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Another year of slashed dividends for property investors

Property companies downgrade their dividend forecasts for 2018, with some expecting to post flat and even negative dividend growth.
It seems that the days of investors being rewarded with dividend growth of between 8% and 15% are long gone. Picture: Supplied

Property investors who expect to be rewarded with inflation-beating dividend growth in 2018 are in for a surprise, judging from the latest dividend forecasts by SA’s real estate companies.

Real estate investment trusts (Reits) have earned a reputation for being progressive dividend payers even during tough and uncertain times.

It seems that the days of investors being rewarded with dividend growth – a key metric that investors typically use to judge the investment case of Reits – of between 8% and 15% are long gone.

Many investors expected Reits to report flat and even negative dividend growth for their 2017 financial year while 2018 would be the year of recovery in dividends. However, a recovery is not on the horizon.

The latest Reit to shock investors is sector heavyweight Redefine Properties, which told investors on Monday that dividends would grow by 5% to 6% in 2018. This would be the first time in a long time that Redefine’s dividends might be slow or even be negative after inflation is factored in.

Speaking at Redefine’s results presentation on Monday in which the company lifted its full-year dividends by 7% to 92c per share, CEO Andrew König said SA’s tough economy is weighing on office and retail properties.

Read: Redefine Properties sticks by KPMG

It’s becoming increasingly difficult for landlords to attract competitive rentals given weak demands from tenants, increasing rental space and dampened business confidence said König.  

Redefine is not the only company feeling the pressure.

Growthpoint Properties expects its dividend growth to be about 6% in 2018 – similar levels reported for its 2017 financial year. Delta Property Fund expects zero growth in dividends in 2018, after growing dividends between 8% and 15% during 2014 to 2016.

Liberty Two Degrees and Hyprop Investments expect lower dividends due to the recent closure of Stuttafords stores at some of their shopping malls. Both counters had a large exposure to Stuttafords relative to their peers and have recorded vacancies from the retailer’s demise.

Read: Liberty Two Degrees and Hyprop count costs of Stuttafords’ demise

Ian Anderson, the chief investment officer at Bridge Fund Managers, said the downgrade of dividend forecasts is not surprising as he expected dividend growth of 4% to 5% in 2018 for SA-focused property companies.

“With significant political and economic uncertainty in SA, the situation is unlikely to reverse quickly and investors should expect an extended period of lower distribution growth from the SA component of the JSE’s listed property sector,” said Anderson.

A change in the accounting policies of several property companies to exclude once-off profits in dividend payouts such as development fees or capital reserves (which could artificially boost dividend payments), is also the reason behind lower dividend payouts.

Jittery investors have given the share prices of Redefine, Growthpoint, Hyprop, Liberty Two Degrees and Delta a dressing down, with their share prices down between 5% to 22% so far this year.

Anderson said the expectation of lower dividends has been priced in by investors as seen in current property stock valuations. A large percentage of property stocks are trading large discounts to their net asset values and on forward income yields that exceed the 9% yield on ten-year government bonds, he added

Lawrence Koikoi, the portfolio manager at Stanlib, said some stocks could be good buying opportunities. “That is if you believe the SA economic fundamentals could improve in the long run provided you buy into the strong management team with good quality assets,” he said.

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just for the record I have been warning about these REIT’s for sometime – esp those with multiple listings and offices in multiple countries. no more so than capital & counties – down 50% over last 2 years. if u remember this was Donald Gordon’s (founder of liberty life) “wundercompany”. his wealth has also halved apparently – altho at £1.6bn he should be ok!!!

Just for the stuck record, the article is about “SA’s real estate companies”.

Capco isn’t in SA. (Nor is it a REIT).

Robert Smith you are truly remarkable. Whether it is politics, economics, asset management, philosophy you have done it, not only have you done it but you have excelled and been blessed with the ability to forecast with absolute confidence. Now give as all a break.

Ray, I am confused. Are you talking about slow to negative growth of payouts or low to negative (relative to previous paid) payouts?

If you are talking about growth of payouts then, slow or negative growth would not necessarily result in negative payouts after factoring inflation. The negative payouts in this case would be if the current payout is close to inflation.

In a world where everything and everyone is booming (UP) and new record highs.

We South Africa is booming (DOWN), companies are cutting down expenses, cutting staff or/and closing down or relocating overseas.

All because of a President that does not pay TAX and causes more Economic, Financial destruction worse than a Hurricane!

End of comments.

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