Tag: rent

Source: MyBroadband

The South African Post Office (SAPO) is on the verge of financial collapse and has closed numerous branches after failing to pay rent.

A recent presentation at the Parliamentary Portfolio Committee revealed just how big a financial mess the Post Office is in.

Over the last three months, the Post Office posted a net loss of R429 million, while its year-to-date net loss increased to R1.354 billion.

“The year-to-date revenue recovery remains sluggish and insufficient to meet all operating costs,” the SAPO said.

“The revenue shortfall contributes to cash deficits to pay suppliers and service providers, including employee benefit contributions.”

The South African Post Office’s creditors and accruals as of 30 September 2020 increased to R1.774 billion.

One of the results of this financial crunch is that the SA Post Office is not paying rent and has closed around 55 branches because of arrears.

Some landlords have even seized equipment and kicked out the Post Office from their malls for not paying rent.

Notices on the doors of many SA Post Office branches now state “Closed until further notice” without a clear indication of where people can now get services from.

The SA Post Office previously told MyBroadband it is in discussions with the landlords to resolve the disputes with the intention of re-opening the branches.

Employees are also suffering. Pension fund and medical aid contributions are deducted from workers’ salaries, but this money is not paid over to the relevant institutions.

David Mangena, general secretary of the South African Postal Workers Union, told Rapport the Post Office has failed to make payments for some workers as far back as March 2020.

Mangena added that communication with the institution has broken down and that they had to hear via the media about the new Post Office CEO.

The financial collapse of the Post Office should, however, not come as a surprise.

DA’s shadow deputy minister of communications and digital technologies, Cameron MacKenzie, warned earlier this year the institution was on the brink of collapse.

MacKenzie said the Post Office was struggling with unpaid rentals, desperate suppliers, postal backlogs, and broken ICT systems.

The SAPO, MacKenzie said, is facing bankruptcy despite receiving R8 billion in bailouts since 2014.

He said in the absence of any further funding and expenses far exceeding revenue, the Post Office is resorting to the only means to stay afloat – stop paying creditors.

MacKenzie urged the government to start implementing productive public-private partnerships and social compacts to save the SA Post Office.

The SA Post Office is hanging its hat on its newly appointed CEO, Nomkhita Mona, to solve these problems.

Mona has served as the CEO of the Nelson Mandela Bay Business Chamber since December 2017, following three years at the helm of the South African Forestry Company (SAFCOL).

She has also been CEO at various other organisations – including The UDDI, Inkezo Land Company, and the Eastern Cape Tourism Board.

MyBroadband asked the SA Office for comment about its financial challenges, but it did not respond by the time of publication.

 

Source: TPN

The percentage of total tenants that were recorded as being in good standing with their landlords dropped sharply in the second quarter of 2020.

From 81.52% of tenants being in good standing in the first quarter, the percentage declined to 73.5% in the second quarter, a decline of eight percentage points.

Those tenants that paid on time amounted to 59.48% of total tenants in the second quarter, down from 64.84% in the previous quarter.

“This all translates into quarterly increases in the percentage of tenants ‘partially paying’ or not paying at all,” TPN said. “Interestingly, though, is that the percentage paying late remained on the decline in the second quarter.”

From 11.57% in the first quarter, the percentage of tenants making a partial payment jumped to 15.28%. The percentage who did not pay also rose from 6.92% to 11.22% over the same second quarters.

However, the percentage paying late declined from 16.68% to 14.02% after having been on decline from a few preceding quarters.

TPN said that the sharp weakening in tenant performance is strongly related to the Covid-19 lockdowns, the most severe lockdown months being in April and May.

“These widespread business shutdowns likely saw many tenants lose either part or all of their income, especially amongst those employees with more flexible remuneration arrangements, for example casual labour and those that are commission-based,” it said.

In addition, the tenant population went into the lockdown period already under some heightened financial pressure, caused by a long term stagnation in South Africa’s economy, its economic growth having broadly slowed from around 2011/12 to 2019, the group said.

By the second half of 2019 and early-2020, the country was already in mild recession even without any lockdowns.

