Despite several tumultuous years, South Africa’s Real Estate Investment Trusts (REITs) have regained their strength, rebounding to four-year highs.
Listed property companies have been some of the strongest contenders on the JSE in recent months thanks to improved investor sentiment, a stronger rand, an interest rate cut and softer yields.
“In sharp contrast to this time last year, when South Africa’s top five REITs shed a collective R100 billion in value, the situation today is significantly improved,” comments John Jack, CEO of Galetti Corporate Real Estate.
Year-on-year highs posted on 12 September underpin robust growth figures by Attacq (+60.57%), Fortress (+55.37%), Vukile (+26.77%), GrowthPoint (21.83%) and Redefine (+29.61%).
In addition, Jack notes that from January to July, South Africa’s listed property funds delivered 14.4% in returns (income and capital growth), outshining bonds (9.8%), equities (10.0%) and cash (4.9%).
“These diversified portfolios are highly sought-after at the moment, particularly with a recent interest rate cut,” he adds.
“It’s an exciting time for South Africa’s listed property sector and I would like to think that some healthy competition and pressure to deliver returns have yielded the positive outcomes that we see today.”
Top Five REIT Performance Unpacked
GrowthPoint
Looking to the current activities and performance by top REITs, Jack points to GrowthPoint’s reported drop in vacancies (now at 8.7%) and its renewal success which has been a big focus for the leasing team.
“They also announced the construction investment of R4.5 billion at the V&A Waterfront, marking the most building activity that has taken place at the property in more than 30 years,” says Jack.
Another interesting development that has been taking place is GrowthPoint’s investment in student accommodation – a stable asset class delivering continuous returns.
“In response to the shortage of approximately half a million beds in student housing, GrowthPoint plans to invest a further R1.2 billion in the market by 2026,” says Jack.
Fortress
Fortress CEO Steven Brown sat down with Jack in July to discuss the shifts taking place at Fortress in recent years. “In 2018, we had to split the businesses and crafted a new strategy for Fortress at the time. From 2019 to now our net asset value per share has gone up, which is impressive considering COVID and the market.”
“We sat back and thought about the simplification and specialisation of the business,” continues Brown, pointing to the dual share structure where Fortress cancelled its B shares in exchange for NEPI Rockcastle shares as a R14 billion shareholder.
NEPI Rockcastle is the premier owner and operator of shopping centres in Central and Eastern Europe (CEE).
“This bold move was welcomed by the market and put the REIT back on track to pay out dividends,” adds Jack.
Attacq
“Attacq has reported phenomenal growth year-to-date,” says Jack. “Attacq reported a 19% increase in full-year dividends; has repurchased 5.4 million of its shares and acquired a further 25% in Waterfall Junction.”
The REIT also shared that its occupancy rate rose to 92.8%.
Vukile Property Fund
While a significant portion of Vukile Property Fund’s assets are located in Spain (61%), it’s domestic earnings are driven by South Africa’s retail frontrunner: the informal cash economy.
“This retail-focused REIT knows where it strength lies,” says Jack. “With a booming cash economy, Vukile are aggressively targeting growth in the rural and township retail sector, and this is proving to be a fruitful exercise.”
As it stands, South Africa’s informal economy is outpacing its formal counterpart and is responsible for providing jobs to a large portion of the unemployed population. “The informal economy or cash retail economy is driven by spaza shops and is said to be worth an estimated R750 billion in total,” says Jack.
Redefine
While some naysayers have written off South Africa’s office sector, Redefine did the opposite, allocating R730 million in capital expenditures to its office portfolio of 87 properties during the 2023 reporting period.
“The office sector accounts for a large portion of Redefine’s portfolio (35%) and therefore the group has been heavily focused on boosting this sector,” says Jack. “The combination of a boom in the Western Cape’s office sector and the return of workers to offices in Gauteng has led to an increase in demand.”
The strongest demand appears to be for high-end A- and P-grade office assets, which account for 95% of Redefine’s office portfolio. “This has resulted in an office occupancy rate of 87.8% for the 2024 financial year.”
REITs will continue to rise
Speaking to the investment class, Jack adds that, “in addition to regular dividends and special tax considerations, perhaps one of the biggest appeals of REITs for the general public is the opportunity to invest in properties without directly owning or managing the property.”
Looking ahead, he anticipates that the market sentiment will lead the way. “REITs continue to gain ground because of an anticipated decline in interest rates and a positive sentiment created by the GNU.”
