SA listed property rally continues despite Level 4 lockdown

Will the bull run extend to the end of the year or could we see Covid-19 curb the gains? Craig Smith, head of research at Anchor Stockbrokers, gives some insight and foresight.

South Africa’s real estate investment trust (Reit) or listed property sector is continuing its 2021 rally and is now around 23% up since the start of the year.

This is despite the tougher Level 4 lockdown restrictions that were announced by President Cyril Ramaphosa on June 28 and are in place for a two-week period until July 11 to try to curb the Covid-19 third wave surge.

Restrictions in place include a 9pm to 4am curfew, ban on all alcohol sales, no sit-in dining at restaurants and a ban on events and gatherings, amongst other rules. The harsher restrictions are having an impact on eateries and entertainment venues (including those community and super-regional malls), liquor retailers, hotels, cinemas and airlines.


But major mall owners like Hyprop, Liberty Two Degrees, Growthpoint, Redefine and Resilient have not seen stock prices plummet like last year.

The listed property sector plunged some 35% in 2020 (from a total return perspective) due to the lockdowns and financial fallout of the pandemic. But the sector has made a pretty strong recovery this year.

In this episode of The Property Pod, I speak to Craig Smith, head of research at Anchor Stockbrokers, about the performance of JSE-listed Reits, especially as uncertainty around the Covid-19 pandemic continues.

Below are highlights of some of the comments Smith made. Listen to the full podcast in the link above or download it from iono, Spotify or Apple Podcasts.


“Last year the sector did come under severe pressure – from a total-return perspective, we were down 35% for the year. That was shortly following a material reset in the listed property sector in 2018, when the sector also experienced a negative total return of approximately 25%. So, it has been a fairly tough couple of years for the listed property sector.”

“I think one could, in hindsight, maybe make the comment that there was an initial overreaction to share price [falls] at the early onset of lockdowns [last year] …

“With the [current] Level 4 lockdown, it’s clearly nowhere nearly as restrictive as the hard lockdown that we experienced between, say, April and June in 2020, where many industries were not able to operate or continue to operate.”

Craig Smith, head of research at Anchor Stockbrokers. Image: Supplied

“The big impact, as you highlight, is obviously on the entertainment sector – being cinemas, restaurants, and then the leisure sector – which has come under significant pressure again as a consequence of the Level 4 restrictions.”

“The market to my mind is clearly better prepared to deal with the situation and how to adjust to the different lockdown levels and adjusted levels.”

“I think also the difference, looking forward now, is that while the vaccine rollout in SA may not be at an optimal level yet, the point is that there is actually a vaccine available, and there is also a very probable path to exiting the pandemic.”

“The economy has surprised many market participants – obviously there has been huge damage and it’s been extremely challenging. But, there’s evidence that the economy has been more resilient than many people were anticipating.”

Smith pointed to the “good fortunes” of the agricultural space and also the mining sector.

“Where we stand today versus sort of 12 months ago, is that many of the property companies have actually embarked on initiatives to improve their liquidity position and strengthen their balance sheets and reduce their LTVs.”

“It’s hard to quantify the potential impact [of the current lockdown]. It is very much going to be dependent on the length and the level of lockdowns. The restriction on restaurants, entertainment and leisure industries can be very material if the lockdown is extended materially beyond the initial two-week period.”


“Bearing in mind a lot of those property companies which are all focused towards the retail sector, were the counters which were the most impacted, certainly for the bulk of last year. There has been quite a strong recovery so to speak, geared towards those property companies with that type of exposure.”

“Just talking separately to the retail sector… more and more corporates [will] adopt and pursue a form of hybrid working into the future, which is likely to change the supply-demand dynamics further in the office sector specifically.”

“What has also become a bit clearer to us is that the banking sector has certainly played its part. I think it played a crucial role in terms of continuing to provide liquidity to the sector and provide that sort of calmness over the last 12 to 15 months, which has resulted in a degree of stability.”

Smith also paid recognition to the work done by the Property Sector Group, in terms of rental relief offered to tenants.

“I think that cannot be underplayed or under-appreciated in terms of collaboratively working together as a sector and also interfacing, for example, with other sectors such as the retail sector. I think those were all sort of crucial ingredients.”

Listen (or read the transcript): Over R3bn in Covid-19 rental relief from SA Reit landlords

“Certainly we’re not out of the woods yet and this third wave is proving to be, from a human element, devastating; and certainly in terms of those specific sectors obviously having a massive impact there as well.”

So which property counters have been the top performers?

“Talking to the end of June, we’ve seen the likes of Dipula B, Texton, Arrowhead B, Emira, Vukile – those have been the strongest performers year to date.”

“In the case of obviously Emira, Arrowhead, and Dipula, there’s been potential corporate action activity around those names as well.”

“If you look at some of your worst performers year to date, those include the likes of Rebosis A, Fortress B and Balwin Properties [not a Reit].”

Will the listed property sector’s rally continue?

“It’s certainly very probable that the listed property sector ends the year in the green, given that it’s already up close to 20% year to date.”

“Just going back to our base case at the beginning of the year, we were estimating total returns for the full year of between 10% and 15% for 2021. So already year-to-date the sector has outperformed relative to our expectations.”

“Our bull case, which at the beginning of the year we were forecasting as close to a 27% to 28% total return, I suppose as we move through the year, has almost become more of our base case as we’ve moved through the year.

“But I would like to [extend a] caveat that there’s obviously still a high degree of uncertainty, given the factors that I’ve mentioned around the pace and the efficacy of the vaccine rollout, and so on.”

* Smith was interviewed on Monday (July 5) when the South African Property Index (Sapy) was up just over 19%. The Sapy has firmed further this week and is now up 23% the year-to-date.



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Irrationality in the market place.

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