The Property Industry Group (PI Group), an alliance of South Africa’s biggest retail landlords and JSE-listed real estate investment trusts (Reits), has called on the government to come in as a mediator to help resolve the impasse around major retailers paying some form of rent during the Covid-19 lockdown.
In a statement released on Tuesday morning, the group announced “increased and extended” rental relief for most retail tenants, but noted it is yet to secure a deal with the newly-formed Clothing Retailer Group (CR Group), which represents Pepkor, The Foschini Group (TFG), Truworths, Mr Price Group and Woolworths.
As part of its new wider relief guidelines, the landlord alliance has doubled its rental discount for April offered to major clothing retailers that have been forced to close due to the Covid-19 lockdown. It is now offering a 70% rental discount to such retailers that have a turnover of more than R1 billion.
This comes as government has effectively extended the national lockdown in the form of various lockdown levels, which will still see many businesses either not being allowed to trade or facing stringent trade restrictions.
“Despite constructive negotiations between the groups and considerable compromises on both sides, we have been unable to reach an agreement on the extent of the rental relief,” the PI Group said in its latest statement.
Commenting on the situation, Estienne de Klerk, spokesperson for the PI Group and Chairman of the SA Reit Association, called on government to come in as a mediator for sort of resolution.
“Unfortunately, despite both parties moving closer together we can’t find a final meeting point on the level of rental discount, and the refusal by the CR Group to pay their share of rates and taxes remains the major point of disagreement,” says de Klerk.
“Both sides, however, appreciate that our fortunes are inextricably linked, and we need each other for the success of our businesses. We value the longstanding relationships forged between members of both groups. To preserve these relationships, and avoid a protracted process, we are proposing the national government as mediator to provide a mutually beneficial remedy,” he adds.
After several major clothing and other retailers threatened not to pay rent for April, the PI Group was formed. It has the backing of the SA Reit Association, South African Property Owners Association (Sapoa) and South African Council of Shopping Centres (SACSC), as an industry response to the Covid-19 pandemic and the economic fallout from the lockdown.
The CR Group later came together and offered to pay landlords around 20% of rentals for April. This counter offer was in response to the PI Group’s initial proposal of a rental discount of 35% to major clothing retailers for the month.
With the discount now increasing to 70%, the landlord alliance will be hoping to finalise a deal before the end of April, as many clothing retail giants have yet to pay and are anchor tenants in South Africa’s malls and city centre properties.
Meanwhile, the PI Group reiterated in its statement on Tuesday that while its new guidelines aimed to offer greater relief to all affected retailers, the hardest-hit small, medium and micro enterprise (SMME) retailers will be prioritised.
“To sustain retail tenants during the lockdown, the property industry’s assistance guidelines offer relief for all affected retailers, regardless of size. SMME retailers, however, are the focus of the initiative,” it said.
“The PI Group proposes that small and micro retailers are given rental discounts of up to 100% for April, with further substantial rental discounts and interest-free rental deferrals for May and June respectively,” it added.
As part of its wider relief guidelines, the group said it has increased the extent of assistance, introduced more retailer categories, provided additional options for some retailers and extended the benefits from two months to three months – April, May and June 2020.
“The retail tenant assistance and relief guidelines exclude office, logistics, warehousing, industrial, healthcare, hospitality and other tenants,” the PI Group said.
“These tenants should discuss their specific situations directly with their landlords, who will consider them on a case-by-case basis without reference to the retail tenant assistance and relief guidelines.
“Adding to its far-reaching relief impacts, the PI Group is committed to continuing paying its suppliers in full, including cleaning and security providers, and taking on the increased cost of enhanced hygiene to protect against the spread of Covid-19. This is helping to preserve thousands of jobs nationwide,” it added.
“The PI Group is also paying its rates and taxes, which are vital in supporting the sustainability of municipalities countrywide and by extension supporting the grass level communities and households among which both property and retail sectors conduct business,” it noted.
The landlord alliance has also stipulated that as part of its assistance and relief guidelines, all tenants with accounts in good standing at 29 February 2020, will not be evicted during the lockdown period and will qualify for some form of assistance from participating landlords.
“Retailers would need to apply to their landlords directly for assistance. Each participating landlord can offer additional relief and support on a case-by-case basis at their discretion. However, the guideline for retail SMMEs is the minimum that qualifying retailers can expect from participating landlords,” it said.
De Klerk says the updated retailer assistance and relief guidelines will come at an enormous cost to the property industry, which faces its own “ominous” set of challenges.
“SA’s property sector has voluntarily committed to the relief guidelines even though it hasn’t received any sources of relief, and we’re shouldering our share of the pain,” he adds.
“We are paying our full obligations while giving retail tenants substantial discounts and we have gone as far as we can in assisting retail tenants with our updated proposal. Our entire value chain is only as strong as the weakest link. If all the pressure continues to be placed on a single link, it will break and result in systemic collapse that will be felt in every household in SA,” De Klerk says.