Why will there be more?
Printable View
You misread my post bull. I am not suggesting that this whole mess will be done in four weeks. I am thinking in terms of scenarios.
I am suggesting that four weeks is the absolute minimum disruption time, just one scenario. You then have to look at a more pessimistic (but realistic?) scenario of 4 months. Then look at what might happen if one year is the true lock down scenario. Then run each scenario as a separate analysis.
Finally assign a probability for each option you choose, and you will come out with a probability related result. This isn't an estimate of what will happen. In fact the answer you get will almost certainly not reflect what actually happens. But it does give you a result that is the best estimate you can get of the financial return you might expect.
If the garment you buy has a shelf life of twelve wears, then I do expect those customers to come back. They would have no choice. How many washes do those pre-ripped jeans last for anyway?Quote:
Isnt hlg demographic the one to take the biggest job hit?
how high is cloths buying on your shopping list when your on the benefit?
You are talking about a long term trend here bull. This is a different issue to a pandemic event which has immediate effect. The future you paint here may turn out to be what happens. But short term, having people roll up for entertainment experiences to replace retail in the current climate isn't going to happen.Quote:
Are not malls in decline overseas as a means of people shopping, thats why mall owners are changing them to experiences so i doubt mall owners will care if a few shops close, there will be plenty to replace them in time.
SNOOPY
For the past few years they have been replacing retail stores on many main streets. When I visit Cornwall in the UK nearly every other shop is now a charity shop. The rents have got cheaper and they have moved in to replace more traditional retailers. Plus in any recession they will be busy, at the moment it is mainly he shabby sheek brigade that use them.
fair point snoopy and totally like the way you think. analysis takes in all senarios.
It would be good to hear what your thoughts are about the demographics and there impact on hlg. mine are that they will lose jobs mostly young casuals and part timers etc a large number of these maybe hlg shoppers
maybe. micheal hill just announced
In the interests of the health and safety of our people and our customers, Michael Hill today announces that it will suspend operations of its Australian store network for an indefinite period with immediate effect.
http://nzx-prod-s7fsd7f98s.s3-websit...480/319429.pdf
I don't think that is likely. But I'm sure lots of unlikely things are happening right now.
They have quite a few Glassons stores in Aus (32 Glassons, 4 Hallensteins) vs NZ which is 37 Glassons and 43 Hallensteins. The scale of their Aussie operation is bigger than you might realise.
Wow, HLG surging today.
From
"https://www.nzx.com/announcements/350510" A non-price sensitive announcement apparently (from Kiwi Property Group).
"In light of the four-week closure of non-essential business ordered by the Government yesterday, Kiwi Property has identified a small number of tenants, relative to the total number of tenants in its portfolio, with a contractual right to suspend rental payments if they are unable or chose not to occupy or utilise their premises because of the Government order."
I wonder if HLG is one of those tenants?
"If all of the tenants exercise this right for the entire four-week shutdown period, the Company expects it would result in a drop in gross rental income of around $6 million, representing less than 3% of the prior year’s gross rental income."
Hang on, this is just for four weeks. If we extend to four months (17 weeks) then the gross income loss extends to:
$6m x ( 17/4 ) = $25.5m (13% of the prior year’s gross rental income)
And if we extend out for the whole year, then the rental loss adds up to:
$6m x 52/4 = $78m (39% of the prior year’s gross rental income)
Now what percentage of Kiwi Property Group assets are in shopping mall assets again?
But none of that is material. Right? (It might be material for HLG though!)
SNOOPY
HLG confirming they are going to have virtually no revenue for the next 4 weeks (nearly 10% of the year)
Yet going to have plenty of bills to pay still.
As I've said many times before, retail is risky and tough.. being around 100 years or so and having no debt will help, but it won't guarantee you survive.
They sounded the alarm (when reading between the lines) over 5 weeks ago... turned out to be very uncertain future indeed... and absolutely stunning that the share price rises on this kind of news.
