This morning Landsec announced that it has drawn in only 65% of the rent that it was due, with its hotel and leisure (23%) and retail (41%) particularly badly hit.
In response it has set up an £80m support fund to provide rent relief for customers most in need.
React News spoke to interim chief executive Martin Greenslade, who is at the helm until 14 April when Mark Allen takes up the role, about the company’s negotiations with tenants, what it is doing to keep its balance sheet in good shape and whether there will be M&A activity in the sector.
Has your interim period as CEO been more eventful than you imagined?!
I thought it might have been like a bit of a holiday! The whole thing is a bit surreal with everyone working from home and balancing children running around to be honest.
Why have you opted to put in place the £80m fund?
We are putting in place help for our customers and the communities in which we operate and it is important to be helping smaller occupiers. It’s approximately 25% of the income that we get on an annual basis from our retailer and F&B providers or between 12 and 15% of the business overall. We want to make sure the small and medium sized businesses and F&B operators and alike survive this crisis and come back roaring and help make our destinations the thriving, exciting destinations they were before we went into lockdown
Was the amount of rent you drew in broadly what you expected?
The reasons we give our rent figures after five days is it is the metric we use typically in our business that it allows for people who have difficulty processing payments and it makes sure we have chased around and alike.
Most importantly at the moment, people are all coming to terms with the new ways of doing this remotely. Some people on top of this have asked to defer payments into monthly payments on the office side. The whole reason for the £80m support fund is us saying we will do our part to support those smaller businesses and those people who don’t have access to assistance or capital injections that maybe some of the larger businesses do.
What we are also asking people to do is that those who can pay that they do so and they pay on time. We are all trying to work with our occupiers to get through this but we can’t afford for there to be no payments and for deferrals to go on indefinitely.
Do you think you will pursue retailers that you perceive can pay using statutory demands or winding up orders?
I think we are a long way from that. The focus is on helping people through the situation. This is about trying to engage with our occupiers and those who haven’t paid the rent yet.
It’s not just about rent relief, it’s about monthly rents and deferring rents and paying them back when people can. Its about getting a balance. We have a focus on F&B and leisure operators that don’t have an online business. We are focusing part of the rent relief on that and we will be doing it on a case by case basis. It might not be immediate rent relief, we might spread it over two quarters as it isn’t just going to be this situation right now that is tough.
Do you expect next quarter to be dramatically worse and what can you do as a business to deal with that prospect?
Q2 depends on what the state of the country is at the end of June. We are all hoping that things begin to normalise around then but in reality it may take longer. We will almost certainly be going through another discussion with occupiers at the end of June. We will be talking to them the whole way through because quite a number of them are on monthly rents and we will look to see where we can help and assess what assistance they are getting from government, lenders and owners. It is a time for everyone to contribute and we will try and judge those that we feel those that are most in need of help.
We have got a robust balance sheet and considerable financial resources so it isn’t about getting through one more quarter and us doing something materially different. What we are looking at is what service change we can take out to try and minimise that for our occupiers. We have also got to be aware we have to be ready to restart these destinations as soon as we are permitted to do so, so it is a balance. Time will tell how long this goes on for and if the amount of £80m is needed or indeed if there is not enough.
What have conversations with your lenders been like since the outbreak?
I would never judge the general tone of the market on the conversations we have been having because we have a AA credit rating on our bonds and we are just in a different place. We have been in touch with our banks clearly though.
One of the things wea re able to do due to our credit rating is issue commercial paper. That market has dried up and the Bank of England has recognised that and set up the new COVID-19 Corporate Financing Facility and we have applied for that. That means as the commercial paper we have currently issued matures we will be able to use that facility rather than draw on the banks which will allow for greater liquidity to be put into the system.
If we don’t get access to that facility for whatever reason we would just be drawing facilities from our banks so that conversation has begun and they know we have got cash allocated towards the commercial paper redemptions, so we are just keeping them in the loop with our thinking.
Will there be opportunities as a result of COVID-19 for Landsec?
Its possible that the investment market will adjust and make certain assets interesting. If we look back to the global financial crisis, we were quick out of the starting blocks on development in London and other people weren’t and what that provided was great earnings growth for the business. Rents picked up and vacancy levels were not particularly high and they are not high in London at the moment, so there may be some opportunities where we have capital and the ability to pursue developments others don’t. There might be opportunities in the investment market too but it is too early to be certain at the moment.
Do you think there could be M&A in the sector as a result of subdued pricing and have you seen any particular activity in your share register?
Clearly it’s possible. There are a number of REITs who are trading at discounts and there is very good disclosure on their underlying assets and earnings. If we look back to 2008 and 2009 there just weren’t those types of deals at that time and I think it’s just too difficult to say whether this will bring forward that opportunity. Pricing is lower and the issue with any capital markets transaction is prices slap back very quickly the moment a buyer appears.
I’m not aware of any material activity and volumes in our register but just that generally there is lower trading and volatility is higher.
