The challenge of collecting rent in the age of coronavirus has been laid bare in recent days by US commercial landlords that have reported receiving only pennies on the dollar from movie theatres and some other tenants hard hit by the pandemic.
A series of financial filings from listed real estate investment trusts show that overall collection rates have risen markedly from the height of lockdown in the spring. But they remained beneath normal levels in July, even as the economy reopened.
While groceries and other retailers selling essential goods have largely paid what they owe, many restaurants and discretionary retailers have not. Illinois-based Retail Properties of America, which owns 102 shopping centres and other properties, said its collection rates for movie theatres and amusement and play centres were only 9 per cent and 6 per cent, respectively.
One leading property owner reported a divergence in collection rates by ownership type. Private equity-backed businesses have paid less than their listed peers, according to figures from Spirit Realty Capital, a Dallas-based Reit with $6.3bn in assets under management.
The wide disparity in collection rates between sectors was highlighted by Weingarten Realty, which has 165 properties, mostly outdoor centres in the south and west. Weingarten said it had received 100 per cent of July rent from supermarkets, 99 per cent from banks and 98 per cent from liquor and wine stores, but only 75 per cent from discount clothing stores, 67 per cent from full-service restaurants and 48 per cent from health clubs.
Kimco Realty, which has an interest in about 400 US shopping centres and mixed-use properties, said retailers that sold essential goods, such as grocers, hardware stores and drug chains, had paid 96 per cent of July rent. Non-essential businesses had paid 72 per cent, the company said.
Property executives said they were willing to be flexible with tenants that were struggling, including striking deferral agreements and moving monthly rents to leases tied to revenues.
But they were taking a harder line with those they believed had the resources to pay. Gap, the national retailer, and Brookfield Property Partners, one of the country’s biggest mall owners, are among the companies in a legal battle over leases.
Brookfield took legal action against the clothing chain over unpaid rent. Gap said coronavirus lockdown rules had made it illegal for it to operate and last month it countersued, asking a court in Illinois to deem the contracts invalid.
Jay Whitehurst, chief executive of National Retail Properties, said this week that the Florida-based Reit, which owns more than 3,000 properties, had taken a “very collaborative approach with those tenants that were materially impacted” by the pandemic.
However, he added: “For those tenants that were unwilling to pay rent or agree to a deferral arrangement, we’re pursuing our legal remedies for payment and enforcement of the lease.”
Spirit, which has interests spanning retail, industrial and office properties, said in April it had received 64 per cent of rents due from private equity-owned tenants compared with 89 per cent from public companies.
Spirit’s collection rates improved in July. But PE tenants were paying only 82 per cent of their rents, compared with 93 per cent among listed groups.
Property owners are revealing the extent of the income shortfalls during the pandemic as retailers begin to quantify how much they have saved by extracting concessions on rents.
Ralph Lauren said in a Securities and Exchange Commission filing this week that its rent and occupancy costs were $44m lower in the three months ended June 27 than the same period one year ago.
The decline in rental income is causing financial distress among some highly indebted real estate companies. Particularly vulnerable is CBL, a Tennessee-based mall owner with 108 properties across the US, which estimated that it had collected only 49 per cent of July rents.
CBL said it was in talks with lenders after it was late in paying $30m in interest on some of its debt. “Discussions are ongoing, and we are hopeful that a positive and mutually beneficial outcome will be reached,” the company said.
While stores have reopened — Brookfield said almost 15,000 of its core retail tenants, or about 85 per cent of its portfolio, had restarted their businesses — discretionary retailers have reported lower footfall than normal.
Bankruptcies of retailers including JCPenney, Neiman Marcus and Brooks Brothers have added to the pressure on landlords, as Chapter 11 allows companies to get out of lease agreements altogether.
Authorities are meanwhile keeping some businesses, such as gyms and movie theatres, closed altogether, while companies including Bed Bath & Beyond, The Cheesecake Factory and Bloomin’ Brands have persuaded landlords to abate or defer rent.