SUREN NAIDOO: Hello, and welcome to the Property Pod with Moneyweb. My name is Suren Naidoo, and I’ve been covering the broader property industry for over 15 years.
In this episode, I speak to Joanne Solomon, CEO of the SA Real Estate Investment Trust Association, or SA Reit, on the extensive Covid-19 rental relief that SA Reit members have given tenants in the midst of this pandemic.
SA Reit represents the listed property sector in South Africa, which has been one of the hardest-hit industries in the face of Covid-19. But it’s not all doom and gloom. The industry has also risen to the challenge by offering rental relief to thousands of embattled tenants. Most of these have been smaller businesses and the worst-affected tenants, such as restaurants, gyms and cinemas. Welcome, Joanne.
JOANNE SOLOMON: Thanks, Suren.
SUREN NAIDOO: SA Reit has done some initial research into the value of rental relief offered to tenants last year. It already runs into a few billion rand. Tell us a little bit more about what’s transpired on this front.
JOANNE SOLOMON: Thanks, Suren. I think as a little bit of context it’s important to mention that establishing a research committee for SA Reit became very evident through Covid to lobby with government and to speak to the regulators. We did need to have a lot more of our information close at hand, so we established this committee and this is its first report. We focused on trying to quantify the level of research that was provided. There are a lot of numbers being bandied around and we thought the easiest place to start would be with our own members, where the information is in the public domain. So it’s the first report. Obviously we could only work with publicly available information, so that leads us to a second report that’ll come out at a later stage.
SUREN NAIDOO: So that value – R3 billion – to what period was this? Obviously different companies have different year-ends and that sort of thing.
JOANNE SOLOMON: You are absolutely right. I think what we understood from the outset is that this would never be a holistic number. Of the larger Reits, most of them could only report April to June. Anything else that has become available was aggregated. So the different reporting periods were a challenge we had to work around, so we could only work with what was available.
SUREN NAIDOO: I’m maybe putting you on the spot a little bit – it could run into several billion rand over time, considering rental relief continuing. Yes, we don’t have the hard lockdown, but some tenants are still benefiting. I’m sure the likes of the cinemas – Ster-Kinekor is in business rescue – they may well be asking their landlords for some sort of relief.
JOANNE SOLOMON: We are anticipating it almost doubling from the R3 billion that we have reported on in the first one. So we do expect it to be significantly larger considering the larger funds have only got a small portion of their relief in the report at this stage.
SUREN NAIDOO: It’s big numbers. And obviously it’s just the SA Reits. In the bigger property industry there are a lot of unlisted and privately-owned players that may well have offered [relief], but clearly the Reit sector has come to the party.
Joanne, I mentioned rental relief going to some of the hard-hit tenants. Has this been well received? I suppose landlords can’t really help all tenants. When we wrote stories on this initially there were people complaining about different landlords, but I suppose you still have to welcome this sort of relief. The property industry is very organised and they seem to have assisted where they can.
JOANNE SOLOMON: Absolutely. I think what one would see right at the outset is that there was some guidance publicly distributed, and the intention was absolutely to help the SMMEs as a first port of call, with the feeling that the larger tenants, especially those that operated in essential services, would probably have stronger balance sheets to get through that initial period. It was extremely welcomed by the smaller tenants. In fact, a number of the tenants have written and expressed that they would not have survived without the proactive support and quick support of our members.
SUREN NAIDOO: That’s great. Joanne, bigger tenants also benefitted from this scheme or the rental relief. Moneyweb was on top of the story when the initial lockdown first began, and there were threats from some of the bigger retailers not to pay. I don’t really want to go into the issue because that’s been sorted, or the industry has worked it out with the relevant landlords, but I’m just trying to understand if also the bigger tenants benefitted from this. I don’t know if you have stats on it, but I just want to understand – is there a split or is it kind of evenly handed…?