China is getting back up to speed so yes there will be supply line probs but maybe some revenue from online sales? Pipi to me its more about whether HLG is a good investment proposition atm. Disclose not a holder atpit.
Online sales in N.Z. closed, only online sales in Australia for now, for as long as permitted https://www.nzx.com/announcements/350722
"....."..................
[QUOTE=winner69;802507]Kathmandu sending online orders to nz from Australia
That would fit into non essential, couriers told not to deliver non essential goods, ports are saying they will run out of space for essential goods
Some lucky punters must be 50+% up on this one this week. Really do have to wonder why it's gone up so quickly and if it will actually hold.
Cats out of the bag Monday and probably won't be pretty.........
The thing about fashion retailers is they are going to be left with a ridiculous amount of stock they have not sold. They would of ordered their autumn and winter season in advance (usually fashion plans at least 6 months ahead). They are going to have to sell down their stock significantly when this lifts. Even if there's huge demand, a month without trade is too much to catch up on.
Farmers will be hit even harder I imagine
I bought some of these yesterday. A small amount to cover FOMO, with a plan to average down.
I now regret that.
I was thinking that they are still under priced considering the percentage damage to income from lockdown.
I did not consider longer term currency damage or upcoming recession.
Oh well, still under my long term goal to pay less than $3.20 for this cyclic stock.
HLG paid a divvy throughout the GFC. Directors obviously think this is worse.
Shareholders of all sorts of companies on the NZX are going to have to get used to the fact that the primary fiduciary duty of the directors is the long run survival of the company. They are duty bound to make this their #1 priority. "Out of an abundance of caution", (get used to that sort of thinking by directors) dividend cancellations are going to be really widespread on the NZX in 2020.
I would've thought that any company would be insane if they were paying dividends out now. Not necessarily because this is worse than the GFC, but because they have no idea when they can open again. How do you even compare a shock that played out over 2 years with one that has played out over 2 weeks?
Four weeks of the current lockdown is also the best case situation, and that's only NZ. In Australia, who knows what's going to happen over the next few weeks.
Paying out $12 million to shareholders right now would be reckless. And if they have got money to spare, they can always just pay it out later. I reckon that the only companies paying any sort of dividend are going to be the utilities.
Was someone on here telling us it was all good because one is holding for the dividend (so share price doesn't matter) or something like that? And a bit of a worry NPAT was already going backwards (prior to things turning even worse - mainly, the NZD going down further against the USD and not being able to do business for at least 4 weeks, probably longer)... no worries, being in business over 100 years is certainly a nice story, and hopefully that story continues.
A big concern for me is Glassons Australia is now 1/3 of the business and where a significant amount of growth has come from. I see Australian retail as high risk right now and I see them taking a big hit there over the next year with less government support than what they'll get in NZ
As a shareholder I would have been quite concerned if they did pay a dividend. Not much news here, decent sales in first 7 weeks despite some people at that point probably avoiding malls.
For this year or for lockdown period?
I still contend strategic withdrawal from Aussie is very likely
Mall owners don’t operate on standard ADLS leases so no generic escape/access clause as per other commercial property operators. No doubt the malls will offer concessions but you would imagine it’s still a huge hit to HLG bottom line, what’s the monthly staff/lease liabilities at the moment ?
I agree with beagle, I don’t see why they would kill the golden goose because it isn’t expected to lay an egg for a few months.
Thanks for that info boysy have just googled that.
I would think that Hallensteins and Glassons would be regarded as anchor tenants in a lot of malls and that owners would be keen to keep them. If concessions are necessary I'd expect to see some mutually beneficial solutions.
Sorry, but I would have to completely disagree... I would be very surprised if Hallensteins and Glassons were considered anchor tenants in any mall/complex, so they would not be able to throw their weight around like a typical Farmers or The Warehouse of JB Hifi would... however there is likely to be 'somewhat' of a solution to help... whether it is mutually beneficial (aka both sides benefit the same) I am not too sure on either... I would think Hallensteins and Glassons would be very lucky if it was mutually beneficial.
