Results difficult to stomach, says CEO, but Texton is cutting debt
Operations improve and asset sales have helped the property fund reduce its debt by 15%
Marius Muller, the CEO of Texton Property Fund, which has been struggling to finance its debt and collect rent from tenants, says the company’s road to recovery is progressing well after the sale of more than R340m worth of assets in the six months ended December 2019.
The proceeds from the sale were used to pay debt. The group cut about 15% of its total dues from R2.24bn to R1.9bn during the period.
Muller, who in 2019 became Texton’s fifth CEO in five years, said the company, which released interim financial results that were “difficult to stomach”, will focus on retaining tenants and upgrading some assets, which could later be sold, now that its debt pressures were easing.
“We are operating in very difficult conditions. Our focus is to retain our tenants and our status as a retail estate investment trust (Reit). To do this we need to pay three-quarters of our distributable income as dividends during the full financial year to June. We will take the right measures to reach that goal,” he said.
Muller said Texton, which has battled for years to generate market-related returns for investors and has seen regular changes to its executive, would upgrade assets where necessary so that it could sell them to refine its portfolio.
During the six months ended December 2019 it reduced its loan-to-value (LTV) ratio by R340.8m, taking it from 47.2% to 44.9%. Fund managers prefer the LTVs of SA property companies to sit between 30% and 40%. The company owns property assets valued at R4.2bn, of which 60.9% by value is in SA and the rest in the UK, where it co-owns certain properties.
But its dividend per share fell 55.5% during the reporting period from 36.18c to 16.09c, while its distributable earnings per share dropped 11.1% from 36.18c to 32.17c. The six-month dividend of 16.09c a share amounted to 50% of distributable income, with the company retaining R60m, which would “decrease debt to more sustainable levels and strengthen the balance sheet in line with its capital allocation strategy”.
“The tough macroeconomics in both markets during the period, and weakened property fundamentals, led to a challenging first half of the financial year. We are still on track to pay 75% of our distributable income as dividends for the full financial year,” Muller said.
He said that despite the headwinds, Texton made “pleasing operational advances”, including reducing its overall vacancy level from 10.5% in the prior interim period to 9%. During the half year, it increased its tenant retention rate from 86.2% to 90.5% and achieved positive rental reversions of 2%.
Over the next six months, Texton would focus on improving its largest asset, Broad Street Mall in Reading in the UK, in which it has a 50% stake. Texton would transform Broad Street Mall from a pure retail mall to a mixed-use precinct comprising a hotel, entertainment, offices, residential and retail spaces. It has already obtained consent to develop a 101-bedroom hotel at Broad Street Mall.
“I believe if we can get Broad Street Mall right we can then sell our stake in it at a significant profit,” Muller said.