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17 Sep 2020

UK listed property companies collected 67% of the £1.1 billion they were due in rent

UK listed property companies collected 67% or approximately £730m of the £1.1bn in rent they were due in the last quarter (June), shows an analysis of REITs by Boodle Hatfield, the leading private wealth law firm.

Alternative property classes such as healthcare, social care, logistics and student housing saw the best results for landlords, with over 90% of rents due being collected.

However, the research by Boodle Hatfield found that the REIT sector as a whole saw a much weaker performance, partly due to the fact that lower rent collection by some of the property industry giants, such as Hammerson and Land Securities, dragged down the total value of rents collected.

The percentage of rents collected by listed property companies is significantly higher than the estimate of what all property landlords collected. Some research has suggested that the overall percentage of rents collected in the last quarter was as low as 20%.

Boodle Hatfield says that the higher exposure of the UK listed property sector to better performing segments such as logistics than the property industry as a whole, may explain their better rent collection record.

Retail and leisure focused REITs collected just over 54% of rent due in June, compared to almost 70% for the previous quarter.  The retail and leisure sectors have been particularly hard hit with the lockdown almost wiping out their income and with it, their ability to pay rent. For example, Hammerson, which is focused on retail, collected only 16% of its rent roll for the last quarterly period.

A number of businesses have had to resort to, or are considering a company voluntary arrangement (CVA) to cut costs including their property costs.  Many CVAs in the retail sector have included significant rent reductions, which some landlords have criticised, saying that they are being used by solvent business to strongarm landlords to cut rents – not to stave off insolvency but to improve the retailer’s profitability.

Outside of the CVA process, landlords have been inundated with requests for rent cuts and for a shift to turnover-rents (where rents are based on the sales undertaken from that particular store or restaurant).

Tenants that have not paid their rents are currently protected from action being taken by landlords owing to a moratorium on business evictions.  That moratorium was due to expire at the end of September but has recently been extended to the end of 2020.  Whether or not this moratorium gets extended again remains to be seen.  As and when it does expire, some landlords may use the threat of eviction to force tenants to pay more of the rents they owe.

Simon Williams Head of Property at Boodle Hatfield, says: “Rent collection rates have taken an unprecedented hit during lockdown and commercial landlords aren’t optimistic that the next payment day will be much better.”

“However, investors in alternative property classes like student accommodation and care homes have outperformed.”

“Up until now landlords of retail and office space have generally been very understanding, but eventually they will need to begin pursuing unpaid rent from those that can afford it.”

“However, businesses are still struggling to get back up on their feet so it is going to be quite some time before they achieve profits at the same level as pre-lockdown. Their view is that landlords need to share some of that pain with them.”

“It is hoped that this tension between landlords and tenants can continue to be resolved by negotiation.”

*Analysis of 56 REITs listed on the London Stock Exchange

**Based on disclosed annualised passing rent

This article was covered in the FT and Property Week in September 2020.