SA’s listed property sector turned in its worst quarterly performance in history in the first three months of 2020, hit by the weak economy, high debt levels and tenants battling to pay rent.
This has resulted in a drop in returns for shareholders.
The Covid-19 pandemic, which prompted the government to force South Africans to stay home to curb the infection rate of the coronavirus, has exacerbated the situation for the R470bn sector, with it losing 48.1% in rand terms.
In dollar terms, the sector ranked last in the world in the first quarter of the year in terms of total share price and dividend returns, according to data released on Wednesday by wealth manager Merrill Lynch. This was while China was the best performer.
“These are the worst times in the history of our sector. Many funds are doing everything they can to get through the recession and the lockdown,” the head of listed property funds at Stanlib, Keillen Ndlovu, said.
The South African economy shrank 1.4% in the fourth quarter of 2019, according to Statistics SA. This followed a contraction of 0.8% in the third quarter, which means that the economy was in recession for the last half of 2019.
Ndlovu said tenants have been reluctant to agree to rental rate increases in recent months. A weak consumer has meant retail sales have softened.
Some funds are trying to pay finance charges on large debt piles and are trying to get their loan-to-value ratios to be below 40%, which are levels recommended by fund managers in bear market times.
President Cyril Ramaphosa officially shut down large portions of the economy for three weeks from Friday last week.
Only essential services are allowed, such as the availability of food and the presence of security personnel and health workers. This means clothing, entertainment and other retailers cannot sell goods or provide services during this period.
The pandemic has seen more than 1,300 infections in SA.
The lockdown has prompted a number of retailers to say they won’t pay rent for April including clothing retailer Foschini, which owns Totalsports and American Swiss.
Some of the listed property counters including the country’s largest, Growthpoint Properties, have said they need tax relief so that they can help ease pressure on tenants.
“The biggest challenge is how long the lockdown will last for and what the economic implications are, over and above the recent downgrade to junk status,” Ndlovu said.
Some property funds including SA’s second largest listed real estate group, Redefine Properties, and Polish mall owner EPP NV have also suspended their dividend payments.
Liberty Two Degrees, which has exposure to Sandton City and Melrose Arch, on Monday withdrew its guidance about how much it expects its full 2020 financial year dividend to grow by compared with 2019’s figure.
“The well-being of our staff, tenants and customers and the safety of our assets remain the highest priority. L2D will ensure all increased safety and hygiene protocols remain in place in order to continue to support tenants that remain open during this national lockdown,” the company said.
On Wednesday, blue chip mall owner Hyprop Investments and Mall of Africa owner Attacq both withdrew their dividend guidance.
“It is not yet possible to predict or quantify the business impact of the Covid-19 virus and the state and societal responses to it. In light of this continued uncertainty, Hyprop hereby withdraws its distribution guidance for the year ending 30 June 2020,” Hyprop said.
Attacq said: “Given the fluidity of the situation, it is not currently possible to quantify the impact that Covid-19 will have on Attacq’s operations. As a result, Attacq withdraws its full-year distribution guidance to 30 June 2020.”
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