Equity One Says Rent Relief Requests Subsiding

NORTH MIAMI BEACH, FL-Although Equity One Inc.’s biggest leasing challenge continues to be its small shop space, REIT president Thomas Caputo says rent relief requests from smaller tenants are “significantly down” across the portfolio.

“Our biggest challenge on the leasing front is maintaining small store occupancy,” Caputo said during Equity One’s second quarter earnings call. “Most small store operators are undercapitalized and many no longer have access to credit.”

Like many other retail real estate owners, Equity One’s small shop tenants have struggled with decreased revenues and anemic store traffic during this recession. They have turned to their landlords to help them make ends meet and to decrease their operating expenses by requesting rent relief. 

However, Equity One has noticed that the frequency and volume of those requests is subsiding. “In some parts of our portfolio, we don’t even hear about [rent requests] anymore, and in some parts, we continue to hear about [them], but it’s very reduced from where it was a year ago,” Caputo notes.

In Atlanta, for example, where Equity One owns more than 30 properties, Caputo says requests for rent relief have been “almost non-existent”. That lack of requests indicates that Atlanta is recovering more quickly than other Southeast markets, particularly those in Florida, he notes.

As of June 30, 2010, occupancy for the REIT’s consolidated core portfolio was 90.1%, down 90 basis points on a same-property basis compared to the same period last year. Same property net operating income declined 0.6% for the second quarter of 2010 as compared to the second quarter of 2009.

During the second quarter 2010, Equity One executed 43 new leases in its core portfolio totaling 122,313 square feet at an average rental rate of $10.42 per square foot, representing a 6.4% decrease from prior rents on a same-space cash basis. Also during the second quarter, the REIT renewed 80 leases in its core portfolio for 168,266 square feet for an average rental rate decline of 7.6% to $16.46 per square foot on a cash basis. In addition, it renewed 20 leases in its core portfolio for 247,665 square feet subject to tenant renewal options for an average rental rate increase of 2.1% to $8.97 per square foot on a cash basis.

Beyond the decrease in rent relief requests, Caputo says the REIT saw a moderation of bad debt during the second quarter. Most of the bad debt is from small shop tenants, he notes, adding that the REIT continues “to fight and collect some of the amounts.”