As part of it Covid-19 rental relief to tenants, diversified JSE-listed property group Fortress Reit has already written off a portion of rentals due for April and May. It has done so not just in its retail property portfolio, but also within its logistics, industrial and office property portfolios.
In an operational update on the impact of Covid-19 published on the JSE on Monday, the group noted that it had only collected 51.3% of rental due for April and would write off 26.2% of retail rent for the month. It has deferred 0.1% of retail rentals due for the month, which takes the overall relief given to its retail tenants (as a percentage of billings) in April to 26.3%.
The group has also done “write-offs” of 4%, 2.7% and 3.4% respectively for logistics, industrial and office sector tenants for April. For these sectors, it has offered rental deferrals of 16%, 18.2% and 9.3%, respectively for April.
The group’s retail property rental collection for May improved to 70.8%. It has written off 8.9% of retail rentals for May and deferred payments of 1.4% due for the month. Fortress did not indicate the total rand value of the write-offs, and is still negotiating payment of the balance of rentals due.
While rental collections came to 77.3%, 78.8% and 82.8% for its logistics, industrial and office portfolios for April, this worsened to 70.9%, 63% and 71.6% in May. Fortress has also undertaken small write-offs for rent due in May for these sectors; however, it has offered rental deferrals in the double digits.
“We have spent a considerable amount of time on engagements with our tenants, both directly and through collective industry initiatives, over the past two months to understand the impact of the Covid-19-related lockdown on their businesses,” the group said in its Sens statement.
“As rentals are payable in advance, the May 2020 rental was invoiced and due while the lockdown was in effect and the regulations around the different levels were uncertain,” it noted.
“However, it is pleasing to note that the negotiations post May 1, 2020 have been constructive, particularly in the retail segment.”
Keillen Ndlovu, Stanlib’s head of listed property funds, tells Moneyweb that Fortress seems to be the first South African real estate investment trust (Reit) to publicly announce that it is writing off a portion of rentals due for April and March.
“It’s not surprising to see that the biggest write offs (26%) for April rent was in the retail space. This was driven by the Level 5- or hard lockdown.
“April was the toughest trading month ever for retail tenants, save for essential supermarket and pharmacy tenants,” he says.
“May has seen an improvement in collections [versus April] and [fewer] write-offs across the sector as we moved to Level 4. We expect June to be better in terms of rental collections due to the move to Level 3 lockdown,” adds Ndlovu.
Vacancies, arrears and bad debts likely to increase
“Given that the economy is not fully operational, we are still likely to see an increase in vacancies, arrears and bad debts in the commercial property market. A sustained recovery will be a function of how our economy holds up in these challenging times as well as how long the lockdown will last for,” he says.
Meanwhile, smaller retail-focused Reit Fairvest Property Holdings also put out a Covid-19 operational update on the JSE on Monday.
“Over the past two months Fairvest actively engaged with all our tenants on the impact of Covid-19 on their businesses in order to find sustainable solutions. Negotiations are ongoing and we expect to have the majority of these negotiations concluded by year-end, June 30, 2020,” it said.
“Concessions in the form of gross rental deferrals and rental credits have been provided to tenants, dependent on their specific circumstances. Gross rental deferrals of April 2020, May 2020 and June 2020 billings were provided to certain small, medium and micro enterprise tenants, with repayment terms ranging from three months to 36 months, starting from July 1, 2020,” it noted.
“Of the gross billings in April 2020 and May 2020, credits of 6% were conceded to, with specific terms and conditions, and deferrals were provided on 12% of total gross billings. Negotiations with certain individual tenants and tenant groupings continues,” Fairvest added.
“Previously reported collections for April 2020 were in excess of 60%; however after taking into account the above-mentioned concessions, approximately 77% of collectable billings were collected,” it said.
“For May 2020 the collection percentage, after concessions, increased to approximately 86% and for the first eight days of June 2020, 82% of collectable billings have been collected.”