Dito I would not call HGL an anchor tenant at all they are no supermarket or farmers or Kmart their floor area is modest in most malls compared to other retailers afterall. This could be different throughout the country but not the case in any Auckland malls .....
They got a few million in the bank but that won’t last long
Be a new experience for them talking to banks for a loan to tide them over
At least they didn't pay it out in dividends...
Banks might not like them too much, not because its personal, but because its retail... Smith City has that feel good, been around 100 years+ feel and yet don't seem to be getting alot of love from their bank.
No worries, this time (or company) is different.
I'd say they are a valuable tenant in many malls in NZ as they have both a Hallensteins and a Glassons and would be paying quite a bit more per square metre than an anchor tenant like Farmers etc. So if I was a Kiwi Property exec for instance I'd want to retain a company with their track record because if they are going bust /leaving just have a think how many other vacancies they'd have in their malls, mainly because HLG operate a far more conservative business model. They will get some reductions/incentives to stay for sure...
A macro trend that I think that comes out of this is that it'll be what starts to kill brick and mortar retail (if that hasnt started already).
Those that'll be able to own the digital space as the main part of the customer experience will win in market share.
Gut feeling is that HLG will manage the transition quite well, IMHO Farmers, Myer etc will go the way of the dinosaur....
Thanks, Arbroath. That's what I meant and you have said it so much better!
:)
It blows my mind that this one is still trading at more than 50% above last week's low. Surely this stock is going to be hugely impacted by the unfolding events. People still in denial?
Somewhere closer to $2, but edging lower by the day. Let's face it, they have virtually zero income, but the outgoings are still there. The longer this event drags on for, the less relevant their seasonal stock becomes. The weaker dollar will do them no favours (but there may be a glut in the market for suppliers to offset this). A good portion of their target market is about to find themselves out of work. A large portion of their shareholders will be used to the nice regular dividends, which will disappear for a while. Will the minimum wage increase affect them? The only light at the end of the tunnel is that they are probably better placed to weather the storm than much of the competition (some of which will disappear) and maybe they can negotiate lower leasing costs. 2 years of pain?
So to arrive at a fair value of close to $2/share what kind of losses are you forecasting? I checked my model and to arrive at a valuation close to $2/share earnings would look something like a $30m loss this year, break even next year and long term average EPS of 28c/share (down from long term average 35c/share and recent earnings of 40+c/share).
Personally that seems slightly pessimistic to me. Maybe useful as part of a downside risk valuation.
Running up some rough figures using your prediction of a 30% drop in sales, I think you are expecting more or less break even this year, is that about right? If so, you could well be right and things may not be as grim as I'm suggesting. Some might argue a 30% sales reduction is conservative, although the fact 2 thirds of the year is already gone might be a saving grace. But with a world of unknowns about how all this is going to pan out, a pessimistic bear market might dictate $2/share is not that unrealistic.
Maybe a silly question, but I wonder if there's any data on clothes shopping behaviour patterns? For me it's a bit like going to the dentist or getting car serviced - a chore to do once or twice a year. I wonder how many are on this end of the spectrum (pun intended) versus frequent impulse buyers and those in between? And how much sales vary from month to month. ie how much pent up demand that will result in higher sales on reopening?
I'd treat any such data with extreme caution. There's too many unknowns here - when do "normal" patterns resume?- how much money is left in customers' pockets? - what retailers are left standing?
And so on.
A $30m loss I.e bottom line. I agree, I wouldn’t be surprised to see $2/share again but that doesn’t mean $2/share is fair value.
GS reckons discretionary spending such as clothing and footwear may fall 50% as a result of the containment measures with restaurants and hotels even higher. On the PLUS side food, alcohol, tobacco and communication. ..........Numbers slightly less for Australia.
Glad I retired from the clothing game many moons ago.
KMD having to do a major cash issue at 50 cents is a very sobering reality check for investors in all retail.
