Mall-owners Liberty Two Degrees and Hyprop Investments have emerged as the biggest casualties from the closure of department chain Stuttafords, as both JSE-listed property companies expect falling dividend payouts and rental income.
Liberty Two Degrees, which is exposed to the retailer through its Sandton City and Eastgate shopping centres, said it has effectively, as of Monday, agreed to the closure of Stuttafords at both mega malls.
Liberty Two Degrees CEO Amelia Beattie conceded at the company’s results presentation on Monday – where it declared a dividend of 30 cents per share in the six months to end-June – that the company will be negatively impacted by Stuttafords’ demise.
The company said the Stuttafords closures along with its acquisition of properties worth R2.5 billion might negatively impact its 2017 full-year dividend payouts by a “conservative” estimate of 2.5 cents.
Stuttafords was one of the anchor tenants at Sandton City and Eastgate, occupying about 7 800 and 8 400 square at the respective shopping malls.
Stuttafords voluntarily submitted itself into business rescue in November last year after running into profitability problems as its business model was based on higher price points for merchandise in a market where consumers are increasingly trading down to lower-priced goods. Its rescue was also stunted by ructions between creditors and shareholders over Stuttafords’ strategic direction.
“Even if the business rescue had worked, there would also be some rental downtime that the new bidder [owner of Stuttafords] was requesting,” said Beattie.
By August 1, Stuttafords would have shut nine of its department stores, 16 mono-brand stores (brands with their standalone stores) and three stores outside SA (two in Botswana and one in Namibia), resulting in more than 900 job losses.
Beattie said Liberty Two Degrees was in talks with retailers Dis-Chem, Zara Home, Turkish fashion brand LC Waikiki, McLaren and Ferrari fashion brands to take up the two-level Stuttafords store and mono-brand stores at Sandton City. It’s still negotiating with various retailers to fill the space vacated by Stuttafords at Eastgate.
Liberty Two Degrees will record vacancies and not generate rental income as it has to reconfigure the Stuttafords vacant space to accommodate multiple retailers, fit out the new stores, and conclude lease agreements.
Another counter that is exposed to Stuttafords is Hyprop Investments, which is already counting the cost of the defunct stores at its Johannesburg Rosebank Mall, Clearwater Mall and Canal Walk shopping centre in Cape Town.
Stuttafords occupied 11 000 square metres of gross lettable space at Hyprop’s three shopping malls.
Hyprop CEO Pieter Prinsloo recently told Moneyweb that it would take up to six months to negotiate lease agreements with new tenants for the Stuttafords retail space and might offer lower rentals to attract prospective tenants. “There is a demand for the retail space from local and international brands,” he said.
Swedish retailer H&M will open a flagship store in November at Canal Walk, taking the two-level 4 600 square metre store previously occupied by Stuttafords.
The other vacant retail space is not good news for Hyprop’s rental income stream, from which dividend payments are derived. Stuttafords accounted for 1% of Hyprop’s rental income in its local property portfolio worth R27.2 billion.
“Although Stuttafords is not a big part of our income base, it will reduce our rental income slightly and might negatively affect dividend payouts [for the financial year 2018]. Not all retailers are struggling.”
Hyprop was not able to recoup its rentals from Stuttafords beyond the month of May, with Prinsloo saying it’s in the process of claiming damages relating to the unexpired portion of leases at its malls.
Anas Madhi, a director at Meago Asset Managers, said that while shopping malls may be able to replace a once-off event like the Stuttafords demise, another risk is apparel retailers downsizing and consolidating their retail space.
“This will result in vacancies rising and/or negative rental reversions being negotiated over the short to medium term,” Madhi told Moneyweb.
Mall owners that will survive are those which own assets that dominate with a larger catchment area. “However, assets with a good mix of blue chip local and international brands, anchor tenants in food and a strong entertainment offering will continue to attract foot count,” he said.