Job losses, lower consumer confidence and high debt-to disposable-income ratios have placed consumers under pressure and this has directly impacted the performance of various shopping centres.

Community centres have outpaced other retail centres in terms of trading density growth, but their overall foot count is still below pre-Covid-19 levels. Shoppers are spending less time in centres and their trips are more focused. This means that while basket size has increased in some instances, the frequency of their visits is less.

Economic pressures and consumers' reduced disposable incomes have driven greater demand for value, including affordable fashion and value-focused general dealers. Supermarkets, pharmaceutical and homeware retailers are recovering faster than others. Fast food outlets have also been able to recover significantly thanks to the growth of services like Mr D and Uber Eats. However, most of our tenants are still trading at below pre-Covid-19 levels.

Although online shopping makes up a relatively small percentage of turnover, we have undoubtedly seen an escalation of such purchasing. On-demand services like OneCart and Checkers Sixty60 have also contributed to overall sales.

Pressure mounted again at the beginning of 2021 following the increased restrictions that were introduced during the second wave of Covid-19 infections in December 2020 and when the third wave hit the country in June 2021, many tenants requested further relief.

Rental escalations have outpaced turnover growth for many years, as have administration costs recovered from tenants. This has led to an increase in retailers' occupation costs and affordability levels. We therefore continue to assist retailers in the restaurant, fast food, entertainment, travel, and personal care categories through discounts, deferrals, or restructuring leases to more sustainable rentals.

Performance

A big focus for FY21 was tenant retention, and while our renewal success rate is acceptable, it has come at a cost. In a highly competitive and challenging market that was clouded by uncertainty, renewals were concluded at a weighted average renewal growth of -15.6%.

We were able to fill several significant vacancies during the year under review, including one of 4 700m² at the City View shopping centre. This was one of three stores that Massmart gave notice on. A lease for this vacancy was concluded with Value Co and the new store is due to open in the spring.

Deals were also concluded with Value Co for the vacant Edgars stores at Longbeach Mall and Watercrest. In addition, more than 3 000m² of vacant space at the Waterfall Value Mart in Rustenburg was successfully let, as was the former Zara space at Walmer Park.

Retailers are trying to keep their operating costs down and are thus negotiating reduced rentals and escalations. Consequently, the weighted average rental renewal growth on expiry has continued to regress. In a few extreme cases, such rental restructuring has occurred mid-lease.

Arrears are higher than usual and Edcon's arrears have been written off. Ster-Kinekor and CNA, which are both in business rescue and each hold nine leases with us, are our most significant defaulters, and together account for 10.6% of total arrears. Their leases cover 21 020m² and 3 491m² of space respectively.

Vacancies have undoubtedly crept up, but if we assess our core assets and exclude the particularly stubborn vacancies at centres on our disposal list, it is evident that we are actually performing better than expected.

While the pandemic has undeniably shaped the past year, it has encouraged meaningful conversations between ourselves and our retailers. These conversations have given us essential insights into their businesses and helped us ensure sustainability for both parties.

Portfolio highlights

Six non-core shopping centres for a total of approximately R500m were considered for sale. Of these, Edgars Bloemfontein transferred in FY21. Edgars Bloemfontein was our only property in the Free State and this made it an outlier and inefficient to manage.

While there have been several opportunities for acquisitions, none aligned with our portfolio strategy. Therefore, no retail properties were acquired in FY21.

To protect the value and appeal of our retail buildings and despite the challenging year, we have continued with regular maintenance to our shopping centres to ensure that they remain relevant and continue to appeal to our shoppers and tenants.

Covid-19

The Covid-19 pandemic has impacted the retail sector in many ways and our staff has been at the coal face for the past year. Unfortunately, this resulted in many of our retail employees testing positive for the virus and even the sad loss of one of our team members. Despite being under this immense strain, the team has gone the extra mile to ensure our shoppers' safety and the continued success of our centres.

The pandemic and subsequent lockdowns appear to have impacted large regional malls more than the smaller community centres. This is possibly because a trip to a large mall is often considered more of an outing than a convenient and quick stop for essential shopping. There are, however, a few centres located on the outskirts of some CBDs that have been able to buck this trend.

Smaller, independently owned retailers – particularly those in the luggage, personal care, formal wear, workwear, travel and restaurant categories – have been the hardest hit by the pandemic. However, we are seeing a growing trend of larger, listed retailers acquiring smaller independents.

Environmental and social

In addition, the knowledge we gained from our experience with the water shortages in the Western Cape has been shared with the rest of our portfolio. In order to reduce our reliance on municipal infrastructure and ensure our water security, boreholes have been drilled at most of our centres.

