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Tenants ‘jumping on the bandwagon’ not to pay rent – Octodec

But government leaseholders are paying.
Killarney Mall near Houghton in Johannesburg – Octodec's biggest retail asset. Image: Supplied

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.

Read:
Retail landlords face rental troubles over Covid-19 lockdown
Lockdown: JSE-listed retail giants offer landlords a fifth of rent

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.”

Octodec MD Jeffrey Wapnick. Image: Supplied

“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.”

Interims

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.

Read: SA Reits wants tax relief from Covid-19 fallout

“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.

Read: Covid-19: Major mall owners hammered on the JSE

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.”

Octodec share price

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Kick them out immediately and ask for a bailout from Government.

Start from scratch when the depression is over. It might be months or years.

Screw Anchor tenants!!! for too long there has been a major problem with retail and malls in SA!!! Return of the small artisan style butcher, bakery, fish monger, vegetable shop!!!

“It hurts when tenants just stop paying rent,” he added

take a panado

lock them out and sieze there goods in lieu of non payment – let them take panardo.

The problem is that the landlord knows that they will not find suitable replacements tenants for a long time. If ever.

Agreed.

That’s the very reason to kick them out. As a country lets not let the squatter problem escalate.

If they cant pay now chances are they will never be able to pay again.

Kick them out.

There are many areas earmarked for squatters.

May as well start planning changing regional malls into educational sites or something else.

Moron

If a property company gets a 3 month payment holiday or bailout, why should that cost saving not be passed on to the tenants? Collect enough rent, to pay interest and rates and taxes. Essential services must pay rent or at least 60.00%.

And shareholders who rely on dividends for income get nothing.please show us how you and your board of directors are reducing your remuneration now that you are at home and cutting overheads.

They should at least pay 25% of their rent.

Then I suppose that property owners can stop paying rates and taxes to municipalities…..

that’s why our properties in the smaller office blocks environment for SMEs…. don’t bang slap add-on every year increases of 10 % YoY!! and the tenants pay religiously spot on. it’s imperative to hang in with GOOD tenants!!

Hit the nail on the head.. Give people really good terms – but don’t tolerate non payment…. Non payment is like a contagious disease that spreads…. Especially when people see others getting away with it.

sure not to upset the “good” landlord tenant relationship the “lustrous” property market worked so hard to maintain..

If the government lock-down stopped businesses opening their doors, well..

then it is perhaps for tenants to pay GOOD landlords something reasonable

I think everyone’s missing the point. The people responsible for this fiasco is the government who decided to shut down the economy. They must be sued for the unpaid rents. They should have thought of the long term consequences of their knee jerk reactions. I think it should be a legal requirement that all politicians need to play chess at a competitive level before becoming government ministers.

End of comments.

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