Property industry approaches Treasury for help
The sector, represented by the South African Real Estate Investment Trust Association, SA Property Owners Association and the South African Council of Shopping Centres, has approached the Treasury to allow them to suspend dividend payments for two years and to also allow landlords to get relief from paying taxes on the withheld dividend income.
According to a teleconference this week, chaired by SA Reit chairperson Estienne de Klerk, the aim was to give shopping centre owners time to rebuild their balance sheets and provide some support to retailers who have had to close due to the Covid-19 lockdown and were unable to pay rentals.
Reits are required by law to pay 75percent of their rental income in dividends over a year, which frees them from paying dividend tax, and some Reits have already withheld their interim dividend distributions in light of the uncertainty in the market and the need for the Reit to maintain liquidity. Until the end of last year, most Reits were paying out 100percent of income to shareholders.
The share prices of SA’s Reits, already under strain from the weak economy and changing consumer trends, have come under severe pressure over the past two to three weeks through global market volatility in the wake of the Covid-19 pandemic.
The average market capitalisation of the listed sector was already down by more than 50percent.
De Klerk said the liquidity of SA’s Reits was being “severely tested” in the current environment and negotiations were under way with banks regarding ways to manage the pressure on the Reits from their bank funding providers.
The intention was also to engage Reit bond holders through the Association for Savings and Investment South Africa, to address issues such as the rankings of banks and bondholders, and to get an approach on the debt covenants in the trying circumstances, and to get a view on the likelihood of qualified property valuations in the future, which will impact debt covenants.
Other aspects such as the length of potential support, and how struggling retailers and smaller landlords might be supported, would also be addressed.
De Klerk said that with the share prices of SA Reits down more than 50percent on average, and the large discounts to net asset value that the shares were trading at, it was virtually impossible for the companies to raise capital from the market.
Access to debt to boost liquidity was also questionable in the current environment, he said.