SA’s commercial property sector and some large clothing retailers are jointly working on a plan to submit to the government to get the country’s shopping centres opened in a “safe and managed way” as an extended lockdown into May could spell ruin for many in both industries.
Estienne de Klerk, spokesperson for the Property Industry Group (PI Group), which represents major commercial real estate organisations, including the SA Property Owners Association (Sapoa), the SA Council of Shopping Centres and the SA Reit Association, said this week that it has established a committee, which includes some of the large clothing retailers, to work on a plan to submit to the government’s National Command Council (NCC) for Covid-19 about bringing “retail back in a responsible, safe and managed way”.
“We are working on a specific plan to ultimately get the shopping centres fully operational. For instance, in Australia during the lockdown period, their shopping centres have been fully operational throughout. Closing all the shopping centres, except for certain portions dealing with food retail, has been an extreme measure in SA. There are certain safety and management agreements between the shopping centre owners, the retailers and the government in Australia to ensure a safe and hygienic environment for shoppers.”
De Klerk says the side effects of the lockdown in SA will become even more pronounced if it extends into May, saying both smaller retailers and property companies could start collapsing. “The level of deterioration of Corporate SA is massively underestimated.”
The PI Group has already put together a relief package proposal valued at between R2bn and R3bn. The package’s relief measures include rental reductions and deferred payments for tenants, but exclude those able to continue trading during the lockdown.
“I think it is unprecedented. Our proposal isn’t for just one month, but covers two months. All these rental deferrals are interest free and offered in good faith,” De Klerk says.
In a statement last Sunday, SA’s major clothing retailers TFG, Truworths, Mr Price Group, Woolworths and Pepkor said they are in “discussions” with the PI Group in a bid to “find a joint and mutually beneficial response to the significant challenges created by Covid-19”.
The retail group of companies said it has reviewed the “scope of the relief package offered to retail tenants by the PI Group and have now constructed their own counter-proposals, which it believes are more balanced as they deal equitably with the permanent loss faced by retail tenants throughout the country”.
In terms of their proposal, the retailers said they have also “provisionally put aside the legal opinions of their legal advisers during the negotiation with the PI Group, which state that rentals are not due during the lockdown”.
They are proposing the payment of all utilities consumed by retailers during the period, and 20% of normal rental and operating costs. “This equates to support by the five retailers in excess of R220m to support landlords during the lockdown.”
Asked about the proposal on the table from the clothing retailers, De Klerk said he “can’t say anything about it at this stage” because the PI Group’s members are still assessing it.
De Klerk said the “discussions with the retailers have been constructive”. However, Dis-Chem, is one retailer that is still battling it out with shopping centre owners about the level of rent it must pay.
Last week, Business Times reported that the retailer, which is trading as an essential service, has, in some cases, either not paid the rent or paid only part of it, according to property owners. Dis-Chem at the time, however, maintained this was not the case and that it is merely negotiating for lower rentals during the lockdown.
Dis-Chem CEO Ivan Saltzman said this week that the retailer has paid utilities and electricity, as well as 50% of the rentals for each of its stores for April. “We’ve had an understanding with some landlords and disagreement with others,” said Saltzman.
“About half our store is still non-essential goods and I want [shopping centre owners] to recognise this, the same way they recognise other retailers that have non-essential goods and food in the same store.” But De Klerk, also chair of the SA Reit Association, which represents most of the listed real estate investment trusts (Reits) on the JSE, said this argument is “unacceptable and Dis-Chem must pay its rental in full” to the organisation’s members.
“We have statistics for February and March — Dis-Chem recorded double-digit sales growth in both months,” he says.
Maintaining Reit status
Meanwhile, the SA Reit Association has asked the National Treasury and the JSE to review some of the listings requirements governing Reits so that they can retain more cash to bolster their balance sheets and improve their financial situation. It is also hoping for some regulatory relief from the government.
“In terms of the regulations, Reits are obliged to pay out 75% of distributable earnings to maintain Reit status. In the current environment, clearly Reits don’t want to take on more debt; they can’t really issue more equity because of the state of the market and the bond market has also become quite constrained,” says De Klerk.
“The other option to improve liquidity is to sell assets but that is practically impossible at the moment. Capital is quite constrained for many of them. The only alternative for capital is to retain some of their distributable earnings and, at this stage, they can’t do that because they will breach their Reit regulations, which means they lose their REIT status.”
Andre Visser, director of issuer regulation at the JSE, said the bourse “recognises that, as a result of the Covid-19 pandemic, the property sector has been impacted by industry-specific challenges that were unforeseeable and unavoidable”.
Visser says the JSE is “in engagements with the SA Reit Association and has received a submission from the association with proposals they have requested the JSE consider in respect of certain listings requirements”.
“The JSE has also been approached by investors with regard to the possible impact on their distributions. In light of this, the JSE cannot provide general or blanket dispensations and must consider all facts on a case-by-case basis.”
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