Major malls will still be hit hard if Edcon business rescue fails

Despite its ‘downsizing’ the clothing group remains a major tenant with 730 stores and a million square metres of prime retail space countrywide.
Edcon’s troubles add more uncertainty for shopping centre owners that have exposure to its Edgars chain. Image: Waldo Swiegers/Bloomberg

Edcon may no longer be South Africa’s largest non-food retailer, but if the group’s business rescue process fails, this will still have adverse ramifications for JSE-listed and independent retail property landlords.

This is because the owner of Edgars and Jet stores, which announced it is filing for business rescue on Wednesday, still holds around a million square metres (sqm) of retail space, largely in the country’s major malls. Its largest store is the three-level Edgars flagship outlet in Sandton City, covering around 12 000m².

Many of its current 730 stores nationwide are located in prime, “deep box” anchor tenant positions that won’t be easy to fill, according to property analysts speaking to Moneyweb. The economic fallout from the Covid-19 lockdown, which is affecting most retailers and restaurant chains, will likely add to landlord woes with reduced demand for space and many tenants threatening not to pay rent.


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Over the past two years Edcon has downsized its floor space by around a third and its store numbers by almost half as the part of its restructuring strategy but it still holds more retail space than The Foschini Group (TGF). Its better performing competitor has around 750 000m² of retail space in the country.

Following its downsizing, with store closures, space reduction and the sale of brands like Legit, Edgars Active and, more recently CNA, Edcon has been usurped as SA’s largest non-food retailer. Pepkor, which also includes the JD Group, now holds that title with around two million square metres of retail space countrywide.

Edcon cannot pay its suppliers, including rent to landlords due to the lockdown, which it says has cost it R2 billion in sales. Pepkor, TFG as well as other clothing giants such as Mr Price and Woolworths, will no doubt be facing even larger losses during the lockdown.

Craig Smith, head of research and property at Anchor Stockbroker, tells Moneyweb that while most listed real estate investment trusts (Reits) and private property companies have reduced exposure to Edcon, a collapse of the 90-year-old group will have negative ramifications on retail landlords and jobs.

“Although the news is unlikely to come as a surprise to many market participants, it is however most unfortunate and a real travesty as Edcon is a large employer in the South African economy. This is a clear sign of the stress that Covid-19 and the national lockdown is having on the real economy,” he says.

Craig Smith, head of research and property at Anchor Stockbroker. Image: Moneyweb

Despite Edcon’s downsizing, the retailer employs around 17 500 permanent staff, according to Edcon CEO, Grant Pattison. Edcon also employs up to 5 000 casual workers and supports many more jobs in the local clothing and textiles sector.

Considering the worsening economic environment due to Covid-19, Smith says that an Edcon failure “will have an impact” on retail landlords.

“It will be very difficult to try to re-tenant that [Edcon] space over the short to medium term,” he notes.

“Super-regional malls [over 100 000m² in size] however probably have less than 5% exposure to Edcon on average. Thus, while Edcon is a big user of space in aggregate, its exposure within super regionals is probably less than 5%,” he says.

“But the challenge is that it comes at a time when other tenant categories like restaurants and health and beauty [nail salons, hairdressers, barbers] will come under considerable pressure,” Smith adds.

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

According to research by Anchor Stockbrokers, Reits including Liberty Two Degrees (L2D), Hyprop and Resilient, have the highest exposure to Edcon at 3.5%, 3% and 2% of their portfolios, respectively.

Other diversified property counters, such as Redefine, Attacq, Vukile, Growthpoint, Emira, Fortress and Octodec, each have around 1% exposure to Edcon.

Many of these Reits were part of Edcon’s R2.7 billion funding restructure deal last year, which saw both listed and unlisted property companies either taking an equity stake in the struggling retail group or agreeing to a significant rent reduction. The Unemployment Insurance Fund (UIF) and banks were also part of the funding lifeline.

Some of the major SA Reits which have contributed to Edcon’s recapitalisation. Source: Anchor Stockbrokers

Group’s such as L2D, Hyprop and Redefine have had to writedown the value of stakes in Edcon since the deal. While Edcon’s Edgars store still occupies its three-level space within L2D’s trophy Sandton City property, the chain has given up a floor at Eastgate Shopping Centre.


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Edcon has also closed its Edgars store at Hyprop’s Rosebank Mall and another in a high-street property owned by Fortress in the Durban CBD. The Edgars store at the Attacq-owned Mall of Africa was also reduced in size to a single level last year.

L2D released a voluntary Sens announcement on the JSE late on Wednesday, noting Edcon’s business rescue announcement.

“L2D management will review the business rescue plan once it is made available,” it said.

“Edcon occupies 33 674m² (3.5%) of L2D’s total portfolio GLA [gross lettable area] at March 31, 2020. As per previous communications, the investment in Edcon as part of the restructuring in March 2019 was carried at a fair value of R17.5 million at December 31, 2019,” it pointed out.

L2D is a much smaller Reit compared to the likes of Redefine and Hyprop, which have offshore exposure in Europe. Consequently, L2D has a higher exposure to Edcon. However, in actual retail space, both Redefine and Hyprop provide much more GLA to Edcon.

