Resilient bucks mall vacancies trend

● A portfolio of shopping centres in provincial capitals, smaller cities and towns helped property group Resilient buck the trend of rising vacancies that other landlords have faced during lockdown.

Speaking after the release of results for the year to end-June, Resilient CEO Des de Beer said one of the reasons behind the group’s performance was its focus mainly on lower living standards measure (LSM) shopping centres in rural areas and in towns and cities connected to the mining sector.

“The lower LSM market has tended to be more defensive. The markets that have done well have tended to be the rural markets. The metropolitan markets have taken more strain. I think the rural markets have been supported by social grants and the mining industry. And in the agricultural sector, maize prices and production are up sharply, so there has been a recovery there which has been helpful,” said De Beer.

Resilient’s bigger malls include Mall of the North in Limpopo, Jabulani Mall in Soweto and i’langa Mall in Mbombela/Nelspruit. It also owns, among others, the Tzaneng Mall in Tzaneen, Highveld Mall in Emalahleni and Brits Mall.

De Beer says its malls worst affected by the lockdown were the Irene Mall and The Grove, which serve the upper middle-income segment in the greater Pretoria area.

Resilient’s 28 retail centres in SA, which consist mostly of national retailers, have an exceptionally low vacancy factor of just 2.1% for the year to June, a marginal increase on the 1.8% in the previous financial year.

The group’s bad-debt write-offs amounted to R29.3m, which, while more than double the R12.3m in the previous year, is less than 1% of total billings.

John Jack, CEO of commercial real estate and industrial real estate consultancy Galetti Corporate Real

Estate, said Resilient had “seen better trading in its non-metropolitan centres given the offering being largely essential goods”, and while online retail remains a “headwind”, Resilient’s portfolio “will remain protected for some years to come”.

He added that Resilient’s main obstacle had been exposure to the Edcon group, “which was dealt with decisively over the past 12-18 months by largely impairing the exposure to the group”.

And though most property stocks are deferring dividend payments as they navigate an economy ravaged by the pandemic, Resilient has sustained payments, albeit at a lower level.

Resilient’s dividend payment was 30.6% lower than the same period last year. But De Beer said performance was strong considering the effect of Covid-19, as well as the fact that property groups Nepi Rockcastle and Lighthouse, in which Resilient owns a 7.9% and 40% interest respectively, had deferred their dividends.

De Beer said this represented a “big impact” but that Resilient expected Nepi and Lighthouse to pay distributions at the end of the year.

Also, in calculating the group’s dividend for the full year ended June 2020, only 59.1% of the basic rental from the Edcon group was included. Edcon, which is in the process of selling its Edgars and Jet brands, occupies only about 5% of Resilient’s portfolio.

Resilient, like other property groups, has helped tenants during the lockdown, giving them discounts of R166.3m, as opposed to rental deferments.

“We have been particularly supportive of leisure and entertainment retailers such as restaurants, but most categories have had some element of support. We want them to survive and they are an important part of our centres,” De Beer said.

Across the group’s tenant mix there were signs that a “normalisation is starting to emerge”, while categories such as pharmacies had performed well.

Earlier this week, SA’s second-largest real estate stock, Redefine Properties, which held a briefing ahead of results for the year ending August 31, said it was focusing on supporting and retaining tenants with rental concessions totalling R270m.

“Key for us in the short term is tenant retention. Redefine’s long-term sustainability will largely be dependent on our ability to position and repurpose our buildings to remain relevant to the changing needs of our current and future tenants,” said Redefine financial director Leon Kok.

CEO Andrew Konig said the group was making “significant progress in terms of its negotiations” with tenants about rental relief packages and that the process was “going very well”. Konig said the packages had been granted to tenants to sustain them and ensure that “we have a sustainable tenant base, which will yield positive cash flows going forward”.

He said the group had also seen an increase in its rental arrears and that the “management of that has to be approached pragmatically”.

“We are in it for the long term, so the sustainability of our underlying tenant base is very important.”

The markets that have done well have tended to be the rural markets Des de Beer

Resilient CEO