ENSURING SUSTAINABILITY IN A PAN-AFRICAN PROPERTY COMPANY – LEON VAN DE MOORTELE, CFO

 In Thought Leadership

Leon van de Moortele | 8 min read

COLLABORATION IS KEY FOR BOTH LANDLORDS AND TENANTS TO COMPLEMENT A STRONG INVESTMENT FRAMEWORK

For pan-African property companies, identifying risks and opportunities will increasingly become a collaborative effort between tenant and landlord.

The days of landlords dictating terms to tenants have passed. Considering that the economic impact of COVID-19 will likely last for much longer than dealing with the virus itself, it’s in the interest of both landlords and tenants to jointly identify and mitigate risk without impacting the financial viability of either party in the process.

For most landlords, identifying risk and opportunities is a long-term focus that starts with keeping in close contact with major tenants – enabling regular, ongoing, and open dialogue which is not only reserved for tough times. Beyond leasing teams being in constant communication with tenants on the ground, it’s become imperative for C-suite landlord executives to regularly engage with their counterpart tenant executives to share perspectives and insights business performance, where pressure points are, and how these interact with the additional overlay of what’s happening in the broader economy.

Although carbon reduction initiatives, delivering greener buildings and more sustainable practices are principles that corporate level Grit subscribes to, executive management, in our own personal capacities wholeheartedly live by and embrace these principles. In building our vision of delivering value to all our stakeholders, including the people of Africa for generations to come, we are implementing solutions in conjunction with tenants to meet our ambitious 2025 targets.

Industries and sectors differ tremendously and in many of these challenges lie opportunities, provided that both landlord and tenant are openminded enough to explore them.

Beyond purely Green initiatives, COVID-19 induced changes to the medium term outlook for commercial offices where work-from-home has become a real alternative in the context of the pandemic, are creating the space for us to deliver co-mingled solutions. For many operations across the African continent, work-from-home is simply not a workable solution, given the high cost of data, sporadic connectivity, and security concerns.

This invariably means a knock-on effect on the space requirements of office tenants, especially for those with open plan offices such as call centres who now have to reconfigure desk space for social distancing. A mutually beneficial solution could see landlords filling vacancies by temporarily leasing out space to these tenants at preferential rates but including greener “fit-outs” and incentives for more sustainable office practices.

We’ve also noticed a preference for large corporates to host their transient staff in bespoke corporate accommodation facilities where social distancing and sanitisation protocols are better controlled. This has led to some entrepreneurial business opportunities for both landlord and tenants, such as on-site catering through a more optimal use of club-house facilities and reduced wastage.

Retail on the continent provides a particular set of challenges. One has to consider the various categories in retail and consider the risks for each of these. Food retailers and financial services providers, for instance, continued trading throughout the various lockdown restrictions implemented by many countries. In these instances, it was the landlord’s obligation to ensure that the shopping centre remained open for trade. These measures included increased cleaning of high-frequency areas with hospital grade sanitisers, limiting access through only a small number of entrances in order to implement temperature checks and the supply of face masks, and even different shopping hours for the vulnerable and infirm members of the community. In some countries, a mobile app has been developed for shoppers to book a time slot to do their purchases, smoothing foot traffic and allowing for greater social distancing.

High-end fashion retail, on the other hand provides a very different set of challenges and landlords need a deeper understanding of challenges faced by their tenants. Where food and perishable goods for instance, are prioritised to move through customs and border control quickly, fashion retailers often end up with having stock delays at the border, missing parts of the season as a result.

In these instances, both landlords and tenants need to pursue innovative ideas to drive sales at the shopping centre while at the same time addressing excess stock levels and rental arrears.

Online retail has been forced onto countries across Africa that have gone into lockdown and have as a result grown exponentially. Considering the challenges around logistics and last mile deliveries, shopping centre landlords and tenants could leverage online purchases to their own benefit. We expect an increase in “click-and-collect” options, where shoppers collect their online purchases in-store at the shopping centre, alongside other innovations such as “safe shopper.”

Despite social distancing concerns, shopping centres remain a major attraction for socialising. Landlords who can enable this in a safe environment will do well in supporting their tenants’ survival. The extension of outdoor catering areas where patrons are spread out can often be done at little cost to the landlord, but with significant implications for tenant sustainability.

Although mitigating tenancy risk remains a key pillar, doing business in Africa requires implementation of a much wider spectrum of risk mitigants to ensure sustainability. These include in-depth analysis of currency risk, repatriation risk, country risk, operational risk, concentration risk and of course, political risk to name a few.

Prioritisation of assets with US$ or US$/Euro-denominated leases can address issues around exchange rate volatility to a large extent, with hedging and monitoring policies as well as robust relationships with the Central Bank playing a large role in the ongoing ability to repatriate funds.

We acquired our first assets into the portfolio in Mozambique back in 2014 and witnessed first-hand the importance of doing business according to the exact letter of the law. During that country’s economic crisis in 2018, the Central Bank clamped down on all repatriation of funding where the exact paperwork was not correctly in place. At the time of acquisition, we were well-advised by our local teams who understood the legal framework and business nuances and that proved vital in continued repatriation of funds despite a lockdown of a different nature being in effect at the time.

Having reputable, comprehensive political risk insurance in place could further support landlord and tenant sustainability. Considering current media reports on some insurers’ unwillingness to cover tenants’ and landlords’ claims against business interruption, only time will tell what lessons the sector learns from these events.

Open and candid dialogue between landlord and tenant remains imperative to accurately identify and analyse risk and opportunities. Non co-operation will harm the long-term sustainability of all parties concerned – there simply has to be a give and take.

With or without the prevailing impacts of COVID-19, collaboration between landlords and tenants remains key to building sustainable businesses across the continent. COVID-19 will end. Through collaboration, the sector will grow stronger, provided that all parties work together, are not focused on short-lived wins for only their own business, but rather focus on the long-term goals.

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