The fact that the legendary guru of retail Rod Duke refused to participate, (despite the bargain basement price), should serve as a warning that he thinks the road ahead is extremely difficult and probably may never have been this challenging since the great depression of the 1930's.
For what its worth, in recent days my intentions have changed and I am not intending to buy back in to HLG until they can prove their business model is viable again.
The bear will determine the bottom price and I don't think we've seen that yet.
Can no one see there will be pent up demand returning after lock down?
Deferred spending rather than put off altogether
I would be inclined to believe that there will be an explosion of consumerism once humans are let loose on the world again but it is also possible that people who are still able to earn a living or receive income during this event will be amazed at the amount of money left in their pockets now that casual spending has been made more difficult. I can't help but wonder if maybe we become a bit more thoughtful about where our money goes. Probably just transferring my own thoughts to the masses but it feels like a lot of things will be different at the end of this, at least for a while....
Yes, but people will have less money to spend (those that are still working) and all those that will be new to unemployment, a lot less.
imo ........thing that could HELP the most for HLG is if their competition closes down as every 4th shop in malls are clothing. But not until those stores clear all stock @ bargain basement prices which all stores will be attempting to do.
I don't believe people will rush out to buy clothes once Covid-19 lockdown is finished probably the last item on my thoughts.
I think you are misreading Rod's motivation here Beagle. Rod may have modest debt in his own BGR business. But he does have lease obligations to sort out. And he is probably considering the elasticity in demand for some of his stock lines too. Those non-essential lines might end up as dead stock.
IMO the outlook for clothing retailers is much more straightforward, and in the medium term all the stock will be in the essential category. IMO, the fact that Rod is not supporting a cash issue in KMD is because he is busy putting his own house in order first. It is not a commentary on the medium term strength of the rag trade.
SNOOPY
Yes and that is the problem for retail. It is entirely possible that a significant number of people will be more concerned about reducing their debt and will be less likely to spend their money at the malls. In the long term when the threat has gone and the concern of the virus re-emerging is gone than it will be back to the shops because that is what people do. The devastation of the tourism industry will have a significant effect on retail turnover.
apparently there should be a GOV announcement out soon (within 48 hours) around rent relief
I assume this will address ADLS clause 27.5 and hopefully clarify what a 'fair portion' is and it might even maybe extend something to older leases which don't carry 27.5 which might help HLG
Covid19 no respect for longevity -
ual leave.
Founded in Adelaide in 1932 R.M.Williams has survived its fair share of crises; it has been through the worst of World War II and has continued to operate ever since. "Now, 88 years later, the Covid-19 crisis has stopped us in our tracks," says R.M.Williams.
Went to that factory once ....awesome place
Covid-19 empties shopping centres..............
https://www.abc.net.au/news/2020-04-...ction=business
Expecting massive sales when stores finally open trying to entice people to spend with everybody chasing the same dollar..
Currently not on my shopping list as game has become a lot harder now.
https://www.hallensteins.com/
https://www.glassons.com/
Good call Snoop Dog
Agree Balance, they are two of the best no question.
But no retailer enjoys a recession, and this one has the potential to be the worst for 90 years.
My guess is the board will be losing sleep in the coming months.
Hopefully not too much, perhaps just a sleeping pill will fix it.
But I don't think so.
HLG back up and running - in a website way at least! Couta on the way back! It is interesting to see what is deemed essential at Hallensteins. Our volunteer firemen can buy a new pair of pants (Park Pursuit Jogger Jeans $69.99) but they can't buy a Kitt Ronney Belt ($29.95) to hold them up!
I guess our fireman can live without a 'Game Pad Hand Trainer' and a 'Fake News Game - Kayne Edition'. A bit off that they can't enjoy a 'Wireless Shower Speaker' at the hose down at the end of the day though. Those last three have all been marked down to 5 bucks. Will they still be that price when Level 4 is lifted?
