Redefine cuts dividends
Listed property seen to follow as sector battles vacancies and to grow rent
Redefine Properties is holding on to R200m or nearly 4% of what would normally have been returned to shareholders for its latest financial year, as it negotiates an economy shedding jobs and suffering from poor investment and consumer spending. CEO Andrew Konig said the company had to be conservative until the SA economy changed.
Redefine Properties is holding on to R200m or nearly 4% of what would normally have been returned to shareholders for its latest financial year, as it negotiates an economy shedding jobs and suffering from poor investment and consumer spending.
CEO Andrew Konig said the company had to be conservative until the SA economy changed.
“We got a reprieve from Moody’s on Friday but now the economy needs to respond. Corporates are being cautious and responsible but I think we saw from the medium-term budget last week that people in the top positions now need to do some things differently or we will realise our worst fears.”
SA’s second- largest property counter has put assets valued at R8bn up for sale as it looks to decrease its loan-to-value from 43.9% to below 40%. It has a total portfolio of R95.4bn.
One fund manager expected Redefine to lead a trend of implementing dividend cuts, as it and its peers battle to grow their rents and to manage vacancies while GDP growth is muted and job growth stunted.
Since most of SA’s listed property companies adopted the real estate investment trust (Reit) tax dispensation in 2013 and 2014, they have all paid out 100% of their distributable income as dividends. This is because the dividends are taxed in the hands of its shareholders and not at company level.
But the listed property sector has struggled in the past two years with income and capital growth coming under pressure.
The FTSE/JSE SA Listed Property index (Sapy) has fallen 3.7% in 2019, while the JSE all share index has risen 7.95% over the same period.
Nesi Chetty, a senior portfolio manager at Stanlib, said he was supportive of the adjustment in the payout ratio.
“More prudent capital structures make sense over time and we may see this from other listed property companies. Globally,
property Reits have even paid between 80% and 90% of their income as dividends. Over the longer term, this model does provide more consistent net asset value growth across companies like Redefine,” he said.
Redefine, which has a market capitalisation of R46bn, paid out 93% of its distributable income, holding back R200m.
“This goes to the heart of sustainability as there is no distress on the business and the cash will fund capital expenditure to maintain operations.
This will “be giving us an efficient additional source of funding, while also preventing potential tax leakage which could occur in the hands of shareholders if this amount was rather declared as part of the dividend and reinvested as equity,” financial director Leon Kok said.
Ratings agency Moody’s Investors Service on Friday announced it would not downgrade SA’s sovereign credit score to junk but it reduced the outlook to negative.
Konig said Moody’s had warned the country to get its house in order so that investor confidence could return to the economy.
About R8bn worth of assets had been earmarked for disposal; R4bn in SA and an equal amount abroad, he said.
Redefine wanted to sell R1.5bn of noncore SA assets, its 51% R2.5bn stake in SA student accommodation provider Respublica, its R3.3bn share of Australian student housing group Journal and its R700m holding of Australian firm Cromwell.
Once these assets were sold, Redefine would only be exposed to SA, the UK and Poland.
THIS GOES TO THE HEART OF SUSTAINABILITY AS THERE IS NO DISTRESS ON THE BUSINESS AND THE CASH WILL FUND CAPEX