“Economic stagnation had been taking its toll on tenants, and we had already seen a multi-year decline in the percentage of tenants in good standing, from a decade high of 85.95% back in 2014 to 81.52% in the 1st quarter of 2020, prior to the lockdown.”

By Sibongile Khumalo for Fin24

Strained by operating under lockdown conditions since the end of March, the Wal-Mart owned Massmart is now seeking rental relief to manage its cash position.

The company’s stores such as Makro, Game and Builders Warehouse have only been allowed to sell essential goods during the lockdown period with the sale of alcohol banned under the current regulations.

“We will continue to proactively work with all suppliers and stakeholders to manage our cash position going forward including,” the company said in a trading update on Monday.

To save cash, it is “negotiating and participating in the rental relief package from the Property Industry Group”.

Various retailers have been hit by the shutdown or limited trading conditions and have been locked in rent negotiations with landlords, with property groups saying the lockdown is likely to have a negative impact on the commercial real estate, as Fin24 reported.

Massmart, which went into the lockdown already struggling under the weight of a sluggish economy and poorly performing Game stores, reported an almost 12% decline in sales for the 19 weeks to May 10.

The Covid-19 financial challenge comes on the back of declining profits as the group in 2019 reported a R861 million loss. This year it shut down its poor performing DionWired electronic stores and revealed that it would consider whether to close the 11 non-performing Masscash stores.

“We should also take into account that the company had lost a bit of market share before Covid-19 hit, the pandemic is now likely to delay their turnaround,” said Nolwandle Mthombeni, equity analyst at Mergence Investment Managers.

READ: Game, Makro and associated retailers freeze prices for essentials during lockdown

Mthombeni mentioned that the virus would have a “domino effect” on real estate as whole because landlords will now have to negotiate lower monthly rental with tenants who are battling cash flow challenges. The effect is also likely to extend to financial lenders as well, she said.

“Every single day of lost trade means income loss for retailers.”

Government has come under increasing pressure from various business organisations and political parties to open the economy, as companies continue to take a pounding from the restrictions.

South African has since moved to ease trade regulations as the country moved to level 4 of the lockdown and allowed the sale of winter clothing. By the end of the month, the country moves into level 3, which will allow for alcohol sales to resume, a significant category for retailers such as Massmart.

Last week, the recently formed Property Industry Group announced the availability of industry-wide assistance and relief packages for all retail tenants during South Africa’s 35 days of lockdown.

While this will provide a much-needed stopgap for many tenants concerned about their operational viability post-lockdown, the announcement puts pressure on the various unlisted property groups, many which are not part of the Property Industry Group and were not consulted on the proposed packages, says Soria Hay, head of Corporate Finance at Bravura.

The Property Industry Group consists of the sector’s three biggest players, namely the South African Reit Association (SA REIT), the SA Property Owners Association (SAPOA) and the South African Council of Shopping Centres (SACSC), and is the mouthpiece for the South African commercial real estate sector.

The intention of the assistance and relief package initiative is to preserve the jobs of retailers, suppliers and service providers, with a qualifying criteria for tenants to ensure that no staff retrenchments are made during the relief period. Assistance and relief is to be at the discretion of the landlord, but the package stipulates the minimum that qualifying retailers can expect.

The package is to be made available for the periods of April and May 2020 and will provide basic assistance and relief as well as interest-free deferment recovery periods for SMMEs and tenants providing non-essential services. Relief can consist of rental reductions (between 35% to 100% for the first month and between 25% and 50% rental reduction for the second) or rental deferments.

The Property Industry Group acknowledges that the relief package comes at a high cost for the industry. Group spokesperson, Estienne de Klerk says that it is time for bigger and stronger companies to step up and form a buffer to protect smaller retailers so that the sector can collectively come out stronger.

Unlisted property groups and independent shopping centres are not part of the Property Industry Group collective. As such these industry players were not included in the consultation process that took place when obtaining buy-in for the proposed package. Yet the relief initiative undoubtedly sets an industry precedent which could see independent landlords and property groups challenged to provide similar relief to their own tenants.

