subscribe Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Subscribe now
Attacq’s Waterfall City in Midrand. Picture: SUPPLIED
Attacq’s Waterfall City in Midrand. Picture: SUPPLIED

The recent interest rate cuts by SA and US policymakers added impetus to SA’s real estate investment trusts (Reits) during September, with nearly R14bn in shares traded in the month, the highest monthly trading value for 2024.

The listed landlords have turned the corner, with the property index up more than 27% so far this year.

The renewed interest in the sector, which was hurt by Covid-19, was bolstered by the Federal Reserve decision to reduce interest rates by 50 basis points (bps) at its September policy meeting, while the SA Reserve Bank’s monetary policy committee lowered rates 25bps.

“Improving property fundamentals in SA have also shifted investor sentiment positively,” said Ian Anderson, head of listed property and portfolio manager at Merchant West Investment. “In September, nearly R14bn worth of shares changed hands, marking the highest monthly trading value in 2024, indicating rising institutional interest in the sector.”

According to Anderson, who also compiles the SA Reit Chart Book, the expectation of lower official interest rates in the US and SA bolstered the recovery of many SA Reits during September. These changes helped lift sentiment, creating a more favourable environment for Reits and sparking optimism for continued growth in the sector. 

The effect on profitability will develop gradually, as most Reits mitigate their interest rate risk by fixing rates for an average of two to three years, he said.

Outperforming

“Lower interest rates benefit listed property companies, as they typically lead to reduced bond yields and discount rates, increased property values and, given that the average gearing level among SA Reits is about 38%, higher future profits due to declining debt costs,” said Anderson.

Since the formation of the government of national unity (GNU), Reits have outperformed other SA asset classes, returning 34% year to date, compared with 15.9% for the broader equity market and 16.7% for SA bonds.

He said this increase in confidence had boosted the prices of larger, more liquid companies, though most Reits showed price gains in September.

Growthpoint Properties, SA’s largest commercial property group, stood out as an exception, disappointing the market with its results for the year ending June 30.

Though operations in its SA portfolio, especially at the V&A Waterfront, improved, increased funding costs in Europe and a reduced dividend from Growthpoint Australia affected results, resulting in a 10.3% year-on-year decline in distributable income. The company also forecasted a 2%-5% decrease in distributable income per share for 2025.

Attacq and Hyprop Investments completed the sale of their Sub-Saharan Africa portfolios, with both companies reporting results that exceeded market expectations, underscoring improved operating metrics in SA. 

Anderson pointed out that Hyprop’s share price surged more than 20% in September, while that of Attacq increased 12.8%. Other notable performers included Burstone (16.2%) and SA Corporate (12%), both delivering double-digit capital growth.

Vukile Property Fund raised R1.5bn in new equity through a well-supported accelerated bookbuild, while Spear secured R458m through a vendor consideration placement.

“These transactions reflect the growing appetite for SA Reits among institutional investors and the expansion aspirations of both companies, according to the September Chart Book,” said Anderson. 

Anderson said while discounts to net asset value (NAV) had narrowed in 2024, they remained wide by historical standards, offering investors significant potential for capital upside in a declining interest rate environment.

“Vacancy rates have stabilised and are expected to decrease as demand for space increases, with limited new supply on the horizon. Falling borrowing costs should further drive higher distributable income growth in the short to medium term,” he said. 

Another factor poised to benefit the sector is a decrease in load-shedding, which is expected to enhance distributable income growth in the short term.

majavun@businesslive.co.za

subscribe Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Subscribe now

Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.

Speech Bubbles

Please read our Comment Policy before commenting.