In a Sens statement related to the impact of Covid-19 and Edcon on April 1, Hyprop noted that Edcon currently occupies 50 199m² within its South African malls. The Reit said that this comprised 7.7% of Hyprop’s South African GLA, and 6.6% of its South African income, for the six months ended December 31, 2019.

Smith explains that while Edcon naturally represents a higher percentage of Hyprop’s South African portfolio, when its offshore property assets are taken into account, its overall exposure to Edcon comes down to around 3%.

Stanlib’s head of listed property funds, Keillen Ndlovu, says that with Edcon’s rationalisation, the local Reit sector’s total income exposure to the retailer has reduced from 2% before its restructuring, to around 1% today.

Keillen Ndlovu, Stanlib’s head of listed property funds. Image: Supplied

Read: SA Reit sector worst performing asset class again in 2019

“Most property companies have either been quite conservative about income from Edcon or have excluded income from the group altogether. However, an Edcon demise will still have a major impact on listed and unlisted retail property counters, because Edcon still has a sizeable exposure to South Africa’s super regional and regional shopping centres,” he points out.

Besides Reits, property groups such as Pareto and Old Mutual also have exposure to the retailer. Pareto owns a small stake in Sandton City, but majority shareholdings in major malls such as Menlyn in Pretoria, Joburg’s Cresta Shopping Centre and The Pavilion in Durban. Old Mutual owns the expansive Gateway Theatre of Shopping in Umhlanga and Cavendish Square in Cape Town.

Listen: Edcon will not be the last retailer to suffer under Covid-19

“Level 4 Covid-19 lockdown restrictions mean that malls will still not operate as usual or to full capacity. For instance, sit-down restaurants and entertainment venues like cinemas won’t being allowed to operate,” says Ndlovu.

“This will impact landlords, not only due to non-payment of rent, but in the event these tenants go out of businesses. Edcon’s troubles certainly add more uncertainty for landlords and who knows when the economy will be fully functioning again,” he adds.

Ndlovu says it will be tough for landlords to fill vacancies that may come up.

Read/Listen: Ryk van Niekerk and Nompu Siziba’s latest interview with Edcon CEO, Grant Pattison



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Just do the math with their 4000 odd employees with say 3 dependants…..then we have SAA also at 4000 with dependants.

It is called crash and burn.

The article yesterday had the EDCON labour figure at 44 000.

I think they have 48000 employees in 8 countries

Edcon needs to survive only to serve the interest of those who are invested in it. But, will they really be missed by the customer?

I’m in need of some rather professional looking shirts. I’m planning on n getting these at Edgars but if their shop isn’t open it won’t be a train smash. Similar quality can be had for similar prices at many other shops.

This is the problem with big business like this today. They forget that there’s competition that is ready to replace them. This is why they aren’t even mentioning the customer in their rescue strategy. Floor space? I went to Rosebank and found a large plastic store taking up their space.

Zara and H&M will take over the leases and take some of their employees and life will go on.

Woolworths shirts are better than Edgars shirts

Look for the smaller independent shops. They often have even better stuff at good prices and great service. And at this stage they probably need your business more than any chain anyway.

Not pointed out in the article is that these Reits should do an immediate revaluation of their assets based on Covid-19 impact and these revaluations would send their shares tumbling again.

Watch out for the revaluations of the assets.

IMHO – not good to crash and burn Edcon. As said, lots of jobs lost. Another competitor lost, and remember its not only Edgars that is in the Edcon group. Too few competitors give carte blanche to the remaining rest, an unfortunate curse in the capitalist system. Laugh Edcon off if you wish, just hope your pension fund didn’t invest in Edcon and/ or affected shopping malls.

Indeed a serious case this and the current incompetent regime is the biggest contributer to this and many more similar cases to follow. COVID is just smoke and mirrors to give cANCer a get-out-of-jail card. Cry the beloved country.

Too late. She cried. and again she cried.
Just one of the first, of many to follow.

Too late. Gone means gone. Including investors money.

That’s life, Ol’ blue eyes sang.

There’s more to follow. Many more.

Collateral damage is unavoidable, REITs will take a lot of punishment in this new post Covid-19 economy.
Edcon has had years to rectify their stubborn resistance to what the customer wants and what they offer the customer.
As Lois Pasteur said, chance favours the bprepared mind.
Refer Clicks vs Dischem, Pepkor vs Edcon. and so on.

There should be interested buyers in the JET stores, which will account for a significant part of the space. Landlords also provided a 40% discount to rent last year, which means the rent per square meter is quite low. This will help with the reletting of the space.

Cue the world’s smallest violin for mall owners – a true bonfire of the vanities is being lit. I’ll bring the marshmallows?

It is called CREATIVE destruction. Like old trees in the forest dying and making space, light and nutrients available for new saplings to take root. Instead of propping up these old tired ideas with their shareholders cash Reits should be giving new businesses rental holidays to get going. At the moment I think all malls are depressingly similar. Lets have some new ideas some variety of tenants to visit.

End of comments.




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