Texton Property Fund is the first real estate investment trust (Reit) in the R300bn SA listed property sector to declare it cannot pay a dividend at all for 2020, after failing to meet liquidity tests.
The company, which owns R5.1bn worth of assets in SA and the UK, made the announcement in a business update on Friday.
Reits are mandated to pay at least 75% of distributable income earned as a dividend each year. This creates tax benefits for them as their profits are taxed at a shareholder level and not at a company level. Reits are seen as reliable income payers that often attract pensioners as investors.
Since the Reit dispensation was introduced into SA in late 2013, SA Reits have tended to pay 100% of their income as dividends.
But in 2020, the Covid-19 lockdown has seen Reits give rental relief to tenants in the form of discounts and deferments. As a result, some Reits have chosen to hold on to cash and deferred their dividend payment decisions until 2021. These are decisions around how large a dividend they would pay.
A number of Reits that have paid dividends in 2020 has changed their payout ratio from 100% to 75% of their distributable income.
Texton said on Friday that its board applied a solvency and liquidity test “in the context of the prospective distribution of 75% of Texton's distributable income for financial year 2020.
“The board is of the view that the group is in a robust position from a solvency perspective. However, the board has identified several considerations which are relevant to the group's liquidity position,” the company said.
The board took into consideration the group's existing debt facilities and maturity dates, the requirement to refinance certain facilities, cash flow forecasts, forecast planned capital expenditure that has been contracted for, the planned disposal of certain assets and expected proceeds therefrom.
Noting that 75% of Texton's distributable income for financial year 2020 will exceed the cash generated by the group in the year, the board said it was “not able to reasonably conclude that after distributing 75% of Texton's distributable income for financial year 2020, Texton will satisfy the liquidity leg of the S&L (solvency and liquidity) test”.
“Shareholders are advised that due to the above, the board has resolved not to declare a dividend for financial year 2020. The board is rather of the view that the group’s liquidity position will be strengthened by retaining cash resources in reserve, that such retention is the commercially prudent approach, and that the decision is ultimately to the benefit of the group and our shareholders,” it said.
Texton also announced that it had appointed Pienaar Welleman as an executive director and permanent CEO of the fund, effective from November 20 2020. He had been the interim CEO of Texton since July, before which he was the acting CFO since December 2019.
“Pienaar’s knowledge of the business, and close work with stakeholders, delivers much benefit and continuity for the group which solidifies the leadership of Texton,” the company said.
At the end of September, the total vacancy in the SA portfolio, on a like-for-like basis, was 10.5%.
The UK portfolio was 100% let with a weighted average lease profile of 9.19 years.
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