Transcend pays 40% of dividend

Transcend, the residential real estate investment trust (Reit), collected 95% of its rent in the first six months of 2020, but chose to hang on to cash, which meant its dividend for the interim period fell sharply. The company, which owns a R2.7bn portfolio of more than 25 housing properties in suburbs such as Ferndale and Fleurhof, is one of a handful of residentialfocused funds listed on the JSE.

Transcend, the residential real estate investment trust (Reit), collected 95% of its rent in the first six months of 2020, but chose to hang on to cash, which meant its dividend for the interim period fell sharply.

The company which owns a R2.7bn portfolio of more than 25 housing properties in suburbs such as Ferndale and Fleurhof, which attract an average monthly rental of R5,875, is one of a handful of residentialfocused funds listed on the JSE.

CEO Solly Mboweni said after the company released its financial results for the six months to June that the company was R3m short in terms of distributable income compared with the six months to June 2019.

The group’s policy is also to hedge against a rise in interest rates, and a series of Reserve Bank cuts saw the group taking a R71.22m hit during the period in this regard.

“I think our portfolio is holding up very well. There is one property which has some issues with occupational rent.

“As a result we haven’t yet received the rent and have done the prudent thing in declaring a lower dividend than usual,” he said.

DISTRIBUTABLE EARNINGS

Transcend’s distributable earnings per share were 27.89c for the six months to June 2020, 89.99% down from the prior corresponding period. This prompted the company to declare a dividend per share of 12.10c, down 60% compared with the corresponding period. Effectively it was paying 40% of its available distributable income to its shareholders.

Reits are mandated to pay a 75% minimum of their distributable earnings as dividends each financial year. Transcend can still make up for its shortfall in the second half of the 2020 financial year.

At the end of June total portfolio unit occupancy of all properties was 94.1%.

Mboweni said that he was impressed by the rental collection rates achieved in the past six months.

“The business has performed exceptionally well under extremely trying circumstances. The portfolio continues to generate strong cashflows at a property level with monthly rental collections and occupancies remaining relatively uninterrupted, proving residential property as a defensive asset class,” he said.

Mboweni said for Transcend to grow, SA institutional investors needed to better recognise the benefits of the residential asset class.

Less than 5% of listed property assets in SA are residential.

“The SA investor base still does not appear to recognise the benefits of this asset class. The impact of Covid-19 may however make them realise that this is a resilient asset class that should be included in their portfolio mix. Retail and offices have suffered the most compared with residential, especially affordable residential,” he said.

Transcend closed unchanged at R6 with a market capitalisation of R785.3m.