Post Lockdown Strategy

[Chris_]

(Some ramblings)

My first step would be to assess each tenant based on the short term coming weeks. 

 

Spar - will remain open, looking for reduced rate

Dischem - will remain open, looking for reduced rate

Absa - office probably shut, looking for reduced rate

Ackermans - shut, won't pay

 

Restaurants - shut, won't pay

Hardware - shut, won't pay

Bottlestore - shut, won't pay

Small businesses - shut, won't pay

 

Lawyers - WFH, looking for reduced rate

Doctors - will remain open, looking for reduced rate

Estate agents - WFH, won't pay

Fin planner - WFH, won't pay

 

Those that are staying open:

• Make sure our parking is free, we don't need any disincentive for people to shop elsewhere.
• Spar and Dischem - will do reasonable business, I'd suggest a only slightly reduced rate, if at all.
• Can we talk to uber or MrD to set up a depot nearby? Get additional business through Spar and Dischem.
• Doctors - I would reach out to govt to see if they need additional space, perhaps a further away section of the carpark, which we can rent out to Dept of Health for emergency bedspace or whatever they need. Maybe get Doctors to discuss with Dischem and reach a 2-for-1 type deal, bringing more people in. We would advertise as such. They too get a barely reduced rate.
• Centre management - how many cleaning staff, maintenance staff etc do we have. We'll need a few to keep the system ticking over, I don't know how to select them but the few should be paid some sort of bonus for the additional work. The rest of the staff need to take a 25(?)% pay cut and sit at home. If we soon realise we have too many staff now is the best time to do a 'restructure'.

Small businesses:

• Have we reached out to govt and the aid channels to get small businesses protection. If we help them we can negotiate a lifeline then they'll probably be returning in the future. 
• Fin planners, estate agents, lawyers - are they part of a larger group that will be downscaling? If so probably look to end that relationship sooner rather than later and see how to better utilise the space. Does the army or police need space? Does govt or community leaders need it for something else like additional grant handout space or donation collection and distribution?
• Who else in the neighbourhood is being squeezed out? It could be a good time to find some quality future tenants.

Ackermans and Absa - is part of a larger group with cash stockpiles, I would try fight them for a reduced rate, they can pay.

Bottlestore, hardware store - Shutter and weather the storm, these will bounce immediately and are probably next in line for soft-lockdown.

 

Dividend payout - obviously renege. Shareholders should honestly not be expecting this. Who are our other shareholders, perhaps we can bring one of their other businesses into the centre for a further negotiated rate and goodwill.

 

Refurbishments - good time to put on hold and use for better-rate leverage. Who is building the other mall? What kind of trouble are they in, is there a good chance it is pushed out or cancelled?

[vanniri]

The question is simple we need to present our strategy to the bank to renegotiate the terms of our loans. We are purely focused on this business only, my ulterior motive is to demonstrate scenario planning as a tool for any business and hopefully this will help us all through these uncertain times.

 

When I am uncertain of my next move, I am firm believer of sitting tight and looking at the positions taken by those around me.

 

However in this time of great uncertainty, coupled with our primary objective as stated above and the simple fact that all our tenants until recently regarded our mall as their primary home where they trade, meet prospective customers and in general share common experiences with their colleagues, I would sell myself as a picture of stability to my existing tenants. Our message: yes, we have challenges, but we are facing them and we intend to be around if you still see us in your future. The timing of our message: asap. The audience: the decision maker(s) of each business. 

 

We will have to accept that the above will only console the SME businesses, our anchor tenants is likely to negotiate from head-office. And we've all heard the joke of the head office guy phoning the ops manager to say: Hi, I am from head-office, how can I help you? Head-office is likely to make blanket decisions and will commence negotiations with a one-size-fits-all attitude. The exception to the rule might be ABSA, since they carry risk exposure. The Spar might be our knight in shining amour, do they already have a Spar Tops at the mall or is the liquor section integrated? We should assist them where possible with infrastructure changes to accommodate the extension of these (taken into consideration the onerous legislation in this regard).

