Despite soaring unemployment rates and bleak economic growth prospects, the latest results from South Africa-focused property stocks point to a promising rebound in dividends.
Four real estate investment trusts (Reits) released financial numbers last week, all lifting distributable income for the February reporting period, albeit off a low base.
Sector heavyweight Redefine Properties declared 0.8% growth for its interim period; Dipula Properties, which has a bias towards the lower-income retail market, came in at 4.2% (interim); Gauteng-focused Octodec Investments achieved 3.3% (interim); and pure logistics play Equites Property Fund was up 2.1% (annual).
Though still in the low single digits, it’s a welcome change from a year ago when most property stocks had to slash dividends as higher-for-longer interest rates, load-shedding, rising vacancies and negative rental reversions cut into profits.
It appears that the sector’s return to growth has supported renewed investor interest in property stocks in recent weeks. In the six weeks to May 19, the South African listed property index rebounded by 14% — after a first-quarter lull following a stellar run of more than 20% earlier in 2024.
Ian Anderson, head of listed property at Merchant West Investments, who compiles the SA Reit Association’s monthly chart book, says the sector achieved R12.2bn in trading turnover in April.
“That’s the highest monthly volume for 2025 so far, indicating strong investor appetite amid rising prices.”
He says investor sentiment has been buoyed by signs of accelerating earnings growth and the likelihood of a resumption in rate cuts this month on the back of lower inflation.
Anderson believes there’s still plenty of share price upside, given the historically (excluding the pandemic period) high discount to NAV — more than 30% — at which most local Reits are still trading.
Independent property analyst Keillen Ndlovu says gains in the listed property sector reflect the ongoing resilience of South Africa’s real estate sector relative to its global peers.
He refers to the latest data from MSCI, which compares the total returns of underlying (direct) property portfolios across the world in local currency. South Africa was the best performer in 2024 at close to 12%, and the second best in 2023 (9%) among the 24 countries tracked by MSCI.
Last week’s results confirm that the physical portfolios of local Reits are in good shape operationally. Most have seen a steady increase in take-up of space in retail, industrial and even office buildings. Office property has been the worst-performing sector in recent years as remote working took off and business growth stalled. Trading metrics in shopping centres, such as foot count and sales turnover, are also trending higher.
At Redefine, which is one of the largest mall owners in the country and has a R99.4bn portfolio split 66/34 between South Africa and Poland, the local vacancy rate dropped from 7% to 5.3% in the six months to February (year on year).
Importantly, the company is seeing rental growth on lease renewals. CEO Andrew König says Redefine achieved positive (0.4%) reversions in its retail portfolio for the first time in three years.
That’s despite what he refers to as “unsettling disruptions and successive global shocks” that have eroded business confidence.
Despite heightened local and global uncertainty amid the trade tariff turmoil caused by the US and a slowdown in rate cuts, he says Redefine is on track to deliver on its distributable income growth guidance of between 0% and 6% for the year to end-August.
Dipula, which owns 161 retail, office, industrial and residential properties located predominantly in Gauteng, saw vacancies drop from 8% to 7% on the back of a marked increase in leasing activity in the six months to February.
Its rental renewal growth rates are also back in positive territory — even in the office portfolio. That portfolio, which comprises several government-tenanted buildings, posted year-on-year growth of 8.3%, with the industrial portfolio at 6.2% and retail at 2.4%.
Dipula CEO Izak Petersen says market conditions have improved to such an extent that it now makes sense to start pursuing growth opportunities again.
“It’s the first time in eight years that we have had an appetite for acquisitions,” he says.
Petersen plans to add more community retail centres, typically sized between 10,000² and 25,000m², in underserviced townships and rural areas to Dipula’s portfolio.
He says there’s still strong demand from retailers to grow their footprints in lower-LSM markets with robust cash economies. “South Africa’s informal sector in townships and rural areas is huge. I don’t know of a single retailer that isn’t still looking to expand in these markets.”
Equites CEO Andrea Taverna-Turisan is equally bullish about expansion opportunities in the domestic real estate market. The company, which is the JSE’s only pure logistics property play, plans to exit its UK investments entirely in the next 12 to 18 months and reinvest the proceeds locally.
Equites hopes to bring back £210-£220m (after repaying debt) from the UK, which, together with existing cash and undrawn facilities of R2.9bn, creates a sizeable war chest to expand its local portfolio of modern warehouse and distribution facilities.
It’s the first time in eight years that we have had an appetite for acquisitions
— Izak Petersen
The company now owns assets worth R27.7bn, split 79/21 between South Africa and the UK. The decision to focus solely on South Africa comes after Equites took a R2bn valuation knock in its UK portfolio in 2022 on the back of aggressive interest rate hikes, which halted its ambitious UK development plans. Equites also got burnt by cross-currency interest rate swaps, all of which resulted in a sizeable slump in earnings.
Besides, Taverna-Turisan believes South Africa now presents attractive growth opportunities given the rising demand for well-located A-grade warehouse and distribution centres.
Demand has been supported by the quest among retailers, e-commerce players and third-party distributors for shorter delivery times and operational efficiencies.
He notes that it’s no longer unusual for tenants to pay R100-plus a square metre for top-notch logistics space, something that would have been unheard of five years ago. On average, logistics rentals in South Africa are now 23% above pre-pandemic levels.
In addition, online shopping is expected to grow to R225bn this year, up from R150bn in 2024, according to research from RMB; this, Taverna-Turisan says, will require further investment in supply chains.
“We are a very important cog in the supply chain. It’s all about getting products to consumers quickly these days and most bottlenecks happen because of poor real estate decisions,” he says.
Citing TFG as an example, Taverna-Turisan says the company has increased its lead times to get its stock to its stores by 43% since it consolidated its operations at a distribution facility at Equites’ Riverfields business park in Kempton Park.
“That underscores how having the right real estate solutions can be a game-changer for your business. You can imagine what the multiplier effect is for a group such as TFG, which has more than 3,000 stores nationally.”
Equites’ return to growth in the year to February, with distributable income and dividends up 2.1%, marks the end of a tough two years, during which there was a sharp sell-down of the stock.
Taverna-Turisan last week surprised the market with a multiyear earnings growth outlook of 5%-7%. “[We intend] to provide shareholders with inflation-beating dividend growth for many years to come.”
He says: “Our portfolio is now fully stabilised. The business is entering a new growth phase and we expect great things to come over the next few years.”
Management remains committed to a full dividend payout policy, placing Equites as one of the few Reits still paying out 100% of its distributable profits to shareholders.
Naeem Tilly, portfolio manager and head of research at Sesfikile Capital, says Equites’ earnings outlook of 5%-7% growth after a period of portfolio rationalisation and debt reduction is impressive.
“The decision to reduce exposure to the UK and focus on South Africa is positive for the medium-term earnings profile, even if the company is moving up the risk curve,” he says.
“With that said, it never truly got the beneficial rating its UK strategy should have commanded.”
Tilly says the proposed exit from the UK will help to further strengthen Equites’s balance sheet, with the loan-to-value already reduced from 39% to 36% in the past year on the back of R2.4bn worth of disposals.
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