Real estate investment trust (REIT) Vukile Property Fund says its exposure to struggling Pick n Pay is limited to 6.2% of its total rent collections.

The struggling South African grocer is now restructuring its stores and turning others into its value-offering Boxer, which it said would be spun off and separately listed.

This month, another REIT, Hyprop, cited the challenges Pick n Pay is facing in South Africa among the decisions that had prompted it to skip payment of a dividend.

According to market analyst, Simon Brown, many REITs across South Africa were likely to catch a cold from the Pick n Pay and retail industry slowdown. However, Pick n Pay has previously told Business Report that it has not informed Hyprop of any struggles in paying its rentals.

Vukile said yesterday: “Overall Pick n Pay exposure is limited to 6.2% of total rent, with 4.4% (71%) exposed to the lower LSM, budget brands, Pick n Pay QualiSave and Boxer.”

It added that its Pick n Pay grocer exposure was 1.3% of total rent, limited to three stores at Kolonnade Retail Park, Springs Mall and Pietermaritzburg Victoria Centre.

Market analyst Dave Hazelwood said the Pick n Pay anchor store at Pine Crest, Vukile’s largest mall in South Africa, might have “performed poorly” with Pick n Pay set to “change it to Boxer” value store.

Other analysts said this could have been influenced by Pick n Pay renegotiating leases or seeking to raise earnings by attracting budget buyers. South African consumers have been trending down to budget and value offerings, especially in retail, as inflation and interest rates remain elevated.

“Pick n Pay and other grocers are looking for value proposition either through renegotiation of leases or through maximising revenue by pushing their budget offerings even in affluent areas. With inflation remaining stubbornly higher, there is no other option,” said a retail analyst, who declined to be named, with a South African bank.

Vukile said in recent engagements with Pick n Pay, the struggling retailer had indicated that it was “exploring driving efficiencies with regards to under-performing, oversized stores as well as ensuring optimum brand choice is selected” for respective markets.

This, said Vukile, was a “standard practice” with all retailers.

To this end, Pick n Pay had indicated a desire to convert the Pine Crest and Nonesi stores from the QualiSave brand to Boxer. There is also the potential to downsize the Kollonade Pick n Pay Hyper store.

“We are fully supportive of the strategy, as the proposal will result in stronger mall trade. All deals will be done at Vukile’s election, subject to acceptable commercial terms as they’re currently in contract, but in line with our values of driving strong partnerships will look to promote a strong and sustainable value chain,” said Vukile.

Hazelwood said his impression was that the Vukile management team “wants to raise more capital” through book builds and, therefore, need a high share price’’.

“Be sufficiently sceptical of management statements and claims, therefore. Vukile says its KZN malls, its second biggest South African territory exposure, performed poorly in 2023 because 2022 growth was 'strong'. But that's disingenuous because KZN malls in 2022 simply normalised after 2021 riots (it wasn't 'growth'),” he wrote on X yesterday.

But for Vukile, the combination of the defensive nature of its South African portfolio and tenant mix, dominance of its assets and active asset management activities continues to deliver excellent results despite the sluggish local economy.

Its retail vacancies excluding retail offices have trended down to 1.2% from 1.4% as it continues to experience strong demand for space across all segments. Shares in Vukile were marginally higher by 0.54% on the JSE yesterday at R14.88 while Pick n Pay closed 1.12% lower at R18.53.