Covid-19 Roundup: Property industry urged not to withhold rent during lockdown

Property Industry Group chairman Estienne de Klerk: We need to find solutions to benefit everyone.

As retailers and restaurants around the country aren’t earning any income at all during the Covid-19 lockdown, finance teams are scrabbling to implement cost-containment strategies. One of the major areas of cost-cutting focus is rentals. 

For instance, KFC-owner Yum! Brands has told landlords in South Africa that it won’t be paying rent while its 48 company-owned stores are closed during the 21-day lockdown. The 1,145 KFC restaurants across Africa that are operated by franchisees have to make their own arrangements. 

Grant Wheatley, owner of more than 40 KFC restaurants across sub-Saharan Africa, has said he is in talks with landlords, banks and suppliers about arrangements to cope with the lockdown. 

The Foschini Group and Pepkor are among other retailers that will be stopping payments during lockdown. 

Pepkor said in a statement that they are facing extremely challenging times. “We have taken the decision to suspend all rental payments for RSA premises due on respectively 1 and 7 April 2020.” The statement cited the Covid-19 Block Exemption for the Retail Property Sector regulation published in the Government Gazette on 24 March.

South African Property Owners Association (Sapoa) CEO Neil Gopal raised concerns about big retailers not paying rentals. He warned that non-payment could cause the collapse of malls and severely impact retail property companies. 

“We have seen correspondence from national retailers, stating that they will not be paying any rent (and even other lease charges) during the lockdown period. In our view, this position is completely incorrect, and unlawful,” he said, adding that people were not interpreting the new Covid-19 block exemption regulations adequately. 

Worried landlords held an urgent industry conference call meeting to discuss the issue as well as other challenges in the face of the Covid-19 impact on the sector. The meeting was jointly hosted by the South African Real Estate Investment Trust (SA Reit) Association, Sapoa, and the South African Council of Shopping Centres, which have banded together to form the Property Industry Group.

Property Industry Group relief package
As a result of the meeting held by landlords, the Property Industry Group has announced an industry-wide assistance and relief package for retail tenants that are hit the hardest during lockdown. The initiative will be rolled out by landlords nationally. 

The relief package primarily focuses on SMMEs across all sectors, but also includes support for large retailers affected by lockdown. The aim of the package is to preserve the jobs of retailers, suppliers and service providers. 

The package stipulates that tenants whose accounts were in good standing at the end of February won’t be evicted for the next two months. Retailers that aren’t able to trade because of lockdown, whose accounts were also in good standing at the end of February, will also be offered assistance from landlords.
 
In April and May, retail landlords will offer relief in the form of rental discounts and compromises. Rental includes rent, operating costs and parking rental, but excludes all rates and taxes recoveries and utility cost recoveries, as well as insurance, which tenants will still be required to pay fully.
 
The Property Industry Group chairman Estienne de Klerk (pictured) says that they’ve seen retailers reverting to legal positions, but that they don’t believe litigation provides either side with timeous solutions needed to get through this unprecedented time. “We need to stand together and find workable solutions that will benefit the country, protect jobs, and sustain our businesses through this challenging time. We believe what we are offering is balanced and addresses some of the key issues on both sides. It is an equitable way to protect both industries and, very importantly, looks after the drivers of employment creation – the SMMEs.”
 
The package assumes that SA’s lockdown doesn’t extend beyond 21-days. “If this isn’t the case, it is critical for stimulus packages such as those provided by the government, banking sector and Solidarity Fund to kick in to weather this storm,” says de Klerk.

Business continuity
For Broll Property Group, a business continuity plan (BCP) has always been a key initiative in an ongoing process of fine-tuning. On 12 March, two weeks before the President’s lockdown announcement, Broll put its BCP to the test at a bigger scale than ever before. Group CEO Malcolm Horne says the company was extremely pleased with the results, which yielded solid proof that Broll has a fully functioning BCP and can operate without any hitches as a remote business across South Africa. 

Taking away distribution guidance
Transcend Residential Property Fund has announced in a statement that, in light of the market uncertainties, it is no longer appropriate for its distribution guidance to remain in place 

According to the statement, the property fund’s management team continues to take the necessary steps to maintain a sound financial and liquidity position during these uncertain times. They are, however, aware that the impact of lockdown and a slowdown in economic activity may affect these conditions in the short-term.