Pick n Pay stores in Hyprop property ‘on sound footing’
Hyprop, which owns Canal Walk Shopping Centre and the Clearwater and Rosebank malls, says none of the Pick n Pay stores in its malls will close or have asked to reduce space or pay lower rents.
On Tuesday, the real estate investment trust (Reit) partly blamed the retailer’s troubles for its decision not to pay a dividend. Reits typically pay out 75% of their rental income to investors in the form of dividends, in exchange for tax benefits.
But in a trading statement ahead of its half-year results to end-December Hyprop said it would not pay a dividend due to the risk from SA’s election on May 29, the devaluation of Nigeria’s naira, where it owns a mall, and its exposure to Pick n Pay.
That led to speculation that Pick n Pay is a risk for shopping mall owners in general and that the food retailer could seek lower rentals due to its financial troubles.
Hyprop counts Pick n Pay as a tenant in nine of its 10 malls and the retailer is its secondbiggest tenant after Woolworths, accounting for 7.5% of Hyprop’s gross lettable area.
But CEO Morne Wilken said in the company’s interim results presentation on Thursday that Pick n Pay’s rent was up to date and it had not asked for any rental concessions or changes to the leases.
Wilken said that senior management had been raising concerns about Pick n Pay stores’ underperformance for five years. But Wilken said Hyprop flagged the risk of Pick n Pay in its results this week based only on publicly available information and no behind-thescenes conversations.
“We earmarked [Pick n Pay] as a potential risk for us and raised it because it is a big tenant in our portfolio.”
Loss-making Pick n Pay said last month it had breached debt covenants with lenders and its debt had almost doubled, from R3.8bn to R7.2bn, as sales over the festive season fell below expectations. It needs to raise capital by selling part of discount supermarket Boxer through a stock exchange listing and tapping shareholders for R4bn.
Edgars, owned by Reliability, accounts for 6% of Hyprop malls’ gross lettable area and some reports suggest it continues to struggle too.
TURNOVER
Pick n Pay stores at Clearwater Mall in the West Rand, Canal Walk in Cape Town and Woodlands Mall in Pretoria East pay rent to Hyprop based on turnover, meaning lower sales lead to lower rentals.
Pick n Pay’s performance is below that of other food retailers at Hyprop’s malls, the property company said.
While blaming Pick n Pay for its nonpayment of an interim dividend, Hyprop recently bought Table Bay Mall and receives a lower return on its investment in rental income than its cost of capital.
Hyprop wants to exit Nigeria, where it owns Ikeja mall. Companies often pay for costs in Nigeria in dollars, but earn in local currency, which has devalued significantly.
“The significant devaluation of the naira against the dollar has had a consequential negative effect on the financial contribution from Ikeja City Mall, due to foreign exchange losses incurred and discounts granted to tenants,” Hyprop said.