SA Reit sector worst performing asset class again in 2019

But did recover to lower single-digit growth after a disastrous 2018.
Stanlib’s Keillen Ndlovu says investors seeking opportunities should look beyond 2020. Image: Supplied

South Africa’s struggling Real Estate Investment Trust (Reit) sector was the worst performing asset class for the second straight year in 2019, despite recovering to modest growth after its 25% plunge in 2018.

Speaking to Moneyweb this week on the performance of the sector and expectations for 2020, industry expert and head of listed property funds at Stanlib Keillen Ndlovu says the SA Listed Property Index (Sapy) delivered total returns (income yield and capital return) of 1.92% while the All Property Index was negative at -0.4%.

Read: Six decades of inflation-beating returns on the JSE

The Sapy comprises the JSE’s top 20 largest and most liquid primary-listed SA Reits, while the new All Property Index (Alpi) incorporates dual-listed funds such as UK-based Intu.

Equities or the JSE All Share Index was the top performer, delivering +12.1% in 2019, while bonds grew 10.3% and cash delivered 7.3% growth, according to Ndlovu.

Source: Refinitive, Bloomberg (via Anchor Stockbrokers)

“This makes the listed property sector the worst performing asset class again … There were expectations that the sector would improve in 2019, from a low base of 2018. Sadly, this did not happen … 2018 was the toughest year for the listed property sector with total returns falling by 25%,” notes Ndlovu.

He highlights several reasons why SA’s Reit sector – the most established on the continent – underperformed last year. “Chief among them has been the country’s weaker than expected economic growth,” he says.

Other factors Ndlovu puts forward include:

  • Edcon’s store closures and rent reductions
  • The oversupply of retail and office space
  • Tenant consolidation, particularly in the office property market, leaving other office buildings vacant
  • Concerns around increasing loan-to-values ratios (now at 40%) and the risk of physical property values falling (further pushing up loan-to-value ratios)
  • The inability for locally-focused Reits to raise equity to take advantage of opportunities, and
  • Some Reits considering and/or implementing lower payout ratios, such as Redefine Properties, Fortress, Accelerate, Hyprop, Rebosis and Delta.

Read: Capital flight: SA property companies invest billions more offshore

Despite the sector’s lacklustre performance, Ndlovu notes that there were some positives in 2019, like the sector’s ongoing diversification into offshore markets, which is “helping to cushion the sector against the weak local environment”. He also highlights the former Resilient stable of companies being cleared by the Financial Sector Conduct Authority (FSCA) as a big positive.

“The whole thing is pretty much behind us [the industry] and there has also been an improvement in corporate governance in the sector. The SA Reit Association published the second edition of its Best Practice Recommendations to enhance the transparency and comparability of financial reporting by SA Reits,” he points out.

Read: FSCA clears Resilient companies of insider trading

In the latest Rode Report on the South African Property Market (Q4, 2019), Kobus Lamprecht, editor of the report and head of research at Rode & Associates, says it is “noteworthy that most of the companies involved in the Resilient debacle in 2018” have shown strong gains in 2019. He notes that these companies were helped by the positive findings of the FSCA.

“The companies include Resilient, Fortress, Nepi Rockcastle and Lighthouse [formerly Greenbay]. These four companies represented more than 30% of the Sapy Index and the positive findings are a big relief for the sector,” says Lamprecht.

He notes that while the SA listed property sector “recovered somewhat in 2019 after the previous year’s terrible performance”, the operating environment generally remains tough.


He points out that most recent listed property company financial results show that few Reits managed to deliver inflation-beating distribution growth in the wake of weak rental growth and high vacancy rates.

Ndlovu agrees that the outlook for the sector in 2020 is likely to be challenging, unless “SA sees meaningful economic growth”.

“There will be more focus on reducing debt levels … We may see more disposals of properties, but the question is where buyers will come from and at what price. Consolidation is also possible given the huge divergence in valuations, while local Reits will continue to look for offshore opportunities,” he says.

“The risk of more power blackouts is not helping as retailers and restaurants lose out on trading [as we saw in December 2019],” he adds.

“Landlords have to spend money on installing generators as well as maintenance and diesel to power them.”

Ndlovu’s distribution growth outlook for the SA Reit sector for 2020 is zero.

“Without offshore exposure, distribution growth would decline by over 5%,” he says. “Offshore exposure of over 45% will continue to help support the local listed property sector.”

He adds: “We [Stanlib] continue to prefer offshore property to the local property stage or stocks with hybrid exposure [local and offshore]. Investors seeking opportunities should look beyond 2020. The key to better performance will be stock picking and active fund management. For example, despite poor returns, our funds managed to outperform the index/benchmark by about 3% in 2019.”




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Not a word about EWC and the terrible political risk in this country? Is this guy even qualified to comment on this sector if he can not see the greatest problem facing the sector?

REIT’s are looking to invest offshore. Does he not think investors do to?

Why invest local if you can invest 100% offshore.

The ANC and their “Leader” in particular is making all the wrong noises with popular rhetoric. Investors are not your typical ANC voter.


The JSE is dead.
It does not respond to overseas good news anymore, only bad news.
Don’t try going against the flow and invest in the JSE, I did and will not recommend the punishment to anyone.

He’s never laid a brick in his life and only used to seeing numbers. He probably thinks that there is nothing wrong with Africa’s leasehold structure on land too.

Makes me feel like I can’t trust the valuations of the REIT assets. It could be worse than stated.

INTU PLC is a good example, net asset value is R39, but the share is at R4.80?

Keillen Ndlovu says “investors seeking opportunities should look beyond 2020”

Exactly why the sector is not doing well.

A few years ago my investment platform provider dropped many of these funds. I should have sold my units then.

Very good information for invester in Property reit index who is interested
in property assets yield.

For years these property companies posted great “numbers”. But if you stripped the upward revaluations out of the “earnings” you get a very different picture.

The way valuations work, if you have:
1. Slight increase in vacancies.
2. Slight increase in expense ratios.
3. Poor net increase in rental rates.
4. Slight increase in cap rate.

The combined spreadsheet (and resulting journal entry to valuation) very quickly turns into a very substantial write-down.

Look at cash earnings not headline earnings

I agree with Mmmm….Until there is clarity on EWC then the local property sector will not show any real movement.

REIT index reflects very well the very poor state of the economy, from an investor’s point of view. It also reflects the will of investors to stay in the country or go. This is not selective, it is across all aspects of life and finance in the country.

Pay undivided attention to this.

End of comments.



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