Dis-Chem goes to war with landlords

This month is make or break in the increasingly sour relations between SA’s property owners and Dis-Chem.

The pharmaceutical retailer is facing a potential lawsuit that may force it to pay rent in full — or lose its leases.

Dis-Chem has paid its May rent in its entirety, but property owners intend to still collect the outstanding 50% owed from April.

Dis-Chem and property owners have been embroiled in a battle over rental payments for the month of April. The company was deemed an essential provider and thus able to trade during the lockdown, but could not do so at full capacity. It argues that because of lower trade figures it shouldn’t be required to pay full rent.

But the position of the property industry is that no relief will be offered to retailers selling essential products in more than 75% of their gross lettable area, and that this makes them liable to pay 100% of their rental and recoveries.

What’s more, the Property Industry Group — an alliance of real estate investment trust owners and owners of shopping centres — says relief and assistance guidelines are not to be applied unilaterally by the retailers at their discretion.

Dis-Chem CEO Ivan Saltzman says the retailer is now in a position to trade its full offering, and has paid its full May rental, as it has communicated to the landlords from the start of its engagements with them.

Saltzman says that in April the group paid 50% of rent upfront, whether stores were trading or not, plus all utilities, rates and common area charges. It says the other 50% was the expected loss from nonessential goods.

But the Property Industry Group says: "Rent is contractually due on the first of the month and for most of April [Dis-Chem did not pay] anything."

Only after "several calls from various property owners" did Dis-Chem "eventually" stump up half the April rent and "the full amount of [its] utilities and assessment rates recoveries in the middle of the month", says Property Industry Group CEO Estienne de Klerk.

He confirms that Dis-Chem paid all its May rents. "The arrears that remain are 50% of the rent for April, which we intend to collect."

De Klerk says comparing statistics for February and March this year with the same months in 2019 shows that Dis-Chem’s trade grew by double digits in most properties whose owners belong to the Property Industry Group.

That may be so, but Dis-Chem’s argument is that April was a grim month.

Saltzman says trade was down on last year as a result of the company not being able to trade in a fifth of its stores.

"The essential piece of our business was flat, and we experienced far fewer feet throughout our stores [as a result of the required social distancing regulations]. We also saw the mix change, with greater contributions of lower-margin dispensary and fast-moving consumer goods lines."

Dis-Chem says it has now paid 80% of its April rentals, "reflective of our ability to trade and of the piece of our trading space that was provided to us".

Saltzman says this is in line with the principles suggested by the Property Industry Group, which uses as the basis of relief trade in essential versus nonessential goods. "We are aware of many instances of other retailers … handling the situation this way too."

But De Klerk argues that Dis-Chem’s obligations are of a contractual nature, meaning that "Dis-Chem will be in breach of all of [its] lease agreements as an essential services retailer" if it does not pay in full.

Saltzman says the rental for the company’s distribution centres was handled in the same manner as those of the retail stores, with Dis-Chem paying only the rental on the weighting of essential goods in its distribution centres.

Saltzman is clearly digging in for a fight, as he feels that Dis-Chem has been unfairly targeted. "Our view is that the landlords are using the media to put social pressure on us. It feels like a cheap shot, considering that they have much bigger challenges on their hands than a correctly applied principle of a 20% reduction for one month."

Saltzman is right that landlords have a bigger fight on their hands. The property industry has asked the government to intervene in the case of big retailers that were not allowed to trade during lockdown. This matter also relates to an impasse regarding rental payment.