Post Lockdown Strategy

[Chris_]

This is where we are on our matrix and I have summarised some of our thoughts into rules or uncertainties. I really think that our poll will help so I am going to try again. I also think we should let the commentary run and I will pick it up midday tomorrow and update where necessary.

 

(I see now the format this study is taking, apols for my previous question)

 

I think perhaps some more for 'uncertainty and out of control':

 

What about our employer/shareholders? If they go belly-up what implications would that have? Forced stake sellers? What could we do to avoid being caught in their business rescue scenario? (As most of the govt rescue/aid plans I've seen are for small businesses so this could lead to many mid-size guys being in trouble. Side-note: Which in itself could be a very different broader picture and an interesting new dynamic.)

 

What about competitors? Aside from the new development, what are other existing malls, strips, shops doing to fight for our traffic?

 

It was mentioned earlier - oil prices, ZAR moves, SARB tools and interest rates, whatever other economic levers which will likely be played during collapse/recession which leads to - inflation; which could be more pertinent to us as a property biz and the expected inflation+ dividend returns.

[River Rat]

(I see now the format this study is taking, apols for my previous question)

 

I think perhaps some more for 'uncertainty and out of control':

 

What about our employer/shareholders? If they go belly-up what implications would that have? Forced stake sellers? What could we do to avoid being caught in their business rescue scenario? (As most of the govt rescue/aid plans I've seen are for small businesses so this could lead to many mid-size guys being in trouble. Side-note: Which in itself could be a very different broader picture and an interesting new dynamic.)

 

What about competitors? Aside from the new development, what are other existing malls, strips, shops doing to fight for our traffic?

 

It was mentioned earlier - oil prices, ZAR moves, SARB tools and interest rates, whatever other economic levers which will likely be played during collapse/recession which leads to - inflation; which could be more pertinent to us as a property biz and the expected inflation+ dividend returns.

As far as shareholders go (which is effectively us) even if one us faces liquidation we are protected by the corporate veil and no direct claim can be made against us or the business. However, it is possible that his/her shares could be up for sale as the liquidators seek to recoup some funds to repay creditors. In this case any sale of shares will be governed by the process in the  shareholders agreement which in most cases gives the shareholders the first call to but these shares. This might actually be an opportunity for the remaining shareholders but let's assume that for our exercise none of the shareholders are in distress.

 

As for competitors it's safe to assume that our location gives us an advantage over other shopping centers in our region, as it has for the last 10 years but the large regional mall is still a threat so I have added that as a key uncertainty .

[River Rat]

Thanks to admin the poll is fixed and up and running so please give your own inputs if you haven't done so yet. I will start a little earlier today (16h00) because of the holidays and we will tackle our first scenario.

[River Rat]

This is where we stand with our matrix and although there are some rules being developed from our poll I feel we can proceed with our first scenario using this matrix.

[River Rat]

A scenario is effectively a version of story we tell about a possible future. Note the word possible this does not mean it's probable it's simply one version of the future not THE version. Think of trying to rewrite the ending of Game of Thrones it is not possible to add little red riding hood to the story line. We have to be guided by the rules of the game but we are allowed to speculate on the possible outcomes in terms of key uncertainties which are.

Key Uncertainties

1.We expect a spike in activity immediately after lockdown ends but we don't now how much.

2.We expect an economic impact on our customers but we don't know how severe or for how long.

3.We expect customer shopping behavior to change but by how much and for how long?

4.Government could extend or lift the lockdown depending on where we are on the curve.

5. Will the development of regional shopping mall continue

 

The trick is to create at least two scenarios in terms of best case and worst case outcomes, we can always add a third scenario where we start looking at the most likely outcome based on what information we have available. A third scenario is the opportunity to of bringing in the probability part of the equation. So let's start with the best case scenario and it helps to give it a descriptor so here's my thoughts in terms of a name.

 

"It's just like the Flu"

 

Any other options?

[River Rat]

Okay "it's just like the Flu" it is. So imagine a scenario that over the weekend Cyril decides that the impact on the country is minor and of no more consequence than seasonal flu. Possible? Actually the numbers suggest it is, 1845 infected with only 18 deaths does not sound like a pandemic does it? So yes it is possible now stop yourself from going into the probable discussion other wise we never get through this step.

 

So in this scenario Cyril lifts the lockdown and society is open for business on the 17th we immediately start what the economists call a V shaped recovery. How does this impact on our key uncertainties? Here's a stab  at the first key uncertainty.

