Real estate enjoys upswing

SA’s real estate investment trust (Reit) sector has gone from the worst-performing asset class last year to the best so far this year.

The FTSE/JSE SA Listed Property Index (Sapy) was up 9.17% in January after the sector slid 25% in 2018.

The sector’s strong comeback saw it outperform the FTSE/JSE All Share Index (Alsi) at 2.69% growth, with bonds at 1.7% and cash at 0.6%.

The SA Reit Association said this was the sector’s strongest January performance in more than a decade.

Now it’s betting on a rerating of the listed property sector, with the recovery anticipated to gain momentum into 2020.

Momentum’s Nesi Chetty is bullish about expectations for 2019 and believes a 15% to 20% total return is possible.

“This would be a significant rerating of the sector.

“People are already buying in anticipation of the growth prospects, despite caution around the upcoming national elections and the impact of Edcon on retail property...”

Chetty says, with the rand strengthening, inflation is likely to remain around 4.5%, therefore interest rates are likely to hold steady.

“The sector’s strong performance in January will have a positive sentiment effect, but a rerating will also depend on whether listed property companies deliver on distribution guidance this year.

“It may turn out to be a twoyear rerating period.”

Reitway Global’s Garreth Elston is less optimistic. He says SA Reits haven’t yet entered the earnings season.

“It is highly unlikely that most Reits will be delivering exciting results for the 2018 financial year, given the lack of real economic growth, consumer stress, recent rate hike, ongoing retailer issues and oversupply issues.

“This also discounts any potential impact from Edcon that will have a major negative impact on many Reits.

“There has also not been an industry-wide readjustment of property values...

“Additionally, it would not be a great surprise to see more Reits cutting their dividends going forward.

“If these two events happen in tandem there will be no rerating in 2019 and the industry will need to wait for positive catalysts to emerge.”

Capricorn Fund Managers SA’s Howard Penny expects 2019 to be a better year for SA Reit returns.

However, he says the jury is out as to whether the sector could rerate on a relative valuation level.

Stanlib’s Keillen Ndlovu expects total returns from SA Reits to reach around 9% to 10% for 2019.

“…I believe a rerating is in the works and 2020 will be a stronger year,” he said.

Anchor Stockbrokers has the top five Reits so far this year from a capital appreciation perspective – Accelerate Property Fund (up 19.1%), Octodec Investments (16.2%), Resilient Reit (13.4%), Arrowhead Properties (13.2%) and Rebosis Property Fund (13.2%).