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Real estate investment trusts among SA's top listed companies

Nov 30 2019 07:00
Carin Smith

SA REITs are among South Africa's top listed companies, according to Estienne de Klerk, chair of the SA REIT Association and CEO of Growthpoint Properties' South African operations.

SA REITs made up a significant 10% of the Top 100 Companies listed on the JSE to deliver the highest compound annual growth rate (CAGR) over five years.

"SA REITs have performed relatively well for investors in a very challenging business environment. This solid performance shows that listed real estate is a defensive investment through cycles. REITs create affordable access to property investment," says De Klerk.

Performance comparisons by some JSE-listed REITS show Equites Property Fund delivered a CAGR of 22.6%; Fortress A (13.5%) and B (2.6%); Vukile Property Fund (11.1%), Investec Property Fund (7.3%); Emira Property Fund (6.2%); Growthpoint Properties, (6.0%); Redefine Properties (4.4%); Resilient REIT (4.4%); Hyprop Investments (0.6%); and Hospitality Property Fund (-1.5%).

Eugene Visagie, portfolio specialist for Morningstar Investment Management SA, says there are some headwinds facing the retail and office space in South Africa.

He told Fin24 that usually investments in these two sectors could comfortably beat inflation, but now, because "the shops and malls are not full", retailers are in a position to negotiate for lower rentals from property owners.

Over-supply

In Visagie's view, there is a complete over-supply of properties in the SA listed property space - especially in the office and retail sectors.

Cape Town is not as badly impacted at Johannesburg and Durban, in his view. Johannesburg is especially impacted around the Gautrain and Rosebank areas where there are many new office blocks. The office vacancy rate around the Gautrain area in Sandton is estimated at about 20%, for example.

"As for retail, we see all these big malls that were developed, but, again, you need consumer growth for these malls to be filled and for feet to still go [there]. SA has one of highest unemployment rates globally and these consumers will not support these malls. That is another concern for us," he explains.

He notes that the property sector is usually a lag indicator of growth. So, business confidence and growth must first start to pick up and this will not happen overnight.

At the same time, he believes the SA REIT sector definitely still offers value to investors, with yields on REIT dividends of close to 9%, similar to bonds. At the same time, he thinks one cannot expect the same property appreciation as between 1994 and 2017.

Volatility

"I would say, yes there is still a nice dividend yield opportunity, but just be aware that there are obstacles facing the sector," he says.

He too says investors should be aware that in the short term they might not see the same capital growth as before and they might experience some volatility.

He adds that there are offshore counters who came to list in SA too. These entities have zero exposure to the SA market and are only listed here. Their investments are mainly in the UK and the EU, where the inflation rate and interest rates are a lot lower than in SA. So, their distribution yield is also a lot lower, meaning it will skew the REIT data in SA.

"So, be aware when you look at the JSE All Property Index (ALPI) that it has a much bigger offshore component than the SA Listed Property Index," he adds.

"We see local counters sitting on record amounts of cash, but confidence levels are low, so they are hesitating to invest. Even if one might start thinking that the SA economy is doing well, it will take a while before it translates into the listed property space."

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