SA’s Reits – how they did in 2024 and the outlook now

The SA listed property sector was again the best performing asset class last year. The SA listed property index (J253) achieved 29% total returns (income and capital) in 2024, a significant increase compared to 10.1% in 2023. This was ahead of bonds (Albi), the second best performing asset class, for the second year running, with returns of 17% and 9.7% respectively over the same periods.

SA listed rroperty vs other asset classes

Source: Keillen Ndlovu Research, Bloomberg, Reuters

It’s important to highlight that SA listed property returns have recovered off a low base after being negatively impacted by the pandemic, higher interest rates, and load shedding.

Listed property was the worst performer in 2022, with a 0.5% return.

In comparison, according to data from Sentio Capital, global property, as measured by the S&P Global Property Index, achieved -18.2%, 18.7%, and 6.6%, in rand terms, in 2022, 2023 and 2024 respectively.

Read: SA listed property rallies almost 24% YTD

The year 2024 ended with 280 consecutive days of no load shedding.

No load shedding resulted in savings on diesel costs (to power generators), no traffic delays (due to traffic lights not working, which generally results in abandoned shopping and business trips), and no lost trade (some shops closed due to lack of full backup power), spoiled food (with refrigerators not working) and mobile signal issues affecting transaction payments, online shopping including food/grocery deliveries and access to e-hailing services like Uber and Bolt).

2024 SA listed property index trends

Source: Keillen Ndlovu Research, Bloomberg

The property sector has been boosted by the recent interest rate cuts, good performance from the retail and industrial sectors, and a stabilising office market, which has seen vacancies fall (with most workers returning to offices three to four days a week after working at home full time).

Institutional funds and generalists increased their interest in listed property during 2024. Alex Forbes’s data shows that listed property exposure in balanced/multi-asset funds increased from 2.8% in 2023 to 3.5% in 2024.

Given that listed property outperformed other assets, market movement also helped increase listed property weighting in portfolios.

Asset allocation over the years

Source: Keillen Ndlovu Research, Alex Forbes data

Capital raised in 2024 amounted to about R13bn

In addition to increased listed property allocation, the sector raised about R13 billion from South African-based investors in 2024, compared to about R8 billionin 2023. This was achieved through accelerated book builds, scrip dividends, dividend reinvestment alternatives and rights offers.

Source: Keillen Ndlovu Research, Sens

The sector began to see an improved earnings outlook in the second half of 2024. Most Reits and property companies that delivered negative earnings growth in 2024 provided a marginally positive earnings growth outlook for 2025.

Despite higher interest rates, the balance sheets have been well-managed, with loan-to-value ratios and interest cover ratios, on average, under control (no breaches with the banks).

The sector disposed of many assets at or around book value (mainly to reduce debt levels) over the last two to three years, and according to MSCI data, we started to see the sector move from being a net seller of assets to a net buyer of assets (particularly in the retail space) in 2024.

Source: Keillen Ndlovu Research, Sens

Sector overview

We are likely to see an improvement across all the sectors.

Industrial: The industrial sector, a perennial outperformer, is still predicted to do well. It is mainly warehousing and logistics/distribution (not manufacturing nowadays) and linked to the retail sector.

Retail: Lower interest rates will help boost consumer spending and the retail sector in general. Township and rural retail are likely to continue trading better. This market segment has a big informal economy and benefits from government aid, such as social grants.

Office: The office market is likely to see vacancies stabilise and improve. However, rental growth will only happen after a meaningful decline in vacancies. This will depend on the grade of properties as well as the location.

Type of office properties: P-grade and A-grade properties are doing better than B- and C-grade properties.

Location of office properties: The Cape Town office market has been strong. Since the pandemic, Cape Town offices have benefitted from strong growth in the Western Cape region, driven by semigration, tourism, and strong demand for space to set up call centres/BPOs (Business Process Outsourcing operatons) from global companies. This has led to vacancies falling from a peak of just under 14% in 2022 to 6.5% at the end of 2024, according to the South African Property Owners Association (Sapoa) Q4 2024 Office Vacancy Survey. In comparison, Johannesburg office vacancies peaked at 19.5% in 2022 and stood at 16.7% at the end of last year.

Read: Top landlords ditching Gauteng for Western Cape where ‘returns are better’

Residential: Though very small in the listed property sector (with most rental assets largely unlisted), the residential sector will likely remain resilient, with very low vacancies and arrears as demand exceeds supply. The ability to absorb rent and utility increases remains an issue, but this could improve if the economy picks up.

Offshore diversification – mainly in Iberia (Spain and Portugal) and Central and Eastern Europe (CEE)

Iberia: Lighthouse has 77% of its retail portfolio in Ibeira (with a balance of 23% in France). Vukile’s retail portfolio is split into 59% Spain and 41% South Africa. Both Lighthouse and Vukile are working on more acquisitions in the Iberian markets and have been actively raising capital in 2024 through bookbuilds, scrip dividends and dividend reinvestment alternatives. Vukile has announced they are looking to acquire Portuguese retail property assets.

Read: Vukile gets positive rating outlook, faces Lar España takeover in Spain

CEE: Despite concerns about the Russian and Ukrainian war, Central and Eastern Europe has continued to do well. This region can be accessed mainly through Nepi and MAS and domestic counters like Hyprop, Redefine, Emira Fortress, Growthpoint and Burstone.

