Two of SA’s top property groups, which have exposure to some of SA’s premium assets, have warned of a sharp decline in earnings because of lower rental fees from tenants hit by the lockdown.
Some tenants have asked for discounts, while others have delayed payments, which has left landlords with less cash.
Growthpoint, SA's largest real estate group with nearly R140bn in assets spread across SA, Australia, the UK, Poland and Romania, said its distributable earnings for the year to June was expected to fall by about 15%, and the group was also reconsidering its policy of paying out 100% of these earnings.
Growthpoint owns half of Cape Town’s R18bn V&A Waterfront, the most valued commercial property in SA. The Public Investment Corporation owns the other half. Growthpoint recently bought a controlling stake in British mall owner, Capital & Regional, for R2.9bn.
Liberty Two Degrees (L2D), which has a portfolio worth about R10.3bn that includes stakes in the Sandton City shopping centre, Liberty Promenade, Melrose Arch and Eastgate, said its distributable earnings would take a hiding, falling 40%-55% in the six months to June. This would have a knock-on effect on its full-year 2020 earnings.
“The first quarter generated results in line with expectations and we have seen a slow improvement in trading since the beginning of level three of the national lockdown on June 1,” CEO Amelia Beattie said.
But there was a “severe impact” in its second quarter and it would not pay an interim distribution, having paid out 29.31c previously.
“It’s the toughest time for the sector and we are expecting similar updates from most other real estate investment trusts (Reits) It has become really difficult to forecast earnings,” said Keillen Ndlovu, head of listed property funds at Stanlib.
His team expected physical property values to fall 10%-15% on average in the short to medium term, Ndlovu said. “This is mostly priced in as Reits (real estate investments trust) are trading at about 50% below their net asset value.”
Net asset value effectively measures the value of physical properties less debt.
A 10%, 15% or 20% fall in physical property values would push average loan-to-value (LTV) ratios from about 40% to about 44%, 47% or 50% respectively.
“Retaining some dividends and selling assets to pay off a portion of the debt will help to limit the increase in loan-to-value ratios,” said Ndlovu.
Fund managers tend to prefer LTVs of 35%-40%.
In terms of physical property devaluation, the retail sector is likely to suffer the most, followed by the office sector, Ndlovu said.
Growthpoint’s share price has fallen by about 37% so far in 2020, closing 0.57% up at R14,17 on Thursday, while L2D’s has fallen 21.64%, closing 3.24% down at R5.08. The property index is down 33.2% year to date.
Ndlovu said some slight relief which Reits were set to receive was a two-month reprieve from paying out dividends granted by the JSE. Previously they had four months to pay after declaring dividends, but now they have six.
But Reits had been expecting a better reprieve, with some having requested up to a two-year postponement.
Ndlovu said Reits were expected to reduce their payout ratios to the minimum required of 75%. A quarter of their earnings would be retained to fix balance sheets.
“There’s no feedback from the National Treasury yet on the related tax dispensation. It may take time given that they have many other issues to deal with in these challenging times,” he said.
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