 

Above all else we will have to keep the planned renovation alive. This will likely be the key deciding factor for the anchor businesses. From the initial scenario it seems the primary motivation (for the renovation) was to remain relevant in light of a new (and probably bigger) mall being erected within spitting distance. The funders of the planned development are likely reviewing the prospects. Whatever way you look at it, an existing mall does have the edge. 

 

The timing of the renovation is also critical, building should commence early enough to ensure our mall is open for business well in advance to the new kid on the block. We cannot match a grand opening with a renovation. 

 

However the return on the renovation will be less than the 11% being floated somewhere above. The sell to the shareholders (read: zero dividend for x years) and the bank will be less on return and more on survival. Return on capital will therefor need to be revised downward, first due to the general depressing impact of COVID-19 and secondly due the additional outlay required. 

 

Apologies for the long-winded charade. In summary we need to be seen as leading the charge - with a realistic compromise attitude verbalise in previous posts. This at least will remove one uncertainty for the tenants and let them focus on getting their businesses back on track.

Edited April 8, 2020 by vanniri

[Chris_]

Something I thought of on the bike just now, its funny how 'bulky' retailers have suddenly come good.

 

JIT, lean, agile, all those consultant'sy words have left some retailers barren, and probably remain looking worse for wear when the supply chain stumbles back into life. 

 

On the other hand, we have some retailers which are crushing it with discounted sales - I mean cyclelab must have paid for 3 months worth of costs with the fire sale going on on the hub today! Suddenly those heavy, stockpiled, unseasonal shops are looking good to survive at least a little longer.

 

For the former there is the option of selling vouchers to help keep your favourite shop alive and ticking over, but I'm starting to think thats kicking the can down the road more than the lifeline I initially imagined it was.

 

To bring it back here though Ackermans - I imagine its fairly limited in the online discounted sales it could push due to the already very low price entry point, although credit sales is a dangerous and tempting tool to roll out aggressively.

[River Rat]

A summary of where we are in terms of the rules of the game.

1. Tenants are unable to pay their rents and the number varies from 0 -50% during the lockdown or directly thereafter.
2. Tenants are renegotiating their lease.
3. The banks are willing to renegotiate the terms of the loans.
4. Lockdown will be in effect to at least 16th April

5  Not all tenants will survive the lockdown.

6 We can expect some intervention from government.

7 THe entire property sector is in the same situation as us.

[River Rat]

For discussion today is the customer behavior post lockdown and for how long that could be in effect. I tried setting up a poll but had a technical glitch, what I have seen is a poll that CNN reported on which showed that only 37% of respondents saw themselves going back to their normal shopping and travel patterns with 63% said that they will adapt these because of the virus. However, I do think a focused  Bikehub poll would provide us with sufficient input to have confidence as a rule of the game. So I will try and get the poll up and running.

[River Rat]

When I am uncertain of my next move, I am firm believer of sitting tight and looking at the positions taken by those around me.

 

However in this time of great uncertainty, coupled with our primary objective as stated above and the simple fact that all our tenants until recently regarded our mall as their primary home where they trade, meet prospective customers and in general share common experiences with their colleagues, I would sell myself as a picture of stability to my existing tenants. Our message: yes, we have challenges, but we are facing them and we intend to be around if you still see us in your future. The timing of our message: asap. The audience: the decision maker(s) of each business. 

 

We will have to accept that the above will only console the SME businesses, our anchor tenants is likely to negotiate from head-office. And we've all heard the joke of the head office guy phoning the ops manager to say: Hi, I am from head-office, how can I help you? Head-office is likely to make blanket decisions and will commence negotiations with a one-size-fits-all attitude. The exception to the rule might be ABSA, since they carry risk exposure. The Spar might be our knight in shining amour, do they already have a Spar Tops at the mall or is the liquor section integrated? We should assist them where possible with infrastructure changes to accommodate the extension of these (taken into consideration the onerous legislation in this regard).