Although the listed property sector has not been immune to the challenges experienced by the retail sector preceding lockdown (in fact it was named as the worst-performing asset class of 2019) there is arguably better liquidity and wiggle room here in which to provide tenant assistance than within their unlisted counterparts. Just recently leading REIT, Redefine Properties, which owns more than 300 retail properties across the country, said that it was in a position of strong liquidity with which to face off the lockdown, with access to R2.8 billion in committed undrawn credit facilities. This is certainly not the case for several thousand medium and small retail operations in South Africa.

Prior to lockdown, retailers were already experiencing the negative COVID-19 impacts. For example, in the short “stay at home” period leading up to the original 21-day lockdown, struggling retail group Edcon was hit with a 45% income loss and a reduction of about R400m in sales from flagship stores Edgars and Jet chains. The group anticipates a further R800m loss in sales over the lockdown period and a question mark remains over whether the group will be able to pick up operations once the lockdown is over. The ripple effect if Edcon folds will be felt throughout the sector – listed and unlisted.

The Property Industry Group has only stipulated the relief package for April and May, and it will be a different ball game should timeframes become longer. For the unlisted sector – and their tenants – with less concerted relief efforts available, the playing field may grow more uneven.

KFC won’t pay rent during lockdown

By Loni Prinsloo, Leanne de Bassompierre and Janice Kew for Bloomberg

KFC-owner Yum! Brands Inc. has told landlords in South Africa that the U.S. firm won’t be paying rent while outlets are closed during a three-week government-enforced lockdown to contain the coronavirus pandemic.

The decision relates to 48 company-owned stores in the continent’s most industrialized country, a spokeswoman for KFC South Africa said in emailed comments. The remainder of the 1 145 KFC fried-chicken restaurants across Africa are operated by franchisees who are making their own arrangements, she said.

One owner of more than 40 KFC shops across four sub-Saharan Africa countries, Grant Wheatley, said he is in talks with landlords, banks and suppliers about arrangements to cope with the shutdown. South Africa has ordered all restaurants to close during the period, including delivery services, with reopening scheduled for 17 April.

Botswana and Lesotho, where Wheatley has outlets, have also imposed shutdowns.

Yum! and Wheatley join retailers around the world in asking landlords for leniency during a period where they will generate little or no revenue, creating a nightmare for banks and real-estate firms. The Foschini Group Ltd., a South African clothes retailer, said it’s stopping payments during the lockdown, while Swedish fashion chain Hennes & Mauritz AB and the U.K.’s Primark are among others to have withheld rent.

Source: SA Commercial Prop News

As South Africa goes into a 21-day nation-wide lockdown, The Foschini Group – whose brands include Foschini Stores, @home, Markham, Totalsports and Sterns – has said it will stop rental payments because of the impact of the coronavirus outbreak.

This comes days after Edcon, SA’s second-biggest clothing retailer, said it may not be able to re-open after the 21-day lockdown.

The Foschini Group has 2 582 outlets across Africa which are now closed after President Cyril Ramaphosa ordered a three-week national shutdown from 27 March to combat the pandemic.

While essential services such as grocers, pharmacies, banks and gas stations are allowed to remain open, clothing retailers are not.

The Cape Town-based owner of Totalsports and American Swiss jewellery chains is also halting any planned expansion projects and will delay store refurbishments, TFG said in a letter to its landlords seen by Bloomberg and verified by the company.

“Once the situation normalises we will then be able to assess the full financial impact on the business and will engage with you further,” it said.

It is believer other retailers, big and small, are contemplating putting a stop to rental payments as business grinds to a halt.

Edcon, which had already been under financial strain, said what it’s experiencing is an indication of the challenge that many other businesses and the government will have to face after the shut down.

Although yet to recover from Edcon’s woes, retail landlords are set to face even more intense pressure as Walmart-owned Massmart announced recently the closure of 23 DionWired stores across the country.

TFG, which operates in South Africa, Australia and the UK, occupying space in major centres, went against the prevailing retail trend by producing positive trading updates in a difficult economy. The group pushed up turnover 5.9% for the nine months to 28 December 2019, compared to the corresponding period in 2018.

Coronavirus crisis in South Africa

As of Wednesday, South Africa has 1 353 cases with 5 fatalities.

Globally, coronavirus cases have reached 859 032 cases, with 42 322 deaths recorded.