CEE exposure on the JSE

Source: Keillen Ndlovu Research

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UK, US and Australia exposure on the JSE

Other offshore regions on the Johannesburg Stock Exchange (JSE) include the US, Australia, and the UK. The US accounts for 15% of Emira’s assets, and Australia accounts for 25% of Growthpoint’s assets. Stor-Age and Equites have 63% and 20% exposure to the UK, respectively.

Listen/read:
Stor-Age secures stake in UK-based Easistore
Emira building a ‘war chest’ for further offshore expansion
Growthpoint to sell Capital & Regional stake in the UK to NewRiver

Sirius Real Estate, Hammerson, Shaftesbury Capital and Schroder European Reit have primary listings on the London Stock Exchange (LSE) and secondary listings on the JSE. Sirius is the leading German play on the JSE and has recently diversified into the UK, now 21% of its assets. Hammerson and Shaftesbury Capital have been the primary go-to stocks for UK exposure. Schroder European Reit focuses on Continental Europe. There have been new listings on the JSE over the last year or so, and they are all from the UK.

Recent listings on the JSE have been stocks with primary listings on the LSE

Source: Keillen Ndlovu Research, JSE

After the Primary Health Properties listing in late 2023, the JSE experienced further listings in 2024, with new additions being Assura and Supermarket Reit. They all have primary listings on the LSE.

However, not all secondary listings on the JSE have been successful. Deutsche Konsum Reit (DKR), which has a primary listing on the Frankfurt Stock Exchange, indicated its plan to delist from the JSE as its listing has not yielded the desired results from a South African perspective.

Capital & Regional delisted in December 2024 after being taken over by NewRiver Reit, an LSE entity.

Shift away from the SA Listed Property Index (J253) to the All Property Index (J803)

Though the indices are highly correlated and have generally been about 1% apart in terms of returns, the market and fund managers are likely to fully shift away from the J253 to the J803 as the reference point.

The All Property Index (J203) delivered total returns of -1.9%, 10.7%, and 29.8%, in 2022, 2023 and 2024, respectively.

The J803 has more stocks and includes secondary listings. It’s likely to expand further and add more stocks this year – Dipula, Octodec, Schroder European Reit and Spear Reit.

Interest rates, balance sheets and bank covenants

Lower interest rates help improve interest cover ratios, earnings as debt starts to get renewed at lower interest rates (and therefore reduced interest costs) and the financial health of the tenants and, therefore, the ability to pay rent and/or absorb any rental increases, and a need for more space as business and cash flows improve.

Balance sheets are in good shape, with loan-to-value (LTV) ratios around 39% and interest cover ratios (ICR) at 2.3 times.

Most Reits continue to aim to improve these ratios (by reducing the LTVs to below 39% and improving ICRs to above 2.3 times).

Bank covenants stipulate that LTVs must not exceed 50% and ICRs must not fall below 2 times.

The days of paying out 100% of earnings are gone. Most Reits and companies have a payout ratio of 80% to 90%.

The income retained is used to reduce debt and for capital expenditure.

Source: Keillen Ndlovu Research, Sens (post Blackstone transaction)

Earnings growth, yields and valuations

Most Reits and property companies that delivered negative earnings growth in 2024 provided a positive outlook for 2025, albeit below inflation on average.

Inflation-beating earnings growth (on average) is likely to happen later in 2025 and mostly in 2026 when the positive impact of lower interest rates will be fully felt (as some of the debt is still being rolled over at higher interest rates).

Forward yields range from about 8% to 9% on average, driven by 3% to 4% earnings growth in 2025. The sector is trading at a discount to net asset value of about 20% (including offshore stocks) to 30% (domestic stocks).

Source: Keillen Ndlovu Research, Sens; DIPS – distributable income per share; reporting periods/financial year ends differ

* Hammerson resumed paying dividends

** New developments coming on stream, normalised after A & B restructure

*** Dividend growth

Read/Listen: Property stocks to rally on GNU optimism?

 Upside risks for the listed property sector

• Positive sentiment around the government of national unity continues and improved economic growth prospects;
• Further interest rate cuts resulting in lower cost of funding and extra disposable income;
• Withdrawals from the two-pot retirement system filtering into the economy;
• Fundamentals continue to improve across all sectors;
• Positive dividend growth attracting income-seeking investors; and
• Property weighting in indices increasing, resulting in balanced fund managers/generalists deciding to own some property stocks

Downside risk for the listed property sector

• GNU does not work out as expected, economic growth stalls and investor sentiment shifts back to offshore investments;
• Profit-taking and short-term volatility and uncertainty around the policies of US President Donald Trump;
• Fewer than expected interest rate cuts;
• Municipal charges continue to increase at above-inflation levels;
• Water outages worsen, and load shedding resumes;
• Poor service delivery, decaying infrastructure, and crime, with landlords compelled to assist where possible, but at their own cost in most instances; and
• Countermeasures to some of the risks by property owners:
  • Lack of service delivery – most landlords continue to invest in backup water facilities, less water usage, solar power, and greener buildings and help to invest in infrastructure around their properties (such as some taking over the running of traffic lights and fixing potholes);
  • Power – most landlords have invested in backup power;
  • Water – most landlords are investing more in backup water facilities from two to three days’ supply to five days and are finding innovative ways to use less water; and
  • Security – most landlords are improving security systems and presence in and around their buildings/neighbourhoods.

Keillen Ndlovu is an independent property analyst.

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