Texton Property Fund’s intention to change its business model so it no longer operates as a real estate investment trust (Reit) and is no longer forced to pay dividends annually could inspire others to follow suit.
The listed landlord said in a recent circular that it needed to implement a new model so it could spend its capital to upgrade its existing properties and buy other assets.
The new memorandum of incorporation removes the obligation on Texton to retain its Reit status, allowing the company to allocate capital in attractive real estate investments.
The Reit dispensation and capital structure was highly popular when it was introduced in late 2013. Most property funds adopted it so they could enjoy tax benefits and make themselves more attractive to investors.
Reits are required to pay a minimum of 75% of their annual distributable income as a dividend each financial year. Most Reits paid 100% of their income. The tax benefit was that the income was taxed in the hands of the shareholder and not at a corporate level.
But times have turned tough for landlords who have battled through an economy drowning in a recession. The pandemic has worsened the problems faced by landlords, many of whom want to hold on to cash and suspend dividends.
Reits can get away with not paying a dividend if they fail a solvency and liquidity test. But in the long run they could face sanctions from the JSE for breaking their mandate.
Texton itself is battling many challenges and is in the crosshairs of funds that could take it over. Analysts say its UK assets would be attractive for buyers but its SA assets are a hard sell. The group is trading at a huge discount to net asset value, given its market capitalisation is R1.4bn, and has been battling for years.
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