South Africa is also facing additional headwinds after ratings firm Moody’s downgraded the country’s credit rating to below investment grade.

Moody’s downgraded South Africa’s long term foreign and local currency debt ratings from Baa3 to Ba1 with a negative outlook.

By Lauren Feiner for CNBC

WeWork announced Wednesday it is creating a fund with $2.9-billion of total equity capital to buy stakes in buildings it rents from.

The company has previously been criticized for CEO Adam Neumann’s stake in buildings he rented to the company.
The fund, called ARK, will serve as WeWork’s “global real estate acquisition and management platform,” according to a press release.

WeWork has become a business with a multi-billion valuation by being a prolific tenant. Now, it is starting a nearly $3 billion fund to become a landlord, too.

WeWork, which recently renamed itself to The We Company, is creating ARK, a “global real estate acquisition and management platform,” to buy stakes in buildings in which it plans to lease a lot of space, the company announced Wednesday. It will begin with $2.9 billion of total equity capital.

“ARK will focus on acquiring, developing, and managing real estate assets in global gateway cities and high-growth secondary markets that will benefit from WeWork’s occupancy,” according to the release. It will use WeWork’s own technology and relationships to access real estate opportunities and will “immediately stabilise assets by executing a proven pre-packaged business plan and will apply The We Company’s holistic solutions for real estate owners, based on The We Company’s established capabilities in sourcing, building, filling, and operating properties.”

The fund could further complicate questions about WeWork’s allegiances, which were illuminated by a Wall Street Journal report in January that revealed CEO Adam Neumann has profited by leasing buildings he owns to WeWork. Under the new plan, Neumann will actually transfer some of his real estate holdings into the ARK fund, Bloomberg Businessweek reported.

While this may provide better optics for the company, since ARK will be run independently from WeWork’s main business, ARK will still be under The We Company’s umbrella, according to Businessweek. A WeWork spokesperson declined to confirm or comment on the transfer of Neumann’s real estate holdings to CNBC.

But ARK also may provide a level of stability for WeWork and its investors, which is a key step as it prepares for a public offering. WeWork, like other recent tech IPOs, is still unprofitable. The company said it had a net loss of $1.9 billion on $1.8 billion in revenue in 2018, and a net loss of $933 million on $886 million in revenue in 2017, according to a presentation shared with CNBC in March. Lyft and Uber, which both recently debuted with losses, have fallen short of expectations in their brief tenures on the public market so far due to concern about their ability to close their margins in the future.

How Edcon is shrinking its footprint

By Glenda Williamns for Fin Week

Edcon’s current restructuring process includes significant space rationalisation.

JSE-listed real estate investment trust (REIT) Attacq, owner of Mall of Africa, announced that Edcon exposure, (25 499sqm at 31 December 2018, down from 29 262sqm at 30 June 2018) will settle at 22 945sqm of primary gross lettable area (PGLA) by 1 October 2019 for an estimated 3% of the REIT’s effective PGLA. Contractual gross monthly rental at this time will be R3.2m, down from R4.1m at 30 June 2018.

Owner of Sandton City, Liberty Two Degrees’ (L2D), says Edcon currently occupies 5.3% of its current portfolio, which is expected to reduce to 4.3% of gross lettable area (GLA) by 31 December 2019.

Redefine Properties, SA’s second-largest REIT and owner of Centurion Mall, has a hefty retail portfolio that at 31 August 2018 comprised 1.4m sqm of GLA.

The REIT is a significant landlord to Edcon with GLA exposure of 78 760sqm (down from 122 856sqm at August 2018) housing the Edgars and Jet brands.

Redefine’s equity contribution will amount to R54.6m, the REIT says. As a consequence, Redefine will receive 100% of its rental due from Edcon on 56 788sqm representing in force leases for profitable Edcon stores.

Redefine has also agreed to rental reductions up to a maximum amount of R13.8m over a two-year period in respect of leases totaling 21 972sqm.

Other major players in the listed property sector have yet to make their formal announcements on the recapitalisation process.

Some like Hyprop Investments Limited, owner of super-regional mall Canal Walk, have significant exposure to Edcon.

