- Private Investment Team
Most Realty Income tenants continue to pay rent despite coronavirus economic woes
Article By: Mike Freeman, The San Diego Union-Tribune
May 5, 2020
San Diegoʼs Realty Income, the owner of standalone retail buildings, said tenants have paid 83 percent of rent owed for April across its properties to date, despite shelter-in-place orders that have kept customers away.
The Real Estate Investment Trust provided a snapshot of how coronavirus lockdowns were impacting retail landlords on Tuesday as it announced firstquarter financial results. While myriad retail stores have been hurt by efforts to stem COVID-19, it hasnʼt been directly clear how much of the pain would flow up to building owners.
For Realty Income, its theater, gym, restaurant and child-care tenants have struggling the most to make rent payments.
“These are the few industries that we feel we have to keep a close eye on,” said Chief Executive Sumit Roy in a conference call with analysts. “We are in constant contact with our operators to see if we can work out a solution.”
Realty Income gets about 90 percent of its revenue from retail tenants. Last month, the company withdrew its full year financial guidance because of the pandemic.
But it posted strong financial results for the first quarter on Tuesday, and April rent collections appeared to be better than investors expected given social distancing restrictions. The companyʼs shares gained 2.7 percent to end trading Tuesday at $52.05 on the New York Stock Exchange.
Meanwhile, a second San Diego-based REIT — Retail Opportunity Investment Trust — said Tuesday that it had received 70 percent of total base rent for April to date.
Retail Opportunity owns grocery-anchored shopping centers mostly on the West Coast. “We continue to work diligently and thoughtfully with our tenants and look forward to a solid recovery once stay-at-home orders are safely lifted,” Chief Executive Stuart Tanz said in a statement.
As a comparison, four other publicly traded REITs with significant retail buildings — Retail Properties of America, Acadia Realty Trust, SITE Centers Corp. and Urban Edge Properties — reported April rent payments ranging from 50 percent to 56 percent, according to Baird Equity Research.
For Realty Income, it owns 6,500 mostly free-standing retail properties nationwide, with top tenants including Walgreens, 7-Eleven, Dollar General and Walmart.
“Our top four industries — convenience stores, drug stores, dollar stores and grocery stores — each sell essential goods,” said Roy. “We have received almost all of the contractual rents due to us from tenants in these industries.”
Realty Income also is a major landlord for AMC Theaters, Regal Cinemas and LA Fitness, as well as casual dining restaurants and child-care providers such as Kinder Care.
Struggling tenants are seeking rent deferrals, Roy said. The company is reviewing requests on a case-by-case basis, with the majority of negotiations ongoing. How quickly tenants bounce back once restrictions ease depends on the industry, Roy said. He believes the theaters could take quite a while to recover. Fitness clubs and child-care could rebound faster. Restaurants are anybodyʼs guess.
For the first quarter, Realty Income reported revenue of $414 million, up 16 percent over the same quarter last year. Net income came in at 44 cents per share, up from 37 cents a share the year before.
The company had $1.2 billion in cash on hand at quarter end, with another $1.1 billion available on its line of credit to provide liquidity during the pandemic.
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