The South African real estate investment trust (Reit) sector is set to deliver double-digit returns to investors next year, says the SA Reit association.
Catalyst Fund Managers adds that it expects the Reits’ performance in 2019 to be marked by positive total returns from the sector, largely driven by its current forward income yield and capital returns based on growth in income.
“We expect the Reit sector to deliver total returns in line with the historical annualised ten-year total return of 14%,” says Catalyst representative Mvula Seroto.
“In a steady valuation environment in South Africa, Reits’ returns could be in double-digit territory supported by sector distribution yields of about 9%, despite lower distribution growth of around 4% to 5%,” adds Capricorn representative Howard Penny.
Anchor Stockbrokers agrees that the sector will 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% a year over the long term.
“Unless South Africa’s economic and political outlook improves substantially in 2019, we expect the total return [for the year] to be marginally lower than the long-term forecast,” notes Anchor real estate analyst Wynand Smit.
Investors and analysts can know with reasonable certainty what to expect from an investment in the Reit sector in 2019 because South African Reits have relatively predictable earnings, says SA Reit.
“Local 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,” explains SA Reit marketing committee chairperson and Equites Property CEO Andrea Taverna-Turisan.
Besides positive performance prospects for 2019, factors that market commentators believe will make Reits appealing for 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 of the Reits.
“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,” comments Penny.
Smit adds that most Reits derated during 2018 and, if growth expectations start to improve during 2019, valuations are compelling.
The SA Reit association represents South Africa’s R330-billion listed Reit sector. Its members include the country’s listed Reits.