The average payout ratio by South African REIT (real estate investment trust) fell to 75.6% in 2023 from 93.5% in the 2019 financial year, but lower debt, stronger balance sheets, and higher earnings since then meant that payout ratios could increase from current levels.
Payout ratios were expected to rise to about 78.4% in the 2024 financial year, according to Nedbank Corporate and Investment Banking (CIB) research commissioned by the Research Committee of the SA REIT Association.
Nedbank CIB senior equity research analyst Ridwaan Loonat said they believed payout ratios would increase over the medium term as current retained earnings were being used to reduce debt and strengthen balance sheets, with company earnings benefiting from potentially lower interest rates.
“We welcome the research findings, which affirm that SA REITs are aligned to global peers,” said SA REIT Association CEO Joanne Solomon in a statement.
A payout ratio is the amount of earnings the company pays to shareholders in the form of a dividend. The JSE requires listed REITs to distribute at least 75% of taxable earnings to shareholders annually, subject to the solvency and liquidity requirements as per the Companies Act.
According to the research findings, the global average payout ratio was currently 76%, slightly lower than its five-year average of 79%.
Distributions in the Asia-Pacific (APAC) region were less affected by the Covid-19 pandemic compared to South Africa and the US, which saw payout ratios decline 18% and 15%, respectively. European payout ratios remain below peers.
SA REIT Association chairperson Estienne de Klerk said while it was important to consider regional differences in REIT distribution rules and tax systems, the alignment showcased the strength and competitiveness of the SA market.
The research showed that in the US and UK, REIT distribution regulation required that at least 90% of taxable profits are paid as dividends, while in Belgium, the rule was at least 80% of net profits. In Germany, the distribution rule is 90% of net income.
BUSINESS REPORT