 

Above all else we will have to keep the planned renovation alive. This will likely be the key deciding factor for the anchor businesses. From the initial scenario it seems the primary motivation (for the renovation) was to remain relevant in light of a new (and probably bigger) mall being erected within spitting distance. The funders of the planned development are likely reviewing the prospects. Whatever way you look at it, an existing mall does have the edge. 

 

The timing of the renovation is also critical, building should commence early enough to ensure our mall is open for business well in advance to the new kid on the block. We cannot match a grand opening with a renovation. 

 

However the return on the renovation will be less than the 11% being floated somewhere above. The sell to the shareholders (read: zero dividend for x years) and the bank will be less on return and more on survival. Return on capital will therefor need to be revised downward, first due to the general depressing impact of COVID-19 and secondly due the additional outlay required. 

 

Apologies for the long-winded charade. In summary we need to be seen as leading the charge - with a realistic compromise attitude verbalise in previous posts. This at least will remove one uncertainty for the tenants and let them focus on getting their businesses back on track.

That's the beauty of scenario planning it forces you to recognise that you don't have all the facts (key uncertaintities). A wait and see which way the wind blows is a perfectly good decision but understanding the impact of a key uncertainty  in terms of a scenario prepares you for action when a key uncertainty becomes a rule of the game.

[Chris_]

Customer/consumer behaviour.

 

The first thing that popped into my head - and I haven't reasoned through this - is that if the lockdown is lifted soon; there will be a massive spike of buying rubbish just because we're allowed to, then after a few days we'll realise the dire situation and what reduced wages and how low our savings and/or how high our debt situation is. 

 

If the lockdown is extended, which we should seriously consider in these scenarios (I think), then perhaps a very timid consumer will emerge, and the days of old will take years to revive. 

 

As it relates our property; being a mid/higher LSM - I think it'll bounce back healthily. Restaurants depend on if they survived, Ackermans will remain quiet, I'm surprised they're even in this centre.

[River Rat]

Customer/consumer behaviour.

 

The first thing that popped into my head - and I haven't reasoned through this - is that if the lockdown is lifted soon; there will be a massive spike of buying rubbish just because we're allowed to, then after a few days we'll realise the dire situation and what reduced wages and how low our savings and/or how high our debt situation is. 

 

If the lockdown is extended, which we should seriously consider in these scenarios (I think), then perhaps a very timid consumer will emerge, and the days of old will take years to revive. 

 

As it relates our property; being a mid/higher LSM - I think it'll bounce back healthily. Restaurants depend on if they survived, Ackermans will remain quiet, I'm surprised they're even in this centre.

I like your thinking but let's extract a few things from it.

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.

These seem like key uncertainties would you agree?

[Chris_]

Another thing is what your view was of the South African consumer even before the crisis.

 

As far as I'm concerned we're all getting poorer, 'the 5%' may well have been 'the 3%' irrespective of a crisis. 

 

How does one position this property for such a change? Refurbs will need to be a costly minimum, have we projected falling incomes? That may make the adjusted budgeting easier.

[Benjamin]

I see customers being very nervous of venturing out and interacting . Everyone scared that they going to be infected by fellow customers or store staff . The whole world has fueled that .

So businesses that are seen as safe and careful by their customers will be better off . Needs to be a huge focus .

 

Service businesses need to up their game , and really love and look after their customers, and not try overservice or sell to make up the lost revenue.

[River Rat]

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.

[SteveFW]

Another thing is what your view was of the South African consumer even before the crisis.

 

As far as I'm concerned we're all getting poorer, 'the 5%' may well have been 'the 3%' irrespective of a crisis. 

 

How does one position this property for such a change? Refurbs will need to be a costly minimum, have we projected falling incomes? That may make the adjusted budgeting easier.