Although we have also been quite aggressive with solar installations, rollouts of some projects were paused in July 2020. Recent policy changes, such as the increased cap on the Megawatts that may be produced by private power plants, have made us reassess some of these projects. Due to the significant generating capabilities that shopping centres offer, we are also looking into battery installations that would allow us to store additional energy.

More than ever, our shopping centres remain integral to the communities they serve. We also understand that the effects of the pandemic reach far beyond our retailers. Our centres' marketing and social investment programmes have therefore been tailored and targeted to the current needs of their local communities.

From "Back to School" campaigns, to food drives and collections for senior citizens, our shopping centres have aligned their campaigns to complement local initiatives and programmes. We have also continued with collections for the retail support staff that have been most severely impacted by the pandemic, including cleaning staff, security guards and car guards.

Developments and refurbishments

It is crucial for us to maintain a connection with our shoppers, so how we do business is important. We constantly review the way in which we source our labour and supplies and have worked closely with Property Point to develop local enterprises and entrepreneurs in the various communities where we own shopping centres. A local community engagement policy has now been drafted for review to provide further guidance.

Outlook for FY22

The third wave of infections has prompted another round of rent relief requests and these will be managed on a case-by-case basis. Tenant retention will, however, continue to be a key focus for the year ahead.

We will also seek to introduce a second grocery anchor to some of our centres, which we believe will positively impact centres operating in markets that support additional anchors.

It is hoped that the coming financial year will bring with it real economic recovery and there may already be a few green shoots. For us to see real growth, however, we need to look further than merely bettering our pre-Covid-19 performance.

While the sale of Edgars and Jet to Retailability and the TFG Group respectively was a big win for the industry, we will continue to monitor their progress and work with the retailers to grow these businesses.

We will also continue prioritising non-GLA income, which is any income derived from sources outside of long-term retailer leases. Unfortunately, our drive to unlock added value from non-GLA revenue, inside and outside our properties and through their digital assets, was halted by the pandemic. However, we believe that such opportunities will again arise once the worst of the pandemic is over.

Increased flexibility is required in uncertain times and we support the concept of the "pop-up shop", which allows the landlord to offer infrastructure and space to new businesses and brands coming into the retail space as well as established brands looking to test ideas or locations. These shops also add excitement to traditional tenant mixes.

With the growth of online shopping, click-and-collect services have become a popular and convenient option for retailers and consumers and a number of our centres have facilitated the growth of this service through dedicated parking bays and signage. We are also looking at piloting collection lockers at some of our malls that will double up as a potential non-GLA income stream.

We anticipate negative rental reversions to continue into the coming year but are optimistic that retailers will recover – some categories faster than others. We also see new opportunities in certain categories and will continue to engage with retailers to ensure a sustainable future for our industry.

Top 10 retail tenants by gross rental contribution as at 30 June 2021

Retail properties top five by value

Brooklyn Mall and Design Square (75%) Brooklyn Mall is nestled in the affluent suburb of Pretoria’s cosmopolitan area of Brooklyn, surrounded by established upmarket residential homes, corporate offices and a large number of embassies and diplomatic properties. Brooklyn Mall is the premier shopping destination in Pretoria. It offers shoppers a full complement of national retailers, specialist boutiques, restaurants and coffee bars and the best of home and décor shops.   Pretoria     1 788     56 266m2   7.17%     4.15%		Festival Mall This regional centre is close to the CBD and near the residential areas of Kempton Park. Due to the mall’s close proximity to public transport, the centre also benefits from strong support from the Tembisa area. The tenant mix covers a wide range of categories, with a strong national representation.   Kempton Park     1 687   6.77%     82 826m2   6.10%		Waterfall Mall Waterfall Mall draws shoppers from as far afield as Botswana. Located in the upmarket suburbs of Rustenburg, the centre has easy access from the R24 and N4 highways. The size of the centre allows for an extensive representative tenant mix which includes most national retailers as well as a variety of specialised retailers.   Rustenburg     1 431   5.74%     51 056m2   3.76%
N1 City Mall N1 City Mall is located in a strong, well-established business precinct with excellent visibility and access off the N1 freeway. The centre offers a comprehensive tenant mix and caters to a wide range of shoppers from LSM 5 to LSM 10.   Cape Town     1 382   5.57%     63 394m2   4.67%		Vaal Mall (66.7%) Vaal Mall is in the heart of Vanderbijlpark and the Vaal triangle with 150 fashion and retail stores, a food court and sit-down restaurants.   Vanderbijlpark     1 277   5.12%     44 021m2   3.24%