Real Estate Investor Magazine South Africa February/March 2019 | Page 46

INVESTOR INTELLIGENCE
Making sense of REITs
A Real Estate Investment Trust (REIT) is a listed property investment vehicle which are publicly traded on the Johannes-
burg Stock Exchange (JSE) established in 1960 in the USA. Individual investors can buy shares of commercial real estate
portfolios from a variety of properties.
Most REITs specialize in a specific real estate sector for example, office, retail or healthcare REITs. Diversified and spe-
cialty REITs may hold various types of properties in their portfolios. For example, a diversified REIT may hold a portfolio
comprising both office and retail properties. Most REITs have a straightforward business model: The REIT leases space
and collects rents on the properties, then distributes that income as dividends to shareholders.
Monthly we publish various REIT company financial results, their property strategies and insights of their future growth
plans. It gives the apprentice and more seasoned investor a gauge on how to evaluate these companies for information,
education and/or possible investment.
Confident outlook
for SA REIT
performance in
2019
Andrea Taverna-Turisan
SA REIT Marketing
Committee Chairman
The SA REIT sector
is set to deliver double-
digit total returns to
investors next year. Catalyst
Fund Managers expects
performance from REITs in 2019 to be marked by positive
total returns from the REIT 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 10-year total return of 14%,”
reports Mvula Seroto of Catalyst, based on performance from
1 November 2008 to 31 August 2018.
Howard Penny of Capricorn Fund Managers SA holds a
similar outlook and believes 2019 will be a better year for SA
REIT returns overall.
“In a steady valuation environment in South Africa, SA
REIT returns could be in double-digit territory supported by
sector distribution yields of approximately 9%, despite lower
distribution growth of around 4 to 5%,” says Penny.
Anchor Stockbrokers is of the view that the sector will also
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% per
year over the long term. Unless South Africa’s economic and
political outlook improves substantially in 2019, we expect the
total return in 2019 to be marginally lower than the long-term
forecast,” notes Wynand Smit, real estate analyst at Anchor
Stockbrokers.
Investors and analysts can know with reasonable certainty
what to expect from an investment in the REIT sector in 2019
because SA REITs have relatively predictable earnings.  
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FEBRUARY/MARCH 2019 SA Real Estate Investor Magazine
“SA 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 Andrea Taverna-Turisan,
SA REIT Marketing Committee Chairman.
Besides positive performance prospects for 2019, factors
that market commentators believe will make SA REITs
appealing 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
REITs.
Penny notes, “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.”
Smit adds: “Most SA REITs de-rated during 2018, and
if growth expectations start to improve during 2019, the
valuations of SA REITs are compelling.”
SA REITs provide liquid, lower-risk property investment.
They are actively managed by companies with robust
governance oversight and performance-driven management
teams.
A useful diversification tool in an investment portfolio, SA
REITs have equity and bond characteristics, offering investors
the best of both worlds; a reoccurring cash distribution yield
like a bond as well as growth in income like equity.
The SA REIT Association represents South Africa’s R330
billion listed REIT sector. Its members comprise all the
country’s listed REITs, which play an essential role in the
economy and the lives of South Africans. 
Since its inception in 2013, when REIT legislation was
introduced in South Africa, one of SA REIT’s goals has been
driving transparent, clear and comparable financial reporting
for the sector. The SA REIT Best Practice Recommendations
(BPR) was first published in 2016. The association is currently
updating the document in a move that builds on the sector’s
track record of driving best practice for investors. It expects to
share its progress with the market early in 2019.