Lockdown: Pepkor won’t pay retail landlords either

Pepkor, South Africa’s largest non-grocery retailer with around two million square metres of retail space countrywide, has also told shopping centre landlords it won’t be paying rent during the Covid-19 lockdown.

All of its stores across the country are closed for the 21-day period, which has seen most businesses – from clothing and DIY stores to restaurants and hotels – being forced to shut as part of the government-declared lockdown aimed at curbing the spread of the coronavirus.

Read: TFG insists it won’t pay April rent due to lockdown

Only essential consumer-facing services such as medical facilities, pharmacies, food stores, banks, security operations and fuel stations may operate during the lockdown.

Pepkor (including the JD Group) has around 5 400 stores in Africa, the bulk of which are located in South Africa. Its popular chains include Pep, Ackermans, Tekkie Town, HiFi Corp, Incredible Connection, Tiletoria and Bradlows.

Landlords informed

Moneyweb has a copy of a letter signed by Pepkor CEO Leon Lourens that was recently sent to landlords regarding the group’s decision not to pay rent for the lockdown period. A number confirmed receiving the letter, however it is unclear whether the Pepkor sent the correspondence to all its landlords.

Moneyweb sent a list of questions to Pepkor this week, including a query on the veracity of the letter. Pepkor did not respond to any questions, barring a one-line remark.

“Our agreements and negotiations with our landlords are confidential and we prefer not to comment on this in the media,” the Cape Town-based group said.

Read: Equites scores deal to build R1.3bn mega-warehouse for Pepkor

In the letter, Pepkor raised concerns about the impact of the lockdown on business.

“As a nation we are entering a period of unprecedented uncertainty and challenges. Similarly, as businesses we are all facing extremely challenging times. As a group Pepkor employs over 56 000 people. The wellbeing and preservation of these 56 000 employees necessitate that tough decisions be made,” it said.

The group noted that due to the government-imposed lockdown, it would be unable to trade for “at least 21 days” and that trade thereafter “will most likely be very restricted”.

“We have taken the decision to suspend all rental payments for RSA premises due on respectively 1 and 7 April 2020. We are aware that this may have a major impact on our partners and are happy to engage,” the group added, citing the Covid-19 Block Exemption for the Retail Property Sector regulation 43134 published in the Government Gazette on March 24.

Pepkor said in the letter that it would continue paying for utilities in April as normal.

“A reconciliation of short payments due to the mandatory closure of stores will be performed for settlement in May 2020 based on length of time closed,” it noted.

‘Alternatives’

“We foresee trade to be severely restricted post lockdown until ‘normality’ prevails. We therefore need to put in place alternative rental measures,” it reiterated.

The group has invited landlords to engage with its Pepkor Properties division on “possible alternatives” to protect its viability during the national disaster and “to be in a position to remain a tenant post the disaster”.

Calling on its partners to “find solutions that will ensure the long-term viability” of both the retail and property industries, Lourens noted in the letter that Pepkor had taken “much consideration” in coming to the decision. He acknowledged that it would also have an impact on landlords.

Pepkor’s move comes as fellow non-food retailer TFG confirmed on Monday that it would not pay rentals in April. Moneyweb understands that several other major national retail groups as well as smaller players have also opted not to pay rentals amid an expected economic fallout from the Covid-19 lockdown.

Read: Retail landlords face rental troubles over Covid-19 lockdown

Concerns were raised by South African Property Owners Association (Sapoa) CEO Neil Gopal in a Moneyweb report on Monday related to the move by big retailers not to pay rentals. He warned that non-payment could cause the collapse of malls and severely impact retail property companies.

‘Unlawful’ says Sapoa

“We have seen correspondence from national retailers, stating that they will not be paying any rent (and even other lease charges) during the lockdown period. In our view, this position is completely incorrect, and unlawful,” he said.

“Every class of tenant [is] approaching landlords for rental remission, rental holidays and now also refusing to pay rental,” Gopal noted, adding that he believed national retailers were not interpreting the new Covid-19 block exemption regulations adequately.

Read: SA Reits wants tax relief from Covid-19 fallout

Worried landlords held an urgent industry conference call meeting late on Monday to discuss the issue as well as other challenges in the face of the Covid-19 impact on the sector. The meeting was jointed hosted the South African Real Estate Investment Trust (SA Reit) Association, Sapoa, and the South African Council of Shopping Centres.

A key message to come out of the meeting was that landlords believed rental relief needed to go to small retail businesses first, not major national retailers that have better access to liquidity and stronger balance sheets.

Gopal declined to comment further on the issue on Thursday, noting that negotiations were now underway between landlords and retailers.

Meanwhile, a similar move by major retailers like Adidas in Germany not to pay rentals due to coronavirus-related lockdowns has drawn the ire of the public.

This forced Adidas to make a U-turn on its decision not to pay.