In a surprising move that reverberated across the Johannesburg Stock Exchange (JSE), real estate investment trusts (Reits) experienced a sudden downturn following Hyprop’s unexpected decision to withhold an interim dividend for the first six months of the year. The catalyst? Just a mere mention of Pick n Pay in Hyprop’s trading statement, raising significant concerns about the risks associated with the retail giant.
Hyprop’s statement alluded to “Pick n Pay’s recent announcements” as one of the factors contributing to its decision not to pay dividends to shareholders. This, coupled with the devaluation of the naira and election uncertainty in May, prompted a cautious stance from the Reit, sparking a sell-off in Reit stocks.
While Pick n Pay isn’t facing imminent collapse akin to Edcon, the retail landscape may witness some turbulence as the supermarket chain could adopt a tough stance with landlords, potentially demanding rental concessions amidst market challenges. Rumors suggest that up to 30 or 40 underperforming corporate stores may face closure this year, leaving behind vacant retail space that could take time to fill.
Sean Summers, Pick n Pay’s CEO, is known for his negotiation prowess, suggesting that the company may negotiate rent reductions or more favorable terms with landlords for marginal stores. Pick n Pay holds a significant presence in South Africa’s major malls, with Hyprop disclosing that the supermarket chain comprises 7.5 percent of its gross lettable area (GLA) in the country.
Across various Reits, Pick n Pay’s presence varies, with exposure ranging from 6.9 percent of GLA in Redefine’s portfolio to nearly 10 percent in Vukile’s GLA. Growthpoint, one of the largest Reits, sees Pick n Pay occupying close to 10 percent of its total space, signaling the potential impact of any disruptions in the retail sector.
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The market’s response to Pick n Pay’s turnaround efforts and its recapitalization efforts underscores the shifting dynamics in the retail leasing landscape, particularly amidst post-Covid-19 uncertainties.
As Reits prepare to report their updates and results in the coming weeks, the extent of concern surrounding Pick n Pay’s future and its implications on the retail sector will become clearer. All eyes will be on Pick n Pay’s interim numbers in May, offering insights into the company’s trajectory and potential measures needed for a successful turnaround.
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