Strip Center REITs' Rent Collections Near 90%

Strip center REITs are beginning to see an improvement in rent collections. The most recent research from BTIG reports that over the last six months of the pandemic rent collections have improved and are beginning to near 90%.

This is a significant increase from the 49% low in April and May, representing a 3,100 basis point increase in collections. Weingarten, ROIC and Kite reported 87.7% rent collections.

BTIG expects that rent collections will continue to improve through the end of the year.

Just as in the 2008 financial crisis, small shop tenants have been most heavily impacted by the pandemic while anchor tenants with large balance sheets have performed well through the pandemic. Landlords, however, have been committed to aiding small tenants through the pandemic crisis, even in the absence of further financial assistance or relief from Congress. Many REIT landlords in this space have implemented tenant assistance programs to maintain small-shop presence in strip centers.

While aiding small tenants has been a priority, essential retailers are creating stability and driving rent collections. Through the pandemic, grocers and other essential retailers, like pharmacies, have paid nearly 100% of rent payments, and many retailers are looking to expand as a result. At the top of the list for new locations: omnichannel-friendly locations that support delivery services and close-to-consumer locations. During the pandemic, e-grocery sales have increased 30.7%, and grocers are looking for locations to capitalize on that demand.

Grocers aren’t the only retail category that have been able to maintain healthy rent payments through the pandemic or that have plans to expand as a result of increased demand. Home improvement stores, for example, have averaged 97% rent collections through the pandemic. As a result, they are at the top of the list for retail center operators signing new leases. Regency, to cite one case, replaced a Kmart space in Florida with a home improvement brand. Other REITs are incorporating home improvement retailers into their future leasing strategies.

On the other hand, there are a handful of retailers that have fallen behind on rent payments through the pandemic. Restaurants nationally have struggled to pay rent, but areas with indoor dining have outperformed markets with restricted dining. In New York City, which has a 25% indoor dining limit, 87% of bars and restaurants did not make full rent payments in August. As a result, 100,000 restaurants and 1,500 chain restaurants nationally have closed permanently. Fitness centers have similarly struggled, largely because they could not reopen until May. This has bifurcated the market with some tenants, like 24 Hour Fitness and NY Sports Club, filing for bankruptcy, and others, like Planet Fitness, continue to expand its real estate footprint.