 

1.We expect a spike in activity immediately after lockdown ends but we don't know by how much.

Our customers have a pent up demand for all the non essentials and there's a run on the shopping center. The bottle store, hardware etc will all being under pressure even the restaurants and coffee shops are full as people celebrate being out and about. Tenants are capable of recouping about 30%? of lost revenue.

Edited April 14, 2020 by River Rat

[River Rat]

If you're wondering where I get this from have a look at this article I borrowed from Andrew Steer in the General Discussion. Have a look at chart 15 and read it from there.

https://medium.com/@tomaspueyo/coronavirus-out-of-many-one-36b886af37e9

[Benjamin]

I think at least 30 % of lost revenue . Everyone is refreshed and rested and motivated to get back to work . Retail employees are recovered fully after busy trading seasons. All staff back at work , everyone’s head in the game. So expect businesses to trade well and possibly increase their hours of operation to try claw back revenue.

 

Disposable income should be around. Everyone planned for worst, so didn’t waste any cash over past 3 weeks. Plus almost no fuel spend for individuals, so there’s cash to burn .

[gogo@]

Okay "it's just like the Flu" it is. So imagine a scenario that over the weekend Cyril decides that the impact on the country is minor and of no more consequence than seasonal flu. Possible? Actually the numbers suggest it is, 1845 infected with only 18 deaths does not sound like a pandemic does it? So yes it is possible now stop yourself from going into the probable discussion other wise we never get through this step.

 

So in this scenario Cyril lifts the lockdown and society is open for business on the 17th we immediately start what the economists call a V shaped recovery. How does this impact on our key uncertainties? Here's a stab  at the first key uncertainty.

 

1.We expect a spike in activity immediately after lockdown ends but we don't now how much.

Our customers have a pent up demand for all the non essentials and there's a run on the shopping center. The bottle store, hardware etc will all being under pressure even the restaurants and coffee shops are full as people celebrate being out and about. Tenants are capable of recouping about 30%? of lost revenue.

1 is going to depend on 2?

Yes, bottle store and hardware sales could well be stronger than toilet paper (!) etc. but, by how much? We lost 21 days, so 30% sounds reasonable maybe but my question is a) what impact has loss of personal income had on customers (their profile? how many self-employed or forced to take wage cuts?) and b) if these are non-essentials then a) plus any behavior change will have an impact... but now I'm losing my own plot.

 

(Great discussion, I'm mainly here to learn, thanks RR and everyone contributing)

[River Rat]

Okay let's take on board the next key uncertainty in terms of our "it's just like the Flu" scenario.

2.We expect an economic impact on our customers but we don't know how severe or for how long.

 

Although our customers have lost some income during the lockdown their costs were lower and because the world comes to terms with the fact that this virus is just like the flu it takes about 6 months for the demand side of the economy to come back to normal and with that earnings recovery back to where they were before lockdown.

 

[River Rat]

1 is going to depend on 2?

Yes, bottle store and hardware sales could well be stronger than toilet paper (!) etc. but, by how much? We lost 21 days, so 30% sounds reasonable maybe but my question is a) what impact has loss of personal income had on customers (their profile? how many self-employed or forced to take wage cuts?) and b) if these are non-essentials then a) plus any behavior change will have an impact... but now I'm losing my own plot.

 

(Great discussion, I'm mainly here to learn, thanks RR and everyone contributing)

Yes it does and so does some of the others, but the methodology is to go through all of them and then adjust for the interrelated impacts. I have found 2 iterations does the trick.

[Benjamin]

We’re dependent on 2 sets of customers. First, the tenants. They do well and have increased revenue , we get solid rental returns and increments. Secondly, the tenants customers . They’re actually our lifeblood . Without them we may as well convert our building into storage units ( that’s for a whole other discussion)

 

So if their revenue is buoyant , certainly will take a bit of time to get back to pre lockdown status , but it’s absolutely achievable. We can expect rental payments to revert in full after a few months of trade, plus we would have at least had services and other costs paid by the tenants in lockdown . I trust we allowed a base rent free 21 days to those who couldn’t trade, but services were still billed.

 

So our cash flow looks reasonable , provided there isn’t much lag in customer spending.

