South Africa

News24.com | Redefine withholds 2020 dividends to leave headroom for unexpected shocks

Redefine, which owns Rosebank Towers, says its solvency and liquidity test showed that it may have insufficient headroom to absorb unexpected further shocks.

Redefine, which owns Rosebank Towers, says its solvency and liquidity test showed that it may have insufficient headroom to absorb unexpected further shocks.

One of South Africa's biggest landlords, Redefine Properties, says it needs to preserve cash and will therefore be not be paying a dividend for 2020.

By law, real estate investment trust (REITs) companies like Redefine and other listed landlords are required to distribute at least 75% of their total distributable profits. This is a requirement to maintain the REIT status on the JSE.

But 2020 made this challenging to achieve as landlords across the globe faced reduced liquidity as financial health of many of their retail tenants deteriorated since the beginning of the lockdowns.

Increased vacancy rates, lower rental collections in 2020 due to discounts and deferments given to struggling tenants, coupled with a decline in property values saw some listed property companies debt levels rise to uncomfortable levels.

For Redefine, the destructive impact of Covid-19 on asset values increased its loan-to-value (LTV) ratio by 7.8% in 2020.

LTVs are used to gauge debt levels of different listed landlords.

Redefine has set a goal to reduce its LTV ratio to below 40% by August 2021 and to assess how payment of dividends would affect this goal, its board decided to deferred a decision on the declaration of a dividend when the company announced its results in December.

When the company announced on Friday that it will be withholding dividends, given the ongoing and potential adverse impact of Covid-19, its board needed to take into account how of factors outside of Redefine’s control such as the outbreak of the second or subsequent waves of the Covid-19 may impact its LTV ratio.

It added that while the company has enough liquidity right now, there may be insufficient headroom to absorb any material negative developments if a cash dividend was paid.

The company said because the required payment of dividends to maintain the REIT status was subject to solvency and liquidity test, which showed that it may have insufficient headroom to absorb unexpected further shocks, it is not required to make any distribution for the 2020 financial year.

Compiled by Londiwe Buthelezi

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