I think that there will be a change in purchasing habits across the board, some may not be as visible as others but given the write off of wealth and disposable income, whether it is through loss of salary, depreciation of equities, non payment of rental or dividends I think that there will be less discretionary spending across almost all groups and in some groups people will be slipping from getting by and meeting their obligations to no longer able to meet their obligations.

 

For some consumers it may be cancelling holidays or putting off the decision on a new car or other purchase rather than not being able to afford to eat , I think the financial effect will ripple out far wider than than we imagine, particularly when you remember the downstream effect of each of these individuals change in purchasing habits and power.

[RocknRolla]

In terms of less traveling, My employer will decide this, I get a feeling they cant wait to have us all back at the office.

I had an particularly shitty day today, but I have had them at work before as well. That’s depression for you.

My only spending that has been affected by lockdown is, Im not buying alcohol, I cant buy spares to service my bike. I cant go to the hardware, to buy stuff to fix stuff around the house. The rest is moot, as I need to buy this stuff anyways.

 

as for malls, there has been a steady decline in mall foot traffic. This is a general indicator of a declining economy. I see this to continue, and probably get worse. This may be beneficial to our little centre, due to the pattern of less travelling and unnecessary interaction with strangers forcing people to “ look local” for their needs. 

The decrease in crude oil, will hopefully have a positive impact on the price of goods, due to the reduced Diesel price. It’s normally true of fuel increases. 
 

[River Rat]

In terms of less traveling, My employer will decide this, I get a feeling they cant wait to have us all back at the office.

I had an particularly shitty day today, but I have had them at work before as well. That’s depression for you.

My only spending that has been affected by lockdown is, Im not buying alcohol, I cant buy spares to service my bike. I cant go to the hardware, to buy stuff to fix stuff around the house. The rest is moot, as I need to buy this stuff anyways.

 

as for malls, there has been a steady decline in mall foot traffic. This is a general indicator of a declining economy. I see this to continue, and probably get worse. This may be beneficial to our little centre, due to the pattern of less travelling and unnecessary interaction with strangers forcing people to “ look local” for their needs. 

 

The decrease in crude oil, will hopefully have a positive impact on the price of goods, due to the reduced Diesel price. It’s normally true of fuel increases.

 

There are so many moving parts in the economic equation that it will be hard to make a call. I see this as another key uncertainty and I recently saw a note from PWC which examines 3 different scenarios for the economy a V, U or L shaped recovery this might be useful input for our own scenario planning.

[Andrew Steer]

Been following when I can but not had much time to engage... all very interesting reading and great to see how different people view different circumstances. I'm going to learn a lot.

 

Just a few things from my side... some re-affirming other views, some things I think could also be good to factor into the equations and thought process

 

Add to the uncertainties how long the virus is likely to be a deciding factor in peoples actions - estimates are anything from 6 months up to 2 years in some shape or form that this will be part of our lives. The length of this will not only effect the long term damage to the economy, but also very likely change habits for consumers and businesses in the long term.

 

There is also an almost certainty that interest rates will be dropped, quite possibly a lot in the next few months... that will have a positive effect on the outstanding loan amount. Whether you would want to include this at all in discussions with the bank who might well leverage it against you is another question entirely. It's also very likely something they will point out regardless.

 

The dividends to share holders... I would like to think any share holder would see the bigger long term picture and not pull the funds. I'd also imagine it's challenging to ask assistance from financial institutions while paying out dividends...

 

With so much economic uncertainty, does the new mall being developed in the area not start to have some big question marks around it's feasibility? Any falter there could lead to opportunities to entice more robust clientele to take up residence with you. Analyzing all your tenants business plans and their plans moving forward in a post covid world, you'll have a far better gauge on their chances of adapting and surviving and being able to pay their rent.

 

The planned refurbishment of the center could also largely be seen as an opportunity to re purpose the office spaces to something more viable to the new retail environment... whatever that may be is anyones guess.

[arendoog]

I don,t think or read this much, ever !

Edited April 8, 2020 by arendoog