“This is almost a ‘never before’ situation in [the sector] that is known for predictable yield and income,” the firm says in a report.
Typically, the REITs notify the market of their intended distribution by mid June, in line with previous guidance.
This time around, most of the REITs have withdrawn guidance amid a sea of uncertainty. Prevaricators include SCA Property Group which counts Woolworths, Coles and Big W as anchor tenants.
Shopping centre owner Scentre Group (formerly Westfield) has gone a step further and suspended its half-year distribution.
“Cuts to distributions and dividends across the market generally are going to be widespread and the REITs are no exception,” said Zenith Investment Partners head of real assets and listed strategies, Dugald Higgins.
“We are hearing views of everything from a 15 to 30 per cent reduction, depending on the region and the sector. But we will just have to wait and see because much depends on the pathway out ‘the other side’.”
Mr Higgins said the look and feel of the post-pandemic office was not predictable and did not necessarily entail decreased floor space. While ongoing “virtual” working arrangements were likely to quell demand, elevated hygiene requirements meant the demise of intensive open-plan and hot-desking arrangements.
“At least the sector is coming from a position of strength with very low vacancy rates and good net absorption,” he said.
Despite the mounting pressures, global operator Goodman Group this month reaffirmed half-year guidance at 15¢ per security, steady on the previous June half payout.
Demand from online, logistics and food and consumer suppliers was “supporting portfolio fundamentals and development activity”, CEO Greg Goodman said.
The diversified Charter Hall guided to a 6 per cent increase in its full-year payout, to 35.7¢ per security.
At the specialty end, Arena and Waypoint (formerly Viva) have affirmed half-year distributions above last year’s levels.
Arena, which owns childcare centres, said the guidance was possible because of the federal government’s JobKeeper allowance and its specific relief package for childcare tenants.
But with this industry support unclear beyond June 30, “uncertainties will remain”.
Ahead of its $300 million capital raising, National Storage said all of its centres had remained open during the virus crisis. But management had “moderated” current year earnings expectations “to account for the rapid change in economic conditions, consumer sentiment and discretionary spending”.
Morgan Stanley said the REITs had the options of delaying the usual June 30 record date (the cut-off date for eligibility for the distribution), cancelling the distribution or providing a rough estimate. While the REITs were not obliged to retain June 30 as the record date, delaying this cut-off was likely to result in “accounting complexities”.
With COVID-19-related tenant negotiations unlikely to be finalised until June 30, retail REITs were likely to resort to a rough guess and risk having to revise the guidance later.
“June 2020 could be a very interesting and potentially uncertain distribution notification season,” the firm says.