Redefine Properties, one of the largest property companies based in SA, said on Friday that it would not pay a dividend for the year to end-August 2020, citing ongoing Covid-19 uncertainty and the pressure on its tenants due to the lockdown imposed on the economy to curtail the spread of the coronavirus.
This is the first time the real estate investment trust (Reit), which has a market value of R19.5bn, has not paid a dividend for a financial year since listing in February 2000. It was founded in 1999.
At the end of August 2020, the group’s local assets, which include Centurion Mall, premium office building 90 Grayston Drive and Rosebank Towers, were worth R65.4bn and its offshore assets R15.6bn. The company has invested locally as well as in Poland.
The company said via the JSE’s news service (Sens) that its board had considered the needs of all stakeholders in a rapidly changing trading environment.
The decision to withhold a dividend is “consistent with Redefine’s focus on preserving liquidity, protecting its loan-to-value ratio (LTV) and maintaining its Reit status, while complying with the solvency and liquidity test contained in the Companies Act”.
“The board considers this to be the most pragmatic course of action until the impact of Covid-19 becomes clearer. This is the first time in Redefine’s 22-year listed history that it has not declared a dividend, but the decision follows that of many other companies globally and locally in the face of ongoing uncertainty,” it said.
“The decision whether to pay a dividend was also necessitated, after the JSE disallowed an alternative distribution mechanism, which Redefine proposed last year.”
To retain its Reit status, Redefine is required to distribute at least 75% of its total distributable profits as a cash distribution to its shareholders by no later than six months after its financial year-end, which is subject to meeting the solvency and liquidity requirements of the Companies Act.
Andrew König, Redefine’s CEO, said the company will not lose its Reit status following the dividend decision.
While Redefine satisfied the solvency leg of the solvency and liquidity test, there may be insufficient headroom to absorb any further material negative LTV triggers if a cash dividend were paid. This could potentially lead to a breach of the LTV debt covenant ratio with one or more funders after the February 2021 measurement period and result in adverse liquidity consequences.
The company said a Reit’s obligation to make the minimum 75% distribution is contingent on its board reasonably concluding that the Reit will satisfy the solvency and liquidity test after having paid such distribution.
“Facing unprecedented operating conditions in the real estate sector, and with little visibility into the future as a consequence of the outbreak of the second and possibly more waves of the pandemic, we believe we have no choice but to not declare a dividend as a means of preserving shareholder value and protecting our balance sheet,” said König.
“We are hopeful that the global rollout of vaccines and our government’s own efforts to acquire some 20-million doses during early 2021 will return confidence to the markets. Redefine remains a financially sound business with a capital structure that is well placed to absorb a prolonged period of uncertainty.”