REIT RETURNS MOSTLY NEGATIVE IN THE FIRST QUARTER OF 2023

According to the first issue of the Rode’s Report on the South African Property Market for 2023, the two best performing Real Estate Investment Trusts (REITs) in the first two months of the year were Attacq and Emira. However, the overall performance of listed property was poor, with the SA REIT Index showing a negative total return of 4.7% during the same period.

Compared to other asset classes, equities performed the best, with a total return of 6.5% in the first two months of 2023. In contrast, listed property only delivered a 1.5% return in the entire year of 2022. The stronger performance of equities was attributed to increased risk appetite driven by signs that the interest rate cycle was nearing its peak and the reopening of China after COVID-related lockdowns.

The Rode’s Report highlighted that the financial results for the period up to December 31 looked more positive, especially for REITs involved in retail and industrial property. However, the oversupplied office market continued to negatively impact the results of REITs and funds heavily exposed to that sector.

Although vacancy rates in the office market had decreased and market-rental growth had improved, REITs were still reporting large negative rental reversion rates due to rents increasing more than market rentals. The outlook for the office market remained uncertain due to the challenging economic environment and the increasing popularity of remote and hybrid working models.

Attacq was highlighted as a top performer, achieving a total return of 15.6% in the first two months. The company declared a dividend for the second half of 2022 after not doing so in the same period the previous year. Attacq’s retail results, particularly at the Mall of Africa in Waterfall City, contributed to its improved income. The company’s share price also benefited from the news that the Public Investment Corporation (PIC) would acquire a 30% stake in its subsidiary Waterfall Investment Company for R2.8 billion.

On the other hand, Accelerate, Delta, and Texton were mentioned as struggling REITs. The total returns delivered by funds in 2022 showed mixed performance compared to 2021 when the sector experienced a strong recovery from the lows caused by the COVID-19 pandemic.

The retail sector experienced a significant comeback in 2022, reflected in improved retail company results. Shopping centre vacancy rates decreased, and rental reversion rates became less negative or even positive in some cases. Dividend growth for most REITs was generally below inflation and still well below pre-Covid levels. Some REITs also withheld dividends to preserve capital, such as Texton and Hyprop.

The report said there were outlier REITs with dividends already above pre-Covid levels, such as logistics focused Equites, Stor-age and retail player Safari Investments.