Landsec is the latest landlord to reveal the extent of its shortfall in quarterly rent payments – and the latest listed property player to conserve cash by scrapping a shareholder dividend as the Covid-19 crisis continues.
Of the £121m in rent due on 25 March, 65% had been paid by 31 March, compared with 96% at the same point last year.
The REIT is now working to discover where it can help tenants in trouble, launching an £80m rent relief fund. Around £15m will be set aside for food and drink businesses, equating to roughly three months rent-free. The remaining £65m will be allocated on a case-by-case basis to small and medium-sized businesses.
EG spoke to interim chief executive Martin Greenslade about how talks with occupiers have progressed during the pandemic, the need for empty rates relief and how the coronavirus crisis could affect the way people view retail and leisure.
How have you found occupier negotiations during this time?
“There’s a spectrum. On the office side, discussions and receipts have gone well; there have been some difficulties around people trying to make payments while working from home – some have processing difficulties, and some have requested monthly rents. Cash-flow changes as a result of Covid-19 have accounted for a good part of the uncollected amount in office.
“If you then flip towards the retail and leisure side, a proportion have paid, which is great. We are very grateful that they have continued to pay on time.
“Others have clearly struggled and have not paid, deferring what they are paying to us. So the conversation is about what financial situation they’re in, and how we can help – through monthly rent, deferring rents, or access to our [new] rent relief fund. We are in the early stages of trying to put together a picture of how we can best support occupiers through this.”
What criteria will occupiers need to meet when it comes to accessing that relief?
“Internally, we will develop criteria that are clear for the teams. The important thing is, we are trying to assess where the need is greatest. We cannot support everybody indefinitely. That is not a situation we are envisaging; it also wouldn’t be appropriate. What we are trying to do is help those who most need it.
“At the same time, we feel that those people who can pay have a responsibility to pay so that together we can make sure our places, our centres, return to thriving destinations when we come out of this lockdown.
“It is not the sole responsibility of landlords to ensure that happens. It relies on everybody playing their part. Our part is to focus where the need is greatest and, where those people have less access to other forms of capital, be that bank support, be that equity injection.
“We recognise there are difficulties and we will play a part in trying to ensure that will get through this together.”
Generally, do you think there will be more legal disputes between landlords and occupiers arising from negotiations?
“It’s possible, and hopefully it’s a last resort, but the clear position is that rent is due and payable. It is a discussion that needs to be held between occupiers and landlords, as to how best that can be done and what assistance we can provide. What we can’t have is a situation where landlords are seen as part of the supply chain that’s just not paid.”
Is the government doing enough to support landlords?
“The government has stepped in very quickly to help support our occupiers through rates relief, furlough schemes and the like.
“For landlords, it would be great if we had empty rates relief, so we have units back or empty units that we would get immediate relief for. Over the medium term, the system needs a wholesale revision.”
Would Landsec consider internal measures to reduce staff costs, such as furloughs?
“We have no plans to make any employees redundant or put them on furlough as a result of Covid-19.
“That’s not to say we are not focused on costs in some of our centres. We absolutely are. We will be [balancing] the complete reduction in the amount of stores that are open. Most of our centres are open, and all of our offices are open. But we have to balance cost reduction with the ability to get things up and running very quickly once we come out of lockdown.
Developers have been receiving a lot of mixed signals from the government on whether to carry on with developments during the crisis. What is your perspective?
“All of our sites are operated by contractors. So with development sites, we hand over the sites to the relevant contractor and they operate the sites in accordance with government guidelines. At 21 Moorfields, for example, McAlpine has paused the construction. They will be assessing their ability to reopen that site under the guidelines of social distancing.
“What we are keen to do is to support our contractors with the decision they make on whether it is feasible to continue work on site. They are assessing how they do that as safely as possible for their staff, because that is clearly the priority of businesses.
Do you think lower levels of debt will be available to real estate resulting from Covid-19 disruption?
“It is fair to say the retail sector already had its challenges pre-Covid, both structurally and cyclically. The amount of transactions in retail and retail property was already quite low.
“Do I think there’ll be less money in the system? I think wherever people see opportunity, the money will follow that and support those people who were prepared to put equity in, and the debt will follow.
“I don’t believe in markets being closed forever. At points of dislocation, there is often a wait-and-see approach. But I’m absolutely sure that capital will come back in, into all aspects of real estate.”
How do you think coronavirus will change the way people see retail, leisure or offices? Does Landsec imagine there may ultimately be some opportunities when the crisis is over?
“I think people will be craving contact again. They will look forward to being back in offices, to going out and going to our centres. After all, these are destinations. People aren’t just going to shop. They are going to enjoy the food, the cinema, the retail outlets. I think people will realise just how important that social dynamic is.
“It will be very interesting to see how quickly that bounces back. I’m sure some things will change; people will get more used to video conferencing, for example. But we will recognise how important human contact is, in all aspects of life.”
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