Despite a drop in rental revenue from its South African portfolio, reduced income from its offshore investments and ongoing Covid-related uncertainty in the listed property sector, retail-focused real estate investment trust (Reit) Resilient on Tuesday declared an interim dividend of 202.70 cents per share, in stark contrast to many of its peers.
Resilient’s dividend per share for the six-months ended December 31, 2020, is 24.4% down on its comparative half-year (ended 2019), when it paid out 267.96 cents per share.
Nevertheless, the fact that it is paying out an interim dividend while several other JSE-listed Reits have opted not to pay or to defer dividends instead, will be welcome by shareholders.
On Tuesday, fellow Reit Attacq became the latest counter to withhold its interim dividend, in-line with the likes of Hyprop and Fortress.
Resilient’s bigger industry peer Redefine Properties even decided not to pay out its 2020 full-year dividend. These property funds – many with high gearing or loan-to-value (LTVs) ratios above the 40% mark – are withholding dividends to bolster balance sheets in the face of the Covid-19 financial fallout.
With a LTV of around 35% (SA portfolio 33.6% and overall LTV at 35.1% based on SA Reit best practice), Resilient has a stronger balance sheet than many of its peers.
This seems to have given it the headroom to continue paying out dividends, even as it also takes some pain from the Covid-19 pandemic.
The group points out in its latest results that during the half-year (ending December 2020) it provided Covid-19-linked rental discounts of just over R43.7 million to its worst-hit tenants.
Commenting on Resilient’s interim results, Stanlib’s head of listed property funds Keillen Ndlovu notes that the counter “has one of the strongest and well-managed balance sheets” in the sector.
“Its LTV sits at 33.6% compared to the sector average of 42%. Resilient is in a more comfortable position to pay dividends… More so at a higher pay-out ratio [of 100%] compared to most other Reits, which are deferring paying out dividends or skipping interim dividends and eventually paying out closer to the 75% minimum required by Reit legislation [in a financial year],” he explains.
According to Ndlovu, Resilient is trading at about a 23% discount to its Net Asset Value (Nav). In comparison, the SA Reit sector is trading at about 30% below Nav.
“The premium to the sector is supported by the group’s superior portfolio performance and quality as well as strong balance sheet, hence 100% pay-out ratio. It also has options available with the cash proceeds from upcoming disposals,” he says.
Resilient managed to collect 95% of rental and recoveries billed (before discounts) during the half-year. However, the group also benefited from having a large percentage of its retail centres located in rural provinces like Limpopo and the North West, which are seeing better retail trade than urban shopping centres.
The fund notes that retail sales within its South African property portfolio declined by just 1.6% for the interim period, compared with the half year ending December 2019.
“This performance demonstrates the resilience of the property portfolio given that the comparable period was unaffected by Covid-related restrictions. Of the 28 malls, 15 recorded positive sales growth,” Resilient adds in its results Sens statement.
“Malls with exposure to mining and high-value agricultural produce performed strongly while those with leisure and entertainment offerings were negatively affected as a result of the extended lockdown restrictions,” it says.
This is in-line with the trends the group noted in the first half of last year (the second half of its last full financial year), which was heavily affected by the initial ‘hard lockdown’ from late March to the end of April and restrictions to trade in May and June.
“I’langa Mall [near Nelspruit in Mpumalanga] was the worst performing mall in the portfolio as it was also impacted by the closure of the border and travel restrictions between South Africa and Mozambique,” Resilient notes in its latest results.
“The closure of the offices in the surrounding office nodes had a more severe impact on Rivonia Village [in Johannesburg] than initially expected. Arbour Crossing [south of Durban] benefitted from new lettings, particularly the relocated and expanded Food Lover’s Market and a new gymnasium,” the group adds.
Worth noting is the group’s comments that its rentals for renewals and new leases increased by 2.5% on average. This is higher than many of its peers, which have in fact seen negative retail rent reversions.
“Administered costs, particularly rates and taxes and electricity, are still escalating well ahead of inflation and retail sales growth and are affecting tenants’ cost of occupancy,” Resilient however warns yet again it is results statement.
Meanwhile, the group’s listed investments contributed R123 million less towards its overall distributable earnings for the half year to December 2020, compared with the corresponding prior half year.
“The operational performances of NEPI Rockcastle and Lighthouse were impacted by Covid-related restrictions imposed in the markets in which they operate. In addition, NEPI Rockcastle reduced its pay-out ratio, affecting Resilient’s first-half period,” the group notes.
Resilient also points out that its interim period last year (H1 2020) benefitted from R127 million of interest related to its €221 million in cross-currency swaps as well as R19 million of capitalised interest.
The group says it had no cross-currency swaps during its latest interim period (H1 2021) and capitalised only R55 000 of borrowing costs during this interim period.
“This had a negative impact on distributable earnings, however, was largely offset by lower borrowing costs as the South African prime rate was 3% lower than during the comparable period,” Resilient adds.
The group’s share price traded around 1% weaker on Tuesday afternoon. However, its interim results presentation to analysts only takes place on Wednesday.