Holding back rent is normally a sure-fire way to get evicted. Not so for large retailers like Primark, who have been forced to shut their doors as a result of a government-imposed lockdown caused by the coronavirus. With major tenants withholding rent, landlords as diverse as private equity giant Blackstone, UK real estate investment trust British Land and its troubled domestic peer Intu Properties may soon find they have limited bargaining power.
The trio have different approaches to the current crisis. Heavily indebted Intu can do little more than offer a cut in service charge fees, but that’s slightly beside the point given it revealed on Thursday it only received 29% of rent due despite having profitable tenants like Inditex-owned Zara and H&M. Blackstone is giving tenants the chance to defer payment for three months and has created a 10 million pound support fund for those who need it. British Land is giving smaller players full rent holidays and allowing bigger ones to defer.
This approach has a limited shelf life. Blackstone, which rents out retail space in Victorian railway arches, and British Land, a major office and shopping centre landlord, are both hoping that draconian measures confining the public to their homes will end by early July. But if the crisis goes on longer or restrictions are simply eased rather than scrapped altogether, tenants will need more relief.
Perversely, this gives renters the upper hand. With the majority of businesses from mechanics to restaurants forced to down tools, tenants can feel safe that there is little chance of being replaced. Hence the more aggressive approach to rent negotiations and withholding payments displayed by Primark.
Landlords have little interest in bringing about large-scale insolvencies. But their enforced largesse could well find them sharing such assistance with tenants who are far from needy. That sad reality for their investors explains why Intu’s 2022 bond is yielding 60% of par, according to Refinitiv. And why British Land shares slumped 7% on Thursday after it felt the need to “temporarily” suspend its dividend, which had already been yielding over 8% – levels last seen in 2009. At least for the time being, they are all in it together.