South Africa’s best real estate investments in 2024

Texton Property Fund achieved the best returns among JSE-listed real estate investment trusts in 2024, with Fourways Mall-owner Accelerate Property Fund having the worst performance.

This is according to Rode’s Report on the South African Property Market for the second quarter of this year.

The report looked at the individual performance of some JSE-listed property funds for the first half of 2024, 2023, and the past five years, expressed as total returns or income yield plus capital return.

The report explained that the total returns from funds in 2023 show a mixed performance. 

However, total returns were mostly positive in the first half of 2024, with many counters showing double-digit total returns.

Texton, Emira, Fortress-B, and Attacq stood out on the positive side with a total return of above 20%. 

Encouragingly, not many counters had a negative total return, with only Equites, Burstone, Safari, and Accelerate in the red.

“These REITs disappointed investors in the latest reporting period, with declining distributions or by not declaring a dividend,” the report said. 

“The financial results of listed property companies were a mixed bag. Encouragingly, some operating metrics improved, like rental reversion rates for retail and industrial property.” 

“The same cannot be said about office property, where large rental reversion rates are still experienced.” 

Dividend growth remains scarce as REITs have held back cash for operations or expansions while keeping debt levels under control in the high-interest-rate environment. 

The formation of the new Government of National Unity (GNU) was generally well received by investors, as evidenced by the strong run in South African stocks in June. 

Independently from the formation of the GNU, it looks more certain now that the first local interest rate cut could well occur before the end of 2024, with more easing to follow in 2025.

“Indeed, some economists have upgraded their view of economic growth for 2025. This better outlook has already boosted listed property prices and could lead to further gains if the outlook materialises,” it said.

The report also made the following findings –

• Distribution or dividend growth was scarce. Only Spear and Vukile managed to declare a dividend that was higher compared to the previous period. 
• Four of the five REITs with office assets had negative rental reversion rates, even worse than a year ago. Some were very negative, close to 30%, in the case of Burstone and Dipula.
• For an analyst or reader, it is important to take note of how long some of the leases were that expired and how much of the portfolio was renewed as this can greatly influence the change in reversion rates. 
• Office vacancy rates varied significantly between REITs. 
• Retail vacancy rates of REITs varied between 1.9% and 6.6%. Accelerate was the clear outlier, with its vacancy rate at 13.9%. 
• Retail-rental reversion rates improved for all the REITs analysed by Rode and were positive for all except Redefine.

More than ten locally listed property companies reported results in the second quarter of 2024. These were for the half- and full-year periods ended February and March 2024. 

Below is an overview of the performance of some of South Africa’s largest REITs, based on the findings of Rode’s latest Property Market Report.

Accelerate Property Fund

Accelerate Property Fund is a listed REIT based in South Africa that focuses primarily on the retail sector, with a presence in office and industrial properties.

Accelerate is the 50% owner of the struggling Fourways Mall, as well as other properties in Gauteng and the Western Cape.

This fund had the worst total return in the first half of 2024 at a negative 14.5%, as it is struggling with excessive vacancies at its retail and commercial properties in South Africa.

Its retail vacancy rate rose to 13.9% in the year to March 2024 from 10.4% the previous year. 

The fund has the second-highest loan-to-value (LTV) ratio at 49% of the REITs that reported their financials. 

It aims to reduce its LTV ratio through a rights offer and asset disposals.

Spear REIT

Spear REIT is one of South Africa’s most interesting property funds. Unlike other REITs with a national focus, Spear concentrates its investments exclusively on the Western Cape.

While focused on the Western Cape, the REIT holds a diversified property portfolio with 29 assets, including industrial, commercial, and retail properties.

The fund’s LTV ratio declined sharply to 31.6% in the year ended February 2024 from 36.3% in the previous year, boosted by the sale of the Liberty Building in Cape Town. 

Spear’s distribution per share rose by 3.8% − one of only two REITs to declare a growth in distribution.

Its distribution payout ratio increased to 95% from 92%. Spear said 55% of its total portfolio had solar PV infrastructure.

Spear’s office portfolio saw a slight increase in its vacancy rate to 15.6%. Its office rental reversion rate was a negative 4.7%, but this was a smaller decline than that of most other REITs. 

