Property companies likely to survive loss of rental income from Edcon
Edcon, one of South Africa’s biggest clothing and beauty retailers, has said it is unable to pay suppliers through a lockdown, and it might have to seek protection from creditors. Under lockdown are all the firm’s 1100 stores, including non-food department chain Edgars, budget clothing retailer Jet Stores and stationery store chain CNA.
The 90-year-old retailer on Thursday projected it would lose a further R800million in turnover during the lockdown.
An emotional Edcon chief executive, Grant Pattison, told suppliers in a conference call that the timing of the lockdown could not have been worse, because March and November were traditionally months of constrained liquidity for the group.
Pattison said Edcon had sufficient liquidity only to pay salaries, and the company was unable to honour any other accounts during the period on the missed sales targets in March and the expected drop in debtors’ book collections. Anchor Stockbrokers’ head of property and research, Craig Smith, said shopping centre landlords had taken considerable steps to dilute their exposure to Edcon over the past year following Edcon’s first restructuring that was necessitated when it ran into financial trouble.
However, the Edcon rental exposure was likely to be less than 5percent of the gross lettable area of most shopping centres and rentals were already being heavily discounted in many centres in terms of the earlier restructuring plan.
But filling the sizeable space that Edcon stores took up in shopping centres was going to be difficult in the current economic environment, Smith said.
Listed property companies such as Hyprop, Redefine, Resilient and Liberty Two Degrees were exposed to Edcon, he said.
Old Mutual Investment Group MacroSolutions portfolio manager, Evan Robins, said most of the shopping centre owners had anticipated that Edcon would be around for another two years anyway and had consequently reduced their exposure to Edcon last year through, for instance, discounted rentals.
He said a closure of Edcon would result in an average loss of rental income of about 1 to 2percent to shopping centre owners, but the “second round effects” in terms of job losses and in terms of loss of income to Edcon’s suppliers were far more serious, Robins said. Edcon has some 14000 employees.
Robins said Edcon was already struggling financially, and it had taken three weeks of really weak trading conditions to bring it to a point where it needed to announce its financial distress. He said it was likely other non-food retailers would also experience financial difficulties in the current environment,
Resilient Reit chief executive Des de Beer said Edcon comprised 3.6percent of their distributable rental income. He speculated that a business rescue might not be such a bad thing, because there were parts of Edcon, such as Jet Stores, that were profitable and could be sold off separately.
An example of one property group that recently reduced its exposure to Edcon is Hyprop, which owns the large Canal Walk mall in the Cape and which has a R48billion portfolio of shopping centres in South Africa, eastern Europe and sub-Saharan Africa. In February, it cut the lettable area leased to Edcon by 18percent to 54569m² in February, and further cuts were envisaged this year.
Another major shopping mall owner, Liberty Two Degrees, reduced its exposure to Edcon to 4.3percent of gross lettable area by December 31, 2019, from more than 5.3percent prior to Edcon’s first financial recapitalisation on March 1 last year.