At 31 December 2018 that amounts to 9.4% of GLA (66 781sqm) and 7.6% of gross income.

Speaking at Hyprop’s interim financial results for the six months to December 2018, newly-appointed CEO Morné Wilken says that almost 7 600sqm of Edcon’s total 67 000sqm floorspace has already been taken back and mostly re-tenanted.

Hyprop has, in principle, agreed to support the Edcon restructuring proposal with a reduction in rentals, compensated for by equity participation in Edcon, says Wilken.

“While that will impact distributable earnings in the 2019 and 2020 financial years by 0.8% and 2.3% respectively, it is considered an acceptable limitation of the risk,” he says.

Others like top-performing SA REIT and low-LSM focused Fairvest Property Holdings have insignificant Edcon exposure.

In Fairvest’s case that’s a mere 0.8% and exposure is only to the still well-trading Jet Stores. “That,” CEO Darren Wilder tells finweek “was not by chance, but by strategy.”

Discovery HQ costs R23m a month

According to a report by Netwerk24, Discovery is paying approximately R280-million a year – or R23-million a month – to rent its new offices in Sandton.

By 2022, Discovery anticipates paying R400-million a year, and R600-million in 2028. After 15 years the building will not be transferred to Discovery, and a new rental agreement has to be drawn up. Growthpoint is the majority shareholder in the building.

Business Insider reports that Discovery has entered into a 15-year rental contract with property group Growthpoint, which developed 1 Discovery Place for more than R3-billion. The building has a roof-top running track and a gymnasium that can accommodate up to 3 000 members.

This comes after Discovery clients were hit with a weighted 9.2% increase across medical plans for 2019. In addition, Discovery Vitality plans were increased by between 8.4% and 12.5%.

According to Business Tech, Discovery has 2.8-million beneficiaries, and with an open medical scheme market share of approximately 56%.

Image credit: Discovery

South African companies are following the global trend of leasing office furniture rather than buying it in an effort to be more capital efficient and improve cash flows – a move consistent with the “rent, don’t buy” economy.

Richard Andrews, MD of Inspiration Office, an Africa-wide office space and furniture consultancy with head offices in Johannesburg, said that since Inspiration Office pioneered furniture leasing in South Africa in 2013 through its financing arm, the company has seen a 30% spike in South African business leasing rather than owning office furniture.

“We expect this trend to continue as the economy remains sluggish. It’s very efficient to pay a small monthly amount for a few years rather than have a large cash outflow for furniture that is often quickly out of date.

“Furniture leasing is an operating expense rather than a capital expense thereby improving cash flow. For example a chair worth R4 000 can be leased for around R3 a day for a five-year period.”

Andrews notes that in the US, often a leading indicator of international offices trends, office furniture leasing has now superseded sales over the past three years and is growing at a rate of nearly 20% a year. And the total value of the furniture leased in the US in the past 20 years has now topped $1,5-billion.

“We’ve noticed a similar trend in Europe as well as small but growing demand for leasing in other African countries too.”

Andrews also said that office spaces are getting smaller and more efficient as business embrace the mobile working trend and workers share space by hot-desking.

“Because employees are now working remotely – or on gadgets like the iPads and very small laptops,offices need smaller furniture. And leasing it enables business to be nimble about downscaling large, bulky furniture, freeing up office space and saving money.

“Ironically desks in many companies haven’t changed in size for the past 30 years since the days of deep monitor computer screens and paper file storage. We have smart cars, smart devices but offices in the main have remained ‘stupid’.”

Andrews added that the shift towards leasing furniture over buying, is consistent with societal trends of renting rather than owing.

“People lease their cars, or in some instances have gotten rid of their cars altogether to only use Uber. Some people rent their homes, companies ‘rent’ people by using freelancers or hire people for short term projects. The trend towards renting over owning is one that can be seen everywhere.”

Furniture lease periods in South Africa are typically for three, four or five years. At the end of the term, businesses can buy the furniture, lease new furniture, or opt to have it recycled ensuring green disposal of unwanted desks, chairs and storage units – the most popular items leased.

Andrews concluded that many of South African’s top companies have taken to leasing and he expects the trend to continue.

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