Div­i­dend out­look dims

The prop­erty stocks are only ex­pected to re­turn to div­i­dend growth in 2020, but both are start­ing to reap­pear on buy lists

Financial Mail - - MONEY&INVESTING - Joan Muller mullerj@fm.co.za

Share­hold­ers of em­bat­tled prop­erty stocks Re­silient Reit and Fortress Reit (B shares), which have both recorded share price losses of 62% in the year to date, will have to be sat­is­fied with far more sub­dued div­i­dend pay­outs than the dou­ble-digit growth they have be­come ac­cus­tomed to in re­cent years.

That’s the mes­sage that emerged last week at Fortress and Re­silient’s much-awaited an­nual re­sults pre­sen­ta­tions and fol­lows the re­struc­tur­ing of both com­pa­nies’ bal­ance sheets.

The lat­ter was prompted ear­lier this year by mar­ket crit­i­cism of the cross-hold­ing be­tween Re­silient and Fortress and how they dis­trib­uted the in­ter­est ac­crued on loans ad­vanced to an em­pow­er­ment ed­u­ca­tion scheme known as the Siyakha trusts.

The sell-off of Re­silient and Fortress shares was ac­cel­er­ated by ac­cu­sa­tions of in­sider trad­ing and share price ma­nip­u­la­tion, now the sub­ject of a pro­tracted probe by the Fi­nan­cial Sec­tor Con­duct Au­thor­ity (FSCA).

Though the div­i­dend growth num­bers re­ported last week for the year ended June were in line with mar­ket ex­pec­ta­tions for both Re­silient, at -0.3%, and Fortress B, at 4.07%, fore­casts for next year sur­prised on the down­side. That’s par­tic­u­larly true for Fortress.

The com­pany’s B share­hold­ers will have to lower their div­i­dend growth ex­pec­ta­tions for the year end­ing June 2019 from a pre­vi­ous es­ti­mate of 5% to be­tween -2.2% and 2.2%.

Re­silient is fore­cast­ing div­i­dend pay­outs to drop be­tween 0.9% and 2.7% for its 2019 fi­nan­cial year. Nei­ther Re­silient nor Fortress has ever re­ported a drop in div­i­dends.

Re­silient still de­liv­ered growth of 25.1% and 16.1% re­spec­tively for the June 2016 and June 2017 re­port­ing pe­ri­ods, while div­i­dend pay­outs for Fortress B share­hold­ers rose by 90.5% and 25.1% over the same pe­riod. Fortress A share­hold­ers have a pref­er­en­tial right to div­i­dends, with an­nual growth fixed at ei­ther 5% or , con­sumer price in­dex, whichever is lower.

Though the sub­dued div­i­dend growth num­bers for

2018 and 2019 are no doubt a con­cern for many, an­a­lysts say they are sat­is­fied that in­vestor con­cerns around the cross-hold­ing struc­ture and

Siyakha trusts have been ad­e­quately ad­dressed by both man­age­ment teams.

In ad­di­tion, the un­der­ly­ing SA port­fo­lios of both com­pa­nies are still de­liv­er­ing a solid per­for­mance.

“We be­lieve both busi­nesses to be in good shape op­er­a­tionally,” says Me­tope As­set Man­agers in­vest­ment an­a­lyst Kelly Ward. She notes that a key take­away from Re­silient and Fortress’s re­sults pre­sen­ta­tions, as well as re­cent an­nounce­ments from other prop­erty com­pa­nies and re­tail­ers — most no­tably Sho­prite, a ma­jor ten­ant of both Re­silient and Fortress — is that the SA econ­omy re­ally is in a tough spot.

“Both Re­silient and Fortress’s re­tail port­fo­lios have per­formed ad­mirably in this en­vi­ron­ment, de­liv­er­ing 4.8% and 4.1% re­tail sales growth re­spec­tively for the year to June,” says Ward. That com­pares with over­all year-on-year re­tail sales growth of just 0.7% in June, as re­cently re­ported by Stats SA.

Ward says while Fortress’s of­fice and in­dus­trial port­fo­lios are show­ing weak­ness through higher va­can­cies, man­age­ment has proac­tively im­ple­mented a strat­egy to dis­pose of these as­set classes and de­ploy the pro­ceeds into the bet­ter-per­form­ing lo­gis­tics and re­tail sec­tors.

Fortress is one of the largest lo­gis­tics prop­erty play­ers in SA and owns a ➦

RESILIENTINVESTMENTPOR T FOL I O

Off­shore listed prop­erty

R37bn

Big player: Pi­nes­lopes shopping cen­tre forms part of Fortress’s R30.2bn lo­cal prop­erty port­fo­lio

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