcy Code in the form of adequate assurance of future performance. In re Joshua Slocum, 922 F.2d at 1086; In re Trak Auto Corp., 277 B.R. 655 (Bankr. E.D. Va. 2002). Section 365(f)(2) provides: The trustee may assign an executory contract or unexpired lease of the debtor only if− (A) the trustee assumes such contract or lease in accordance with the provisions of this section; and 6 Docket No. 295. Case 20-13076-BLS Doc 351 Filed 01/18/21 Page 6 of 14 (B) adequate assurance of future performance by the assignee of such contract or lease is provided, whether or not there has been a default in such contract or lease. 11 U.S.C. § 365(f)(2). 16. Section 365(b)(1) of the Bankruptcy Code further provides: If there has been a default in an executory contract or unexpired lease of the debtor, the trustee may not assume such contract or lease unless, at the time of assumption of such contract or lease, the trustee− (A) cures, or provides adequate assurance that the trustee will promptly cure, such default…; (B) compensates, or provides adequate assurance that the trustee will promptly compensate, a party other than the debtor to such contract or lease for any actual pecuniary loss to such party resulting from such default; and (C) provides adequate assurance of future performance under such contract or lease.