Owners of America’s open air shopping centres have collected less than half the rent they are due this month as companies including retailer Bed Bath & Beyond, cinema operator AMC and burger chain Shake Shack join other tenants in seeking relief from landlords.
Commercial property researchers at Green Street Advisors told clients this weekend that strip mall landlords have been paid only between 30 per cent and 50 per cent of April rent, highlighting the scale of the disruption to real estate caused by the coronavirus shutdown.
The tenants’ unwillingness to pay up puts the owners of the more than 30,000 strip malls across the US on track for far bigger declines in annual income than they endured during the global financial crisis.
It sets up a rocky period for the outdoor plazas, which have escaped the worst of the recent turmoil in retail real estate, with estimated average vacancy rates of only 5 per cent.
Despite the pressures, Green Street said listed operators should have the balance sheet strength to emerge from the crisis intact — in contrast to owners of indoor shopping malls, some of which are heading for financial restructuring.
Typically anchored by grocery stores, whose sales have boomed in the pandemic, strip malls have a more diverse mix of tenants than the struggling department stores and clothing chains that populate enclosed centres.
But many are non-essential businesses that have been forced to close because of restrictions brought in to contain the outbreak. Restaurants, for instance, occupy an estimated 15 per cent of strip mall units.
Shake Shack said on Friday that it was talking to landlords about “potential deferral or abatement” of rents, which it said was the biggest contributor to a “cash burn” at the fast food company of almost $1.5m a week.
AMC said in a filing with the US Securities and Exchange Commission that it was “working with” landlords to “manage, defer and/or abate” costs of the disruption, while Bed Bath & Beyond also said it was renegotiating rental terms.
They join several other businesses — including Levi Strauss, The Cheesecake Factory and gym chain Equinox — that have either withheld April rent or are in relief talks with landlords.
Vince Tibone, retail sector head at Green Street, said he expected that landlords would never collect most of the rent that had not been paid on time. “Expecting deferrals to be paid later is unrealistic for most tenants given lasting pressures on their businesses” from the crisis.
Despite the attention on rent payments, Mr Tibone said that tenant bankruptcies would have far greater implications for the value of listed strip mall-focused real estate investment trusts.
He said the listed Reits in the sector could have to cut their dividends and forecast net operating income would decline more than 40 per cent this year at Site Centers, Acadia Realty Trust and Retail Properties of America before recovering in 2021.
Financial leverage, as measured by net debt to earnings before interest, taxes, depreciation and amortisation, is estimated to rise above 10 times in 2020 at Reits including Kimco Realty, Urban Edge Properties and Brixmor Property Group.
However, Mr Tibone said “it seems unlikely that any company will need to issue equity at depressed prices”, in part because few of the trusts had near-term debt maturities.
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