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TFG insists it won’t pay April rent due to lockdown

Says decision was not ‘taken lightly and has been guided by legal counsel’.
With all of its stores in SA closed due to the government-declared lockdown, the JSE-listed retail clothing giant has opted not to pay rent for April. Image: Moneyweb

Clothing retail giant TFG has confirmed to Moneyweb that it has decided to suspend store rental payments for April due to the lockdown declared by President Cyril Ramaphosa, which has resulted in the temporary closure of all its stores in South Africa.

The Cape Town-based group has more than 3 000 stores globally – in South Africa, several other African countries, the UK, Australia and other regions. However, its South African operations account for the bulk; the group has some 2 500 stores locally, covering more than 750 000 square metres of retail space.

Read: TFG outshines its SA retail peers overseas

“The decision [not to pay rentals] was not taken lightly and has been guided by legal counsel,” Brad Rothenburg, TFG’s head of property, said in a short statement on Monday.

“We understand that the lockdown places many sectors and the economy under tremendous pressure. In these extraordinary times we must find ways to navigate the current climate, find solutions to mitigate the impact and ensure business continuity,” he added.

TFG’s statement follows news agency Bloomberg reporting at the weekend that the group had sent letters to landlords in South Africa informing them of its decision not to pay rentals due to the Covid-19 lockdown.

It also comes in the wake of Moneyweb reporting earlier on Monday that commercial property industry body, the South African Property Owners Association (Sapoa), believes the “unilateral move” not to pay rent is unlawful.

Read: Retail landlords face rental troubles over Covid-19 lockdown

Sapoa, the South African Real Estate Investment Trust (Reit) Association and the SA Council of Shopping Centres were due to hold a teleconference meeting today to thrash out the issue of non-payment of rentals and the potential impact of Covid-19 on the retail property sector.

Meanwhile, TFG noted in its statement that rentals are paid in advance and therefore the suspension of payment will affect April rentals.

Read: Colin Coleman joins TFG board

“The group will assess the full financial impact once the situation stabilises, and engage with landlords in this regard,” Rothenburg noted.

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The legal validity is part of common law – local and international.

Let the common man do this and before you know it their furniture and belongings would be attached in days.

Obviously TFG cannot pay dividends or even debt costs before paying rent. Operational obligations have to be met before distributions to funders. Does it imply TFG is bankrupt? TFG still uses the properties for its stock and assets during lockdown. The property company remains liable for rates and taxes, and are similarly stretched financially in this economic environment. It makes no sense that TFG could refuse to pay rent. Rather discuss the situation with the landlords and find an equitable solution during the lockdown, eg rent reduction for duration of lockdown

I find the TFG action rather strange – maybe what they should have done was pay a token amount towards rent with the caveat that they would rectify in the not too distant future. There action will affect the landlords who are probably quoted companies and place these landlords cash flows at risk and also affect the landlords shareholders and bankers.
Very stupid decision indeed

I agree. This is not right. This company is not the only entity in trouble. This may set a precedent which may cause enormous problems for landlords. The money that was spent on lawyers may go some way in paying the rent. I suggest the landlord refuses access.

Someone somewhere has to be the shock absorber here.

Either equity injected, cash absorbed or debt(banks) not paid

I actually find TFG’s stance disgusting. The only people they are “sticking it to” are the pension funds who own these properties. If they really had a problem with cashflows, they could have negotiated in good faith, instead of the courts of public opinion. Absolutely no reason to make it public like this…smacks of opportunistic sympathy seeking behaviour. My humble question to TFG – will management be forfeiting the millions in incentives they pay themselves? After all, these are “unusual times”.

TFG is not in safe hands.

With this approach/attitude you are left wondering what else are they actually doing at TFG.

Most of you below obviously do not own your own retail stores! I have 2 small retail stores that will not survive if we have to pay even a cent in rent while unable to trade – it is common law and the Landlords know this. Stop sticking up for the big property companies – they have been overcharging all, and especially small, tenants for years, not to mention the ridiculous escalation clauses that we have had to endure. Times they are a changing – watch this space:)

Last time I checked, property companies were not holding guns to peoples heads and forcing them to sign leases. They invested millions in buildings, made space available, which was then voluntarily leased by businesses. Don’t blame property owners for TFG, yours, or anybody else’s businesses that are struggling…take ownership of the contracts you signed willingly and pay up or move out! But to unilaterally refuse to pay is total BS!!!

Fully agree with this. 3 weeks of a lockdown and TFG refuses to pay rent is totally absurd. Were they always 1 “quiet” month away from ducking away from their rent payment obligations? In fact, if cash is THAT tight, they should slash all salaries during this period too, upper management by the bulk since they should be able to absorb this loss as much as the landlords are able to. I’m still shocked that a listed company would have the audacity to do this, without massive spending cuts elsewhere, with the current level of media exposure.

Have to agree 100 percent. Cannot say anymore than that as comment will be held for moderation.

Come now peoples!

They pay one of their execs R30,000 per hour every single working hour of the day. How can they afford rent? Just his 200 lunches, excluding ingredients, costs R6,000,000. Now add leave and you are over R10,000,000.

Now add the 200 management that are not in the 200 page AFS numbers.

This entire system of absurd salaries for people that basically have to survive the commute and not bully an employee MUST stop. It will only stop when shareholders finally start acting like owners.

TFG always enjoys discounted rentals because of the bulk space they occupy, they cant even think about wanting free rentals.

The writings on the wall, just like MASSMART and EDCON – for many of TFGs brands the road has come to an end. When last did people say they needed to go to Foschini(not even sure where they are located)

Dont blame the landlords if you haven’t kept up with the times.

Apparently one of the better companies on the JSE…Looking through the interim 2019 report:
Cash: R1.1b
Current Liabilities: R11b

Employee costs look like about R500m/month and occupancy costs about R330m/month. This excludes paying interest on debt, suppliers ect.

Since they don’t know how long they will have no revenue I suspect they have had to make a choice between paying rent and paying their staff. Not great for the business relationship with the landlords but they are calling the shots at the moment. Could come back and bite them in future.

Most companies do not have large cash reserves. A month with no revenue kills most of them, especially the small ones.

WTF?!!?
They just choose not to pay rent?!?!?

We should all NOT support them

That’s the problem with high fixed costs and no revenue. They just do not have that type of cash on hand and also do not have any idea of how long they will sit with no revenue. I am not sure what access they have to short term credit, but they are already quite highly geared.

Market Cap: 15.5b
LT + ST debt: 9.6b

I suspect they will not be the last.

The JSE has no leadership. Academics must stay in varsities and lecture.

Why has the going concern of this entity been questioned?

Ribble effects on REITS and other property owners?

Who are their auditors?

Just lame just lame.

End of comments.

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