SA Corporate Real Estate, which has recently rebuffed takeover offers from Dipula Income Fund and Emira Property Fund, expects distributions to fall as much as 4% in its financial year as it battles with falling rental rates due to SA’s tepid economic conditions.
The group cut its distribution per share by 6% to 20.38c for the six months to end-June, but expects a slightly better performance in its second half, even as it contends with rising debt costs and increasing municipal levies. After-tax profit slipped 52.3% to R367m, with the value of its 198 properties decreasing a marginal 0.6% to R17.7bn.
The group has struggled with mounting vacancies and a weak SA economy. It has had to sign negative rental reversions to keep certain tenants, noting that its income from long-term industrial leases was under pressure.
MD Rory Mackey said on Wednesday the company was expecting to return to positive distribution growth in the 2020 financial year.
The results were reflective of the tough operating conditions facing SA property, with rising property rates and negative reversions placing pressure on net income in the sector, said Kagiso Asset Management’s Rahgib Davids.
“A persistence of these dynamics will make it increasingly difficult for SA corporate to grow dividends.”
SA Corporate said shortly after markets closed on Tuesday that it was committed to achieving sustainable distribution growth, and would focus on consolidating its industrial property portfolio and divesting from its remaining 11 commercial properties, which are valued at R800m.
The company said in June it had received buyout and merger offers from a number of interested parties. These included Dipula, whose offer was worth R9bn, and Emira, which wanted to take over the company through a share swap.
At the time, Dipula’s offer valued SA Corporate at R3.55 a share, and Emira’s offer was at about R3.45 a share. It rebuffed these offers in August, however, saying at the time that its portfolio remained robust and it did not say the offers were in the best interest of shareholders.
The company has had a number of changes to senior management, including the removal by the board of former chair Jeff Molobela in May. Mackey and financial director Antoinette Basson announced their resignations in May, though Mackey later decided to stay.
The results were disappointing in the sense that SA Corporate had revised its full-year guidance lower, said Craig Smith, head of research and property at Anchor Stockbrokers.
“There have been corporate governance issues at SAC and a number of management changes over the recent past and as a consequence management will have to deliver on their short-to-medium term strategic objectives to regain the confidence of the market,” said Smith.
The company’s share price remains under pressure, having fallen almost 50% when compared to its 2017 high of R6.07 per share. It slipped 0.96% on Wednesday afternoon to R3.09, bringing its year-to-date loss to 8.04%, compared to a 4.2% loss for the JSE’s property index. /With Alistair Anderson