JSE-listed real estate investment trust Texton Property Fund on Tuesday reported a total dividend of 36.18c apiece for the six months ended December 31, 2018, in what the company said was a challenging operating environment.
While its distributions were down 24.6% from the six months ended December 2017, the company did highlight considerable strategic progress in clearing the way for an improved performance in future.
Its net tangible asset value increased by 25.7% to 829.08c.
Texton’s total property assets are valued at R5.2-billion, of which 61.8% by value is in South Africa and 38.2% in the UK.
The company invests in assets ranging from offices, industrial and logistics facilities to retail properties.
In South Africa, its investment is focused on quality, well-maintained properties concentrated in the country’s metropolitan cities. In the UK, Texton’s investment strategy targets high-yielding single-tenant properties in strong secondary nodes.
During the challenging period, factors that contributed to Texton’s decreased distribution included lower net property income owing to a slower-than-budgeted take-up of vacant space, higher net finance costs and lower realised foreign exchange gains, as well as an increased tax liability stemming from a change in tax regulations in the UK.
Texton, however, noted progress with several strategic initiatives that place it in a better position for the future. It has new leadership in place that retains institutional capital at both an executive and nonexecutive level.
Texton has also dealt with its legacy issue of the Public Investment Corporation (PIC) put option, with shareholders voting against the repurchase of the shares.
Newly appointed Texton CEO Marius Muller said the company has assessed its portfolio of assets and, while it is generally well positioned and defensive, the company believes there is an opportunity to rebalance it to optimise performance and support sustainable property income streams.
The company’s priorities have been identified as tenant retention, letting of vacancies and reducing the loan-to-value (LTV) ratio.
Texton’s refinancing programme is highlighted as one of its biggest challenges and priorities, and, having resolved the PIC put option, the focus is now on decreasing gearing levels.
Texton’s LTV ratio reduced from 42.7% to 40.3% during the half-year. The company is aiming to bring this below the long-term threshold of 40%.
Muller indicated that, in the short term, the company will be aiming to first get this to below 40%, and, in the longer term, to a level of between 35% and 40%.
To boost its leasing, Texton has introduced more aggressive incentives and proactive engagement with brokers.
Its property manager has also strengthened its leasing team in line with Texton’s priorities.
In a weak economy with eroding property fundamentals, Texton’s vacancy levels shifted higher to 10.5%, with a 12.6% vacancy in its South African portfolio and 3.7% in the UK portfolio.
Muller highlighted two “significant” tenants lost during the period at its properties in South Africa – the City of Cape Town in the office sector, and Defy.
Texton’s international diversification through its UK property holdings is a core strategy. “The UK is a robust market irrespective of its short-term challenges. We intend to maximise the value of our UK property assets,” said Muller.
Texton UK senior asset manager James Armstrong said that, with regard to Brexit, the company still maintains confidence in the region, with effects from the eventual outcome expected to be short term and for the market to recover.
Muller confirmed that, with much of the groundwork for achieving Texton’s immediate priorities now in place, its longer-term strategy is being reviewed.
“Turning Texton around in a difficult and unsupportive macroeconomic environment is proving to be a more gradual process than we would have liked. We are, however, confident we can make the necessary changes,” said Muller.