Can Reits regain pole position?

After a stellar performance last year, listed property has had an erratic start to 2025, with huge swings in the shares of several individual stocks year to date.

In fact, there’s a difference of almost 60 percentage points (pp) between the JSE’s best- and worst-performing real estate counters for the first four months, figures from equity research firm Golden Section Capital show (see table). 

The new kid on the JSE’s property block, UK based health-care landlord Assura, leads the pack with a 39% total return from January to end-April. In stark contrast, Eastern Europe-focused MAS PLC is at the bottom of the pile, having lost 20%.

Assura was buoyed by competing takeover proposals by fellow JSE-listed Primary Health Properties (PHP) and UK infrastructure investors Kohlberg Kravis Roberts & Co.

On the downside, MAS’s underperformance appears to relate to continued uncertainty regarding plans to terminate joint venture arrangements with developer Prime Kapital.

Besides MAS, rand hedge property counters have generally outperformed their South Africa Inc counterparts so far this year. That comes after offshore real estate stocks lagged domestic companies last year.

Analysts say a weaker rand has also encouraged investment flows to offshore stocks in recent months; four of the top five performers from January to April generate 100% of their earnings in hard currencies.

They include UK-based PHP and Supermarket Income Reit, as well as Germany-focused business park owner Sirius Real Estate. Just three of the year-to-date top 10 are South Africa-based stocks: Exemplar REITail (10%), Growthpoint Properties (7.8%) and Resilient Reit (7.3%).

However, local real estate investment trusts (Reits) still dominate over 12 months; the top five are all domestic, each boasting a total return of 50% or more for the year to end-April.

They are mall owners Hyprop Investments, Dipula Income Fund and Fairvest B, industrial-focused Collins Property Group and Waterfall City developer Attacq.   

The question arises: will listed property be able to achieve a hat-trick in 2025 and outperform general equities, bonds and cash for the third year running? 

Independent property analyst Keillen Ndlovu notes that listed property’s year-to-date total return of 3.8% is well behind the all share index’s 10.5% — though ahead of cash at 2.5% and bonds at 1.5%. 

He’s not surprised that property stocks have underperformed equities given the high base created in 2023 and 2024, when the sector delivered a total return of 10% and 29%, respectively.

Still, it’s possible that listed property will catch up with general equities in the coming months. Ndlovu says Reit share prices have already rebounded strongly in the past three weeks.

After a drop of about 10% in the first quarter, property stocks rallied 14% between April 9 and May 5, and are now approaching the four-year peaks seen in late September. 

That comes after US President Donald Trump’s announcement last month of a 90-day pause in the implementation of his country’s global tariff hikes.

On the domestic front, Ndlovu says property shares have been supported by the government’s recent decision to reverse the 0.5pp VAT hike, and better prospects of another interest rate cut this month. 

Over the next few weeks investment flows into listed property could be further aided by a potentially better than expected round of results for the February and March reporting periods. 

The next spate of results will provide important guidance on how companies are … navigating a slower local and global economic growth outlook

—  Keillen Ndlovu

Ndlovu says almost all property stocks are expected to achieve positive earnings and dividend growth this year on the back of lower interest rates and a recovery in trading metrics in most retail, office and industrial building portfolios.

The latter has already resulted in lower vacancies and higher rentals for several JSE-listed Reits that reported December results earlier this year. 

Ndlovu has pencilled in average earnings growth of 3%-4% for the sector in 2025, a welcome turnaround from the 3%-4% drop seen last year.

He says 2025 marks a “normalised” base and a “new beginning” for the sector after a dismal five years when Reits were hammered by the pandemic, higher-for-longer interest rates and load-shedding. 

“The impact of higher interest rates should now be fully in the numbers, along with savings on diesel costs and the disruption in trading or business activity, given that load-shedding only happens now and again — and for shorter periods.”

In addition, Ndlovu says, property companies have significantly strengthened their balance sheets in recent years by selling noncore and underperforming buildings, and retaining cash via lower dividend payout ratios. 

“The next spate of results will provide important guidance on how companies are managing debt levels and navigating a slower local and global economic growth outlook.”

Ndlovu says investors will keep a close eye on adjustments to local vs offshore investment strategies as well as further recycling, acquisition and development plans. 

Golden Section Capital MD Garreth Elston shares the sentiment. He says while local property stocks aren’t immune to global market turbulence, the sector is now better positioned to weather shocks than during prior crises.

“Tenants continue to pay rent, payout ratios have normalised and sector-wide balance sheets appear healthier thanks to proactive deleveraging and asset recycling.”

Elston says the sector’s performance in April points to growing investor confidence. Despite the rebound, property stocks continue to trade at deep discounts to NAV. That, combined with an improved operational performance, is likely to continue to attract value chasers, he believes.

Meanwhile, Anchor Capital has taken a “neutral” stance on listed property, general equities and bonds in its asset allocation review for the second quarter. 

The investment firm forecasts a 12-month total return of 11% (in rand) for all three asset classes. The review states that international trade jitters and fractures in the GNU after the National Treasury’s bungled attempts at a VAT hike mean that the outlook for all asset classes remains uncertain.

Anchor Capital chief investment officer Peter Armitage writes: “We do not believe we are at the end of the Trump-induced turmoil.” Still, Armitage says that in the longer run markets have always recovered and risk assets have paid off.

“We are therefore taking a neutral stance on asset allocation at this stage, essentially saying that one should stick with one’s long-term plan.”