In a letter to landlords, AP Eagers chief executive Martin Ward said April, May and June will be “critical months where we will experience either very low levels of income or none at all”.
“As a consequence, a number of our sites will be closed and put into hibernation within the next two weeks,” Mr Ward says in the letter.
“In order to help us remain a strong and viable tenant under the lease, in the spirit of partnership we are seeking a three-month rent-free period commencing 1st April 2020.”
The letter, reproduced in part by the Australian Financial Review, was dated March 31.
AP Eagers is estimated to have about 450 leases with some of its 200 dealerships having more than one site.
Mr Ward’s letter added that: “Given the reduction in customer demand, the progressive shutdown of businesses, social distancing and the ban on non-essential travel announced by governments we have seen a rapid decline in income over the last 14 days, particularly as other businesses and industries have moved towards complete closure.”
“In recognition of the speed with which the crisis is evolving and the need for these matters to be addressed urgently, we have taken the liberty of suspending rental payments from 1st April to help us engage in an orderly manner with our key stakeholders of which you are one.”
The Australian Financial Review has since reported that landlords have criticised Mr Ward for requesting rent hiatus but then maintaining a final dividend for shareholders, albeit halved to 11.25 cents a share.
Mr Ward told GoAutoNews Premium: “The prudent decision by the board on Friday, March 20 to halve the previously announced dividend that was announced on February 27 was the last day allowed to make the change. Friday the 20th was also the day that thousands of people flocked to Bondi beach and no Australian businesses had been closed by the government.
“On the evening of Sunday, March 22nd the prime minister announced the first wave of closures. Based on the facts on Friday, March 20 the board believed it was taking a conservative position to reduce its dividend.
“Hindsight is a wonderful tool to critique. AP Eagers has worked around the clock to continue to take all appropriate action to protect all stakeholders, including landlords, in this iconic 107-year-old company,” Mr Ward said.
Martin Ward
Other companies, including Australia’s second listed automotive retailer Autosports Group (ASG) Ltd, have scrapped their dividend payout.
Autosports has also temporarily closed some of its smaller-volume sales outlets and directed customers to its larger metropolitan dealerships.
In a statement to the Australian Securities Exchange (ASX), ASG said “these staged temporary department closures will be implemented as necessary proportionate to the restrictions the government imposes”.
While some sales outlets will close, ASG said panel shops and most service centres remain open.
It said it has “engaged with” its OEM partners and their financiers, as well as landlords and government departments, “to reduce or defer expenses”.
“So far, the response we have received from our stakeholders has been positive. The group will continue with these efforts,” the company said.
ASG has also stated it has started “the temporary stand down of our employees, mostly from front-end roles and some support roles”.
“We expect the number of temporary stand downs to not exceed 35 per cent of all employees. The purpose of the temporary stand down is to preserve as many jobs in the long term for when trading improves.”
ASG has about 1300 employees.
Non-executive directors have voluntarily forfeited all directors’ fees for the second half of 2020 and key personnel – including executive director Ian Pagent, CEO Nick Pagent and CFO Aaron Murray – have forfeited incentives and reduce their base salary by up to 40 per cent until the end of this year. Senior management has also taken voluntary pay cuts.
Meanwhile, in response to serious concerns from all industries including automotive retailing, the federal government released its national leasing code of conduct with principles to apply to negotiating amendments “in good faith to existing leasing arrangements”.
The government’s stated aim is to aid the management of cashflow for SME tenants and landlords on a proportionate basis as a result of the impact and commercial disruption caused by the economic impacts of industry and government responses to the COVID-19 pandemic.
It said the code “applies to all tenancies that are suffering financial stress or hardship as a result of the COVID-19 pandemic as defined by their eligibility for the Commonwealth government’s JobKeeper program, with an annual turnover of up to $50 million”.
“The $50 million annual turnover threshold will be applied in respect of franchises at the franchisee level, and in respect of retail corporate groups at the group level (rather than at the individual retail outlet level),” the government said.
“The parties to this code concur that during the COVID-19 pandemic period, as defined by the period during which the JobKeeper program is operational, the principles of this code should nevertheless apply in spirit to all leasing arrangements for affected businesses, having fair regard to the size and financial structure of those businesses.”
The arrangements will be overseen by binding mediation and a mandatory code will be rolled out in each state and territory.
Prime minister Scott Morrison said landlords were legally required to speak with tenants about rental arrangements and if they refused they would “forfeit their way out of the lease”.
The principles outlined by the government read, in part:
1. Landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period (or reasonable subsequent recovery period).
2. Tenants must remain committed to the terms of their lease, subject to any amendments to their rental agreement negotiated under this code. Material failure to abide by substantive terms of their lease will forfeit any protections provided to the tenant under this code.
3. Landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals of up to 100 per cent of the amount ordinarily payable, on a case-by-case basis, based on the reduction in the tenant’s trade during the COVID-19 pandemic period and a subsequent reasonable recovery period.
4. Rental waivers must constitute no less than 50 per cent of the total reduction in rent payable under principle #3 above over the COVID-19 pandemic period and should constitute a greater proportion of the total reduction in rent payable in cases where failure to do so would compromise the tenant’s capacity to fulfil their ongoing obligations under the lease agreement. Regard must also be had to the landlord’s financial ability to provide such additional waivers. Tenants may waive the requirement for a 50 per cent minimum waiver by agreement.
5. Payment of rental deferrals by the tenant must be amortised over the balance of the lease term and for a period of no less than 24 months, whichever is the greater, unless otherwise agreed by the parties.
By Neil Dowling
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