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
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