Shoppers walk past an Edgars store at a shopping centre in Soweto. Picture: REUTERS/SIPHIWE SIBEKO
Shoppers walk past an Edgars store at a shopping centre in Soweto. Picture: REUTERS/SIPHIWE SIBEKO

Growthpoint Properties says it turned down Edcon’s request for a rental reduction.

While the SA property giant participated in Edcon’s restructuring, by providing it with an injection of R110m in return for an equity stake, Growthpoint said a rental reduction for the troubled retail group would not have been in line with its own strategy.

“Growthpoint was among the landlords approached in December 2018 to consider a rental reduction for retail space leased to Edcon's brands.

“Given that our business model is based on contractual leases that provide a steady stream of annuity income, we did not want to compromise this by agreeing to the request for a rental reduction,” it said on Wednesday.

Growthpoint said it had already decreased its exposure to the retail group by about 9,000m² since the end of 2017.

Its exposure was expected to decrease by at least another 18,000m² over the next two years.

Edcon’s R2.7bn recapitalisation deal involved landlords, the Public Investment Corporation (PIC) and banks.

As many as 31 landlords, including Growthpoint, Vukile Property Fund, Liberty Two Degrees and Hyprop Investments, have met Edcon over the past few months.

Many landlords agreed to reduce rent for Edcon stores in exchange for a stake in the business in a bid to stave off liquidation and save jobs. Edcon employs 40,000 people.

“In my opinion, none of the SA Reits should have been investing in Edcon, it is not their core business to choose which tenants should survive or not through using shareholder funds,” said Garreth Elston, chief investment officer at Reitway Global.

“The market has voted — at least twice — that the Edcon model is unsustainable.”

Elston said it would have made more sense to save Jet and CNA specifically, as these were the two most viable parts of the business.

“The department store model is a dead company walking, shareholder funds would be better applied to companies that have a better long-term survival prognosis.”

Evan Robins, portfolio manager at Old Mutual Investment Group, said: “We are disappointed in Growthpoint’s aggressive election to account for Edcon’s rental as if it was not effectively cut, as we do not view the Edcon equity as having any value until operations improve substantially.”

But Nesi Chetty, head of listed property at Momentum Investments, said Growthpoint was right not to agree to a rental cut as it was not in its interests to do so.