JOANNE SOLOMON: It’s a good point to raise because we haven’t included that in the first report. I think the observation to make though, is that each fund is different and would have offered the relief appropriate, or what they can and did offer. It’s interesting to see where funds differ will depend on the makeup of their portfolio. And I think for the asset classes that were more resilient in this time, like industrial, there was different type of relief.
I think what’s an important point to mention is the difference between discounts and deferrals.
What’s really encouraging is that 80% of the relief provided was in discounts, non-recoverable, really to support businesses; and our members will not see any returns coming from that.
Building on that, you could see then that the more resilient sectors offered more deferrals and discounts. So I think one really has to look at each fund and see the makeup of the portfolio, and I think in our second version…would probably be some of the answers as to the size of the tenants that have been supported.
SUREN NAIDOO: I’ll be looking forward to the second report then. In terms of research for this report, maybe just a little kudos to whoever [was] involved and just tell us who helped SA Reit put this report together.
JOANNE SOLOMON: There were three members from the research committee. And once again, a bit of context is, building on the credible information that we need to deliver, we made a concerted effort to not fill the committee with Reits members. So it’s headed by Amelia Beattie [CEO of Liberty Two Degrees] and Jackie van Niekerk from Attacq who is vice. And then we’ve got buy-side and sell-side academia economists. So we’ve got quite a diverse set of skills.
This particular project was led Phil Bartram, who’s from Bartram Consulting, Pranita Daya from Anchor [Stockbrokers] did a lot of the contacting and verification of the information, and Dee [Ndivhuho] Netshitenzhe, she gave an economic overview of what was offered by the government to give it some sort of context as to where this fitted in, and how successful this has been relative to some of the other initiatives that were offered as relief in different forms and different sectors.
SUREN NAIDOO: The listed sector is one of the most organised in corporate South Africa. Give us some insight into SA Reit’s involvement on the whole rental-relief package offered. From our reporting on the whole issue last year, originally Sapoa, the SA Property Owners Association, and the Shopping Council of South Africa were involved. But ultimately this whole process was led by SA Reit.
JOANNE SOLOMON: I think Estienne [de Klerk] took the lead. So by nature of him being chairman of SA Reit, it did give us a strong voice. But I think what’s encouraging to note is that the lockdown hadn’t even started and this group started to form. So it started [as] a conversation on WhatsApp between a few people and it just grew. And Sapoa and SA Reit as well as SACSC, the South African Council of Shopping Centres, were all involved from the outset. The main objective was to organise ourselves as an industry to be able to have a stronger voice and to have more impact, and I think that was quite successful.
It was also beyond the listed property funds as well. So the larger property funds and owners were also very involved in finding solutions. And then the engagements range from dealing with the Banking Association to dealing with National Treasury and dealing with our regulators, as well as with tenants. So it was quite a diverse group of people, but all the big associations were actively involved.
SUREN NAIDOO: Before we go, Joanne, you were appointed CEO of SA Reit in May last year. Next month will be a full year. It’s a little bit of a baptism of sorts, a very tumultuous time. Obviously it got a little easier with lower lockdown levels, but maybe you want to end on a personal note and on your time at SA Reit, and what you hope to achieve in your new role.
JOANNE SOLOMON: Right. I think what was fortunate for me is that the property industry group was up, running, and had already established much of what they needed to do, despite the fact that it’s still ongoing. But it did give me the opportunity then to focus on the Reits themselves, because you might know that there was no formal arrangement on how to service them. So that was my role.
In starting, my biggest objective was to relook at the strategy and introduce some key pillars, which we’ve done. We also engaged a bit with stakeholders to identify the key points. So I’ve got a good foundation of what is needing to be done and what we are currently busy with. It is going to be a busy year, and we certainly haven’t seen the end of Covid. Let’s see what it brings.
SUREN NAIDOO: Fantastic. Thank you so much for your time, Joanne. That was Joanne Solomon, CEO of SA Reit.