US movie theatres and some gyms are still paying only a fraction of the rent they owe eight months into the coronavirus crisis, delivering a blow to shopping centre owners’ hopes for a faster recovery.
Financial filings this week from several retail real estate investment trusts show that overall rent collection levels improved in October, as shoppers have gradually returned since the lifting of lockdown and more store chains have been willing and able to pay rent.
However, cinemas and some health clubs are among commercial landlords’ most troublesome tenants. Spirit Realty Capital collected only 12 per cent from movie theatres in October, compared with 93 per cent across its tenant base.
AMC alone has deferred about $325m of rental payments to landlords, the cinema chain said this week. Some landlords have given the company more than a decade to make the repayments.
Typical of a property owner that has struggled to collect rent from the sector is Weingarten Realty Investors, which has 165 properties, mostly outdoor centres in the south and west. Weingarten disclosed that it received only 35 per cent of rent from movie theatres in October, and 44 per cent from health clubs.
In contrast, it collected 96 per cent from craft retailers and 98 per cent from footwear stores.
Johnny Hendrix, chief operating officer, told Wall Street analysts that the company was “particularly concerned” about large health clubs and cinemas, as well as high-end restaurants. The company received 78 per cent of rent due last month from full-service restaurants.
Mr Hendrix said the three categories accounted for only 4 per cent of Weingarten’s annual base rent. But financial difficulties among such tenants threaten to exacerbate problems for struggling mall owners with greater exposure.
CBL & Associates filed for Chapter 11 bankruptcy this week. The mall owner had 27 movie theatres in its portfolio, previously generating $22m in annual rent.
Before coronavirus, landlords had turned to alternatives to retailers, including cinemas, to help them make up for the dent put in the bricks-and-mortar retail sector by the rise of online shopping. More than a third of top-quality US malls have cinemas, according to estimates from Green Street advisers.
Movie theatres have been allowed to reopen in most states, albeit at limited capacity, but they have struggled to attract audiences as Hollywood studios have postponed big releases. Authorities concerned by coronavirus have meanwhile been reluctant to allow gyms to reopen in some jurisdictions, including parts of California.
Presenting earnings this week, property executives said that while they were being flexible with tenants hit hard by the pandemic, including by linking rents to revenues, they were taking a tough line with those they believed could pay up.
“We have tenants that pay in Texas and have not paid in New York,” said Shane Garrison, chief operating officer of Retail Properties of America. The company planned to pursue legal action in some such cases.
Jackson Hsieh, chief executive of Spirit Realty, said the “only major hurdle” for gym operators was government regulation that prevented them from opening in some areas. “When they are open, people are choosing to go to the gym.”
He believed movie-goers would eventually return to cinemas but “the key markets need to open, and the content needs to be released”.
Kevin Habicht, chief financial officer of National Retail Properties, said most tenants were “moving in the right direction” — with the possible exception of cinemas.
AMC said it was likely to make “meaningfully higher” rental payments in the fourth quarter but that this would depend on its reopening schedule.