About the pick-and-pay at the end of Hyprop's trading statement for the first half of this year, and the totally unexpected move by the retail-focused real estate investment trust (REIT) to withhold interim dividends to wake up the market. It was written in just 13 words. Even just how big the risks surrounding Pick n Pay are potentially.
The newspaper makes oblique reference to “recent announcements by (the group's key tenant) Pick n Pay,” including the devaluation of the naira (which owns Nigeria's Ikeja City Mall) and the May In addition to the “uncertainty” ahead of the election, he said: Reasons for choosing not to pay dividends to shareholders.
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Read: Pick n Pay chooses nuclear option in Boxer listing
Following this news, the REIT market fell on the day, with Hyprop falling about 7%, but recovered to close 4% lower. Other REITs focused on large retail businesses fell between 1% and 3%.
Six-month stock performance of Hyprop, Growthpoint, and Redefine
Will retailers take a hard line?
This does not necessarily mean that pick-and-pay will effectively collapse, as was the case with Edcon. There's probably too much institutional (and Ackerman family) support for that to happen. Instead, there is a good chance that the supermarket group will take a tough stance against landlords and demand rental concessions.
listen:
Pick and Pay has a lot to prove
Summers throws kitchen sink at pick-and-pay
There are already whispers in the market that as many as 30 to 40 unprofitable stores may close this year.
This means a lot of free space.
It's possible that rivals could grab some of this (depending on whether they already have a central or regional presence), but it will take time to rent out the empty big box units.
PnP CEO Sean Summers is a shrewd and formidable negotiator. The group will be able to extract rent reductions and conditions from landlords for a (possibly long) list of marginal stores.
read:
Give Pick and Pay two years to turn around – Summers
Pick n Pay plan R4 billion rights issue, discounter Boxer listing
On 30 June last year, Hyprop announced that Pick n Pay (all store formats including liquor and PnP clothing) in South Africa accounted for 7.5% of Hyprop's gross lettable area (GLA). revealed.If the total GLA is 658 698m²which is effectively equivalent to 50,000 meters² At that shopping mall.
Pick n Pay is an anchor supermarket tenant at all malls in SA, including Canal Walk, Clearwater, The Glen, Woodlands Boulevard, Capegate, Somerset Mall, Rosebank Mall and Hyde Park Corner. The recently acquired Table Bay Mall (scheduled to move this month) also has Pick n Pay as an anchor tenant.
listen:
Hyprop acquires Table Bay Mall
Is high prop on the rise?
As a percentage of GLA (or space), Pick n Pay is second only to Woolworths (8% of GLA) across Hyprop's portfolio.
REIT total leasable area |
|||
Reporting date | Pick and pay GLA | As % of retail GLA | |
high prop | June 30, 2023 | 49,402m² | 7.5%* |
growth point | June 30, 2023 | 109,956㎡ | 9.6% |
redefine | August 31, 2023 | 79,647㎡ | 6.9% |
Vukire | September 30, 2023 | not disclosed | 9% to 10%** |
resilient | June 30, 2023 | not disclosed | 6% to 7%** |
*Retail GLA includes office space in Canal Walk, Rosebank and Hyde Park ** Moneyweb estimation |
The various publicly traded REITs are inconsistent in disclosing their largest tenants (and therefore their exposure). Some publish their largest tenants by GLA, others by 'contracted rent' or gross monthly rent (GMR).
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Conveniently, Redefine discloses both. Pick n Pay stores account for 6.9% of Redefine's total retail portfolio GLA (approximately 80,000 square meters).. On a rental basis, this corresponds to “only” 4.9%, or about 70% of the occupied space.
Pick n Pay redefines rent for more than R10 million per month and R123 million per year.
At Growthpoint, the group is GLA's fourth largest tenant (after TFG, Mr Price and Pepcor). Growthpoint is a much larger landlord, meaning PnP occupies 110,000 square meters. across its portfolio. This corresponds to almost 10% of the total area (1.15 million square meters).excluding vacancies).
Vukile did not say how much space Pick n Pay occupies, but said the group accounts for 7.2% of the REIT's contracted rents. The mid-market QualiSave brand accounts for 3.5% and the Pick n Pay brand (for more affluent consumers) accounts for 2.4%. The rest will be occupied by other formats of boxers and groups. Based on the percentage of rental income, Pick n Pay could account for close to 10% of his Vukile's GLA in South Africa.
read:
REIT valuation and consumer reality
Will Leet be on the radar again?
SA listed properties: the highs, the lows and what’s next?
At Resilient, Pick n Pay is the sixth largest tenant 'by value' after TFG, Mr Price Group, Pepkor, Shoprite Checkers and Masmart. This represents approximately 4.5% of Resilient's contracted retail revenue, which represents approximately 6% to 7% of the REIT's national primarily regional retail center space (GLA).
sarcastic jitters
The anxiety caused by Pick n Pay's restructuring (and recapitalization) is due to a deliberate shift in leasing strategies among most retail landlords towards so-called “essential services” tenants since COVID-19. It's somewhat ironic considering what happened.
Pick n Pay stock price
REIT updates and results over the coming weeks will show just how widespread this pick-and-pay concern is, and by May, when PnP reports interim numbers, retailers will We will see how large of a reduction would be necessary to make a profit. It turned.
Listen to this MoneywebNOW podcast. Simon Brown talks to merchant Daniel King of his West Investments about the apparent value available in the REIT sector and why it's important to be selective (or read the transcript here).
You can also listen to this podcast at iono.fm.