Landlords Fume as Starbucks, Other Chains Seek Extended Rent Cuts
By Esther Fung and Heather Haddon
Many landlords took pity on their struggling restaurant tenants
by offering to postpone rent payments in April. Now, even as these
businesses start to reopen, some are asking for rent
A growing number of national restaurant and cafe operators say
that social-distancing guidelines restrict them to 25% to 50%
capacity, forcing them to modify their operations and cut expenses
to stay in business.
With June rent approaching and with mounting concern that the
U.S. economy might not recover for some time, even blue-chip names
that made rent payments in April and May are now asking for relief.
Chipotle Mexican Grill Inc. and Shake Shack Inc. said they are
lobbying property owners to renegotiate the leases or offer
deferred rent payments.
"We are a strong tenant with significant growth ahead of us, and
we expect our landlords will partner with us during this difficult
time period," Chipotle's chief financial officer, Jack Hartung,
told investors last month.
Starbucks Corp. recently joined their ranks when it sent a
letter to its landlords asking for a range of concessions,
including changes to lease terms and base rent for at least 12
months starting in June.
"Starbucks will require concessions to support modified
operations and adjustments to lease terms and base rent structures,
so we can withstand this uncertainty together," a Starbucks
executive wrote in a May 5 letter to its landlords viewed by The
Wall Street Journal.
Many landlords privately fumed over this request, even though
Starbucks paid its rent in full in April and May at most of its
stores. A company with a $86 billion market capitalization should
be able to raise debt or more equity in the capital markets,
enabling it to meet its obligations, these landlords said.
Landlords are generally reluctant to cut rent because accounting
rules still allow them to book income if rent is deferred as long
as it isn't reduced. Temporary rent forgiveness or discounts would
also reduce their property valuations, which could hurt an owner's
ability to get a loan.
"We are not offering forgiveness," said Sandy Sigal, chief
executive officer of NewMark Merrill Cos., which owns more than 70
shopping centers in California, Illinois and Colorado. "We
understand the situation and are doing our best."
The privately held company has received some government
assistance, which it says helped retain staff. Mr. Sigal said that
for some restaurants, he has offered to trade deferral for
percentage rent, which is a percentage of sales rather than fixed
rent and such deals work out for landlords if business is good.
There are no takers yet, he said.
Franchisees for Dunkin' Brands Global Inc., Applebee's and Yum
Brands Inc. are also negotiating with their landlords, the
companies said. Some tenants are considering extending leases in
exchange for deferred rent to be forgiven.
Other big restaurant chains with big balance sheets are pleading
a similar case. Steakhouse chain Ruth's Hospitality Group Inc.
reported same-store sales at its owned restaurants plunged 84% last
month and said it was considering closing some company-owned
"We've been in regular contact with all our landlords about
abatements and lease modifications, and we expect that they will
partner with us during this difficult time," said Chief Financial
Officer Arne Haak.
A few can boast of success. Jack in the Box Inc. said its
landlords offered some relief, helping the burger chain to deliver
$10 million in cost reductions to franchises for April, May and
June. The chain is postponing rent collections of that amount for
franchisees, a spokeswoman said.
Some restaurant owners say their requests for rent reductions
were greeted with threats of default notices. That was the case for
Steve Stolberg, an owner of a 56-seat restaurant in Plantation,
Fla., called Ovlo Eats.
"I don't expect to have zero rent," he said, but added that he
was disappointed his request for a 50% rent reduction in line with
his falling revenue was denied.
Write to Esther Fung at email@example.com and Heather Haddon
(END) Dow Jones Newswires
May 19, 2020 08:14 ET (12:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.