Investors run over by Hungry Jack’s rent cuts

Standing outside the Hungry Jack’s at the highway stop on the road to Geelong, retirees Peter and Robyn Radford feel like they’ve been run over by ‘Big Retail’.

Along with about 100 other investors, the Radfords, both in their early 70s, are unit holders in an unlisted property fund that owns service centres on both sides of the Princes Freeway at Little River.

Distributions for the fund, totalling 8¢ per unit annually and paid monthly, have been cut in half for April after Hungry Jack’s and another tenant withheld their rent.

The Radfords are part of a quiet army of small-scale investors, many of them retirees, owning commercial property directly or in funds. Many have been hit as some of the country’s biggest companies pull their rent in response to the pandemic.

“We’ve worked hard so we don’t have to be a burden on the tax system,” Mr Radford said. “We’re not really well off. We just get enough in to keep us off the pension. It’s not easy when you go through this.”

At the end of March, Rich Lister Jack Cowin’s burger chain sent out a standard letter to its landlords proposing it defer its gross rental payments, citing the disruption caused by the coronavirus pandemic.

The deferral, according to the letter, was to be for three months or “until the restrictions are lifted and our company’s trading patterns show signs of returning to normal”.

Hungry Jack’s founder Mr Cowin, who operates 440 stores with 20,000 staff across Australia, has said he is committed to honouring its obligations over the longer term.

“We will pay the rent – just not now,” he said last month.

Hungry Jack’s is too big a player to be covered by the mandatory code of conduct for commercial leasing released by Prime Minister Scott Morrison two weeks ago. The code covers smaller and medium-sized tenants with revenue below $50 million.

Nevertheless, landlords and investors had hoped that the spirit of that code – it requires tenants be transparent about their financial circumstances and any rent relief be proportionate to their losses – would apply to the big retail players as well.

But from where Mr Radford stands it’s been an unequal negotiation with Jack Cowin.

“He seems to be a bit dogmatic that he doesn’t want to pay the rent. That’s just not good enough,” he said.

“They know the small investor can’t take them on in the short term or the long term. In the short term, he’s just going to hold back his money.”

The manager of the unlisted fund in which the Radfords are invested, Fawkner Property, swiftly rejected the unilateral proposal from Hungry Jack’s, noting it had given no evidence of material hardship.

“Fawkner Property resists the proposition that ageing retirees and pensioners should be called upon to sustain the profits of one of Australia’s largest corporations, by sacrificing some of their modest retirement income or savings,” it said.

Mr Radford is even more sceptical: “Go and and have look at any of these fast food places. The food is going out the door as quick as what it was before the crisis. It’s just going out in a different way: on the back of a motorbike or in an Uber.”

Defending its decision, Hungry Jack’s head office said it is working with its individual landlords to agree revised rental terms. Its trade has been hit, with some outlets closed completely and the remainder relying on delivery, drive-through and pick-up, the operator said.

The Radfords are not alone. Property owners and investors around the country have been caught in the squeeze as national retail brands stop paying rent.

A rent strike kicked off last month by Solomon Lew’s Premier Investments – owner of Smiggle, Just Jeans and Portmans, among others – quickly spread.

Discount pharmacy giants Chemist Warehouse and Priceline have cut payments. So too have players such as Super Retail Group, which operates Rebel, BCF, Macpac and Super Cheap Auto outlets, and fast food powerhouse Craveable Brands, which is owned by private equity player PAG Asia Capital and runs the Red Rooster, Oporto and Chicken Treat chains.