Property owner exposes Pick n Pay’s woes

Rural and township mall investor Exemplar REITail said it started to lessen its exposure to Pick n Pay seven years ago, when it started to see a decline in the retailer’s performance.

In its annual report published on Tuesday the company said it was a good move by Pick n Pay to covert QualiSave stores to Boxer Stores.

CEO Jason McCormick moved to quell speculation about the company’s exposure to Pick n Pay stating that Exemplar held only one Pick n Pay corporate store in its portfolio and three QualiSave stores.

He said Exemplar’s exposure to Pick n Pay had been “immaterially low” and expected to fall further as it converted the QualiSave brands to Boxer.

“As we continually monitor the trading metrics of the various stores within our portfolio, we started to see a decline in Pick n Pay’s grocers’ performance seven years ago,” said McCormick.

“As a consequence, we have not installed a Pick n Pay grocer since the development of Alex and Kwagga Malls in 2017 and have limited exposure to the brand.”

Pick n Pay makes up 5.85% of total rent excluding recoveries, with Boxer making up the largest portion.

The Centurion-based property fund, which is focused on commercial property in townships and rural areas, acquires, develops, owns and manages assets that provide essential, convenient and sustainable retail property to local communities across five provinces.

Pick n Pay has been undergoing a strategic turnaround to lift its supermarket business out of the doldrums.

The retail group revealed in its annual results in May that it was technically insolvent and had breached all its debt covenants, signalling serious financial trouble. 

As part of a turnaround strategy, Pick n Pay is on a path to close loss-making stores and convert some Pick n Pay stores to Boxer stores.

The company will also phase out QualiSave stores, with some of these set to be converted back to Pick n Pay stores and others to Boxer.

Pick n Pay is set to unbundle its cash-cow Boxer, a listing that will pay off some of its R6.1bn debt pile.

McCormick said the group was “amenable” to Pick n Pay’s preference to convert certain stores in the Exemplar portfolio to Boxer stores.

He said Boxer and the Pick n Pay franchise stores could not “be painted with the same brush as PnP Corporate stores”, as Boxer traded at some of the highest trading densities within Exemplar’s portfolio and Pick n Pay franchisees were some of the best traders in the country.

“We are in discussions to convert all QualiSave stores to Boxer,” said McCormick. “I am very positive about the improved trade that the Boxer team will bring to these converted stores and the knock-on benefits for the various malls concerned.”

He said that the sole corporate store in Diepkloof, Soweto, was trading well, so there was no need to rebrand that branch.

“My hope is that Pick n Pay Corporate absorbs some of the intellectual property that already exists within its stable to get them back to being a viable option for us in future developments,” McCormick said.

Pick n Pay’s recapitalisation plan, which comprises a proposed renounceable rights offer of up to R4bn, is expected to take place soon followed by a proposed share offering and subsequent listing of the group’s Boxer business on the JSE towards the end of the year.

Exemplar, which owns about 30 properties, said tenant trade remained robust in the year to end-February though dampened by stage 6 load-shedding, which turned the retail industry “on its head”.

This coupled with the effects of higher interest rates started to bite into both consumer spend and the Reit’s distributable income.

Exemplar said that its fashion tenants had struggled the most during the elevated levels of load-shedding. Most tenants — particularly fashion — chose to pull back on capital expenditure and new store rollouts, when faced with the increased costs of diesel power and generally lower turnovers, the property group said.

This has resulted in slower take-up of space within the greenfield developments that Exemplar has been developing.

The property group said its grocery anchors smashed the record they set in December 2022 and for the first time in Exemplar’s history, its anchors turned over more than R1bn in a single month, reflecting an 8.8% increase over the previous record.

gumedemi@businesslive.co.za