Texton endures toughest year ever


Texton endures toughest year ever

Published Date: 2019-09-20 | Source: Stephen Gunnion | Author: Stephen Gunnion

Texton endures toughest year ever

The real estate investment trust has trimmed its dividend by 20 percent due to tough conditions in SA and the UK.

Texton Property Fund says a tough start to its 2019 financial year showed little improvement in the second six months. And its geographical diversity did little to help. To deal with what it describes as the toughest year in its history, the real estate investment trust (REIT) says it has improved collections, reduced rental arrears and made good progress in leasing, proactive early renewals and holding onto tenants.

Businesses in SA came under increased pressure due to the tough economy, with more companies consolidating space or closing shop, resulting in a highly competitive market due to low demand and a general oversupply of space. In the UK, the uncertainty around Brexit has resulted in a weaker growth outlook and has put pressure on the pound, which is likely to result in higher inflation.

The REIT devalued its SA property portfolio by 18.5% on a like-for-like held basis as a result of economic erosion and the impact of negative rental reversions. The devaluation resulted in a breach of its loan-to-value covenants with Standard Bank and Investec, which have since been rectified.

Its UK portfolio decreased by 2.8% in value on a like-for-like basis. The industrial and office assets in the UK remained relatively stable, with the downward revisions being concentrated in the retail sector.

During the year, Texton successfully concluded renewals for 13 tenants that were paying above-market rentals. The rentals were reverted to market on extended lease terms. While this helped it retain tenants and protect rental income streams, it contributed to a decrease in net property income for the financial year of R6.5 million. The average unexpired lease term for each of the tenants was extended by 2.3 years. Vacancies in its SA portfolio improved to 10.8% from 12.6% in December, while total portfolio vacancies fell to 9.2% from 10.5%.

For the year to end June, gross property income declined 4% to R558 million and net property income fell 13% to R364 million. Its gross property expense ratio increased by 4.8 percentage points to 34.4%. Its loss per share widened to 153.96c but headline earnings per share more than doubled to 55.61c. It trimmed its dividend by 20% to 71.37c per share, at the top end of its guidance.

The fund said its 2020 distribution was also likely to decrease by about 20%, assuming no further deterioration in the macroeconomic environment.

Its shares rose 4.7% to R3.10.

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