Property share prices may well have taken a breather year to date after a strong rally in the second half of 2024. But last week, several counters including Growthpoint Properties, Attacq, Hyprop Investments, Equites Property Fund, SA Corporate, Shaftesbury Capital and Lighthouse Properties dominated the JSE’s top 10 leaderboard again.
That comes after the release of a spate of better than expected December results, trading updates and earnings growth forecasts, which is no doubt supporting share prices.
South Africa-based real estate investment trusts (Reits) are seeing a particularly pleasing turnaround in the fortunes of their local portfolios — albeit off a low base.
Most counters are expected to return to inflation-linked dividend growth this year. The general theme is one of improved tenant demand, declining vacancies, rising rentals and stronger balance sheets.
Attacq, which owns Midrand mixed-use precinct Waterfall City, last week declared dividend growth of 46.7% for the six months to December and adjusted its distributable income growth guidance for the year to June upwards from 24% to 27%.
The company’s stellar set of results is due mainly to the R2.7bn transaction with the Government Employees Pension Fund, which acquired 30% of Waterfall City. The deal significantly reduced Attacq’s gearing and debt servicing costs.
But Attacq CEO Jackie van Niekerk says results were further boosted by a surge in leasing activity since mid-2024, higher than expected retail sales, which supported turnover rentals, and cost savings relating to the suspension of load-shedding.
Hyprop released an equally upbeat set of results, raising distributable income per share by 14.4% for the six months to December, up from a drop of 8.6% for the year to June 2024.
That comes on the back of improved trading metrics in its portfolio of 13 shopping centres — four in Eastern Europe and nine in South Africa — and the long-awaited sale of its retail interests in the rest of Africa.
Hyprop owns landmark centres such as Rosebank Mall and Hyde Park Corner in Joburg and Canal Walk, Table Bay Mall and Somerset Mall in the Western Cape.
CEO Morné Wilken says the company is on track to meet the upper end of its guidance of a 4%-7% increase in distributable income per share for the full year to June. Shareholders will further benefit from management’s decision to increase its dividend payout ratio from 75% to 80%.
However, the biggest surprise came from Growthpoint, the JSE’s largest domestic property counter, with more than R150bn in assets. Management, under Norbert Sasse (group CEO) and Estienne de Klerk (South African CEO), last week upgraded distributable earnings growth guidance for the year to June to between 1% and 3%.
Though that may seem negligible, it’s a welcome turnaround from the drop of 2%-5% the market was expecting and follows five tough years of disappointing results.
Sasse says the return to growth came sooner than expected on the back of a significantly improved performance of the South African property portfolio and operating cost savings for the six months to December.
Shareholders have been rewarded with an interim dividend of 61c a share, up 3.7% year on year at an 82.5% payout ratio. That contrasts with a 10% drop in dividend payouts for the year to June last year.
Growthpoint is the 50% co-owner of Cape Town’s V&A Waterfront precinct, which has been a major beneficiary of the post-pandemic rebound in tourists and cruise ships to Cape Town, the city’s newfound status as a global digital nomad hub, and ongoing semigration.
The Reit also owns a sprawling local portfolio of more than 300 shopping centres, offices and logistics/industrial buildings worth R67.3bn. Its offshore portfolio, which represents about 38% of total assets, is spread among Australia, Eastern Europe, the UK and the rest of Africa.
Sasse says the good times continue to roll at the V&A, with revenues earned from the precinct’s 12 hotels up a hefty 37%. Retail sales turnover hit a new monthly record of R1.4bn in December, up 4% year on year from an already high base set in 2023.
Like-for-like net property income grew by 16.6% year on year, the second consecutive year of double-digit growth. In fact, net property income from the V&A is up nearly 40% in the two years to December while the precinct’s valuation increased by 18% over the same time.
Sasse notes that Growthpoint’s income from the V&A has been boosted by a new leasing model that allows the landlords to share in some of its tenants’ operational performance.
There’s now zero space available to let across the V&A’s retail, office, hotel and leisure components, which has supported a healthy 6.4% uplift in rentals on lease renewals. New developments, refurbishments and extensions valued at about R3.7bn are under way.
Encouragingly, it’s not only the V&A that has contributed to Growthpoint’s improved earnings outlook. There’s also been a notable uptick in leasing activity and operational metrics in the rest of the South African portfolio.
De Klerk refers to more than 500,000m² of new leases signed in the six months to December, which helped push Growthpoint’s overall vacancy rate down to 8.3%, from 9.2% a year earlier.
“We’ve seen an improvement in operating metrics across all sectors.”
He cites improved investor sentiment after the successful elections, the suspension of load-shedding and the start of the rate cutting cycle as key contributors.
Rental reversions on lease renewals, another key metric used to gauge the strength of demand for retail, office and industrial space, also continue to improve across all sectors and clocked in at -1.8% in December, down from -6% in June last year and -12.9% in June 2023.
In fact, De Klerk says that for the first time in six years Growthpoint is starting to see more positive than negative reversions when leases are renewed, particularly in shopping centres.
Even the struggling office sector, which represents a sizeable 40% of Growthpoint’s local assets by value and has placed a drag on earnings for several years, is starting to show signs of life as more corporate workers return to their desks.
De Klerk says office vacancies, which by mid-2022 had reached more than 20%, are now down to 15.9%.
Still, while Growthpoint is finally back on what appears to be a sustainable earnings growth path, the company, like most of its peers, faces some headwinds.
Sasse cautions that sentiment no longer appears as positive as it did six months ago given that the country has been klapped again by the return of load-shedding, last month’s postponement of the budget speech and “Trumponomics”.
He says the unfortunate upshot is the likelihood of a pause in the rate cutting cycle and lower than expected economic growth, which could in turn slow Growthpoint’s recovery.
In addition, the company has been struggling to sell some of its underperforming buildings, especially offices in deteriorating Gauteng nodes.
Sasse says areas such as Rivonia, Parktown and Midrand (excluding Waterfall City) are becoming increasingly problematic given defunct municipalities, crime and rising water and electricity outages, which have all but eroded profits for commercial landlords.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.