Listed property has seemingly shrugged off the recent interest rate hike as dividend-hungry investors continue to pile back into a sector that three years ago had almost lost its status as a prime income play.
That much is clear from the latest performance figures from the South African Reit Association, which show that property stocks have held up better than general equities in recent months. In September, a month in which the Reserve Bank hiked rates, local real estate investment trusts (Reits) surprised the market with a 1.6% total return, well ahead of the all share index’s 5.8% drop.
That brings the Reit sector’s year-to-date return to 4%, pipping bonds’ 3.5% and the Alsi’s -3.2% over the same period, a notable turnaround from last year when investors were still making more money from general equities than property stocks (see graph). The top-performing local Reit counters year to date are Oasis Crescent Property Fund with a total return of 36.4%, followed by Octodec Investments (23.6%), Heriot Reit (20.2%), Fairvest A (14.9%) and Attacq (13%). Fourways Mall owner Accelerate, which has yet to resume dividend payments, is at the bottom of the barrel with a year-to-date decline of 33.3%.
Though the Reit sector’s rebound stalled somewhat after the US invaded Iran at the end of February, the JSE’s all property index is down only about 8% in the past seven months. In contrast, the Alsi has slumped 15%. Listed property’s outperformance reflects healthy investor appetite for property stocks on the back of a strong rebound in earnings and dividend growth the past two to three years.
Ian Anderson, head of listed property at Merchant West Investments, who compiles the SA Reit Association’s monthly chart book, says that in September R16.2bn worth of units in South African-based Reits changed hands. That’s well up on August’s R9.7bn and the highest monthly turnover seen since March, just after the war on Iran broke out.
Anderson ascribes last month’s robust trading volumes — regardless of higher rates and ongoing tension in the Middle East — to the stellar income growth delivered by most counters in recent weeks for the June reporting period. In fact, the sector’s rolling 12-month distribution growth climbed to just over 11% in September, which Anderson says is the sixth consecutive quarter of inflation-beating income growth and the strongest reading since 2017 (once the distorted comparatives of 2021 and 2022 are set aside).
Top performers in terms of earnings growth include Fortress Real Estate Investments, which lifted dividends by 10.1% and grew distributable earnings by 14.2%, ahead of guidance. Dividends from Hyprop were up 14.4% on the back of a decent 8.7% rental reversion, while Attacq grew dividends by 17.2%. Vukile Property Fund also reaffirmed double-digit dividend growth guidance into 2027.
As Anderson puts it: “With a results season behind it showing double-digit dividend growth, the sector looked defensive at precisely the moment investors were looking for defensiveness.”
He reckons trading in Reit shares was further buoyed by corporate activity, with Burstone (formerly Investec Property Fund) launching its eagerly awaited funds platform together with Nedbank Property Partners into which it plans to move R5.4bn of local retail and industrial assets. Cross-holdings among several mid-cap property stocks also continue to build, with Emira now holding 23.9% of Octodec Investments and Fairvest 20.1% of Dipula Properties.
But how sustainable is the sector’s rebound? Mweishö Nene, lead real estate equity analyst at SBG Securities, believes Reits’ resurgence still has some legs. In a panel discussion on the sector’s comeback at the South African Property Owners Association’s 60th annual convention held earlier this month at Sun City, Nene said investors are likely to continue seeking refuge in property stocks given the extent to which the sector has regained its cash-generating ability.
He argued that Reits have not only shored up balance sheets, but earnings are also now “cleaner and easier to understand”. Nene said this has created far more income certainty and makes returns easier to predict, which means the South African Reit sector has become “a very good place to hide when everything else is burning”.
