SA listed property rallies to top world table

South Africa’s real estate investment trust (Reit) or listed property sector surged in April, overtaking equities as the top-performing asset class on the JSE.

In fact, the recovery of the country’s listed property sector is topping the table globally at the moment, up just over 20% year to date (YTD).


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It is a notable recovery from the annus horribilis of 2020, which saw the sector plunge over 35% on a total return basis.

Source: Bloomberg (total returns in USD)

Listed property was one of the worst affected sectors globally in the face of the Covid-19 financial fallout last year.

The pandemic shock extended the sector’s poor performance, with Reits being the worst performing asset class for three consecutive years (2018-2020) in South Africa.

Prior to this period, listed property was the top performer for a few years and saw a flurry of new listings on the JSE.

Not unexpectated

There were expectations of some sort of recovery this year, especially with the sector trading at a significant 40% discount to net asset values (NAV) at the start of the year. But the rebound to top listed property globally may come as something of a surprise.

Read: There’s potential for strong recovery in some property counters

Up until the end of March, the JSE’s SA Listed Property Index (Sapy) and All Property Index (Alpi) were firmer by 6.4% and 8.1% respectively. Equities ended the first quarter of 2021 as the strongest asset class, up 13.1%, while cash came in at just 0.9% and bonds at -1.7%.

The Sapy comprises the top 20 largest and most liquid primary-listed South African Reits, while the Alpi covers all property counters listed on the JSE, including residential developer Balwin and the likes of dual-listed counters Polish-based EPP.

April’s surge for listed property saw the Sapy end 18.8% up and the Alpi at 20.5%.

Source: Anchor Stockbrokers

Despite lingering uncertainty around the pandemic, especially with an expected third wave, Reits seem to have been buoyed by the fact that there have been no major Covid-19 lockdowns and related restrictions to trade in South Africa so far this year.

During April last year, the country was in a ‘hard lockdown’ that saw severe restrictions to trade, curfews, and no local or international travel.

Over the recent Easter holidays and the Freedom Day long weekend last week, tourism businesses reported a rise in domestic demand. This also points to better trade at shopping centres (property counters will only report on this in upcoming results).

Read: Flight prices surge and some hotels are fully booked for Easter

Portfolio manager at FNB Wealth and Investment Wayne McCurrie tells Moneyweb there seems to be “huge value unlock in property companies” currently, especially considering the discounts to NAV.

‘Big value’ to be had

“Ten years ago, a lot of listed property funds were trading at premiums to NAV … While clearly there are still risks currently, especially around Covid-19, there is also big value to be had in the sector,” says McCurrie.

“Longer term investors in the property sector will see value, considering the discounts at the beginning of the year [around 40%] that Reit share prices were trading at.”

Keillen Ndlovu, head of listed property funds at Stanlib, believes “improved economic fundamentals” are contributing to the recovery of the Reit sector.

“A key thing is that the economy has opened up a lot when compared to this time last year. With the Covid-19 lockdowns and fallout last year, the plunge in share prices of listed property stocks saw discounts to NAV hitting 55% at one point,” he notes.

“This discount improved to around 40% at the start of the year, but with the rebound we have seen in April, the discount to NAV for the sector sits at around 25% currently,” says Ndlovu.

Craig Smith, head of research and property at Anchor Stockbrokers, concurs that the “opening up of economic activity” has benefitted the South African listed property sector’s strong 2021 performance to date.

“Listed property is still heavily weighted towards the office and retail sectors [traditional sectors] which ultimately requires physical mobility of consumers and staff to support sustained recovery in these property types,” he says.

He adds: “Improved sentiment [broadly speaking] towards South Africa, which in turn has been driven by trade towards emerging markets, together with the country’s better-than-expected macro picture [trade balance, debt to GDP and tax collection] has been another driver of the sector’s rebound.”

SA Reit landlords gave rental relief of more than R3 billion to hard-hit tenants in the face of Covid-19 lockdowns last year. This would have taken a big bite out of revenues and ultimately dividends to shareholders.

Listen to Suren Naidoo’s interview with SA Reit Association CEO Joanne Solomon (or read the transcript here): 

Major devaluations in property values also hit the sector in the wake of lower revenues, increasing vacancies and negative rent reversions.

Ndlovu says rent collection rates in the sector have improved and rental relief has tapered down to a few tenants that may still be affected. He believes the sector has taken most of the pain already when it comes to property devaluations.

“The stabilisation of valuations is also contributing to improving sentiment in the sector. We may see some further devaluations, but I don’t think it will be in the double digits … There are focused risks in the sector, such as around offices and the work-from-home trend, but retail is recovering and this makes up a big chunk of the listed property sector,” he adds.

Ndlovu points out that listed property is getting “increased allocation” from hedge funds as well as specialist and balanced funds, which have been “underweight” in the Reit sector.

“Some of these funds have had little or no exposure to listed property, but have recently seen it as being cheap and have got in,” he says.

“This has also driven the recovery in property stocks over the past month.”

Ndlovu says corporate action is also buoying the sector, including Emira’s recent announcement around the I Group increasing its stake in the company to above 35%. This has triggered a mandatory offer for the balance of Emira shares, in line with Company Act rules.

Emira is the top-performing SA Reit this year, with its share price surging 49% (YTD to end April). This has boosted the fund’s total return (including dividends) to over 58%.

Read: Emira surges to highest level in over a year following buy-out offer

Last week’s cautionary announcement by Fairvest regarding its interest in Arrowhead Properties is another possible deal to watch out for.

Sector stalwart Vukile Property Fund, which is a major shareholder in Fairvest and has a small stake in Arrowhead, is also on a bull run.

Vukile’s share price has shot up around 40%, hitting a 52-week high in April.

Alpi, YTD gainers to end April 2021 (total returns)

Source: Bloomberg, Stanlib

Other major gainers include Waterfall City developer Attacq (up over 46%) and UK-based Hammerson (up over 54%) in total returns terms.

Sector giants Growthpoint and Redefine have recovered by around 20% and 30% respectively.


Although uncertainty around the pandemic remains, Ndlovu believes that if South Africa weathers upcoming Covid-19 waves, avoids hard lockdowns and expedites its virus vaccination programme, the sector will continue its recovery from the 2020 fallout.

“Most of the recovery is linked to a rebound in listed property stock prices, so dividends will still be under pressure and shareholders will have to become accustomed to lower dividend payout ratios.

“If we don’t have major lockdowns, I foresee a further recovery,” says Ndlovu.

“It won’t be a full recovery – that will take a couple of years and will be dependent on stronger economic growth,” he cautions.

“But if the current rebound continues, I think we may see discounts to NAV for the listed property set improving to around 10-15% by the end of the year.”

Smith is also cautious about a full recovery from last year’s plunge.

“While the listed property sector has staged a strong recovery over the last six months [including YTD], the sustainability of such a recovery will largely depend on the avoidance of further ‘hard lockdowns’ as well as an effective vaccine roll out,” he says.

“The sector in our view still offers value at these levels, but this is stock dependent … We caution that property fundamentals, specifically within the office sector and larger format urban retail shopping centres, will likely remain subdued for the next 12-18 months,” Smith adds.

“General news flow in terms of rental reversions and vacancies will likely remain negative for the foreseeable future.

“There are however segments of the property market, such as rural/township/non-metropolitan retail, logistics, storage and data centres, that are likely to remain resilient and may even see growth.”

Listen to Simon Brown’s MoneywebNOW interview with Keillen Ndlovu (or read the transcript here):