Retailers ask for turnover-based rentals
• Mid-sized independents are appealing to landlords to help them survive a difficult year with depressed sales and losses expected to go on for months
A group of mid-sized independent retailers has asked landlords to offer them turnoverbased rental to help them survive the year as they expect depressed sales and losses for months to come.
Unlisted retailers including Exclusive Books, Cape Union Mart, Contempo clothing, Volpes, Bargain Books, Carrol Boyes, Toys R Us, Rand Outfitters and Biggie Best formed a group called the Mid-Sized Independent Retailers to negotiate with landlords, says their consultant Jonathan KingsleyHall. But collective negotiations have been unsuccessful as property owners say they cannot make structural changes to existing leases as a collective and they cannot meet their own debt obligations if they receive turnover rent.
Kingsley-Hall says rental relief in April and some deferred rental payment for May and June during lockdown does not go far enough to save ailing businesses. “What we do know is that our retailers will trade at substantial losses this year, and their staff and suppliers will incur severe hardship.”
In an April letter to the Property Industry Group (PI Group), Kingsley-Hall said the retailers wanted to ensure business survival which would serve landlords too. “The offer of a turnover based rental underpinned by a 30% rental guarantee is clearly the only viable alternative for both tenants and landlords to see through the next nine months”.
Kingsley-Hall met on April 27 with the PI Group, representing the SA Reit Association, SA Property Owners Association and the SA Council of Shopping Centres. It rejected proposals calling them “extremely onerous and unacceptable to us”. It said if they allowed turnover based rent “many of our participating property owners’ businesses would not survive, given the direct costs incurred at the malls and the interest charges on debt that require servicing”.
Kingsley-Hall said he was still trying to negotiate with landlords, but they would not deal with him as an industry representative.
Estienne de Klerk, head of PIGroup, said on Sunday the group said it could not lawfully renegotiate lease agreements for more than 100 landlords of varying sizes with retailers that also differ in size, value and footprint.
He said each retailer and landlord had to have their own negotiations “which in fact some are doing”.
De Klerk, who is also CEO of Growthpoint, said most landlords earned less rent since lockdown began than they needed to cover expenses. He said the property industry received “no government relief”, no reduction in rates and taxes except for two municipalities and no way to defer expenses, but had tried to help retailers with rental packages and deferred rent.
He said the PI Group advised against changing leases or accepting turnover based rent. Kingsley-Hall said the relief packages did not go far enough for medium-sized retailers who earn too much to qualify for the government-backed loan programme for small businesses with annual turnover of less than R200m. He wrote to the PI Group: “We are concerned that many retailers would consider business rescue a more viable alternative to your proposal. With some 23,000+ employees in our ranks, this would rapidly lead to mass unemployment.”
He said a minimum rent would give landlords “some degree of certainty on cash flows”. “Pain would indeed be shared, but everybody would benefit from the upside if trading conditions improve at the end of the year.”
De Klerk said banks did not want turnover-based variable rentals that would increase “the cost of capital”. He said retailers “abused” turnover-based rentals in the past. When turnover and rent were high, they opened stores nearby to drop turnover to reducing rent, he said.
Kingsley-Hall said landlords did not realise the “danger that lies ahead as businesses struggle for survival”. Brian Joffe’s investment company, Long4Life, said in its recent results presentation that some Sorbet stores would not reopen when permitted.
Restaurant franchiser Spur said the survival of some of its restaurants would be contingent on new agreements with landlords.
De Klerk said retailers also needed to approach banks and the Treasury to discuss relief packages. “The reality is that the lockdown has been significantly longer than both ourselves [property industry] and retailers assumed upfront. The impact has an absolutely massive material effect on all businesses.”