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Unibail rent talks 'far from easy' as it wrestles with COVID-19-hit tenants

Europe's largest listed retail landlord Unibail-Rodamco-Westfield is mired in tough negotiations with many of its tenants regarding unpaid rent for the second and third quarters of 2020, according to CEO Christophe Cuvillier.

Rent collections for the second and third quarters "still need a lot of work," he said during a July 29 first-half earnings call. URW has collected 38% of second-quarter rent, according to a company presentation. The company switched to monthly rent payments for the third quarter to help tenants, and it has received 50% of July's rent.

The scope of URW's portfolio, which spans 12 national markets and two continents, means each negotiation is different, said Cuvillier. "I'm not saying that negotiations are easy, far from that, but they are progressing relatively well in Europe," said Cuvillier. "They are a bit more difficult in the U.S., as the reopening situation there is more complex. There's no one-size-fits-all. Negotiations are made on a case-by-case basis."

URW's share price has more than halved in the last year, and it is about 25% of the way through the rent negotiation process, Cuvillier said. "There is still a long way to go," he added.

URW owns a property portfolio worth around €44 billion consisting of mainly retail assets across Europe and the U.S. The company also owns offices and exhibition and conference centers.

Retailers have been among the hardest hit by the COVID-19 pandemic as non-essential stores around the world were forced to close to slow the spread of the virus. The weighted average closure period for URW's properties across its 12 national markets was 67 days. Many retailers have been unable to pay rent as cash flow dried up during lockdown.

URW has provided a range of assistance to its tenants. Beyond switching from quarterly to monthly rent payments, April and May rents were deferred for closed tenants; no penalties were imposed for late second-quarter payments; and flexibility in opening hours was granted without contractual penalties.

Negotiations on rent relief began in May, the company said. Some have hit a deadlock, said Cuvillier.

"To put it simply, tenants want to have more visibility on the outcome of negotiations before they release the payments of June rents," he said. "To put it even more simply, we will grant no rent relief if we are not paid what tenants owe us. For having led a certain number of negotiations myself, this has been well understood by everyone."

Of the rent invoiced by URW in the second quarter, 38% has been collected, 3% has been granted as rent relief, 20% has been deferred until after July 31, and 39% is due but unpaid. The shortfall in collections led to a 14.2% drop in URW's first-half net rental income from the same period last year.

URW is not granting rent relief to tenants that traded well throughout the crisis nor canceling their service charges, Cuvillier said. Relief is being targeted primarily at "very small companies" and food and beverage operators who "suffered most from the lockdown," he added.

"In return, we ask tenants for concessions, such as extending the firm period of the leases, increasing the [sales-based rent] percentage, waiving co-tenancy clauses in the U.S. or signing leases for new stores," Cuvillier said.

URW refuses to consider switching to "pure variable rents," which would be entirely dependent on a tenant's turnover, Cuvillier said.

Cuvillier said the lockdown period has proven the value of retail and leisure destinations to the public and bolstered their prospects. URW has seen footfall at those properties that have been open for the last 11 to 12 weeks return to 80% to 90% of normal footfall for this time of the year.

"One thing is clear: [People] gradually go back shopping in physical stores, as proven by the queues in front of the most popular stores [following lockdown] and by the June sales figures," he said. "Because, after all, people like physical places."