Jeffrey Wapnick, MD of JSE-listed real estate investment trust (Reit) Octodec, says “a lot of other tenants are now jumping on the bandwagon” not to pay rent during the Covid-19 lockdown period.
“With the big guys initially threatening not to pay rent, several smaller retailers are now saying why should we?”
Wapnick was responding to questions on Wednesday, following the release of the group’s half-year results to the end of February.
Moneyweb first reported at the end of March that major retailers like Pepkor and TFG had sent letters to retail landlords about non-payment of rent due to not trading during the lockdown. However, since then the Property Industry Group has been formed to negotiate on the matter for the listed Reit sector.
Major retailers including TFG, Pepkor, Truworths, Woolworths and Mr Price are part of The Retailer Group, which is now negotiating for these retailers with the listed landlord forum.
“The Property Industry Group is talking with a number of major retailers and negotiations are still underway,” said Wapnick. “However, operationally from our side as Octodec, we are also keeping the channels open to negotiations, and where possible will do a deal.”
“It hurts when tenants just stop paying rent,” he added. “Octodec has a granular tenant base, so there are a number of negotiations underway and we have to get our heads around this whole thing. Covid-19 is causing a lot of uncertainty in the market currently, but thankfully government tenants that take up around 10% of our portfolio are paying rent.”
Wapnick said that since the end of the first half of Octodec’s financial year (to February 29, 2020), the level of uncertainty had increased significantly for the group. With the Covid-19 national lockdown in force, the group announced in a Sens statement on April 7 that it was withdrawing its distribution guidance for the financial year to the end of August.
“Our results for the six-month period were good, considering the recessionary economic environment and difficult trading condition. But three weeks after the end of our half-year, we had the announcement of the lockdown. Things have changed dramatically since then,” he said.
“It is a fluid and even more challenging economic environment, so it’s hard to predict what will happen. We don’t have a crystal ball but are hopeful that the Covid-19 situation passes as soon as possible,” added Wapnick.
Octodec reported a slight reduction in distributable earnings to 97 cents per share for the interim period.
However, the group opted to not to pay out a dividend, noting that it would be retained to bolster its cash position amid Covid-19 uncertainty. This amounts to around R260 million.
Most of the group’s R12.5 billion portfolio of retail, commercial and residential properties are located in the Johannesburg and Pretoria CBDs. Its biggest retail asset is Killarney Mall near Houghton.
Anthony Stein, Octodec’s financial director, said the group had halted all new development and capex projects to preserve cash in the face of Covid-19. He added that the group’s loan-to-value ratio was slightly below 40% at the half-year.
“In this environment, we are cutting back expenditure and retaining cash to bolster our balance sheet. We will also be watching [property] valuations closely,” he said.
Distribution guidance withdrawn
Commenting on Octodec’s latest results, Nesi Chetty, senior listed property fund manager at Stanlib, said akin to most of its peer listed property companies, the group has withdrawn its previous distribution guidance and will update the market after lockdown ends.
“In the short term Octodec will continue to focus on improving liquidity and strengthening the balance sheet.
“The group is not at risk of breaching any covenants currently, but the current process is being managed by both property companies and the banks,” he noted.
“The market was expecting Octodec’s rental revenue to be subdued given the current negotiations happening between retail tenants and landlords, and increased reversions in the commercial portfolio. The current state of the market means Octodec won’t be able to undertake any significant new developments given the uncertainty,” he added.
“Given that Octodec is one of the largest owners of property in Joburg CBD and Tshwane, any recovery in Octodec will be dependent on how quickly those two areas can bounce back once lockdown ends.”