Andrew Konig. Picture: MARTIN RHODES
Andrew Konig. Picture: MARTIN RHODES

Redefine Properties, the second-largest JSE-listed property company, told investors on Monday to brace for a lower payout, saying its distributable income would decrease in the year to August, the first fall since the 2008/2009 recession, as it struggles to grow returns in a sputtering economy.

The company, which has a portfolio of investments worth more than R90bn, said in a pre-close period investor presentation that its distributable income per share for the 2020 financial year was expected to be 5%-7% lower than the year before.

The news sent Redefine’s share price down 6.5% to R5.90 by the end of trade on Monday, the biggest drop in just over nine months.

CEO Andrew Konig said the company’s income was under threat from a barrage of forces and Redefine was spending a large amount of time and money trying to retain local tenants instead of making new acquisitions in SA. 

The dividend for the year to August would be lower than the 2018 year as a result of lower distributable income. Redefine has also changed its dividend payout ratio from 100% of distributable earnings to between 90% and 100%. 

“We will hold between zero and 10% back for operational capital expenditure,” Konig said.

The listed property sector is struggling to perform in 2020 and has become a shadow of its former self.

The FTSE/JSE SA Listed Property Index has lost 12.68% in value so far in 2020 compared with the JSE all share, which is down 3.86%.

Graphic: RUBY-GAY MARTIN
Graphic: RUBY-GAY MARTIN

In the mid-2010s listed property regularly outperformed other equities, delivering double-digit total returns.

Redefine said the state needed to take action to help ease pressure on the economy and companies operating within it. 

There was no prospect of improved property fundamentals in the medium term, said Konig.

“Persistently weak business and consumer sentiment with ongoing bouts of load-shedding are likely to have a significant negative effect on 2020,” Redefine said in its pre-close presentation, in the run-up to the budget that will be released on Wednesday.

“Fiscal policy is a huge problem with stuttering tax collections and an apparent unwillingness of the government to cut the public sector payroll,” it said.

Growth prospects would remain tepid because of Eskom, which was a major source of fiscal and general macroeconomic risk, a slow reform agenda and the weak global environment

Konig said Redefine would take a number of steps to “clean up its balance sheet”.        

This included offshore expansion through development activity and investing more in logistics assets in Poland.

The company wanted to lower its loan-to-value (LTV) to below 40%. It last reported its LTV to be 43.9% at the end of August 2019.

SA fund mangers tend to prefer LTVs to be between 30% and 40%  — if not lower than 30% — so that property companies can manage to pay their interest expenses in a slow growth local economy.

Keillen Ndlovu, head of listed property funds at Stanlib, said Redefine was correct in working on refining its balance sheet.

“It’s a prudent measure to manage expectations, more so if they are below what the market expects. The guidance is a sign of the tough times we are experiencing,” he said.

“A number of Reits are working on strengthening their balance sheets by reducing their LTV ratios,” he said.    

andersona@businesslive.co.za