South African REITs have a confident performance outlook for 2019

Equites CEO, Andrea Taverna-Turisan,.
Equites CEO, Andrea Taverna-Turisan,.

Investors can expect the South African REIT sector to deliver double-digit total returns for 2019.

Catalyst Fund Managers expects this performance to be largely driven by its current forward income and capital returns based on growth in income.

Commenting on the performance from the 1st of November 2008 to 31st of August 2018, Mvula Seroto of Catalyst says: “We expect the REIT sector to deliver total returns in line with the historical annualised 10-year total return of 14%.

Howard Penny of Capricorn Fund Managers SA holds a similar outlook and believes that 2019 will be a better year for South African REIT returns overall:

In a steady valuation environment in South Africa, SA REIT returns could be in double-digit territory supported by sector distribution yields of approximately 9%, despite lower distribution growth of around 4 to 5%.

Wynand Smit, real estate analyst at Anchor Stockbrokers is of the view that the sector will also continue to perform at attractive levels in future:

We expect listed property to deliver a total return, made up of share price movement plus distributions, of roughly 13% to 14% per year over the long term. Unless South Africa’s economic and political outlook improves substantially in 2019, we expect the total return in 2019 to be marginally lower than the long-term forecast.”

Investors and analysts can know with reasonable certainty what to expect from an investment in the REIT sector in 2019 because SA REITs have relatively predictable earnings.

Andrea Taverna-Turisan, SA REIT Marketing Committee Chairman explains:

SA REITs are exposed to the best commercial properties in South Africa and, in some instances, offshore. Their property income is underpinned by lease agreements with tenants in these property assets. Rentals are contracted and most escalate at a predetermined rate annually — around 6.5% to 8% in the current domestic market.

Besides positive performance prospects for 2019, factors that market commentators believe will make SA REITs appealing investments in the year ahead include improved corporate governance in the sector, its historically high yields and the good value to be found in the share prices of many REITs.

Penny notes, “Despite a rather treacherous rising global interest rate environment, historically high yields remain the greatest supportive force for the sector in 2019 and over the medium term.”

Smit concludes: “Most SA REITs de-rated during 2018, and if growth expectations start to improve during 2019, the valuations of SA REITs are compelling.”