Redefine cans 2020 dividend
Redefine cans 2020 dividend
Published Date: 2021-01-25 | Source: Stephen Gunnion | Author: Stephen Gunnion
The real estate investment trust says its solvency and liquidity would be at risk if it met the minimum distribution requirement.
Redefine Properties won't pay a dividend for its 2020 financial year after its board of directors said its solvency and liquidity (S&L) could come under pressure due to further fallout from Covid-19. The real estate investment trust says the JSE failed to approve an alternative distribution mechanism.
Under JSE rules, REITs are obliged to pay out at least 75% of distributable earnings to shareholders within four months of their financial year end. They were given a two-month extension by the Financial Services Conduct Authority due to the impact of Covid-19. However, the minimum distribution requirement is contingent upon boards concluding that the REIT would satisfy the S&L test following the payout.
Last month, fellow REIT Hyprop Investments cancelled plans to pay out its 2020 dividend in credit after the JSE said it didn't comply with the minimum requirements. It's now paying a cash dividend, with the option to reinvest in Hyprop shares.
In December, Redefine postponed a decision on its distribution for the year to end-August, taking advantage of the two-month extension granted The move was also intended to help it reduce its loan-to-value (LTV) ratio to below 40% in the year ahead. In making its decision on the dividend it said its board had given careful consideration to the needs of all stakeholders and its objectives of maintaining its REIT status, preserving liquidity and protecting its LTV ratio, which measures debt as a percentage of the value of its assets.
In the absence of any further adverse market circumstances, it said its LTV debt covenants, which have been temporarily relaxed from 50% to 55%, would not likely be breached. However, given the ongoing and potential adverse impact of the Covid-19 pandemic, its board took into account the potential impact on the LTV of factors outside of company's control which could manifest within the 12 month period after application of the S&L test. These included foreign exchange fluctuations, property and investment valuations, the timing of disposals and any further Covid-19 outbreaks and subsequent lockdowns.
Redefine said it would not be in breach of its REIT obligations under the JSE's listings requirements for not paying a cash dividend for the year.
Its shares fell 5.9% to R3.17 on Friday.
Redefine share price falls on news the board won't declare a FY2020 dividend.-- Sesfikile Capital (@Sesfikile_Cap) January 22, 2021
The idea to use solvency & liquidity test to circumvent REIT requirements on dividend payouts has been floating around in property circles since last year. On the other hand, property fundamentals are really bad. Not sure where I stand on Redefine's SENS.-- Dave Hazelwood (@hazelwood_dave) January 22, 2021
Redefine cannot pass a solvency and liquidity test to pay a dividend.-- The Finance Ghost (@FinanceGhost) January 22, 2021
I have a very speculative position in Tower $JSETWR, hoping that works out. Also Stor-Age $JSESSS even though the directors seem to be taking profit.