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Tumultuous week for property as impact of covid-19 bites

Retail landlords call for rental support scheme

The extent of the disruption caused by the covid-19 pandemic is starting to really bite for property landlords.

Unsurprisingly, the retail sector (including leisure and food and beverage) is being hardest hit due to the enforced shutdown of all non-essential shops.

A host of big named retailers, such as Primark and Burger King, have said they will not pay rent during the crisis.

The impact of this was brought into stark reality on Thursday when Intu Properties, which owns big shopping centres across the UK and Spain, announced that it had received just 29% of the rent it was due for the first quarter of the year.

For Intu, which was on the brink of collapse anyway due to the structural shift in the retail market that has played out over the last few years and its huge debt pile, it could be the final nail in its coffin.

It said it was asking its lenders for waivers having breached many of their debt covenants.

On this note, it did receive some good news this week as the Prudential Regulation Authority (PRA), which is overseen by the Bank of England, urged banks to take a flexible approach to problem loans.

It said that normal accounting rules governing the treatment of credit losses should not be applied during the pandemic, stating banks should distinguish between normal covenant breaches and breaches arising as a result of the pandemic.

Property companies normally have a week or two to make interest payments following the rent quarter day (which fell on 25 March 2020).

It feels like a stay of execution for Intu, but for many other property companies it will be a huge relief.

Few companies have been as transparent as Intu in revealing how much rent they received for the first quarter, but you could expect all of the retail-focused companies to have been hit hard.

All except Supermarket Income REIT, which announced on Friday that it had received 100% of its rents for the quarter – not surprising given that the grocers have seen sales rocket during the pandemic.

Property companies have this week scrambled to reassure shareholders that their balance sheets were strong while others moved quickly to limit the damage.

A host of companies suspended dividends and halted any non-essential spending, including NewRiver REIT, Shaftesbury and Unite.

British Land also suspended its dividend and offered its retail tenants some flexibility in paying rents.

It said smaller retailers would get a three-month holiday from paying rent, while larger retailers would be able to spread payments over the next six quarters from September 2020.

It is a very commendable step by the FTSE 100 group, which said it would lose around £3m from the concession to smaller retailers, while the deferment of rent from larger retailers represents around £40m.

Its compassion wasn’t received well by the market, with its share price falling almost 7% from the time of the announcement to the time of writing.

With retailers declaring they could or would not pay rent while their stores were shut, it was a shrewd move by British Land and we hope in the long run its act of generosity will be rewarded.

QuotedData is continuing to monitor the impact of covid-19 on the property sector and will update you on developments.

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