Hyprop – the owner of Canal Walk Shopping Centre and Rosebank Mall – on Thursday became the third major SA-listed property fund within a week to warn of an even worse decline in distributable earnings per share for the upcoming reporting season.
It noted in a JSE trading update an expected slide of at least 15% in distributions for the group’s year-end to June. Hyprop’s statement follows Growthpoint Properties and Liberty Two Degrees (L2D) last Thursday also issuing trading updates of double-digit declines in distributable income in the face of the impact of Covid-19.
Hyprop, which was in a worse financial situation than both Growthpoint and L2D even before the Covid-19 economic fallout, had last year already warned of a decline in distributable income per share of between 10% and 13%. In December, Hyprop also announced a payout ratio plan through which it intended distributing 92% of its distributable income per share.
“As a result of a combination of the anticipated 10-13% reduction in distributable income per share, the reduced dividend payout ratio and the impact of Covid-19, shareholders are advised that Hyprop’s dividend per share (DPS) for the year ending 30 June 2020 will be at least 15%, or 111.7 cents per share, less than the DPS for the prior year,” the group noted in its latest trading update.
“The company will publish a further trading statement once it has the reasonable degree of certainty required to confirm the extent of the difference in DPS from the prior year. Hyprop will provide further information on its interim and final dividends, if any, with its results for the year ending 30 June 2020,” it added.
Hyprop’s 2020 full-year financial results are set to be released in late September.
Growthpoint, South Africa’s largest JSE-listed real estate investment trust (Reit), noted in its trading update last week, that DPS for its financial year to end-June is expected to slide by at least 15%.
The group, which has historically paid out 100% of distributable earnings, is contemplating following other industry peers in introducing a payout ratio policy. However, it said it would consider doing this “without jeopardising its Reit status”.
Growthpoint noted in its Sens statement that any change in its policy could further impact DPS for its 2020 financial year. “A final decision in this regard will be made at the board meeting on 8 September 2020 to approve the FY 2020 results and DPS, which will be released to the market on 9 September 2020,” it said.
L2D, which owns stakes in landmark malls like Sandton City and Eastgate, meanwhile noted in its trading update that distributable earnings per share is expected to plunge by between 40% and 55% for its half-year to the end of June. The group is set to release its interim results at the end of July.
“The first quarter generated results in line with expectations and while we have seen a slow improvement in trading since the beginning of Level 3 of the national lockdown on 1 June 2020, there has been a severe impact on the second quarter and consequently the first half of the 2020 financial year,” L2D said in its Sens statement.
“As a result, it is likely that distributable earnings for the six months ended 30 June 2020 will be between 40% and 55% lower than the comparative period,” it added.
‘Toughest environment ever’
Keillen Ndlovu, Stanlib’s head of listed property funds, tells Moneyweb that the trading updates from Hyprop, Growthpoint and L2D are “a reflection of the toughest environment ever” for the listed property sector.
“Other Reits are likely to come up with similar updates … Reit earnings will decline by double-digit levels on average,” he says.
“Payout ratios will fall to as low as 75% of distributable earnings, which is the minimum required by the Reit legislations. This [a 25% reduction in earnings paid out] will be in addition to already lower earnings or distributable earnings. It will severely impact the distributions/income paid out to investors,” he points out.
Ndlovu says that the retained earnings of up to 25% will be used “to help fix balance sheets” or reduce debt levels.
“The main challenge is that Reits cannot raise equity in this environment – there’s virtually no appetite to participate in equity raisings like rights issues or book builds. The other option is to sell assets [and use the proceeds to pay off debt] but there are not many buyers and more so at current valuations. Banks are also not as keen to lend either,” he adds.
“In the short term, listed property has to be viewed more from a total return perspective [income and capital] as opposed to the traditional way of focusing primarily on income,” he says.
Craig Smith, head of research and property at Anchor Stockbrokers, comments: “The updates are not surprising, especially for Hyprop and L2D given that these funds are exposed to the metropolitan retail sector, which has been severely impacted during the lockdown.”
He says Anchor Stockbrokers has “always advocated” for listed property to be viewed as a total return investment.
“We are also generally supportive of Reits adopting payout ratios as we believe this is more sustainable and allows Reit management teams to focus on long term value creation,” he adds.