 

Our tenants also realized during the lockdown that face to face retail isn’t the only option, so hopefully some will change their business patterns a bit to do deliveries , online purchases or meetings. Their customers can be retained easier like that and hopefully improve their spending

Edited April 9, 2020 by Benjamin

[River Rat]

We’re dependent on 2 sets of customers. First, the tenants. They do well and have increased revenue , we get solid rental returns and increments. Secondly, the tenants customers . They’re actually our lifeblood . Without them we may as well convert our building into storage units ( that’s for a whole other discussion)

 

So if their revenue is buoyant , certainly will take a bit of time to get back to pre lockdown status , but it’s absolutely achievable. We can expect rental payments to revert in full after a few months of trade, plus we would have at least had services and other costs paid by the tenants in lockdown . I trust we allowed a base rent free 21 days to those who couldn’t trade, but services were still billed.

 

So our cash flow looks reasonable , provided there isn’t much lag in customer spending.

 

Our tenants also realized during the lockdown that face to face retail isn’t the only option, so hopefully some will change their business patterns a bit to do deliveries , online purchases or meetings. Their customers can be retained easier like that and hopefully improve their spending

 

We’re dependent on 2 sets of customers. First, the tenants. They do well and have increased revenue , we get solid rental returns and increments. Secondly, the tenants customers . They’re actually our lifeblood . Without them we may as well convert our building into storage units ( that’s for a whole other discussion)

 

So if their revenue is buoyant , certainly will take a bit of time to get back to pre lockdown status , but it’s absolutely achievable. We can expect rental payments to revert in full after a few months of trade, plus we would have at least had services and other costs paid by the tenants in lockdown . I trust we allowed a base rent free 21 days to those who couldn’t trade, but services were still billed.

 

So our cash flow looks reasonable , provided there isn’t much lag in customer spending.

 

Our tenants also realized during the lockdown that face to face retail isn’t the only option, so hopefully some will change their business patterns a bit to do deliveries , online purchases or meetings. Their customers can be retained easier like that and hopefully improve their spending

Then you should not be surprised that 60% of our key uncertainties are customer centric

 

[SteveFW]

I think at least 30 % of lost revenue . Everyone is refreshed and rested and motivated to get back to work . Retail employees are recovered fully after busy trading seasons. All staff back at work , everyone’s head in the game. So expect businesses to trade well and possibly increase their hours of operation to try claw back revenue.

 

Disposable income should be around. Everyone planned for worst, so didn’t waste any cash over past 3 weeks. Plus almost no fuel spend for individuals, so there’s cash to burn .

I think that you are forgetting that other sectors, like the hospitality, leisure and travel industries have been decimated and will not recover nearly as quickly (some are already unlikely to recover) as the salary earner in a business which has had sufficient reserves to sit out three weeks without income and still pay salaries.

 

Also factor in the loss in value in equities which impacts on both confidence and security for finance on spending patterns, we have lost at least 30%, some even more, and this will be reflected in larger value items and discretionary purchasing.  This is purchasing power removed from the market.

 

I do not believe that the effects of what has happened to date will be a once off 30% monthly drop followed by business as usual.  The effects, whatever the extent will last at least 18-24 months as things stand now, any lockdown extension will further aggravate the extent and duration of the effect

[River Rat]

Now here comes an interesting discussion

3.We expect customer shopping behavior to change but by how much and for how long?

 

Our survey is clear 88% of our customers will change their behavior and 26% of them will only change back if there's vaccine. No the earliest predication for this is that it takes 12 months to develop a vaccine for the flu and after all this is "Just like the Flu" so 26% of our customers will only revert  back to normal behavior in 12 months time. I think we can add the once I have had the virus into this category so lets add the 7% here so in December 2020 this 33% of our customers are shopping as usual.

 

Another 20% said that they're watching the curve and by all accounts it takes 13 weeks to run through the curve, so using China as a reference  we will only have this group back on line in 10 weeks time. That's July 2020

 

Another 16% say they're waiting for a signal from the WHO and I saw a lady from the WHO on the news this morning saying that SA is doing well and should be able to lift the lockdown soon. Is this the signal or is it the 10 week China curve? Stuff it, this is a positive scenario so if Cyril lifts the lockdown we're good to go. We can add the 2.5% waiting for our Government's thumbs up to this group, so at the start we have 12% that we're not worried plus the WHO 2.5% our pattern of normal shopping looks like this. We still have about 18% that say that they won't revert back to normal but human behavior is such that time heals so we'll give them until another 6 months to get back on board. So our graph shows that we should be back to about 80% of our normal trading patterns by the end of the year and back in full by June 2021.

 

 

 

[River Rat]

That's enough for tonight will see if we can finish the other 2 on Saturday. Happy Easter!

Edited April 10, 2020 by River Rat