Its industrial portfolio had a vacancy rate of only 3% and a positive rental reversion rate of 6.1%. 

Redefine Properties

Redefine Properties is South Africa’s second-largest REIT, with over 200 properties in its portfolio spanning retail, office, and industrial spaces. 

While primarily focused on South Africa, the REIT also has international investments.

This fund also saw a positive rental reversion of 4% in its industrial portfolio in the half-year ended February 2024, picking up from 1.3% a year ago. 

However, Redefine cautioned that it applied to only a small portion of its industrial portfolio.

Its local office property portfolio saw its vacancy rate decline to 12.3% from 14.3%. However, office rentals on reversion fell by 13.6%.

Redefine said it had managed to lift asking rentals in Rosebank and certain parts of the Western Cape.

It helped that about 95% of its office portfolio is grade A+ and A space, the report said.

Redefine’s distributable income per share increased by 6% in the half-year ending February 2024 compared to the half-year ending February 2023. 

However, its dividend was the same level as the REIT reduced its payout ratio to 80% from 85% given its elevated LTV ratio of just about 40%. 

Burstone Group

Burstone Group is a significant player in the global real estate landscape. It has evolved from its roots as Investec Property Fund to become a fully integrated international real estate business.

It has a significant property portfolio across South Africa, Europe and Australia.

This fund has a high LTV of 44% but said it is expected to decline due to asset disposals. 

It saw its distribution per income increase by 1% in the year ended March 2024 but it reduced its distribution by 10%. 

Its payout ratio declined to 85% from 95% and the fund stated it would use 75% in future.

Burstone expects its distribution will decline by between 2% and 4% in the year ending March 2025.

The fund’s local office portfolio saw vacancies increase slightly to 8.4%, but this is well below the sector average. 

However, on lease reversion, rentals for offices fell by a hefty 29% as several long-dated leases of over 5 years expired.

Burstone’s retail portfolio improved, with the vacancy rate dropping to 3.7% from 4.5% and the reversion rate turning to a positive 3.8%.

Vukile Property Fund

Vukile Property Fund is a specialist retail REIT with a strong focus on geographic diversification.

Its portfolio of property assets is valued at R40 billion, of which 61% is based in Spain, and the rest in South Africa.

In the first half of 2024, the fund excelled with distribution growth of 10.5% in the year ended March 2024, up from 6.2% the previous year.

Its retail vacancy rate in South Africa was only 1.9%, while rental reversions were positive again (up 2.9%). However, its LTV ratio has remained high at 42.6%. 

Vukile generates about 18% of its South African portfolio’s power. Looking ahead, Vukile said it expects its distribution growth to slow to between 4% and 6% in the year ending March 2025.

Stor-Age Property REIT

Stor-Age is South Africa’s only self-storage REIT on the JSE, with a market cap of approximately R6.3 billion.

Its South African portfolio is differentiated by its properties’ high visibility to passing traffic, easy access off busy arterial routes and proximity to the middle to upper-income suburbs.

Stor-Age also owns the sixth largest UK self-storage brand, Storage King, with its portfolio of properties representing more than 50% of the Group’s property assets by value.

Stor-Age kept its distribution in the year ended March 2024 the same as the year before, but it was still up about 11% from 2019 levels. 

Stor-Age described its performance in South Africa as “exceptionally strong”, with its vacancy rate down to 7.9% and nominal rental growth reaching 9.5%.

The same cannot be said for its UK operations, where its vacancy rate rose to 16.5% and rental growth averaged 4.7%. 

The company also boasts a conservative LTV ratio of 31.4%, albeit up slightly, giving it one of the healthiest balance sheets in the listed property sector. 

Stor-Age is still one of the few REITs that has maintained a 100% dividend payout ratio, but it has warned that it is considering lowering it to between 90% and 95%.

Texton Property Fund

Texton Property Fund is a local REIT primarily focused on office properties. It has both a South African and a UK portfolio, consisting of 46 properties in total.

The fund primarily invests in office buildings, targeting properties with strong rental income potential and long-term growth prospects.

It has a direct property portfolio value of R2.13 billion and a net asset value of 711.99 cents per share.

Its LTV ratio is moderate at 31.0%, up significantly from 24.9% in 2023.

This fund achieved the highest return among the listed REITS Rode analysed at 32.8%