BACKING JSE-listed businesses that own properties such shopping malls, offices, warehouses, or housing has been widely considered a safe and reliable investment.
Companies generate a lot rent income when the economy is in a healthy place.
Companies would use the rental income for the cost of maintaining a property, and also pay a portion of the income to investors in the form dividend payouts.
The dividend payout has been well above consumer inflation for many years. This made property investments both inflation-proof as well as lucrative.
But those days are gone, says Norbert, the group chief executive officer of Growthpoint Properties. It is one of the largest South African real estate companies.
Sasse refers to the dividend payout ratios property companies used to pay.
This ratio is expressed as a percentage and indicates how much of the property company’s after-tax earnings would be paid out as dividends to shareholders.
Before the pandemic burrowed its way into South Africa in early 2020, dividend payout ratios of more than 100% – declared by property companies – were the norm and further cemented the investment case of property as an asset class.
Sasse claims it would be wishful thinking for such high dividend payout rates, since the new norm is payout ratios below 100%.
Growthpoint’s financial results for the year ended 30 June 2022 were published last week. The company’s dividend payout ratio reached 82.5%.
Growthpoint has property assets worth more than N$100 billion, including part ownership of the V&A Waterfront in Cape Town (along with the Public Investment Corporation) and a host of others.
At a results presentation on 15 September, Sasse told institutional investors that Growthpoint won’t go up to 100% dividend payout ratio for a long time because declaring such a ratio is not “a sustainable business model”.
He assured investors that Growthpoint would remain at the 80% level for a while.
“We certainly ain’t going to 100%.”
This position could be adopted by any of the 50 property companies listed on JSE.
The JSE is still recovering from the pandemic that hit property companies’ balance sheets. The companies had to offer tenants rental relief, dividends were cut or suspended, and share prices fell to 15-year lows.
Despite the fact that lockdown regulations have been substantially relaxed by the government (there are no restrictions), the property industry is still in a difficult space.
Growthpoint’s results indicate that the retail sector has made a comeback after the Covid-19 slump. There are more shoppers visiting shopping malls.
Consumers are tired of being housebound. Growthpoint’s shopping centres see an increase in traffic.
Growthpoint is facing pressure from the office property market. It is under pressure in Johannesburg’s Sandton because some employees who lease properties are not returning to work and prefer to work from home. Sandton is experiencing an oversupply at a high-level.
Sasse believes that the electricity crisis, which will affect those who have generators, will force more workers to return the office.
Because tenants are responsible for maintaining and upgrading the properties they occupy, property companies pay lower dividend ratios to shareholders. To meet the dividend payout ratios above 100%, property companies will need to borrow more, which is a bad thing.
– Business Maverick
Source: namibian
