An improved focus on SA REIT governance to drive confidence in 2019

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

The South Africa REIT sector’s focus on improved corporate governance is expected to support positive sentiment for investment in the listed property sector this year. 

Real estate analyst at Anchor Stockbrokers, Wynand Smit says that “the performance of South African REITs in the coming year will be influenced by improving levels of confidence in the listed property sector“. The South African REIT sector’s positive performance prospects signal double-digit growth in returns to investors, which should be around the sector’s historical annualised ten-year total return of 14%.

Smit notes that improved confidence levels “will depend on the steps taken by individual companies but, more importantly, steps taken by all stakeholders and relevant industry bodies such as the SA REIT Association.”

Upon REIT legislation being introduced in South Africa in 2013, the SA REIT Association has prioritized driving transparent, clear and comparable financial reporting for the sector.

The association is currently updating its Best Practice Recommendations (first published in 2016), driven by the sector as most of the metrics that REITs are measured by aren’t strictly governed by IFRS. The Best Practice Recommendations intended to reduce divergence in reporting implementation amongst sector counters.

The SA REIT Association has resolved to revise its Best Practice Recommendations with an even more vigorous focus on the consistency and transparency in the financial reporting of REITs. The updated Best Practice Recommendations will reflect new accounting and regulatory issues, address issues raised by asset managers and to integrate changes proposed by key industry stakeholders.

Smit points out that there is a big focus on sustainable earnings in the sector: “Investors have voiced their preference for clean, sustainable earnings.” Naturally, transparent reporting ensures that a REIT’s sources of income are clearly stated. SA REIT expects to share its progress with the market in this regard early in 2019.

Andrea Taverna-Turisan, SA REIT Marketing Committee Chairman, says, “The time is right to take the next step and issue more robust guidance for REITs. Our members want investors and stakeholders to be confident in the consistency of reporting from the sector. Overall, the REIT sector has established a track record of transparency and trust, and we want to reinforce this in the market. We are putting the sector on the best footing for best practice as it enters 2019.

Catalyst Fund Managers expects 2019 to stand out from the past year because of the big focus on improving governance in the sector.

Mvula Seroto of Catalyst goes as far as saying improved corporate governance will make REITs a good investment in 2019. He adds, “The sector is still impacted by the allegations against Resilient and affiliated companies. They currently make up roughly 27% of the SA Listed Property Index. A positive outcome from the pending Financial Sector Conduct Authority (FSCA) investigation into the Resilient group of companies would be welcomed.”

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