The ongoing rally in listed property stocks has placed several counters in line for inclusion in key JSE indices, which should further boost investor appetite for real estate investment trusts (Reits).
Last week, the JSE announced the latest adjustments in its quarterly index review, most notably the inclusion of Dipula Properties, Spear Reit and Octodec Investments in the FTSE/JSE all property index (Alpi) and the FTSE/JSE SA Reit index. UK-based Supermarket Income Reit, which has underperformed in the past year, will simultaneously lose its place in the Alpi.
The inclusion of the three smaller Reits becomes effective from March 23 and pushes the number of constituents in the Alpi and SA Reit index to 23.
The index expansion comes on the back of new requirements that consider not only size (investable market cap) but also certain liquidity and free-float thresholds. Dipula is the largest of the new entrants, with a market cap of R6.95bn, followed by Spear at R5.5bn and Octodec at R3.98bn.
Index inclusion increases visibility, says independent property analyst Keillen Ndlovu, as constituents are placed on the radar of fund managers and index tracker funds which don’t invest in counters outside the Alpi benchmark, or whose mandates place a cap on how much exposure they can have outside an index. “So Spear, Octodec and Dipula can no longer be ignored or be optional investments,” he says.
Increased investor appetite will not only support liquidity but also enable the three stocks to raise more capital and grow assets. In addition, Ndlovu says, expanding the Alpi universe to 23 counters provides fund managers with much-needed additional choice.
Redefine Properties, the second-largest domestic Reit after Growthpoint Properties, is also clawing its way back into the top 40 index. The JSE has placed Redefine, whose share price has climbed 53% over the past 12 months, on the reserve list at No 43, just behind Momentum Group and ahead of Exxaro Resources. The stock is also on the reserve list (No 31) for the FTSE/JSE financial & industrial 30 index.
Vukile Property Fund and Fortress Real Estate Investments, the JSE’s third- and fourth-largest domestic Reits, have been placed on the reserve list of the FTSE/JSE financial 15 index in 17th and 18th positions.
The index adjustments come after a strong 24-month performance for domestic property counters, which are jostling for position in terms of size. Five years ago, just a handful of South Africa-based Reits boasted market caps above R10bn. That number has risen to at least 10.
Despite share price weakness since the US-Israeli strikes on Iran — the Alpi was down about 5% last week — property stocks have continued last year’s rebound into 2026. The Alpi has delivered a total return of nearly 75% over the past two years, which Golden Section Capital MD Garreth Elston says is “nothing short of remarkable” and has pushed the sector’s market cap beyond R755bn (including 40 domestic and offshore property counters).
SA Reit Association figures show domestic property stocks surged 8.1% in February alone, outpacing local equities (7%) and bonds (1.7%). In the 12 months to February, at least 10 property stocks achieved a total return of 50% or more (see table). Merchant West Investments portfolio manager Ian Anderson says the outperformance of South African Reits points to a “structural rerating”, supported by a strong rebound in earnings and “a massive pivot from institutional investors who have rapidly shifted from underweight to overweight positions”.
He adds that investors will keep a close watch on results announcements over the next few weeks to see whether earnings justify valuations.
Trading updates and December results released in the past two weeks certainly suggest the Reit sector’s earnings recovery remains firmly intact. Fortress Real Estate reported a 16.7% jump in distributable earnings for the six months to December, upgrading its full-year growth guidance to 10%, while Redefine, in a pre-close update, described the six months to February as its strongest post-pandemic period yet. Redefine CEO Andrew König said: “What’s encouraging is that the recovery is no longer theoretical — it’s showing up in our numbers, in funding costs and in market confidence.”
Spear Reit, the JSE’s only property stock that invests exclusively in the Western Cape, last week delivered an equally pleasing pre-close update for the year to February. A strong operational performance, coupled with its imminent inclusion in the Alpi and SA Reit indices, will no doubt propel Spear onto more stock-pick lists.
Under CEO Quintin Rossi, management has revised the Reit’s earnings growth outlook to the upper end of its previous guidance, from 4%-6% to 5%-6%, on the back of portfolio expansion, high occupancy levels and strong cash collections.
In the past year alone, Spear added R1bn in acquisitions, taking the portfolio to a mix of 42 industrial, office and retail assets worth R6.8bn, mainly in and around Cape Town. The portfolio’s occupancy rate is at 97.28%, while cash collections reached 99.13%. The company has a particularly strong balance sheet, with the loan-to-value (LTV) declining sharply from 27% to below 14% in the 12 months to February 2026. That ratio is expected to settle at about 31% after recent acquisitions, still well below the sector average of 38%-40%.
While Spear’s share price is already up about 32% in the past 12 months and trades about 5% above its NAV, analysts say the premium is justified, with room for further upside.
“Spear is arguably one of the higher-quality small-cap domestic Reits and demands a closer look,” says Zinhle Simelane, investment analyst at Sesfikile Capital. She likes the fact that Spear is a specialist Reit with a deliberate focus on the Western Cape. While diversification has its merits, Simelane says being solely exposed to a region that consistently outperforms other property markets is a big plus. She notes that new commercial property supply in and around Cape Town remains constrained given limited land availability, while demand continues to hold up well, particularly in the industrial and retail sectors. “We are also seeing green shoots in the office sector, with Cape Town’s office vacancy rate of 6.1% now well below the national average of 12.8%.”
Simelane adds that Spear’s South Africa-centric portfolio is another positive, as it simplifies the investment case relative to some of its peers with complex offshore exposure. “The balance sheet is simple and conservatively managed, providing flexibility to pursue selective acquisitions and asset management initiatives.”
Old Mutual Investment Group portfolio manager Evan Robins has a similar view, citing the Reit’s geographic focus on the Western Cape as a clear competitive advantage. “The Western Cape has fewer service delivery and municipal failures and is experiencing economic growth. It also doesn’t have the level of oversupply that other regions are contending with.” Robins also rates the Spear management team for its hands-on asset management approach and specialist knowledge of its property geography.
Still, how much growth potential does a singular regional focus on the Western Cape — Cape Town in particular — offer? Rossi tells the FM that Spear’s portfolio could easily double in size over the next five to seven years. “There is more than enough runway to scale Spear by a further R7bn-R8bn.”
He says the Western Cape’s real estate sector is valued at a colossal R3-trillion across 130,000km². “That’s roughly the size of Greece.” The Cape metro alone makes up about R2.2-trillion of that valuation, with commercial real estate accounting for about R700bn. “So the scale of the opportunity set within the Western Cape remains significant for Spear,” he says.
Referring to the Western Cape’s “best-in-class” municipal infrastructure and service delivery environment, Rossi says all the relevant bulk services required for new builds or brownfield redevelopments are already in place, making it easier to pull the trigger on construction projects than in most other provinces.
Living within one hour of every asset Spear owns also has its advantages. “It allows for real-time, responsive management as opposed to multiregion and multigeographical exposure,” Rossi says. He adds that this is a key reason Spear has maintained above-market occupancy rates since its inception, as well as one of the highest in-force annual escalation rates in the sector (exceeding 7%).
Rossi says Spear’s cash collection rate of close to 100% means management can comfortably maintain its 95% dividend payout policy, creating consistency and certainty for income-dependent investors. “Based on our track record to date, Spear shareholders can expect continued growth in income and total returns well into the future.”