August 2020 Reporting Season: Yielding to the pressure

The listed property securities have confirmed their distributions for the period ending 30 June 2020 (apart from GPT Group, which will confirm distributions as part of its results on 10 August). While Australian REITs have traditionally been known for their relatively stable distribution yields, the impact of COVID-19 has put much of this at risk. Rental income, particularly amongst retail landlords, has become uncertain since the onset of the pandemic. Distributions for the 12 month period to 30 June 2020 have been impacted wildly – some property securities have been able to deliver on their prior guidance, whereas shopping centre landlords such as Scentre Group (ASX: SCG) and Vicinity Centres (ASX: VCX) have cancelled their distributions for the six-month period.

We expect a lot of questions will be raised during the August 2020 reporting season. A lot of this will be on the impact on rental income and consequently on earnings, and expectations for the next reporting period. Some of the things to look out for, include:

  • Whether earnings have been sufficient to support the June 2020 distributions, or whether management have had to dip into capital reserves in order to pay distributions;
  • ​Whether management has set aside any provisions for post-30 June 2020 events. That is, have distributions been withheld. There is also the potential for further valuation declines and how managers are addressing these issues;
  • We expect earnings will continue to remain uncertain in the COVID-19 environment. As such, we expect little, if any, guidance will be provided by management for the FY21 period.
  • We will be looking to what commentary is provided on trading conditions of tenants, what rent waivers and deferrals have been negotiated, as well as what rental terms have been agreed on any new or renewing leases.