Rebosis expects to retain Reit status, despite paying no dividend

Struggling real estate investment trust (Reit) Rebosis Property Fund, which has seen its share price lose more than 90% of its value on the JSE over the last year, has opted not to pay out dividends to shareholders for the year to August 31.

The move sees Rebosis become the first local Reit not to pay out a dividend since Reit capital structure legislation came into effect in SA in 2013.

It also means that Rebosis, which published its full-year results on Monday, will have to pay the taxman some R38 million in dividend taxes, due to the group’s decision to retain distributions for its 2019 financial year.

Traditionally Reits do not pay dividend taxes as investors in such funds are subject to income tax on dividends.

Founder and CEO Sisa Ngebulana, who listed the group as the JSE’s first black-managed Reit in 2011, does not expect the company to lose its Reit status following the dividends decision.

“The board deemed it prudent to retain distributable income this year in order to preserve capital, given the position of the company and the tough economic and market conditions in SA, which is the worst environment we have ever experienced,” he tells Moneyweb.

Ngebulana notes that the move is aimed at deleveraging the business and strengthening its balance sheet.

UK foray a costly exercise

The company’s loan-to-value ratio stands at a sector-high 60%, on the back of its failed UK property foray through shopping-mall-focused New Frontier Properties. It spent over R1 billion on the UK venture, which it sold for just R700 earlier this year, after the offshore group suffered property devaluations in the face of Brexit, among other issues.

Read: Capital flight: SA property companies invest billions more offshore

Rebosis’s total distributable earnings for the year declined by almost 30% (or R101 million) to R226 million. It blamed the decline mainly on historic bad debts being written off, the taxation of R38 million payable on the retained distribution, increased professional fees relating to property disposals, and the early settlement of cross-currency swops.

Possible merger

Despite the group’s poor financial performance, Ngebulana sounds positive about its prospects. He highlights both Rebosis’s better operational performance for the year and its possible merger with fellow Reit, Delta Property Fund.

Read: Delta and Rebosis merger back on the table

Ngebulana says the company has “taken the pain” after completing write-downs of around R1 billion and selling out of the UK. It has also put several assets up for sale and is selling one of its first mall developments, the Mdantsane City Shopping Centre in East London, to Vukile Property Fund for R521 million.

Read: Consolidation on the cards for listed property players

Mdantsane City is yet to transfer to Vukile, but Ngebulana expects the transfer to take place this month.

“Once transferred, our LTV [loan-to-value] will come down to around 58%. However, we are looking to dispose of another R1.7 billion of our properties ahead of the potential merger with Delta.”

Despite Rebosis’s weaker LTV, he says the proposed merger with Delta makes sense as it will result in a more diversified single company, with total property assets of around R29 billion.

“We are strong in retail, but also have office property assets. Delta is strong in the office sector. Together, the group will not only have a more diversified property portfolio, but liquidity will improve.”

Ngebulana says that if the merger does not go through, Rebosis could be sold to private equity players and delist from the JSE.

He believes Rebosis is on a better footing, with several operational highlights during the year despite tough economic conditions. “For instance, the group’s retail trading density was up 5.4% and footfall at our shopping centres up by 2.5%,” he says.

“We also had a 100% success rate of 202 574m² of office property renewals. That is significant, given market conditions.

Read: Listed property continues to underperform

“The focus now turns to fulfilling our intent on the disposal programme, as several disposals announced during the year were contingent on the renewal of leases. With these [leases] now achieved, we are confident that the disposals will be concluded in this current financial year. This will bring down our LTV further, which is our foremost priority.”

Rebosis’s share price has been trading around the 30 cents mark since it released its results on Monday. A year ago, its share price stood at R4.60, while at its peak in 2017 it traded at more than R13.