SNOOPY
P.S. I was right about HLG being back. But even I didn't expect it to be this quickly!
No help from a Landlord.
“In the meantime, we wish to remind our tenants that their obligation to pay rent and other usual charges continues throughout this period unless the lease expressly states otherwise.
“Yours sincerely Kiwi Property Group Limited.”
Yup.
I personally know a few mall tenants who have collectively withdrawn their rental payments - what are the KPGs of NZ going to do? Terminate their leases and sue them? Not going to happen - especially post lockdown, good tenants are going to be hard to find to replace the broke tenants.
A review of the rent situation by Jane Holland, Partner, Bell Gully
https://www.propertynz.co.nz/news/re...uring-lockdown
The conclusion:
"In my view that clause ((Clause 27.5 and 27.6 of Auckland District Law Society Sixth Edition), introduced in 2012 in response to the Christchurch earthquakes) will operate to suspend rent and outgoings (for businesses providing non-essential services) during the Alert Level 4 lockdown. Where a tenant is providing an essential service, but doing so from only part of the premises, the position is less clear at this early stage."
That means no rent from HLG due to property owners until we drop back to level 3.
SNOOPY
Depends on their lease.
During this current lockdown period some leases will require the tenant to keep paying the rent even though the premises are closed. Other leases may allow for rent to be suspended for businesses that provide non–essential services. However, there are a variety of different lease clauses in the market so it is obviously important to check the exact wording of the lease.
Going from Kiwi Income Properties letter I previosly posted, very few of their leases will have an out clause.
I expect other Mall owners to have similar leases.
Do companies imagine Landlords have no bills.
You sign a lease honour it as no doubt companies will........
I think Balance is on the right track here. Practicalities will trump legalities in many cases, I reckon.
(Apologies for using the T word!)
... and they would say that, wouldn't they?
But I think it doesn't really matter whether they can enforce ongoing rent payments or not. The option for landlords is to either bankrupt most of their tenants (which would be bad for landlords, because it means they lose their respective income streams forever unless you see plenty of companies queuing up for expensive mall space) or to temporarily forfeit some of their rents but keep the income stream long term.
The real question is - do we expect in a year from now most malls be empty, closed and in disrepair? If yes, than this is due to landlords demanding their rent now.
Being an optimist I hope for a pragmatic solution with business, landlords, government, insurance companies (business continuity insurance) and banks each coming to the table, which would be good for HLG as well.
Obviously - they all will carry some part of the burden, which means nothing good for tax payers and (in the short term) for shareholders of any of these.
Assuming their is no out-clause from a pragmatic point of view I think good tenants will find landlords are prepared to "do a deal". This might be part rent forgiveness and part rent deferral. At the end of the day this lockdown is hopefully only going to be a short term issue and if a landlord makes a tenant bankrupt there's every chance they're going to experience a longer period without rental income than if they work with their existing tenant.
Changes happening in ChCh.
Spotlight has left The Colombo.
KMart has left The Palms and there is talk Countdown will also leave.
New World has left City South.
Pak'n Save will move from Northlands to Foodstuffs Main North Road site.
Smiths City left Bush Inn.
Yeah I hear what you're saying, they are as tough as old boots. That said HLG have demonstrated a history of being quite nimble with the closure of unprofitable stores previously so one can only be left to speculate on the exact terms of their leases. I think they're big enough to take an assertive approach with landlords.
@BlackPeter Question I ask is when is enough rent relief enough after 1 or 2 months half rent for a year? or should businesses solve their own problems first by removing excesses like huge cuts to directors fees and managements wages. Will the banks write off loans or just defer payments.
If I was THE landlord be rather upset after giving rent relief and watching directors fees and managements wages increase after Covid-19 for doing such a wonderful job getting through crisis.
They are hard bastards to deal with - mainly because of the demise of strip shopping in favour of mall shopping. The malls could cling on a queue of prospective tenants wanting to lease space in the malls.
But that’s prior to the recession we are now experiencing and which is going to get worse before getting better.
