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As Starbucks Reopens, It Wants a Year’s Worth of Rent Relief

By Rich Duprey – May 14, 2020 at 12:15PM

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Its landlords were reportedly not happy with the request.

Although Starbucks (SBUX -0.68%) began opening its coffee shops earlier this month, it is asking its store landlords to cut it some slack on its rent for the next year, beginning June 1.

In a letter to landlords obtained by Restaurant Business, the modifications are being sought "to support modified operations and adjustments to lease terms and base rent structures, so we can withstand this uncertainty together."

According to real estate professionals quoted in the report, the request for concessions was "not well received" and considered "ridiculous" by some.

5 cups of Starbucks coffee and a French press

Image source: Starbucks.

Asking landlords to have skin in the game

Starbucks estimates the COVID-19 pandemic will cost it $915 million in sales in the second quarter. It closed over half of its restaurants beginning in mid-March and reported comparable store sales plunged 25% in those that remained open.

Many restaurants and retailers have either sought rent concessions from landlords or have gone on a rent strike and not paid any rent at all. Chuck E. Cheese parent CEC Entertainment sought rent relief from one landlord, which then sought to evict the pizza and entertainment venue from its premises.

Restaurant Business says the curious part of Starbucks' request is the length of time for which the concessions are requested, noting many other smaller companies have sought rent breaks just to get through the crisis, a time frame that would suggest months, not a full year.

A year-long rent break is a significant request, considering Starbucks' company-operated stores still generated $4.8 billion in revenue and over $487 million in operating income in the most recent quarter. However, Starbucks did say on its earnings conference call last month that it was "having ongoing conversations with our landlords" regarding concessions.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool has a disclosure policy.

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