Real Estate Asset Managers are under continuous pressure to optimise the Net Income Growth (NIG) of all their retail buildings. There is a strong correlation between the degree of tenant compliance, the accuracy of reported turnover (on which turnover rental payments are based), and the NIG of a particular building. Our research has shown that tenant non-compliance can be contagious and spread through a building if not quickly and correctly addressed. Similarly, there are many industries in which low levels of compliance and under-reporting of turnover are transversal.
The above effects are often as a direct result of shopping Centre Management’s administrative approach to business operations. Property Management has traditionally not focused on the key revenue drivers within retail real estate. Instead, they have devoted their time to acting as building managers, not business managers. Management’s focus should be on the tenants’ retail operations, taking a collaborative approach with tenants in order to optimise their business income, which in turn drives the building’s income.
Tenant Risk Analysis: We have developed a unique methodology in which both Centre and tenant data are analysed through the use of our specialised data analytics tools. Our team has deep knowledge of the various tenant business models and has performed in excess of 500 tenant reviews across all industries. It is through this detailed knowledge, and experience, that we have developed our unique model which incorporates several risk indicators such as tenant turnover performance, trading ratios, industry specific risk indicators and other areas of non-compliance. Our model enables us to perform pre-emptive analytics before establishing contact with the tenant, and to identify possible levels of non-compliance including opportunities to optimise income. This has been proven to decrease the cost of compliance monitoring to a level where the benefits far exceed cost.
Types of Tenant Risk Analysis:
- Centre Data Analysis (CDA): Analysis of Centre performance data and benchmark to industry.
- Tenant Data Analysis (TDA): Analysis of tenant performance data available at the Centre.
- Tenant Compliance Analysis (TCA): Compliance check into tenants’ businesses involving uniquely developed in-house criteria and tests to assess tenant compliance and to further identify areas of under-reporting of tenant turnover.
- End-to end Turnover Rental Solution: We provide a full end-to-end Turnover Rental Solution. This includes the analysis of tenant trading levels, margins, and other factors in order to set appropriate turnover rental percentages. Our experience is that turnover rental thresholds are often set without consideration of the economic impact thereof on the building income, or taking into account the nature of the tenants’ business model and other factors. Our solution further includes turnover certificate collection, review, and the re-performance of the turnover rental calculation.
- Recovery of historic amounts: We provide a complete end-to-end service with full assistance in the recalculation and recovery of historically under-reported turnover rental. We further assist the Landlord with settlement negotiations and correctly aligning the rental levels with the market. Our approach is different, in that we provide a full scientific basis for the setting of these percentages.
- Recovery of operational cost: Recoveries of this nature have traditionally been manually calculated, and are subject to a high degree of ambiguity, which poses a high risk to the Landlord. Larger tenants, especially national tenants, are increasingly looking for cost savings and are using this particular mechanism to recover historical operational cost overpayments, without offsetting these against related under-payments. Through data analytics we provide deep insight into the historic levels of recovery, the current levels of risk exposure and assist in reducing this risk.
- Lease adequacy review: Lease agreements often do not contain the necessary mechanisms to enable income optimisation. With our extensive experience within the Real Estate industry, we provide a complete service of reviewing these lease agreements from a commercial perspective and providing valuable feedback on the improvements required to optimise the NIG. We further demonstrate the financial effect of these optimisation opportunities to our clients.
- Property Manager evaluation: We provide an evaluation (once-off or continuously) of the performance of the Property Manager (at a building or portfolio level, outsourced or in-house). Where service level agreements are in place, we provide a gap analysis of duties and key performance indicators, whilst also ascertaining compliance to these agreements.
- Skills analysis and training: We believe that true benefit will come from the people in an organisation. In order to empower Property Management to act as business managers, we have developed a full suite of skills development solutions to bridge the skills gap. Our team of consultants are experienced facilitators and have received positive acclaim for their contributions to property managers.
- System adequacy: The South African industry has seen the use of numerous manual work-around solutions in the Property Management data area. Whilst these solutions alleviate some pressure, they also pose a risk in terms of data integrity, completeness and accuracy. We provide an independent view of the Property Management systems employed, whether stand-alone or integrated. We also have an alliance with one of the largest Property Management software solutions available in the world. We will be able to do an introduction and assist our clients with their Property Management system requirements.