Doubt there’s going to be the same queue of prospective tenants wanting in. More like many tenants looking to exit.
I do not know which would be worse,being a retailer or a Mall owner.
ps.
I remember office staff of one Mall owner, used to buy their lunch from the bakery over the road, as they were cheaper than the cafes in their Mall.[who were paying their high rentals]
Exactly the point. As long as each side can see the problems the other faces, then the solution of working together through this becomes obvious. Neither side will win with COVID-19. But going back into your respective silo will ensure that both sides will lose much more.
And the banks in the background will need to co-operate too!
SNOOPY
I have several commercial tenants (all solid ) and one deal I would be happy to do with all of them is trade 6-12 months rent in return for a 10 year lease extension.
I agree with yo dreamcatcher. There has been some good discussion on this thread about commercial leases. Both landlrods and tenants are i an awful postion imposed on them by Government action.
But you have a similar situation with residential rental property of which I have a little. The Government has been very bad in this regard and shown their inexperience in unduly raising tenants expectations ad painting landlords as enemies. The latest is making a law change saying landlords can't increase rents or terminate contracts but tenants can terminate. That's after going public saying they were giving "landlords" a mortgage holiday, which is no such thing at all. It simply means delaying payments while you clock up extra interest. Where is the fairness in this ? I think Labour has pushed their political agenda too far now and they will get a big backlash from mum dad residential "landlords" or investors. That is sad and what we need right now
Quite right percy. Another quote from the reference:
https://www.propertynz.co.nz/news/re...uring-lockdown
"There is a similar clause in the Property Council NZ Office and Property Council NZ Retail leases but it limits the rent suspension to what the landlord can claim under its loss of rent insurance. In these circumstances that probably means the tenant gets no rent suspension at all." (under a COVID-19 closedown).
Ouch!
SNOOPY
The big trouble I see is bullying.
Major anchor tenants,ie The Farmers,or Countdown will say to Landlords this is what we will pay.
Strong Landlords will say to weak tenants you must pay this.
The ongoing "fair" rent will not be adjusted quickly,or perhaps not at all.So although tenant/landlord may come to a temporary agreement,longer term retail will still be very difficult.[which means to me current rentals will not be sustainable].
Private landlords [mums and dads] I see a lot differently.Newly unemployed "should"/will receive a welfare rent payment to cover,or nearly cover their rent.A great number of mums and dads are in no position to offer rent holidays.[and should not be expected to].
I would imagine the ADLS standard lease will apply to small businesses in properties of small landlords. I would expect a company like KPG to have their own standard lease that all their tenants would be required to sign, with perhaps some alterations for anchor tenants. In my job I sometimes see leases signed by companies and for larger malls I've never seen any reference to the ADLS (assuming they have their name all over the agreement like they do on their residential purchase agreements).
Many mall tenants sign the lease they are given as they have no other option. Hopefully an outfit like HLG has more nous.
A big property guy(with some malls) once told me our real profit is in the leases we draw up ....inferring nearly everything is to their advantage.
Did he also tell you the tenant can be sued for going to the media complaining about his lease,or their landlords unfair actions.[yes written into leases].?
Next question.
I believe Tim Glasson is the landlord of HLG's ChCh City store.Will he waiver the rent for the lockout.?
Now there is an interesting philosophical dilemma! If Tim waives the rent for his own building that would be a foot-shot. But if Tim doesn't waive the rent, on consideration of all the HLG shares he holds, that would also be a foot-shot. Perhaps the answer is that Tim should buy a pair of crutches ;-P?
SNOOPY
Mr Tim got just over $2m rental from the company - on independent commecial terms of course
I think the NZSA weren't too impressed with the disclosures when the Chch premises came up.
Think stores in malls with the largest square footage having the largest CLOUT anyway probably locked in for next 10yrs plus where termination fees would be expensive.
vacant space in malls a NO deal would be better then a BAD deal which has the potential to lower standards and price