Dis-Chem in lockdown rent row
Landlords accuse retailer of failing to pay despite still trading
● Dis-Chem, in a move expected to cause ructions in the already distressed commercial property sector, has embarked on a rental go-slow, according to shopping centre owners — even though it continues to trade as an essential service during the lockdown.
Owners of some of SA’s biggest malls said this week that the JSE-listed company, one of SA’s largest pharmaceutical retailers, has in some cases not paid rent to landlords for April, while in others instances it has paid a portion of the rent but not the full amount.
Dis-Chem, however, maintains this is not the case and that it is merely negotiating for lower rentals during the lockdown.
Contacted for comment, Estienne de Klerk, chair of the SA Reit Association that represents most of the JSE’s property companies, called real estate investment trusts (Reits), said: “It is our understanding they [Dis-Chem] haven’t paid any of our members.”
He said that as far as he was aware, having spoken to SA Reit members, other tenants operating as essential services, such as grocery retailers, were paying their rentals.
De Klerk said that as a result of the lockdown, rental collections for the retail property sector were low, standing at between 30% and 40%.
Des de Beer, CEO of Resilient, which owns or has interests in 26 malls including Limpopo’s Mall of the North and Jabulani Mall in Soweto, said his group has not received any rentals for April from Dis-Chem, but had received payment from the retailer for utilities and its rates contribution.
“We know that Dis-Chem has traded well. We are very disappointed,” said De Beer.
Morne Wilken, CEO of Hyprop Investments, which owns centres such as Canal Walk in Cape Town and Rosebank Mall in Johannesburg, said that as far as he knew DisChem had paid its utilities and rates.
But Dis-Chem “definitely haven’t paid all the April rent owed to the Hyprop group”.
“I’m actually very shocked that, given that they can trade, Dis-Chem hasn’t paid its full rent,” he said.
Wilken said other tenants that were operating as essential services had been paying their rents.
Amelia Beattie, CEO of Liberty Two Degrees, which partly owns Sandton City and Eastgate Shopping Centre, said Dis-Chem had paid for utilities and services, but “certainly haven’t paid all the rental for April”.
“I’m disappointed. They’re a key retailer of ours, and they trade well and have been able to operate as an essential service.”
Dis-Chem CEO Ivan Saltzman said the group was still paying its landlords but “negotiating for a lower rental during the lockdown, taking into consideration there’s far fewer people frequenting the stores and the difficulty of ramping up deliveries”.
“I’m negotiating for a fair rent [during the lockdown],” he said.
Rival pharmaceutical retailer Clicks said it was paying its rents in all its outlets.
“Yes, Clicks is continuing to pay rent on our stores and pharmacies, which continue to trade as they have been classified as providing essential services,” said Clicks’s chief commercial officer, Rachel Wrigglesworth.
This comes at a time when retail property owners have already been dealt a severe blow by some national retailers unable to trade, such as TFG and Pepkor, telling their landlords that based on legal opinions they have received they would not have to pay rent during the lockdown.
South African Property Owners Association (Sapoa) CEO Neil Gopal said national retailers “need to come to the table in this national crisis and be part of the solution”.
“The people who can afford to pay, they need to pay the rent. Every part of the value chain is going to have to bear some of the loss. If they don’t pay, the system breaks down,” Gopal said.
Amanda Stops, CEO of the the South African Council of Shopping Centres (SACSC), said the Covid-19 lockdown is a difficult time for both retailers and shopping centre owners alike and that her organisation is encouraging communication between property owners and tenants to “find joint solutions, ensuring the survival of both retailers and landlords”.
Landlords have formed a crisis organisation that is putting together a relief package for struggling tenants in need of assistance.
The Property Industry Group (PI Group), representing major commercial real estate organisations including Sapoa, the SACSC and SA Reit, this week launched a more than R2bn relief package to assist tenants, particularly those from small and medium-sized enterprises, that have closed or been severely disrupted by the lockdown.
While the relief measures, which will include rental reductions and deferred payments, are accessible to larger tenants, they exclude those who are able to continue trading during the lockdown as essential services.
SA Reit’s De Klerk, who is the spokesperson for PI Group, said it was “absolutely essential to get this package out there to help our tenants for March and April, especially the smaller retailers but also the bigger ones”.
“Considering the weak economy over the past three years, we understand that a lot of the smaller tenants are on their last legs, and if we don’t assist them they are not going to survive this lockdown period.”
Bjorn Samuels, equity analyst at Argon Asset Management, said that despite being providers of essential services and goods, both Clicks and Dis-Chem would be “experiencing lower revenues just by virtue of lower footfall during the lockdown because the majority of their storeprint is in the malls”.
He added: “With the reduced sales, the occupancy costs ratio for Clicks and DisChem would be increasing.”
Samuels said he would still expect “some negotiation, even if it is at least just regarding rental deferral for Dis-Chem and Clicks during this time” as the groups had been increasingly seen as anchor tenants because of their higher trading densities.