South African property companies are rocking
South Africa’s real estate investment trusts (REITs) have regained their strength, rebounding to four-year highs.
A real estate investment trust is a company that sells shares to raise capital to own, operate, and finance income-generating real estate.
REITs offer an easy way for investors to get exposure to the property sector without buying physical property.
REITs are traded on stock exchanges, like the Johannesburg Stock Exchange (JSE), making it easy to enter and exit the investment.
South African real estate investment trusts have had a challenging few years. However, things are starting to look better for the industry.
John Jack, Galetti Corporate Real Estate CEO, said listed property companies have been some of the strongest contenders on the JSE in recent months.
The improved performance resulted from 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,” he said.
Attacq (+60.57%), Fortress (+55.37%), Vukile (+26.77%), GrowthPoint (21.83%) and Redefine (+29.61%) have shown exceptional growth.
Jack said from January to July, South Africa’s listed property funds delivered 14.4% in returns, 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 said.
“It’s an exciting time for South Africa’s listed property sector, and some healthy competition and pressure to deliver returns have yielded the positive outcomes we see today.”
Jack provided an overview of South Africa’s top real estate investment trusts below.
GrowthPoint
Looking at the current activities and performance of top REITs, Jack pointed 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,” he said.
Another interesting development is GrowthPoint’s investment in student accommodation, a stable asset class that delivers 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,” he said.
“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,” Brown said.
He pointed 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,” Jack said.
Attacq
Attacq has reported phenomenal growth year-to-date. It reported a 19% increase in full-year dividends, 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%), its domestic earnings are driven by South Africa’s retail frontrunner: the informal cash economy.
“This retail-focused REIT knows where it strength lies,” said 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,” said 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,” said 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 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,” he said.
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